October 15, 2003
Bulgaria Livestock and Products Annual 2003
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 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 beefsteaks for hotel promotions. Currently, quality U.S. beefsteaks 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.
The good grain crop in 2002 as well as low feed grain prices in MY02/03 led to stabilization in the cattle sector. The number of slaughter cattle in 2002 was lower than initially projected, 312,000 currently estimated to be slaughtered vs 376,000 projected by FAS office in 2002. As a result, the ending stocks as of January 1, 2003 were about 8 percent higher than in 2002.
This trend was reported and confirmed by the official MinAg reports which indicated an increase of 9 percent in December 2002 compared to the beginning of the year. At the same time, the number of dairy cattle declined, mainly due to fluctuations in milk prices and lack of significant growth of the dairy market which could stimulate cattle production (all cattle in Bulgaria are dairy cattle). The reduction in numbers occurred mainly in small/medium sized dairy family farms and not in larger farms which reported stable numbers.
The trend of stabilization and slight increase in total cattle numbers continued in the first half of 2003 till the new grain crop came to the market. The number of cattle was reported to increase by 1.4 percent in May compared to January 2003. At the same time, the process of decline in the number of small farms continued: the reduction was 18 percent in May 2003 compared to 2002. However, the average number of cattle per a stud increased slightly from 3.2 cattle per a farm in May 2002 to 4.0 cattle per a stud in May 2003 (for cows this rate increased from 1.9 to 2.3) or the cattle concentration continues with the investment opportunities.
In 2003, grain shortages are expected to negatively affect the cattle industry and the number of slaughter cattle is estimated to be 6 percent higher in 2003, about 330,000 head. There are already farmers' reports for some distress slaughtering in August and September. However, the cattle industry is expected to be les affected by the grain shortage due to pasturing alternatives versus pork and poultry industries which are expected to be more seriously affected. Therefore, the FAS office does not forecast a significant reduction in cattle numbers.
Expectations for 2004 are for lower slaughter rates which may lead to slightly higher total cattle numbers by the end of the year.
There were no significant imports of live cattle in 2002. Exports of live cattle in 2002 were simulated by the fact that Bulgaria was considered free of BSE. Practically, all exported cattle were for slaughtering and not for breeding purposes. These exports stayed stable at 22,000 head with the largest market for exports being Yugoslavia.
In CY2002, grain crop was very good. Higher planted areas to wheat and barley resulted in higher supply of both crops. Corn, although planted under smaller total area in CY2002, had the same production level as in CY2001 due to abundant rain. At the same time, export demand was targeted to higher milling quality grains which left feed in good supply within Bulgaria. As a result, ex-farm feed wheat prices dropped to the lowest over the last 4-years level to 80 Bleva/MT-110 Bleva/MT ($40-$55/MT). Barley and corn prices are also low. Therefore, most livestock farmers reduced slaughter rates and kept animals for longer periods for production of milk since milk prices were stable at CY2001 levels.
In MY03/04, however, lower planted area under wheat and adverse weather conditions seriously damaged wheat and barley. As a result, feed wheat prices in September 2003 were already 230 Bleva/MT - 240 Bleva/MT ($135-$140) or 2 - 3 times higher than in the previous season. Due to wheat/barley shortage, all livestock farmers hoped to substitute fall crops with corn which pushed the demand up to 230 Bleva/MT ($135/MT). Prices of cattle compound feed in September were at 350-370 Bleva/MT ($206) which is about 12 percent higher compared to May prices. Feed mills cannot afford to purchase feed wheat due to the tight competition with flourmills which are ready to pay higher price for lower quality (feed) wheat (in an anticipation for late imports of higher milling quality wheat which will allow them to mix different qualities to manufacture bread).
At the same time, stagnation in consumer income may not permit a corresponding increase in meat wholesale/retail prices and any such increase may lead to possible decline in consumer demand. Higher prices of feed are likely to force many small/medium sized farms to reduce their animal numbers and thus meat production may decline. Cattle/beef and sheep/goat sectors are estimated to be less affected due to grass pasturing alternatives.
The trend of higher beef prices which started in 2001, continued in 2002. The ex-farm prices in the first half of 2002 were 12 percent higher compared to a year ago while retail prices increased 7.3 percent on average. The feed expenses continued to account for the largest portion (70-75 percent) in the production cost and to be the most important factor for the production cost. In the second half of 2003, beef prices registered a downward trend. For example, in July/August 2003, ex-farm prices for cattle was 1.0 leva to 1.30 leva/kilo ($0.58-$0.76) compared to 1.30-1.40 leva/kilo ($0.76- $0.82) in the same period in 2002 (LWE). For calves, these prices were 1.72 leva/kilo LWE ($1.0) in 2002 compared to 1.30-1.50 leva/kilo ($0.76-$0.89) in 2003. This change is a result of anticipated higher meat supply and the beginning of increased slaughtering at smaller farms.
