The costs of the war in the Middle East, within a few weeks, for the Albanian economy continue to be inevitable. In the retail market, after the increase in oil prices by 22%, even sunflower oil importers have warned of an increase in prices of about 8% for wholesale supplies to supermarkets and small markets.
Chemical fertilizers used in agriculture have also increased from 10 to 30-50%, according to farmers. Starting in May, domestic detergent manufacturers are also warning of price increases for wholesale supplies in the country, due to the increase in the cost of raw materials in international markets by up to 22%.
But through what mechanisms can the impact of price inflation in Albania be mitigated whenever conflicts erupt in the world? The Secretary General of the Association of Producers' Unions, Arben Shkodra, recommends that in the long term, Albania should undertake policies that make the economy less vulnerable to external crises.
He emphasizes that the priority remains increasing domestic production through the consolidation of the processing industry and the implementation of a strategy for replacing imports where the country has an advantage, such as in vegetables, fruits, dairy, medicinal plants, food processing and several livestock subsectors.
"Essentially, true protection is built through increasing productivity and domestic processing, creating shorter and more diversified supply chains, and building strategic reserves. Only in this way can domestic production be transformed from a source of supply into a real instrument for economic stability," asserts Mr. Shkodra.
Can sunflower oil processing refineries be restored?
The increase in fuel prices for sunflower oil processing refineries abroad and transportation tariffs have led domestic importers to increase the wholesale price of edible oil by 7-8% during March.
During February, before the outbreak of the war in the Middle East, according to importers, sunflower oil was traded at a wholesale price of 176 to 178 lek per liter. Starting from the third week of March, importers claim that they were forced to increase the price by about 5 lek per liter, bringing it to 182 to 183 lek per liter.
Starting from the last week of March, importers of locally packaged refined oil say there will be another price increase of 7 lek per liter. After these increases, the wholesale price of edible oil reaches 190 lek per liter.
One of the sunflower oil importers explained to "Monitor" that the reason for the price increase is the increase in the price of the product from the manufacturing plants and in transportation tariffs.
"Oil producers in Hungary, from where Albania is supplied, have increased the selling price of the product, due to the increase in costs from fuel and fuels used by refineries. Due to the increase in the price of fuels alone, the prices of supplies have increased by 1.5 lek per liter."
After the start of the war, there was a significant increase in transportation fees. If during February, a fee of 140 to 160 USD was paid for the transportation of 1 ton of oil, after the start of the war the transportation fee reached 200 USD per ton. This makes imported oil another 1 lek more expensive per liter.”
As in 2022, due to the war in Ukraine (where wholesale oil prices reached record levels of 340 to 430 lek per liter), the lack of domestic cooking oil production best demonstrated that the Albanian economy lacked the main shock absorber to curb price inflation.
Albania has had two oil refining refineries, the factory of the company “Olim” and the company “Vajra bimore” that traded “Fiol” oil, but currently neither of them imports crude oil (grexho) and refines it into edible oil. Until 2016, the company “Olim” was a refiner of crude oil (grexho) and even for 1 year (in 2005) it realized a closed cycle. Since 2016, the processing companies have become packagers of imported refined oil.
The former administrator of the company "PDF sh.pk" (the company behind the "Olim" brand), Aredi Sado, during the price crisis in 2022 following the outbreak of the conflict in Ukraine, explained to "Monitor" that the lack of domestic production of sunflower seeds, high import costs, the continuous increase in the price of energy and other fuels, as well as competition from countries in the region that refine at cheaper costs were the main reasons that shut down the two oil processing refineries in the country.
The “Olim” oil factory attempted in 2005 the production, refining, storage, packaging and sale of sunflower and corn oil. “Olim” was the only factory that produced sunflower oil through a closed cycle for a year with a production capacity of 110 tons of sunflower oil per day. “There is no domestic production of sunflower seeds in Albania. The lack of production is due to the fragmentation of agricultural land and low subsidies for farmers.
In Europe, Albania has the lowest arable land area per capita. On the other hand, imported seeds had high transportation costs. That year, the company imported sunflower seeds from Serbia, but high transportation costs were an obstacle to this”, Mr. Sado underlined earlier about the obstacles encountered in continuing the closed production cycle.
The refinery was shut down in 2016, as the high costs of importing sunflower seeds and high taxes made it unprofitable for the crude oil refining cycle.
"Supplying with refined oil and refining it in Albania is not profitable for any Albanian company, since the factories abroad are gigantic and the cost of refining is cheaper than here. Serbia has a lower cost of refined oil, since 10% of the product price is subsidized by the state. Albania has had two oil refineries. None of them imports crude oil (refined oil) and processes it into edible oil," emphasizes the former administrator of the company "PDF sh.pk".
But the problems remain the same, even with the crisis created by the start of the war in the Middle East. Domestic production cannot be revived solely on the initiative of companies, without state intervention, and therefore fails to serve as a shock absorber.
Company executives explained that it remains unprofitable for Albania to restore the crude sunflower oil refinery. According to them, the high cost of fuels remains a problem, given that there is no domestic oil refinery in the country.
"The high costs of energy and hydrocarbons remain one of the main problems for the recovery of the oil refining industry. As long as oil continues to be a product purchased through the stock exchange, the costs of domestic production will continue to remain high. Without state support and strategy, such an initiative, solely from the private sector, cannot be revived," company representatives asserted.
In contrast, for importers, the most effective short-term measure that the government should take remains the provision of sovereign guarantees in order to ensure supply reserves for 3-4-month periods, so that there are no frequent price fluctuations for the retail market.
Increase in chemical fertilizers up to 50% alarm for agriculture; Local farmers and producers seek support
Immediately after the start of the war in the Middle East, the prices of nitrogen fertilizers for use in agriculture increased by up to 50%.
