Factors Affecting the Olive Production Chain in Albania
EGLANTINA PAZAJ, ANA KAPAJ (MANE)
Faculty of Economy and Agribusiness,
Agricultural University of Tirana, Tirana,
ALBANIA
Abstract: Olive processing in Albania is seen as a very profitable sector, mainly in recent years for many agro-
processing companies. There has been an increase in the planting of olive trees. The government has also increased
support policies for many olive growers by providing various grants or subsidies. The trend of olive production has
fluctuated and as a result, the production of olive oil has fluctuated. Both these sectors, production and processing,
have reflected many problems in the chain between them. The chain of the agribusiness system does not function
properly between them as there is a lack of mutual connection between all actors in the system. There are many
factors but some of them can be avoided by giving through this study some possible solutions. The main objective
of this study consists in finding possible solutions to the problems faced by the agribusiness system. Also,
informing the system’s actors about the benefits of signing agricultural contracts between them. We will focus
mainly on one of the chains of the system, the olive oil processing, to present some of the problems faced by this
sector and then to offer some possible solutions, first of all, from the point of view of the relationship that must
exist between all actors involved in the system.
Keywords: Agribusiness system, system actors, olive agro-processing sector, possible solutions, olive supply chain.
Received: June 29, 2022. Revised: January 14, 2023. Accepted: February 6, 2023. Published: February 28, 2023.
1 Introduction
In recent years, attention has returned to the olive
production and processing sector by farmers, agro-
processors and government, as this sector is seen as
very profitable. After the 1990s, this sector suffered a
lot of losses as investments decreased significantly as
well as for many other factors. Today investments are
increasing more and more even though the problems
faced by farmers and processors are numerous,
10The production capacity of agro-industries in
our country is also low and the percentage of
utilization of these capacities is not always high.
Technology of production is one of the main factors
affecting a low production capacity, 16 Most agro-
industries don’t use modern technology. Although
many agro-industries have opened up, in most cases,
they have bought used technology and not a new and
up to date one. This affects the increase in production
costs for agro-processors, 6 Another factor that
affects the low production capacity is the climatic
variability, as well as the geographical extent of the
olive plantation, which does not extend to the entire
territory of the country. The agro-food sector is
facing new and important challenges. These
challenges are the consequence of the profound
changes that have recently affected the national and
international economic scenario, 12. Agro-
processing enterprises in our country are mostly
small. The workers who work in them can be family
members but also paid workers, 13. From the
interviews conducted, the respondents found it
difficult to show the number of employees as a good
part of them did not declare themselves and didn't
pay taxes, increasing the level of informality. The
agro-processor is also the owner of the enterprise and
plays the role of agro-processor and technologist,
even managing the enterprise's revenue since most of
these factories were small. In these enterprises, there
is no good management with specialized individuals
trained according to the respective specialties and the
quality of production turns out to be low, 24. This
factor, but also others, make our country suffer from
a low level of competition and producers are forced
to accept low incomes by not being able to compete
with imported products and not being able to export
their products as they do not meet European
standards. Olives are usually produced from October
until the end of February. So it is a seasonal
production, 4. Agro-processing enterprises are set
up mainly near the areas where olives are cultivated,
since the olives must be processed within 2-3 hours
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Volume 20, 2023
from the moment they are harvested so that the
production of oil is of the highest quality, 9 Olive
oil production varies as olive production is not
annual (so olives produce one year and one year not),
which limits the supply of this product.
The city that had the highest olive production is
Berat with 38 thousand tons of olives. Then Fier with
33 thousand tons of olives and Vlora with 17
thousand tons of olives. Other districts have lower
olive production, 18 Domestic production of olives
covers the needs of consumers in the domestic
market and another significant part of this production
is spent on processing olive oil. According to the
Institute of Statistics, of the total olive production,
79% is represented by oil olives and 21% by table
olives. During these years, there has been a
continuous increase in investments in the olive oil
processing industry, thus influencing the increase of
the quality and standards of olive oil, the demand for
which has also started to increase in the European
markets. As olive culture is a centuries-old tradition,
the value and importance of olive production have
been supported by the government through the
provision of various subsidies or grants and the
development of supportive policies for this sector.
