Required Report - public distribution

**Date:** 4/06/2007

**GAIN Report Number:** BU7006

BU7005

**Bulgaria**

**Trade Policy Monitoring**

**EU accession impact on Bulgaria**

**2007**

**Approved by:**

![](media/image1.wmf)Susan Reid

U.S. Embassy

**Prepared by:**

Mila Boshnakova

**Report Highlights:**

Bulgaria's accession to the European Union is expected to have a
significant impact on the country's agricultural and food sector and
trade. The most significant changes are likely to come from adoption of
the Common Agricultural Policy, new regulatory requirements, and
application of new external tariffs. Despite substantial EU assistance,
far exceeding domestic support in pre-2006 period, structural and
administration problems are expected to limit the country's potential to
absorb funding in 2007.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Sofia \[BU1\]

\[BU\]

#  

[Executive Summary 3](#executive-summary)

[Key Problems of Bulgarian Agriculture
3](#key-problems-of-bulgarian-agriculture)

[EU funding 4](#eu-funding)

[Table 1. Financial framework for EU Funds in Bulgaria under the
National Strategic Referent Framework (NSRF) 2007-2013, Euro
6](#table-1.-financial-framework-for-eu-funds-in-bulgaria-under-the-national-strategic-referent-framework-nsrf-2007-2013-million-euro)

[EU funding for Agriculture 7](#eu-funding-for-agriculture)

[Paying Agriculturalency 7](#paying-agency)

[Pillar I: Market Measures 8](#pillar-i-market-measures)

[Pillar II: Rural Development 10](#pillar-ii-rural-development)

[Table 2. Allocations for Bulgaria under EAFRD for the period 2007-2013,
in million Euro. 11](#in-million-euro.)

[Table 3. Proposed Budget Distribution under Axes of EAFRD
11](#table-3.-proposed-budget-distribution-under-axes-of-eafrd)

[Trade Policy 12](#trade-policy)

[Import tariffs 12](#import-tariffs)

[Table 4. Comparison of tariffs applied in Bulgaria in 2006 and in the
EU
13](#table-4.-comparison-of-tariffs-applied-in-bulgaria-in-2006-and-in-the-eu)

[Best prospects for U.S. exporters
14](#best-prospects-for-u.s.-exporters)

[EU membership impact on the agricultural sector
15](#eu-membership-impact-on-the-agricultural-sector)

[Grains and oilseeds sector 15](#grains-and-oilseeds-sector)

[Table 5. Grain and oilseeds trade, CY2005 and 2006, MT
16](#table-5.-grain-and-oilseeds-trade-cy2005-and-2006-mt)

[Sugar sector 16](#sugar-sector)

[Dairy sector 17](#dairy-sector)

[Table 6. Number of dairy livestock in Bulgaria, 2006 and 2005, head
18](#table-6.-number-of-dairy-livestock-in-bulgaria-2006-and-2005-head)

[Table 7. Cow Milk Production and Distribution in Bulgaria 2003-2005,
000 liters
18](#table-7.-cow-milk-production-and-distribution-in-bulgaria-2003-2005-000-liters)

[Table 8. Development of milk production and distribution, 2004-2005
20](#table-8.-development-of-milk-production-and-distribution-2004-2005)

[Table 9. Trade in dairy products, 2005 and 2006, MT
21](#table-9.-trade-in-dairy-products-2005-and-2006-mt)

[Red meat sector 21](#red-meat-sector)

[Swine and pork sector 21](#swine-and-pork-sector)

[Trade 22](#trade)

[Beef meat 22](#beef-meat)

[Sheep and goat meat 23](#sheep-and-goat-meat)

[Table 10. Trade in meats, 2005 and 2006, MT
23](#table-10.-trade-in-meats-2005-and-2006-mt)

[Poultry sector 24](#poultry-sector)

[Trade 24](#trade-1)

[Vine and wine sector 24](#vine-and-wine-sector)

[Table 11. Wine production in 2002-2005, hectoliters
25](#table-11.-wine-production-in-2002-2005-thousand-liters)

[Table 12. Wine production in 2005 according to declarations, liters
25](#table-12.-wine-production-in-2005-according-to-declarations-thousand-liters)

[Trade 26](#trade-2)

[Table 13. Exports of wines 2001-2005, hectoliters
26](#table-13.-exports-of-wines-2001-2005-thousand-liters)

[Table 14. Exports of bottled wines, 2004-2005
27](#table-14.-exports-of-bottled-wines-2004-2005)

[Table 15. Exports of bulk wines, 2004-2005.
27](#table-15.-exports-of-bulk-wines-2004-2005.)

[Fruits and vegetables sector 27](#fruits-and-vegetables-sector)

[Table 16. Trade in fruits and vegetables, 2005-2006, MT
29](#table-16.-trade-in-fruits-and-vegetables-2005-2006-mt)

[Tobacco 29](#tobacco)

[Table 17. Trade in tobacco, 2005-2006, MT
29](#table-17.-trade-in-tobacco-2005-2006-mt)

[Organic production 29](#organic-production)

[Land market 30](#land-market)

#   {#section-1 .unnumbered}

# Executive Summary

Bulgaria's accession to the European Union (EU) is expected to
significantly impact the agricultural and food sectors because of its
integration into the Single Market and its adoption of the Common
Agricultural Policy (CAP). Local farming and food industries are likely
to have limited access to EU funding during the first year of membership
due to a number of issues related to delayed accreditation of
institutions, late approval and coordination of strategic programs, and
underdeveloped administrative capacity for disbursement and control of
EU funds.

Domestic support for agriculture in 2007 is expected to be limited and
lower than in 2006 when the sector relied on national budget funds. The
first direct payments are likely to be paid to farmers no earlier than
November 2007, and the first applications under the Rural Development
Fund are anticipated to arrive after mid-2007. The agricultural/food
sector has an option to apply under operational programs, however, these
programs were approved by the GOB in early March (and not yet by the
EU), and the actual use of funds is not likely to occur before the fall
of 2007. Many agricultural producers will be left without direct
payments due to their smaller size and lack of producer organizations.

The meat and dairy sectors will face severe challenges due to the
absence of substantial support for livestock businesses. At the same
time, the sector will be exposed to significant competitive pressure
from the old and new EU member states (MS). Intra-community free
movement of goods, labor and capital will stimulate competition and
force local producers to adapt to the new safety and quality standards.
Export restrictions in a number of areas (mainly meat and dairy) will
continue to apply until 2008. In spite of having the lowest consumer
incomes in the EU, Bulgarian consumer prices are expected to gradually
move towards EU levels and a rise in staple food prices is anticipated
in the near future. These processes will negatively affect certain
sectors and undoubtedly cause structural changes. Some of the inherent
problems of Bulgarian agriculture the rural areas are likely to sharpen
in the short run, although access to EU assistance may ameliorate these
effects in the medium term.

# Key Problems of Bulgarian Agriculture

The Bulgarian economy has grown over the last several years (a growth
rate of 6.3 percent in 2006), while the share of agriculture in
Bulgaria's GDP has declined (10.1 percent in 2003 to 8.0 percent in
2006). The agriculture sector had unstable development due to its high
susceptibility to climatic factors. Thus, in the third quarter of 2006,
the agricultural sector gross domestic product growth was flat (compared
to the same period in 2005); in 2005, the growth was negative (-8.6
percent) and in 2004, the growth was positive (+3.0 percent). The
sub-sectors with the highest contribution to the agricultural GDP are
grains, oilseeds, tobacco, tomatoes, grapes; and the dairy and poultry
industries. Bulgaria has remained a net agricultural exporter with about
USD 200 million positive agricultural trade balance in 2006.

The production structure of the farming sector continues to represent a
major challenge for Bulgaria, including in its potential to absorb EU
funds.

Some of these issues are:

-   Fragmented small agricultural holdings (large number of subsistence
    and semi-subsistence farms, with low agricultural profitability);

-   Rural unemployment and poverty; lack of alternative employment;

-   Low rural education level;

-   Insufficient modernization and marketing expertise in primary food
    processing;

-   Underdeveloped rural infrastructure and supporting institutions;

The national agricultural 2005 survey showed the following about the
current status of Bulgarian agricultural sector:

> *Farm structure:*

-   Number of agricultural farms -- 534, 613 farms (down from 665,550
    farms in 2003) utilizing 2.7 million HA land (down from 2.9 million
    HA in 2003);

-   Average size of a farm -- 5.2 HA (up from 4.4 HA in 2003);

-   Owned-farmed agricultural land- 0.66 million HA; tenant-farmed land-
    2.0 million HA;

-   Number of farms which utilize land - 407,000, cultivating 2.5
    million HA of arable land;

-   77 percent of farms cultivate less than 1.0 HA which represents 7
    percent of total utilized land. Less than 1.0 percent of farms
    cultivate land above 1.0 HA and utilize 76 percent of total
    agricultural land;

> *Agricultural labor:*

-   3.5 percent of farmers have secondary or higher education, the
    majority has only practical experience;

-   Farmers below 35 years age are 5 percent of all farmers;

-   Number of employed in the agricultural sector is about
    760,000-800,000 people and represent 25 percent of total labor
    force;

*Farm equipment:*

-   Low capital intensity -- only 9 tractors /1000 HA compared to 17 in
    Romania and 66 in France; 4 combines/1000 HA compared to 42 in
    Germany;

-   Farms which apply irrigation -- 70,000 holdings utilizing 54,000 HA.

Subsistence farming is still prevalent in the Bulgarian agriculture.
Recently, the trend towards consolidation and efficiency has become
increasingly visible. In the short run, however, polarization in the
sector and the lack of "middle class" farms is likely to create
significant issues with the absorption of EU funds. Some of these issues
are expected to be effectively addressed through the EU assistance,
especially the structural and cohesion funds, intended to alleviate
disparities among various EU regions.

