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Scoping mission to Albania to identify gaps and
opportunities for deepening access to finance and
financial services for the agri sector
End of Mission Report
March 25, 2015 | 2.0 | 1438
Rabo Development
Scoping mission to Albania to identify gaps and opportunities for
End of Mission Report
deepening access to finance and financial services for the agri sector
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Title
Scoping mission to Albania to identify gaps and opportunities for
deepening access to finance and financial services for the agri sector
Version
2.0
Subtitle
End of Mission Report
Date
Project number
Author(s)
March 25, 2015
1438
Hans Bogaard
René Verberk
René Gomersbach
Contact address for this publication
Rabo Development
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PO-box 17100
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Tel +31 (0)30 2163670
Fax +31 (0)30 2163677
[email protected]
© Rabo Development B.V.
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Rabo Development B.V.
Registered Chamber of Commerce, Utrecht no. 30114598
Rabo Development
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Scoping mission to Albania to identify gaps and opportunities for
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deepening access to finance and financial services for the agri sector
Table of Contents
1.
Introduction
1
2.
Role government
3
3.
Access to finance
4
3.1.
ASCU
4
3.2.
ProCredit
5
3.3.
AgroKapital
5
3.4.
Raiffeisen
6
Seeds & Vegetables
7
4.1.
4.
General observations
7
4.2.
Pilot project
5.
8
Dairy
12
5.1.
General observations
12
5.2.
Conclusions dairy sector
15
5.3.
Pilot project
16
Financing instruments and funding options
19
6.
Conclusions & recommendations
20
7.1.
7.
Conclusions
20
7.2.
Recommendations
21
Meeting Schedule 8-12 December 2014
23
List of studies
25
Annex I
Annex II
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deepening access to finance and financial services for the agri sector
1.
Introduction
RIAS visited Albania from 8-12 December 2014 in a scoping mission1 facilitated by the Dutch
Embassy (with a grant from the LED programme) in conjunction with Drini Imami, Associate
Professor at the Agricultural University of Tirana and ASCU, the Albanian Saving and Credit
Union. The full meeting program is enclosed in Annex 1.
The objective of the mission was to assess the seeds, vegetables and dairy sector and to
draft a plan for improving access to finance in these sectors.
In this respect, access to finance is usually a “given” in countries with properly organized
value chains and a conducive enabling environment. Regarding the latter, this refers
especially to predictable and targeted agri policies, good infrastructure in rural areas, a solid
regulatory framework and effective monitoring of quality and food safety standards by the
government, transparent land ownership systems, access to good quality agri inputs and
access to markets, enforceable securities for banks, etc.
In countries lacking these preconditions, value chains are often poorly organised (due to
fragmentation and lack of coordination) and farmers are scattered and unorganized. As a
result, banks typically would only finance the larger agribusiness corporates leaving the
farmers dependant on credit from money-lenders, family and middlemen.
Albania can be categorized in countries that lack a conducive enabling environment for
agriculture and agricultural lending. Although climate and soils are excellent for farming the
aforementioned preconditions are partly absent or poorly developed. In combination with the
fragmentation of farm land into plots of little more than 1 ha, it is clear that Albania is not
well prepared to compete on international markets. That said, it is exporting particularly
vegetables and fruits to some of its neighbouring countries and herbs/aromatic plants to the
EU and the US. Low labour costs and aforementioned excellent natural conditions are key
drivers behind these exports.
However, to ensure a sustainable export position for Albania in fruits and vegetables and a
strong local dairy sector some important things have to change.
This report shares the observations of RIAS on the seeds, vegetables and dairy sector with a
special focus on access to finance. It does not purport to provide a comprehensive analysis
including statistics on productivity, cost of production, imports and exports, etc. This has
already been covered by several studies which have been listed in Annex 2. However, the
objective was to identify 2 pilot projects in which a value chain approach could be
demonstrated. With value chain approach we refer to a more integrated way of cooperation
between the stakeholders in the value chain including the development of farmer based
1 This grant has been awarded in the framework of the Leads for Economic Development Program of the
Ministry of Foreign Affairs, managed by the Netherlands Enterprise Agency. The objectives, proper
implementation and results of this project constitute a responsibility of the implementing organisation.
Any views or opinions presented in this project are those of the implementing organisation and do not
necessarily represent those of the Dutch Government
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deepening access to finance and financial services for the agri sector
organisations. Only then, banks will be interested to invest in suitable financing solutions and
only then interest rates will come down to more acceptable levels.
Chapter 2 addresses government policies in agriculture followed by an assessment of the
access to finance situation in Chapter 3. Chapter 4 describes our observations on the Seeds
and Vegetable value chain and chapter 5 addresses the Dairy value chain. Chapter 6
elaborates on relevant instruments to cover the cost of the pilot projects and Chapter 7
provides conclusions and recommendations for the way forward.
RIAS would like to thank the Dutch Embassy in Tirana and Drini Imami for their excellent
support during this mission.
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2.
Role of the government
The Ministry of Agriculture (MoA) has formulated a regional agri support policy called the
Regional Development Program. It has identified a range of strategic sectors to be developed
in specific regions. For example, in the North the herbs/medical plants sector needs to be
further developed and diversified. In the South the focus is on development of the vegetable
& citrus sector. Also the dairy & livestock sector has strategic importance under the Regional
Development Program and is supported in selected regions. Focus is on training, extension
services and technology transfer. Key partners in this respect are GIZ and the Danish
Development Organization.
The main support instruments in this respect are:
-
National support schemes (subsidies)
IPARD Support Scheme (Instrument for Pre-Accession Assistance in Rural
Development)
The Regional Development Program is supported by 5 Agri Technology Transfer Centres
(ATTCs) in the main agri regions. For example, in the North the ATTC would focus on the
development of the herbs and medical/aromatic plants sector and maize. In the
South/Lushnje it focuses on vegetables and wheat. The other ATTCs focus on cattle, pigs,
small ruminants, citrus and olives. Focus is on improving technology, developing improved
seeds, establishing demonstration farms and providing extension services to farmers. In the
North, the ATTC has started diversification of the aromatic plants sector by investing in trials
of Stevia, a promising natural sweetener that can only be cultivated in a limited number of
countries incl. Albania.
The MoA cites lack of financing as the main bottleneck in the agricultural sector whereby
ASCU is mentioned as an exception. It is also looking for suggestions regarding relevant
policy instruments to stimulate financing to the agricultural sector. A second issue hampering
the sector is its fragmentation. MoA sees no solutions for a quick/medium term consolidation
of the sector given the complexity of the issue. A third problem is the lack of quality inputs
(this problem is further addressed in the next Chapter). MoA is enthusiastic on the so called
“clementine model” whereby seeds, inputs and technical assistance is provided by the
collector to the farmers in return for (part of) the crop. This way, the quality of the product
can be ensured which is critical especially in export operations. MoA admits that this model
can however be easily compromised if the collectors lacks cash to buy the crop at harvesting
time. This will trigger side selling by the farmers leading to a collapse of the model.
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Scoping mission to Albania to identify gaps and opportunities for
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deepening access to finance and financial services for the agri sector
3.
Access to finance
To gain a better understanding of the access to finance situation in the Albanian agricultural