Alban Çakalli, a farmer in the Mamurras area, calls this increase abusive, arguing that supplies for the spring season were made before the conflict began. He warns that if the crisis continues, small and medium-sized farmers will be the hardest hit, as they cannot afford to keep reserves and depend on frequent purchases.
“A few days after the war in Iran began, the price of fertilizers increased immediately by over 100 USD per ton, and in some cases even by 300 USD per ton. This increase occurred in retail prices, especially in nitrogen fertilizers. This increase in Albania was faster than in other countries and, in my observation, was an abusive increase, since supplies for the spring season were made before the war.
If the war in Iran continues, the increase in fertilizer prices will continue, and small and medium-sized farmers will be the most affected. This is because this category of farmers does not maintain large annual reserves of grains and other livestock feed, but makes weekly purchases. This will only favor large farmers.
Knowing that our country is dependent on imports, and knowing that the Albanian farmer is left to the mercy of fate, unsupported, domestic production does not affect the depreciation of prices.
In the last 5 years, we have been affected by major crises and lessons should have been learned, but in reality we have not learned anything from them. Food security should be a national priority. Several strategic agricultural crops should be identified that contribute to sustainable supply and be as little dependent on external influences as possible. Beans, wheat, corn and fodder should be integrated into agricultural production and we should no longer depend on imported fertilizers, but should be based on a healthy and independent agriculture.
Domestic production must be guaranteed. State intervention is necessary for this production to be sold under regular contracts. Support for the farmer must be strong; by supporting him, this is reflected in reducing dependence on imports. Reducing dependence on imports strengthens the farmer, increases food security, develops the local economy and this translates into sustainable national development.
On the other hand, representatives of the domestic industry underline the stabilizing role of domestic production. Alban Zusi, president of "AZ Group", says that while imported fertilizers have become significantly more expensive, domestic producers have maintained more stable prices, and in some cases have even reduced prices to support farmers during the crisis.
He emphasizes that unlike importers, who often increase margins to protect profits in times of uncertainty, domestic producers have an interest in maintaining clientele and guaranteeing the continuity of production, sharing the costs of the crisis with farmers.
"The current crisis situation is the best proof of the advantages that the domestic industry brings. While all fertilizers imported from abroad have increased by 30–50%, the only manufacturing industry in the country, 'AZ Group', has increased its price for the basic organic fertilizer of agriculture 'AZ Fert' by only 5% and, contrary to the trend and to support farmers in this crisis situation, has reduced the price for another of its products 'Nutriviv Amino 50' by 20%, which is particularly necessary at this very moment, which is also the initial phase of planting. A product produced, thanks to innovative investments recently made.
This is actually characteristic behavior of producers everywhere in Europe with their close clientele: they become allies with their everyday consumer in moments of crisis, as the industry cannot change the destination or nature of production, so it makes every effort to protect the local buyer.
The behavior of importers is completely different. In times of crisis, even a 10% increase in purchases in the country of origin tends to translate into a 20% increase in sales due to the protective instinct against continued price increases in the country of origin. Given that they make large, periodic purchases, they immediately set high margins “to stay in the game,” which does not happen with the local producer, who monitors market trends and consumer sentiment on a daily basis.
Ultimately, the importer, even if its sales decrease slightly, is not concerned; it simply reduces the quantity imported or looks for another alternative product, but its profit margin is not affected. Meanwhile, the domestic industry cannot allow its sales to decrease, as it will be forced to reduce production, which would immediately cause an increase in overall costs and consequently an increase in the cost per unit. The domestic industry cannot even change technology like the importer can the supplier and consequently the domestic producer does not tell the farmer “this is the price, take it or leave it”.
He makes every effort to share the crisis with the farmer and to make the farmer continue to work the land and be stable in the market. For this reason, we must promote domestic production as soon as possible and reduce dependence on imports.
Given the situation, local producers in the fertilizer production sector are demanding concrete measures from the government and the Ministry of Agriculture to promote local production of fertilizers, especially organic ones. The President of “AZ Group”, Alban Zusi, says that investing in the recycling of organic waste and the industrialization of this process can significantly reduce dependence on chemical fertilizers and reduce costs for farmers.
"The measure that the Ministry of Agriculture and the Albanian government should urgently take is to promote the domestic production of fertilizers, mainly organic ones, through the industrialization process of recycling any organic product of animal or vegetable origin."
In this way, increasing the domestic production of organic fertilizers will reduce the need for chemical fertilizers by at least 20%, the use of pesticides by 50% (due to increased plant immunity from organic fertilization) and reduce the cost of inputs for farmers, as their production locally will undoubtedly result in lower costs.
But first, to break down the farmer's barriers to new and especially domestic products, it is necessary to have support measures both to encourage investments in these types of industries, but also to make the product attractive in terms of price for the farmer, at least for four to five years, until they become familiar with and convinced of the advantages of these fertilizers."
The proposals include fiscal incentives such as VAT exemption, tax reductions on energy products, and financial support for domestic industry, in order to make products more competitive and spread their use.
"Incentives can be different, such as exemption from VAT (in fact, in Kosovo, for example, organic fertilizers do not have VAT), the removal of any tax, excise duty, etc. for energy materials or packaging used for the production of this category of domestic industrial fertilizers. This way, the product becomes more attractive, has more stability against fluctuations in international input markets, we increase the value of domestic production both for the domestic consumer, but also for export, and at the same time the environment is protected."
"So, promoting fertilizer production industries in the country is a 'win-win' approach for all local actors: farmer - industry - society - consumer - state", underlines Mr. Zusi./Monitor.al/
