DROUGHT HITTING FARMERS, ECONOMY

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