Банкеръ Weekly



The Ministry of Agriculture and Forestry is intensively preparing a methodology for calculation of excessive reserves of agricultural production through which the state will regulate the prices of certain goods once the country enters the European Union (EU). In practice, the regulation that refers to Bulgaria in terms of excessive reserves will be prepared and presented on September 19. We aim at measuring the availability of reserves as of certain date, in this case August 31, 2006, so that we can do what we have to restrict them, Deputy Minister of Agriculture Svetla Bachvarova said during the discussion of the bill on excessive reserves of agricultural and sugar products approved by the Council of Ministers on August 2. Twenty-five products are put in the list of observed commodities - grain, live animals, meat and pluck, fish and aqua crop, wheat, vegetables and fruit, flowers, coffee, tea and spices, flour and farina, sunflower, oil and butter, sugar and sugar products, etc. They are defined in the bill on excessive reserves of agricultural and sugar products which the Council of Ministers put forward for voting in Parliament. The adoption of the bill is among Bulgaria's major commitments with regard to the application of the EU Common Agricultural Policy. The aim is to avoid the speculative accumulation of reserves of agricultural and food products and it can be achieved right before the country joins the union. That's how Bulgaria, like all newly-joined members, will try to reduce the market pressure caused by the supply of excessive reserves.
According to the law, producers and dealers should declare their reserves of agricultural and sugar products for the period 2003-2006 and interested departments should in turn provide the Ministry of Agriculture and Forestry with statistical information about the production, import, export and consumption of agricultural and sugar products. The ministry will prepare an inquiry about the average reserves of the 25 commodities for the past three years. This is where the Customs Agency is expected to interfere - it will monitor the movement of the fixed commodities across the border. The practical methodology for calculation of the excessive reserves will be entirely based on the national necessities, because no definition of the excessive reserve has been given so far when it comes to Bulgaria and Romania. Bulgarian experts who worked on the bill used the experience of Poland. The bill stipulates a 10% tolerance for the amounts of agricultural products available as of January 1, 2007. Experts explain that they chose this level - 10%, not just using statistical figures, but also by taking into account the trade dynamics.
In order to update the information, farmers and dealers will be required to provide figures about the production or import every month. If excessive hoarding of sugar and derivative products is found out, the amounts beyond the norm will be exported or used as biofuels. Should producers or dealers keep quantities they have not declared, they will have to pay a huge sanction that will be added to the state budget. This is also valid for the above-mentioned agricultural commodities. The amount of the installment will be equal to the duty for import of the respective product. Sugar about which the EU is particularly sensitive will be the only good for which there will be additional sanctions. EUR1.21 per each 100 kg of white sugar will be added to the duty owed at the respective moment. If undeclared quantities are found out, the payment will double. Sanctions varying from BGN1,000 to BGN10,000 will also be imposed in such cases. Companies will be obliged to provide officers from the agricultural ministry with access to their offices, warehouses and production areas. If there are difficulties or obstacles for the inspection, the initial fine will amount to BGN1,000 and in case of a repeated violation it will be ten times higher.
The bill includes special regulations about the high-risk group of operators in terms of hoarding with speculative goals which started operating in the year right before the integration, Deputy Minister Bachvarova commented. On the basis of this information and by offer of a specialized commission which is to be created with the Minister of Agriculture and Forestry, an average amounts of reserves and excessive reserves for producers and dealers is calculated.
The European Commission is going to negotiate every year with Bulgaria about the admissible excessive reserves that are to be produced. In case there is a deficit of a product on the market, additional quantities will be offered in order to avoid sudden jumps in the price. If there is over production, the state will buy part of that production at a certain price. The amounts left for consumption will be subject to negotiation, too.
When there is need, the Agriculture State Fund and the State Reserve will participate in the market, too. The entire intervention system will be monitored by a commission with the Minister of Agriculture.
The act will operate as a prevention tool, so that no speculative accumulation of excessive reserves is allowed, experts claim. They explain that if farmers and dealers of agricultural and sugar products stick to the regulations, they will not have to make payments in favour of the state budget and Bulgaria will avoid the sanctions of the European Commission.
Metodi Metodiev from the Institute for Market Economy takes a different view. He claims that if there is strong regulation and intervention by the state the agricultural sector would become unapproachable to the free market relations. Naturally, this results in inefficiency and non-market re-distribution of resources in the economy, the expert commented for the BANKER. He said that a policy stands out distinctly, oriented towards sterilizing and isolating a whole sector from the principles of the market economy. Producers themselves have been taught for generations that the state will in one way or another guarantee the realization of their production. And this is an obstacle for the competition on the market, it influences directly the purchasing power of the consumers and last, but not least, it distorts the market logic and incentives.

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