Why agricultural policies fail and two cases of policy failures in Albania

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Why agricultural policies fail and two cases of policy failures in Albania

Myslym Osmani1, Rezear Kolaj1, Petar Borisov2, Ekaterina Arabska3

{Agricultural University of Tirana 2Agricultural University of Plovdiv 3University of Agribusiness and Rural Development

¹Albania

^2,3Bulgaria

Purpose. The purpose of this study is to identify the causes of economic policyfailure in general and agriculturalpolicyfailures in Albania in particular. At the same time, the very concept ofpolicy failure is a matter of our interest. To achieve our goal, we have conducted a basic literature review. The most important aspect of interest in the study is the investigation of two cases where agricultural policy in Albania has failed.

Methodology / approach. To conduct the study we use several methods: a review of general literature in relation to government policy failure; review of specific literature regarding farm size and cooperation; review of national policy or strategic documents regarding agricultural and rural development in general and farm size and cooperation in particular; review of national statistical evidence about farm size and cooperation in Albania, and data from international sources such as The Global Economy.

Results. The study is based on the widely recognized evidence that the concept of failure is multidimensional and not uniquely defined. The study contributes to identifying and summarizing some of the main causes of policy failures. Government policies generally fail when intervention leads to inefficient allocation of resources and an overall decline in people 's well-being when they do not increase production, productivity, or revenue, or when society does not achieve the policy objectives set. Policy failures are generally related to the weakness of institutions. Institutions are weak when they fail to perform effectively the three basic functions that are commitment, coordination, and cooperation. In the case of agricultural policies in Albania, the study analyzes the extremely low level of collective action and the small size offarms, which has remained almost the same and fragmented throughout the 30-year period of economic and social transition. Strong institutions responsible for drafting and implementing legislation and developing policies, characterized by the professionalism and high performance of their staff, are the only guarantee for achieving the policy objectives for sustainable agricultural development and accelerating the process of Albania's integration into the European Union.

Originality / scientific novelty. The literature points out that: (1) government effectiveness, (2) rule of law and (3) weak control of corruption are the root causes of all policy failures, including agricultural policy failures. We analyze the data on these indicators for Albania and some other countries in the Western Balkans region and try to draw conclusions about their impact on the two policy failures we are interested in, which are the serious lack of collective action in the agricultural sector and the small size offarms in Albania. No previous research has been focused on agricultural policy failures, at least in Albania.

Practical value / implications. The study may be usefulfor the discussion and evaluation of the impact of policies, andperformance of related institutions in Albania. It emphasizes not only the need of reforming these bodies but also suggestionsfor future research on policies and their effectiveness in Albania and beyond.

Key words: agriculture, policy, corruption, government, effectiveness.

Introduction and review of the literature

agricultural policy failures

Agriculture is an important sector of the Albanian economy. It provides about 18 % of GDP and employs about 41 % of the country's workforce. In the period 1997-2018, agricultural GDP has increased by about 4.2 % annually in nominal terms or 2.44 % in real terms. There are more than 350,000 farms operating in Albania with a size of about 1.26 ha with an average of 4.7 plots. Both farm size and the number of plots per farm has not changed much over the years [1].

The literature evidences problems in relation to the competitiveness of Albanian farms [2], market access [3; 4], but also regarding the low productivity of labor and land [5; 6]. Regarding the availability and use of agricultural inputs, Albanian agriculture is characterized by problems with irrigation, drainage, quantity, and quality of inputs used [7], access to credit as well as availability and quality of advisory services. In terms of social capital, Albanian agriculture is characterized by a low level of vertical or horizontal cooperation [8]. Moreover, Albania is characterized by high fragmentation of farmland and researchers believe that this is a reason for low farm productivity, though it seems to be not supported by all empirical evidence [9]. Both small farm size and fragmentation may have a critical influence on the level of commercialization and the degree of subsistence character of farming in Albania [3].

