Competitive Fruit and Vegetable Products in Albania IN FOCUS FINANCE, COMPETITIVENESS & INNOVATION FIRM CAPABILITIES & INNOVATION © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non- commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. 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Design & Layout: Aichin Lim Jones Photo Credits: IFC and World Bank Photo Librares Table of Contents ABSTRACT III IDENTIFYING THE FRONTRUNNERS 1 BINDING CONSTRAINTS 2 OLIVES 3 WATERMELON 3 NUTS 4 POLICY RECOMMENDATIONS TO SUPPORT THE SELECTED PRODUCTS 4 COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA | I II | SUPPORTING ENTREPRENEURS AT THE LOCAL LEVEL: THE EFFECT OF ACCELERATORS AND MENTORS ON EARLY-STAGE FIRMS Abstract A lbania is heavily dependent on its agricultural sector, which accounts for 20.3 percent of GDP, 49 percent of employment and 8.5 percent of total exports. The fruit and vegetable sector represents 20 percent of Albanian agriculture, but contributes 36 percent of its exports and this share is expected to increase. As the domestic market for many of these products is saturated, Albanian fruits and vegetables have been gaining ground in the Western Balkans and are well positioned to make headway in the EU-28 market as well. However, Albanian producers face many constraints in meeting the rigid and complex demands of the EU market, constraints that an export strategy focused solely on identifying products for export is unlikely to change. The policy paradigm has shifted to approaches that focus on integrating local industries into global value chains that help facilitate technology transfer and create jobs. Figure 1. Average Annual Growth Rate for World Imports (%) 65 Average Annual Growth Rate of Change in Albanian Share (%) Cucumbers Nuts 55 Citrus Peppers 45 Tomato Apple 35 Cabbage & Cauliflower 25 15 Watermelon 5 MAP Olives -2 -5 0 2 4 6 8 10 12 14 16 Average Annual Growth Rate for World Imports (%) Albania is a net exporter for this product Albania is a net importer for this product COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA | III IV | SUPPORTING ENTREPRENEURS AT THE LOCAL LEVEL: THE EFFECT OF ACCELERATORS AND MENTORS ON EARLY-STAGE FIRMS Identifying the Frontrunners A further competitiveness analysis identified MAPs U and olives as the most promising exports due to their sing value chain analysis and triage booming markets—spurred by demand not only methodologies, the IFC Albania Agriculture from food producers but from producers of high Competitiveness and Investment Climate value-added phytopharma products and cosmetics— project (Project) identified a list of fifteen Albanian followed by nuts, watermelon, and cabbage and fruit and vegetable products with latent competitive cauliflower, flanked by other products that Albania advantage. Using a Bethesda matrix to rank exports exports successfully but that have reached market according to their rate of market growth and origin saturation. MAPs were eliminated following a country market share, the project narrowed the workshop with stakeholders; the analysis focuses on list down to five products: medicinal and aromatic the next three most competitive goods, olives, nuts, plants (MAPs), olives, watermelon, nuts, and and watermelon (Selected Products). cabbage and cauliflower. Figure 2. 6.4 6.2 6 5.8 5.6 5.4 5.2 5 Total Score (1-7) MAPs Nuts Cabbage & Cauliflower Apple Peppers Olives Watermelon Citrus Cucumbers COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA | 1 Binding Constraints long-term large investments into nut and olive plantations. The Project found that the Selected Product’s value chains in Albania are significantly less competitive Low workforce productivity and lack of than in their immediate competitors, who, in turn, knowhow. Competing in the EU market requires are much less competitive than the same sectors a higher level of sophistication than that currently in the EU. Albania’s inability to compete is due offered by Albanian companies in the three value to two binding constraints: (I) excessive land chains. Most smallholder farms are not mechanized, fragmentation and producers’ inability to achieve do not use up-to-date agricultural practices and necessary economies of scale; and (ii) an unskilled lack access to credit to invest in improvements. workforce and low-technology production process Albania support infrastructure, such as quality that leads to gross inefficiencies throughout the certification and marketing and sales capacity. This production process. Furthermore, Albania’s quality translates into low-value added products and lack certification processes are insufficient for export of bargaining power for Albanian exporters. In such to the EU-28, as well as usually too costly for situations FDI can be a driver of knowledge transfer; smallholders. unfortunately, Albania’s regulatory environment is unattractive for FDI. Access to land. The intrinsic problem holding back Albania’s fruits and vegetable value chain is the scarcity of arable land. Production of Selected Olives Products is diffused across many small farms. Olive oil is currently a USD 7 billion export market Consolidators face non-uniform product quality, globally that is growing at an average of 8.6% per low yields and high levels of waste. They also year. Albania is the production leader in the Western bear the certification and logistics costs of each Balkans, but its production currently stands at 0.6% individual farm. By the time Albanian exporters of EU-28 oil production (the market leader) and reach their target market, they have incurred higher is unable to meet domestic demand. In an effort costs than their competitors in both production to become globally competitive in olive oil, the and transportation. Albanian land policy is a major government subsidized the planting of nine million constraint to consolidating arable land and, further, trees from 2009 to 2015. However, this significantly is an untenable risk for those looking to make the increased production base is not expected to reach its full productive potential because farming practices in Albania remain