1. Strategic Policies for a More Competitive Agriculture Sector
William R. Sutton
The World Bank
ABCDE Conference, Tirana, Albania
June 11, 2008

2. Agriculture is Important for Rural Areas and the Economy
Constitutes 25% of GDP
Sector growth has been healthy = 4.2%
Agri-food = 8% of total exports
Important for growth, employment and poverty reduction in rural areas
Majority of the population continues to live in rural areas (55%), and most of the poor (75%)
Contributes to food security and nutrition for whole country

3. Agriculture Continues to Have Potential
Favorable climate, plentiful land and labor, good location for exports
Increasing yields and output
Apparent comparative advantage in high value crops such as fruit and veg; livestock; agro-processing; and niche products including organics
Potential for growth in right conditions
Potential links with tourism/environment.

4. But Agriculture Faces Many Challenges
Agricultural growth has slowed, and agriculture is shrinking as a share of GDP
A large share of the labor force (58%) remains in agriculture, and labor productivity is very low
Food exports are relatively low (8% of total), and trade deficit increased 18% from
Competition will increase with EU accession, and standards will be very high
Few other employment opportunities in rural areas. -

5. This is a normal development pattern

6. But agricultural labor productivity is still low…-

7. …Due to the structure of the sector
Majority of farms very small
Majority of farms very fragmented: ave. 3.9 parcels of 0.28 ha each
Supply chains are very weak
Farmers are not commercially oriented: only 30% of production for market
Heavy reliance on off-farm employment/ remittances

8. Many very small farms

9. Why so many small farms?
Agriculture provides vital income opportunities in rural areas
High levels of employment in agriculture are due to lack of off-farm opportunities in rural areas.
Agriculture is an employment and income safety net.

10. How to improve labor productivity?
Diversification of rural economy to increase off-farm opportunities
 rural development:
Infrastructure
Business environment
Education for a good workforce
This will reduce number of people currently working in agriculture “by default”

11. How to improve labor productivity?
2. Strengthening agriculture sector
Agriculture sector can provide employment in rural areas provided the sector is healthy.
There is a great deal of potential
But much needs to be done to improve competitiveness, otherwise Albanian producers will lose their presence in markets and the sector will decline.

12. How to improve competitiveness?
Develop modern, EU-compatible standards and certification system
Remove structural constraints: small farm size, weak land sales and rental markets.
Improve coordination of supply chains
Increase investment.
Invest in rural infrastructure.
Improve public support for the sector.
Ensure good policy environment.

13. Improve public expenditures
Provide grants for farmers to invest in improving competitiveness (not output/renewable input subsidies), and for non-farm investments
Provide assistance using EU-type instruments
Increase capacity of MAFCP staff to manage
Improve public services in agriculture: extension, research, education
Invest in rural infrastructure, including transport, marketing and irrigation
Avoid investments where private sector is more effective, e.g. processing facilities.
Once expenditures improve, consider increasing

14. Policy Options
Transform support from agricultural subsidies to rural development
Strategic adoption of EU Acquis.
Build capacity to access and use EU assistance funds among farmers.
Reform of food safety policy.
Encourage land consolidation by improving land markets and providing non-farm rural employment opportunities.
Tackle structural constraints to rural credit.

15. Food price increase In 2007, food prices grew at 5.4%
Higher than inflation (CPI = 3.1%)
Cereals prices much faster: 24.6%
So far in 2008, accelerating: 7.1% overall
Low for region (14.1%) and world (55%)
There are winners (net sellers) and losers (net buyers)
Caused by complex supply and demand pressures
This is a global issue for med-/long-term

16. Food price response Requires long-term as well as short-term response
Avoid market distortions, provide safety net for consumers, support production
Markets: let prices pass through; don’t tax or restrict exports; discourage monopolies; avoid increasing state reserves
Improving quality of and access to safety net for vulnerable consumers
Consider temporary, unilateral removal of import duties (flout = 10%, wheat = 2%)
Begin climate change adaptation (hotter, drier)