Areas planted in Myzeqe greenhouses have decreased by over 25% referring to data collected from the field by farmers, input traders, collectors and exporters in the most productive area of the country, Këmishtaj of Lushnja. Sales of seedlings and raw materials for greenhouses have dropped by 30% this season.

The largest export company in the country, "Doni Fruits", closed the year 2021 with a decrease of 15% of export volume, while expecting a similar decline this year. The contraction of agriculture is related to the removal of fiscal incentives and rising costs of raw materials. Negative effects on the economy chain, from prices, wages and employment. Farmers abandoning greenhouses are returning to emigration.

The voluminous list of debts in A4 format is spread throughout the narrow office of Arben Sakollari in the corner of a warehouse that sells agricultural inputs to "Driver's Holiday" in the most developed agricultural area in the country. Mr. Sakollari's sales of seedlings and other inputs have fallen by at least 30%, while high debts created by previous supplies are making it difficult for him to survive. In the season that closed, the list of debts reached 16 million ALL (135 thousand euros), the largest amount ever accumulated since the beginning of the activity.

But the worst part is that hope has been lost, as farmers are refusing to plant and invest in ongoing greenhouses. Mr. Sakollari is the best barometer of developments in agriculture in the area, as he has detailed knowledge of how many seedlings have been planted this year, how many dynymes, what is being planted, etc. This year it is not about seasonal fluctuations of the sector, but about the phenomenon of abandonment, as the emigrants who returned from abroad years ago and invested their savings in greenhouses, are now leaving again.

Eduart Sharka, an experienced economist who keeps the balance sheets of about 200 farmers in the area, says that the main cause for the decline in agricultural production is the fiscal package for 2022 and specifically two measures:

First, the agricultural producer compensation rate from 6% became 0%, starting this year, while from 2019 it was reduced from 20 to 6%.

Second, VAT 10% of the supply of agricultural inputs, such as chemical fertilizers, pesticides, seeds and seedlings, in addition to hormones classified in codes 2937 of the Combined Nomenclature of Goods, from zero percent by the end of year 2021.

According to Mr. Sharka, these fiscal measures against the agricultural sector were taken in a difficult period, as the prices of raw materials were rising, while the prices offered for agricultural products were at best the same, or lower.

Bilateral pressures increased production costs on the one hand and sales revenues fell. Almost all greenhouses resulted in losses before the effects of the fiscal package began. Despite the shortcomings of the VAT subsidy scheme, it managed to cover to some extent the losses of farmers. Although the VAT scheme favored the collection chain, farmers received the highest prices from collection traders, as the latter managed to maintain a satisfactory profit rate precisely through the agricultural compensation scheme.

The incentives were removed at a time when the government had not thought of a new compensation scheme for farmers, causing many of them, due to high losses, not to plant for the new season. Abandonment of the greenhouse, even if it is a single season, creates a huge gap in the entire agricultural chain and later, requires double costs to replant. The strong decline of the agricultural sector this year was announced by the largest export operator in the country "Doni Fruits", which has built one of the most modern collection units in the region.

Alban Vinca, director of exports at Doni Fruits, said that last year there was a decline of almost 15% in overseas sales, compared to the previous year by his company and the same rates were for January. According to him, exports will shrink this year as well, as the area planted in greenhouses has dropped significantly. To maintain the sustainability of the activity, Mr. Vinca explained that "Doni Fruits" is carrying out the closed cycle in agriculture, aiming at planting and processing products.

Fluctuations in agricultural production in the Myzeqe area are the clearest signal of inflation and disruption of the domestic economy. Given that the consumer basket in Albania is concentrated in over 42% of it in food and mainly in domestic products (tomatoes, cucumbers, onions, potatoes, etc.) their increase combined with the wave of high import prices can cause an "earthquake" in inflation.

Despite the problems and still primitive development, agriculture is the largest sector in the Albanian economy, contributing to about 22% of gross value added (2020), according to Eurostat and 43.5% of total employment, according to INSTAT.

