State Fund Agriculture

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Ministry of Agriculture

Interviews - We developed an action plan for all possible measures we can take


By Kiril Valchev
We have to absorb less than 290 million euro by the end of the year. This is the part provided by the European Agricultural Fund for Rural Development (EAFRD). We have developed an action plan for all possible organisational and structural measures we can take to minimise the effect of a possible failure to absorb the funds. This is what Rumen Porozhnnov, executive director of State Fund Agriculture, said in an interview for Darik Radio’s programme “The Week” He added that it is necessary to increase participation in agri-environmental measures, but that “the criteria for financing agri-environmental agriculture are very serious.” Porozhanov also said that absorption under axis 3, which includes municipal projects and axis 1, which includes the measures that target private individuals, is going well and could reach 100%. “But the big theme is axis 2 where we need to work quite seriously,” Porozhanov added.
Radio HostHello, Mr. Porozhanov.
Rumen Porozhanov: Good afternoon.
Radio Host: Let’s start with the Rural Development Programme. Is Bulgaria going to lose 180 million euro from this programme because of delays in the absorbtion of funds? Currently, there is said to be a delay in absorbing 290 million euro for the period 2007 – 2009 and that those funds must be absorbed by the end of this year. Is this true?
Rumen Porozhanov: There are several factors. We are analysing the possibility to absorb a maximum amount of funds for years 2007, 2008 and 2009 on the principle M+2. We already have less than 290 million euro to absorb by the end of the year. European Agricultural Fund for Rural Development (EAFRD). The fund and our colleagues at the Ministry of Agriculture and Food have developed an action plan for all possible organisational and structural measures we can take to minimise the effect of a possible failure to absorb the funds. We are constantly working on scenarios – optimistic and realistic ones. We are not considering the possibility of a pessimistic scenario at all.
Radio Host: The budget of the whole programme is 7 billion euro, right?  
Rumen Porozhanov:
It is 2,642 billion euro. If we add the funding from the Bulgarian government we get 3, 278 billion euro. 
Radio Host: This amount must be absorbed by the end of the programme, not by the end of this year? This is the part provided by the
Rumen Porozhanov: This is the budget of programme until 2015. There are two main factors that cause problems in the absorption of this year’s resources. The first is the delay in the start of the programme. The budget for 2007 and 2008 was 581 million euro, which had to be contracted. But only 52 or 56 million euro were contracted by the end of 2008. So we have practically contracted about 525 million euro less. I believe the budget plan of the programme did not take into consideration that the programme cannot be as effective the first two years. This happens in the paying agencies of other new member states as well.
Radio Host: The other explanation I heard was that Bulgaria failed to properly distribute the funds of the programme and it directed a lot of them to measures that are not as popular. For example, agri-ecological subsidies.
Rumen Porozhanov: There is a nuance here reflected in Regulation 1698 from 2005. We must absorb at least 25% of the budget of the programme under Axis 2, which includes agri-environmental measures, payments for less favoured regions, and forestry measures.
Radio Host: And Bulgarian farmers do not want to apply there. The per cent of absorption is said to be 2%, if I am not mistaken.
Rumen Porozhanov: I will give you another 2 numbers I calculated this morning. These 25% of the whole programme – I will convert them into leva – are a billion and 600 million leva that we must absorb under Axis 2. So far, we have absorbed 163 million, or 10%. The measures for less-favoured regions are more popular, but their subsidies are less. We must work with the Ministry of Agriculture and Food to increase participation in agri-environmental investments, but we can’t force events. The requirements for agro-ecology are very serious. Of course, we must see if we can simplify the criteria for application as well. We also plan to take steps to popularise the forestry measures so the amount of proposed investments increases.
Radio Host: It appears possible that Bulgaria will fail to utilise about a third of EU agriculture funds because most of this money is intended for organic farming and Bulgarian farmers have no interest in it.
Rumen Porozhanov: I wouldn’t say they have no interest. It is less than a third of the budget and, besides, I only said there were problems under Axis 2. Things look quite different in Axes 1 and 3.
Radio Host: Can you please clarify what Axes 1, 2 and 3 are?