Another problem that the processors faced during
2019 was the change of the scheme on
reimbursement of value-added tax, where from 20%,
it became reimbursable in the amount of only 6%.
The impact of change of this scheme directly affected
the increase of production costs by domestic
processors as well as the increase of oil imported
mainly from Greece because the cost is lower than to
be produced domestically, 17. The escalation of the
VAT (value-added tax) refund scheme and the lack
of support from exporters reduced the interest of
olive oil companies in finding new markets.
In 2020, a boom in olive and olive oil production
was achieved, however, oil exports remain at low
levels. Facing the pandemic "Covid 19" where there
was an increasing trend of consumption of olive oil
as consumers tended to consume healthier and more
organic products. Quarantine during the pandemic
has affected the restriction of movements of
individuals. It also hurt the supply of individuals with
olive oil from neighboring countries due to pandemic
restrictions. Thus the demand for local olive oil
increased. The closure of restaurants and the
restriction of movement during this period affected
the reduction of consumption.
Another problem faced by processors during this
time was the fact that being "small" in the market.
Most farmers process their own olive oil production,
so very few sell in the market. Few factories are large
and don’t invest to increase their profits. They sell
products without packaging or their logo. This makes
it more difficult to increase their image, market
power, and profits, 20
High sales informality continues to be one of the
main problems for this sector but not only. Farmers
prefer to sell their olive oil production in the market
in informal ways, not declaring for avoiding the
taxes. Sales are made by farmers directly on the
“black” market, or by selling the oil to relatives or
acquaintances. According to the study, farmers
informally cover 90% of market demand while the
rest is covered by local processors 5% and imports
5%. This high degree of informality affects the
reduction of the profits of the actors in the system. It
also affects the unfair competition between the actors
in the system. Also, the raw material (olive) that is
sold to processors, has to be analyzed adding more
cost to the final production. These factors have
influenced an increasing trend in the price of olive oil
and at the same time has oriented the processors to
import the raw material as it gives them a lower cost
in production. Overproduction was seen as profitable
only for farmers as they, after processing olive oil,
sell it on the black market. Thus, the processors not
only realize low sales in the domestic market but are
not able to export high quantities of olive oil due to
fluctuations in production from year to year, a
problem which is related to the impossibility of
concluding long-term contracts with foreigners, to
operate in international markets.
The end of 2020 (October, November, and
December) reflected an overproduction of olives in
our country. Olive oil from this production began to
be sold in the market from January 2021 onwards.
Overproduction of oil in 2021 had an immediate
impact on lowering the price of oil in the domestic
market and a negative impact on consumer
confidence in the 'doubtful' quality of oil as
according to consumer perception a high-quality
product reflects a high price in the market. The end
of 2021 resulted in a low production of olives in the
country and consequently the reduction of oil
production for 2022.
Olive processing in our country is done mainly in
two forms: oil production and salting for table olives.
The survey shows that most processors function as
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service businesses to farmers and a small number
function as service businesses and as factories for the
production of olive oil with the destination the
market. However, agro-processors are expanding
their production activities by increasing the amount
of oil produced for sale because the demand for
consumption of this product is growing more and
more, due to its high value. In addition to oil
production, some factories process olives directly for
consumption. Some of the products provided by olive
in our market are olive oil for farmer use, "extra
virgin" olive oil, "virgin" olive oil, "extra virgin
organic" oil and "salted grain" olive. Out of 100
agro-processors interviewed, only five of them
produce "extra virgin" olive oil according to
European standards as a result of the modern
technology they use. These factories have exported
the product of "extra virgin" oil to countries such as
Switzerland, USA, Italy, Spain, etc. They have
participated in various fairs, and even have won
different awards. Most agro-processors as they are
not very large in terms of the quantity they produce,
fail to create a brand of their own. They also face
many difficulties in selling their products. The
production of olive oil for most agro-processors has
very high acidity and does not meet European
standards, so they cannot export their products.
