THE ALBANIAN AGRICULTURAL SECTOR IN TRANSITION

Fahri Dahri

General Director of Economic-Finance Department
Ministry of Agriculture and Food
Tirana, Albania

I. DEVELOPING A MARKET ORIENTED ECONOMY AS MEANS FOR SECURING THE SURVIVAL OF FARMERS

The transition from a centralized economy to a free market economy has become a reality and has created the circumstances for market development. Albania's agri­industrial trade strategy is to fully adapt to a free market economy for both domestic products and commodities, as well as for imports and exports. Based on this strategy we plan to fully liberalize prices for products which are currently controlled, such as cereals, bread, sugar beets, water usage fees, etc.

For the future, we want to develop a policy framework which will provide protection for both the domestic producer and consumer, and will also balance and encourage fair competition.

To promote increased levels of trading of agricultural, livestock and agri-industrial products, large improvements are necessary for wholesale and retail marketing and distribution channels. In the marketing field, attention is being paid to business development and orienting production towards planting particular agricultural crops or livestock products for which the farmer can obtain an acceptable economic return. Measures have been taken to develop businesses in assembling, processing and trading agricultural and livestock products, where both producer and traders can make an adequate return for their risks, and can provide a direct link to the consumer.

Currently the availability of market information is limited. Producers of commodities often travel long distances without knowing the sales price, or have no information on the products demanded by different cities, etc. It is very important to establish an information service which provides prices where the product is produced, and wholesale prices. The aim of market information is to provide the knowledge about the amounts of a particular commodity produced, which products are on the market, the amount of imports, as well as transportation costs for these commodities; since these factors are all linked to the price of the product itself. We have been working on developing a modern agricultural information system with the direct help and concern of FAO and the USAID/SARA project. The Ministry, for the first time, has created an organizational structure at the district level for collection of accurate agricultural statistics. Agricultural production statistics are now being collected using modern sampling methods twice a year. For a number of items prices are collected both monthly and weekly. The release of weekly retail prices has enabled the linkage of agricultural and livestock products and input prices between most districts of the country. This information has helped producers, traders and consumers to keep track of prices, to promote the development of the new free market economy, and to carry out their activities independent of the State.

In Albania today over 60% of the population lives in rural areas and the average farm size is only slightly above one hectare. In addition, approximately one third of these farmers are subsistence farmers who live in remote mountainous areas with little arable land. Because of these conditions, the Albanian Government is working to develop activities that conform with soil and climate conditions and natural resources in these areas, to ensure the survival of these farmers.

In the future we will be aiming at developing auctions as a form of marketing, since these provide reliable price competition. By auctioning we can develop specialized centers for trading particular products. Our idea is that these auctions should be organized as minimum price auctions which start with a floor price. This type of auction is the most frequent in both the US and Europe.

With regards to the agro­food trading, we aim at establishing or founding marketing associations for each particular product such as: milk marketing association, input suppliers association, services association, association of assembling and processing, etc. Such associations are currently being established but work is needed to expand them into the rural areas with lower economic levels. We are also working on establishing relevant organizations that deal with publications and communications. The aim is to have different approaches for communication linkages between producers (farmers), assemblers, tradesmen and consumers in all marketing aspects such as through the mass media, etc.

II. TRADE AND LEGAL INFRASTRUCTURE AS A FACTOR IN DEVELOPING FREE AGRICULTURAL MARKETS

Legal and sub­legal acts are of a great importance. The new laws and regulations have changed the centralized economy concept completely, turning the economy into a free market economy and have created the necessary space for free market agricultural development. The establishment of legal acts on agricultural market development has also been supported by foreign assistance, especially by the FAO and the SARA projects. The land allocation has been 97% achieved and 450,000 farmers have gained land recently. With the approval of the law to "allocate the land to ex­members of state owned farms" these persons have also become full owners.

In addition, agricultural enterprises, agricultural mechanical repair stations, agro-trade enterprises, land reclamation enterprises, and agro­processing enterprises have been privatized. These privatized enterprises have and continue to expand more and more into the free market economy. The new owners started restructuring their enterprises and investing their own financial resources or obtaining funds through bank and foreign loans. New owners have also set up factories and agricultural and livestock products processing activities such as mills, bread bakeries, milk processing units (baxho), alcoholic and non­alcoholic processing plants, beer factories and oil processing plants etc.

Finally, the law on land sale has been probated. With this act, together with expected acts of the Albanian Government in the near future, the legislation on free trade in agricultural sector will be completed. Governmental bodies are now working on establishing the organizational structures with partial financing by the State Budget. To reach our goals of increasing the level of marketing (in all its dimensions) we will bear in mind the experiences from other European countries and from the US.