Credit and Subsidies
Most banks request 120 percent or higher collateral for production loans. Based on the stringent banking laws, the average annual rates are 8-12 percent. This makes farming extremely difficult business when no alternative financing is available. The GOB via State Fund Agriculture does not have any significant support credit lines for the development of the cattle sector except for a small subsidy for high quality fresh milk and soft credit lines for purchase of breeding stocks. Small credit lines exist for purchase of equipment for livestock farms and for construction/reconstruction of existent livestock farms. There are no subsidies for cattle farmers, or any target programs to encourage beef meat production.
As of August 2002, there were 37 approved projects under SAPARD for $40 million in the livestock and meat processing industries. The major requirement to the applicants is to have a minimum annual slaughtering capacity of 1,000 cattle; 5,000 pigs; 20,000 sheep or goats; and minimum 750 MT annual productions of finished meat products (beef, pork, sheep meat/lamb etc.).
There were several cases of bovine tuberculosis (TB) and anthrax found on cattle in 2001 (no such cases were registered in 2002), however, the preventive measures were taken in time. Bulgaria is currently known to be free of BSE. No cases were registered either in last several years or before. In general, Bulgarian cattle farmers do not use meat and bone meal in their feed formulations. Bulgaria is also not a significant market for imported cattle.
BEEF MEAT PRODUCTION
In 2002, lower number of slaughter cattle resulted in lower than initially estimated meat production or 54,000 MT. As a result, beef imports increased significantly to meet local demand, mainly for processing. Thus, 2002 beef imports were 21,400 MT compared to14,800 MT in 2001 or 44 percent higher. Higher imports stabilized total supply and human consumption dropped slightly to 75,000 MT. The expectations for 2003 are for higher meat production at 60,000 MT due to higher slaughter rate, and slightly lower beef imports, about 20,000 MT. As a result, human consumption is expected to reach its previous level of 77,000 MT. In the medium term, and in 2004, beef consumption is forecast to stay within the limits of 76,000 MT to 79,000 MT depending on the local supply and with stable imports of 15,000 MT to 23,000 MT. Unlike poultry and pork, no significant changes in the total beef consumption are expected in the near future. Changes are expected mainly in the structure of beef market with the developing and increasing share of higher value cuts at the expense of beef for processing and edible offal which tend to be substituted with turkey and pork.
COMMERCIAL BEEF PRODUCTION
Beef production is traditionally lower then consumption. This is due to the fact that Bulgaria is a net importer of beef. Reportedly, about 45 percent of produced beef does not reach the market and stays for on-farm consumption. Therefore, the 2002 beef market can be estimated at 30,000 MT (55 percent of total production of 54,000 MT) local beef and 22,000 MT imported beef or about 52,000 MT of commercially traded beef. For 2003 and 2004, these figures can be estimated at 53,000 MT and 54,000 MT, respectively.
The most important trend on the beef commercial market in 2003/2004 will continue to be the increase of supply of higher value beef cuts both locally produced and imported due to stable growth in the food service sector over the last 3 years, and favorable demand.
Beef Meat Consumption
Commercial market of beef has reduced after the BSE crisis in the EU. However, over the last two-two and a half years, there is a tendency of slight revitalization of consumer interest in beef meat, both for processing and for direct consumption. A significant factor contributing for this trend is the fact the Bulgaria is known to be free of BSE. Another factor for higher demand was general decline in meat production and higher demand, when prices of other meats increased significantly. Beef was a good alternative to more expensive pork for meat processors.
Wholesale beef prices in July 2003 were 4.20 - 4.80 leva/kilo CWE ($2.47-$2.82), and retail prices (with bones) were 4.80 - 5.00 leva/kilo ($2.82-$2.95). Wholesale beef prices followed the ex-farm prices and in 2002 stayed stable at higher levels but started to decline in the second half of 2003 due to expectations for higher meat output as a result of the feed shortages. At the same time, higher feed expenses are expected to push the prices of milk products first. Retail prices increase was at a slower rate due to the limited purchasing power. It is expected that the increase in the meat prices will be more significant by November/December when traditionally demand for meat is higher.