sector, RIAS met with ASCU (the Albanian Saving and Credit Union), ProCredit, AgroKapital
and Raiffeisen Bank. The team also met farmers and agri traders “in the field” to learn more
about their daily financial challenges. These meetings had been set-up by ASCU which is
financing many of the smaller farmers through its network of SCAs (Saving and Credit
Associations).
To better understand why only 1.8% of GDP is lent to the agricultural sector, it is important
to reflect on the context of the farming sector in Albania (which is further detailed for
seeds/vegetables and dairy in subsequent chapters). 80% of Albanian farmers lack a NIPT
(identity nr card for VAT tax purposes). This means that they fall outside the formal
economy. Land ownership is not well organized. After the collapse of the communist system
in the early nineties, land was distributed to the peasants working on the large collective
farms. This has created strong fragmentation of agricultural land (1.2 ha on average split in
4 parcels). In addition to the fragmentation, land ownership is not well registered making
banks reluctant to take land as collateral.
Even in countries where land cannot serve as collateral farmers can have access to finance:
-
They can organise themselves in groups: informally via cross guarantees and pledge
of savings (so called self-help groups) or formally through cooperatives or
associations
-
They can sign contracts with reliable off-takers and use the contract as collateral
substitute with cash proceeds being directly transferred to the bank for repayment
The problem in Albania is that cooperatives are not popular due to negative connotations to
communist farm structures. However, lately, farmers have started to realise that cooperation
is the only way to break the current deadlock in farming and are more open to the concept.
Regarding the use of contracts, this is hardly being practised in Albania due to complete
mistrust at both sides: farmers and traders do not respect contracts. Even in the sector of
herbs which can be regarded as the most successful export sector of Albania, contracts are
no common practise. The only exception to this is the vegetable processing sector which
works with outgrowers and some of the exporters/packers signing contracts with the more
advanced farmers.
3.1.
ASCU
ASCU was created in 1992 as part of a World Bank project to improve rural financing. It is
governed by a dedicated law for the SCAs and the Union. The ASCU model is based on a
network of 784 elected rural leaders, 97 SCAs and 16 regional offices. ASCU is a member
based organisation serving some 40,000 MSMEs dominated by agriculture and livestock
(60% of loan book). Other sectors served by ASCU are trade (12%), services (23%) and agri
processing (2%). Total assets amount to some EUR 35 mln and the non-performing loan
ratio is less than 4% showing the success of the model.
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Scoping mission to Albania to identify gaps and opportunities for
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In an informal rural economy such as Albania, the influence of rural leaders is still high. This
influence is cleverly used by ASCU to select the bankable farmers and ensure repayment of
loans via social control.
The main downside of the ASCU model is its limited outreach (only serving members
comprising some 13% of total Albanian farmer families), its limited loan amount (SCAs can
finance up to 20% of their capital, which often means that loans are capped at EUR 5,00010,000). Also the lack of transactional banking services means that its members depend on
other commercial banks for transfer of payments.
In our meetings with farmers ”in the field” it appeared that farmers were generally happy
with the commitment of the ASCU/SCAs but felt constrained by the aforementioned limited
range of services. Worse, the growth oriented farmers had been forced to work with
commercial banks such as ProCredit to obtain larger loans due to the aforementioned lending
caps of ASCU.
ASCU has recognized its limitations and is looking to transform itself into a rural bank
providing a full range of banking services to members and non-members. This plan received
strong support from the Ministry of Finance and RIAS has been hired by ASCU (with support
of Finance in Motion) to support ASCU in this transformation process starting 2015.
3.2.
ProCredit
ProCredit was established in 1994 in Germany as a Micro Finance Institution (MFI) by KfW
(Förderbank der deutschen Wirtschaft und Entwicklungsbank für die Transformations- und
Entwicklungsländer), IPC (Internationale Projekt Consult) and “Stichting Doen“. Overtime it
developed banking operations in Africa, Latin America and Europe focusing on MSMEs. Where
ASCU is focusing on the “bottom of the pyramid”, ProCredit targets the segment of
farmers/agri SMEs with credit potential over EUR 10,000 (compared to an average loan of
EUR 2,500 of ASCU). ProCredit offers a broad range of financial services including cards,
ATMs, payment transfers, etc. Due to the problems with land, ProCredit has developed a
focus on cash flows instead of collateral alone. Hereby it uses tri-partite agreements between
farmers, off-takers/suppliers and the bank to ensure a closed cash flow cycle (an example
was mentioned where ProCredit financed a seed supplier (AgroBlending) based on contracts
with farmers and the bank).
Its products are tailored to match the seasonal needs typical for agricultural sectors.
ProCredit makes active use of guarantees to compensate for the lack of land collateral. In
this respect, it mentions USAID DCA and the European Investment Fund (EIF). Its total agro
exposure amounts to EUR 39 mln exceeding the loan portfolio of ASCU.
3.3.
AgroKapital
CBS (Creative Business Solutions), a local consultancy firm, has been hired by USAID to
implement a 3 year project to improve access to finance to farmers and agribusiness
companies. The program is called AgroKapital. The program works with local banks and FIs
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to develop suitable agri lending products. At the same time it supports farmers and
agribusinesses with the preparation of bankable business plans (including supporting
applications to obtain grants under IPARD, i.e. the EU funds for pre-accession countries). As
a third pillar it develops information and market systems, e.g. AgroWeb. So far it facilitated
USD 3 mln of lending to agri SMEs with their main success story being a USD 0.5 mln
investment in a greenhouse for seedlings in Lushnje.
CBS confirms that there is no national Guarantee Fund in place (e.g. comparable to the
Dutch “Borgstellings Fonds”). However, some banks work with the following two Guarantee
Schemes:
-
USAID DCA: a SME oriented GF taking a risk share in individual loans of up to 50%.
-
Italian Cooperation Fund: a guarantee fund that shares risks on loans related to the
import of Italian equipment.
Although the Government has not created a dedicated guarantee scheme, it has made
subsidies available for the agricultural sector (through IPARD). According to CBS, these funds
are hard to obtain due to complicated paperwork associated with the application process.
CBS noted that the agri sector has a better repayment record than the rest of the industry.
The average non-performing loan (NPL) ratio in Albania amounts to 25% compared to 10%
in agriculture. It cited that the main reason for the high rate of NPLs is the poor payment
culture of the Government and the speculation in real estate.
3.4.
Raiffeisen
Raiffeisen is the largest bank in Albania with 98 branches spread around the country.
Raiffeisen stressed that HQ in Vienna has imposed strict lending conditions to its Albania
subsidiary making lending to the agricultural sector difficult. They consider production risk,
collateral issues and lack of payment capacity as the main hurdles to agri lending. Where
ASCU’s loan portfolio in agriculture is some EUR 25 mln, Raiffeisen only lends some EUR 0.5
mln to the sector mainly related to some large producers. It has no real ambitions to expand
its outreach.
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4.
Seeds & Vegetables
4.1.
General observations
During the scoping mission we had two Round Table Meetings with farmers, traders and
input suppliers. Both discussions were organised by ASCU and gave us an inside view on the
current situation in the Fruit & Vegetables value chain. The discussions clearly showed that
peasants, processors and traders do understand the weaknesses in their value chain.
However, changing these weaknesses is still a challenge. There is a strong wish to
collaborate, however people are also reluctant to organise things collectively as it reminds
them of the communist era.
The following functions & participants can be identified in the F&V value chain:
Wholesale,
Seeds, seedlings,
fertilisers and other
farmers
agri-inputs
Local retail,
traders and/or
food service or
processors
export markets
Consumers
The chain can be characterized as follows:

Market is fragmented and opaque. A great part of the raw production is sold to
family, other relatives, (wholesale-) markets, traders and a small part to the retail
market (ca. 10%).

Agri inputs: quality of seeds, fertilizers and agro chemicals is poor. The quality of the
agri inputs can deviate from the quality mentioned on the label. There is a lack of
control by the government

Seedlings: good quality, strong growth (30% last year), direct contacts with
international vegetable breeders like Monsanto, Rijk Zwaan and Syngenta

Farmers: not well educated, small scale, unable to reach the market on their own,
production of different crops, no uniformity, year-on-year changing production
results

Traders: no cooperation and no contracts with farmers.

Processor: not able to source the desired quantity and quality. Contracting part of
production through outgrowers and organising part of production on captive farms
(controlled by themselves).

Retail: fragmented, small scale and hardly any big supermarket chains. Only small
part of consumers (<10%) is used to buy its food in supermarkets, supermarkets are
reluctant to source local F&V due to quality issues and need for pre-financing.
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The following SWOT analysis does apply:
Strengths
Weaknesses
Soil
Fragmentation of farm land
Climate
Quality of agri inputs
Cheap labor
Knowledge/skills/education
Eagerness to develop
Access to finance and high interest rates
Access to markets
Lack of vertical collaboration
No registration of farmers (no NIPT) / informality
Opportunities
Threats
Forming growing associations for purchasing agri
Poorly developed land ownership system hampering
inputs & collecting/marketing of products
consolidation
Increase efficiencies/yield
Lack of government control on agri input quality
Increase uniformity of products
rendering the sector uncompetitive
Desire for vertical integration
Lack of farmer registration hampering financing
(seedlings/farmers/processor)
Lack of guaranteed market hinders farmer
Knowledge centers/extension services
development
Specialization
Export potential
Commitment by ASCU to support development of F&V
sector
4.2.
Pilot project
The sector meetings were set up to explore the feasibility of a pilot project in the seeds and
vegetables market where the introduction of a value chain approach could address
aforementioned weaknesses. The meetings, organized by ASCU, took place in Shkodra and in
Lushnje. These area’s showed marked differences between the number of farmers, the
average size of the farmers and the total number of hectares (more than 1,000 in Lushjne).
During the discussion we also got the impression that the farmers in Lushjne are more
professionally developed. Farmer size and professionalism are important factors increasing
the chances of success of any pilot project.
The aim of a pilot project should be (i) to strengthen the position of the farmers, (ii)
obtaining better agri inputs, (iii) producing better products (quality) and higher yields
(quantity). These objectives can be achieved by collectively purchasing agri inputs and
organising sales together. However, increasing production only makes sense if there is a
guaranteed market. Hence, increasing vegetable production should go hand-in-hand with
improving access to markets.
The first step in this process could be establishing a producers association according to the
Dutch Growers Association model. The coordinating role of ASCU will be key in the creation
of a grower association since farmers trust ASCU and ASCU understands the cooperative
model. Also, one or more reliable off-takers should be involved in the project to ensure a
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Scoping mission to Albania to identify gaps and opportunities for
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deepening access to finance and financial services for the agri sector
guaranteed off-take at fair/market base prices. In Shkodra this is an issue since traders were
mainly coming from Kosovo and Macedonia making sustainable trade relationships much
more difficult to forge.
Key players and their role:
Actors
Roles
ASCU
ASCU and the SCA will have a coordinating role in the
creation of the grower association. They also will need
to finance any investments by the farmers
ATTC Lushnje
ATTC Lushnje will provide necessary extension
services & support a Dutch Grower Association model
Seedling companies
Buy the seeds, sell the seedlings and support the
farmers in vegetable cultivation
Group of vegetable farmers
Should work together in one business plan, agree on
limited varieties of vegetables and invest in technical
improvement
Input suppliers
Provide access to better agri inputs and advise
farmers on proper usage
Traders
Work with dedicated traders that provide a
guaranteed off-take and advise farmers on quality
specs
Dutch producer association
Select 2 Dutch grower associations that can support
the farmers in the creation of a grower association,
focus on joint purchase, sales, technical assistance
RIAS
Provide project coordination, training of ASCU,
training of Grower Association
Technical assistance needs:

