In Albania contract farming schemes are most commonly used for fruits, vegetables and dairy. One of the characteristics of the domestic agrifood sector is that the majority of producing farms are small. This in turn means supply chains are short as Albania possesses a developed and growing network of collection and storage centres. Furthermore, the majority of collectors operate in separate territorial zones. As a consequence, they only maintain contractual relationships with farmers in the same region. On the other hand, farmers might experience difficulties shifting their business relations to buyers that are located in a different area of the country. These factors indicate a certain level of buyer dominance on the relevant markets, especially at the regional level.

Albania does not have laws specifically covering contract farming. Like in most European Union countries, there are no explicit regulations on formalized, written agricultural contracts in place. Each country is hence free to decide under their national contract law whether the use of written contracts should be implemented on a compulsory basis or not.

In Albania the Civil Code constitutes the main legal instrument covering the contractual relation between producers and buyers. The current framework has only been in place since 1994, a short period for contract law to be established and strengthened.

The Civil Code enables the producer and the buyer to conclude a contract for the purpose of transferring property without restrictions. This is only a recent development as previously, under the socialist regime, property could not be owned in the vast majority of cases. So-called “socialist property” was defined by law as “state property and the property of agricultural cooperatives”.^[1] Rural farmers and workers were able to form agricultural cooperatives and jointly own property. However, due to the restrictive nature of such regulations the sale of goods and capital was not allowed and sale contracts were redundant.

The above explains why laws dealing with contractual obligations, especially in the area of contract farming, are still relatively underdeveloped. In order to improve the understanding and to support further development of the contract farming environment in Albania, FAO and GIZ are working together with the government of Albania to analyze the regulatory framework for contract farming together with the socio-economic arrangements taking place in the country. The regulatory assessment includes carrying out a mapping of the legal framework and a gap analysis. The following section provides a brief overview of the preliminary findings.

[1] See Article 17 of the Socialist Constitution.

In default of a specific legal framework, contractual arrangements between agrifood producers and buyers are governed chiefly by the Albanian Civil Code. This Code offers three main types of rules: general obligations applicable to all contracts, rules relating to sale contracts and measures to counteract the abuse of dominant buyer power, which are further regulated by the Albanian Competition Law.

• The general obligations are applicable to all types of contracts. The main legal aspects consider the formation of a contract in good faith and essential clauses the content is based on, including the termination of the contract and remedies in order to enforce contractual obligations.  In particular, the essential terms required in the Albanian Civil Code must include clarifications regarding the price, quality and quantity of goods with regards to contract farming. In case of unbalanced professional knowledge, the more skillful party has the obligation to provide information, instructions and/or technical assistance in good faith to the other party. Regarding the applicable law, the Civil Code only relates to contractual agreements where the parties, the production site and the processing site are all located in Albania. If these legal elements are linked to more than one country, the parties are not limited to the Albanian law and have the freedom of choice.^[1] In cases where the applicable law has not been explicitly stated in the contractual agreement, the legal framework of the country where the seller has his or her residence shall be chosen.^[2]
• The provisions related to contracts of sale of goods are essential to contract farming in Albania. A contract farming agreement often, but not always, resembles a contract for the sale of future goods. The Civil Code provides primary obligations for both parties with regards to the sale of goods. Sellers are obliged to supply the goods, while buyers have the goods delivered and to pay for them. The Code further clarifies rules related to setting and paying the price as well as specific remedies for the buyer/contractor.

[1] Article 45 of Law No 10428/2011.

[2] Article 46 (1) (a) of Law No 10428/2011 transposing Article 4 of Rome I Regulation.

The Competition Law dictates regulations in order to support the achievement of fair contract conditions and avoid abuse of dominant positions. Market competitiveness can result in unfair behaviour under certain circumstances. Buyers can abuse their dominant positions through aggressive negotiations or the request of unsuitable production standards which can result in disadvantages for the farmers via decreased producer prices and restricted competition due to output limitation. Another major competition concern relates to the activity of farmers organizations in contract negotiations. With regards to the bargaining power of the buyer, farmers should be enabled to profit from fairer distribution along the supply chain. The Competition Law does not directly regulate the contract, but it can affect the contract relationship as a whole. It can prevent both contractors and producers from acting in ways that can limit competition. Especially with regards to buyer power, competition law tries to address the issues by prohibiting unfair prices, limitations of production, dissimilar conditions to equivalent transactions and unreasonably connecting the contract to supplementary obligations. These measurements are instrumental as buyer power may also manifest at the regional level, not necessarily only at the national. On the other hand, the Competition Law rules prohibit producer organizations from jointly negotiating prices on behalf of their members without exceptions. Such regulations are not yet needed in practice due to the lack of large agroprocessors and retailers, but they could become useful for future developments.

Arbitration and mediation are alternative possibilities to settle disputes outside of courts. Arbitration is similar to an informal court trial with parties giving evidence where the dispute is submitted to a neutral arbitrator whose decision is binding. Mediation is an extrajudicial process that involves a third neutral party and does not settle the dispute until both parties agree.

A Law on Arbitration has been recently drafted but has not been passed. As a result, the few cases which have ended up in arbitration have been adjudicated by international arbitration courts outside Albania and domestic arbitration is just inexistent. In fact, the Centre for Mediation and Commercial Arbitration, established in 2002, has handled just a small amount of cases due to the fact that parties have preferred to settle cases in international arbitration courts instead. Additionally, the lack of a solid domestic Arbitration Law reduces the efficiency of business related mediation processes.

Mediation is regulated by a Civil Code section on Mediation in Dispute Resolution, and a specific Law on Mediation. In case of conflict, the specific Mediation Law prevails over the general regulations stated in the Civil Code. The Mediation Law provides that, through the assistance of a third neutral party that is part of the Register of Mediators, an agreement should be developed which is in line with the law and the acceptable to both parties. Once a solution is established an act-agreement is signed by all the parties involved. The resolution is binding and equally enforceable as arbitration decisions. This regulation makes the implementation of mediation mechanisms conditional to arbitration processes, but as explained earlier there is a regulatory gap regarding arbitration in Albania. As a result, the uptake of these mechanisms is extremely low.

The three areas of laws described above have a strong influence on the enabling environment for contract farming schemes in Albania. The constitution of the Civil Code or the elimination of certain laws that limited farmers to own property only collectively have supported the establishment and improvement of business relations between producers and buyers in the food sector. Nevertheless, the relatively young legislative framework offers room for improvement with regards to agribusiness related matters. 

The Albanian law does not specifically deal with issues of contractual breaches, associated economic damages or unfair contractual terms relating to agribusiness supplies. As the domestic civil law is not fully developed yet, fair legal protection cannot always be ensured. This is particularly important for the weaker party, which is often the farmers’ side. Furthermore, regulations regarding arbitration or mediation mechanisms are much needed in order to boost the national economy and provide safety for producers and buyers.

It is hoped that the cooperation between the Albanian government, the FAO and GIZ may lead to legislative changes in the future to address the gaps identified.