III. INVESTING IN HUMAN CAPITAL FOR COMPETITION IN AGRICULTURE

During the transition period to a free market economy, we were faced with difficulties with respect to understanding and creating the correct concepts related to necessary work methods which were needed to be implemented to accomplish the transition. The democratic government managed to secure support from foreign organizations, through different foreign funded projects. Apart from their material support, these projects have helped with their technical assistance and continue to do so. They have up­graded the technical capabilities of experts, businessmen and farmers, to become more free market economy oriented. In particular we have worked with foreign assistance in organizing consulting services for farmers and our agri­business employees.

Foreign organizations such as: FAO, PHARE, World Bank, IMF, USAID/SARA, and many others have established work on investments linked to human capital. They have organized courses and seminars within the country and have also provided training abroad in different European countries and in the US. During these last four years, agricultural and food experts and employees have gained more experience and training than they could have gained during the 50 years prior to the reform.

During the previous four years, Albania has been supported by 17 multilateral and bilateral projects in the field of agriculture and food. These projects have been in operation since 1992, making available US $300 million dollars to the Albanian Government.

Work has also been carried out on restructuring the administrative apparatus starting from the center down to the commune level. New structures have been developed with the scope of meeting the demands for economic reform and being able to operate in the free market economy. The same effort has been carried out to restructure scientific research institutions which develop their activities through projects or are financed by the State Budget. Foreign organizations have also provided support, mainly for equipment, training and technical assistance.

As it is obvious, during the past four years, alongside other fields, investments have been directed towards increasing the technical level of professionals (human capital), to secure fair competition not only among farmers, but also between farmers, assemblers, processors and traders. Consideration has been given to promote competition between rural areas for agricultural and livestock production, as well as competition between domestic and foreign producers.

IV. BALANCING STATE POLICIES FOR THE PROTECTION

OF AGRICULTURE IN A MARKET ECONOMY

The Albanian Government has undertaken a series of measures in agriculture to reach its goal of adapting to a free market economy. Since the beginning of 1992, based on legal acts, legalized private trading was allowed alongside State trading. Sales prices were liberalized, except for the price of cereals and bread. Monetary exchange became legal and attempts were made to develop production activities. Farmers were left free to choose their cropping patterns, develop livestock activities, process agricultural and livestock products and given the possibility of trading them wherever they wished with liberalized prices. We must emphasize that due to implementation of free agricultural activities in 1991 field crops has decreased by 9.5% and fruit trees by 36.8%; whereas livestock increased by 18% and vegetable production has increased. Therefore the general agricultural production structure has changed in favor of livestock and vegetable producers.

Under policies to protect agriculture from imported products, through tariffs and taxes, the Government has provided protection and helped both the domestic producer and consumer. To maintain the ceiling price for several major food products, the Government has pursued the policy of financing differences by using subsidies for flour and bread producers. In some cases, consumers were offered compensation in cash per capita and certain categories of employees were granted social assistance by the Government, based on criteria that determine the economic level to be entitled to such assistance.

Balancing the State policy for protection of agriculture with a market oriented agricultural has had its effect. The growth in the value of agricultural production since 1991, when the agricultural sector reached its lowest level, is as follows:

× 17.4% increase in 1992 compared to 1991,

× 20.9% increase in 1993 compared to 1992,

× 8.3% increase in 1994 compared to 1993, and

For 1995 compared to 1994, the outlook is for a 13% increase.

In summary, the value of agricultural production in 1995 has increased by 170% compared to 1991 or an annual average increase of 14%.

These results confirm that the achievements of agricultural reforms in Albania, are irreversible and need no further discussion. While the transformation of the agricultural sector has not been totally completed, the impacts of these reforms are now evident and can be expected to intensify in the future. Precisely:

× Different patterns of agricultural production now exist than in the past. We are now developing new economic structures which conform with our tradition, climate, the demands of a free market economy, experience, national requirements, etc;

× By carrying out reforms, the process of economic integration of the agricultural sector with world markets has started;

× A new market economy mentality has been created with respect to the role of the State, which places the individual in an agricultural business environment, stimulated and directed by free market mechanisms;

× The institutionalization of private property (land) and stabilization of both domestic and foreign long term investments is occurring;

× A private marketing system is being built and is now being completed, which creates incentives to intensify and restructure the agricultural production and agri­processing systems;

In conclusion: we expect these changes to lead to a modern, competitive agricultural economy which can be integrated into Europe and provide food security to the Albanian people.