# EU funding

The GOB recognizes that the major challenge in the first accession year
is to develop the national ability for efficient use of EU funds. This
policy is pursued not only in the agricultural sector but also in other
sectors which can access EU structural and cohesion funds.

Despite the active communication campaign, the GOB expects that the
absorption rate of total EU funding in 2007 to not exceed 20 percent.
The main reason is underdeveloped administrative capacity and late
accreditation of institutions and approval of strategic programs.

The total amount of EU funds (without national top-ups) under the
National Strategic Referent Framework (NSRF) for the period 2007-2013 is
6.8 billion Euro of which 2.6 billion Euro are from the agricultural
funds (see Table 1). The operational programs under the structural and
cohesion funds were approved by the GOB in early March 2007. It is
expected that the EC will approve final programs by May/June 2007.

The European Fund for Regional Development (EFRD) is focusing on
regional development, environment, competitiveness, technical
assistance, inter-regional cooperation within the EU; the European
Social Fund (ESF) supports projects related to human resources
development and administrative capacity strengthening; and the Cohesion
Fund (CF) addresses environmental protection and infrastructure. The CF
is meant to alleviate disparities among regions at the EU level. Regions
of Bulgaria easily meet the qualifications for finance under the CF,
based on convergence criteria. This funding may cover up to 85 percent
of the total cost of a project, with the balance coming from the
national budget.

For the period 2007-2009, Bulgaria will receive funding under four
components: agriculture (1.562 billion Euro); structural funds (2.3
billion Euro); internal policies and administration (498 million Euro)
and budget compensations (240 million Euro) or total of 4.6 billion
Euro. The national co-financing of structural and cohesion funds is as
follows: 2007 - 150 million Euro, 2008 - 280 million Euro, and 2009 --
545 million Euro.

## Table 1. Financial framework for EU Funds in Bulgaria under the National Strategic Referent Framework (NSRF) 2007-2013, million Euro

+-----------------+-----------------+-----------------+-----------------+
| Financial       |                 |                 |                 |
| framework for   |                 |                 |                 |
| EU Funds in     |                 |                 |                 |
| Bulgaria under  |                 |                 |                 |
| the National    |                 |                 |                 |
| Strategic       |                 |                 |                 |
| Referent        |                 |                 |                 |
| Framework       |                 |                 |                 |
| (NSRF)          |                 |                 |                 |
| 2007-2013, Euro |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| **Operational   | **Fund**        | **Total         | **2007**        |
| programs (OP)** |                 | 2007-2013**     |                 |
+-----------------+-----------------+-----------------+-----------------+
| European Fund   |                 |                 |                 |
| for Regional    |                 |                 |                 |
| Development     |                 |                 |                 |
| (EFRD) and      |                 |                 |                 |
| Cohesion Funds  |                 |                 |                 |
| (CF)            |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| OP              | EFRD            | 988             | 72              |
| Competitiveness |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| OP Regional     | EFRD            | 1 361           | 99              |
| Development     |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| OP Transport    | EFRD+CF         | 1 624           | 121             |
+-----------------+-----------------+-----------------+-----------------+
|                 | EFRD            | 369             | 27              |
+-----------------+-----------------+-----------------+-----------------+
|                 | CF              | 1 256           | 94              |
+-----------------+-----------------+-----------------+-----------------+
| OP Environment  | EFRD+CF         | 1 466           | 109             |
+-----------------+-----------------+-----------------+-----------------+
|                 | EFRD            | 439             | 32              |
+-----------------+-----------------+-----------------+-----------------+
|                 | CF              | 1 027           | 77              |
+-----------------+-----------------+-----------------+-----------------+
| OP Technical    | EFRD            | 48              | 3               |
| Assistance      |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| European Social |                 |                 |                 |
| Fund (ESF)      |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| OP Human        | ESF             | 1 032           | 75              |
| Resources       |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| OP              | ESF             | 144             | 11              |
| Administrative  |                 |                 |                 |
| Capacity        |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| ######          |                 |                 |                 |
|  Total EU funds |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Total funds     |                 | **6 674**       | 491             |
| under NSRF      |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Total EFRD      |                 | 3 205           | 233             |
+-----------------+-----------------+-----------------+-----------------+
| Total CF        |                 | 2 283           | 171             |
+-----------------+-----------------+-----------------+-----------------+
| Total ESF       |                 | 1 185           | 86              |
+-----------------+-----------------+-----------------+-----------------+
| EAFRD (European |                 | 2 609           | 244             |
| Agricultural    |                 |                 |                 |
| Fund for Rural  |                 |                 |                 |
| Development)    |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| European Fund   |                 | **179**         |                 |
| for Regional    |                 |                 |                 |
| Cooperation     |                 |                 |                 |
| (EFRC)          |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Total Funds     |                 | **6 853**       |                 |
+-----------------+-----------------+-----------------+-----------------+
| Source:         |                 |                 |                 |
| Bulgarian       |                 |                 |                 |
| Ministry of     |                 |                 |                 |
| Finance         |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

# EU funding for Agriculture

## CAP Financing

In addition to structural funds, Council Regulation 1290/2005 regarding
the financing of the common agricultural policy (CAP) established the
legal framework for the two funds dedicated to agriculture: EAGF
(European Agricultural Guarantee Fund) aiming to finance Pillar I
measures (market policies) and EAFRD (European Agricultural Fund for
Rural Development) for financing rural development programs within
Pillar II of CAP. The EAFRD contributes to the promotion of sustainable
rural development in the EU, complementing the market and income support
policies implemented within CAP, the cohesion policy and the fishery
common policy. This fund is an instrument that complements the national,
regional and local measures and should be compatible with the economic
and social cohesion objectives and with those of the Instrument for
Community Aid in the fishery sector, and with the measures financed by
the European Agricultural Guarantee Fund.

The EU financial package for agriculture in Bulgaria for the period
2007-2009 is at 1.562 billion Euro

, under three components:

Direct payments (subsidies) under Single Area Payment Scheme (SAPS) --
440 million Euro Note: This is the EU funding for 2007 and 2008 which
will be spent initially by the GOB and reimbursed to the GOB year later.
Detailed direct payments per year are provided below.

Market Support -- 388 million Euro;

Rural Development -- 733 million Euro (183 million for 2007, 244 million
for 2008, and 306 million for 2009).

While direct payments will be phased in until 2016 (commencing in 2007
at 25 percent of the support level applicable in the EU-15), budgetary
outlays for market support and rural development will be 100 percent
payable at the level of EU-15 from the first year of accession.

National budget top--ups for agriculture in 2007 should include 391
million leva (USD 195 million Euro) for direct payments; 285 million
leva (142 million Euro) for market support and intervention; 104 million
leva (52 million Euro) for rural development, or total 778 million leva
(389 million Euro). This will be the expected spending in the sector in
2007 which is to be reimbursed by the EU in 2008. The ceiling for EU
funding is about 1.2 billion leva (600 million Euro); however, the
national outlays are based on expected maximum 50 percent absorption
rate for EU agricultural funding. This is higher compared to 2006
pre-accession national budget allocation of 1.4 percent of GDP for
agriculture (327 million Euro). It remains to be seen, however, if the
use of funds will be at the planned rate.

National ceilings for SAPS payments, in million Euro, 2007-2013:

2007 - 200.4

2008 - 240.5

2009 - 281.1

2010 -- 321.4

2011 -- 401.6

2012 -- 481.9

2013 -- 562.3

Source: Agra Europe, EC

## Paying Agency

The current situation in the agricultural sector is a subject of high
concern. The EC introduced an additional mechanism to give Bulgaria time
to complete the necessary work on proper functioning of Integrated
Administrative Control System (IACS). In the case of systemic problems
with management of EU funds, the EC may provisionally withdraw 25
percent of the payments covered by IACS. Bulgaria has to demonstrate the
presence of an efficient administrative and management system for
disbursement and strict control of funds. An EC mission in the spring
will verify progress.

In 2006, Bulgarian Ministry of Agriculture began to apply some of the
Common Agricultural Policy (CAP) support mechanisms in an effort to
train its personnel and prepare for the future EU funds. Thus, the
subsidies paid for wheat (11 million Euro), corn and sunflower (5
million Euro) were paid per hectare; the limitation on subsidized area
was abolished and a limit was imposed on the size of the subsidy per a
farmer. Spot checks for these measures were implemented.

At the end of 2006, the Paying Agency responsible for managing EU
funding for agriculture received conditional accreditation. The Paying
Agency (PA) will execute direct payments, market support/interventions,
and export subsidies in agriculture; it will also administer other
payments related to market policies. The PA will be responsible for
rural development project financing in Bulgaria. As a current SAPARD
Agency it will continue to implement the SAPARD Program and will carry
out the technical and financial implementation of the EAFRD and of the
European Fund for Fishery (EFF).

This institution needs to be granted a full accreditation by Brussels to
become operational. It is expected to occur when the GOB meets two
requirements: to strengthen its administrative capacity; and to approve
the operational programs under the Rural Development Plan. Full
accreditation is expected by August/September 2007.

The absorption rate for SAPARD funds accelerated significantly in 2006.
Contracting and spending under the pre-accession SAPARD assistance will
continue gradually until the end of 2008. At the end of 2006, SAPARD
reported over 2,400 approved projects for a total investment value of
2.2 billion leva (over 1.1 billion Euro) and a subsidy of 1.1 billion
leva (roughly 550 million Euro). About 100 million leva (50 million
Euro) are likely to be disbursed by SAPARD in 2007. This represents the
remaining 14 percent of SAPARD funding which is likely to be fully
absorbed by 2008.