These problems are related to the strategies and policies of agricultural development, and not only of agricultural ones, in terms of how adequate and effective they have been to address the problems of agricultural development. Therefore, this situation requires serious analyses to identify the development gaps, by firstly accepting their existence not only in the technical aspect but above all in the political aspect, in the sense of potential failures and related responsibilities, as well as the need to address them in a rapid and effective way.

In our research, we focus on two major problems: the small size of Albanian farms and the low level of cooperation between farmers. We want to highlight and identify the dynamics and progress made towards increasing farm size and cooperation and conclude whether or not government agencies failed in both of these aspects.

When does a policy fail? Although A. Smith [10] believed in market mechanisms and evaluated them because he was a free market lover, he also acknowledged some of its limitations. The government, or “sovereign” as he put it, performs tasks such as national defense, justice and public works (roads, waterworks, schools, etc.), and public institutions. If they were produced by the individual then benefits would not be because at the individual level they would be lower than the costs [11; 12]. The state, therefore, should intervene in the economy via various economic and social policies. Agricultural and economic policies, in general, are expressions or instruments of government intervention in the economy in general and agriculture in particular.

However, just as the market has its failures, so can the government fail in its interventions. Failures in development policies are common and ubiquitous events.

Therefore, it is not surprising that sometimes government interventions are ineffective, unequal, and biased [13].

But what do we mean by policy failure? There is no a unique definition of policy failure, and different authors look at it from different perspectives. Some authors argue that imperfections of government can be called its failures [14]. Other authors argue that we are dealing with a government failure when a measure of governmental economic policy, or even government inaction, worsens the market distribution of resources while reducing also economic well-being [15]. Government fails when its intervention leads to inefficient resource allocation and an overall decline in welfare [16]. On the other hand, it is often said that policies fail because they do not boost production, productivity, or revenue [13], in other words, failures are related to production, productivity, and revenue. Further, policies are considered to have failed when the expenditures made under them are inefficient, but also when they simply do not achieve their objectives.

The failure or success of a policy is determined by the established rules and the respective transaction costs and the reaction of key actors to these policies [17]. Often, government interventions in the economy, in the case of agriculture as well, can be very costly in terms of administration and implementation, as much as they can reduce or completely eliminate the benefits from the programs or policies. In this case, they can be qualified as failures [13].

Some authors think that policies are not a failure in themselves; it is increasingly accepted that policies do not fail because of them, i.e. inherently, but because of the process of their implementation [18].

What are the main types of intervention, or roles that government can play in the economy through its policies? Different authors put it in different ways but the differences between them are generally not much distinctive. According to neoclassic economists, the tasks of government are allocation, distribution, and stabilization [12]. Government, in general, can be involved in four types of social or economic activities or interventions: supply of services, taxation, subsidizing, and regulation of the economy [19]. The consequences of this intervention can be evaluated on the basis of allocative efficiency, efficiency X (efficiency X is maximizing production at the lowest cost even if markets are imperfect), and egalitarianism (equity) of the intervention results. The role of government lies in allocating resources, distribution or redistribution, creating legislation, protecting the country, subsidizing and taxation, lending, regulation (e.g. food security and safety, protecting the environment), purchasing goods and services, redistributing transaction income, and various payments [20; 21].

Referring to the agricultural sector, it can be said that government intervention in agriculture is motivated to some extent by the so-called “farm problem”, according to which farms have low and unstable incomes [12]. Some of agricultural policies that governments can implement to foster the agricultural sector are the rehabilitation of the irrigation system, the promotion of collective action among farmers, and the subsidizing of prices of agricultural products. It is extremely important to understand, however, that subsidizing prices to fall below market levels, to stabilize them at levels that are away from real production costs or marginal social costs, might not increase the allocative efficiency [22]. Then, if price subsidy mechanism fails to increase the efficiency it can be considered an unconscious policy failure. However, it also depends on what the policy objective has been. If pricing policy has had another objective, rather than efficiency, then it may not be called a failure. Nevertheless, in the case when government intervention aims at the regulation of production and its distribution (e.g., by fixing prices, quantity ceilings, or specific requirements relating to the quality of goods) the efficiency of the program could not be achieved because regulation can be captured by producer groups or lobbies [22] and in this case, the policy may fail. In another case, by raising taxes the government may promote the gray trade or tax evasion [23], and here failure can be a fairly obvious product of this policy, so much that the effectiveness of the policy itself can be questioned.

