Bulgaria s Dairy Farming sector Report Status of the dairy sector The dairy sector in Bulgaria is one of the most affected by the changes occurred at the end of the last century, and so far it cannot recover and regain its production positions. With the country s accession to the EU, the industry has become an integral part of the common European market, not only in terms of policy and regulations existing in this market, but also in terms of market competition. The dairy sector in Bulgaria is composed predominantly of cattle-breeding, but Bulgaria is traditionally a producer also of sheep milk, goat milk and quite a bit of buffalo milk. While in other EU countries, the share of cow's milk is over 98%, in Bulgaria this percentage is between 85-90%. In 2012, according to the MAF, the percentage of cow s milk in the whole volume of production is about 89% and this rate can be expected to grow, mainly due to the continuing decline in sheep and goat farming and the new marginalization in goat-breeding. Another peculiarity of the national dairy sector is the lower stock production. The share of milk delivered to dairy factories compared to the total milk production is relatively low, averaging about 50-55% in recent years, and this percentage decreases rapidly after 2007. Much of the milk is used for direct sale and own consumption. In 2012, the milk purchased by dairies represents 47% of the cow's milk produced. According to the European Milk Board (2012), 58% of European milk is processed in dairy cooperative enterprises, while in Bulgaria these do not exist. Along with this, contractual forms are very weak in Bulgaria. Very few of the milk producers in the country, and only the largest ones, can rely on established and stable contracts with dairy factories. Dairy farming is dominated by small, self-subsistent farms. Most of the farms are classified as small and this applies to 98% of the farms for cows and buffaloes. In terms of farm structure, a positive sign is the gradual increase of larger farms at the expense of small, self-subsistent households, such as the increase of cattle farms raising more than 20 cows, and such consolidation is observed also with other stock-breeding sub-sectors, which is trending hand in hand with the continuing decrease in the population. The production structure is determined by various factors such as the amount of capital, and the profitability thereof plays the most important role. Trends in the herd-size in cattle and sheep breeding Preliminary data from a survey carried out on the number of livestock as on 1 st November 2014 shows that the total number of cattle is 552.5 thousand and has decreased by 4% compared to 1 st November 2013. There has been an increase of heifers for over two years by 35.8% and of cows for meat by 23.8%. Dairy cows decreased by 3.9% and are 295.3 thousand.
It is disturbing that despite the positive changes in the revenue and increasing subsidies in recent years of the country's membership in the EU, the population of animals marks a sustained rate of contraction of the herd number. The data in Table 1 show that the number of cattle is reducing. In 2011 was reported a slight increase in the herd number of sheep and goats as well as cattle, whereas this can be a rather cyclical event than a distinct trend. This is evidenced also by the fact that in 2012 the number of animals goes down again, and in dairy cattle the reduction is about 6% per year. The main factors for this continuing contraction in dairy farming lie in the economic difficulties farmers experience in selling their produce. Moreover, the unattractive working conditions, along with the decline of Bulgarian villages and population aging there, are the other main reasons for the reduction of herds of cattle and sheep and goats. From Table 1 it is clear that for the period from 2000 to 2012 the number of animals both in cattle and sheep and goats has decreased, the most noticeable being the reduction of the number of sheep and goats, where the decline was more than 2 times. This is mostly due to the decline in the number of goats. The decrease in cattle is slower, the reduction there being about 20% for that period. Problems facing the dairy farming regarding the population are due not so much to the observed continuous decrease, but to the fact that about 52% of cows are bred in 3 rd category farms. These farms, with the removal of the derogation period will be deprived of the opportunity to deliver milk to dairies, which will inevitably bring a new wave of cuts in animals number. In the farms of the so-called 1 st category over 137 036 dairy cows are bred (MAF, 2012) or 45% of all cows. The average number of animals there is 45 and these farms in the last years from the pre-accession period until now are trying, with considerable investments, to meet the necessary requirements. Table 1 of cattle and sheep and goats, in thousands. Species 2000 2002 2004 2006 2008 2010 2011 2012 Cattle 681,7 691,2 671,6 628,3 564,9 544,5 554,6 526,1 Incl. Cows for milk 431,0 358,2 368,7 350,1 314,7 308,2 306,8 317,3 Sheep and goats 3595,2 2482,8 2410,6 2184,5 1904,7 1724,3 1796 1655 Source: Agricultural Statistics, MAF; Eurostat, (http://appsso.eurostat.ec.europe.eu). With respect to cattle, it must be emphasized that approximately 30% of the cows in the country are bred in farms with up to 2 cows. The individuals working in these farms are predominantly people of retirement age, who have no motivation to grow, and strive to support their income with additional funds and provide their families with milk and other products. Basically, the reduction of herds of cattle is due to the reduction of animals bred in small farms with up to 5 cows. These farms either reduce their number or completely go out of business for one reason or
