Bulgaria

Report Highlights

Good feed supply in CY2002/03 stimulated livestock farmers and the meat industry has stabilized. Reforms in the sector led to higher commercialization, better efficiency of larger commercial farms and improved products (pork and poultry) quality. However, in CY03/04 Bulgarian livestock industry is expected to face feed shortages which may lead to reduction in animal numbers, especially in the pork industry. Thus, some meat shortages are expected after the initial increase in meat supply.

Meat imports (pork and beef) were record high in CY2002 totaling 40,000 MT. Imports are expected to continue due to still lower competitiveness of locally produced pork and beef compared to imports; and increasing demand for better quality cuts to meet the needs of developing retail and food service sectors. U.S. opportunities for meat exports continue to be excellent for high quality beef steaks, and pork for processing due to favorable demand and liberal veterinary policy.

Executive Summary

Over the last three years (CY2001 - CY2003), Bulgarian livestock industry faced a number a challenges related to the fluctuating supply; which led to reductions in meat production, mainly in small to medium sized farms. Furthermore stagnant consumer income and development of the retail and food service sectors led to an increase in meat demand. In MY2003/04, the major problem for the livestock industry will be the short feed supply as its high prices.

The number of livestock stabilized in 2002 with less slaughtered animals due to abundant and inexpensive feed. As a result, less meat was produced and imports increased to meet local demand. However, the feed shortages in MY2003/2004 are expected to lead to another reduction in animal numbers, mainly at family farms. Since feed accounts on average for 68 to 75 percent in production cost, most inefficient farms may not able to maintain the volume of production.

Although price is still a dominating factor in local marketing and the key factor for imports, quality requirements started to play an increasingly important role in purchases in 2003. An increasing number of companies started active investment in improved food safety and quality, in promotions and marketing. The livestock and meat industries are to undertake major transformations and restructuring related to new investment in improved breeds; better quality of meat; adoption of stringent hygiene practices; and development of new marketing strategies.

Meat imports in CY2002 were at a record high due to lower local supply and attractive domestic meat prices. Another factor was higher demand for certain cuts and better quality, especially for pork. Thus, total meat imports in CY2002 were 40,000 MT (beef, 21,400 MT; pork, 17,800 MT) or 8 percent higher than in 2001. The forecast for CY2003 and CY2004 is for higher meat imports which is related to lower meat supply compared to CY2002; and higher domestic prices for beef and pork which makes imports more attractive than locally produced meat. The AgSofia forecast for imports for CY2003 in PSD tables is a "pessimistic scenario" based on the limitation of the consumer purchasing power.

The United States beef meat market share in CY2002 was less than one percent since the major imported items were beef steaks for hotel promotions. Currently, quality U.S. beef steaks are offered in the top six hotels/restaurants. Bulgarian imports of U.S. pork in CY2002 were 4-fold higher than in CY2001 and reached 2,082 MT or 12 percent of total imports.

The prospects for U.S. meat, both beef and pork for processing as well as higher quality beef steaks for direct consumption, are very good. In CY2002, the Bulgarian Vet Service agreed with USDA/FSIS on new import certificates for U.S. meat and meat products which will allow entry of U.S. meats until Bulgaria becomes a full member of the EU (estimated not earlier than 2007). Slowly but steadily increasing consumer income as well as development of the food service sector and tourism will continue to stimulate demand for more and better quality meats.

Production

General
The data in the PSD table for animal numbers was revised based on offic ial GOB statistics and industry data for stocks as of January 1, 2002 -2003. Data for swine numbers showed the biggest discrepancy among various state and industry sources compared to other types of livestock. (the 2003 estimates vary from 790,000 swine including 90,000 sows to 1,200,000 swine including 120 sows). The same is true for the pork production estimates which vary from 50,000 MT to 250,000 MT. AgOffice numbers used in this report are supported by industry groups and independent consultants and experts.

In 2002, good feed supply encouraged most pork farmers to keep their animals. At the end of 2002, the MinAg reported 26 percent increase in the numbers of piglets (piglets up to 20 kilos and young piglets for fattening). Estimated slaughtering was less than expected (2,384,000 head vs 2,401,000 head). Thus, 2002 pork production was slightly lower than expected. The birth rate use in PSD table is 18.5 for the three consecutive years. The number of slaughtered animals is a remaining figures after deduction of the loss rate which is estimated at 10 percent to total supply.

In 2003/04, the feed deficit is expected to affect pork farms and to cause distress slaughtering at small and medium farms. The pork sector, in general, is expected to be more seriously affected by expensive feed compared to the cattle/beef sectors. After the initial increase in the local pork supply, some meat shortage is expected, which is likely to be accompanied by higher meat prices. The first signs of higher pork prices occured in mid- September 2003. Higher prices and demand are likely to lead to higher pork imports in late 2003 and early 2004. Pork imports of 2003 and 2004 are forecast to stay high or even increase due to local shortages. It is projected that huma n consumption, however, may decline due to still limited purchasing power.

