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The Agrarian Reform In Bulgaria, 1993
 

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

  1. Restoration of Property Rights in Farmland Within
  2. 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.

  3. 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.
  • In 1993 the decrease of the number of animals in the Cooperative Farms under liquidation as compared to 1991 is: cattle - 55%, cows 58%, sheep - 30%, poultry - 72%, pigs - 80%. Part of these animals have indeed been distributed among private producers but fodder supplies are so difficult to secure that this leads either to the slaughtering of the animals or their low productivity. At the same time a certain increase compared to the beginning of 1993 can be observed in the number of sheep and goats, as well as an increase of 152 liters in the average yield of milk per cow compared to the fourth trimester of 1992. There is a continuing decrease in the number of cows (with 7700) and pigs (with 6400). As regards pigs and poultry, the basic breeding flocks have been preserved and the production of poultry and pork meat is expected to stabilize.

    4. The Organizational Structure of Agriculture -Current State, Problems, Perspectives There is no clear conception regarding the organizational forms which should replace the old "cooperative" organizations. Very little is done to provide information on the possibilities, under the current legislation, for the setting up of various organizational structures, on their respective advantages and shortcomings. Presently, agricultural products in Bulgaria are being produced by the liquidation boards of the Cooperative Farms (cultivating about 70 per cent of the land), by newly created cooperatives, private - individual or family - farms, and in some isolated cases, by other associations. Due to general inertia and the fact that great legal competence does not seem to be required, two organizational forms seem most likely to predominate - the individual or family farm, and the production cooperative. The sociological surveys, as well as practical experience itself, point to the cooperative as the most popular organizational form. The main reasons for this are: the age of the people who have up to now been engaged in agriculture; the persistence of old attitudes and the role of personal experience; physical and financial impossibility to cultivate the land single-handedly; the social benefits provided by collective forms of labor, the existing obstacles to the setting up of farms; the use of large-scale machinery and of buildings and storehouses presumes some form of joint farming. The true problems of the cooperatives will be felt in the future. These will be problems related to shortage of financial means; improperly drawn up or imprecise statutes, not taking into account possible conflicts and the appropriate ways for their resolution; the insufficient attention paid to the method of income distribution and the offering of incentives to efficient work; the inheritance of run-down and dilapidated property from the Cooperative Farms following their liquidation; lack of good, experienced managers, etc. These problems now remain in the background. With the delay of the land reform and the imperfect synchronization between property right restoration and the distribution of shares among the rightful claimants, the new cooperatives and fanners are forced to rent, either collectively or on their own, land, machinery, facilities. With good orientation in the complex economic environment, they are able to decide exactly what they need to rent and can thus avoid unnecessary expenditures and choose an effective and competitive production. This situation is of course only temporary. Conflicts also arise from the decisions of the liquidation boards concerning payments for already delivered, frequently overpriced and in some cases quite poorly executed, farming services. The latter are to be paid by the owners themselves, both in the case of temporary possession and of property right restoration. To avoid due payments most owners prefer to receive their land after the gathering of the harvest, leaving it under the care of the liquidation boards and thus extending their activity. Family and individual farmers are faced with numerous problems of diverse nature. Apart from the fact that there is no possibility for preferential crediting, they have to organize the production and marketing of the products themselves, while having limited information concerning possible markets for the various agricultural products. A system of information on the prices of agricultural products in the major markets in the country has been operating actively for the last two months. Few producers have the necessary diverse skills to manage their own farms. Consultancy centers are currently being built up. Future farmers must be familiar with the equipment and the machines, they should be able to operate and even repair them. Apart from that, the condition of available facilities and technical equipment, the already established infrastructure, the necessary but lacking land consolidation hardly favor the building up of real farms. Despite the difficult conditions, there already are Bulgarian farmers who are managing their activity quite successfully.

    Conclusions

    1. The pace of the land reform in Bulgaria is unsatisfactory. The reasons for its delay are to be found in:

  • • 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.

      • Bibliography

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

 
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