But also in the domestic market, it is difficult to
sell the product, even though consumer demand has
increased. Influencing factors are numerous, such as
not having a brand of their own to be presented to the
consumer, being away from local or regional
markets, lacking product marketing, lacking support
from the state, etc.
The processors could obtain the raw material
directly from farmers, from commercial
intermediaries, or they could produce a part of it
themselves. Usually, the factory connects with
farmers, and relatives of the area to buy their
products and chooses those farmers who are more
reliable and who produce high-quality olives to
increase the production yield of olive oil but also the
quality. However, there was no agricultural contract
concluded (in written form) between the farmer and
the factory. The contracts are totally informal where
the parties verbally agreed on the quantity, quality,
and selling price of the product. In terms of raw
material supply, observations show that some agro-
processors manage to produce a small part of the raw
material and buy the rest either directly from the
farmer or the majority of collectors. But there are
also those agro-processors who do not produce the
raw material themselves but provide it by buying it
either directly to the farmer, to the wholesale
collectors, or both the farmer and the collectors,
although they are not numerous. Also from the
observations made in 100 agro-processors, it resulted
that only three of them used both domestic and
imported raw materials while the rest, 97 agro-
processors used 100% local raw materials. The
opening of new olive groves is growing, and the
supply of local raw materials is growing. In general,
agro-processors wanted to have an impact on the
above issues, but almost all agro-processors were
only interested in identifying the producers they
could produce for them and were not interested in the
way or technical-financial conditions that would
produce the raw material. Although everyone was
interested in a good quality product, the supply of
raw materials to be realized on time, etc. again they
were reluctant to invest in this sector. This is because
the mutual interaction between the actors in the
system is still very weak. Our country, compared to
neighboring countries like Italy, and Greece has a
negligible production of olive oil. There are many
reasons behind this such as, farmers' olive plots are
mainly on hilly terrain and make it difficult for
farmers to perform all the necessary services on the
plots, fragmentation of parcels, lack of financial
maintenance of olive roots, lack of labor force due to
emigration, etc.
Exports are low due to the instability of
production from year to year although some
processors produce high-quality oil. The signing of
agricultural contracts between farmers and processors
is seen as a way towards improving this. Another
possible solution would be the creation of
agricultural cooperatives to merge plots planted with
olives reducing fragmentation. At the same time, the
creation of agricultural cooperatives between farmers
would make it possible to increase production, find a
common market, and increase income. This would
have a positive impact on the growth of exports.
Fluctuations in production are the main factor for low
levels of exports of olive oil. Another big problem in
our country for which a solution has not been found
yet, is the division of lands according to law 7501
where the land is not divided according to the land
owners but the division is made according to the
family members, 5 Today there are about 44
thousand farmers who cultivate olives on fragmented
plots of land, on average between 50 to 500 olive
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roots. This causes a low production, thus reducing
the possibility of gaining a place in European
markets. Fragmentation makes production inefficient
to benefit from economies of scale. Thus our country
will continue to have a low production of olive oil
and be sold at high prices.
The focus of processors on the production of
organic oil and its certification would greatly affect
the growth of exports but the lack of specific
knowledge on organic products of agronomists
according to the standards required by the EU
remains a problem.
2 Literature Review
Olive oil is a typically Mediterranean product with a
production that is essentially limited to a few
countries that are located along the northern and
southern Mediterranean shores, with consumption
that has historically been primarily confined to the
region, 214. Recent generic and commercial
promotion efforts have somewhat stimulated interest
in consumption and remain highly concentrated in
production areas, particularly in the European Union.
Although global production and consumption have
increased significantly, olive oil continues to occupy
a small share in the market of liquid vegetable oils, as
its share does not exceed 4%. This is why, even in
producing countries, consumers, families, and
restaurants easily substitute olive oil with maize or
sunflower oils and butter, 22.
Over the past decade, the world food and
agribusiness system has experienced rapid
internationalization, and the olive oil industry has
been no exception. The gradual increase in world
production and the relative stability of consumption
in major traditional markets have prompted olive oil
operators to look abroad for growth opportunities,
15
The research approaches to agribusiness systems
have shown a pattern of evolution from individual
markets toward chains, networks, and systems
perspectives and the introduction of institutions.
