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The appeal of the World Bank: Albania must unlock its agricultural potential

2024-02-29 10:41:01Biznes SHKRUAR NGA REDAKSIA VOX

The appeal of the World Bank: Albania must unlock its agricultural potential

"In Albania, the agricultural sector has long played a key role in promoting employment and economic growth. Currently, the sector accounts for nearly 20% of GDP – nearly three times higher than the regional average for Western Balkan countries – and is a key source of employment, providing jobs for over 40% of the population. With 11.3%, agricultural and food products also represent a significant weight in total exports".

This is how the World Bank's report for our country begins in an analysis whose essence is the unlocking of Albania's agricultural potential. So in short: From fields to finance!

But despite the continuous increase in agricultural production over the past few decades, the country continues to lag behind its neighbors. Seemingly obvious obstacles preventing progress include land fragmentation, underinvestment in rural infrastructure and services, insecure land tenure rights, limited access to finance, and a lack of market-relevant knowledge and skills.

Currently about 359,000 farms with an average size of about one hectare - often divided into even smaller plots - dominate the Albanian countryside. This high level of fragmentation directly contributes to low marginal productivity, as farmers are unable to exploit economies of scale in production, logistics, market information and knowledge management. Another serious constraint is limited production capabilities, perpetuating the use of inefficient inputs and processes and further undermining the marginal productivity of Albanian farms.

Currently, 10% of terrains are registered digitally, while 80% are registered only in paper format. 10% are not registered at all. This situation makes it difficult for farmers to access financing, exacerbating insufficient investment and increasing the risks associated with insufficient working capital. Moreover, registration documents alone do not provide proof of ownership due to inconsistencies between registration and cadastral data. This can result in conflicting ownership claims, further increasing uncertainty. To address this challenge, it is essential, even necessary, to improve the quality of existing soil data. All agricultural land and cadastral data should be digitally recorded and a unique digital cadastral map should be created for use by surveyors, government agencies and municipal authorities. Also, focusing on training a new generation of land professionals in modern recording methods and sustainable land management will be essential in the long term.

Although the agricultural sector contributes nearly 20% to GDP, according to data from the Central Bank of Albania, it receives less than 3% of bank lending. A significant portion of the rural population does not have access to formal financial institutions, with less than 1/3 having a bank account and less than 1/5 of smaller enterprises having a bank loan or line of credit. Insufficient working capital then leads to poor seed quality, limited mechanization and low levels of fertilizer use per hectare, further undermining productivity.

Albania also lacks crop and warehouse financing, and risk mitigation tools such as agricultural insurance are lacking. Establishing credit guarantee schemes and alternative financial instruments, as well as encouraging the creation of crop and weather insurance markets, can expand access to finance, particularly among small farmers, mitigating the credit risks faced by agricultural lenders. .

The EU membership process has strengthened Albania's ties with the main European markets, accounting for 71.5% of agricultural and food exports and 62.4% of imports. Unfortunately, agricultural exports to EU countries have declined in relative terms, while those to Serbia and other regional neighbors have increased. EU markets typically offer much higher prices than Western Balkan markets, yet Albanian exports to the EU remain largely limited to minimally processed goods with low levels of added value.

To better integrate into European agricultural value chains, Albania needs to address cross-sectoral challenges, particularly in relation to access to land, finance, infrastructure and logistics, as well as compliance with food safety standards and certification requirements.

Strengthening food standards, certification systems, traceability and infrastructure is essential for EU membership and expanding market access. The Albanian authorities should assess the export requirements for horticulture and other food products and prepare a plan to build the capacity of producers. At the same time, they should increase the supervisory capacity of the Food Safety Agency, establish accredited export testing laboratories and certification mechanisms, and invest in information platforms to communicate sanitary and phytosanitary requirements with farmers and other stakeholders.

Investing in road infrastructure, improving access to rural areas and improving post-harvest infrastructure in line with international certification requirements can increase production and promote diversification. Rehabilitation of irrigation infrastructure would strengthen resilience to climate change and weather-related shocks. Improving customs processes and other border procedures would reduce export costs and increase the competitiveness of Albanian goods in foreign markets.

Successful policy actions and interventions in four key areas can drive a new phase in Albania's structural transformation in agriculture. For example, addressing land fragmentation and property rights or improving access to irrigation and transport infrastructure. It is also important to improve food standards and certification together with the relevant infrastructure, as well as to strengthen sectoral ties for higher competitiveness of exports.

The report states that the country's agricultural sector possesses significant potential and opportunities to increase value addition, and access to profitable market segments can drive capital inflows.


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