Due to the high weight, fluctuations in this sector are widely reflected in key indicators, such as employment, economic growth. The sector is also negatively impacting demographic developments, as many farmers are choosing to emigrate, rather than integrate into other sectors.

The agricultural sector had problems in the past, but the abolition of the VAT scheme and the introduction of a tax on agricultural inputs dealt the biggest blow, says Eduart Sharka, president of the Farmers' Union. The first blow to agriculture is the abolition of the refundable VAT scheme. Unlike what happens in European countries, the farmer in Albania does not expect an invoice, the VAT collector expects a VAT invoice.

The VAT scheme law required the collector to pay the farmer over the sale price another 6% of VAT and this was called deductible VAT. For products sold domestically, VAT was charged to the consumer, which is very unfair, while for export products, it was reimbursed, said Mr. Sharka.

Since the main collectors bought the export goods from the farmers, the 6% that was paid to the farmers above the market price was reimbursed by the state as a credit surplus of VAT. For the years 2014-2018, the compensable VAT was 20% and for the period 2019-2021 it was reduced to 6%. These funds cost the state budget, but the scheme, despite being considered unfair, for one trader to pay another on behalf of the state without holding a commission, indirectly helped the farmer, Sharka said.

So even though such a scheme is not found to have been implemented in any developed country it had positive effects, as the trader knowing that he would receive 6% VAT refund, kept as a profit rate the amount paid in the sale price for the farmer. The scheme was a guarantee to the collector if he risked that the products purchased by the farmer e.g. at a price of 50 lek / kg, to sell them at the same price. The abolition of the VAT scheme means that the collector has to buy products at a price 10% less from the farmer to maintain the profit rate.

Mr. Sharka says that ARDA has increased the subsidy to farmers, by about 6 million euros, after the compensation was removed, but in fact the indirect benefits with the old scheme were many times greater, considering the share of agriculture in GDP.

The increase in compensation directly by 6 million euros from the government is estimated at 6% of the total export fund of 100 million euros, says Mr. Sharka and is not calculated from the farmers' purchase fund.

The other blow is the imposition of 10% VAT on agricultural inputs. The approved measure, according to Sharkaj, is absurd, as the 10 million euros calculated to be collected from VAT go to the fund of direct subsidies for farmers distributed by ARDA. So the money received from traders to increase the price of farmers' agricultural inputs from the state budget will go to the subsidy scheme. The fund for direct subsidies for farmers from ARDA for this year is 35 million euros, from 7 million euros in 2021.

The subsidy fund has been increased by calculating by the government 6% of the export fund that was reimbursed for VAT in the amount of 6 million euros + 10 million euros calculated to be collected from the input VAT. The government claims that it has tripled the subsidy fund from 2021 to 2022, as the fund has been reduced with the abolition of the 6% VAT scheme and the introduction of VAT on inputs - explained Mr. Sharka.

Experts in the country's agricultural areas recommend multilateral interventions to keep the agricultural sector on track. Experts Eduart Sharka and Myftar Sharka, one economist who maintains the balance sheets of farming businesses and the other finance director at the export company Doni Fruits, give a series of recommendations on where to intervene to improve farmers' incomes:

-Planting orientation consulting service. Farmers suffer from a lack of knowledge about the crops they need to plant in relation to market needs. Often, due to lack of orientation, they plant more than demand and consequently receive low prices. Farms also suffer from a lack of professionals, especially agronomists to advise them on pesticide use, plant treatment, harvest time, type of seedlings. Farmers often lose production due to lack of knowledge.

-To establish a subsidy per unit of production or profit rate. Productive farmers demand direct compensation for each unit of production. According to experts, this should be done, either by compensating for the missing profit rate, or by covering part of the costs. Another scheme is for the state to buy the producer's unsold stocks and forgive the collectors. In this way, he will receive a share of the expenses through taxes when the collectors sell the products received for free.

Subsidies should be continuous and sustainable business plans should be drafted and in this way sustainable contracts should be concluded between the operators of the sector.

