TIRANA, Oct. 24 – Lack of clear property titles is a key burden for the further development of Albania’s agriculture sector, a key sector that employs about half of the country’s population but which due to its poor productivity provides only about a fifth of the national output.
Agriculture Minister Niko Peleshi says lack of ownership titles for around half of the country’s agricultural land is a key barrier for the development of larger farms and access to local and EU subsidies that could make Albania’s products much more competitive.
“In my opinion, the weakest point not only for the agriculture sector, but generally speaking is the property issue. Almost 50 percent of property titles are not registered with real estate registration offices,” minister Peleshi has told local Scan Magazine in an interview.
The long-standing issue of unclear property titles is one of the main barriers to attracting foreign direct investment in Albania, especially in the key tourism sector where foreign interest to invest has been vague despite a series of tax incentives.
The property situation was complicated in 1991 just as the country’s communist regime and its planned economy collapsed under the much-rumored ‘7,501’ law, portioning agriculture land on a per capita basis and not taking into account compensation of owners expropriated under the 1946 agrarian reform soon after the communists came to power.
In much areas of the country’s especially northern Albanian, the ‘7,501’ law has been largely ignored and most families possess their predecessors’ land before the 1946 expropriation but lack ownership titles for that, in a situation that often leads to conflicts.
“There are some areas north of the country, but also elsewhere, where the ‘7,501’ law has not been enforced at all, which means there are a series of issues that have to be solved until we have farmers who possess ownership titles for their land,” says minister Peleshi.
“If land is not exchanged, sold or rented, then we cannot talk about setting up larger farms in order to increase the average size of the farm, currently between 1 to 1.3ha,” he adds.
Fragmentation of farm land into plots of little more than 1 ha, often split in 4 separate parcels, is a huge burden for the development of Albanian agriculture in terms of access to financing and investment, reducing their competitiveness due to high costs, according to a study supported by the Friedrich Ebert Foundation in Albania.
“Small plots developed in terms of individual farmers, with little or no government assistance and technical knowledge, will always be inefficient from a financial viewpoint. They will never be feasible for financing, for benefits from public funding and are unable to afford access to specialized services from consultants,” shows the study on how agricultural cooperatives, legally recognized since 2012 but poorly developed because of their bias under communism when they were state-run, can serve as a tool of economic growth in Albania.
Agriculture barriers
In addition to land fragmentation, poor financing, lack of subsidies and key infrastructure such as irrigation as well as a high tax burden are a serious problem for Albania’s agriculture sector, with high costs often making local products uncompetitive under conditions of a regional free trade agreement such as CEFTA, whose implementation is however often hampered by non-tariff barriers.
Experts have recommended revising the high tax burden on agriculture by offering differentiated rates compared to other sectors. Farmers currently pay 15 percent in withholding tax for the sale and rent of their land, a 20 percent VAT rate on fertilizers and have no subsidies on fuel whose prices, which in Albania are among Europe’s highest despite the country’s having one of the lowest GDP per capita and purchasing power.
The Albanian government spends only 0.5 percent of the GDP on agriculture while credit to the sector represents only 2 percent of total credit to businesses, according to central bank data.
Agriculture is also one of the least attractive sector for foreign direct investment, with the FDI stock estimated at a mere 10 million euros in mid-2018, according to Albania’s central bank.
Currently, foreign individuals and companies cannot purchase agricultural land, though land may be leased for up to 99 years. Meanwhile, commercial property may be purchased, but only if the proposed investment is worth three times the price of the land.
Overcoming the land, formalization issue
Settling the unclear property issue is the first thing that has to be done before talking about boosting productivity and the economy of scale in agriculture, says minister Peleshi.
“The biggest handicap that the Albanian agriculture faces is fragmentation and we can overcome that through cooperation, and by joining in the sales process rather than unifying land in cooperatives,” suggests the minister.
“We promote a model under which every farmer can work their own land, have their own products, but is united in the sales process in the form of an agricultural cooperation enterprise which has its VAT fully refunded, the same like individual farmers despite their annual turnover,” he adds.
According to Peleshi, a newly established Agency for the Treatment of Property that is expected to launch operations early next year will considerably accelerate real estate registration on agricultural land, currently hampered by lack of unified maps, overlapping and prolonged legal battles.
The minister says farmers are still afraid of registering with tax authorities and obtaining tax IDs which prevents them from access to VAT refunds and application to get local and EU subsidies.
Only about 3,000 farmers a years, about 1 percent of the total 350,000, manage to get financial support from the government, according to the agriculture ministry.
Farmers have to pay only about 3,200 lek (€25) in monthly contribution to obtain the tax ID, but the voluntary insurance system has only attracted about a tenth of total farmers.
Albania had some 36,520 farmers paying social security contributions and counted as active enterprises at the end of 2017, up from fewer than a thousand in 2004, according to INSTAT, the state-run statistical institute. The number is however less than a tenth of total number of more than 450,000 farmers Albania has, hinting widespread informality in the sector and a social wound farmers could face when they reach retirement age.
The minister says switching from traditional products to more market oriented products can increase farmers’ income by 10 to 15 times.
Albanian farmers traditionally cultivate wheat and corn, but more and more farmers have been switching to more profitable products and crops including mandarin, strawberry and even snail farming.
Tax, branding incentives
Albania has also recently offered tax incentives to develop agritourism and selected 100 villages nationwide for its development. A campaign has also been launched to brand unique agricultural products such as Albanian mountain tea and extra virgin olive oil that lack international recognition.
Korà§a apples and honey, Berat olive oil, Tropoja chestnuts, Saranda mandarins and northern Albanian medicinal plants as well as Fier region vegetables are already renowned products regionally, in addition to the local Raki, a clear liquor usually made from grapes which is the traditional alcoholic drink of Albania. However, they lack international recognition and certification to penetrate EU markets.
The country’s second largest region, Fier is known as the breadbasket of Albania’s agriculture, producing about a third of total vegetables and a quarter of the country’s field crops, making agriculture in this region a key sector in addition to its oil industry which has slowed down in the past three years due to a slump in international oil prices.
Albania’s agriculture faces a huge trade gap with the country exporting only about a quarter of what it imports. Canned fish and medicinal plants are Albania’s top agricultural exports.
