Economic Update

Bulgaria’s agricultural sector is coming out of a two-decades-long rough patch and has pulled out of the recent recession more strongly than the economy as a whole, with regulatory changes and growing export potential contributing to a stronger outlook.

Agriculture has been one of the quiet successes of the past few years, according to a 2009 report by Food Policy, a food sector journal, which noted that exports of consumer-ready foods and horticultural products have performed well since Bulgaria joined the EU in 2007. Exports of milk and dairy products grew from €43m in 2005 to €73m in 2008, while production almost doubled from €167m to €318m, according to Invest Bulgaria Agency.

Growth of meat and livestock exports has been slower, from €113m in 2005 to €120m in 2008, but overall output has risen strongly, from €525m to €861m, making the segment a significant economic contributor.

It’s been a long road to get to this point, however. Despite collectivisation and consolidation from the 1940s on failing to boost agricultural production, Bulgaria was one of Eastern Europe’s leading food exporters in the 1980s, particularly as livestock production was increased at the expense of arable crops. The use of fertiliser and pesticides on an industrial scale was promoted to boost output. Bulgaria’s agricultural sector was then set back by the economic difficulties of the first two decades after the fall of communism in 1990.

The immediate post-communist years saw Bulgaria enter an economic crisis that had an acute effect on food supplies, partly due to previous policy. Capital for investment in farming was difficult to come by, the privatisation of the collective farms was patchy, lack of land deeds (some destroyed by communist officials) made ownership rights uncertain, and many new smallholders did not have the technical or business knowledge to extract value from their land. Bulgaria’s export markets among former communist countries were also hit hard. Furthermore, considerable tracts of land were severely degraded by intensive use of fertilisers.

More recently, the presence of major international firms such as Nestle, Kraft and Papas Oil have played an important role in increasing output. While the schemes have not been free of controversy, agricultural support from the EU through programmes such as the Special Accession Programme for Agricultural and Rural Development (SAPARD) and the Common Agricultural Policy have provided much-needed funds and technical help for farmers.

The sector clocked up real value growth of 3.8% year-on-year in the second quarter of 2010, up from 0.9% in the first, while the economy as a whole, deeply affected by the global economic crisis, shrank by 1.4%, according to a report by Raiffeisen Bank.

Legislative changes that entered into force on October 26 will also make market access easier for Bulgaria’s many small farmers. Previously, little regulatory infrastructure existed to allow farmers to process and sell their farm food, including cheese, directly to retailers, restaurants and consumers, making many dairy farmers reliant on sales of milk to dairies. With milk prices low, their margins were often negligible, but within months they will be able to sell their own value-added products on the open market, giving them more cash to invest in improving their farms and diversify their farm produce, including typical food products that are an integral part of local gastronomic traditions. 

“We very much hope that small farms can grow, and these reforms should be a good stimulus for farm development,” Dessislava Dimitrova, the national coordinator in Bulgaria for Slow Food, an international organisation that supports traditional food and farming, told OBG. “It is very important for small farmers to have the opportunity to sell produce to consumers, so the changes are a big step for them.”

Dimitrova also argues that the changes will be good for consumers, by increasing choice and particularly availability of niche regional products, adding competition for the major dairy companies. Over the longer term, she also expects them to increase export potential by increasing the output of high-value specialist foods, for which there is a growing market in Europe in particular. An example regularly cited is that of Bulgarian green cheese, a unique product for which there is considerable interest abroad but for which there is no legal regulation for production in the country, meaning that producers cannot increase output.

For the foreseeable future, the main players on the Bulgarian agricultural and food markets will still be large firms, including the many internationals that have invested in the country and helped raise the level of technology and capital, boosting output considerably. But Bulgaria’s many smallholders have an increasing role to play. With global food prices on the rise again, and opportunities for tapping into niche markets growing, Bulgaria’s farmers big and small can stand to reap the benefits.