ASCU and their local SCA:
o
training on the Dutch Grower Association model (by RIAS): legal aspects,
governance, management, member communication, capitalization
o
agri credit knowledge & skills (by RIAS).

ATTC1

Farmers:
Lushjne: training on Dutch Grower Association model (see above)
o
Training on Dutch Grower Association model (see above)
o
Agronomic training: use of improved agri inputs like fertilizers and agro
chemicals (by ATTC, input providers & seedling companies).
o
Establish product committees for quantity optimization and uniform quality of
their crops (by Dutch grower association and/or off-takers).

Seedling company: how to support farmers with their production, to use fertilizers,
how to cultivate their crops (by input Dutch seedling companies).
1 ATTC: Agricultural Technology Transfer Centre: The main objective of these centers is to support the direct transfer of
agricultural technologies to farmers by testing, adapting and introducing new agricultural practices, methods and
materials, research on problems raised by local farmers, training of farmers, students, etc., provision of technical
expertise, demonstration of new technologies in agriculture and support the ministry of agriculture in policy-making.
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Risk assessment
The main risks of the pilot project are:
-
Quality issues: joint marketing means mixing produce of several farmers. If one
farmer has bad quality this could affect the rest of the quality as well. Traders could
refuse the total production which would cause cash flow problems for farmers and
ultimately “bad debts” for ASCU.
-
Side selling: farmers could be tempted to sell to middlemen instead of supplying the
newly established grower association. This would reduce volumes collected by the
Association and could create supply issues between the Association and traders.
-
Cultivation of seedlings by farmers: seedlings are more expensive than seeds and
need professional treatment by farmers. If they fail, the financial consequences could
be significant resulting in cash flow issues for the farmers and ultimately for ASCU.
-
Reliability of traders: even if the farmers and the Association do everything right, the
traders also need to perform according to the contract. If not, this could have grave
consequences for the farmers, the Association and ASCU.
-
Financial strength of the new Grower Association: a typical issue for new association
is undercapitalization. In the beginning, the only capital of the association will be
related to the member contribution. Only when the GA is making profits its capital
position will improve due to reservations. Hence, the GA is most vulnerable in the
early days and needs to formalise a proper capitalization policy to ensure its longterm sustainability (the Dutch Grower Association model can serve as example in this
respect).
Access to finance
We see the following financing needs:
Farmers:
-
Investments in greenhouses and improved agri inputs
The new Grower Association:
-
Collective purchase of seedlings, fertilizers and agro chemicals (this will require a
working capital line from ASCU, tenure of say 6 months covering crop season and
sales proceeds collection)
-
Collective marketing (i.e. need for cash to purchase crop from farmers for further
sales to traders). If farmers accept a payment term of say 2 weeks, the GA will not
need this funding line.
-
Sorting and packing equipment, storage: the new GA may need funding to invest in
logistics for collective post-harvest handling & storage of the crop.
The main issues in obtaining aforementioned funding are:
Farmers:
-
Most farmers are not registered.
-
Land ownership is not well registered.
-
The interest rates are very high.
New GA:
-
Will capital of the GA be sufficient for a loan?
-
Will ASCU require additional guarantees/collateral from members?
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-
Will the GA be able to sign contracts with traders? These contracts can possibly serve
as collateral substitute with cash proceeds being directly transferred to the bank for
repayment.
Traders:

Are there reliable, committed traders willing to invest in this project?
Governance
This pilot project needs a Steering Committee. Members of this committee could be:
-
The board of the producers association.
-
ATTC Lushjne.
-
ASCU/SCA.
-
Seedling company.
-
Trader/processor.
RIAS could be the project coordinator and report to the founders.
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Scoping mission to Albania to identify gaps and opportunities for
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deepening access to finance and financial services for the agri sector
5.
Dairy
5.1.
General observations
Historic development
The dairy industry in Albania has dramatically changed since the transition. Before there
were large state farms and cooperatives in Albania. After the collapse the distribution of land
and livestock to Albanian families has resulted in very small private farming activities with an
average farm size of 1,2 ha. Generally, livestock production is seen as the backbone of
Albanian agriculture. With a value of 92,973 million Lek in 2012 livestock accounts for almost
50% of the total value of agricultural production.
Just after transition, from 1991 to 1994 the milk production increased based on rising animal
numbers. After 1994, also yield increases were observed. However, in comparison to EU-27
standards the production still is very low. In the period from 2000 to 2012 the number of
cattle declined from 728,000 to 498,000 with an average herd size of 2.3 heads of cattle per
farm. In the same period the production of milk increased from 807,000 tons to 957,000
tons indicating a growth of the average yield and a more efficient production.
Value chain analysis
The following functions & participants can be identified in the Dairy value chain:
Breeding
(heifers/AI), feed,
Dairy
fodder, animal drugs
farmers
and other agri-inputs
Milk traders
and/or milk
processors
Local retail,
food service
or export
Consumers
markets
Farming
Most milk producers are semi-subsistence farming households. More than half of the milk
produced in Albania is used for self-consumption, sold directly to informal markets or is used
for feeding animals a.o. the calves. We find 69,062 farms with cattle (32%) producing
429,712 (45%) tons of the milk in the regions of Tirana, Elbasan and Fier. Additionally the
region of Shkoder also has a concentration with 29,994 cattle (14%) and 90,679 (9%) tons
of milk production per year which means lower than average yields per cow.
The region of Tirana, Elbasan and Fier is the most modern region in dairy production with the
highest yield per cow and the presence of the most modern and biggest processing units of
Albania. Therefore, particularly this region qualifies for a possible pilot project.
The average milk yield per cow per year in Albania is currently 2,700 litres. This is less than
50% of the average of the EU-27 of 6,500 litres per year. The low production leads to
relatively high production costs and low profitability. This prevents the accumulation of
capital to finance investments thus perpetuating the low production levels on many farms.
In addition to the yield per cow, the number of animals per farm determines the income for
the farmer. Until now most milk production units are very small with 1-2 cows per farm. Only
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deepening access to finance and financial services for the agri sector
about 3,372 farms have more than 5 cows. However, in the past 5 years that number of
bigger farm has been growing. The reasons for this growth are the good and stable milk
price in combination with immigrants who have returned mainly from Greece and used the
money they earned in expanding their dairy farms.
Feeding
To improve the milk production per cow, improved feeding - which is not well developed in
Albania - is even more important than improved breeding. Since the average size of the
farms still is very small, farmers have to use a zero grazing system in combination with
buying of fodder and feed. Improvements are possible in production of high quality fodder
(alfalfa, maize, maize silage etc.) as well as improved utilization of compound feed produced
by feed factories. Promoting improved feeding systems in the dairy sector could be a quick
win in developing the dairy sector and could result in a considerable demand of feed and
fodder.
Inputs/heifers & equipment
Several mid-size and big family dairy farms purchased heifers of a good quality in the past
years with the intention to grow their dairy farming business. They also built simple cattle
barns and invested in basic milking machines and improvements in the feeding system. In
recent years, also new dairy farms with modern equipment have been established with over
50 cows per farm. These farms already have much higher yields per cow than average which
leads to lower cost prices and higher profits.
This group of farmers will be critical to the long-term sustainability of the sector as it is
expected that in the long run they will take over part of the small holders’ dairy farms.
Since most of the farms still are very small, they aren’t able to invest in milking machines or
cooling tanks. The result is that the microbiological quality of the milk (bacteria count / ml
(TBC) and somatic cell counts / ml (SCC)) of these farms is far below standard. Although
cows are milked by hand improving the hygienic quality of milk is possible with extra focus
on hygiene. Improvement for this group of farmers is only possible when they get incentives
/a higher price per litre when delivering hygienic milk. However, until now payment of the
milk is solely based on dry matter content and % fat.
Knowledge/extension services
Lack of knowledge of modern animal keeping and milking practises is another constraint for
the dairy sector. The government has organized research institutes called Agricultural
Technology Transfer Centre (ATTC) and has a group of agri/dairy advisors. Since these
advisors also have to carry out other work and often don’t have travel means the individual
farmers hardly get any agronomical advisory services. Institutes like the Albania Dairy and
Meat Association (ADAMA) and Livestock Entrepreneurs Albanian Association (LEAA) have
knowledge of the Albanian Dairy industry and also try to support the industry by transferring
knowledge. The limited resources, though, hamper proper access to these extension
services.
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Farmer Based Organisations (FBOs)
The lack of cooling facilities can partly be compensated when small farmers buy a cooling
tank as a group (Farmers Based Organisation (FBO) or Cooperative) and ensure that the milk
reaches the cooling centre within 2 hours. To prevent spoiling of the milk of all the members
by one farmer a system of quality control should be introduced. We advise to organize these
Milk Collection Centres (MCC’s) in a professional way based on cooperative principles. These
MCC’s should be organized as a business, which could make them bankable. Adding
additional services like purchase of veterinarian drugs, feed and fodder and offering
extension services could also help the farmers to run their farms in a more professional way.
The farmer based organisation could also play a role in introducing mechanisation to the
members e.g. harvesting machines. To enable the MCC to make these investments they
should be run like a business, should be able to make profit and should be well organized
with good governance. This means that capacity building of these MCC’s is key in the
development and empowerment of the group of small dairy farmers.
Processing plants
There are about 25 modern dairy processing plants in Albania that meet the standard
requirements on technical and hygiene conditions. These larger dairy processing plants have
a capacity of 10-50 tons per day.
They are operating successfully although struggling with competition from the informal
market which still dominates the dairy market. Because Albanian milk processors must pay
20% VAT and the informal sector mostly sells without VAT this is a situation of unfair
competition which slows down the process of formalizing the milk market. A system of fixed
agri taxes could solve this problem.
The main problem for milk processors is that the raw milk doesn’t meet the quality standards
because of adulterated milk, high acidity and low hygienic standard of milk. A good
implementation of the right milking procedure is lacking and milk containers, milk buckets
and cans are of poor quality and are not well cleaned. Milk testing is not implemented at all
the collection units.
The following SWOT analysis does apply:
Strengths
Weaknesses
Strong tradition r keeping cows, sheep and goats
Fragmentation of farm land
On-going improvement of cattle herds through artificial
Only short term contracts / agreements for renting land
insemination (60 percent farms)
Limited access to improved animal genetics (e.g. Friesian
Climate is favorable for the production of fodder crops like
Holsteins with higher milking yields)
alfalfa and maize
Quality of agri inputs / lack of forage production
Extensive areas with pastures and meadows
High prices for inputs (concentrate feed, fertilizers, heifers)
Long fodder growing season
High costs of milk collection and quality control
Dairy farms are private
Knowledge/skills/education
Increased interest of several farmers for higher market
Low extension and advisory support
orientation and specialization on milk production
Limited access to finance and high interest rates
Some new dairy cattle farms with > 100 cows recently
Access to markets
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established in some regions
Lack of vertical collaboration
Labor costs in rural areas are low
No registration of farmers (no NIPT) / informality
Limited financial incentives to improve the quality of milk
Much unused milk processing capacity
Opportunities
Threats
Availability of harbors for import of raw materials for feed
Poorly developed land ownership system hampering
production
consolidation, also making it difficult to act as collateral
Forming Farmer Based Organisations (MCC’s) for
Lack of government control on agri input quality rendering the
purchasing agri inputs & collecting and cooling of milk
sector uncompetitive
/marketing of products
Lack of farmer registration hampering financing
Increase yield per cow
Lack of guaranteed market hinders farmer development
Improve quality of milk (TBC / SCC)
Desire for vertical integration (breeding/farmers/milk
collection/processor)
Knowledge centers/extension services
Commitment by ASCU to support development of dairy
sector
Preference of consumers to buy local products
Young “re-started” milk processing industry in Albania is
developing
5.2.

