Political accountability for the agricultural products market

Costly supply chain links in agricultural production have emerged as a major obstacle to the sector’s economic recovery. Increased import costs and fiscal and regulatory costs have superimposed on inflation in these products. It is this moment and these weak links that need to be discussed to return to important agricultural policy issues.

How should policy accountability be reflected in the face of inflationary developments and rising costs for raw materials and technology and the problems they carry?

The initial response is market-related and depends on whether the constraints stem from higher demand or interrupted supply, and how continuous the repositioning of all supply chain links in the same function as before can be.

As the pandemic spread, consumer demand shifted to services and manufactured goods, the reopening of Albania’s trading partner economies initially boosted domestic production. But the resumption of blockages and the non-consistency of intermediate inputs and manpower caused the recovery to be under the provisions for 2021.

The prices of many raw materials and the added costs of paying for pandemic-affected workers increased rapidly. As a result, consumer price inflation of basic goods also rose, sparking a heated debate over the course of monetary policy.

At the moment, when the countries with which Albania has the main part of imports and exports relationship (Italy, Turkey, Greece, Germany, China) are in the phase of a slight increase in their domestic production, but not at full capacity, it is worth it is mentioned that designing appropriate government policy responses will first require an understanding of the relative impacts of demand power and supply constraints on inflation and then assess how sustained these changes may be.

If we look at the impact of agriculture on the economy during 2021, we will notice that the estimated growth of the Albanian economy is dedicated to the recovery of Albanian consumer demand for goods and services. Albanian agriculture, although not subsidized as needed, gave its important contribution. However, the economy seems to be mostly supported by the increase in consumer demand for real estate, energy exports, the construction sector boom mainly in Tirana and tourist areas, as well as tourism services[1].

But the inflation which started to affect the economy from the fourth quarter of 2021 seems to have influenced precisely as an unnecessary obstacle for the Albanian products. Inflation at the end of 2021 recorded a level of 3.7% which is estimated 2.6 times higher than at the end of 2019 (pre-pandemic period) seems to have been directly influenced by high prices of hydrocarbon products, as well as a speculation of commercial businesses, who have applied price increases of products and services, before the effect of prices of products and services from import occurred[2].

However, consumer prices could have risen even higher if there had been a large rise in utility prices, which make up more than half of the consumer price basket. Given that the prices of services are less sensitive than the prices of goods to shocks of supply and demand in the market, their impact seems to have had the effect of a slight slowdown in further price growth[3].

Meanwhile, commodity inflation in manufactured goods in the euro area was about 10 percentage points higher compared to pre-pandemic periods in the first three quarters of 2021, according to a recent study published by the IMF[4]. In this study it is estimated that “supply shocks could explain about half of the increase in producer prices. The rest is mainly explained by the higher demand. There was less impact from the lack of supply on the part of consumer price inflation excluding energy and food prices. “This core inflation rate was only about 0.5 percentage points higher over the same period than it would have been otherwise without supply-side restrictions on output.”

The first line of defense for policymakers is to address barriers to the direct supply of regulatory measures wherever possible, for example by easing regulatory burdens on the economic integration of transport and logistics workers, temporarily easing restrictions on operating hours, improving inspections and the timing of customs procedures, easing immigration rules to alleviate labor shortages and mandatory practices that limit the spread of the virus and protect workers’ health.

The government, although it has no duty to intervene in the market, should reflect the obligatory responsibility where, firstly, it should not stop forming the anti-evasion front and secondly, to a large extent, it should activate the subsidy schemes that, although few, seem to be able to affect the financial “desert” in the agricultural sector.

As we look forward to 2022 – 2023 regarding health uncertainties that have caused major financial shocks it is clear that impacts related to work and supply will still have a major impact on the economy for at least the foreseeable future.

But they are certainly not the only factors to be seen as agriculture needs to have a special focus, just as it seems to be devoting itself to cleaning up the environment.

Demand is high for most agricultural and livestock goods, raising revenue forecasts, but we also need to start worrying about adequate supplies and the potential impact of even higher food prices.

From the forecasts of the impact on the supply chain it seems that inflation will be at levels we have not seen since the early ‘90s and it all has to do with what affects citizens in the levels of disposable income.

Inflation will continue with a major impact on the supply chain, which is still not functioning efficiently, where the main impact of rising input prices continues to hold the market of agricultural and livestock products with great uncertainty.

And let us not forget the fiscal climate that has been ineffectively affected for producers starting with new tax consequences from 2022. The way the norms and VAT regime for agricultural producers have been drafted and implemented has had a negative impact on the sector.

Whereas, in 2014 it was thought that a strong policy against evasion should be accompanied by a regulatory policy in order to formalize the sector, after several years it turns out that the measures taken through the action plan between institutions for agriculture and fiscal administration have not managed to meet the objectives.

Fiscal policy needs to engage in an effective and unchanging approach for at least the next 5 years, with the aim of both formalizing and streamlining the sector with a view to modernizing and increasing productivity for those agricultural crops that compete in the market. regional.

As an endless spiral, the higher the prices of the agricultural market, the more buyers will increase the demand for various products and the more insecure the Albanian consumer will be, accumulating logical dissatisfaction with the government.

In the absence of a thorough analysis of the sector, the government must intervene in the factors that affect product prices, as they nevertheless come from a set of elements that are influenced by detached and inconsistent policies.

Some of these policies and incentives which stem from the regulatory role of the government would in fact be related to the irregularities that the Albanian economy carries over many years.

Thus, for example, limited access to finance and weak credit growth for the agricultural sector do not seem to have changed over the years, but with an impact on the cost of production. This additional cost is not related to the market and the farmer more than to policy accountability especially in creating the land ownership stalemate.

In conclusion, as long as agricultural productivity will continue to rely on low labor value, weak technology and competitive skills, lack of a guaranteed market, and rather poor integration into the regional supply chain, as well as from The impacts suffered by all other businesses seem to increase agricultural exports, although much will be promised by all political factors, government or not, in reality will continue to maintain the same situation that seems to dictate the low productivity of the sector. for the next decade.

[1] https://www.oecd-ilibrary.org/sites/6275e653-en/index.html?itemId=/content/component/6275e653-en#biblio-d1e103267

[2] http://www.instat.gov.al/media/9467/ick_dhjetor_2021.pdf

[3] http://www.instat.gov.al/media/9536/ick_janar_2022.pdf

[4] https://www.imf.org/en/Publications/WP/Issues/2022/02/15/Supply-Bottlenecks-Where-Why-How-Much-and-What-Next-513188