State Fund Agriculture

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Ministry of Agriculture

Interviews - Adapting to the next programme period is a very important topic in Bulgaria right now


Host: State Fund Agriculture’s Executive Director Rumen Porozhanov is our guest in the studio. Hello.
Rumen Porozhanov (R.P.): Good afternoon.

Host: Headlines claim that Bulgaria will lose 100 million EUR under the Rural Development Programme (RDP). Is this correct?
R.P.: These numbers are incorrect. In the context of the approval of the 8th RDP notification concerning the capitalization of the Guarantee Fund (GF) – the approved amount was reduced by 40 million EUR.
Host: My mistake – the correct sum was 100 million BGN.

R.P.: So in the context of the European Agricultural Guarantee Fund (EAFG), in terms of reducing the budget, there will be just under 40 million EUR decommitted from the overall RDP budget of 2.6 billion. 
Host: Bulgaria requested that 170 million EUR be transferred from unpopular measures to the Guarantee Fund, which will secure loans for farmers. So out of 170 million we had 130 million approved?

R.P.: We had 121-122 million approved, which includes a 97 million EAGF component. There is also state cofinancing, which makes the calculations a bit harder. The Ministry of Agriculture did a good job defending the need for the Guarantee Fund. It is a difficult procedure. The administration is very demanding – up to the smallest details. Now that the GF has been approved, we can put it to work within the next month or so – after we select the participating banks.  

Host: Before discussing the GF in detail, let’s talk about the origin of the problem. Did Bulgaria make a major mistake when planning how to spend the European agriculture subsidies?

R.P.: I wouldn’t say we made a mistake. We have analyzed this several times in this studio. The RDP itself requires that no less than 25% of its budget goes to Axis 2, which contains 7 measures that deal with agri-environment, less-favoured regions and forestry. These are the so called “green measures” with a budget of 600 million EUR. Absorbing this amount is very hard because we don’t have enough candidates.

Host: A colleague of mine wrote an editorial – “Everybody loves Measure 121”. This is the measure for modernizing farms and buying tractors. He wrote that the measures under the other 4 axes are unattractive to candidates and ends his material with “But you can’t do agriculture with tractors alone”. Do Bulgarians keep thinking that agriculture can be done with tractors alone?   

R.P.: No, not at all. All measures under Axes 1 and 3 are popular… Axis 1 contains Measure 121, which deals with building production capacities, as well as Measure 123 for processing, the measures for young farmers, etc. We have just opened the final application period for Measure 123 and 100% of its budget will be absorbed.
Host: Is Measure 123 the one about tractors? Or was it 121?
R.P.: No, Measure 123 is about processing products. Under Axis 3 we have municipal public investment measures and municipal business measures, which are extremely popular. 100% of the budget of Measure 321 has been contracted and we will soon begin accepting applications under Measure 322. The other measures are also working very well. If I may summarize – along with the Ministry of Agriculture we are working very hard to absorb 100% of the funds for the remaining 3 axes. Right now, we are analyzing what amounts we can over-contract so that, at the end of the year, we can have a 100% absorption rate despite certain reductions and sanctions that are expected. Axis 2 is the major obstacle – we can’t get around it – we will continuously lose money there. We are doing everything possible to reduce the amounts we will lose. The programme is not only about tractors. The fact that all other measures are going well is a proof of this. Andthe importance of coming up with the necessary financial resources for the private measures is a whole new topic. We’ve already discussed the instruments that we introduced to deal with this problem and we can add the GF now to those as well.

Host: You mean the resource necessary for completing a project in addition to the European funding?

R.P.: The rules from Brussels are very rigorous. Beneficiaries must come up with 100% of the financial resource before they receive the subsidy. There are advance payments that cover up to 50% of the investment, but they are restricted by bank guarantees and the whole process of obtaining a bank guarantee, which is complicated.

Host: What changes need to be made in the agriculture sector during the next program period? Are farmers ready to invest 30% of funds in “green measures” as Deputy Minister Boyanova claimed?

