Sofia, Bulgaria
May 8, 2007
USDA/FAS GAIN Report Number: BU7009
Source:
http://www.fas.usda.gov/gainfiles/200705/146281053.pdf
Report highlights
Grain and oilseeds markets
slowly adjust to new changes as a result of Bulgaria’s EU
accession. Implementation of EU model grain intervention
policies are currently a major challenge for the government
and industry, due to lack of experience and various
political conditions.
Grain Intervention in the
context of EU membership
In 2007, Bulgaria did not
eliminate the old grain intervention government structure based
after a socialist model, called a State Reserve. Since 1990,
this agency was fulfilling two roles in the grain sector – to
keep the military and emergency stocks; and to execute market
grain interventions. Since late 1990s, the State Reserve has
intervened through the 3 local commodity exchanges, in volumes
up to 150,000 MT- 200,000 MT per year. These
interventions were not always successful, and were criticized
for a lack of transparency. So called emergency stocks had to be
replaced almost every year and these deals were usually done
under vague terms.
In February, the Interagency GOB
group in charge of the State Reserve Agency allowed replacement
of 96,847 MT from 2004 grain crop. The decision was taken
despite Ministry of Economy objection due to the fact that the
State Reserve had not refilled yet 85,000 MT of wheat sold in
2006. As a result, the State Reserve decided to sell directly
45,000 MT and to refill (replace) another 50,000 MT.
In March, the State Reserve
offered 50,000 MT of wheat for sale on the market through 3
local commodity exchanges. Sell prices were above the market
prices (147 Euro/MT vs. FOB Black Sea price of 145 Euro/MT) and
chances for actual purchases were bleak. The most alarming,
however, was the unclear sales conditions which did not specify
if wheat had to be replaced later in the year with the same or
little higher quantity from the new crop, as has been the
practice to date, or to sell it as a regular commercial deal.
Finally, a newly registered grain company purchased the total
wheat quantity under unclear terms. According to some traders,
this wheat will be most likely exported. The buyer may/may not
procure the same quantity from the new wheat crop and return it
to the State Reserve in post-harvest time (at much lower
prices).
This non transparent deal (and
alleged red tape practices related to it) violated two major
laws, the Law for the State Reserve and Military Stocks, and the
new regulation about the Grain Intervention Agency which started
operation on January 1, 2007. Currently Bulgaria has two state
grain bodies which operate with government stocks. Although not
defined by the GOB as an intervention, the State Reserve sales
or purchases are de facto an
intervention policy not in line with the EU intervention
regulations.
The grain industry is concerned
that if similar non transparent and illegal sales of state
stocks continue, the EU type intervention will be compromised.
The State Reserve Agency continues to not provide any public
data about its stocks which creates unstable and unpredictable
market environment. In April, the Union of Millers notified the
Prosecution office about the questionable wheat sale which,
according to Union’s estimates, caused at least 1.5 million Euro
loss to the state budget. In addition, the buyer of State
Reserve stocks was a company which was not registered as a grain
trader, as required by the law, and the sales terms did not
allow for participation of more than one buyer. In late April,
some media described the above described grain sale as a part of
a bigger political corruption scandal.
Despite industry actions and
appeals, the GOB did not respond either on the legitimacy of
State Reserve actions or on its future intentions. Moreover, in
mid April, the State Reserve and the Ministry of Agriculture
made an official joint stateme nt that the State Reserve will
purchase over 200,000 MT of 2007 wheat crop. At the same time,
the Ministry declared its plans to buy another 500,000 MT of
wheat through and the EU type intervention agency. Due to high
intervention quality requirements, however, the State Reserve
purchases seem more realistic. This will close the door to the
EU intervention model implementation.