Different theories explain parts of the complex
coordination mechanisms, ranging from price theory
to new institutional and property rights, evolutionist,
and resource views. The new institutional approach
considers that institutions matter and are susceptible
to analysis, 23
Coordination in the supply chain through
contracting or vertical integration is an efficient way
to cope with high transaction costs, 21, whereas the
use of spot or open market systems is not efficient.
Transaction costs arise from contact and negotiation
between buyers and sellers and are stimulated by
opportunistic behavior and the asymmetry of
information between the buyer and seller in the
supply chain. Vertical coordination can take different
forms. Auction and spot markets indicate the lowest
level of coordination, which is characterized by
short-term relationships, opportunism, and limited
information sharing, 3 With increasing vertical
coordination, the coordination becomes managed
internally and the members of the supply chain share
open information, characterized by long-term
relationships and mutual interest, 1
The factors that determine the success of
producer organizations (POs) EU Member States in
agri-food world markets, current competitive position
and perspectives and cooperatives in food chains
relate to: (a) position in the food supply chain, (b)
internal governance, and (c) the institutional
environment.
The role of farming previously dedicated mainly to
food production changed with increasing recognition
of the multifunctionality of agriculture and rural
areas. It seems obvious to expect that farmers and
rural actors adapt themselves to these new
conditions, which are innovative and redefine their
job. In many regions farmers can increase their
income basis as rural entrepreneurs, developing new
services and exploring new markets, 11
3 Methodology
For this study we have collected information from
100 olive producers in Albania. The sample size has
been selected in the areas that are the major olive
producers in Albania, Vlora, Berati, Elbasani and
Tirana. Despite the descriptive analysis, in the
analytical part of this study we have been focusing on
a very specific problem that involves the whole
agribusiness section in Albania, the “will of
producers to sign contracts”.
Our focus has been to investigate and analyze the
factors influencing producers’ possibility to sign
contracts before selling their products. According to
the previous investigation of the Albanian market,
the lack of contracts has been one of the most
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negative aspects of Albanian trade. Regarding the
factors that hypothetically will affect the possibility
of having a contract, we have conducted a review of
previous research, 8 Some of these factors that we
believe are the most important have been included in
this research and introduced to the farmers so they
could give their opinion on that.
We have used econometric models to evaluate
the effects and the importance that each of these
factors has in the possibility of signing contracts. As
a dependent variable, we used “Will to contract” and
as independent variables, we used “Education”,
“Years in business”, “Average quantity of
production”, and “Risk”.
As the dependent variable, “Will to contract” is
measured as a dummy variable, we have used as the
most appropriate model the binary logistic model.
According to the data analysis, we have first run a
correlation matrix, to see how the variables correlate
with each other. (Table 1) As we can see from the
results the correlation is significant for most of the
factors for a significance level till 5%, and is
significant for all of them significance level till 10%.
So based on this we have run the model including all
the factors that we have supposed that influence the
will to contract.
Table 1. Correlations matrix
Contract
Education
Years
Prod.
Risk
Spearma
n's rho
Contract
Correlation Coef.
1.00
.279**
.119
.152*
-.006*
Sig. (2-tailed)
.
.000
.073
.021
.032
N
100
100
100
100
100
Education
Correlation Coef.
.279**
1.000
.005
.152*
.032
Sig. (2-tailed)
.000
.
.940
.021
.632
N
100
100
100
100
100
Years
Correlation Coef.
.119
.005
1.000
-.027
-.026
Sig. (2-tailed)
.073
.940
.
.684
.696
N
100
100
100
100
100
Prod.
Correlation Coef.
.152*
.152*
-.027
1.000
.073
Sig. (2-tailed)
.021
.021
.684
.
.272
N
100
100
100
100
100
Risk
Correlation Coef.
-.006*
.032
-.026
.073
1.000
Sig. (2-tailed)
.032
.063
.696
.272
.