Rumen Porozhanov: Axis 3 consists mostly of municipal projects, municipal companies working to improve the business climate in municipalities. Axis 1 contains the measures for improving the competitiveness of Bulgarian farmers. The absorption of funds under Axes 1 and 3 is going well and I think we could absorb 100%, provided that we transfer funds from less popular to more popular measures.
Radio Host: Which measures are most popular? 
Rumen Porozhanov: Measures 121 and 321. The Ministry of Agriculture and Food has submitted a seventh notification to the EU. We offer to transfer about 240 million euro to these measures at the expense of seven other measures that are less popular. 
Radio Host: Which are those? 
Rumen Porozhanov: Some of the forestry measures. The budget for technical support will also be reduced. It is quite high and it is for building administrative capacity, providing information and consultations, etc. But, of course, the budget that will remain in those seven measures will be enough to cover those expenses.
Radio Host: And the rest will go to young farmers and agricultural holdings.
Rumen Porozhanov: Just to summarise, our big theme really is Axes 2 where we need to work quite hard to…
Radio Host: What should Bulgaria do under Axes 2 to… It sounds stupid to return a billion euro you can take.
Rumen Porozhanov: The numbers you have are quite high. It is a billion and 600 leva, not euro. We have absorbed more than 10% of the Axis’ budget by now. There are 5 more years until the end of the programme period.   
Radio Host: What do you think must be done? 
Rumen Porozhanov: We need to provide better information and administrative service so we can increase the interest in those measures.
Radio Host: So you think one of the problems is that people don’t know there are so much money for organic farming?
Rumen Porozhanov: They do know. One of my goals in State Fund Agriculture is to improve the administrative service we provide to agricultural producers. I wouldn’t say out service is bad, but it needs to become more proactive. The fund has hundreds of thousands of beneficiaries: 91 500 under the Single Payment Schemes, 74 000 under the National Payment Schemes and, as you may know, we already administer tobacco subsidies as well and we have about 30 000 tobacco subsidy beneficiaries.
Radio Host: In your view, what is the priority of the Bulgarian agriculture sector at the moment, judging by the Rural Development Programme? Can we say that the Bulgarian agriculture sector has chosen to produce this or that product? If we judge by the ongoing debates, Bulgaria has a lot of potential in the area of organic farming, under Axis 2. But if we look at the subsidies Bulgarian farmers apply for, this is not true.
Rumen Porozhanov: I wouldn’t want to define the priorities. I think all agricultural sectors are equally important. What we must underscore is that there is currently a lot of money for agriculture and it will gradually increase, mostly in the area of single payments .You know those will increase by 10% next year. 
Radio Host: Can Bulgarian authorities affect EC priority decisions? I will give you an example – at the turn of the 20th century, Bulgaria had 9 000 hectares of roses in the Rose valley. There are currently 3 hectares. A gram of rose oil costs as much as a gram of gold. It is quite logical, having in mind Bulgaria’s reputation in rose oil production, to invest in roses, not in potato planting. It is the Poles who are famous for potato vodka. They export it and you can find their vodka at many airports. Do you have an idea, having in mind the funds you manage, as to where Bulgarian farmers want to go?
Rumen Porozhanov: Agricultural priorities are defined by the Ministry of Agriculture and Food. State Fund Agriculture is only an executive body. Of course, we provide expertise and suggest measures for improving fund absorption, but I wouldn’t want to comment on agricultural policies. I think our priorities are balanced – both in terms of EU funding and in terms of state aid. And I would like to add that, since I headed the fund, I prioritised contacts with animal farmers. I want to make sure we support the more viable farms because this sector is not so well modernised and perhaps needs more aid. We organised important meetings with the prime minister and ministry officials and there are several important outcomes. The „de minimis” programme that will grant 20 million leva is among them.
Radio Host: This decision was taken exactly this week. 
Rumen Porozhanov: Yes, the Managing Board took that decision. All animal farmers will be able to apply in July. Our plan is to determine the amount of aid per animal based on the number of applications and to pay out the subsidies between the end of July and the beginning of August. We took this decision because the schemes funded by the European Agricultural Guarantee Fund (EAGF) and the national payment schemes are paid out in December. But we wanted to support them during this period because they have quite a lot of problems, even problems buying fodder.