As of May 2003, the MinAg reported 29 percent increase in the number of animals with the most significant increase in the number of pigs for fattening (over 80 kilos), 106 percent, compared to May 2002 (Landsis Bulletin #43). Sows account for 9-10 percent from total swine numbers at the commercial farms, and for 5-7 percent at smaller farms. The number of swine farms declined 6 percent, however, the average number of swine per a farm increased from 4.3 to 5.8. More notable was the increase in the average number of swine in large commercial farms – from 125.9 to 165.3. As of May 2003, commercial swine farms account for 42 percent of total swine numbers and 55 percent of total sows. This is the highest commercialization in the livestock sector compared to cattle (22 percent of cattle at commercial farms) and sheep (14 percent of total sheep are at commercial farms). Large commercial pork farms have 468,000 hogs vs 648,000 hogs at small/medium farms. Due to relatively high percent of commercial farms, about 55 to 60 percent of total slaughtered swine go via the slaughtering houses. The positive trend of increase in the number of swine, however, is likely to be interrupted by the feed shortages in MY2003/04.

The major risks the pork farms face today are: a tight local market due to stagnant consumer income; no export opportunities; fluctuating feed prices (short and expensive feed in 2003/04); more stringent demand for better quality meat which requests investment in new breeds and improved feeding.

Production Factors
Over the last two-three years, commercialization of the swine/pork sector increased rapidly. Commercial farms usually have feed mills to cut costs of feeding and to maintain control of feed quality. There are about 60 large farms supplying pork for the commercial market which account for 90 percent of pork production. Most commercial pig farms started to enlarge their stocks in 2002, and currently, the majority of commercial supply is secured by ten major producers.

Prices

As of February 2002, average ex-farm prices were 2.30 - 2.60 Bleva/kilo LWE for fatted pigs and 2.00-2.40 Bleva/kilo LWE for sows. By April, CY2002, most pork farms which started the production cycle in CY2001 fall had their finished hogs for sale which led to oversupply and hogs/pork prices declined significantly to about 1.20 - 1.50 Bleva/kilo ($0.60-0.75/kilo) in LWE.

Another factor for the dec line in prices was high pork imports of the first months of 2002. The declined in prices took place between April and August 2002. After September 2002, prices started to rebound slightly and stabilized at a lower level till May 2003. Since July/August 2003, pork prices started to rise again as a result of the more expensive feed. As of July 2003, pork prices were as follows:
Ex-farm prices in LWE – 1.20- 1.50 leva/kilo ($0.69 – $0.87)
Wholesale carcass without skin – 3.00 – 4.00 leva/kilo ($1.74 - $2.32)
Retail prices were about 5.50-6.00 leva/kilo ($3.20 – $3.50)

The feed accounts for 70 percent of pork production cost. In early 2002, the feed prices were low – wheat by 20 percent, corn – by 17 percent and barley – by 10 percent compared to a year ago. The good 2003 grain crop also contributed to stable and low feed prices April/May 2003. Thus, average feed prices in 2002 were between 17 and 25 percent lower than in 2001.

Ex-farm prices, as well as wholesale and retail prices in 2002 on average were lower compared to 2001 due to lower production cost and better supply. The reduction was about 15-17 percent for ex-farm LWE prices, about 5-9 percent for the wholesale prices and about 5-7 percent for the retail prices.

Production Technology

Medicinal and vaccine practices improved due to enlargement of farms and more efficient management. The last outbreak of swine fever dated April 2002 (about 360 pigs were destroyed due to swine fever outbreaks at 12 regions) and showed that despite free-ofcharge vaccinations by private veterinarians, some weaknesses in the disease programs developed due to lack of knowledge among small/medium farmers, and lack of stringent state vet control over on-farm production.

Pork Meat Production

Average LWE for swine in the PSD table for CY2002 and CY2003 is 110 kilos per head or 75 kilos CWE per head which is also based on the last 5-years average index with the exception of CY2001. Indexes registered in the slaughter houses were average for piglets, fatted pigs and other pigs.

Pork Production Cost

About 70-75 percent of pork production cost is for feed expenses. The average feed conversation rate was 3.20- 3.70 kilos of feed for a kilo of growth.

In the first two months of 2002, the production cost at most pork farms was stable at 1.76 Bleva/kilo LWE to 1.89 Bleva/kilo LWE with 25 percent profitability. In cases, when pork farms have their own grain and feed mill production, profitability can reach 35 percent. According to the MinAg (Livestock Bulletin of October 2002), the pork industry was profitable both in 2001 and 2002. The indicator used by the MinAg is a proportion of the price of a kilo of pork meat to the price of a kilo of feed to be one to ten, or how many kilos of feed can be bought with a kilo of pork. For example, in 2002, this proportion was from 12 to 15 for pork meat to feed barley; from 10 to 13 for pork meat to feed corn; and 13 to 16 for pork meat to feed wheat. In 2001, these proportions were similar but close to 9 to 11 which means that 2002 was a more profitable year for the pork producers.