N
100
100
100
100
100
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Table 2. Binary Logistic Regression
Model Summary
Step
-2 Log likelihood
Cox & Snell R Square
Nagelkerke R Square
1
207.299a
.113
.176
a. Estimation terminated at iteration number 6 because parameter estimates changed by less than .001.
Hosmer and Lemeshow Test
Step
Chi-square
df
Sig.
1
26.156
8
.001
Variables in the Equation
B
S.E.
Wald
df
Sig.
Exp(B)
Step 1a
Education
.539
.307
3.079
1
.009
1.714
Years
1.879
1.052
3.191
1
.074
6.546
Prod.
.768
.216
12.635
1
.000
2.155
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Risk
1.061
.306
10.435
1
.005
1.450
Constant
-2.585
1.035
6.232
1
.013
.075
a. Variable(s) entered on step 1: Education, Years, Prod., Risk
Source: Pazaj, 2021
The binary logistic model reveals that explanatory
variables show a greater variation in the dependent
variable (Omnibus test is significant). This means
that Education, Years, Prod., and Risk, are the main
factors affecting the business’s decision to perform
contracts. (Table 2)
From the variables in table 2, it appears that
Education and Production have a significant effect
on the dependent variable - “Will to contract”. So,
when we go from one to the other category in
―Education Variable (from lower to higher
educated farmers) the chance to sign contracts
increases by 1.71 times with respect to the
preceding category. Meanwhile, when we go from
the lower to higher categories in the Production
level variable, the chances to sign contracts increase
by 2.15 times more than the preceding category.
Using the Cronbach Alpha coefficient
Cronbach’s alpha is a measure of internal
consistency, that is, how closely related a set of items
are as a group. It is considered to be a measure of
scale reliability. A “high” value for alpha does not
imply that the measure is unidimensional. If, in
addition to measuring internal consistency, you wish
to provide evidence that the scale in question is
unidimensional, additional analyses can be
performed, 7 Exploratory factor analysis is one
method of checking dimensionality. Technically
speaking, Cronbach’s alpha is not a statistical test – it
is a coefficient of reliability (or consistency).
The Cronbach’s alpha coefficient can also be used to
assess the problems of agricultural contracts. This
coefficient expresses the internal consistency of
answers regarding the issue of contracts (in our case):
The alpha coefficient is calculated:
)1(
1K
K
2
K
1i
2
i
Where K is the number of questions or variables, σ2i
is the variance of the answers to the i-th question, and
σ2 is the variance for the sum of the answers to all the
questions. If this coefficient turns out to be greater
than 0.8 so the closer to the value 1 the greater will
be the internal consistency (coherence) of the
answers given by different respondents regarding the
problems of contracts.
It is common to see the reliability of instruments
used in published science education studies framed in
terms of a statistic known as Cronbach’s alpha.
Cronbach’s alpha has been described as one of the
most important and pervasive statistics in research
involving test construction and used to the extent that
its use in research with multiple-item measurements
is considered routine, 19 Alpha is commonly
reported for the development of scales intended to
measure attitudes and other affective constructs.
In our study the calculation of this coefficient is as
follows:
9.0)
85.113
775.18
1(
113
13
The coefficient shows the internal consistency of the
answers of different respondents about the problem,
so there is a good consistency of their answers
regarding the questions asked, which shows that the
questions asked to evaluate the problems of the
contracts.
The first hypothesis was evaluated using the
Cronbach Alpha coefficient. This coefficient turns
out to be 0.9. So it is a very high value which
explains quite well the problem of contracts
evaluated by the possibility of concluding contracts,
the possibility of contract implementation, the
possibility of providing reliable partners, the
possibility of securing a good price, the reliability of
partners, limited supply, reliability in arbitration
bodies, implementation of contracts in terms of
quantity, quality, supply time and supply risk. So all
the above factors explain well the problem of
contracts if the focus of the analysis is the possibility
of concluding and the effects of contracts.