Radio Host: You mean you did not want to wait until December, but pay out the money right now. 
Rumen Porozhanov: No, this is a separate funding scheme. It is not an advance payment for something else. 
Radio Host: Part of its plan is to help all farmers affected by the foot-and-mouth disease.
Rumen Porozhanov: This is an addition to the scheme. 
Radio Host: And under easier terms – regardless of whether they are registered as farmers or not.
Rumen Porozhanov: This is an addition to the scheme because many of the farmers who were affected by the foot-and-mouth disease were not registered as agricultural producers. It turned out there were elderly people whose animals died, but they were retired and had no interest in registering as agricultural producers. Тhe law on state aid allows for such „de minimis”payments.
Radio Host: So you dеfined an area in which Bulgaria is to invest more – animal farming.
Rumen Porozhanov: I wouldn’t say we plan to invest more. We seek a better balance with plant growing. You know that in plant growing…
Radio Host: Do you want to support all types of animals, or will Bulgaria aim for something specific?
Rumen Porozhanov: The subsidies for stock-breeding cover cows, buffalos, sheep, rams and so on. There is no funding for chicken and pig-breeding. There is an export subsidy provided for chicken exportс, however, this subsidy is covered by EAGF, which guarantees funds for certain products. We are very active with stock-breeding. I would like to use your programme to emphasize what we achieved with the Trade Banks Association. Currently, we are negotiating new loan refinancing terms; we are trying for a new interest rate because the current one of 9% has remained unchanged since 2002.
Radio Host: You are currently working with five banks? 
Rumen Porozhanov: Yes.
Radio Host: In reality, those are contracts for refinancing under the Rural Development Programme?
Rumen Porozhanov: Yes, but also for refinancing investment loans financed by the Fund. It is based on a government decree and, within our own budget, we can refinance 50% of the projects’ value but no more than 500,000 leva. Additional funding could come from the banks.
Radio Host: Do you see the actual benefits from RDP investments in Bulgarian rural areas? Two weeks ago, I had American guests who have lived in Bulgaria for 20 years and have set up their own fund. They said rural areas in Bulgaria haven’t changed in the past 20 years and still look destitute. 
Rumen Porozhanov: Of course, that’s possible but you will have to bear in mind that the programme has been in effect only for a few years now. At the moment, we are finalising projects that were approved and have been in effect since 2009 and 2010. The initiative of municipalities is crucial. There are city councils and municipalities that are very active and ones that are rather passive. Unfortunately, we observe that many municipalities do not have the culture necessary to absorb investment funds and we have to penalise them for different violations with procurement contracting and enacting. The true results and effects of the programme remain to be seen. We are in the initial stages of finalising municipal projects.  
Radio Host: The Single Area Payment Scheme (SAPS). Why are there 3, 500 less applications this year than there were in 2011? The only explanation seems to be that people are giving up on agriculture in Bulgaria. 
Rumen Porozhanov: The number fell from 78,000 to 91,760. There are now 3,500 beneficiaries less – which is about 4%. It is nothing dramatic.
Radio Host: Is the declared land less? 
Rumen Porozhanov: There has been land consolidation. There is no decrease in the amount of declared land. I am glad to say that within the SAPS, it is now much clearer which lands are admissible so we can get on with financing and payment. In 2007 and 2008 funding was done based on the whole physical territory despite some particular units of land that were unsuitable for agriculture. Brussels imposed a 10% penalty on us for both years because of that.   
Radio Host: Are you saying that the decrease in applications is in part due to the fact that land owners have now figured out that they cannot trick their way into receiving funds for areas that are not suitable for agriculture? 
Rumen Porozhanov: That’s part of it, and besides, the newly emerging favorable business conditions for growing crops such as wheat, corn and Cole seed have created options for consolidation and land re-allotment. As you know, a number of large-scale agricultural producers have emerged in this sector, which I strongly hope will remain profitable in the coming years in a free market environment. With the consolidation and re-allotment in mind, we can say that some farmers might have quit or moved to a different type of loan arrangement. The point is, these 3-4 percent are nothing to worry about. I would like to add that, two weeks ago, the Ministry of Agriculture concluded the examination of complaints regarding 2010 payments and sent us the data, which we are now processing. Overall, the Ministry examined around 3,800 complaints and the ones that were upheld are currently being rectified. I hope that by June 30th we will be able to pay out the subsidies.     