R.P.: The truth is that we don’t have an alternative. This is part of the policy and it will not be changed. During the new programme period, the components within the 1st pillar will function in a new way. The direct payments will become more complicated – they will be for area and for six other components. The 2nd pillar is the Rural Development Programme, which will contain no less than 25% green measures. The 1st pillar is becoming more and more complicated. We can discuss what is happening there and what must happen. And, of course, there are indications that the RDP will remain in the 2nd pillar. The new Minister of Agriculture of France, Stephane Le Foll, who was a member of the European Parliament and the Commission for Agriculture, has given such signs. We expect France to support such a reform even though the 1st to 2nd pillar ratio there is 90 to 10. Right now, the topic of adopting programmes for the next period is very important in Bulgaria. Of course, plans are being negotiated in Brussels and things are open for discussion. The 1st pillar is more complicated. As far as the RDP is concerned, the EC has suggested a liberalization of the programme to offer greater flexibility in applying the measures and policies.

Host: You mean that when a state can’t absorb a certain measure’s budget, it will be able to transfer it to another, more attractive measure?
R.P.: Correct. Furthermore, the measures themselves will be more united. Right now, there are 47 measures. Bulgaria applies about 40 measures but there will be 17 measures in the next programme period. The RDP will be a lot more flexible. It is very important that State Fund Agriculture makes this transition very smoothly so that we can start contracting the funds for the new programme period right as we finish contracting under the old period. Of course, Bulgaria has to create and submit its new programme plan on time so that the EC can approve it

Host: What is the deadline for this?
R.P.: The beginning of the new programme period.
Host: The end of 2013?

R.P.: It has to be created and submitted by then, yes.
Host: And then there is the delicate moment of the government change because there will be elections.
R.P.: The past period’s problem was the late start of the programme – its approval and the agency’s accreditation were delayed, so the programme started 1.5-2 years later. 

Host: So you will work to get the programme ready before the elections next year?

R.P.: The administration must do its job whether elections are approaching or not. Of course, the programme must follow the respective rules, but we shouldn’t have endless debates about the agriculture policy. We must adapt to both the market and the European programmes.
Host: In other words, you will have the text on what money Bulgaria will request before the elections? And you suggest that the text gets approved before the government changes?
R.P.: It is really not that complicated. Yes, we need to decide which measures to use. But, as I said, with the new flexibility of the programme, this will not be too complicated. The 1st pillar is much larger. Direct payments will be replaced by six components that we are analyzing right now. There are the so called base payments that will function as direct payments but will only make up 40-50% of the overall budget.

Host: How will Pillar 1 be different from what we know now?

R.P.: Just like other member states, we started with the direct area payment scheme. I think Cyprus and Malta transitioned to payments per farm, but everyone else is paying for area. These payments form the bulk of payments – 90% of the EAGF. Under the new Pillar 1, there will be direct payments not only per farm and for area, but also for several other components. There will be mandatory 30% “green payments”, 5% payments for less-favoured regions, as well as payments coupled to production, which are very important and which we must analyze and offer for approval. Stockbreeding and plant-growing and some other crops are coupled to production and we have national complementary payments for them. In 2016, Bulgaria will reach its subsidy ceiling and we will no longer be able to make national complementary payments.

Host: So one major change is that, from now on, payments will be coupled to the quantity and quality of production?
R.P.: Not exactly. These will be the payments for stockbreeding and plant growing which are not coupled to the land.
Host: But coupled to quantity?
R.P.: It depends on how we will formulate the schemes. They can be per animal head or coupled to quality.

Host: So Bulgaria has to offer the schemes – how to quantify and qualify production?

R.P.: Bulgaria has to make an offer. We have to decide if we want 10%, 15% or 20% of payments to be coupled to production. This question is being debated right now. Bulgaria is not the only country to ask that more than 10% of its payments be coupled to production. Currently, we are paying 100 million EUR for plant growing so we absolutely cannot accept a reduction. It is a complicated issue. The debate is going on right now. By the middle of 2013, when the regulations for Pillar 1 will be out, we must offer our way of distributing the funds – which will reach 815 million EUR by 2016. We won’t have the opportunity to revise this distribution until 2016. I think everything is going well right now.

