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BY MONICA KUBRATOVA
REFORM ROUND TABLE BULGARIAN DOCUMENT No 10
Project Sponsored by
the International Center for Economic Growth
Sofia 1993
THE AGRARIAN REFORM IN BULGARIA
Contents
Introduction
1. The
Ownership and Use of Farmland Act - the Foundation of the Agrarian
Reform
1.1. The Land Reform
1.1.1. Nature and Features of the OUFA
1.1.2. The procedure of restoration of property
rights
1.1.3. Municipal Land Boards
1.2. Valuation and Distribution of the Property
of the Cooperative Farms
2. Agricultural Activity and its Macroeconomic
Environment under the Conditions of Transition to Market
Economy
3. The
Current State of Agriculture
4. The
Organizational Structure of Agriculture -Current State, Problems,
Perspectives
Agriculture is of major importance to Bulgaria's
economy. In 1989 - the year preceding the significant political
changes - agriculture produced one tenth of the gross domestic
product and 18 percent of the country's working population was
employed in this sector. The important political and economic
changes in Bulgaria after November 10, 1989 inevitably affected
agriculture as well. A crucial and exclusive component of agrarian
reform, land reform was established with the passing of the
Ownership and Use of Farmland Act (OUFA) by the Great National
Assembly in February 1991. A year later, the Act was revised and
amended and further important changes were introduced in May 1993.
The public was not involved in discussions on possible ways for
implementing land or agricultural reform before the OUFA passed in
the Assembly. Essentially, the Act regulates the execution of
radical changes in farmland property relations, thus predetermining
present and future development of agriculture. Land reform is but a
logical continuation of the on-going processes of small property
restitution and privatization of enterprises in the various
branches of the economy. At the same time, the unfavorable
macroeconomic environment (production decline, mounting
unemployment, rising inflation, contracted foreign and domestic
markets) strongly influences decision-making in agriculture. Its
development has led to the breakdown of the existing equipment and
facility base and to inefficient utilization of production
resources. The magnitude of changes brought on by initiating land
reform has led to a number of problems and difficulties in
executing a comprehensive agrarian reform in Bulgaria.
1. The Ownership and Use of
Farmland Act -the Foundation of the Agrarian Reform After the
OUFA was passed in February 1991 and later in April 1992,
substantial changes arose that affected the very nature of the Act
and how it was being enforced (due partly to the new relations
between political forces as well as to shortcomings and omissions
in the law's application). The progress of the land reform revealed
the need for further amendments which were adopted in May 1993.
These amendments were geared towards speeding up land reform
without affecting the essence of the Act and established
institutional procedures for the restoration of property
rights.
The Act is quite complex and has a number of
unresolved and impractical procedures. Its improvement is therefore
crucial even if the changes sometimes create additional problems
and readjustment on the part of the authorities managing the
reform. The OUFA is unique in its nature and in its implementation.
The drastic change in property relations — the transition from
large-scale "cooperative" socialist property to private property as
the basis of effective production -- is a profound economic change
in Bulgaria and one that requires the OUFA's radical components.
Besides the restoration of property rights, the OUFA regulates the
liquidation of the existing organizational structures in
agriculture, the cooperative farms, and will thus completely
restructure agriculture.
1.1. The Land Reform The
land reform is a political imperative. It is being carried out
administratively through the restoration of property rights in
farmland from the period preceding the cooperation process in the
Bulgarian countryside.
1.1.1. Nature and
characteristic features of the OUFA The principal objective of
the OUFA is to restore agricultural property rights of citizens,
organizations, municipalities and the state from the period
preceding the cooperation process, even though institutionally,
nationalization of the land did not take place in Bulgaria. The
process of restoring farmland property rights is subject to a
broader interpretation insofar as it not only covers property
rights to farmland appropriated to the cooperative farms, but also
restores farmland property rights in cases of unlawful
dispossession or donations to the Cooperative or State Farms,
farmland contributed to the Cooperative Farms which has since
changed its status, forested areas subsequently transformed into
farmland and the yards of the Cooperative and State Farms. The
objective of the legislators in this sphere was to allow for
optimal compensation of the owners and to cover the various ways of
dealing with farmland at the formation of the Cooperative and State
Farms. The adoption of this principle actually poses new problems,
some of which remain insurmountable at the present. For instance,
no special law has yet been passed regulating the procedure and
conditions for compensating owners in a number of cases specified
in the OUFA. The Agrarian Reform in Bulgaria
- Restoration of Property
Rights in Farmland Within
-
Actual Boundaries
The Act stipulates: "reinstatement shall be done in
property rights in farmland within its actual boundaries where they
exist or can be established." As for the remaining land, it will be
reinstated through farmland division. The aim is, as much as
possible, to avoid implementing a complicated division plan which
would hinder and delay the restoration of property rights.
According to preliminary estimates, it is possible to restore
property rights within actual boundaries in approximately 6-7
million decares (1 decare - 0.2471 acres), which constitutes about
13-15 percent of the total area of land subject to restitution.
Land division plans will therefore be the dominant mechanism for
restoring property rights in farmland.
