Good Year for the Roses

Economic News

22 Jul 2010
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Like other countries in South Eastern Europe, Bulgaria can claim some bumper harvests this year. Favourable weather conditions have helped the bounce back from last year's disappointing output, with wheat and sunflower production exceeding domestic consumption. As a result, there is now much hope for record highs in agricultural exports. Meanwhile though, sceptics are saying that given a poor grape harvest and the structural problems within the rural sector, it is far too soon to be celebrating.

Nevertheless, the mood in the political circles in Sofia over agriculture is nowadays upbeat. According to officials figures cited in local media this week, agricultural exports will reach $800m in 2004 (3.4% of projected GDP) and could cross the $1bn threshold next year.

Among the real winners have been the sunflower producers, who have surpassed all expectations in achieving a record high crop of over 1m tonnes. Some 100,000 tonnes of sunflower output has already been exported too - 80% of it to neighbouring Turkey.

There is also good news for wheat producers. Preliminary estimates show that this year's wheat harvest could be as high as 4.1m tonnes, almost twice as much as last year. It is expected that half of the 600,000 tonnes of wheat exports will be destined for EU markets.

With the domestic market expected to consume 2.2m tonnes, just over 50% of this year's output, wheat producers are banking on greater export demand elsewhere too. As Minister of Agriculture and Forestry Mehmet Dikme told local media this week, "Bulgaria has the potential to export over 1m tonnes of wheat per year."

In the short term, domestic demand for grain will be propped up by the state contingency reserve, which has announced plans to purchase 55,000 tonnes of wheat on the commodity exchange next week. Last year the state was forced to release part of its grain reserves, which it now must replenish. According to Dikme, 115,000 tonnes has been bought by the state contingency reserve this year. The latest intervention on the grain market is said to be good news for smaller co-operatives and farmers, because the state has lowered the previous minimum transaction requirement from 5000 to 1000 tonne batches.

Purchasing grain via the commodity exchange seems to be in line with the government's agricultural policy, which seeks to ensure that price is determined by market forces. The only notable exception in the government's liberal price policy is the tobacco growing industry, where the state still plays a role in arranging quotas and mediating prices between tobacco farmers and processors.

Yet despite a positive impact on domestic demand, state purchases of grain are expected to account for no more than 3% of wheat production in 2004.

Meanwhile, ultimately, the success of exporting grain this year will depend on what happens on international grain markets. With bumper crops recorded in several countries in South-eastern Europe, there are fears of oversupply, which could bring down prices.

At the same time, the picture is looking a lot less rosy in other parts of the rural sector. While wheat and sunflower growers have seen good harvests out of this year's cool and wet summer, grape growers have been hit badly. While last year's scorching temperatures helped to produce one of the best vintages in recent memory, according to the executive agency on vineyards, the harvest this year will be 200,000 tonnes - 23,000 tonnes less than in 2003.

Bulgaria's largest wine producer and a significant player on the international wine market, Domaine Boyar, confirmed these negative results to the OBG - yet also suggested one solution. Margarit Todorov, Boyar's chief executive officer, told the OBG on October 14 that, "The cold and wet summer has produced a poor vintage. However, we will blend it with wine from previous great vintages to maintain our quality standards."

Yet while wine producers try to recover from an unusually poor vintage, they are also facing more long-term structural challenges.

Ranking among the top six wine producers in the world, Bulgaria's vast area of planted vineyards is still held by many small owners. Despite some concentration in the hands of larger wine houses, which are increasingly turning to acquiring and planting their own vineyards to control the quality of grapes, the legacy of the land restitution process in the 1990s is still alive. As with the rest of the agricultural sector in Bulgaria, the challenge is to manage an effective transition from the restitution process - which restored property rights - to the creating of economically viable farm units capable of meeting the challenges of open market competition.

Meanwhile, as one industry insider told the OBG, a large proportion of Bulgaria's vineyards need to be replanted. With the cost of replanting one hectare estimated at 10,000 euros, significant sources of investment financing will have to be found in the future. Financial analysts say that rural credit will only be available to larger, market-oriented units.

This is true for the rest of the rural sector too. As the latest EU accession country report on Bulgaria pointed out, "subsistence and semi-subsistence farming hampers the labour productivity in agriculture and rural income". The share of gross value added (GVA) is still quite low, rising by just 1% this year from 11% last year.

According to initial results from the 2003 agricultural census, which should be completed by the end of this year, there are some 678,800 units win the country undertaking agricultural activities. About 50,000 of these are very small-scale and are not economically viable. It is practically impossible for such units to obtain credit to finance technical upgrades, purchases of seeds or fertilisers.

With upcoming EU competition, the only option seems to be to encourage small farmers to lease their land to larger associations, while creating alternative rural employment. Regarding the need for the latter, foreign direct investment in several affected areas this year is an encouraging sign that part of excess rural labour can be absorbed by the industry and tourism sectors.

For the time being though, a bumper grain crop has revived hopes in Bulgaria's farming communities. Yet most are aware that it will take more than favourable weather and export grain markets to sort out the sector's long-term concerns.

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