In early November, the Ministry of Agriculture and Rural Development (MARD) initiated the consultation process for the draft law on “Promissory Notes for Agricultural Products.” The aim of this draft law is to diversify financing opportunities in agriculture through two financial instruments: “promissory notes for future agricultural products” and “promissory notes for stored agricultural products.” In the frame of the consultation process, the Albanian Network for Rural Development through a consultation process with its member organizations and other relevant stakeholders offered the MARD a list of consolidated recommendations for improving the project law, which was followed by sharing the recommendations in media.
For more than 30 years of transition, financial institutions in Albania have failed to offer financial products that address the challenges and needs of the agricultural sector, focusing mainly on profit orientation. At a time when farmers are struggling with inadequate financing opportunities, the banking system has not provided products that align with their actual needs. Currently, second-tier banks allocate only 1% of their loans to farmers, which leads many farmers to funding from microfinance institutions.
In response to this situation, the Ministry of Agriculture and Rural Development is consulting the draft law on “Promissory Notes for Agricultural Products.”. The law aims to increase financing opportunities for farmers via “promissory notes for future agricultural products” and “promissory notes for stored agricultural products.”, which will be issued electronically through e-Albania platform. It is anticipated that this draft law will increase overall financing in agriculture, expand cultivated land, enhance the quantity and quality of agricultural products, improve the functionality of the agricultural product supply chain, and help address issues related to land fragmentation. [1].
To what extent is the draft law clear?
An important aspect of the legislation implementation, as well as the overall legal framework of a country, is the clarity of the laws, including the concepts and instruments presented, the obligations and rights outlined, as well as other elements related to the law. In the case of the “Promissory Notes for Agricultural Products,” it is essential to improve the clarity of the draft law.. It is essential to replace the terms “cedues” and “cesionari” with appropriate Albanian terms. The purpose of the law, the application process for promissory notes, and other important aspects should be easily understandable for farmers. This first step is crucial for the law’s effective implementation.
Article 6 states: “The promissory notes are fulfilled by paying to the creditor’s bank account or in cash, within the limits allowed by Law No. 9920, dated May 19, 2008, ‘On Tax Procedures in the Republic of Albania,’ as amended.” However, cash purchases, as specified in the aforementioned law, involve small monetary values and do not provide any facility for either the seller or the buyer. Therefore, this article needs to specify a limit on the cash value of the products purchased. As a result, Law No. 9920, On Tax Procedures in the Republic of Albania, dated May 19, 2008, should also be amended accordingly. Furthermore, in Article 10 of the draft law, there is uncertainty regarding who is responsible for paying for damaged goods during storage. This issue needs clarification to ensure smooth enforcement of the law.
To what extent is the draft law beneficial for farmers, and how effectively does it align with their interest?
In the case of this draft law are taken into consideration the legal traditions of Brazil and Ukraine as reference points. An important factor to be taken in consideration is the fact that in Ukraine, the majority of farms are small to medium-sized; however, there is a significant difference in the average size of farms compared to Albania. In Albania, the average land area owned by a farming family is around 1.26 2],hectares, while in Ukraine, the average farm size in 2020 was approximately 385.8 hectares[3]. This substantial difference in land size leads to equally different production and marketing capabilities, which impacts the effectiveness of the financial instruments proposed in this draft law. In addition to differences in farm structure, studies have shown that levels of social capital, particularly trust, are considerably higher in Ukraine than in Albania[4]. The relationship between banks and farmers in Ukraine is built on mutual trust. Unfortunately, one of the legacies of the communist system in Albania is a lack of trust and willingness to cooperate.
Farmers do not perceive the insurance of stored agricultural products as a negative process; rather, it is welcomed as a beneficial measure, but in this case comes as a necessity by including insurance companies. However, the involvement of real collateral and bailiffs can make this process uncomfortable, especially for small farmers who are more vulnerable when it comes to accessing finance. The storage capacities and conditions of small farmers are also important factors to consider in the context of implementing the proposed financial instrument. It is evident that such a financial market is not accessible for small farms in Albania, but is suitable for medium and large entities. Farmers are still requiring a clear definition of a small farm and the government as their final guarantor, emphasizing that the proposed system is not attractive to small farmers.
Regarding promissory notes on future agricultural produce, farmers express a willingness to formalize this process, but remain sceptical about the potential for increased financing opportunities. The statement “Agriculture is a house without roof” highlights the high level of risk associated with agricultural and livestock production. The unpredictability of agricultural performance, especially for crops grown in open fields increases the risk of the sector. Uncertain about the aim of the draft law, it is difficult for farmers to use future production as a guarantee.
How do financial institutions percieve the effectiveness of the proposed law?
Experts in the agriculture sector consider the draft law a positive step in formalizing the activity of this sector. However, they express scepticism about the effectiveness of the proposed financial instruments. One major hurdle for banks providing financial products to farmers is the high risk associated with agricultural activities. When evaluating loan applications from farmers, banks consider several factors to assess the repayment capacity, including the size of land owned, ownership of real estate, and the farmer’s income. While collateral is crucial, a farmer’s payment ability and the trust relationship built with the bank are essential as well. The payment ability of farmers depends on the performance of their agricultural activities, and in high-risk conditions, the lending of funds is typically limited.
Using stored or future agricultural products as collateral remains a polemic issue. Agricultural products, whether stored or anticipated, can fluctuate significantly in value. Should banks decide to accept stored agricultural products as collateral, they will require detailed information for each stage of the production process. This includes data from seed quality to harvesting and processing practices to ensure the product’s quality.
The financing needs of farmers in Albania are very high, yet financial institutions continue to face challenges in fully addressing them. Initiatives such as the draft law on ‘Promissory Notes for Agricultural Products’ are welcomed by farmers. However, a comprehensive consultation process must be carried out during its development to ensure the proposed instruments align with farmers’ actual needs. This step is crucial for the successful implementation of the proposed solutions.
[1] Draft law “On Promissory Notes for Agricultural Products.” In https://konsultimipublik.gov.al/Konsultime/Detaje/673
[2] Sallaku, F., (2021). Land bank, a smart investment in Albania. In https://ubgreen.al/banka-e-tokes-nje-investim-i-zgjuar-sot-ne-shqiperi/
[3] Khodakivska, O., Pugachov, M., Pugachov, V., Mamchur, V., & Yurchenko, I. (2022). Farm size and technology implementation: a comparison betëeen Canada and Ukraine.
[4] RatingGroup, (2023). Unseen Glue: Social capital in UKRAINE. Ne: https://ratinggroup.ua/en/research/ukraine/nevidimiy_kley_doslidzhennya_socialnogo_kapitalu_v_ukraini.html
Dashi, E., Azizaj, E., dhe Totoni, L., (2020). Policy document. Dynamics of LEADER implementation in Albania and the future. In: https://anrd.al/ëp-content/uploads/2021/01/ANRD-LEADER-Dokument-Politikash-AL.pdf