- Restoration of Property
Rights Through Land
Division Plans The land division plan should
be developed in strict conformity to the principle of land
consolidation and the principle of proportional reduction of land
subject to restitution where the farmland within the local
territory has been reduced. The owners are to receive due
compensation as requested either from the National or Municipal
Land Reserves, or by a procedure and under terms provided by a
future law. According to the law, the partition of the land will be
carried out following the tendering of the companies that offer
this service and should be completed within a year. In practice,
the partition of the land has proven to be a difficult and
painstaking process. The main difficulties arise from the
following:
• the lack of appropriate and reliable technical
means;
• the lack of sufficient funds (the average cost of
the partition of one decare is 35 leva, and a total of
approximately 2.2 billion leva is required for the partition of the
total area of land subject to restitution);
• lack of accurate cartographic information (the
older maps employed frequently do not reflect the changes which
have occurred);
• reluctance and sluggishness on the part of the
municipalities in providing information on the changes in farmland
within the local territory;
• technical inability of some firms to carry out the
land partition due to their having obtained more contracts than
they are able to execute;
Disputes on the boundaries of local territories and
the protracted lawsuits for their establishment. With the aim of
speeding up the legal proceedings, future land partition is to be
carried out according to the land boundaries determined by the
Integrated Cadastre Act. The new amendments of the law on the
partition of the land address problems concerning the reinstatement
of lands with perennial plantations. They make up about 18 percent
of the arable land and the specific characteristics of their
cultivation call for a differentiated approach. The existing
regulations regarding the reinstatement of lands with perennial
plantations require owners to pay their value which has led to
their eradication. This prompted the Ministry of Agriculture to
intervene in order to preserve the existing plantations. The
development of the future cadastre also involves certain risks. A
hasty completion could result in inaccuracies or a delay in
execution would increase its cost. The development of the cadastre
would also use inaccurate categorizations of large-sized fields
with insufficient soil analysis. In the future the partition
lawsuits between the owners will lead to numerous changes in the
cadastre.
c. Temporary Possession
The law provides that owners may have temporary possession of
farmland up to an area deemed restorable. The aim is to reduce the
conflicts arising from the dismantling of former structures and
from the impossibility for real production structures to appear and
replace them at this stage. Owners are put into possession of
landed property by the Municipal Land Boards upon their specific
request. It is stipulated that lands in temporary possession should
be in maximum proximity to the historical boundaries of the estate.
The occupancy is temporary - for a term of one year - and is
actually closer to usufruct. The owners look at these provisions
with disfavor since the condition of proximity to the historical
boundaries is not always respected and the fertile lands are
offered to relatives and friends.
d. The Size of Future Landed
Property and the Use of Farmland The OUFA reinstates individual
owners to their farmland property within the limits set by the
Earned Landed Property Act of April 9,1946. Owners can claim a
maximum of 200 decares in any region except for the region of
Dobrudza, where a maximum of 300 decares are allowed. The
restoration of property rights from the period prior to the forming
of the cooperative and state farms also restores the structure of
Bulgarian agriculture of that period which was characterized by
small-sized farms and greatly dispersed plots.
In 1934 the average size of one farm was 39.37
decares, with each farm comprising 10-15 plots of land of an
average of 3.68 decares. These plots were scattered in various
places so that machines and cattle had to cover a distance of 5-6
km to the fields with the work itself covering the same, and
frequently even a shorter distance. This fragmentation will be
eliminated by consolidation as provided by the law, but that will
not affect the size of the farms. Their size might be smaller as
compared to the period between 1934-1940 due to the reduction of
the total area of available farmland and above all, to the greater
number of heirs. A particularly pressing problem is presented by
the partition lawsuits which usually extend over years and are an
obstacle to the effective management of the land. The legislators
have also set certain restrictions on the minimal area of farmland
subject to partition in real shares (this does not concern the size
of the land being restituted) which are 3 decares for fields, 2
decares for meadows, and 1 decare for vineyards and orchards.
(Article 72 of the Inheritance Act) Likewise, within two years of
the reinstatement in property the area of the land owned or
acquired through legal transactions may not exceed 300 decares per
household not concerned with inherited property. These conditions
do not presume sufficiently large individual farms to ensure truly
effective production, especially in the predominantly grain-growing
regions. The small size of the plots, their isolation and the lack
of means for acquiring more land when the aim is to expand the
farms are very likely to motivate the owners to form associations,
particularly in the traditional agricultural structure - the
production cooperative. With restored property rights, owners can
conduct all possible estate transactions, including sales,
exchanges, donations and others. No provisions have been made to
grant precedence to neighboring estate owners who wish to purchase
property in order to expand the cultivated areas. The National
Assembly is to debate and pass a Lease Act which will help create
preconditions for expansion and optimization of the size of the
farms. This Act is expected to provide sufficient guarantees for
tenant farmers and to stimulate long-term investments in
agricultural production. It is likewise necessary to create an
efficiently operating credit system of long-term preferential
crediting for the purchase of land. The land market provides
another way of expanding lands under cultivation. It will only
start operating properly once the owners receive their Acts of
Notary. By July 2, 1993 merely 252 decares of farmland had been
sold, mainly in the vicinity of towns and villages or on roads that
are part of the national road network. As indicated in sociological
surveys, no more than 5 to 6 percent of the population would like
to sell their land and use the money for different purposes.