Commercial Pork Market

Since 1995/96, Bulgaria is a net importer of pork. Shortage of pork in CY2002 was compensated by higher imports but still the local c ommercial market is limited due to the consumer purchasing power. In 2003, it is expected that lower pork production will lead to higher imports. For example, the reduced import duty quota of 3,000 MT was opend and used for one day; and the EU-origin duty free quota of 8,000 MT was used for about 70 days. Imports are forecast to be even higher in 2004 due to expected lower production. Anticipated higher prices level which emerged in August 2003 are expected to stay stable during 2003 and even in 2004 and to attract imports.

Consumption

Pork continues to hold the largest share in local meat production and consumption, usually above 60 percent. In 2002, consumption was slightly higher than initially estimated (see PSD pork table) due to higher imports, and better demand due to the lower prices in April- August period stimulated local purchases including the tourist industry. In 2003, lower production and supply are expected to raise the prices and this to limit consumption by 10- 13 percent. This reduction in consumption in expected to occur mainly in the first half of 2003 before the new grain crop comes to the market. In 2004, the expectations are for better feeding supply which may motivate less slaughtering and thus lower local meat production in the short run and higher imports. Therefore, consumption is expected to drop initially before potential rebounding in the second half of 2004.

Recently, there is a trend of higher consumer preferences toward lean pork meat and chicken as a substitute for pork. Pork consumption stays rather seasonal – in the winter the demand is higher for local purchases (traditional local holidays) and in the summer, the demand is drive by tourism and HRI sector.

Trade

Exports
In 2003, Bulgaria has an export quota to the EU at duty free access for 2,500 MT.

There is an export quota for export of 200 MT of pork to Macedonia at 50 percent reduction in import duty or 10 percent plus 0.21 Euro/kilo. There is anotehr export quota for frozen pork for Lithuania of 100 MT at 5 percent reduction of the duty.

Currently, Bulgaria does not export pork to the EU due to mandatory vaccination of hogs against swine fever. Exports are very small. In 2002, total pork exports were 132 MT.

Imports
In CY2003, the GOB approved a reduced import duty quota for only 3,000 MT (vs 7,000 MT in 2002) starting April 1 regardless the origin of the products. This quota was initiated by the Association of Meat Processors and was filled in for less than one day. It proved that the quota was much smaller than the demand. In addition, it raised questions about the distribution of the quota. Reportedly, two major importers took about 90 percent of the quota.

The United States had a very good portion of the 2002 TRQ for pork with about 2,100 MT or 12 percent of total pork imports. According to trade, in 2003, the U.S. share will be smller due to the tight competition with Brazil.

The initial proposal of the AMP was for 7,000 MT-12,000 MT. In 2002, there were protests of pork farms (April-June) which blamed TRQ for pork for the low ex-farm purchase prices (1.30 - 1.50 Bleva/kilo LWE in April). In September 2003, reportedly the Ministry of Finance initiated a new regulation for introduction of TRQs. The idea behind this new regulation is to complicate the procedure to such an extent so that to make impossible introduction of the TRQs and to limit trade/imports only to the EU origin products and to countries with which Bulgaria has bilateral agreements. According to the draft regulation, industry groups will not be allowed to request TRQs if similar or substitute products can be sourced at the EU/CEFTA markets as the price and quality are not accepted as valid arguments.

Tariff Rate Quotas

There was an import quota of 3,000 MT with a reduced import duty for pork at 250 Euro/MT for the period April 1 – June 30, 2003. There is a second quota for 1,500 MT with 15 percent duty for the whole 2003. Pork fat TRQ for 2003 was 9,000 MT at 0%.

Trade Agreements

• EU: For the second half of the year, there is a duty free import quotas for 8,000 MT only for EU origin products.
• CEFTA: The maximum import duty of 25% for HS#0203 is applied upon imports of commodities originating from CEFTA countries. There are no other specific preferences in imports of pork from CEFTA countries.
• Turkey and Macedonia: no preferences
• Croatia: The max import duty for HS#0203 is 25 percent without any quantitative restrictions.
• Estonia: A duty free import quota of 300 MT for HS#0203 21-22-29 is applied.
• Israel: no preferences

Policy

There are not any specific programs for the pork industry as well as for cattle/beef industries. The State Fund Agriculture soft credit lines are for purchasing of breeding stocks and construction of farms. SAPARD funding is available but not intensively used at present.

Marketing

Market opportunities for U.S. pork for processing are very good. The limiting factor are relatively high import duties and duty free import quota for the EU origin pork which discriminate against U.S. pork products. Similar to 2002, the period April-September 2003 was not favorable for U.S. pork meat imports due to the drop in local pork prices and opening of the EU pork import quota (July 1). However, prices in November- December CY2002 are expected to stabilize at higher level and to motivate imports. The EU pork quota was used by September 2003 which opens good market opportunities for U.S. pork in the last quarter of 2003 and in 2004.

Further Information

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