The degree of policy failure is a problem in itself. The degree of failure of a policy is an empirical rather than a theoretical issue [19], so it can simply be assessed by empirical methods. On this basis, we are able to discuss the extent of the failure or the negative consequences that may have resulted from the policy failure.

Why government policies can fail? Reasons or causes of policy failure are numerous and sometimes very complex. The debate on this topic is wide and different authors bring their perspectives and arguments.

Failures may occur because policy outcomes are often unpredictable; the goals of the interventions often are not or cannot be clearly stated; enforcement or negotiation systems are often too complex and may not work; government control over enforcement agencies is often inadequate; laundering transaction costs (such as administrative costs), and the propensity of politicians to pursue their own rather than the public interest [20]. A real cause of policy failure could be the pursuit of political self-interest by politicians and civil servants that are charged with drafting or implementing policies, which can result in serious implications regarding the resource distribution and use. Other reasons, as literature highlights, are pressures by stakeholders, failure to conduct cost-benefit analysis properly; political myopia, which means that politicians see more short-term interest in politics and prefer quick solutions to difficult problems by neglecting analysis of long-term effects; regulatory capture, i.e. when policies or regulations are made in the interest of certain groups without considering the interests of other groups [23].

According to the World Bank, failures in development policies, including the agricultural ones, are related to the degree of the effectiveness of the policies. Policy effectiveness has three determinants: commitment, coordination, and cooperation. If the institutions do not perform well these three functions, then the effectiveness of the policy will be low, so the policy may fail [24]. Commitment as a failure determinant is about supporting policies over time so that promises can be kept. Commitment to providing public services affects the degree of cooperation of people or their groups. Coordination is about shaping expectations to enable complementary action. Coordination is very important, especially in developing countries, to foster investment and innovation. Cooperation is about limiting opportunistic actions and preventing free-riding, a phenomenon that has to do with people's unwillingness to contribute or their tendency to avoid paying for goods, public services, or taxes. Cooperation between development actors must be sustained over time. Some factors that make cooperation sustainable over time are the stability of the bargaining power of the actors, the low probability of strong shocks or changes, transparency, the actors ' confidence in the effect of the policies, as well as the structural connections of the actors. Equal opportunities for all individuals for benefits, services, such as services for health, education, employment, promote businesses and the cooperation of different individuals or groups of individuals and reduce free-riding [24].

The relative political power of the actors, the so-called asymmetry of power, has great implications in terms of who wins and who loses from politics, but also in the capture of power and clientele. This can restrict to a large extent, or vice versa, empower the factors of the policy effectiveness, i.e. can greatly influence its success or failure. Exclusion from the policy of individuals or groups of individuals who have or show any interest in development problems can also have serious implications for their outcome [24].

The initial stage of the policy-making, policy design, could have serious implications in the policy success or failure. As literature points out, the policy making could be improved, by participation, by enhanced dialogue and focused education [25]. Participation in policy or policy-making depends not only on the power of the actors but also on the barriers that may exist to participate in the policy-making process. If people or groups of people are prevented from participating, they will challenge the political process and may reduce its effectiveness. Participation in the policy process and policy co-ownership can increase the willingness of people or their groups to obey policy measures voluntarily. Otherwise, policies can also have the opposite effect of what is expected [24].

The reasons for government failure can be limited information, limited government control over the consequences of its actions, limited control over the bureaucracy, restrictions from political processes (lobbying, pressure from interest groups, etc. [21]. The failure also comes because the public sector is less efficient than the private one. This is due to the differences that both sectors have in incentives and constraints, either at the individual level or at the level of organizations or companies.