An information system has been developed to collect
information on prospective sellers and buyers of land. Farmland
owners are free to determine the manner of using farmland on the
condition that it is not detrimental to soils and is in compliance
with sanitation, fire safety and environmental protection
standards. The law initially passed in 1991 was stricter in this
respect, stipulating that farmland must be used only for
agriculture. The government has endorsed the bill determining the
size of the ground rent tax which is to be paid by the owners and
is expected to stimulate the cultivation of farmland. The ground
rent tax rates depend on the category and type of land and are
quite modest and nominal. The fear to undertake more radical
measures is understandable. But if these taxes are not raised the
passing of the bill cannot be expected to have any substantial
effect in increasing agricultural production or promoting the
efficient use of farmland.
e. Restrictions on Property
Rights for Foreign Citizens Another characteristic of the OUFA
is the restrictions imposed on foreign citizens regarding the
owning of landed property. The number of restrictions in the first
law has been reduced in the second law. Foreign citizens may only
acquire farmland through inheritance or through restoration of
property rights under the common procedure. They must transfer
acquired farmland to persons legally entitled to property rights in
farmland within three years of their reinstatement of property.
Corporate persons with foreign participation above 50 per cent,
foreign corporate persons and foreign citizens may acquire the
right to use farmland or other limited rights to land on terms
provided by law. Corporate persons with foreign participation up to
50 percent and Bulgarian nationals residing abroad may own
farmland. These conditions will restrain the inflow of foreign
investments in the country and in this particular branch. Such
investments would have favored the revival of production and its
technical renovation.
f. Vesting Landless Persons
and Small Owners with Landed Property The OUFA provides
conditions for vesting landless persons and small owners with
landed property. An additional regulation issued by the Ministry of
Agriculture on November 30, 1992 determined the terms of vesting
such citizens with property rights to national land reserves. It
gives precedence to persons owning little or no land, which can
lead to further fragmentation of national land reserves.
1.1.2. The Procedure of
Restoration of Property Rights The procedure for restoring property
rights provided by the OUFA is slow and cumbersome. Each owner is
to submit a request for restoration of property rights to the
Municipal Land Board. The term for submitting the Statements of
restitution was repeatedly extended because of the difficulty in
collecting proof of right to property and the slow processing of
the statements. 1,706,000 statements of restitution covering a
total of 55.7 million decares (with 46 million decares actually
available and subject to restitution) were submitted by August 4,
1992, the final deadline. Following this date, the owners who
failed to file their statements can establish their property rights
under the general litigation procedure before the respective
municipality. This will obviously hamper the swift and definitive
reinstatement of property rights in farmland. In Germany, for
instance, property rights are forfeited after the final deadline.
In the first law, the Municipal Land Boards were required to pass a
resolution on submitted statements within six months which
unnecessarily prolonged the process. In the 1992 amendments, this
term was shortened to one month. The Municipal Land Board's
resolution may be appealed in court within 14 days. The court
decides on the merits of the case and the court's decision is final
and constitutes a tide to property. The acceptable proofs of
property rights are enumerated in the law but have been
inaccurately defined. It is therefore necessary to be familiar with
details of their reliability and priority. For instance, the number
of decares of land entered in the local land registers was
frequently underrated as a form of tax evasion. In fact the
Municipal Land Boards give preference to acts of notary even when
they bore an old date. This is not always correct in view of the
possibility to sell land at least twice a year. In an attempt to
facilitate the processing of documents, it became possible for
property rights to be restored based on a claimant's declaration
with a notarized signature. While certifying false evidence in the
declaration is criminal under the Criminal Code (five years
imprisonment and a fine), the number of claimants declaring rights
to fertile, well-located land exceeded the area of available arable
land. Thus, the attempt to find a swifter resolution of the
problems actually had the opposite effect in that all controversial
issues will have to be settled through court. Moreover, the
recognized property rights to non-existent lands will require
compensation from the state which will be an additional burden for
the state budget.
1.1.3. Municipal Land
Boards The OUFA specifies the authorities managing the land
reform who are funded by the budget. The Ministry of Agriculture is
the principal coordinator and supervisor of the process of
implementation of the OUFA and the rules of its application. Prior
to the passing of the first amendment of the law, the governing
body of the land reform was the National Land Board. With the
changes in the law, this board was dissolved and a land reform
department was set up at the Ministry of Agriculture which took up
all its functions. The Municipal Land Boards (273 municipal and 47
mayoral) carry out the land reform in the municipalities. Between
three and five members are appointed and dismissed by the Minister
of Agriculture. Their work should be open to public inspection as
much as possible, and their principal task is to restore landed
property either within actual boundaries or according to a land
division plan. The land division plan should be entered into the
local land register after Board members collect the restitution
statements and establish the changes related to available farmland.
The main difficulties encountered by these boards are related
to:
• the lack or delay of data from the municipal
councils on the changes in the area of farmland available within
the local territory;
• lack of sufficiently reliable proof of property
rights;
• occurrence of disputes between neighboring
villages over the land boundaries;
• the delay of the restoration of rights itself as a
consequence of on-going lawsuits against the resolutions of the
boards.