SAPARD addressed some of the farming sector weaknesses (see "key
problems" section) but the focus has mainly been on equipment at farms
and food processing plants. Investment in primary agricultural
production, especially livestock, has not been sufficient. Irrigation,
research, training, breeding programs, and extension service did not
benefit from the program. As a result, today the agricultural sector
faces a shortage of raw materials in the meat, dairy, fruits and
vegetable sectors, and overcapacity in the food processing sector.

## Pillar I: Market Measures

Similarly to the 10 MS who joined the Union in 2004, Bulgaria is
gradually introducing direct payments over a ten-year period with the
following schedule of increments expressed as a percentage of the
then-applicable level of such payments in the EU-15: 2007 -- 25 percent,
2008 -- 30 percent, 2009 -- 35 percent, 2010 -- 40 percent and
thereafter in 10 percent increments so as to reach the support level
then applicable in the EU-15.

From the first year of EU accession, the amounts budgeted in direct
payments can be supplemented by top-ups out of national funds (or
through moving Rural Development funds in the first 3 years after
accession, as Bulgaria chose to, see the tables below). The
complementary national payments should not exceed 55 percent of the
value of direct payments in the EU in the first accession year, 60
percent in the second year and 65 percent in the third; beginning with
the fourth year maximum 30 percent above the level of payments of the
respective year.

Bulgaria opted for the Single Area Payment Scheme (SAPS) for the three
years of membership, after which it has the option to switch to Single
Farm Payment (if IACS is capable of administering the single payment
scheme -- SPS). The minimum eligible farm size was set at 1.0 HA and 0.5
HA depending on the crops, with the minimum eligible plot being 0.1 HA.
Full cross-compliance rules will apply at the end of the three years,
regardless of which payment scheme is used.

SAPS provides farmers with a uniform per HA lump sum, payable once a
year, regardless of the crops planted, under the condition that farmers
maintain the soil in proper agronomic condition and meet good farming
practices standards.

In March 2007, based on the number of eligible applicants, the Ministry
of Agriculture estimated that direct subsidies will be roughly 70
Euro/HA with 50 Euro/HA from the EU funds and 20 Euro/HA from the
national top-ups for 2007 payments.

This official estimate is based on the total amount of direct subsidies
for 2007 - 391 million leva (about 192 million Euro) of which 272
million leva (136 million Euro) from the EU, and 118.45 million leva (59
million Euro) from the national top-ups. National co-financing
represents 25 percent from axis 2 of the rural development funds (EAFRD)
and 24.5 million leva (13 million Euro) from the national budget.
National top-ups for 2008 and 2009 are 20percent and 15percent,
respectively, of EAFRD allocations for this period.

The Bulgarian Ministry of Agriculture made a lot of effort to promote EU
programs and encourage farmers to register and apply for EU funds. The
focus has been on SAPS schemes. As of today, farmers identify several
challenges with access to SAPS:

-   a number of farmers cannot meet the eligibility criteria for minimum
    1.0 HA of cultivated land for fields crops and vegetables, and 0.5
    HA for perennials (vines, fruits) and tobacco; and 0.1 HA for each
    land plot within the total minimum area. Farmers with smaller size
    land can unite in producer organizations; however, the process is
    complicated and not feasible in the short term. The Ministry of
    Agriculture []{.mark}estimates that 148,000 farmers (28 percent of
    total) can meet direct payments requirements; they account for 95
    percent of agricultural land and have an average size of 0.56
    HA/farm.

-   Due to unclear land ownership, it is highly likely that some of the
    claimed land plots will overlap and the property rights will become
    an issue. If the respective farmers can not solve the dispute on
    their own, their right to use direct payments can be suspended.

-   Although the requirements for good farming practices appear simple
    (no weeds, no stones in the field), it will be difficult for many
    farmers to implement them due to their lack of knowledge, experience
    and necessary equipment. Currently, the Ministry of Agriculture is
    creating national standards for good farming practices, which
    introduce a number of new rules and restrictions, such as a ban on
    traditional burning of stubble fields.

According to the latest data, 61,363 farmers have registered and
identified their land in the IACS system for total 2.99 million HA
through February 2007. Of all registered farmers, 5,000 are judicial
persons and they account for 2.2 million HA of land while 56,000
individual farmers account for 0.8 million HA of land. This means that
80 percent of total eligible for support agricultural land (3.8 million
HA) has been identified and registered. Payments are planned to start by
December 2007 and last until June 2008. Payments are expected to be late
due to issues with delayed accreditation of the Paying Agency.

The products eligible for top-ups augmenting the direct payments are as
follows: grains, oilseeds, technical crops and vegetables. Tobacco,
perennials (including vines), pastures and meadows will not be supported
from the national top-ups under SAPS since they are already supported
from other national sources. In 2007, energy crops will not be
subsidized.

Allocations for market measures for 2007-2009 will total 388 million
Euro, in the form of market interventions (price support through buying
the surplus production and its storage in public or private stocks) and
export refunds.

## Pillar II: Rural Development

According to C.R. 1698/2005, each MS has to submit a National Strategic
Plan considering the strategic orientation of the Community, the
priorities of the EAFRD and of the member state itself, as well as their
specific objectives and the financial planning (EAFRD contribution and
the other financial resources). A Member State selects from 37 measures,
divided into three axes. Additionally, LEADER axis provides the general
framework and action methods at local community level.

The EC has not yet approved the Bulgarian National Strategic Plan and a
Program for Rural Development for 2007-2013. The National Strategic Plan
was approved by the GOB in late February and sent to the EC in early
March 2007. The Program for Rural Development is likely to be approved
by the GOB and sent to Brussels by the end of March. An approval of
these strategic documents is expected later in 2007 (August).

The draft of the National Strategic Plan introduces three main
priorities (axes):

> *Axis 1.* Development of competitive agriculture and forestry sector,
> and a food industry based on progressive innovations (40 percent -- 42
> percent of total funds);
>
> *Axis 2.* Protection of natural resources and environment in rural
> areas (26 percent-27 percent of total funds);
>
> *Axis 3.* Development of employment opportunities and improved living
> standard in rural areas (30 percent-31 percent of total funds).

Currently, Bulgaria does not have any approved local initiative groups
under the LEADER program. Upon the EC approval of the Program for Rural
Development, the Ministry of Agriculture plans to undertake a
communication campaign to encourage the establishment of such groups.
Two pilot projects (with UNDP, and with the Swiss Government) have been
implemented, under which such groups were created in 50 residential
places. Bulgaria will rely on this experience to multiply the number of
local initiative groups.

The EAFRD allocation for Bulgaria in the period 2007-2013 is for 2.609
billion Euro of which 244 million Euro are dedicated to 2007 year (Table
2). The national top-ups are 633 million Euro or total funds of 3.242
billion Euro. This amount is about 6 times higher than current SAPARD
allocation for the last 6 years, hence its efficient use might be a
challenge for the country.

According to current classification (Decree 14 of 2003), 231 out of
total 264 municipalities in Bulgaria are qualified as rural. The final
list of municipalities which are eligible to apply for rural development
funding is not yet completed. It is estimated that at least 180
municipalities from the rural areas will be included in this list. The
latest local surveys show that 76.5 percent of the territory of the
country is strictly rural, with 58 percent population living there; and
the share of GDP generated by rural areas at 48 percent. Overall, 90
percent of the total territory of Bulgaria can be characterized as
mainly rural.

### Table 2. Allocations for Bulgaria under EAFRD for the period 2007-2013, 

### in million Euro.

  ---------------------- --------------- ----------------- ---------------
  **Year**               EU              National Budget   Total

  **2007**               243             59                286

  **2008**               336             82                387

  **2009**               436             106               492

  **2010**               398             96                451

  **2011**               397             96                423

  **2012**               396             96                429

  **2013**               395             95                434

  **total mil. Euro**    2 603           631               **3 234**

  **total mil. Leva**    5 090           1 234             **6 325**
  ---------------------- --------------- ----------------- ---------------

The allocation includes as well 141 million Euro (or 177 million Euro
with the national top-ups) payments transferred from EAFRD to direct
subsidies payments (SAPS) for the period 2007-2009.

The GOB proposed a budget under priority axes of EC1698/2005 as follows:

### 

### Table 3. Proposed Budget Distribution under Axes of EAFRD

  -------------------------- --------------------- -------------- ------------ ----------------
  Priority/axis              [Percent of the       EU funds       National     Total EU+
                             budget]{.underline}                  budget       national budget

  **[Axis I]{.underline}**   40 percent            984            246          1 230

  **[Axis II]{.underline}**  26 percent            640            140          780

  **[Axis III]{.underline}** 30 percent            738            185          923

  **[Axis IV                 2,5 percent           62             15           77
  LEADER]{.underline}**                                                        

  Technical Assistance       4 percent             98             25           123

  **[Measure „National                             141            35           176
  additional supplements to                                                    
  direct                                                                       
  payments"]{.underline}**                                                     
  -------------------------- --------------------- -------------- ------------ ----------------

Note: The funds under pillar IV, LEADER, are part of the funds under the
first three pillars.

In early 2007, the Ministry of Agriculture was allowed by the EC to
restore its national support program for the livestock (dairy) sector.
The program is focused on soft loans for investment projects and the
allocation for 2007 is 10 million leva (5 million Euro). The program can
be used for purchase and imports of genetic material, and/or the
establishment and modernization of farms and milk collection stations.
The Ministry of Agriculture has proposed to restore the similar programs
for crops and farming equipment, however, Brussels has not yet approved
this request.