As literature highlights, the causes of the failure of government intervention in the economy can be also myopic regulation, or regulation in one aspect regardless of domino effects or the effects of policies in other aspects; high costs of regulation related to the implementation of interventions and behaviors imposed on the individual as a result of interventions; inadequate or costly methods chosen by the government to carry out the adjustment; myopia and ignorance of voters, who prefer and better understand short-term benefits and do not fully understand complex policies and their effects, especially long-term ones; public sector employees are less productive than those engaged in the private sector.

Some authors emphasize the important role of information in the failure of government policies. Often, policies are adopted in the absence of complete information. Lack of information limits the government from making objective decisions [13]. As literature points out, there is a law called the law of unintended or unannounced consequences. According to this law, the actions or interventions of the government have unintended effects as well. But the unintended consequences when it comes to government intervention programs can increase the costs of programs by making them very costly in relation to the real needs calculated based on their initial objectives [13], thus reducing their efficiency and leading these programs to failures.

Other reasons for a policy failure are the lack of motivation to increase profits, reduce costs and increase the efficiency of the people working in the public sector, the large bureaucracy in this sector, and the conflict between the political and economic interests they have. Two directions on how failures can be avoided in these cases are the introduction of incentives for benefits and introduction of performance indicators for employees in the public sector, ensuring that competition in tendering is based not only on the most economical or lower offer but ensuring at the same time that service standards are met [17]. A major cause of government failure could be the dynamic nature of the policy-making process that the incumbent government cannot commit to measures that have to be adopted by the next government [15].

Another source of government failure is uncertainty about the consequences of policies. This may be due, as in the case of economic policy measures taken under asymmetric information, to the inability to predict the future impact of economic policies that are adopted now. One lesson to learn in this case is that in order to be effective, economic policy measures have to be well-defined [15]. It should also be borne in mind that government policies can be limited in their effect and can also worsen welfare due to the complexity of economic measures, which can be difficult for public opinion to understand. Simple policies are easier to explain and more easily approved by the public.

In a more interdisciplinary setting, taking into account laws, institutions, and the economy, the theory of government failure has recently been enriched arguing that this may be due to inefficient drafting of rules for the economy functioning. This could be too specific, or too broad, arbitrary, unfair, and in conflict with other rules the government has issued to address other (perhaps even uneconomic) issues [15; 26].

Other authors [18] formulate reasons of policy failure somewhat differently. There are four important sources of policy bankruptcy: overly optimistic expectations for policy results, distributed governance (distribution of roles or responsibilities) in their implementation, non-cooperative policy-making, and unexplained changes in the policy cycle. Contributors of over-optimism are complexity (underestimating supply challenges); evidence base (insufficient, non-objective, inaccurate, and out-of-date information on costs, deadlines, benefits, and risks); misunderstanding of stakeholders (optimism about the ability to approximate different views); behavior and incentives; challenge and responsibility (decision-makers might seek short-term effects).

Regarding distributed governance, an example would be the policy where central and local government can share certain responsibilities, e.g. for the rehabilitation or maintenance of the irrigation and drainage system. Regarding sudden and unexplained changes, we can mention the tendency of politicians to be irresponsible for policy outcomes because they know that, usually, they can leave office without consequences in case of policy failure. As a result, more and more politicians are prone to short-term policy effects. The way to limit over-optimism to the solution is the good preparation for the implementation phase, which would result in better policy-making. To limit the negative effects of the distributed (e.g. decentralized) governance the solution is to prioritize tasks or responsibilities and track them down, which would lead to better policy monitoring. To make the policy more cooperative, the solution is to support implementation, which would result in better policy impacts. To limit the negative effects of unexpected or unexplained changes the solution is to review implementation, which would result in better policy learning. Harford emphasizes that it is already clear that institutions are important for the development and reduction of poverty, and they are the key to understanding poverty in developing countries. Nevertheless, it is difficult to transform a bad institution into a good one. Corruption is also an important factor, but unfortunately, as he points out, it is not easy to change a corrupt government [27].