another. This is the reason for reporting an average increase of animals in farms in which cows increased by over 2 times during the period concerned. Fig. 1 Gross margin per animal unit and total amount of subsidies 1600,00 BGN 1400,00 1200,00 1000,00 800,00 600,00 400,00 Брутен марж от млечна крава Общо субсидиране на крава Брутен марж от овца 200,00 0,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Общо субсидиране на овца Source: IAE САРА project Фиг. 1 Брутен марж от млечна крава Общо субсидиране на крава Брутен марж от овца Общо субсидиране на овца Gross margin of a dairy cow Total subsidy per cow Gross margin of a sheep Total subsidy per sheep Figure 1 shows that the gross margin in cattle and sheep and goats takes place differently over the years. While in sheep breeding the gross margin is relatively stable upward, that of cattle is undergoing profound amplitudes. For example, in 2008 it reached a large peak, close to 1500 BGN per milk cow, while the next two years it collapsed to 1100 and 1200 BGN. It is important to note that the gross margin for the period 2000-2007 was within 700-900 BGN, while until 2012 it reached a growth of almost 80%. This growth, however, follows some serious fluctuations and cycles, which greatly hinders farmers. This is mostly due to the purchase prices of milk. Production and structure of milk yield Milk production is a function of both the number of animals and their productivity. The previous section clearly highlighted a similar trend, observed to the time of regression in the population of animals. Productivity, in turn, changes in a positive direction, but still the milk yield per
cow is at levels of not more than 60% of the analogue in developed EU countries. It should be noted that throughout the period from year 2000 onwards, production of cow milk decreased continuously, although annually in individual years also reverse processes were observed, such as 2003 until 2005 or 2011 compared to 2010. In sheep's milk was observed a relative stabilization of production, due to higher productivity. Fig.2 Production and purchase of milk 1.500.000 1.350.000 Производство на краве мляко 1.200.000 thousand litres 1.050.000 900.000 750.000 600.000 450.000 300.000 150.000 Производство на овче мляко Преработено в мандрите краве мляко Преработено в мандрите овче мляко 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Agricultural statistics, MAF; Eurostat, (http://appsso.eurostat.ec.europe.eu) Фиг. 2 Производство на краве мляко Производство на овче мляко Преработено в мандрите краве мляко Преработено в мандрите овче мляко Production of cow s milk Production of sheep s milk Cow s milk processed in dairies Sheep s milk processed in dairies The average milk yield continues to retain the same levels, whereas during the entire period from 2000 to 2012 was stated a minimum increase in milk yield in cows from 3.2 tons to 3.4 tons per cow. This increase is unsatisfactory because Bulgarian cattle productivity considerably lags behind other EU countries. The relatively low average milk yield in dairy production became one of the biggest challenges facing the industry and one of the biggest reserves to increase production and to compensate the continuing decline in the herds number. Unfavourable trends are observed in the purchase of milk by dairies. After 2006-2007, there was a retreat in the marketing of milk, where 52% of the output was intended for processing by dairy companies, but the share of milk processed at home and realized through direct sales increased again in 2012, about 53% of cow's milk and 72% of sheep milk was processed and sold
directly by producers. Low milk prices and the wide-spread scale of direct sales led many small and medium-sized farms to re-direct to working immediately with consumers. Table 2. of farms categorized for raw milk production 01.12.2010 01.12.2011 03.09.2012 04.11.2013 Farm groups of farms of cows of farms of cows of farms of cows of farms of cows 1 st group 2 603 103 939 2 752 131 320 3 051 137 036 3 230 140 639 2 nd group 825 14 115 519 10 168 488 9 540 441 8 362 Source: MAF, Stock-breeding Directorate As of October 2013 the number of milk cows bred in Groups I and II is about 148 thousand heads, which is about 47% of the total stock. Farms that managed to reach EU standards in the field of milk production and milk stock represented only about 6% of all farms breeding