# Trade Policy

EU membership significantly changes agricultural and food trade in
Bulgaria. Some of the opportunities for U.S. exporters decline, other
grow and there are several important new market opportunities for new
food products. In general, Bulgarian agricultural and food imports from
the U.S. are forecast to be dominated by consumer oriented and
high-value products. The demand for these products will grow due to
expanding share of the retail and food service sectors. The lower than
EU average consumer incomes will be the major limiting factor.

In 2007, most importers will have to start learning how to operate in
the new business environment and to cope with numerous new food import
regulations. Many importers are likely to switch from direct imports
from the U.S. to secondary imports from already- established U.S.
importers in Western Europe due to lack of experience, infrastructure
issues and insufficient working capital.

Due to growing investment, both local and foreign, in the agricultural
sector a growing demand is likely to stimulate imports of agricultural
inputs such as genetic materials, live animals, seeds, planting
materials, and other raw materials such as cotton, wool, powdered milk,
egg powder.

The major competitor of U.S. food exporters will be EU MS.

## Import tariffs

The introduction of tariffs under the EU CXT in 2007 was a welcome
relief for many local importers for the following reasons:

-   most traders had issues with Customs before 2007 due to red tape
    practices. On the common market with free movement of goods, trade
    is significantly simplified;

-   over the last 10 years, Customs illegally used minimum import prices
    on goods. This discouraged importers from looking for better quality
    products and hurt competition and fair play;

-   many duties in CXT are lower than the duties in the Bulgarian Tariff
    Book for 2006.

### Table 4. Comparison of tariffs applied in Bulgaria in 2006 and in the EU

  ----------------------- ----------------------- -----------------------
  **Comparison of tariffs                         
  applied in Bulgaria in                          
  2006 and in the EU**                            

                          **Bulgaria, in          **EU, in percent**
                          percent**               

  Average tariff under    11.6                    6.5
  MFN treatment                                   

  Tariff lines for which  68                      82
  the MFN is below 10                             
  percent                                         

  Average tariff for      22.9                    16.5
  agricultural products                           

  Average tariff for      8.7                     3.7
  industrial products                             

  Range of tariff         0 percent to 110        0 percent to 209.9
  protection              percent as ad valorem   percent as ad valorem
                          equivalent              equivalent

  Range of tariff         Up to 110               Up to 209.9
  protection for                                  
  agricultural products                           

  Range of tariff         Up to 27                Up to 14
  protection for                                  
  industrial products                             

  Source: Bulgarian                               
  Customs Agency                                  
  ----------------------- ----------------------- -----------------------

Some tariffs, especially those for third countries became higher. This
negatively affected importers of certain U.S. products. See
[www.customs.bg](http://www.customs.bg/) for a more comprehensive
comparison of tariffs before and after Bulgaria's accession to the EU.

Following the initial excitement about lower Customs burden, an
increasing number of traders have started to understand that the major
barriers to trade are sanitary and phyto- sanitary requirements.

Traders rely on the assistance of the local government in dissemination
and clarification of new EU regulations, particularly import
requirements. However, the response is often unclear, misleading and
almost always late. It is related to weak administrative capacity of
institutions and a lack of qualified personnel. Overly strict
interpretation of new regulations and/or the effort to show to Brussels
a stringent rules implementation (often understood as an unnecessarily
bureaucratic approach), often result in a lack of dialogue or tension
between the authorities and the industry.

This policy is especially evident in import treatment of third country
shipments, including the U.S. products. One current outcome of this
situation is a tendency for importers to avoid using Bulgarian border
control and using alternative entry points Greece, Cyprus, Romania; and
switching from direct imports from the U.S. to closer relations with
West European U.S. partners/distributors who can supply the same
products and save the additional border control cost. This pattern also
works well due to smaller size and dynamism of the Bulgarian market
where planning imports and distribution is a challenge. This will be an
important factor for trade in 2007 and in 2008 when both local
agricultural and food industries, and local consumption and demand are
likely to undergo significant changes. In these circumstances, traders
feel more secure undertaking spot deals and short delivery time
shipments.

# Best prospects for U.S. exporters

Good prospects exist for the following agricultural/food products:

######### Seafood

Bulgaria is a net importer of fish and seafood over the last 7 years.
Local market in 2006 is estimated at 28,000 MT (imports) at a value of
USD 27.0 million, compared to USD 16.0 million in 2003. More than 80
percent of total seafood imports is frozen fish. U.S. exports of seafood
to Bulgaria have been steadily increasing to reach close to USD 6.0
million in 2005 and USD 3.6 in 2006 or ranking second after red meat
exports. Prospects on the market are very good due to favorable sanitary
regime and recognized export certification. Import duties in 2007 are
equal or lower than in 2006. Demand is growing due to rapid development
of retail and food service outlets. Consumption has been on upward
trend, especially for higher value products. A good example is trade in
2005/2006 when imports were shifted to U.S. salmon (estimated annual
trade of about USD1.0 million), including fresh salmon and other
high-end seafood products. A detailed marketing report about seafood
market opportunities will be published by Post later in 2007.

######### Nuts

The nuts (tree nuts and ground nuts) market has quickly developed over
last 4 years and the U.S. exports (only almonds) have grown in 2005/2006
to USD 2.3 million from USD 1.8 million in 2003. Demand is good and
expanding due to increasing number of food service outlets, tourists,
and middle and high-income consumers. Prospects for U.S. exporters are
very good due to lack of local production of quality nuts, and
increasing market size. Trade regime in 2007 is much more preferential
-- for example, almonds' import duty has decreased from 20-35 percent
(2006) to 5.6 percent or free imports (2007); for peanuts, the import
tariff has decreased from 40 percent to zero; for walnuts, from 35
percent to 4.0-5.1 percent. Currently, total nuts imports are around USD
8.0-USD 9.0 million (over 13,000 MT) with prospects to grow over USD
10.0 million (16,000 MT) in 2007. See BU7004 about import requirements
for the nuts in 2007.

######### Snacks/Cereals

The U.S. faces competition in this market from the EU. Products exported
from those countries are sourced from Western EU-MS or local joint
ventures with the U.S. Bulgaria does not have a local tradition
producing high quality and price competitive snacks. Therefore, much of
the local consumption is met by imports. In 2006, U.S. exports were USD
2.7 million. Recently, local production of confectionery products has
grown thanks to investment by EU-based companies (Kraft Foods and
Nestle). They successfully compete with imports. Currently, there are
only a few local Bulgarian producers of snack foods but their number has
been increasing. Consumption of these products in the last three years
has increased due to quickly expanding supermarket chains, food service
outlets and gradually increasing consumer income. Local consumers
perceive U.S. products as high quality and at competitive prices. The
most popular are U.S. microwave popcorn, breakfast cereal, and some
types of confectionery products.

######### Soft drinks/Juices

The total current import market (2006) for juices is estimated at USD
13.5 million (13,800 MT), compared USD 9.0 million two years ago. Major
competitors include Austria, Germany, Poland and Greece who have nearly
50 percent of the market share. These countries compete mainly due to
their proximity (i.e. cheaper freight costs). Local consumption of
juices is increasing, especially in the last two years with the
development of hotel/restaurant sector. The local Association of Juice
Producers expects consumption to double in the next three years. U.S.
suppliers can successfully compete with juice concentrates for local
manufacturers (almost all concentrates are currently imported) as well
as with some juices for direct consumption that are of higher quality
and can be differentiated from local products. For example, cranberry,
or any frozen juices would be popular with Bulgarian consumers, if they
were price competitive. However, the trade regime in 2007 is more
restrictive, with duties increasing from average 15-20 percent (2006) to
15.2 percent + 20.6 Euro/100 kilos and 33.6 percent + 20.6 Euro/100
kilos (2007).

######### Distilled spirits

This is a very promising market in which U.S. exporters will benefit
from Bulgarian EU membership due to more clear regulations and a more
preferential trade regime. U.S. distilled spirits exports in 2006 were
USD 3.8 million or an 81 percent increase over 2005. The new 2007 tax
regulations are likely to make locally produced spirits more expensive
and less competitive compared to higher quality U.S. spirits. Another
pressure on local producers is to come from new food safety
requirements. The trade regime in 2007 is more favorable as import
duties have declined from higher levels (for example, bourbon import
duty, from 15 percent min 1.26 Euro/percent vol/hl + 3.45 Euro/hl) to
free imports. See BU6012 for more details.

######### Pet food 

This market has grown quickly to over USD 22.0 million (total imports)
in 2005/2006 (about 25,000 MT). The growth is likely to continue in
2007/08. The expansion of large retail outlets has led to better
marketing of specialty pet foods. In addition, there are a large number
of local kiosks and specialized stores that cater to pet owners. Brand
names are an important marketing factor. The new 2007 trade regime,
depending on the product, is more preferential for certain categories
(from 20 percent import duty to zero), or more restrictive for others
(from 20 percent import duty to 498-888 Euro/MT). Major competitors are
Spain, Germany an Holland.

######### Dairy genetics

Over the last two years, the Bulgarian dairy farm industry has
significantly increased its demand for high quality genetics materials,
both for live animals, imported mainly from the EU, and for semen and
embryos imported from the U.S. Farmers highly appreciate U.S. genetics
and as of today, U.S. companies have over 60 percent of total genetics
market. In value, it is close to USD 1.0 million with a forecast to
increase to USD 5.0 million over the next two-three years. Trade regime
(no import duties) and veterinary requirements are favorable, along with
fast growing local demand. See BU6013 for more details.

# EU membership impact on the agricultural sector

## Grains and oilseeds sector

Direct payments under SAPS (under EC1251/99) and market intervention are
applicable for this sector.

The reference area for support for grains, oilseeds and protein crops is
set at 2.6 million HA. This area is determined based on historical data
for the period 2000-2002, while for the average yield, the referent
period is 1998-2002. The referent yield is set at 2.9 MT/HA.