The causes of policy failure in the agricultural and rural sector may also be inefficient governance, poor policy-making (also due to pressure from farmers ' associations or organizations, restrictions and bureaucratic and procedural burdens on the application, strict criteria needed to fulfill in order to be eligible to apply, etc.), as well as the pressure from dominant actors at the local level (e.g., on how funds are allocated) [17]. According to a study analyzing in the case of Cameroon, the factors of agricultural policy failure can be divided into three groups: (1) natural factors (such as price fluctuations, epizootic diseases, rainfall); (2) agricultural policies (such as those on inputs and their prices, mismanagement of funds due to operational weaknesses, financial difficulties); (3) population-related factors (rural exodus, land problems, sociological factors such as lack of collective action, etc.) [28]. Some of these factors may be present in the case of Albania too.

The civil society has to play a critical role to avoid policy failures. Its role is welcomed, as literature highlights, in several aspects, such as ensuring institutional accountability and transparency regarding the monitoring and management of public finances, and enhancing public participation in the design and implementation of rural development strategies [25].

The purpose of the article

The goal of this study is to contribute to the analyses and recognition of agricultural policy failures, focusing on two of them: the lack or weak collective action in the agricultural sector and the very small and fragmented farms, by suggesting ways to improve the situation.

Material and methods. To conduct our research we used the following methods:

- review of literature on government policy failure;

- review of national strategic policies/documents regarding cooperation between farmers, or farm size;

- review of statistical evidence on farm size and cooperation;

- descriptive statistics and graphical display.

We used statistical data on farm size over the years, data on the number of farmer organizations in Albania, as well as data from international sources, such as The Global Economy.

Results and discussion

The Albanian agricultural policy has not have been immune to failures. In almost 30 years of transition, it has failed in achieving several of its objectives. Some of them may have achieved but at a high cost, or they may have fostered or created inequalities between groups of farmers, or between different areas of the country. Thus, two obvious failures of Albanian policy, which we believe are not the only ones, are weak collective action between farmers and very small farm size not changing over time.

Failure 1: Weak collective action between Albanian farmers. Collective action between farmers (horizontal cooperation) and cooperation of farmers with other actors- companies or organizations along the value chain (vertical cooperation), is considered an important factor to increase farmers' bargaining power and access to the market. This is more important in the case of very small farmers, as they are in the case of Albania [29]. Cooperation helps farmers to negotiate more favorable prices and conditions in selling their products and buying agricultural inputs. But not only that, among other things the cooperation can also facilitate farmers' access to credit, investment and advisory services they need to produce, sell, storage, and process their products. Cooperation can also facilitate innovation, introduction of new techniques, technologies and/or production methods. All this can foster their capacity to compete and be successful in the market.

Baldwin and Wyplosz [30], while analyzing the market competitiveness of countries in transition towards the EU integration, and `desirable' anti-competitive behavior, emphasizes the importance of fair public policies that increase competitiveness, instead of unfair policies (e.g., subsidies) that may reflect simply the interests of the stakeholders involved in the agricultural production or trade, or the lack of professionalism. These unfair policies can make companies more dependent on aid (e.g. subsidies) instead of increasing their market competitiveness. When they change (e.g. when the policy cycle changes), companies that have previously been somewhat competitive leave, de facto, the market because of their worsened competitiveness.

Research asserts the presence of anti-competitive behavior and the worrying lack of cooperation between farmers and other actors in the value chain in Albanian agriculture [8]. Studies have shown that the conditions for the cooperation to begin and improve after the fall of communism in Albania have existed and still continue to exist, but policies, programs, and measures to support cooperation have not been sufficient or appropriate [31].

The legal framework for cooperation in Albania mentions three different types: mutual cooperation companies, non-profit organizations, and agricultural cooperation companies. As data show, horizontal cooperation between farmers in Albania is at a very low level. In 2016, for which data are available, there were operating 179 farmers' groups (NGOs) in total with 3366 members. In-group interaction between farmers has occurred in two other ways: agricultural cooperatives and mutual cooperation societies(MCS). Across the country, there were 21 MCS with 1488 members and 19 Associations for Reciprocal Cooperation (RCA) with 260 members. According to [32] the total number of members in these groups is 5114 and presents a very small proportion of the total number of farms (Figure 1).