Conclusions dairy sector
Processors face big competition from the informal market having an advantage on
VAT and lower costs. This means that the formal market has to concentrate on highend market products of a good quality like yoghurt, UHT milk, butter, etcetera. To
enable the processors to meet a minimum quality level the quality of the milk they
purchase should improve (TBC/SCC);

The logistic costs for the collection of the milk are rather high and because of limited
cooling capacity it has a negative impact on the quality of the milk. The presence of
traders and middle men increases the cost price;

We see a polarization in the market of dairy farmers. On the one hand we see the
mid-size and big farmers growing their farms, using milking machines and cooling
facilities producing higher yields resulting in competitive cost prices. On the other
hand we see a big group of very small farmers who still milk by hand, don’t have
cooling facilities and who don’t meet the standard quality of milk. Because of low
yields per cow and per farm it is very difficult to make profit on the dairy activity;

Most of the dairy farmers until now did not group themselves in farmer based
organisations. This means that they lack countervailing power and are not able to
reduce logistic costs and costs of other services like feed, veterinarian costs, animal
drugs etc.;

The lack of knowledge of farmers on how to feed the animals, how to breed them
and how to improve the quality of the milk is not addressed by a good functioning
extension service or advisory service mechanism;
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
Because of the low level of professionalism in the dairy value chain in combination
with limited understanding of banks of the dairy sector in combination with modern
financing most farmers are not bankable.
5.3.
Pilot project
In view of the aforementioned, the aim of any pilot project in the dairy sector should be (i)
to strengthen the position of the farmers, (ii) obtaining better agri inputs (feed, fodder,
animal drugs) for reduced prices, (iii) producing better milk (quality) and higher yields
(quantity), (iv) improve knowledge of modern feeding, breeding and milking practices.
These objectives can be achieved by collectively purchasing agri inputs / services, organising
sales together in combination with extension services. The first step in this process could be
establishing a Farmer Based Organisation (FBO). The most important role in the short run for
the FBO is to organize the logistics via a Milk Collection Centre (MCC) with a cooling tank and
a quality control system for the farmers who don’t have cooling tanks yet. The establishment
of such MCC’s including a quality check should be done in close cooperation with the milk
processors since it will improve the quality of the milk, one of the biggest challenges for the
milk processors.
In a second phase this FBO could also start buying inputs for the farmers (animal drugs,
fodder, compound feed etc.). The FBO could also play an important role in facilitating
services like veterinarian services or extension services. For agronomical aspects the FBO
could team up with PUM, LEAA and/or ADAMA and ATCC. A representative of the milk
processor could advise the members through their FBO on how to further improve the quality
of the milk. To have more impact the processor should develop a quality based price system.
The coordinating role of ASCU will be key in the creation of a FBO since farmers trust ASCU
and ASCU understands the cooperative model.
To maximize the chances of success we advise to start a pilot with the most professional
partners in the dairy sector. It is important that they have shown commitment to the sector
and that they also have an interest in further improving the dairy sector. The most suited
milk processor in this respect is Meggle.
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Key players and their role:
Actors
Roles
ASCU
ASCU and the SCA will have a coordinating role in the creation of the FBO.
They also will need to finance any investments by the farmers
LEAA/ATTC
LEAA will provide necessary extension services to the farmers
PUM
PUM, a Dutch organisations of specialists, could support LEAA in providing
agronomical advisory services to groups of farmers
Group of dairy farmers (FBO/MCC)
Should work together in one business plan, agree on rights & obligations
of the FBO
Input suppliers
Provide access to better agri inputs and advise farmers on proper usage
Meggle
Professional milk processor, provide off-take guarantee to new FBO,
provide support to improve quality of milk
RIAS
Provide project coordination, training of ASCU in dairy financing, training
of FBO on good cooperative principles
Technical assistance needs:

ASCU and their local SCA:
o
training on the cooperative / FBO model (by RIAS): legal aspects,
governance, management, member communication, capitalization
o
Agri credit knowledge & skills (by RIAS).

ATTC/ADAMA/LEAA  training by PUM on agronomical aspects.

