As of the end of 1997, only about 18% of agricultural land was privately owned with clear title, but privatization and market reforms have accelerated in 1998. The average farm size is about 2.3 hectares, although larger grain farms are increasing in number.
AGRICULTURAL POLICY. Economic and market liberalization began in 1991, but the pace of change has been slow and erratic. In general, government policy for grains and oilseeds has attempted to support producers while ensuring the availability of food at low prices, particularly for urban residents.
Although grain markets have been liberalized for several years, the government has influenced prices through various other policies that have tended to undermine the workings of the free market. Because the government has implemented its policies often without warning — and has revised them as supply/demand balances change — market risk has been high, limiting competitiveness and investment in the private sector.
For example, on-again, off-again grain export bans, licensing requirements and import tariffs helped trigger a food disaster in 1996-97, which occurred in conjunction with an overall economic crisis that saw inflation surpass 300%. Because of the economic turmoil and policies that depressed grain prices, domestic wheat and coarse grains production plunged to at least 30-year lows.
When international and local private traders prepared to import maize and wheat to ease the domestic shortages, Zarneni Hrani, the state marketing agency, bought imported grain itself. Even more disruptive to the market, the agency then sold the grain in the domestic market at prices below the import cost, crowding out private traders.
In the immediate aftermath of the crisis, government attention during 1997 focused on providing credit and other incentives to stimulate grain and food production. The programs included "soft loans" to farmers through the Agriculture Fund, guaranteed loans for state-owned flour mills, tax incentives and support prices for key commodities including wheat, which had a minimum price of U.S.$134 a tonne.
Although the price support policies succeeded in stimulating wheat production and easing the food crisis, some of the other policies had negative consequences. Only state mills were eligible for the loan guarantees, so private mills had limited access to financing and only a fraction of the working capital they needed during the 1997-98 crop season. Even state mills using the guarantees faced problems; because they were required to buy the wheat at the government minimum of U.S.$134, they suffered losses when market prices later declined.
Spurred by recommendations from the World Bank and other international lending institutions, the government this year has committed itself to significant reforms. Policy priorities currently are to provide sufficient funds for credit, to liberalize the trade regime; to help establish a modern marketing infrastructure and to assist in conflict resolution between producers, processors and traders. Specifically, the government in 1998 abandoned the minimum support price for wheat, reduced import duties and proposed a new grain marketing law.
Under the new legislation, passed in late July by the Bulgarian parliament, officially licensed public grain silos will be authorized to issue warehouse receipts to producers who deposit grain. The receipts can be traded on both commodity and stock exchanges and can be used as collateral to obtain bank credit.
Eligible silos must have a minimum storage capacity of 3,000 tonnes. National storage capacity is estimated at 4 million tonnes, with 40% of that capacity still under state ownership.
At the same time, a national strategic grains reserve will be established to maintain stability in the domestic market. The government will retain responsibility for decisions concerning stock accumulation and release. The reserve will comprise wheat, maize, oats, rye, sunflower seed and rice.
FLOUR MILLING. No statistics are available on the exact number of flour mills in Bulgaria, but observers estimate about 200 mills are in operation. Only 10 to 15 plants are categorized as large, industrial mills.
Nearly all of Bulgaria's flour mills have been privatized, and the remaining mills are scheduled to be in private hands by the end of this year. The stepped-up pace of privatization for mills and the food industry was adopted as part of an agreement with the International Monetary Fund for financial assistance.
Bulgaria's annual milling capacity, in terms of flour, is estimated at roughly 1.2 million tonnes. Flour production has slipped in the past few years, dropping to an estimated 800,000 tonnes in 1997 from nearly 1.1 million in 1994.
The majority of flour produced is used for industrial baking, with bread the predominant wheat product. Bread is sold in 700-gram loaves, which sell for about U.S.$0.21 to U.S.$0.36 per loaf.
The milling and baking industries have been slow to modernize in the 1990s, as tight or non-existent credit has constrained this investment by private owners. Indeed, just obtaining credit to purchase wheat has been an ongoing difficulty for flour millers, especially since the 1996 economic crisis.
Millers also face problems selling flour to bakers because of competition from smaller wheat producers using mills on a "milling service basis." Under this arrangement, the producers pay the mills to grind their wheat into flour, which the producers then sell directly to bakers.
Because most producers are not registered under the law for the value added tax, they are not required to charge the 22% VAT to bakers who buy their wheat flour; mills, of course, are required to assess the VAT. As a result, many bakers prefer to buy the less expensive flour from producers, even though the quality of the producer flour is lower than that of commercial mills.
FEED INDUSTRY. The 1996 economic crisis decimated the livestock industry, as grain shortages and eroding consumer demand forced herd liquidation. In the past two years, the livestock industry has began to stabilize. The number of livestock and demand for feed in 1997-98 both increased, a trend expected to continue in 1998-99.
This development was stimulated by good feed availability, declining grain prices and industry privatization. Currently, more than 95% of all animals and about 80% of the meat processing industry are in private hands. Feed mills should be entirely private by the end of 1998.