Source: [32].

Other studies show that factors that discourage cooperation among farmers are many: insecurity regarding private property, weak rule of law and high level of corruption, old mentality on cooperatives, lack of drivers to get out of the status-quo; lack of loans or high loan interest rates [6; 33]; lack of awareness of farmers about the benefits that could be derived from cooperation; high prices of agricultural inputs (e.g. there is no production of basic inputs in the country); lack of skills, technical and managerial knowledge and poor legacy [2; 34], the underdeveloped mentality of farmers to working in groups, farmers' adverse attitude and disbelief towards the role and benefits of cooperation, this due to but not only negative cooperation experiences in the past communistic regime. There are also opinions that public policy has not been serious and not at all active in favor of cooperation [32].

Poor interaction between farmers and agricultural development institutions is a key factor for the underdevelopment of cooperation and not the only one. Public advisory services, as one of the instruments for promoting cooperation, are scarce and unprofessional and do not respond to the needs of farmers [33]. Other research also emphasizes that main factors, which affect the willingness of farmers to cooperate, are farm size, availability of irrigation, production volume, and business climate [13; 35].

In our experience, there can also be a range of other factors that have influenced the actual situation of collective action between farmers. Among them could be the inefficient, incomplete, or delayed legislation framework on cooperation (for example incomplete secondary legislation such as decisions to be prepared and issued by the Council of Ministers, regulations, etc.); dispersed farmland property in many small, sometimes extremely small, plots as a factor contributing to limited initiatives and stimuli for cooperation among farmers; lack of substantial and continuing state financial support for farmers to motivate them for collective action concerningproduction, financing, and marketing (for example participating in common investment projects for the production, storing, sale of products or buying of farm inputs).

Failure 2: Very small and fragmented farms of Albania. Land reform carried out (based on the law No. 7501, July 1991) resulted in small farms and fragmentation into many small plots, often far from the farmer's residence, which also led to the fact that the land remained unused [36]. As a result ofthe reform, about 480 thousand small family farms were created with 1.8 million plots and with an average size of plots of 0.25 ha.

Currently, 80 % of the total area of agricultural land has passed into private ownership, while 20 % has remained in state ownership. The average farm size changed slightly over the years. In the mid-90s the average farm size was 1.05 ha with 3,3 plots per farm. In 2011 there were 388697 farms with a size of 1.26 ha with 4.7 plots with an average of 0.27 ha [9]. The average farm in Albania gradually increased from 1.04 ha in 2000 to about 1.16 ha in 2014 [30, cit. INSTAT, 2012, 2017]. Figure 2 indicates the dynamics of farm size over years. No data on actual farm size are made available from the official sources (INSTAT). Because of this, usually, researchers tend to refer to 2012 or 2014 data when they need to discuss farm size. In our research, the farm size for the year 2020 is our very optimistic forecast.

Figure 2. Farm size dynamics in Albania, ha

Source: [37; 1].

Table 1 indicates that Albanian farms are not only small in their average size but that the majority of them or about 67 % of farms are less than 1 hectare in size and only

9.3 % are bigger than 2 hectares.

Table 1Farm structure by size in Albania

11. Deininger, K., Savastano, S., & Carletto, C. (2012). Land fragmentation, cropland abandonment, and land market operation in Albania. Policy Research Working Paper No. 6032. World Bank, Washington, DC. Available at: https://openknowledge.worldbank.org/handle/10986/6034.

12. Winston, C. (2006). Government failure versus market failure: microeconomics policy research and government performance. Available at: https://lyd.org/wp-content/uploads/2012/04/government-failure-versus-market- failure.pdf.

13. Riley, G. (2004). Government Failure. Study notes. Available at: https://www.tutor2u.net/economics/reference/government-failure.