Down on the Farm

Economic News

22 Jul 2010
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Leaving the most difficult things till last has both pluses and minuses as a strategy for EU accession - as Bulgaria's government is now discovering. With the agriculture chapter due to be closed by June this year, if everything is to fall into place for membership in 2007, time is pressing for an agreement on a range of thorny issues.

In an effort to sort some of these out, on March 15, Deputy Prime Minister Lydia Shouleva presented Bulgaria's proposals on agriculture to EU commissioner on farming, Franz Fischler, ahead of a two-day international conference in Sofia on the EU Common Agricultural Policy (CAP). The European Commission is expected to spell out its position in talks with the Bulgarian government scheduled for April.

"The negotiations process must be completed by the end of this year," Fischler told reporters, "and I can assure you that chapter seven [agriculture] won't be an obstacle."

However, not everyone is quite so confident. The chapter has to settle a number of controversial issues, with the size of direct payments for Bulgarian farmers being amongst them. Then there is debate over the extent of agricultural production quotas, which are being set by the EU for the first time for Bulgaria. These will fix a framework for production and trade with agricultural goods for the period after the country's EU accession.

The argument over quotas that has emerged concerns a question of which time frame to use as the basis for calculations. Sofia says that the quotas should be calculated on the basis of agricultural production data for the 1989 to 1992 period. However, the EU disagrees, with Fischler frequently warning in recent months that Brussels will definitely not accept quotas calculated on the basis of this past period - when Bulgarian agricultural production was at a higher level than it is now. Common practice for EU applicant countries is to calculate the subsidies on the basis of an average of the three years immediately preceding the close of the agriculture chapter, which in Bulgaria's case would mean a much lower level of production being taken as the base line.

While this may seem a straightforward piece of statistical gerrymandering, Bulgaria's negotiators also point out that the data for the last three years are highly unreliable. This, they claim, is because the real figures for production have been deflated by farmers, who are often operating within the undeclared economy. The existence of many small holders has also added to this tendency, with small farmers failing to declare their full output, as they fear extra taxes would destroy their perilous profit margins. The 1989-1992 period, Sofia says, is the last one in which there was any reliable data.

For the 10 countries set to join the EU in May this year, the period 1997-2001 was selected - yet Bulgaria's negotiators say that this period is also unacceptable, as it was one in which the country's agriculture experienced massive decline. Agricultural production during that period works out between 40 and 60% lower than in the 1989-1992 period.

The quota issue also affects the outcome of the subsidies question. The amount of direct support Bulgaria's farmers are likely to get depends on the size of the quota and the quantity of land in agricultural use. With both of these factors substantially smaller than they were at the start of the 1990s, Bulgaria is pressing for a settlement on this question that would see the country's farmers receive the same level of subsidy as the 10 countries joining this year.

The 2004 new members are to receive an initial level of direct subsidies amounting to 25% of the level of subsidies being paid out in the current member states. This then rises gradually, reaching the same, uniform rate as current EU members by 2014.

Whatever the outcome of the final negotiations on the agriculture chapter - and, many analysts agree, this will be the final chapter to be closed - the debate does cast an unedifying light on the status of Bulgarian agriculture.

Declining production and the demographic changes in the country that have led to a declining rural population - as well as consequent shrinkage in the amount of land under cultivation - are major problems. Added into this has been the fragmentation of land ownership.

Opposition - and even some government - deputies have often voiced their disapproval on this subject in recent days. One unexpected outcome, oppositionists warn, is that a lack of coherence in agricultural policy may lead to the country missing the EU subsidy boat.

The EU has already agreed a 4.2bn euro aid package to Bulgaria for the first three years of its membership, with some 1.4bn euros of this aimed at the agricultural sector. However, "Because of the few people with clear strategy and initiative in the farming sector," the head of the parliamentary commission on agriculture, Plamen Mollov, told a news conference early March, "the expected 1.4bn euros from the EU may exceed the needs."

Mollov then added that the biggest problem faced by the agricultural sector was the fragmentation of land to millions of smallholdings, making modern farming technologies unusable, he claimed.

Certainly, Bulgaria's agricultural sector has plenty of problems. While the EU financial subsidies promises a solution to some of these, market watchers in Sofia often say that the real difficulties are structural, with any new policy having to tackle issues of demography and ownership, as much as which time line to start measuring from.

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