The grain intervention period is set from November 1 to May 31. Crops
eligible for intervention are wheat, durum wheat, corn, barley and
sorghum. Bulgaria voted in the recent debate about corn intervention in
favor of keeping the intervention in place. Intervention centers have
been determined, on average 5 per a region, or about 100 nationwide.

Bulgaria is a net exporter of grain and oilseeds. The bulk of this
production is intended for animal feed consumption. It is estimated that
most Bulgarian grains (wheat, corn, barley) will not be able to qualify
for intervention due to quality issues. On the other hand, Bulgaria is
active and competitive on the Black Sea market and it is likely that the
country will continue to benefit from this trade. Intervention may not
be fully used due to logistical and infrastructure issues such as a lack
of sufficient on-farm storage to store grains until the start of the
intervention. Local farmers comment that the intervention period is not
selected well since most of them sell grains and oilseeds before
November for financial reasons. They think Bulgaria should have opted
for an intervention period typical for Southern countries, August 1 -
April 30.

Overall, EU membership is likely to have a very positive and immediate
effect on the grain and oilseeds industry. The grain sector is
efficient, covers large amounts of arable land with clear ownership, and
is export competitive. The industry did not receive any sizable support
in the past and new SAPS payments will lead to a growth in planted
areas, production and quality. The crop with the best prospects for
growth is corn, followed by wheat, sunflower and barley. It is expected
that an emerging biofuels industry will also sustain the development of
this sector. See BU6006 for more details.

### Table 5. Grain and oilseeds trade, CY2005 and 2006, MT

  -------------- -------------- -------------- -------------- --------------
  **Grain and                                                 
  oilseeds                                                    
  trade, CY2005                                               
  and 2006, MT**                                              

                 **Imports**                   **Exports**    

                 2005           2006           2005           2006

  Wheat          6,847          5,163          1,116,382      1,304,368

  Barley         68             43             229,081        181,482

  Corn           5,989          4,223          519,104        264,374

  Sunflower      3,596          3,297          489,350        488,875
  -------------- -------------- -------------- -------------- --------------

*Source: Marketing Department, Bulgarian Ministry of Agriculture*

## Sugar sector

Total annual sugar quota is set at 203,500 MT of which:

-Quota A for white sugar from sugar beet -- 4,320 MT;

-Quota B for white sugar from sugar beet -- 432 MT;

-Quota for white sugar production from non-refined cane sugar under
preferential imports -- 198,748 MT;

-annual quota for iso-glucose -- 56,063 MT, on 42 percent fructose on a
dry basis.

Bulgaria traditionally is a net importer of white sugar and produces
white sugar from imported non-refined cane sugar. For this reason,
intervention mechanisms are not likely to be used. Production of sugar
beet is negligible and declining (sugar beet in 2005 was grown on 956
HA). Overall, quotas in this sector are sufficient for local production.

In January 2007, the State Fund Agriculture (Paying Agency) approved a
transitional quota for iso-glucose for the only starch manufacturer in
the country at a higher level or 78,153 MT in dry substance equivalent
for MY2007/2008. This was possible due to the EC decision, according to
which Bulgaria can use an annual increase of 11,000 MT for the first
three transitional years.

The quota for white sugar from sugar beet (for only one such processor)
was set at 4,752 MT or no change was made.

## Dairy sector

*Negotiated terms and domestic support*

The total national reference quantity for milk set for Bulgaria is
979,000 MT, of which 722,000 MT for deliveries and 257,000 MT for direct
sales. To this, a "Reserve" quota of 39,180 MT may be added in 2009
(counting current on-farm consumption). The referent average fat content
is 39.1 g/kg.

There are no direct payments for milk under the milk quota in 2007. If
Bulgaria exceeds its milk quota, a fine of 27.83 Euro/100 kilos is
imposed on the whole quantity above the quota. If after accession the
country is not able to fulfill the whole production quota, the
unsupplied amount will be lost and the quota adjusted downward.

EU funding in the dairy sector is focused on indirect support for
farmers. According to the rural development plan, the sector will be
able to access 730 million Euro under 3 axes: support for young farmers;
upgrading and modernization of farms; and support for semi-commercial
farms.

Due to the lack of direct EU support, in 2007, 9.0 million leva (4.5
million Euro) were allocated for bonuses for quality milk from the
national budget; and 650,000 leva (325,000 Euro) for the breeding
associations (including dairy associations). If Brussels approves the
restoration of "Livestock" program, the allocation for 2007 will be in
the range of 20 to 30 million leva (10-15 million Euro).

*Dairy quotas*

The Ministry of Agriculture decided that all producers, regardless of
the number of cows they own, are eligible to participate in the EU milk
quotas.

In 2006, the industry established the National Dairy Board. A pilot
project was implemented for a distribution of individual milk quotas.
Total 117,000 farmers participated and distributed 854,000 MT of milk
for deliveries and 78,000 MT for direct sales. The process of
registration and individual quota allocation will end in March 2007.
After this, those producers whose production exceeds their quota will
have to pay levies for the extra milk delivered. Farmers who are not
granted a quota will not be eligible for commercial sales. Farmers will
be able to buy or sell quotas. See BU6003 for more details.

The major challenges in the dairy sector are related to the declining
number of dairy stocks (see Table 6) and fragmented distribution of cows
at smaller farms (see the information below), lack of good genetics,
insufficient investment and improper management. These factors are
contributing to a tendency of declining total milk supply (6 percent
down in 2005 vs. 2004), especially the supply of quality milk which can
be processed and sold at the single market. Currently, it is estimated
that 100,000 cows out of total 357,000 may potentially produce raw milk
as per the EU standards. At the same time, total cows milk production
exceeds the EU quota which means that some reduction in the number of
cows is likely in the future.

Industry representatives believe that after the first several years of
Bulgaria's European membership, the amount of milk processed
domestically will increase in parallel with a reduction in direct sales.
Already in 2004-2006, the share of milk deliveries increased, from 52.8
percent to 56.3 percent for total milk (2005 vs. 2004), and 59.3 percent
to 62.4 percent for cow milk (2005 vs. 2004). In absolute volume, total
milk for processing and cows milk for processing grew by 7 percent.
Direct sales declined. (see Table 8). The Ministry of Agriculture
forecasts that direct sales in 2007/2008 will be around 80,000 MT -
90,000 MT.

According to early tentative data about dairy quotas for 2007/2008,
farmers requested 1,020,000 MT (96,000 farmers and 338,000 cows) or
above the allowed quota, of which 940,000 MT for deliveries and 80,000
MT for direct sales. Reportedly, farms which have more than 50 cows
requested about 150,000 MT of milk. Farms with fewer than 5 cows
dominate and have requested about 45 percent of total milk. It is
assumed that if any reduction in requested quantities is made, it will
come from the group of smaller farms which are not fully meeting the
sanitary and quality requirements (so called third category, see milk
quality section below).

Reportedly, the Ministry of Agriculture is willing to request from
Brussels a redistribution of quota for deliveries and direct sales for
2007 based on the data from 2006 and requests for 2007 quota. The
request to the EC will be for a reduction in direct sales quota to
90,000 MT, and an increase in milk deliveries quota to 889,000 MT

### Table 6. Number of dairy livestock in Bulgaria, 2006 and 2005, head

  ----------------- ----------------- ----------------- -----------------
                    **Cows**          **Ewes**          **She-goats**

  Dairy animals May 357,100           1,309,400         507,500
  1, 2006, head                                         

  Change in numbers -5.6 percent      -1.6 percent      -14.0 percent
  2006/2005                                             

  Average number    2.6               7.2               2.6
  per farm                                              
  ----------------- ----------------- ----------------- -----------------

*Source: Bulgarian Ministry of Agriculture*

*Distribution of dairy cows per farms in 2005 (not including farms with
1-2 cows):*

3-9 cows: 20,136 farms -- 84,782 cows;

10-19 cows: 2,744 farms- 34,411 cows;

20-49 cows: 1,364 farms-37,710 cows;

Over 50 cows: 413 farms-37,739 cows.

### 

### Table 7. Cow Milk Production and Distribution in Bulgaria 2003-2005, 000 liters

+-------------+-------------+-------------+-------------+-------------+
| ### Cow     |             |             |             |             |
| Milk Produc |             |             |             |             |
| tion and Di |             |             |             |             |
| stribution  |             |             |             |             |
| in Bulgaria |             |             |             |             |
|  2003-2005, |             |             |             |             |
|  000 liters |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004, total |             | 2005, total |             |
|             | processed   |             | processed   |             |
|             | milk and    |             | milk and    |             |
|             | its share   |             | its share   |             |
|             | from total  |             | from total  |             |
|             | collected   |             | collected   |             |
|             | milk, 000   |             | milk, 000   |             |
|             | liters      |             | liters      |             |
+-------------+-------------+-------------+-------------+-------------+
| Cows milk   | 774,310     | 94.5        | 779,685     | 94.6        |
|             |             | percent     |             | percent     |
+-------------+-------------+-------------+-------------+-------------+
| Sheep milk  | 40,538      | 5.0 percent | 41,212      | 5.0 percent |
+-------------+-------------+-------------+-------------+-------------+
| Goat milk   | 2,359       | 0.3 percent | 1,973       | 0.2 percent |
+-------------+-------------+-------------+-------------+-------------+
| Buffalo     | 1,750       | 0.2 percent | 1,714       | 0.2 percent |
| milk        |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Total       | 818,957     | 100 percent | 824,584     | 100 percent |
+-------------+-------------+-------------+-------------+-------------+

*Source: Bulgarian Ministry of Agriculture*

### 

### Table 8. Development of milk production and distribution, 2004-2005

  ----------------------------- ----------- ----------- ----------- -----------
                                **2004**    **Inc. cows **2005**    **Inc. cows
                                            milk**                  milk**

  Total Milk Production (thou   1,551,054   1,305,582   1,463,740   1,249,426
  liters)                                                           

  Used as feed                  84,604      52,653      56,984      44,960

  Used on farm                  352,773     205,464     332,845     224,746
  (self-consumption)                                                

  Direct sales                  294,720     273,155     249,327     200,035

  Delivered for processing      818,957     774,310     824,584     779,685

  *Source: Bulgarian Ministry                                       
  of Agriculture*                                                   
  ----------------------------- ----------- ----------- ----------- -----------

####### Milk Quality

Currently, a serious challenge is production of quality milk that meets
EU standards (see BU7002). Milk sanitation and collection is slowly but
steadily improving, driven by both the presence of international
operators and the increased access to EU equipment subsidies that
support small rural operators. A number of other priorities still need
to be addressed: improvements in genetics material and dairy breeds
(more than 3,000 breeding animals were imported in 2005/06); feed and
forage practices; advanced techniques for animal husbandry, etc. See
BU6013 for more details.

