Economic Update
The EU is expected to provide billions of euros to assist the development of Bulgarian agriculture between 2007 and 2013. These funds are sorely needed by a sector which is currently battling with recent setbacks, reduced state funding and a number of new challenges brought on by EU accession.

Speaking at the opening of the 15th international agricultural fair in Dobrich, the executive director of the State Fund for Agriculture, Dimitar Tadarukov, said that of the 6.5bn euros, 3.2bn euros would be allocated to agricultural and village development programmes while the remainder will be given as direct payments and support to agricultural producers.

The announcement of such large-scale funding is welcome relief to a sector that has been through tough times of late. In the final days of July, the southern municipality of Chepelare was hit by a number of blazes and in the first week of August flooding devastated some 1.2m square metres, one quarter of the arable land in the municipality of Tsar Kaloyan.

A drought earlier this year contributed to a poor harvest with wheat crops hitting a five-year low of 2.2m tonnes. Despite a 10% increase in planted area, the figure was well below last year’s harvest of 3.2m tonnes and the Sofia Commodity Exchange reported that wheat was selling at $285 per metric tonne in August, twice the price it fetched at the same time last year.

As a result, the ministry of agriculture is seeking to import up to a million tonnes of corn from Hungary. The government also decided to allocate $5.3m to grain producers to compensate them for their losses.

While government intervention is welcome, it does little to hide the fact that government funding for agriculture was cut back from an initial estimate of 612m euros to just 327m euros for 2007. This took place despite the importance of the sector to the country’s economy – agriculture accounted for approximately 7% of GDP last year – and the fact that European Commission monitoring reports had highlighted the sector as one that needed more government attention.

Another reason extra attention is necessary is that Bulgarian farms are generally uncompetitive in the new markets opened up by joining the 27-member EU block. While the country’s biofuels producers, wineries and boutique organic fruit and vegetable companies have revelled in the new opportunities to sell in Europe, other agricultural producers find themselves outflanked by large-scale international producers. At the root of this problem is the small size of Bulgarian farms, which are, on average, only three hectares in size. After the fall of communism, land that had been communally farmed was returned to the original owners or their descendants and until recently, little had been done to consolidate or modernise these plots.

The diminutive nature of the Bulgarian farm not only poses challenges in terms of economy of scale and efficiency but is also an obstacle to funding as EU subsidies are available only to farms of 10 ha or greater.

In response, the process of consolidating agricultural lands has gained speed since 2004 and in 2005 when the first specialised investment fund, Elana Agricultural Opportunity Fund, was set up. The Bulgarian Stock Exchange now lists six real estate investment trusts working in the agricultural sector. They aim to create more efficient and modern farms but also to capitalise on undervalued land assets. Since 2004 the average price of one hectare of agricultural land has risen by 90% to 1300 euros.

In addition to the opening of foreign markets, the availability of funding is a key benefit of EU accession. The special accession programme for agriculture and rural development (SAPARD) has already provided more than 444m euros to Bulgarian agriculture with a further 82m euros to follow by the end of the year. These funds, which are aimed at modernising manufacturing and improving agricultural administration, combined with EU structural funds targeted at improving the country’s water supply, will help the sector develop.

However, the issue of how these funds are received and distributed is under major scrutiny. A European Commission report on the state of Bulgarian control institutions and payment agencies is currently being written up for publication in November. If this report casts significant doubts on the ability of the EU’s two newest members to absorb funds and use them in an efficient manner, then a safeguard clause could be enacted and the funds stopped.

While Tadarukov’s figure may seem huge, only a continued governmental push to reform the sector will allow them to be usefully spent.