Radio Host: So single area payments will be paid out by June 30th?
Rumen Porozhanov: That’s right. Also, I’d like to commend our mutual work with the Ministry of Agriculture. Together, we made it possible for every land owner who did not receive funding to see which particular unit of their land was declared not suitable for agriculture. Every single unit of land is documented on our web page so than even a farmer who owns a thousand units can verify his property and submit a complaint to the Ministry of Agriculture where it will be processed based on the particular unit and not as a whole. We created a very good organisation with our colleagues from the Ministry and I think our work is well appreciated. I am saying this from the standpoint of our ambition to improve the services within the sector which, as you can see, is quite large.   
Radio Host: What is the plan for this year? 
Rumen Porozhanov: Registration will conclude this year. 
Radio Host: You’ve received 78,000 proposals. 
Rumen Porozhanov: In accordance with their contract, the Ministry of Agriculture is about to begin photographing. Of course, not on a day like today but on sunny days, at about noon, so the photographs can be most clear and accurate.
Radio Host: Are they going to photograph the land every year? Isn’t one year enough? 
Rumen Porozhanov: Photographs are taken every year in order to see if the land is cultivated or not.
Radio Host: Can you tell from the photographs? 
Rumen Porozhanov: Yes, the photographs do show that. 
Radio Host: Is absolutely everything photographed or are there selection criteria? 
Rumen Porozhanov: No, not absolutely everything, but I am unsure of the details. The Ministry of Agriculture is responsible for the process. When the photographs aren’t clear enough, we perform an inspection of the area and, the sooner we get the updated layers from the Ministry of Agriculture, the sooner we can process the payments. The goal is to begin payments in January and February instead of in March and April so the money can go to the agriculture sector sooner.
Radio Host: Is the requirement to have paid for social insurance still valid? It caused quite an uproar last year.
Rumen Porozhanov: There is a new element, which you might not know of, which was introduced after meetings between the prime minister and stock-breeders. We are about to pay out “de minimis” subsidies worth 25 million leva and the second round of funding for tobacco growers. On the other hand, there are Ministry of Agriculture regulations, which state that national budget payments cannot be made to beneficiaries who owe money to the state. As it turns out, we are paying our beneficiaries, but they cannot pay their debts, so it looked like a “Catch-22” situation. We discussed this issue with stock-breeders and active tobacco-growers, who account for about 3,000 of our beneficiaries. We had meetings with the minister of agriculture and the prime minister and, along with the Ministry of Finance, we managed to modify the terms of control over these payments. The minister of agriculture abolished this requirement, but State Fund Agriculture made a commitment to contact the National Revenue Agency (NRA) when we make payments out of the national budget.  
Radio Host: So you can withhold the money?
Rumen Porozhanov: No, we won’t withhold it because we don’t want to become an instrument of the NIA. What we will do together with the NIA, as we discussed with Deputy Finance Minister Goranov, is the following: the moment we authorise or process payments to, let’s say, 10,000 beneficiaries under the “de minimis” programme for stock-breeding, we will immediately alert the NRA that we will be paying 19.5 million leva to 10,000 beneficiaries in five days and will give them all the available information. The NIA will do the appropriate checks and determine if a distrainment order is needed for people with debts to the national budget. The other option was even harsher – to neither fund people, nor have people pay their debts. That’s the “Catch-22” I mentioned. 
Radio Host: Is this the case only with stock-breeders or…?
Rumen Porozhanov: No, it applies to all. Those regulations concerned the limited payments coming from the national budget. They will also apply to tobacco-growers and to all payments from now on. Because we can’t withhold EU funding under the Single Area Payment Scheme, the limitations only apply to the Complementary National Direct Payments…
Radio Host: What about the Single Area Payments?
Rumen Porozhanov: It is going well – we do not have the rights to limit…
Radio Host: There is no... 
Rumen Porozhanov: About the single are payments, it used to be 18 leva plus 10, but hopefully by next year it will increase to 22.