4 Conclusions and Recommendation
According to the results of this study very few firms
use a logo for the sale of their product, which results
to be a problem in finding a market share. Another
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problem for the processing firms remains the
transport, where in most cases the farmers do not
have the opportunity to do it themselves, and thus the
responsibility for this falls on the processing
enterprise itself. Since the sales markets are not well
organized, the existence of difficulty in selling
products in the market is noticed. Farmers sell their
products on the street, directly in processors, or at
collection points. The informality of sales of farmers
who prefer to sell their olive oil production in the
market, in informal and undeclared ways is another
problem for olive processors. During this study, it
was noticed that investments by the government in
both the olive production and processing sector are
not sufficient.
Today processors are dependent on farmers for
both the quality and quantity of raw material supply.
There is an inaccurate declaration of the number of
employees in the agro-processing industry and a
significant lack of relevant specialists. Olive
processors have a low degree of competitiveness in
international markets. In general, there are
significant problems regarding the implementation of
contracts. The culture of implementing an official
document, such as a signed contract, has not yet
begun.
In the statistical model, the risk explains only
11.4% of the possibility of concluding contracts
while the bond strength, in this case, is positive but
not very close to the unit. So the risk has a positive
impact but is not too great on the possibility of
concluding contracts.
It is noticed that the quantitative implementation
of contracts has a positive impact on the possibility
of concluding contracts and explains only 25% of it
while the rest is explained by other remaining factors.
Neither the Albanian farmers nor agro-processors
in question did not have any written and signed
contract, but the farmer-agro-processing agreement
was realized mainly orally, for sales that took place
within the country. The problems regarding the
binding of contracts are present and critical among
farmers and agro-processors. This was also
confirmed by the coefficient Cronbach Alpha (0.9)
according to which there is an internal consistency of
the answers of different respondents about the above
problems raised for agricultural contracts which
shows that the questions asked to appreciate the
problem of contracts.
According to analysis of variance it is confirmed
through that all interviewed farmers generally give
the same opinion about contracts, so they are not
differentiated by gender, education, or profession.
For all three of these indicators, the differences do
not turn out to be significant. The olive oil product is
to be offered on the market by the processors with
suitable packaging as well as to contain the logo or
the brand of the firm.
The comparative advantages of locally produced
olive oil in international markets should be taken into
account and the aim should be to increase product
quality according to established standards, increase
exports and decrease imports, build favorable
policies for the further development of olive groves
or improvement of existing olive groves. Continuous
state control over the grants given to this sector
should be increased to avoid any possible abuse. The
development of supporting policies for the olive
agro-processing sector, both for technological
improvement and for the creation of healthy
factories, should be a priority for government
policies.
For processors to be successful in their activity,
we recommend entering into long-term contracts
with suppliers. Also, they should support them with
the necessary agro-technical services and provide
them with financial assistance. To enable the creation
of cooperatives between farmers to increase
production, to improve the production of olive oil,
both in terms of quality and quantity, strategies must
be built that make it possible to fight olive diseases.
Transportation of olives to agro-processors should be
done with plastic baskets to ventilate the olives and
not with plastic bags as they would affect a lower
quality of olive oil.
Processors are recommended to increase their
production capacity and set as a primary strategy the
growth of their business and increase the production
of olive oil for sale. For the processing sector to have
a long-term and sustainable development of the
industry, the current processors must invest in the
extraction of their oil brands and market this product
in both national and international markets. Increasing
the production of olive oil should be based on
investments in new and modern industries which
would then increase the quality of the oil.
The quality of the oil must be supported by a
control and certification system to be competitive in
both the internal and external markets. For this, the
network of control and certification laboratories
needs to be modernized. Government should
establish structures for quality control of food
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products, thus increasing control to increase the
quality of the product according to international
standards. It is also necessary to establish
laboratories to create production standards.
All the above conclusions can serve as advice
also for food industry and food technology
businesses in order to improve and stabilize the
relationship they have with olive producers. It is very
important for both sides, Olive producers and
industry, to have a stability in their business’
relations. Contracts will help this process.
Olive oil processing chain in Albania has been
changing a lot in the last years, but still it does not
fulfill all the needs of the olive producers. This study
might help as a start towards the improvement of the
transactions and relations within this sector.
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
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that are relevant to the content of this article.
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