The problems are further aggravated by the fact that
courts do not always apply the law regarding legal control over the
decisions of the Municipal Land Boards and in fact such control is
denied in a number of cases. By July 2, 1993 the appeals against
the resolutions of the Municipal Land Boards numbered 63,611 for
about 1 million decares, and their number increased 8 per cent over
the following ten days. Should this tendency persist, the process
of restoration of property rights will inevitably be prolonged.
Chart 1 shows the dynamics of reinstating landed property and the
estimates for its future development (the data are from the
Ministry of Agriculture). Five to six percent of the land subject
to restitution was returned during the first three months of 1993
alone, approximately the same area of land returned over a six
month period in 1992. The speeding up of property right restoration
is expected as the most difficult, preparatory period is over.
Courts are now familiar with the problems surrounding restoration
since they have gained practical experience in applying the law,
and the term of the one-year contracts for land partition concluded
last year expires in the second half of this year. There are still
municipalities (about 7 percent of the total number) which have no
signed land partition contracts and where the bidding for contracts
is continuing. There are still acute problems of securing the
necessary financial and technical means. The Ministry of
Agriculture is supervising the process and will speed it up through
a redistribution of tasks and responsibilities; by securing the
necessary financial and technical means (provisions have been made
in the state budget for the required 946 million leva for land
partition); and by regulating the land partition work carried out
by the various firms.
1.2. Valuation and Distribution
of the Property of the Cooperative Farms The OUFA also affects
the organizational structure of agriculture by stipulating the
dissolution of the Cooperative Farms and other similarly structured
organizations. The dissolution of the newly created organizations
unnecessarily reinforced the conflicts and the politicization in
the countryside, and delayed the emergence of new producers.
According to the OUFA the liquidation of the Cooperative Farms is
carried out by liquidation boards (a total of 2093). The Chairmen
of the District Councils appointed them and had authority over them
while the Ministry of Agriculture oversaw their methods and
procedures. This inconsistency concerning guidance and
subordination impeded the coordination of their activity and was
eliminated in amendments passed in May 1993. Liquidation boards are
now subordinate to the Minister of Agriculture. The law does not
specify a term for completion of the liquidation boards' activity,
and at present, it is necessary to rectify the omissions made in
the boards' composition and their successful conclusion. The
principal tasks of these boards are:
• to carry out the valuation of the property of the
Cooperative Farms and the other organizations under
liquidation;
• to distribute land assets among the owners of land
and the hired workers according to the principle of equal
distribution of cooperative farmland and based on contribution of
labor, following the deduction of non-reimbursed payments for
acquisition of machinery;
• to conduct necessary economic activities.
- a. Valuation of
the Property of the Cooperative Farms and Establishment of Property
Shares for its Distribution The property valuation is carried
out by a commission of independent experts who report to the
liquidation councils and are assisted by them. In this respect, the
Ministry of Agriculture made a mistake by not commissioning a
strategy for property distribution which could then have been
provided to the liquidation boards free of charge. Instead, the
Ministry simply authorized a list of experts. Consequently, many
liquidation councils paid unjustifiably large sums for questionable
property valuation. The size of property shares of the
organizations under liquidation is determined by "the Member's
contribution to the acquisition thereof - contributed land and
labor, upon the deduction of non-reimbursed moneys paid up for
acquisition of machinery", by first deducting the sum of
non-reimbursed payments and then distributing the remainder equally
for contributed land and labor. The size of the payment made by
each member of the cooperative for the acquisition of machinery is
determined by archival documents (statements, declarations,
inventories, etc.). If written documents are missing or if they do
not correspond with one another, a standard rate (in leva per
decare) is established for the required payment of machinery
acquired and endorsed by the liquidation board. The amount of the
non-reimbursable payment is calculated according to prices on the
date of the valuation. The correlation of the old prices of
equipment or animals serves for the differentiation of their new
prices. Where there is no data on the type of contributed
equipment, the value of the payment is increased with the inflation
index established by the National Statistical Institute from the
time the equipment was contributed to the cooperative to the time
of its new valuation. The major problems in establishing the
payments for machinery acquisition are the lack of documents on the
non-reimbursable payments, the exact amount of the payments and the
need to update their value. This has happened in a number of cases.
For instance, an owner has contributed land to the farm but failed
to make the required payment for acquiring machinery so he is not
subject to reimbursement at present. The contribution of labor is
calculated in man-days during the length of time the person has
worked at the farm, including time spent for maternity or sick
leave, for the entire period from the creation of the farm to the
time of the share distribution of the property (the deadline being
December 31, 1991). The basic principle adopted in the Rules of
Application of the OUFA is that the people who have contributed
labor but not land have to be taken into account provided they have
worked no less than five years, whether consecutively or not, and
regardless of whether the person worked in a single or several
cooperative farms. Labor performed on state farms that were on
state-owned land is not taken into account. Where the contributed
labor is measured in workdays, the conversion into man-days is
carried out according to coefficients specific for each farm. Some
of the registered workdays do not just reflect labor participation.
Up to 1960 in some farms the ground rent was paid to the members of
the cooperative in the form of registered workdays. The
difficulties in establishing labor contribution arise from the lack
of relevant documents (when possible, standard norms are fixed that
take into account the particular branch, the technology, the
organization of labor and a minimum number of man-days which vary
according to the type of production and activity). The requirement
for a minimum of five years also poses certain problems depending
on whether a required minimum of man-days has been served.