Radio Host: In other words, there is national money there as well?  
Rumen Porozhanov: Yes, but it’s a separate scheme – one that includes complementary national payments.
Radio Host: Under this scheme, don’t you do the same check-ups with the NRA?
Rumen Porozhanov: The check-ups are done only under the complementary national payment schemes and the state aid schemes.
Radio Host: So these apply to the single area payments where national payments are included?
Rumen Porozhanov: There are two schemes: the single area payments, which are funded by the European Agricultural Guarantee Fund, where we can only pay out money without the right to withhold money. And then, if there are complementary payments on top of single area payments, we freed…
Radio Host: OK, I got it. And now everyone will fall under the rule where tax inspectors always find out…
Rumen Porozhanov: We will make it possible… 
Radio Host: …when a land owner receives funding, so he or she can receive the whole amount…
Rumen Porozhanov: Yes, and we will let the NRA react. 
Radio Host: Is funding going to be tied to cash-registers? The subject gained publicity this week. Standard newspaper came up with an amusing story – “Cows with Cash-Registers”. Do you have such connections in mind besides…
Rumen Porozhanov: It is probably an amusing subject but, honestly, I am not familiar with it. Cows with cash registers – what does this mean?    
Radio Host: Have you discussed the availability of cash-registers as a requirement for receiving funds?
Rumen Porozhanov: As of this moment, we have not.
Radio Host: What happened with the high number of fraud cases and the scale of these fraud cases that were attributed to the Fund you are now heading?
Rumen Porozhanov: The fraud cases and violations vary. Some are significant, some are negligible. If we sort them based on programmes, the fund became notorious because of SAPARD and the multitude of violation and fraud appeals submitted to OLAF. Of course, these appeals and violations are still being examined by the competent Bulgarian authorities; as we know, the SPO has a specific unit dedicated to frauds with EU funds.     
Radio Host: You mean the Supreme Prosecutor’s Office? 
Rumen Porozhanov: Yes. When specific checks are performed, the SPO works with the Ministry of Internal Affairs, the State Agency for National Security and the investigative authorities. Fortunately, more often than not the registered violations are not confirmed during those checks. The Prosecutor’s Office continuously reports that there is no violation or that, if there is, it concerns only a part of the investment project. However, a problem emerged because EU regulations required us to put the amount of the whole investment on the black list.
Radio Host: But it turns out that the violation was negligible?  
Rumen Porozhanov: Yes.
Radio Host: What is the trend? Are Bulgarians committing fewer violations with EU funds?
Rumen Porozhanov: Yes, definitely so. In the past, there were cases of people building fences around land not suitable for agriculture so they can get additional funding, but this is no longer possible. We were not reimbursed for 10% of the payments for 2007 and 2008 and we will be paying those out in three even installments. We have concluded that, yes, at times there are problems with the proposals, including Rural Development Programme proposals, but because of the strict control from fund officials and other authorities, candidates are becoming more disciplined and I hope there will be fewer violations. I would like to point out that the book of debtors does indeed include some fraud cases, but these are minor violations that amount to a lot less than 1 million leva. In my opinion, things are going very well with the programme right now.  
Radio Host: How do we compare to other countries? Does Bulgaria have the highest number of fraud cases? 
Rumen Porozhanov: I am not aware of the statistics, but I want to point out that Bulgaria is among the most scrutinised countries and it is subject to some of the toughest regulations and requirements. Let’s take France as an example. Direct payment applications there are based solely on written statements – they don’t photograph the land; while we have to keep scrutinising and inspecting and appealing. Procedures are a lot more liberal there.  
Radio Host: I am curious about how Greece is doing. Greece comes up a lot in discussions of the Rural Developmen Programme. Do they photograph the land?
Rumen Porozhanov: Greek farmers receive payments per farm. In the middle of March we received a 24.5 million euro penalty under the 2008 direct payments campaign, while Greece received a 200 million euro penalty under two measures. So it is apparent Greece’s problems are similar to ours.
Radio Host: If we judge by these numbers, they are ahead of us 10 to 1.
Rumen Porozhanov: Yes, but at the same time the amount of subsidies they have absorbed under the programmes is much higher.

17 899 635 BGN

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