VZCZCXRO1994
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSF #0943/01 2180819
ZNR UUUUU ZZH
R 060819Z AUG 07
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC 4075
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHRC/USDA FAS WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 SOFIA 000943 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: AGRI EAGR ECON PGOV BU
SUBJECT: DROUGHT HITTING FARMERS, ECONOMY 
 
 
¶1.  (U) SUMMARY: The regional drought affecting the Black Sea region 
has severely damaged Bulgaria's main crops.  With some harvests 
almost complete, yields are estimated to be down by 35 percent for 
wheat and 80 percent for corn.  Rising grain and oilseed prices are 
causing near-term spikes in bread prices and are expected to cause 
long-term price increases for vegetable oils, meat and dairy 
products.  Agricultural exports are expected to fall significantly, 
further aggravating Bulgaria's current account deficit.  While the 
GOB has announced minimal domestic support for drought-affected 
farmers, agriculture agencies are predicting high bankruptcy rates 
for grain and livestock farmers.   END SUMMARY 
 
THE HOTTEST SEASON IN A CENTURY 
 
¶2.  (U) Bulgaria experienced a much milder than average winter, with 
relatively little snow pack or spring melt.  A relatively wet spring 
did not make up the precipitation shortfall.  Now, the regional 
drought which has sparked wildfires over parts of the Balkan 
Peninsula and Black Sea region has severely damaged Bulgaria's 
staple crops.  Drought conditions in the spring affected grain and 
oilseed crops.  High temperatures in early summer impacted wheat and 
barley production.  In July, record-breaking temperatures hit corn 
and sunflower crops.  The highest temperatures were in the Danube 
plain, the heart of the grain/oilseeds basket, where the mercury 
regularly reached 102-111 degrees Fahrenheit.  According to 
Bulgarian meteorologists, July 2007 was the hottest month in the 
past 100 years. 
 
¶3.  (U) With most harvests almost complete, initial, unofficial 
estimates show crop yields down between 35 percent for wheat to 80 
percent for corn. The price of bread around the country has already 
risen by 10-15 percent.   Millers and bakers predict the price of 
bread will jump a total of 30 to 50 percent due to increased costs 
associated with wheat flour, electricity, oil and labor.  As grain 
costs have risen, livestock farmers have increased their slaughter 
rates.  In the short-term, larger meat supplies are keeping meat 
prices stable, but by the end of the year, as herd sizes are reduced 
and domestic meat supplies decline, prices will rise for meat and 
dairy products.  Even if corn prices ease this fall, animal feed 
costs will remain high due to low global stocks and strong demand. 
 
¶4.  (U) Bulgaria traditionally exports more than 1 MMT (million 
metric tons) of wheat annually.  This year exports are expected to 
be significantly lower.  Experts estimate losses from reduced 
exports at USD 300 million.  Since wheat is a major export earner, 
the country may not have a positive agriculture trade balance in 
2007, further aggravating a current account deficit which reached 
15.8 percent of GDP in 2006. 
 
GOVERNMENT ACTIONS 
 
¶5.  (U) On August 1, Minister of Agriculture Nihat Kabil announced 
the GOB, through the State Agriculture Fund, intends to offer up to 
12 million leva (8.4 million USD) in drought compensation to 
affected farmers.  A farmer who lost more than 85 percent of crop 
would be eligible for compensation of up to 200 euros per hectare. 
In addition, according to Hristo Milenkov, head of the State 
Commission for Commodity Exchanges, Bulgaria has requested 
permission from the EU to purchase corn for livestock feed from the 
agricultural intervention agency in Hungary.  Press reports state 
that Bulgaria is also seeking to import grain and corn from Serbia. 
On July 30, Ministry of Agriculture officials informally approached 
the U.S. Foreign Agriculture Service about the possibility of 
receiving aid in the form of corn for livestock feed from the United 
States. (Note:  Bulgaria's per capita income exceeds the ceiling set 
for United States food aid eligibility.) 
 
¶6.  (SBU) According to Ivaylo Todorov, President of the Bulgarian 
Farmers Association, Bulgarian farmers are also calling for advance 
payments of EU funds that were to be distributed for the first time 
in Bulgaria at the end of 2007 as part of the Common Agricultural 
Policy.  According to Todorov, it is not clear if this is possible 
according to EU regulations.  Even if the EU were willing to 
disburse such payments in advance, the Paying Agency of the Ministry 
of Agriculture is unlikely to be able to handle such disbursements 
at this early date. 
 
¶7.  (U) Agriculture Minister Kabil is also considering creating a 
new national fund that would compensate Bulgarian farmers for losses 
due to climate conditions.  Citing the experience of France, Kabil 
said such a fund would be a joint venture between the state and 
individual farmers willing to pay a modest membership fee.  Members 
would have a say in decision-making on issues related to 
compensation. 
 
¶8.  (SBU) COMMENT:  This is the first year Bulgarian farmers are 
operating within the EU common market.  Farmers are inexperienced at 
reading market signals, and difficult harvest conditions have only 
complicated their plight.     Some Bulgarian farmers, especially 
 
SOFIA 00000943  002 OF 002 
 
 
those who have waited to sell their grains and oil seeds at today's 
high prices, or who are holding out for still-higher prices, will 
come out ahead.  Others will face bankruptcy -- particularly smaller 
livestock producers who are hard-hit by shortfalls in on-farm feed 
production.  Post expects the effects of this drought to spur 
further migration to urban areas. 
 
¶9.  (SBU) COMMENT CONTINUED:  The effects of the 2006-07 drought on 
Bulgaria's rural economy can be expected to be felt well into 2008, 
as global supplies remain relatively tight, demand strong, and 
prices high.  Without substantial rain in the Black Sea region this 
summer, fields will be dry for winter crop plantings this fall, 
which will affect production and farm incomes next year. 
Nevertheless, the drought is unlikely to have any noticeable impact 
on the outcomes of local elections scheduled for October 28. Those 
elections are likely to turn on political factors and the ability of 
key parties to mobilize urban voters.  Still, the drought will lead 
to further disgruntlement about politicians in general.  END 
COMMENT. 
 
KARAGIANNIS