Measuring labor contribution of family members in tobacco-growing
regions is difficult and uncertain. This is also the case of labor
participation in inter-cooperative enterprises. The man-days
established for each rightful claimant for the entire period are
totaled. The share of property due for labor contribution is
divided by the total number of man-days, thus giving the size of
the share of property due for each man-day. Finally, the share of
each owner is determined by multiplying the number of man-days
served by the size of the share for each man-day. The right to a
share of cooperative farmland is determined by data provided by the
Municipal Land Boards on the size and category of the farmland that
each owner contributed to the cooperative farm. The various
categories of land are standardized based on the leading category
of local territory. A coefficient is calculated by using the
correlation of each category's rating and the selected base
category's rating. The equalized decares of land are multiplied by
the number of years when each owner used cooperative farmland — the
period between land contribution and land distribution. This
produces a provisional indicator - land-years per owner. The same
procedure is then applied with respect to man-days. In the various
cases of granting usufructuary land, the share of contributed land
is either from the usufructuary farm or its rightful successors.
Frequently, the same lands have been used successively by more than
one cooperative farm in which case the owner is entitled to a share
in the property of each farm proportional to the number of
usufructuary years. The restoration of property rights in farmland
by the Municipal Land Boards and the parallel distribution of farm
property by the liquidation boards do not happen at the same time,
complicating the process further. Moreover, one Municipal Land
Board communicates with several liquidation boards, entailing a
number of difficulties and poor coordination of the work.
- The complexity of the carrying out
these transformations - the interlocking of structures, the
existence of both state and private property in the various farms
and their respective treatment in the OUFA, the lack of appropriate
written documents proving the right to property - all require great
competence and flexibility on the part of the liquidation boards.
Board members need to use adequate and timely methodological
instructions when dealing with problems that arise during the
course of their work.
b. Conducting Economic Activity The main
problem in undertaking economic activities is the extremely
difficult financial situation of most organizations that are being
liquidated. In the case of some farms, the debts owed to the banks
exceeded the value of their property. The debts have accumulated
both through old credits which now have a higher interest (in
December 1990 the interest rate was 4.5%, in November 1991 - 60%,
in 1992 interest rates varied between 48-62%, and in July 1993 the
interest rate was 48%), and through recent credits, without which
it is impossible to secure the normal course of agricultural
production. On the other hand, the financial situation of the
contractors of the cooperative farms has similarly deteriorated and
they are unable to pay off their debts to the cooperatives. The
liberalization of the prices of necessary sources and raw
materials, the disintegrating structures, the contracted markets,
the monopoly of trade and services, have all led to poor financial
results of the activity of these farms in the past two or three
years. As a result of all this the banks have stopped extending
credits under any conditions. The auctions provided in the Rules
for the Application of OUFA were meant as a way of securing the
settlement of relations with the creditors, but they have
subsequently served other purposes. In fact, the liquidation boards
had to sell off property in order to secure the necessary means of
circulation. However, the money thus gained is far from enough -
the machinery and facilities are being sold at nominal prices to
people who are not engaged in agriculture, and the rightful
claimants are losing part of their entitled property. In many cases
the requirement to auction only items established prior to the
distribution of property is disregarded. Due to their economic
ineffectiveness, these items will be refused by the rightful
claimants. It was only in January 1993 that a special regulation
stipulated that the people entitled to a share of the property are
to have precedence in the auctions, and that the property put up
for auction is only to be sold to other persons if there are no
buyers among the rightful claimants. By July 1993 the liquidation
boards received data on 87.2 percent of the local territories from
the municipal land boards. The main reasons for the delay in the
distribution of the property are the following:
• the unestablished area of farmland contributed to
the Cooperative Farms;
• a significant number of property disputes on the
property of intercooperative enterprises and of those formed by the
Agrarian Industrial Complexes;
• the unspecified share of the state in the property
of the organizations under liquidation.
Some liquidation boards refrain from initiating legal proceedings
in connection with property disputes because courts, despite the
regulation that OUFA proceedings are to be free of charge, require
a deposit of 4 percent of the value of the claim. There have been
instances of unlawful action, such as irregular auctions, advanced
distribution of livestock to personal interests and damaging the
property of organizations under liquidation. The political
relations in the countryside unnecessarily aggravate the existing
conflicts and obstructs the normal progress of the reform. In order
to expedite the conclusion of land reform, provisions have been
made for financial incentives to speed up completion of work and to
set a rough time limit for the submittal of reports on the
distribution of property. In the period up to July 2, 1993, 41
liquidation boards concluded their activity, and 23 of them have
filed claims before the District Courts for the obliteration of the
Cooperative Farms,
- 2. Agricultural
Activity and its Macroeconomic Environment under the Conditions of
Transition to Market Economy The land and agrarian reforms in
Bulgaria are taking place under the conditions of a severe economic
crisis, characterized by a sharp decline in production, unabating
inflation, mounting unemployment; loss of traditional Bulgarian
markets due to the changes in the post-socialist countries and the
relations between them; the war in Iran, and now in former
Yugoslavia; reduced consumption and contracted domestic market;
limited credit resources for production activities and reform of
the banking system. Another characteristic feature of the
development of the country's economy is the predominance of
politics and political interests over economic ones - a change of
government also brings about changes in the priorities of the
official economic policy.