Nonetheless, the lack of good quality milk is an important constraint to
the processing industry and was the reason for the EU ban on sales of
dairy products on the single market from non-EU approved dairies.
Bulgaria was given a transitional period until the end-2008 to modernize
milk processing plants and to organize the milk collection and
standardization centers in order to comply with the Community structural
requirements. Non-compliant raw milk and raw milk from non-compliant
farms can be delivered for processing only to establishments benefiting
from a transitional period. Products from establishments subject to
transitional arrangements will not be sold on the common market and are
to be clearly identified (labeled) for the local market.

In 2006, all dairy farmers were divided in 3 categories depending on the
extent to which they meet veterinary/sanitary and milk quality
requirements. Farms in the first category

(fully meeting EU sanitary and milk quality standards) are 978, with
45,000 cows and produce 150,000 MT (2006). In 2007, these farms are
expected to produce roughly 190,000 MT and to account for 20 percent of
the dairy quota. According to the Ministry of Agriculture forecast, by
2009, this type of farms will increase in number (above 3,000) and will
account for 250,000 cows and for more than 90 percent of the dairy
quota.

It is still unclear if the country will be able to sell its dairy
products to its traditional third country markets such as the Near and
the Middle East, Australia and the U.S. Such decision is expected to be
taken by Brussels soon.

####### Dairy products market

The dairy product market registered growth every year over the last 3-4
years. In 2005, the annual growth rate varied from 3.2 percent for
cheeses and yogurt, to 23 percent-25 percent for drinking milk, cream
and dairy desserts. It is certain that the country's EU accession will
bring structural changes related to rapid expansion of the share of
processed milk products for consumption at the expense of the
non-pasteurized, traditional home-made products, still available in
smaller rural markets.

Bulgaria is a net exporter of traditional local cheeses but imports
dairy products which are not locally produced (certain types of cheeses
and dairy desserts). EU membership is likely to have a positive impact
on the local industry in the medium term if local businesses manage to
adapt to strong EU competition and find the right market approach for
specific local cheeses. Producers oriented towards supply of dairy
products for the single market may need to import high quality fresh
milk or powder milk as substitute of local milk due to current shortages
of quality raw material (see BU7002). Elimination of import tariffs is
expected to increase dairy imports from the EU and contribute to tougher
competition. At the same time, the high common external tariff
drastically limit opportunities for imports from non-EU sources.

### Table 9. Trade in dairy products, 2005 and 2006, MT

  -------------- -------------- -------------- -------------- --------------
  **Trade in                                                  
  dairy                                                       
  products, 2005                                              
  and 2006, MT**                                              

                 **Imports**                   **Exports**    

                 2005           2006           2005           2006

  Dairy          20,994         20,902         18,800         15,854
  products,                                                   
  total                                                       
  -------------- -------------- -------------- -------------- --------------

*Source: Marketing Department, Bulgarian Ministry of Agriculture*

## Red meat sector

### Swine and pork sector 

Bulgaria's swine inventories have been fluctuating in recent years with
a general downward trend. In May, 2006, the numbers were 17.1 percent
higher than a year before with a 2.4 percent growth for sows. The
swineherds are mainly at commercial farms (46 percent in 2005) but still
a significant percent is held in small individual farms and households.
Some of these small holdings are illegal and not registered with the
respective health authorities. A number of them were liquidated by the
authorities in 2006 due to animal health concerns (classical swine
fever).

*Distribution of swineherd (not counting farms with less than 10 pigs):*

10-100 swine: 6,590 farms -- 139,398 swine

100-999 swine: 281 farms -- 66,149 swine

Over 1000 head: 76 farms -- 430,239

Lack of sufficient size herds and commercial orientation present
obstacles to supplying the processing industry with quality meat,
because many farms lack proper feeding and husbandry practices, and
generally use poor genetics. In recent years, the pork supply has
remained short, of mediocre quality and fragmented. In 2005, pork
produced at slaughter houses was 38,512 MT compared to imports of 34,296
MT.

In 2006, the carcass grading system (S)EUROP began to be applied,
initially at 4 slaughterhouses. Thirteen experts were trained to work at
the 9 larger slaughterhouses. Since currently livestock is sold on a
live weight basis, the application of this system will be limited in
2007. The pilot project implemented in 2006 showed that 20 percent of
pig carcasses were classified in "E" category, 57 percent in "U" and 16
percent in "R".

EU membership will create challenges for the swine industry. It will be
squeezed between increasing EU competition and internal health and
quality issues, which are likely to cause significant structural
changes. Domestic producers cannot benefit from the access to the
enlarged market, as Bulgaria continues to fight classical swine fever
(see BU7002) and pork exports to the EU are banned. Those farms that
invest in technologies, improved genetics and biosecurity will have a
chance to remain operational.

The sector has the potential to grow overall, based on a number of
favorable factors. Pork is traditionally the most preferred meat by the
average Bulgarian consumer. Domestic market continues to grow, along
with the purchasing power of the population. Bulgarians consume mainly
local fresh pork meat while imported frozen product is used for
processing. Local pork prices are is still relatively competitive due to
low costs of feed grains (especially corn, as Bulgaria is a traditional
corn producer and a net exporter) and inexpensive labor costs.

### 

### Trade 

The domestic pork shortage made pork one of the top agricultural imports
into Bulgaria since 2000 (see Table 10). Major pork suppliers to
Bulgaria were EU member countries (Germany, France, Spain), Canada and
the U.S. until December 2006, when Bulgaria starting applying the EU
veterinary regime. Most imports were levied at 622 Euro-644 Euro/MT
(only 10,550 MT of swine meat entering duty-free under a preferential EU
TRQ, and 3,500 MT under reduced duty autonomous TRQ in 2006).

The effects of the intra-community free trade have become visible
already in January/February 2007, when retail prices for pork meat cuts
and processed pork meat products registered a 7-10 percent reduction.
Industry estimates that pork prices will be down 10 percent in 2007
compared to 2006.

In 2007, some pork businesses had intentions to export typical processed
pork products to the common market, made from EU origin meat. However,
the FVO decision to significantly cut the number of approved
establishments made this impossible. See BU7002 for more details.

## Beef meat

Bulgaria was granted 90,343 rights for special bonuses for male cattle.
Total 16,019 animals are eligible for bonuses for cows with suckling
calves. The country was also given 22,191 rights for bonuses for
slaughter of cattle and 101,542 for calves. These levels were determined
based on the number of slaughtered animals at slaughter houses which is
not a significant percent of total livestock.

Bulgaria is a negligible producer and a net importer of beef. The 2005
production at slaughterhouses was 5,272 MT or 30 percent down compared
to 2004. Beef imports in 2005 and 2006, mainly from Latin American
countries, increased to 64,000 MT to meet the demand of the processing
industry. Beef was often used as a substitute for pork in processing if
the price was competitive. In 2007, Bulgaria is likely to reduce sharply
imports of beef for processing due to lack of opportunity to import
inexpensive Latin American product. Imports of more expensive EU origin
beef are likely be limited.

Local beef production is marginal. Meat breeds and herds are emerging
only now due to EU membership and EU domestic support which was not
existent in the pre-accession period. The small supply from local
slaughterhouses is consumed fresh on the local market. The new domestic
support programs are likely to encourage the establishment of beef
farms, however, Bulgaria will continue to be a net importer of this
product.

Bulgarians are not traditionally consumers of beef. Over the last 3
years, however, higher income consumers have created and sustained the
demand for prime cuts, mainly at the food service outlets. Major
restaurant chains report triple higher volumes of beef sales. EU
membership is likely to support further the demand for quality beef
which is targeted at certain market niches.

## Sheep and goat meat

Bulgaria is a traditional producer and exporter of sheep and goat meat.
Over the last several years, however, sheep stocks declined (1,945,000
head in May 2006 or a negative growth of 6.2 percent compared to 2005)
which raises concerns about stability and sustainability of local export
potential. Similarly to the cattle sector, it is fragmented and
concentrated in small, subsistence holdings.

*Distribution of sheep stocks, 2005 (not counting farms with less than
50 sheep):*

50-99 head: 2,147 farms- 142,540 sheep;

100-199 head: 1186 farms - 145,624 sheep;

Over 200 head: 460 farms -- 149,187 sheep.

Sheep milk production is limited at 6 percent-8 percent of total milk
but has increased since 2005.

Commercial supply of meat from slaughterhouses is also limited but
increasing. In 2005, commercial production of sheep meat was 9,123 MT
(out of 18,000 MT total sheep meat) or 5 percent growth over 2004.
Annual sheep meat exports are around 8,000 MT.

