12 March 2013

6 minute read

Bulgarian dairy sector faces an important year which will likely represent a turning point for its future
development. In 2013 all cattle dairy farms should meet EU milk quality requirements. 27,000 farms
may have to close if operational procedures are not upgraded.

The new Veterinary Medical Law shifts mandatory veterinary prophylactics and animal waste disposal services to producers from the Government. Cabinet-approved changes to the milk market should bring it into conformance with EU requirements.

And finally, in January 2013, the Ministry of Agriculture introduced a regulation to limit production of dairy products containing vegetable oils (palm oil) ingredients. This policy would likely affect dairy market competition and trade.

General Information:

Dairy Voluntary Report 2013

Bulgarian dairy sector faces an important year which will likely represent a turning point for its future development. Several key developments are expected to occur in 2013, as follows:

• In 2013, all cattle dairy farms should meet EU milk quality requirements as the second EU derogation for Bulgaria will expire by the end of the year. 27,000 small dairy farms are under threat to be closed if they do not upgrade their operational procedures.
• In January 2013, the Parliament approved a new Veterinary Medical Law according to which mandatory veterinary prophylactics will no longer be subsidized by the Government. The government will discontinue its subsidized animal waste disposal forcing farmers to pay incinerators for such service. The Cabinet approved changes to the organization of the milk market to bring it into conformance with latest changes at the EU level. Smaller farms will be affected more than larger operations.
• In January 2013, the Ministry of Agriculture introduced a regulation to limit production of dairy products containing vegetable oils (palm oil) ingredients. This policy would likely affect dairy market competition and trade. 60 smaller dairies declared that they may not be able to observe the new rules and be forced out of the market.

These changes, along with continued economic struggles, and declining consumer demand are expected to result in accelerated consolidation and acquisition processes both at the farm level and at the processing level. Expiration of EU milk compliance derogation is likely to have serious political, economic, and social effects, along with the snort-term negative effects on the dairy market. Most likely, smaller dairy farms and processing units will be the ones to pay the price of austerity measures and milk derogations. Rural regions, especially in the mountains, will likely suffer from increased unemployment and higher social burden.

On the other hand, the above regulations will play a positive role for the support of more efficient dairy farming, and demand for U.S. genetics will likely increase. Dairy production is projected to become more commercialized and more professional, as more investments are likely to flow into the sector. These trends have already started in 2011/2012 with increased vertical integration and acquisitions. Competition for consumer spending will intensify and stimulate healthier growth in the dairy sector.

Milk Quality Compliance Derogation

More than 27,000 small dairy farms are threatened with closure as the milk they produce does not meet EU standards (Regulation 853/2004). Farmers have until the end of this year to address the problem but if they do not meet EU requirements by then, the authorities will be forced to close them down. The milk can be still produced but not to be sold on the market.

The sector has been restructuring slowly since EU accession as defined by the share of compliant to total cow milk produced annually. The share of compliant production stood at 35 percent (in 2007), then rising to 44 percent (2009), then 50 percent (2010), to 60 percent (2012). In volume terms, the Ministry of Agriculture reported as of January 2013, compliant milk produced in the country totaled 507,000 MT.

During 2011 and 2012 negative trends in the dairy sector leveled off with the first signs of recovery emerging. Declines in number of cattle dairy farms slowed to a modest 2.5 rate. For a second year in a row growth occurred in the total cattle inventory, at a modest 2.5 percent level, while the number of dairy cows stabilized.

By farm category, between 2010-2012 smaller farms (3-9 animals) show the largest reduction in numbers Meanwhile medium farms (10-20 animals) a trended upward in terms of number of dairy livestock. Farms holding 10-20 dairy cows increased in number by 9.5 percent while the number of dairy cows on farms of this size increased by 10.7 percent. Larger farms (above 20 dairy cows) continued to account for 47 percent of all dairy cows, a figure that increased to 62 percent when medium farms are added. Smaller farms account for 38 percent of dairy cows. However, smaller or subsistence farms with less than 5 dairy cows accounted for 29.6 percent of all dairy cows inventory. As of early 2012, small farms with 1-2 dairy cows represented 78 percent of all farms but accounted for 23.5 percent of all dairy cows.

As of January 2, 2013, 3,078 dairy farms fully comply with EU requirements, representing 35 percent of the national dairy cattle inventory, and about 50 percent of the national milk quota. Dairy farms which only partially meet EU requirements total 484.

Dairy farms which do not meet EU standards total 27,718 (as per MinAg records and official statements of January 2013). Out of this category, some farms are commercially oriented and have the chance to upgrade until the end of 2013 using private funds or EU-Rural Development Program (RDP) subsidized investment projects (so called measure 121). About 100 farms are currently using this instrument to modernize. However, the remaining farms are very unlikely to upgrade and will be shut down at the end of 2013. In most cases, these are small farms with up to 5 milking cows. According to the Ministry of Agriculture, these farms supply 34 percent of country's cow's milk production.

The Ministry of Agriculture estimates that farms which have 5 or more milking cows have a chance to meet the EU hygiene and safety requirements if they organize and manage their farms more professionally. Ministry estimates show that small farms have to invest 1,400 Euro per an animal head (or 7,000 Euro for a 5 cow farm) to upgrade and meet the EU milk quality standard- an investment which is unaffordable for most small farmers. Commercial banks usually consider such loans risky and do not provide credit; therefore, small farmers have to work with EU-RDP projects.

Thus, by the end of 2013, FAS Sofia estimates that not more than 15,000 dairy cattle farms will remain operational and will raise 280,000-300,000 dairy cows.

Further Reading You can view the full report by clicking here.

March 2013