Similar to other "feed shortage years", meat prices will increase by the winter due to the feed shortages which stimulate imports. By the spring, meat prices usually start to decline slightly due to higher meat supply (with imports) and positive expectations for the new grain crop. Usually, the retail price increase is not in parallel with more significant increases in livestock prices and wholesale meat prices. This is due to consumer income limitation which force processors to distribute livestock/meat price increase in both fresh meat cuts for sale and in processed meat products.
Bulgaria exports a small number of cattle/calves mainly for slaughtering to the Near and Middle-East, and North Africa countries based on traditional ties. In 2002, Yugoslavia and Jordan were the largest markets for live cattle (22,000 head or 4,700 MT) due to the fact that Bulgarian export supply was known to be free of BSE. About 20,000 to 25,000 head of cattle are expected to be exported in 2003 - 2004. Bulgaria does not export live cattle to the EU since the most recent EU classification on BSE risk put Bulgaria in relatively high-risk category. In late 2002, Bulgaria completed the first specialized EU-funded BSE test laboratory.
Bulgaria has the following quotas for exports to the EU:
- for live cattle, below 80 kilos - 20 percent preferential duty for 178,000 head;
above 80 kilos but below 300 kilos - 20 percent preferential duty for 153,000 head;
heifers and cows different from those for slaughter
- 6 percent fixed duty for 7,000 head - for beef, fresh, chilled and frozen at 20 percent import duty for 250 MT.
There is an export quota for Macedonia at 50 percent reduction of import duty or 9 percent plus 0.0250 Euro/kilo for 300 MT.
Quotas for the EU are not filled since Bulgarian beef is not competitive in terms of quality and price on the EU market. Traditional market for small quantities of local beef is Macedonia and Yugoslavia.
Beef imports in CY2002 (21,400 MT) were 44 percent higher compared to CY2001. Beef imports are almost entirely of beef trimmings for processing as well as beef edible offal for processing and direct consumption. In CY2002, Bulgaria imported small quantities of high quality U.S. beef steaks (about one metric ton), which were successfully sold to the HRI sector.
Major suppliers of beef to Bulgaria are Brazil, Argentina, Uruguay and most recently Czech Republic
In the period since CY2000, Bulgaria started actively to harmonize its veterinary and livestock related policy and legislation with the EU. The emphasis is given to food safety issues quality of meat products and application of hygiene standards in meat processing plants and slaughter houses. In 2000/01, the MinAg, Ministry of Health Care, Livestock and Meat Research Institutes and the Association of Meat Processors developed a numbers of regulations and industry manuals. In 2002/03, this process continued with ordinance #7/March 19, 2003 for vet requirements to animals for slaughtering; and to the fresh meat for market sales; Ordinance #17/May 10, 2003 about vet requirements for processed meat products for market sales; Ordinance #31/July 24, 2002 about vet requirements for ground meat and MDM for commercial sales.
In 2004, Bulgaria plans to introduce the EU system for classification and grading of animal carcasses for slaughtering EUROP.
Currently, Bulgaria has special BSE and FMD eradication programs. Bulgaria did not register FMD outbreaks in the last 5 years and any BSE outbreaks over the last 40 years. According to the International Organization of Epizootic in Paris, Bulgaria is recognized as a country free of FMD. The latest cases of Blue tongue disease were registered in September 2001 and August 2002. The MinAg took the appropriate measures and the disease did not have significant negative economic results (MinAg Ordinance of September 2, 2002).
In 2002, the MinAg together with the Ministry of Finance and Ministry f Internal Affairs developed a regulation (Ordinance #09-338/May 14, 2002) which introduced more stringent meat imports control to prevent illegal imports, and limited to the number of customs clearing points to 16. According to trade, this policy did not affect or limit meat imports.
There are five major livestock markets established with the financial assistance of the European PHARE program (in Vulchi Dol, Sevlievo, Razgrad, Stara Zagora, and Chaskovo) and another four have developed on their own.
Bulgarian meat processors were very active in 2002/2003. Many have invested in new processing facilities, modern equipment and retail outlets. Processors also started active advertising and generally better promotion.
US MARKET OPPORTUNITIES
The beef market in Bulgaria continues to be good and the prospects are optimistic. Therefore, AgOffice recommends a continuation of market promotion activities in coordination with the U.S. Meat Export Federation.
Average LWE for swine 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.
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 commercial 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.
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 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.
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 another 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.
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 smaller 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%.
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.
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.