Grain stocks
In mid April, the Ministry of
Agriculture announced its official data about available grain
and sunflower stocks (as of end-March) in country (at public
warehouses and licensed grain storage facilities). The State
Reserve stocks were not revealed. The data included as follows:
411,000 MT of wheat (162,000 MT at public warehouses, 118,000 MT
at grain storage facilities, and 131,000 MT at other storage);
35,000 MT of barley; 171,000 of corn; and 154,000 MT of
sunflower; total grain and oilseeds stocks of 776,000 MT.
The Ministry of Agriculture has
decided to establish a working group to draft a new regulation
which will oblige grain traders to report their sales at the EU
market. The Ministry is concerned that with the elimination of
Customs statistics, it will not be able to collect accurate and
timely information about grain trade which may jeopardize the
grain balance policies. Local grain consumers (mainly mills)
which never worked on a fully liberalized market, appealed for a
stricter control on trade so that most wheat is not sold out of
Bulgaria
at post-harvest time at lower prices. The industry is concerned
that the open market may lead to a situation when wheat will
become short and significantly more expensive, so that local
processed grain products (mainly bread) may lose their
competitiveness, and sales would decline.
Planting seeds new regulation
In late March, Bulgaria adopted EU
regulation regarding planting seeds production, distribution and
trade, and the EU variety list. Local authorities have to
inspect twice monthly traders who offer planting seeds on the
market. Storage facilities, seed treatment facilities and retail
outlets also will be inspected. Crops produced from non
certified seeds will not be allowed entry on the market. Farmers
who use seeds or planting materials not allowed by the Law will
not be eligible for subsidies. These sanctions will be valid
also for farms which use their own seeds which do not meet EU
standards.
The new rules are expected to have
a significant negative effect on semi-market farms; instead of
accelerating their development towards market oriented farms, it
most likely will push them off the market.
According to Bulgarian
authorities, although Bulgaria and Romania acceded to the EU at
the same time, Romania still does not have the right to sell its
corn and sunflower planting seeds on the EU market. Therefore,
authorities warn local farmers to not buy Romanian corn and
sunflower seeds.
Bulgarian planting seeds producers
are able to meet the market demand, as overall imports account
for less than 50 percent of the market. However, more
progressive and larger farmers prefer to buy imported seeds due
to their premium quality. Challenges related to local seed
production are the lack of innovative research, lack of
qualified staff, and developed infrastructure and resources for
variety testing. For this reason, the longer term
trend is for the replacement of locally produced planting seeds
by rising imports.
Oilseeds and products market
changes
In late March, Uniliver announced
its plans to stop manufacturing of margarine under the brand
Kaliakra in Dobric h, Bulgaria and to move it to its newly built
facility in Ploesht, Romania. This way, Kaliakra will be the
first Bulgarian food brand produced outside the country. Since
2003 when Unilver acquired this production facility, the annual
production was around 12,000 MT. According to local studies,
Uniliver has about 55 percent market
share, and a large Bulgarian company (Bella group) accounts for
another 40 percent of the margarine market. Imported margarine
has 5-6 percent market share, mainly due to 40 percent higher
prices.
Uniliver’s decision was
interpreted negatively by the local and national authorities.
The local municipality was concerned about a 100 lost jobs and
corporate taxes. Some experts commented on this decision as an
indication of unfavorable business environment. Both industry
players and most politicians, however, understood that the
common market offered competitive investment conditions in
Member States(lower corporate and local taxes, less expensive or
higher qualified labor, lack of corruption pressure) and the GOB
had to put more efforts int o attracting and retaining foreign
companies looking to operate in the country. The news was good
for the major local competitor, the Bulgarian Bella group, which
claims to be a leader in low-fat margarine segment. Low-fat type
margarines account for 46 percent of the margarine market and 73
percent of this segment is hold by Bella group (Tomi and Flora
brands). At the high-fat margarine segment, Uniliver is a
leader, followed by Bella with
25 percent share. Now the local manufacturer is ready to expand
and take at least 15 percent more market share.
Source:
http://www.fas.usda.gov/gainfiles/200705/146281053.pdf |
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