Farmers:
o
Training on Dutch cooperative model (see above) inc.
management/governance and financial administration/MIS
o
Agronomic training: use of improved feeds, cow management and hygiene
(by ATTC/ADAMA/LEAA). A TOT course could be organized by PUM.
o
Training on production of quality milk by Meggle & introduction of quality
based payment system.
Risk assessment
The main risks of the pilot project are:
-
Quality issues: joint marketing means mixing milk of several farmers. If one farmer
has bad quality this could affect the rest of the quality as well. Therefor organising a
quality system at the MCC is key as well as a payment system on quality.
-
Side selling: farmers could be tempted to sell to middlemen/traders/informal market
instead of supplying Meggle. This would reduce volumes collected by the MCC and
could create supply issues between the MCC and Meggle.
-
Reliability of the off-taker: even if they do everything right, the off-taker (Meggle)
also needs to perform according to the contract.
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-
Financial strength of the new MCC: a typical issue for the new FBO/MCC is
undercapitalization. In the beginning, the only capital of the association will be
related to the member contribution. Only when the MCC makes profits its capital
position will improve due to reservations. Hence, the MCC is most vulnerable in the
early days and needs to formalise a proper capitalization policy to ensure its longterm sustainability.
Access to finance
We see the following financing needs:
Farmers:
-
Investments in heifers, milking machines and improved agri inputs (feed/fodder)
The new MCC (Farmer Based Organisation/FBO):
-
Collective purchase of milk and in the second phase feed, fodder and animal drugs
(this will require a working capital line from ASCU, current account or overdraft
facility)
-
Investment in a cooling tank and maybe in a next phase machinery which farmers
can hire.
The main issues in obtaining aforementioned funding are:
Farmers:
-
Most farmers are not registered.
-
Land ownership is not well registered.
-
The interest rates are very high.
New MCC/FBO:
-
Will capital of the MCC be sufficient for a loan?
-
Will ASCU require additional guarantees/collateral from members?
-
Will the MCC be able to sign contracts with the milk processor (Meggle)? These
contracts can possibly serve as collateral substitute with cash proceeds being directly
transferred to the bank for repayment.
Governance
This pilot project needs a Steering Committee. Members of this committee could be:
-
The board of the MCC.
-
ATTC/ADAMA/LEAA.
-
ASCU/SCA.
-
Meggle.
RIAS could be the project coordinator and report to the founders.
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6.
Financing instruments and funding options
The implementation of both pilot projects requires funding from external sources to cover the
associated costs. The costs can be divided in:
1) Technical assistance (TA) provided by a.o. RIAS and agri input partners.
2) Investments to be made in greenhouses, improved inputs, cooling tanks, etc.
1. TA cost
The TA cost may be covered by the Dutch Embassy under LED facilities (if available) or
under FDOV (though the application process of FDOV is relatively complex and requires 50%
own contribution). Another option could be to incorporate the TA cost in a larger project with
ASCU. RIAS has been mandated by Finance in Motion (FIM, Fund manager of EFSP/GIZ) to
conduct an operational review of ASCU as a first step in the transformation of ASCU into a
rural bank. Both pilot projects could potentially be included in a capacity building module on
agri finance/value chain finance. This has to be further discussed with FIM & ASCU (FiM so
far expressed enthusiasm regarding this Agri project).
2. Investments
The investments could be financed by ASCU/SCA if the financing meets the terms and
conditions of ASCU/SCA. In this respect, particularly the size of the loans could be an issue
since ASCU/SCA is quite restrictive on loan size. Also the tenure of the loans can be an issue
depending on the minimum term of ASCU funding lines (e.g. a cooling tank may need a
financing tenure of say 5 years). Finally, lack of collateral at FBO/farm level may be a
bottleneck.
A Guarantee Fund by the Government could help ASCU sharing some of the risks and limiting
its downside potential. This could especially address the issue of weak collateral at
farmer/FBO level. Without additional guarantees it is doubtful if the new FBO can mobilise
sufficient capital/security to attract bank financing.
RIAS could assist ASCU in developing a suitable financing scheme for both pilot projects
including necessary training and implementation support. Again, this may be incorporated in
any project for ASCU funded by FiM.
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7.
Conclusions & recommendations
7.1.
Conclusions
Government
The Ministry of Agriculture (MoA) has formulated a regional agri support policy called the
Regional Development Program. It has identified a range of strategic sectors to be developed
in specific regions. This has proved successful especially for the aromatic and medical plant
segment (which is being diversified with Stevia). However, its success in other sectors such
as livestock and vegetables is less visible. One of the bottlenecks is the lack of resources of
the public extension services meaning farmers lack advisory and extension support.
The MoA cites lack of financing as the main bottleneck in the agricultural sector whereby
ASCU is mentioned as an exception. It is also looking for suggestions re. relevant policy
instruments to stimulate financing to the agricultural sector.
A second issue hampering the sector is its fragmentation. MoA sees no solutions for a
quick/medium term consolidation of the sector given the complexity of the issue. A third
problem is the lack of quality inputs. MoA is enthusiast on the so called “clementine model”
whereby seeds, inputs and technical assistance is provided by the collector to the farmers in
return for (part of) the crop. This way, the quality of the product can be ensured which is
critical especially in export operations. MoA admits that this model can however be easily
compromised if the collectors lacks cash to buy the crop at harvesting time. This will trigger
side selling by the farmers leading to a collapse of the model.
Financing
The interviews with the banking sector in Albania showed that only ProCredit and ASCU were
really focused on the agricultural sector. ASCU is focusing on the informal bottom of the
pyramid. Its risk model is based on a network of some 700 rural leaders and strong social
pressure resulting in a non-performing loan ratio of less than 4%. ASCU can only lend small
amounts and lacks critical scale (financing 13% of farmers of Albania). Recognizing the
restrictions of the model ASCU has embarked on a transformation to a Rural Bank. The
challenge will be to combine the increased scale with the client intimacy of today.
Where ASCU is focusing on the bottom of the pyramid, ProCredit is successfully targeting the
segment of farmers/agri SMEs with credit potential over EUR 10,000 (compared to an
average loan of EUR 2,500 of ASCU). The advantage of ProCredit vs. ASCU in this respect is
that it offers a broad range of financial services including cards, ATMs, payment transfers
etc.
Fruits & Vegetables

The market is fragmented and opaque. A great part of the raw production is sold to
family, other relatives, (wholesale-) markets, traders and a small part to the retail
market (ca. 10%).

Agri inputs: quality of seeds, fertilizers and agro chemicals is poor. The quality of the
agri inputs can deviate from the quality mentioned on the label. There is a lack of
control by the government
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
Seedlings: good quality, strong growth (30% last year), has direct contacts with
international vegetable breeders like Monsanto, Rijk Zwaan and Syngenta

Farmers: not well educated, small scale, unable to reach the market on their own,
production of different crops, no uniformity, year on year changing production results

Traders: no cooperation and no contracts with farmers.

Processor: not able to source the desired quantity and quality. Contracting part of
production through outgrowers and part of production on “captive” farms (i.e.
controlled by processor).