cows. Almost all farms breeding up to 9 dairy cows did not meet the requirements for milk production in the relevant standards, and there were about 32% of dairy animals. Those farms, which are currently placed in Category III and haven t got the capabilities and capacities to restructure regarding milk quality and animals breeding will have to either disappear or restructure. Another reason to reduce the amount of processed milk is the structure of milk purchase and milk production. In the country, in 2012 operated 209 dairies, while this number in recent years decreased on average by 4-5% per year. At the same time, the milk supplied to these factories over the years also decreased, and the structure of milk production was quite fragmented. This entails inconvenience to collect a small amount of milk from various manufacturers around the country, resulting in increased costs. These rising costs lead to the closure of dairy factories, which further complicates the problem of milk production. At the same time, sheep's milk, which is still a significant percentage of total milk quantity is distinguished by a high level of aptness to spoiling and sensitivity to storage, which requires local processing. Table 3 Production of dairy products from cow's milk Production dairy products of 2000 2002 2004 2006 2008 2010 2011 2012 Fresh milk 40 41 48 54 121 149 125 124 Cream and processed cheese 1 1 2 3 3 4 3 4
Yogurt and sweetened milk 133 149 147 148 146 160 131 138 Milk fat 5,57 2,75 2,22 4,45 2,83 1,08 5,27 4,77 White cheese 44 51 58 66 60 66 70 54 Imitation cheese 0 0 0 0 26 50 88 108 Yellow cheese 41 35 44 50 37 46 37 29 Pot cheese 2 4 3 4 5 5 4 5 Source: IAE САРА project Table 3 shows the pronounced increase of dairy products coming from plants, which happens against the decreasing supplies of milk from farms. The biggest difference that occurs is observed in imitation products that have not been produced in the first years after 2000, but after 2007-2008 the production is constantly growing and now dominates the structure of cheeses. The influx of those imitation dairy products that use different substituents, such as palm oil and other fats of vegetable origin satisfy the consumption potential of the mass Bulgarian consumer and successfully fitted into the production structure. Much of the companies work with imported raw materials, but there is an increase in the imports of finished dairy products. The largest share in the nature and cost terms is of the imports of milk and cream. Conclusion Milk production and the number of animals in this sector continue to decrease and in recent years reached one of its lowest levels in the modern history of Bulgaria. Since 2007, from a net exporter Bulgaria has become a net importer of milk and milk raw materials, whereas the milk purchased by dairies in the last 3-4 years decreased. The reasons for this consists, on one part, in the structure of production a significant percentage of small, self-subsistent farms, still not adapted to current market conditions and the deteriorating competitiveness of the dairy sector within the European borders. The paramount requirement to farms, mostly in cattle-breeding, is their modernization to meet the requirements for the production and yield of safe and quality milk. Investment and grant resources are essential to increase the competitiveness in the sector and to enable manufacturers to prepare for the upcoming elimination of quotas after 2016. Furthermore, the purchase prices of milk in the country are often lower than those in the EU by 20-30%, which requires the establishment of an institutional form for collective bargaining of milk price. Specific of local conditions is the presence of a dominant share of small, self-subsistent farms, threatened to close. The country must take advantage of the growing opportunities of the
local markets and local products. The development of an appropriate regulatory framework in this direction to allow for those local markets to start functioning, by reducing transaction costs for this will be of great benefit to the industry. The creation of good marketing models of vertical integration and support from public funds will be the necessary prerequisites for this to happen, which would provide employment and income for thousands of farmers and their families and will satisfy consumer needs with quality and fresh beef and veal, which is currently mainly imported. The policy should be directed to strengthening the core of large dairy farms to provide raw material for industrial processing dairies, but attention must also be paid to the medium and small farms of over 5 which have the potential and capabilities to develop. The restructuring of the predominant number of dairy farms, which currently belong to Group III with the modernization of their activity is what can be relied upon to increase the added value. This is the way to preserve rural areas, to fight unemployment and lack of income, as well as to allow users to have more variety of food and to be protected from market price fluctuations in the dairy sector.