VZCZCXYZ0007
OO RUEHWEB

DE RUEHSF #0276/01 1161507
ZNR UUUUU ZZH
O 251507Z APR 08
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4992
INFO RUEAIIA/CIA WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SOFIA 000276 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS EEB/TPP/ABT/ JANET SPECK 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV BU
SUBJECT: BULGARIA:  IMPACT OF RISING GOODS/COMMODITY PRICES 
 
REF: STATE 39410 
 
 ¶1.  (SBU)  SUMMARY:  This cable is a response to REFTEL.  In 
2007 - 2008, the Bulgarian economy and consumers witnessed 
the highest inflation and consumer price increases in the 
last 10 years. In 2007, Bulgaria -- a traditional exporter of 
grains -- became a net importer.  In the last year, 
March-March, food prices rose 23.7 percent.  As energy and 
other input costs have also risen, agriculture's share of 
GDP, along with rural net incomes, has declined, although 
large farmers are faring better than smaller farmers.  No new 
government programs have been created to offset rising 
prices, although small additional subsidies recently were 
given to dairy farmers after several months of 
demonstrations.  END SUMMARY. 
 
----------------------------- 
Why Prices Have Risen So Fast 
----------------------------- 
 
¶2.  (SBU)  When Bulgaria joined the EU on January 1, 2007, it 
had the lowest consumer price and income levels in the EU. 
Due to a severe regional spring/summer drought in 2007, 
Bulgaria produced record low grains and oilseeds, as well as 
reduced volumes of products of animal origin (meat and milk), 
fruits and vegetables.  Agricultural imports increased 
significantly and for the first time in 20 years, the 
traditionally net-exporting agricultural sector became a net 
importer.  In addition, Bulgaria increased its consumption of 
imported energy (oil) which affected all sectors in the 
economy including agriculture and food production.  Consumer 
prices in Bulgaria rose steadily between January and August 
¶2007.  After the poor grain harvest in August, the prices of 
grains, oilseeds, vegetable oils and related products 
skyrocketed. 
 
¶3.  (SBU)  Record high grain and oilseed prices were 
favorable for large efficient farms but were devastating for 
smaller farms, and for semi-subsistence producers.  Many 
smaller farmers suffered losses due to poor crops and were 
only partially compensated by the government.  Overall, 
average farmer incomes declined, their debt burdens rose, and 
many small and inefficient producers went bankrupt. 
Livestock farmers, especially dairy cattle farms were the 
most severely affected by rising prices.  Dairy farmers 
responded by over-slaughtering -- which led to a decline in 
livestock numbers. 
 
¶4.  (SBU)  Higher prices for most field crops led to rising 
demand for land, increased land rents, and land prices. 
Higher land rents, along with increased prices of fuel and 
fertilizers, are likely to affect production costs of all 
agricultural commodities produced after August 2007.  The 
first EU subsidies paid to farmers under the single area 
payment scheme (SAPS) in February 2008 were reported to be 
used massively for paying old debts, mainly rents. 
 
-------------------- 
Effects on Consumers 
-------------------- 
 
¶5.  (SBU)  Although the average Bulgarian spent 37.5 percent 
of disposable income on food in 2007, according to official 
statistics, a significant part of the population spends more 
than 50 percent.  Rising food prices led to shrinking 
consumption of many higher-value food products. Consumers 
switched to lower value/priced products from the same 
category or purchased less.  In the past, many were able to 
generate income from home gardens, but this practice has 
decreased.  Higher prices for transportation, heating, 
electricity and other energy-intensive goods and services 
costs combined with stagnating incomes, have resulted in less 
income to buy foods and other consumer products.  Rising food 
prices have been painful for social institutions -- schools, 
hospitals, orphanages -- which have had to increase outlays 
for food purchases within the limits of restricted budgets. 
Additional humanitarian aid to make up for rising prices has 
been practically absent. 
 
--------------- 
Policy Response 
--------------- 
 
¶6.  (SBU)  As an EU member state, Bulgaria may not restrict 
exports or impose non-tariff barriers on trade, but there 
were demands along those lines from industry in the summer of 
¶2007.  The Ministry of Agriculture has not enacted any 
specific policies to soften the rising food price trends. 
The only new policy was to meet dairy farmers' strike demands 
and to provide slightly higher support to dairy farms. 
Although there was an idea to establish an indemnity fund or 
an insurance fund for grain farmers -- which could compensate 
losses in dry years -- this has not been established.  No new 
policies have been initiated for more efficient land use, 
and/or for adoption of new technologies.  There are no stocks 
and/or national reserve facilities for emergency food relief. 
 
 
------------- 
Post Response 
------------- 
 
¶7.  (SBU)  Post continues to support a small local NGO which 
is working with USDA experts, a U.S. partner NGO, and local 
stakeholders to develop a food bank concept in Bulgaria after 
the U.S. model.  The project is well thought of by local 
political and industry players, although legislative and 
technical impediments are hindering the food bank's 
implementation. 
Beyrle