Retail: fragmented, small scale and hardly any big supermarket chains. Only small
part of consumers (<10%) is used to buy its food in supermarkets, supermarkets are
reluctant to source local F&V due to quality issues and need for pre-financing.
Dairy sector

Processors face big competition from the informal market having an advantage on
VAT and lower costs. This means that the formal market has to concentrate on highend market products of a good quality like yoghurt, UHT milk, butter etcetera. To
enable the processors to meet a minimum quality level. the quality of the milk they
purchase should improve (TBC/SCC);

The logistic costs for the collection of the milk are rather high and because of limited
cooling capacity it has a negative impact on the quality of the milk. The presence of
traders and middle men increases the cost price;

We see a polarization in the market of dairy farmers. On the one hand we see the
mid-size and big farmers who grow their farm, have milking machines and cooling
facilities producing higher yields resulting in competitive cost prices. On the other
hand we see a big group of very small farmers who still milk by hand, don’t have
cooling facilities and who don’t meet the standard quality of milk. Because of low
yields per cow and per farm it is very difficult to make profit on the dairy activity;

Most of the dairy farmers until now did not group themselves in farmer based
organisations. This means that they lack countervailing power and are not able to
reduce logistic costs and costs of other services like feed, veterinarian costs, animal
drugs etc.;

The lack of knowledge of farmers on how to feed the animals, how to breed them
and how to improve the quality of the milk is not addressed by a good functioning
extension service or advisory service mechanism;

Because of the low level of professionalism in the dairy value chain in combination
with limited understanding of banks of the dairy sector in combination with modern
financing most farmers are not financeable.
7.2.

Recommendations
The Government should explore opportunities to develop a Guarantee Fund focused
on agricultural financing. The current guarantee instruments in the market are not
sufficient. A new Guarantee Fund could address the lack of collateral at farmer level
and stimulate banks to increase their lending activities in agriculture.
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
In view of the conclusions on the dairy sector, it would be beneficial to further assess
the feasibility of forming a farmer based organisation linked to Meggle. The dairy
chain is currently unnecessarily stretched due to too many players/middlemen sitting
between the farmers and the processor. If farmers would jointly collect their milk via
a MCC with direct delivery to Meggle, the quality would increase and the margin for
the farmers would also increase. It would also be easier to finance improvements at
farmer/FBO level due to the direct linkages with Meggle. In a second phase this FBO
could also start buying inputs for the farmers (animal drugs, fodder, compound feed
etc.). Meggle has expressed its support to a pilot project.

The situation in the vegetable sector is quite comparable to dairy. Lack of farmer
organization has resulted in a very weak position of the farmers, lack of market
access, lack of good inputs, lack of knowledge etc. It is advised to further test/work
out a pilot project with the “Lushnje group” which represents a serious group of
vegetable growers that expressed commitment to join forces and organise certain
functions collectively.

In both pilot projects, ASCU should be involved as facilitator. Farmers have great
confidence in ASCU and ASCU is familiar with the cooperative model. Also, ASCU
would have a key role in any future financing of investments in the pilot projects.

However, before continuing with any next steps in Albania, we advise to organise a
study tour to the Netherlands for both the dairy and vegetable farmers. We would
suggest to introduce the vegetable growers to one or two Dutch Grower
organizations and the dairy farmers to the “smaller” dairy coops in the Netherlands
such as CONO in the Beemster. This will help the Albanians to understand the
concept but also it will show the key success factors & challenges of these
organizations. Needless to say that the presence of ASCU in both study tours is
recommended.
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Annex I
Meeting Schedule 8-12 December 2014
Monday 8 December
9.00
Meetings within the team (Greenhouse hotel)
10.45 Meeting with ASCU – Akil Kraja and Zana Koni
14.00 Enio Jace, CBC - USAID Project on access to finance in agrifood sector
15.00 Gojart Smaja PUM
Tuesday 9 December
8.30 – 10.30 Ministry of Agriculture (Chief of Cabinet, Ministry specialists for Seeds and
Seedling and for Livestock)
11.00 – 13.00 Raiffeisen and Procredit
13.00 – 14.00 Lunch
Parallel groups
Group 1 – dairy (LEA and ADAMA Offices)
15.00 – 16.00 LEA (Albanian livestock association) Valbona Ylli (Ex Director)
16.00 – 17.00 ADAMA (Albanian Meat and Dairy Association) Merita Uruci (Ex Director)
Group 2 –Seedlings and Seeds and other (At the Hotel Bar where experts are
accommodated)
15.00 Mr Roland Bammllari, (TBC) Holland Seedlings importer. administrator,
[email protected], +355682025386
16.00 Endrit Kulli (Medicinal and Aromatic Plants entrepreneur and expert)
Wednesday 10 December
Shkodra (North Albania)
Departure at about 8.00
On the way, stop over at AGROINVEST
10.30 Meeting at ATTC – Agriculture Technology Transfer Center and Directorate of
Agriculture (Mustaf Kraja, Director 0682092272)
11.30 – 2 parallel session (round tables)
1. NZI Dairy Processors (3 relatively large dairy processors) & Farmers (ca 5 farmers)
(facilitation and translation by Drini)
2. Round table with fruit and veg farmers, traders and inputs suppliers – hosted/organized
by ASCU (facilitation and translation by Akil)
Thursday 11 December
Lushnje (Central/south Albania)
Departure at about 8.00
9.30 ATTC Lushnje – Agriculture Technology Transfer Center and Directorate of Agriculture
10.30 Parallel activities (One facilitated by Drini Imami, the other by Akil Kraja)
Panel 1:
Meetings and visits - 2 large dairy processors
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

Diary Factory Soal: Sotir Velo 0682027522 and/or Diary Factory Ajka: Edmond Gjata
0682027195
Meeting with dairy Dairy Farmers
Panel 2: Round table with fruits and vegetable farmers, traders, inputs suppliers. Organized
by ASCU
Joint activities in afternoon
Wholesale market visit
Bruka Seedling (Producer of Seedlings related to Holland technology)
Friday 12 December
09.00 ASCU (presentation by the Board)
10.00 Meggle Albania (dairy processor
11.00 Debriefing Chief of Cabinet / MoA
12.00 Final debriefing RIAS/Embassay
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Annex II
List of studies
1. Agriculture in the Western Balkan Countries, IAMO, 2010
2. Competitiveness of Albanian agriculture. Value chain analysis for the fruits and
vegetables sub-sectors in the Fier region: Skreli, Chan Halbrandt and Ballin, 2010
3. Fruits & Vegetables study, EU/FAO, 2013
4. Dairy sector study, EU/FAO, 2013
5. Fresh tomatoes: reaching the potential, Center for International Development of
Harvard University, 2013
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