- 2.1.The
Liberalization of Prices. Markets and Conditions for the
Realization of Agricultural Products Under the conditions of
transition to market economy the prices of all goods were
liberalized. In order to provide some social security for the
population, a system of observation and regulation of the prices of
certain staple foods was adopted. According to the estimates of
specialists from the PHARE program, in September 1992 this system
covered approximately 30 per cent of the agricultural products and
40 per cent of the products of the food processing industry. The
government fixes minimal purchase prices calculated on the basis of
production costs to which standard rates are added for the
expenditures and profitability of the trade companies. The
liberalization of the prices of source and raw materials employed
in agriculture, combined with the monopoly positions of the
supplying enterprises, became the reason for the more limited use
of such materials. The use of fertilizers, various chemical
substances, and irrigation, was restricted in the sphere of
plant-growing, which had an adverse effect on the yields. The
non-use of chemical substances gave rise to some particularly
pressing ecological problems with large quantities of old,
out-of-date chemicals. The nearly tenfold increase in the prices of
fodder has led to great indebtedness and insolvency of the
stock-breeding complexes due to the much smaller increase in the
prices of the end products. For instance, the price of the fodder
for the pig-rearing farms in the beginning of 1991 was 200-215 leva
per ton, and in 1992 the price was already 2200-2300 leva/ton,
while the price of pork rose from 3000 leva/ton to 14200 leva/ton.
Together with the liberalization of prices the former channels for
the realization of agricultural products were cut off and, due to
the low purchase prices offered by the newly established companies
and the old monopolistic enterprises, many agricultural producers
were unable to realize a profit or chose not to sell the more
durable products (wool, for instance). Due to lack of experience
and inertia, the producers failed to react appropriately and
promptly enough and did not manage to obtain higher prices for
their products by offering them at the already successfully
operating commodity markets. The domestic commodity market for
agricultural products is still unpredictable and uncontrollable. In
the first half of 1993 the demand for agricultural products rose
noticeably but there was no supply. Moreover, the proposed sale and
purchase prices frequently do not coincide. A novelty at the
commodity market is the conclusion of futures with agricultural
products. In view of the chaos in the economy and due to the low
domestic prices and the relatively high prices at the international
markets, many companies began exporting agricultural products.
- Considerable quantities of exported
grain and grain fodder disrupted the grain balance of the country.
This necessitated the "opening up" of the state reserves of grain
and grain fodder in 1993 and the seeking of additional assistance
for the securing of grain fodder. In 1992 Bulgarian wheat producers
were paid 1500 leva/ton while the exporters of the same wheat made
a profit of about USD 30-40 (720-960 leva, with an exchange rate of
USD 1/24 leva) by selling it abroad at prices 15-20 per cent lower
than world prices, and thus made this profit at the expense of the
producers. The export of agricultural products is regulated through
the introduction of export duties for a number of products. These
taxes are paid by the producers and do not actually affect the
profits of the exporting companies.
2.2.Financial and Credit Policy There is
an obvious and incontestable need for credits for agriculture in
view of the length of the production process in agriculture, the
obsolete machinery and facilities, the need to buy agricultural
machinery fit for the small size of the farms, for the building up
of small enterprises in the food-processing industry, for
stock-breeding. Since the beginning of the land reform, which
coincided with the reform of the banking system, there is hardly
any investment crediting of agricultural production in Bulgaria.
The main reasons for that are related to the high, even if negative
(compared to the inflation) interest rates on the allowed credits.
But even if there are still applicants prepared to meet the high
interest rates and providing sufficient guarantees, the banks seek
to avoid giving credits for agricultural activity because of the
instability of the markets for agricultural products, the
unfavorable macroeconomic environment, and the lack of sufficient
credit security. On the other hand, the banks themselves are not
quite ready for the granting of agricultural credits: there is no
differentiation in the conditions for crediting under different
circumstances -purchase of machinery, purchase of land, securing
means of circulation; bank managers lack the adequate qualification
to assess projects in agriculture and the food-processing industry;
the documentation required for crediting up to now is insufficient
and incapable of providing an accurate idea of the undertaken
activity and of the possibilities for effective production and
consequently, of the risk assumed by the bank in granting the
credit. The lack of expertise on the part of the banks as regards
the assessment of investment projects corresponds to the lack of
skills and experience of the producers themselves. In view of the
specific character and problems of crediting in agriculture it has
been suggested that the best solution would be to have a few
specialized banks with sufficient branches across the country and
their own agricultural crediting policy. However, the question is
still subject to debates. The lack of financial means for current
operations is obstructing agricultural activities. The feared
decline in production prompted certain hasty, unreasonable steps in
the crediting of agricultural producers. One example is the
establishment of the Credit Center in January 1993, with a quite
insufficient nominal capital of 107 million leva. The documents of
the applicants for credits (5300 applications) were collected in a
rush and, following a rating based on rather uncertain criteria,
2072 loans were granted, varying between 40-180 thousand leva with
an interest rate of 7.9 per cent, varying according to the exchange
rate of the US dollar. The credits granted were meant for
investments in facilities and machinery, grain and meat production,
but not for fertilizers and seed. The vague, general criteria for
the assessment of the projects, the advance allocation of the
credits for the various branches and types of associations (private
farm owners and cooperatives), demonstrate the formal character of
this type of crediting and the lack of effective criteria for the
selection of competitive investment projects. The banks seek
guarantees mainly through the thorough investigation of the
financial security of the credit rather than through assessment of
the viability of the producer and his activity. The following
conclusions are suggested by the state of agricultural crediting
and the development of the crediting system up to now:
• Crediting is as yet a sporadic activity, related
to the urgent need to secure financial means necessary for the
normal progress of farming activities.