-Creation of agricultural scholarship. The experts recommended the creation of a database with daily prices of agricultural products, in order to have knowledge about the performance of the expected revenue from sales. The stock exchange should summarize wholesale and retail pricing data. From greenhouses to the table, product prices are 120% higher, but 60% of the price goes to collectors and traders and not to manufacturers. If a kilogram of tomato currently cost 120 lekë in the market, only 40 lekë go to the farmer who produced it.

Four reasons why farms are being abandoned

Frequent natural disasters, due to climate change, stagnation in fiscal policy, high costs and labor shortages have turned into problems that are leading the agricultural sector to decline, agricultural experts explain. This year alone, greenhouses in the Kutallia area of ??Berat were damaged twice by climatic conditions - once by the November 2021 floods and once by the January 2022 frosts.

High input costs are the biggest concern currently. The price of a quintal of urea has risen by 50% in the last planting season, while to the same extent it has risen since the prices of seeds, seedlings, plastics, iron, fertilizers and pesticides. These increases occurred at a time when producers had suffered losses during the second planting season as a result of poor quality weed production.

In the midst of these difficulties, in the 2022 fiscal package the government removed fiscal incentives, taxing with 10% VAT the inputs that before January 1, 2022 were 0% and also removed the 6% VAT compensation.

Another difficulty that has put farming businesses in difficulty in recent years has been the lack of employees. The collection and export company "Doni Fruits" these days expects to employ about 35 women from Nepal, as they could not meet the demand in the area.

The company "Doni Fruits" a few years ago realized an investment of about 8.5 million euros in the establishment of a modern unit for collection and storage of vegetables and fruits for export in Këmishtaj of Lushnja.

The company is the largest in the export sector of agricultural products and the only one that exports to EU markets to guarantee the viability of the business.

To expand further, it is aiming to complete the closed cycle in the agricultural sector. Alban Vinca, director of exports, said that the company, in addition to buying products from farmers, supplies them with seeds and provides consulting services in order to calculate the production for export on demand. The supply of seeds and seedlings, in fact, is a kind of credit, as they are deducted from the prices when they collect the final products.

But to guarantee supplies to some serious clients, the company "Doni Fruits" has rented over 53 hectares of land, 5 of which have greenhouses. According to them, the production in the field presents a high risk as only last year they lost about 70 thousand euros from the floods of an area planted with cabbage.

In the next two-three years, the company "Doni Fruits" has plans to expand in the sector of processing and production in greenhouses. But the plans risk being postponed because of the weaknesses brought about by the decline in agricultural production that farmers are accumulating.

To increase productivity, the company realizes the production of cardboard boxes, but receives the raw material (cardboard tray) from Turkey. Export geography includes 35 countries. Representatives from the company claimed that the increase is due to the creation of a closed cycle from the purchase of seeds, seedlings, planting and export. From this vision, the company has managed to sign supply contracts with Burger King, KFC, Spar etc.

The closed cycle ensures product quality, ease of finding markets and higher prices. In recent years, exporters have increased advice to farmers on the varieties they should cultivate. Finally, they say there is levendi for French leeks and a variety of soft white cabbage. Cultivation of these two winter crops does not cost much, while there are high selling prices, say the experts of "Doni Fruits".

The leaders of finance and export in the company emphasize that the Albanian agriculture will expand and will be profitable only if the government increases the amount of subsidy directly to the farmers.

The company has contracts with more than 1300 farmers, from whom it regularly collects products. But most farmers are reluctant to hire on long-term contracts, as they feel that pre-negotiated prices are at their disadvantage.

In the most productive areas in the country there are about 23 companies that deal with the collection and sale of greenhouse vegetables in the regions of Fier and Berat.

Most of them do not have refrigerated warehouses and selection, cleaning and packaging lines, with some exceptions.

Farmers interviewed complained that exporters impose very low prices on them. Farmer Stavri Gjini claimed that often exporters coordinate by offering them low prices in order to increase profits, while farmers being small and disorganized in cooperatives / groups, do not have the power to negotiate the price. The exporters themselves explain that they buy from farmers at low prices, because in export markets they sell at low prices usually without prior contracts.

(Source: Monitor)