In 2007, local farmers and traders plan to import live sheep from
Romania and Greece, to slaughter them in Bulgaria and export the meat to
Western European MS (imports in 2006 were record high at 363,000 sheep).
This trade pattern is prompted by the lack of sufficient number of EU
approved slaughter houses in Romania while Bulgaria has several such
facilities. At the same time, inventories in Romania are much higher
than in Bulgaria. Thus, the sector will be one of the first to see the
advantages of liberalized intra-community trade.

In general, this sector had no domestic support in pre-accession period
and the new programs, along with the free trade on the single market,
will have a positive effect of sheep and goat farming. The country is
given a ceiling of 2,058,483 head eligible for bonuses. This number
includes a national reserve of 3 percent. The supplementary payments in
the sectors are set at 2.176 million Euro. In 2007, the sector will be
supported under 2 national funds programs: 1.1 million leva (550,000
Euro) for quality milk bonuses and 576,000 leva (285,000 Euro) for sheep
meat producers.

### Table 10. Trade in meats, 2005 and 2006, MT

  -------------- -------------- -------------- -------------- --------------
  **Trade in                                                  
  meats, 2005                                                 
  and 2006, MT**                                              

                 **Imports**                   **Exports**    

                 2005           2006           2005           2006

  Total meat     129,628        143,393        17,000         16,560

  Pork           34,926         37,694         129            113

  Beef           50,509         63,567         126            216

  Poultry        44,059         42,109         8,481          8,054
  -------------- -------------- -------------- -------------- --------------

*Source: Marketing Department, Bulgarian Ministry of Agriculture*

## 

## Poultry sector

The poultry sector has been developing successfully over the past years.
Inventories are stable at around 20 million. Bulgaria did not register
avian influenza in domestic poultry and despite a temporary crisis in
2006, the market quickly was restored to previous levels.

*Distribution of poultry per farms, 2005 (not counting farms with less
than 100 birds):*

100-999 birds: 485 farms -- 399,901 poultry

1000-19,999 birds: 33 farms -- 353,435 poultry;

Over 20,000: 35 farms -- 4,026,025 poultry.

Commercial poultry meat and products supply has increased and in 2005
was over 86,000 MT or 29 percent growth vs. 2004, out of total 98,000 MT
poultry meat production. Local operations (often vertically integrated
from feed production to hatchery, production and further to slaughtering
and processing, and distribution) made serious modernization efforts in
the pre-accession years. This covers a wide range of aspects, from
animal welfare to slaughtering equipment and technology. Most plants
were able get EU export approval. Five new facilities were built in 2006
and the largest to date was opened in the fall of 2006 (capacity of
40,000 MT). Out of 23 slaughterhouses, 7 can trade on the EU single
market.

EU membership is likely to have a positive impact on the sector.
Production costs (especially the cost of feed grains and labor) will
continue to be key to the sector's competitiveness. Broiler production
is expected to increase in the coming three years to 120,000 MT, in
parallel with an accelerating market concentration. Egg production will
prosper (a forecast for 1.7 billion eggs production by 2009) due to good
export opportunities (80 million eggs exported in 2006 vs. 53 million in
2005).

### Trade 

Despite the rapid expansion of domestic broiler production in the recent
years, Bulgaria was a net importer of poultry meat, mainly turkey but
also broiler cuts. Far in advance to its EU accession, Bulgaria
implemented trade protectionist measures, primarily strict tariff
measures, allegedly to give local industry time to recover. However,
imports (usually frozen) remained high, although declining in 2004-2006
due to shift in consumption towards more fresh product.

With Bulgaria's EU membership, assuming that domestic production will be
able to adapt rapidly to the enlarged market's conditions, imports will
continue to fall. In the short run, Brazil will likely be able to ship
under EU TRQs, and MS will supply the rest.

## Vine and wine sector

Vineyards areas in Bulgaria have declined since 2000 to 126,842 HA of
which 32,118 HA are abandoned and not farmed and 94,724 HA were farmed
(2005). Actual harvested area in 2005 was 80,802 HA. The process of
reduction in total area is considered completed. Due to active
investment, 3,400 HA new vineyards have been planted in 2003-2005.

Bulgaria grows mainly red vintage varieties as follows: 50,686 HA (62.7
percent) red vintage varieties, 26,054 HA (32.2 percent) white vintage
varieties, and only 4,062 HA (5.1 percent) table grapes. About 92
percent of 2005 grapes production (244,500 MT out of total 266,183 MT)
was processed into wine.

The sector continues to concentrate and commercialize. In 2005, 89
percent of grapes (217,758 MT) were delivered for processing to
commercial wineries which was a 20 percent growth over 2004. As a
result, wine production was 9 percent higher at 1,548,467 hectoliters of
which 59 percent were red wines. In 2006, the trend continued and
wineries were able to purchase 241,000 MT of grapes or 10 percent more
than in 2005.

### Table 11. Wine production in 2002-2005, thousand liters

  ------------------ -------------- ------------ ------------ ------------
                     2002           2003         2004         2005

  Total              103,642        153,332      141,747      154,847

  Table wines        60,279         86,752       94,334       129,128

  Regional wines     25,089         31,375       26,084       15,243

  Quality wines      18,838         34,911       20,694       9,301

  Total must         1,100          1,180        1,343        1,365
  ------------------ -------------- ------------ ------------ ------------

***    **Source: Bulgarian vine and wine chamber*

### 

### Table 12. Wine production in 2005 according to declarations, thousand liters

  --------------------------- --------------- ------------- ---------------
  **Produced wine in 2005                                   
  according to the                                          
  declarations**                                            

  Product                     Produces                      Total

                              Red and rose    white         

  1 .1 .Table wines           72,535          56,593        129,128

  1.2. Regional wines         11,422          3,820         15, 243

  1 .3. Quality wines with    7,207           2,094         9,301
  GAO --(Guaranteed                                         
  appellation of origin)                                    

  1 .4. Quality wines with    416             360           775
  GCAO (Guaranteed and                                      
  controlled appellation of                                 
  origin)                                                   

  2\. Sparkling wines                                        

  3\. 1 . Liqueur wines       385             8             393

  3.2. Aromatic wines         1               2             3

  3.3. Noble sweet wines                      2             2

  Total                       91,967                62,880  154,847
  --------------------------- --------------- ------------- ---------------

*Source: Executive Vine and Wine Agency*

According to the soil and the climatic conditions as well as the grape
varieties, five major vine and wine regions can be defined in the
country:

-   [the Danube Plain region (Northern
    Bulgaria)](http://www.bulgarianwines.org/pages.php?&name=indu_1&ParentName=indu&lng=en#txtdanube)

-   [the Black Sea region (Eastern
    Bulgaria)](http://www.bulgarianwines.org/pages.php?&name=indu_1&ParentName=indu&lng=en#txtblacksea)

-   [the Rose
    Valley](http://www.bulgarianwines.org/pages.php?&name=indu_1&ParentName=indu&lng=en#txtrose)
    region

-   [the Thracian Lowlands region (Southern
    Bulgaria)](http://www.bulgarianwines.org/pages.php?&name=indu_1&ParentName=indu&lng=en#txtthrace)
    and

-   [the Strouma Valley region (South-western
    Bulgaria)](http://www.bulgarianwines.org/pages.php?&name=indu_1&ParentName=indu&lng=en#txtstrouma)

The above five regions were enlarged to two major vine regions.

The EC is given Bulgaria rights to plant 1.5 percent of the vine
potential based on a ceiling area of 153,500 HA as of the accession
date. The area for table grapes is fixed at 19,700 HA.

In 2006, vine growers actively registered their vineyards. As of October
2006, total registered areas were 132,207 HA and 72,000 farms with
vineyards.

Although the EU does not use SAPS for vine growers, in the first 3
transitional years, Bulgaria vine producers will be eligible for direct
payments. Since the sector was not significantly supported before 2007,
it is expected that EU membership will have a positive impact on the
vine and wine production, initially visible in investments in new
vineyards.

### Trade

Bulgaria is a traditional net wine exporter but over the past years
faced challenges related to reduced area of young vineyards, outdated
vintage varieties, lack of consistent supply of quality wines, weak
marketing, and intellectual property rights issues etc. It is forecast
that EU membership will address some of these issues in the medium term.

Wine is one of the sectors generating hard currency to Bulgaria's
economy, as the product is traditionally shipped to EU, US, Russia etc.
Bulgaria exports about 90 percent of its wine, in recent years
increasingly to the Russian market (see Tables 13, 14, 15). Nonetheless,
in 2006, the trade balance for wine deteriorated. Exports of wines in
2006 declined 2 percent from 1,141,747 hectoliters to 1,122,427
hectoliters while imports grew from 46,652 hectoliters to 123,695
hectoliters or more than double. Imports from third countries (Chile,
Australia, U.S., South Africa, Argentina) are expected to increase their
market share in Bulgaria in 2007 onward.

It is generally expected that accession will significantly impact the
sector, especially through the liberalization of the intra-community
trade regime, but also as the common external tariff (CXT) of 32 Euro
per hl is lower than Bulgaria (12 percent +35 Euro/hl) applied until the
end of 2006. Competition from the EU and abroad will likely force local
producers to increase the quality and/or cut on prices. Industry
consolidation will continue to grow and only the companies who invest in
quality, production and marketing to attract constant consumers will be
able to survive.

####### Trade marks

Bulgaria was able to protect the trade name "Rozenthaler" and kept the
geographic indication "Rose Valley". The country was not able to protect
the names "rakia" and "uzo" since these names are already used in other
MS, Slovenia and Greece, respectively. Thirteen brandies were listed as
traditional Bulgarian spirits with a geographic indication.

