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