• The currently available credit resources are
inaccessible to agricultural production. The present policy of the
banks with respect to agricultural crediting is to avoid taking
risks, which is due both to the reform in the banking system and
the delay of the land reform itself.
• Lack of state policy aimed at securing long-term
crediting for agricultural producers.
• The distribution of the scant resources according
to the principle "something to everyone", without the application
of strict criteria for the effectiveness of the investment
projects, runs great risks of non-payment of the allowed credits,
of actually financing the improper use of the resources of the
branch, and of mass bankruptcies of agricultural producers in the
future. Certain positive trends are to be observed as well - for
instance the informal crediting from certain organizations
interacting with agricultural producers.
They provide financial resources to producers under more favorable
conditions (the sugar refineries) or realize sales with deferred
payment (companies trading with chemical fertilizers).
2.3.Tax Policy The OUFA itself provides
possibilities for tax relief under certain conditions. Individual
agricultural producers, are exempted from income tax on income from
the production of vegetal or animal products, as well as from
inhabited house duty, for a term of five years after they have been
put into possession. By December 31, 1992, few owners had been put
into possession of their estates - their lands made up merely 6 per
cent of the total area of land. For young families the exemption
from income tax on income from the production of vegetal and animal
products is for a term of eight years of the date the Act came into
force. In fact the provided tax relief only concerns an
insignificant number of agricultural producers. The large part of
the private producers, those who have not been put into possession,
paid income taxes on their income in 1992 according to the Income
Act. According to the Income Act, 60 per cent of the income of
stock-breeders and of the producers of cultivated mushrooms, and 40
per cent of the income of plant-growers and those growing
ornamental shrubs and flowers is exempted from taxes. Despite the
priority of agriculture in the country's economy, there is no real
preferential tax system for agricultural producers. The only
consolation may be the fact that tax inspectors find it impossible
to establish with certainty the type and quantity of products sold,
and the income thus gained.
2.4.State Intervention in the Regulation of
Farming Activities The complicated and painstaking progress of
the land reform, the unstable macroeconomic environment and their
adverse consequences for agricultural producers call for the active
intervention of the state in the regulation of the conditions for
the realization of farming activities. This intervention is
increasingly felt in a number of areas. In order to achieve the
successful distribution of the property of the Cooperative Farms it
became necessary for the state budget to cover the debts of the
Cooperative Farms incurred by December 31, 1992 - approximately 2
billion leva. It was firmly decided that no universal remittal of
debts was to take place but rather, to assess each individual case
and to investigate the reasons for incurring the debts and, where
appropriate, the persons responsible. Receipts from third parties
and damages will be paid from a special account in the state budget
following the remittal of the debts of the Cooperative Farms. The
Government has taken certain protectionist measures with respect to
Bulgarian agriculture by imposing import duties for a number of
agricultural products. further the creation of competitive
conditions in the agricultural markets or the proper conditions for
the development of effective agricultural production, but it is
necessary in the period of transition, when the old economic system
has not been fully dismantled and a new one has not as yet been
built up. The shortage of financial means for agricultural
production in the spring of 1993 necessitated the passing of the
Financing of Agriculture Act. Through this Act the banks with state
participation above 50 per cent are required to offer credits for
the growing of vegetal products with a reduced interest rate (two
thirds being covered by the state budget) under strictly defined
conditions. The experience from this intervention in the operation
of the banks has demonstrated that it is difficult to compel them
to take risks and that they naturally tend to turn to other, safer
spheres.
3. The Current State of Agriculture The
delay in the securing of credits for sowing and the cold spring
accounted for the fact that in May 1993 the land under crop
constituted merely 72 per cent of the planned area. Due to the
limited use of fertilizers and chemical substances and the great
weediness of the sown fields (75 per cent), the yield is expected
to be 30-40 per cent lower. The available agricultural machinery is
fit for the cultivation of the huge areas within the former
organizational structures. It is complicated, heavy,
energy-consuming, requires a special repair depot, and is mostly
old and run-down. The farm buildings and the cattle-sheds are in a
poor condition, non-functional, plundered, dilapidated. According
to data from the Ministry of Agriculture, on average there are 12
tractors, 5 ploughs, 4.5 cultivators, 2.8 drills, 2 combine
harvesters, 1 forage harvester per 10000 decares of arable land. In
fact, there is uneven distribution of the available machinery and
there are cases of overloading or inadequate use of its capacity.