### Table 13. Exports of wines 2001-2005, thousand liters

  ------------------ ---------- ---------- ---------- ---------- ------------
  Wine groups        2001       2002       2003       2004       2005

  Bottled            55,037     57,605     59,822     70,689     88,965

  Bulk               24,144     20,022     16,078     19,300     24,211

  Sparkling          1,091      919        911        495        999

  Total              80,272     78,547     76,811     90,485     114,174
  ------------------ ---------- ---------- ---------- ---------- ------------

Source: National Vine and Wine Chamber

### Table 14. Exports of bottled wines, 2004-2005 

  ---------------------- ---------------- ---------------- ----------------
  Country                Quantity                          
                         (thousand                         
                         liters)                           

                         2004             2005             percent change

  Russia                 30,894           53,934           74.58 percent

  Poland                 17,953           19,204           6.96 percent

  Great Britain          4,731            2,647            -44.05 percent

  Czech Republic         2,102            2,309            9.84 percent

  Lithuania              1,921            1,481            -22.88 percent

  Germany                3,624            1,348            -62.81 percent

  Sweden                 1,253            1,309            4.51 percent

  Latvia                 1,961            1,150            -41.34 percent
  ---------------------- ---------------- ---------------- ----------------

*Source: National Vine and Wine Chamber*

### 

### Table 15. Exports of bulk wines, 2004-2005.

  --------------------- ---------------- ---------------- -----------------
  Country               Quantity                          
                        (thousand                         
                        liters)                           

                        2004             2005             percent change

  Russia                8,609            15,119           75.61 percent

  Germany               5,153            3,555            -31.01 percent

  Japan                 995              1,478            48.51 percent

  Great Britain         1,253            1,303            3.97 percent

  Sweden                252              935              270.66 percent

  France                860              509              -40.74 percent

  Poland                545              367              -32.66 percent

  Lithuania             352              241              -31.71 percent

  Belgium               190              211              10.69 percent

  Finland               129              159              23.23 percent
  --------------------- ---------------- ---------------- -----------------

Source: National Vine and Wine Chamber

## Fruits and vegetables sector

Bulgaria vegetable growers are in a disadvantaged position regarding
their access to direct payments. Initially, the GOB requested the
minimal eligible vegetable area per a farm to be 0.5 HA, but it was not
approved by the EC. Thus, more than half of current vegetable gardens
which are below 0.5 HA will be left without direct payments. These farms
can join producer organizations to be able to have access to EU funding.

However, as of today, the most considerable challenge for fruits and
vegetable (and dairy and tobacco producers) growers is the lack of
producer organizations (PO). Due to high criteria (30 members and value
of production of 100 000 Euro) and despite SAPARD program support,
Bulgaria has a very few such recognized organizations.

The latest EU fruit and vegetable sector reform was welcome by the local
government and growers. The reform was viewed as a motivation for
establishment of POs. The new changes will allow growers who produce
even only one type of vegetables or fruits to join such organizations.
The requirement about a turnover of 100,000 Euro is expected to be
suspended from 2008. The share of sales outside the POs (currently at 25
percent) is likely to be increased to 50 percent.

Following EU accession, the Bulgarian market for fruits and vegetables
will expand with imports increasing in the short-medium term.
Traditional exporters to Bulgaria such as Turkey and Macedonia will be
able to export at lower tariffs. Already in March 2007, consumers,
retailers and farmers, especially from South Bulgaria have reported
unusually low prices of Macedonian produce (apples) shipped to Bulgaria
from Greece. Other suppliers such as Greece, Spain and Poland are also
likely to increase their shipments to Bulgaria.

As a result, the local market will have to adjust to higher quality (and
safety) standards and lower prices. Domestic growers will face increased
competition which will motivate larger producers but may also push
smaller gardeners off the commercial market.

Negotiated support terms:

Tomatoes: The support ceiling for tomatoes for processing is set at 156,
343 MT eligible for a subsidy of 35.5 Euro/MT or total 5.4 million Euro.

Peaches: The maximum support quantity is set at 17,843 MT, eligible for
47.7 Euro/MT

### 

### Table 16. Trade in fruits and vegetables, 2005-2006, MT

  -------------- -------------- -------------- -------------- --------------
  **Trade in                                                  
  fruits and                                                  
  vegetables,                                                 
  2005-2006,                                                  
  MT**                                                        

                 **Imports**                   **Exports**    

                 **2005**       **2006**       **2005**       **2006**

  Fruits, total  44,445         44,010         393            386

  Vegetables,    71,101         54,707         7,546          8,841
  total                                                       
  -------------- -------------- -------------- -------------- --------------

*Source: Marketing Department, Bulgarian Ministry of Agriculture*

## Tobacco

Bulgaria is a net tobacco exporter. The tobacco sector is traditionally
one of the largest sub-sectors in Bulgarian agriculture and has enjoyed
high political and financial support over the last 16 years. Usually,
about 45,000 -50,000 tobacco producers have been a subject of support
which was an average about 150 -170 million leva (75-85 million Euro).
This support guaranteed high profitability of tobacco growers but led to
production of extra high stocks of mediocre and declining quality.

Due to political sensitivity of this sector, the GOB negotiated a grace
period for tobacco sector support, from 2007 to 2009. In this period,
the sector will be supported from the national funds. The main reason is
that only about 10 percent of total 66,200 tobacco growers cultivate
land above 1.0 HA, the rest can not meet the SAPS eligibility criteria
and will be left without domestic support. In 2006, the bonuses paid for
tobacco were from 2,620 leva/HA (1,310 Euro/HA) to 4,940 leva/ HA (2,470
Euro/HA). In other words, even if the national support declines, which
is the intention of the Ministry of Agriculture, these schemes far
exceed the EU funding.

The tobacco sector will be the only sector in the country which will
have both SAPS payments and national domestic support programs. The
domestic tobacco program for 2007 has fewer funds than in 2006, 125
million leva (63 million Euro) compared to a traditional spending of 160
million leva (80 million Euro) in 2006 and 2005.

The national production quota was set at 43,137 MT divided in the
following groups:

-   Flue cured, Virginia -- 9,023 MT;

-   Light air cured, Burley -- 3,208 MT;

-   Basmi -- 31,106 MT

-   Kaba kulak -- 3,800 MT

## Table 17. Trade in tobacco, 2005-2006, MT

+-------------+-------------+-------------+-------------+-------------+
| #####       |             |             |             |             |
| # Trade in  |             |             |             |             |
| tobacco, 20 |             |             |             |             |
| 05-2006, MT |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | **Imports** |             | **Exports** |             |
+-------------+-------------+-------------+-------------+-------------+
|             | **2005**    | **2006**    | **2005**    | **2006**    |
+-------------+-------------+-------------+-------------+-------------+
| Tobacco     | 6,924       | 11,113      | 33,383      | 38,953      |
+-------------+-------------+-------------+-------------+-------------+

*Source: Marketing Department, Bulgarian Ministry of Agriculture*

## Organic production

The GOB has the ambitious goal to develop the organic production in
Bulgaria as a priority area with an export orientation (see BU6014). The
emphasis is given to herbs, wild berries, bee honey, vegetables, fruit,
and sheep. A National Plan for Development of Organic Sector in
2006-2013 was approved by the Ministry of Agriculture in October 2005.
The goal is to have 8 percent of agricultural land under organic
production by 2013 compared to current below 0.5 percent. Currently, the
Ministry of Agriculture has recognized two national organic
certification organizations.

In 2006, SAPARD Agency was granted accreditation by the EC for a measure
aimed at the development of agricultural business with the goal to
protect environment. The EU-SAPARD program allocated 12.6 million Euro,
of which 75 percent provided by the EU and 25 percent from the national
budget. This measure was supposed to cover 2 percent-10 percent of
agricultural land with field crops and 5-20 percent of pastures and
meadows. A significant portion of funds is likely be used for
development of organic farms in 5 years projects. Support for organic
farming in the first three years is 20 percent higher. The size of
compensation payments is 391 Euro/HA for perennials, vegetables and
vines in the first 3 years, and 313 Euro/HA in the next 2 years. The
amounts payable for aromatic and medical plants is 225 Euro/HA in the
first 3 years and 180 Euro/HA in the next 2 years. For feed crops, these
payments are respectively 125 Euro/HA and 100 Euro/HA.

Under the rural development funds, the budget for organic production is
165.8 million leva (83 million Euro). Out of them, 30.7 million leva (16
million Euro) are only for the support of organic market. See GAIN
BU6014.

## Land market

Over the last 2-3 years, the Bulgarian land market has undergone a
dynamic development related to upcoming membership and development of
the agricultural sector. Farmers in Bulgaria cultivate mainly leased
land. The land market was not developed until 2004 and land prices were
low. Farmers, together with speculators, have started to actively
purchase land since 2002. Market development opened the opportunity for
farms to work with larger consolidated parcels and avoid fragmentation
which causes high administrative cost and lower efficiency and
competitiveness. However, the market is still underdeveloped due to
reluctance of banks to make agricultural land mortgages; frequent
unwillingness of small land owners to sell land in anticipation of high
prices; and due to expectations for SAPS payments. In addition, the
agricultural land property is free of taxes which discourages sales.

Current average land prices are around 800-900 Euro/HA but are quickly
rising. The amount of agricultural land sold has increased from 19,000
HA in 2000 to 59,000 HA in 2005. The process of converging of
agricultural land prices in Bulgaria and in the EU is expected to
continue in 2007 and in the future. This will lead to higher production
cost of locally produced crops and they may lose part of their cost
competitiveness. Many farmers have a clear understanding of these trends
but spur further the demand by investing significant amounts in land
sales. The most significant players on the market, however, are
property/land funds which buy small fragmented land plots, consolidate
them, and sell to foreign investors for a considerable gain.