inefficient, increasing the cost of maintaining olive orchards and reducing Constraints to Albanian integration into fruit and vegetable Global Value Chains: their yield. • Land fragmentation According to a 2012 analysis of Albania’s olive sector by the European Commission (EC Analysis),1 due • Antiquated farming technologies and to the extreme fragmentation of its olive orchards production practices (average orchard size of 0.2-0.4 hectares, compared • Lack of export infrastructure, including to an average size of 1.6 hectares in Greece), certification services and knowledge of Albania cannot produce in sufficient volumes to destination markets be a significant player in the EU-28 market. With inefficient production and inability to benefit • Lack of access to credit from economies of scale, Albania will continue to produce small volumes of olive oil at a relatively 1 European Commission, Directorate General for Agricultural Development. “Economic Analysis of the Olive Sector”. 2012. https://ec.europa.eu/agriculture/olive-oil/economic-analysis_en.pdf 2 | COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA Figure 3. Average Cost of Olive Oil (EURO) ALBANIA 2.77 GREECE 2.47 ITALY 3.95 ISRAEL 3.67 PORTUGAL 2.34 TUNISIA 2.03 TURKEY 2.03 SPIN 2.75 MOROCCO 1.91 WEIGHTED AVERAGE 2.63 0 0.5 1 1.5 2.0 2.5 3 4 4 4.5 International Olive Oil Council Study, 2015 high price. A focus on the high-end organic olive oil While shipping costs for Albanian watermelons market, which favors quality over volume, would are lower than for Albania’s direct competitors, be recommended, but noted that, while around two- inefficient logistics and production practices ensure thirds of Albania’s olive orchards are believed to be that Albania’s product loses out against the market organic, only about 1% of orchards, or 515 hectares, leader, Greece, in quantity and quality produced. are certified as such. Further, Albanian producers EU fruit and vegetable value chains are dominated face regulatory and certification constraints and a by big retailers that expect high quality with 24-hour lack of both agronomic knowledge and knowledge of the EU market for high-end foods. Figure 4. Main Export Destinations for Albanian Watermelon, 2015 Watermelon Watermelon is one of Albania’s strongest- Other performing fruit and vegetable exports, but 7.9% Bosnia its export reach is limited almost entirely to Herzegovina other countries in the Western Balkans (with 9.9% Kosovo receiving the lion’s share, 62% of total exports). Watermelon has a short shelf life and its production is labor-intensive and Montenegto 9.9% sensitive to weather conditions, so Albania’s low wages, favorable climate and location make it a great candidate to supply the booming EU- Serbia 28 watermelon market. Furthermore, Albania is 10.3% Watermelon geographically well-suited to producing early- 62.0% season watermelon, which sells at a premium. COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA | 3 Production/Productivity Indicators ALBANIA GREECE (market leader) Yield (mean tons per ha) (2015) 37.6 66.07 (2014) Cost € per kg Seed 0.09 0.05 Seedless 0.17 0.06-0.07 Transportation cost € per kg 0.07 -0.1 0.07-0.08 Total production (tons) 216,000 582,000 (2014) turnaround on orders. Albanian producers must communication between public organizations close quality certification gaps, use more efficient and the private sector in order to begin resolving production methods and grow in-demand varieties the land fragmentation issue. (such as seedless or mini fruit) in order to become • Launch supply chain management programs in competitive. Fortunately, watermelon is one of the Selected Product value chains and support the easiest crops to package and certify. Upskilling development of a network of quality service the workforce and providing capital investment in providers to assure high quality standards. order to grow more technology-intensive modern varieties may, however, prove difficult. • Develop a productive workforce for the value chain by improving collaboration between industry and academic and vocational Nuts institutions and developing curricula with input The global market for nuts is expected to expand from employers. at annual rate of more than 5 percent by value over • Launch a pilot program to educate actors the next 10 years. The Analysis identifies walnuts, along the Selected Product value chains on the hazelnuts, and chestnuts as potential high-value benefits of working together and supporting the exports, but finds that becoming competitive in this development of new cultivars for higher-end value chain will require significant effort. Albanian export markets. nut production is dominated by smallholders lacking skills and resources; with the exception of This policy brief summarizes the findings of chestnuts, production is insufficient even to meet Competitiveness Assessment of Fruits and domestic needs. However, nut production has been Vegetable Value chains report, that is prepared growing, mainly due to government-subsidized by the IFC team and the MoARD, under the recent plantings that are now beginning to bear fruit. IFC Albania Agriculture Competitiveness and Albania’s greatest challenge in these value chains Investment Climate project (IFC P600476). is achieving volumes that are significant enough to compete in the global market. The main challenge The findings, interpretations, and conclusions is land fragmentation, which impedes technological expressed in this volume do not necessarily reflect improvements and economies of scale. the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Policy Recommendations to Group does not guarantee the accuracy of the data Support the Selected Products included in this work. • Establish a multi-stakeholder dialogue platform to improve and promote transparent 4 | COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA Index: Country Flags 5 | CHAPTER TITLE COMPETITIVE FRUIT AND VEGETABLE PRODUCTS IN ALBANIA | 5 Contact Jieun Choi, Senior Economist, FCI GP (jieunchoi@worldbank.org) Laureta Qorlazja, IFC Country Officer, Albania Damien Shiels, Practice Manager, FCI GP