Experts estimate that over 7000 four-wheeled tractors and
self-propelled machines and approximately 1500 motor-cultivators
are being used by private farmers. The ongoing reform and the
liquidation of the Cooperative Farms, the liberalization of prices
and markets, and the disruption of the link "production - fodder
supply", led to mass slaughtering of animals for meat export,
perishing of animals or deliberate slaughtering due to lack of
fodder, great indebtedness of poultry and pig-rearing farms as a
result of both old and new credits. A decree of January 1993
provides for livestock to be distributed among the persons entitled
to a share in the property of the Cooperative Farms. However, this
does not resolve the vital question of fodder supply.
-
• changes in the law and the executive authorities,
prompted by the changes of government;
• complexity of the undertaken reform - complex law,
rules of application, and adopted procedure;
• lack of competent specialists necessitating
training in the very process of carrying out the reform;
• a certain politicization of the process;
• lack of clear-cut agrarian policy (due both to the
changes of government and the lack of national consensus with
respect to the economic transformations). The following
consequences of the delay of the land reform and the undertaken
changes in the macroeconomic environment can be observed:
• decline in production, real producers have as yet
not emerged;
• no foreign investments in agriculture;
• unfavorable conditions for crediting - the lack of
investments will impede the development of modem agricultural
production;
• dilapidated and destroyed property, inefficient
use or non-use of the available production resources in
agriculture, which constitutes a loss in national assets.
2. The OUFA is a law regulating a radical, sweeping
land reform, carried out administratively, and designed to return
(distribute) the farmland to the owners, rather than to the actual
farm producers. In this respect the OUFA is unique in its nature
and in the procedure for the restoration of property rights, and
was called for by historical developments in agriculture, the
particular macroeconomic environment, and the political
transformations under way in this country. Besides the restoration
of landed property rights, the OUFA likewise distributes the
property of the old organizational structures - the Cooperative
Farms, by suspending their existence and following a principle of
proportional distribution according to the relative share of the
factors -land, labor, assets - which have contributed to the
acquisition of that property. The reinstatement in property in
farmland and the distribution of shares of the property of the
Cooperative Farms are not sufficiently synchronized in time.
3. The experience from the application of the OUFA
of the past two years has clearly demonstrated that private
ownership is a necessary, but not the only condition for the
establishment of effective agricultural production. While private
property constitutes the very source of the entrepreneurial spirit
and the efforts to achieve optimal use of the available resources,
the actual framework of entrepreneurship - credits, taxes, prices,
markets - is equally, if not more important, particularly under the
conditions of transition to market economy.
The success of the agrarian reform very much depends
on the pace of developments within the sphere of legislation and
requires the passing of a number of important and necessary laws:
an agricultural credit act, a lease act, agricultural equipment and
machinery act, a ground rent act, a law on environmental control
over agricultural activities and sites, a law regulating the
indemnifications and procedures for a number of cases in the OUFA,
the regulation of the use of mountainous and hilly areas.
4. Under the current macroeconomic conditions and
with the introduced substantial amendments, the OUFA seems most
likely to promote the development of a fragmented, i.e.
insufficiently effective, agriculture in Bulgaria.
5. The last five or six months were marked by
vigorous state intervention in the establishment of the framework
of agricultural activity. State intervention in the regulation of
agricultural activity assumes high risks by encouraging the
maintenance and financing of inefficient production - errors which
are all too familiar from the past. An optimal balance between
state regulation and liberalization in the sphere of agriculture is
indispensable. A positive element in state intervention is to be
found in the wish to differentiate the approach to each individual
case. At this stage state intervention comes too late, it is but a
temporary solution, usually prompted by the critical situation of
this branch of the economy. Such intervention hardly furthers the
elaboration of a consistent agrarian policy with clear priorities.
6. The credit system is undeveloped as a consequence of the reform
in the banking system itself, the lack of experience of the banks
in the assessment and granting of different types of credits under
differentiated conditions, the slow pace of the land reform, the
lack of real producers with real landed property, insufficient
material and economic guarantees for the ability to pay off the
credit in the unfavorable macroeconomic environment. In the longer
term the lack of investments during the last few years will lead to
a decrease in the effectiveness of agriculture and will set back
the progress towards modern agriculture as well as the
indispensable restructuring of the branch.
1. The Bulgarian Economy in the Long Term,
Ikonomitcheska Misal journal, 1993, vol.1, pp.87-106. 2. Grigorov
V., Mihailov M., Problems of the Liquidation of the Cooperative
Farms, Sofia 1992, 107 p. 3. Dardzonov T., What Will our
Private Farming Be Like?, Ikonomika journal, November 1992,
pp.44-46 4. Dulevska G., Kovatcheva N., Between the Gigantic and
the Undersized, Ikonomika journal, October 1992, pp.22-24 5.
Kurteva S., Stoikova Y., Ownership and Use of Farmland Act -
Short Commentary and Text, "Althazar K" publishing house 6.
Methodological Instructions for the Share Distribution of the
Property of the Cooperative Farms and Organizations Formed on the
Basis thereof. Ministry of Agriculture, Sofia, July 1992,26 p.
7. Rules of Application of the Ownership and Use of Farmland
Act 8. Development Strategy for Agriculture in Bulgaria,
PHARE and World Bank Report, Sofia, September 1992 9. Hristova M.,
Keremidziev S., T |