Host: But in order to do that, Bulgaria has to decide on its priorities in agriculture. I read that today is the last day for potato producers to apply for subsidies. Bulgaria imports potatoes. This means that the subsidies for these producers are not enough. Perhaps Bulgaria will decide to import potatoes at the expense of some other more expensive crop? Is there an agreement on what Bulgaria should prioritize?
R.P.: As you have said, Bulgaria imports potatoes, the market imports potatoes. Maybe there is an excess of potatoes in Europe and member states can export potatoes to Bulgaria at competitive prices, which creates problems for Bulgarian producers. Of course, in 2016 Bulgaria will receive subsidies equal to those of other member states and this will even out the playing field and create an opportunity for better competition. There is something important I should point out – in 2015, when Bulgarian subsidies will reach 90% of those in the EU, we won’t be able to have our own policies. We won’t be able to additionally subsidize stockbreeding, plant growing and potato producing with separate national schemes. This is why it is very important to make a good analysis and submit it to Brussels.
Host: Which means that Bulgaria will subsidize potato producers only with EU funding during the next programme period?
R.P.: Yes. If we assume that 15% of the subsidies will be coupled to production, we will distribute, let’s say, 8.5% to stockbreeders, a certain per cent to rice growers, a certain per cent to the different vegetable and fruit growers…
Host: And, for example, 0.5% to potato producers.

R.P.: Including potato producers.

Host: Could we say, for example, let Poland produce potatoes and we will produce expensive grapes?
R.P.: Right now, we must decide what percentage of our subsidies we want to couple to production and motivate our decision.
Host: This is a very tough decision you have to make next year. It will affect the next 7-8 years.

R.P.: Yes, it’s extremely important. There are some more sensitive sectors that need to be funded.
Host: Let’s get back to the current situation. How much funding has been absorbed by the RDP?

R.P.: I want to say this with a certain amount of modesty – SFA is the biggest paying agency in the country. As of right now, we have absorbed over 2.4 billion EUR. 1.005 billion EUR from the European Agricultural Fund for Rural Development – or 38.6% and 1.4 billion EUR from the European Agricultural Guarantee Fund which finances the direct payments and the market measures. We have absorbed more funds than the other 7 operative programmes taken together. I dare say that SFA is working very well right now with excellent communication with the Ministry.  

Host: How will the Guarantee Fund help secure loans?

R.P.: The Guarantee Fund will secure loans under three measures from Axis 1. These include two of the largest measures – 121 and 123, which support the production and processing of agricultural goods. Beneficiaries with contracted projects can use the Guarantee Fund to secure bank loans. The funds can be used both for advance payments and overall project financing. The Guarantee Fund will complement the already existing programme we developed with 19 banks to refinance RDP projects. This makes us believe the financial resources available to our beneficiaries are enough to help them complete their contracted projects.

Host: Many farmers receive fines because they couldn’t complete all the requirements.
R.P.: Whenever a farmer applies for payment, we perform a full check on the documentation and check if the investment has been completed. When the documents don’t match the investment, we do not pay.

Host: And then these money need to be returned to the EU? Or they can be transferred to other projects?
R.P.: No, the system is completely different. It is part of the analysis for over-contracting that we are doing and will activate by the end of the year.

Host: In a sense, does Bulgaria lose this money because they were not absorbed by that particular project or can we transfer the money to a different project?
R.P.: When a project is completed to a certain extent only, the subsidy is reduced accordingly. There is no direct loss. We analyze the average reductions and try to over-contract, let’s say, an additional 10-15% so that at the end of the year we can absorb 100%. Of course, we can never achieve a full balance.

Host: This week you had an event dedicated to exporting agricultural products with European funding. How can Bulgarian exporters take advantage?

R.P.: The event generated a lot of interest. Export is funded by the EAGF. We introduced the scheme that allows for exporting products. It is a very topical issue right now.

Host: Are we going to export to Qatar?

R.P.: Yes, we expect Bulgarian exports to Qatar. Qatar is an eligible destination for export subsidies from the EAGF.

Host: How does the scheme work? A stockbreeder who wants to export chicken will receive European funding for doing so?

R.P.: Export subsidies are paid for exporting to predetermined countries outside the EU. It is a floating policy defined the EC that is used to subsidize different exports. Exports can open one year and close the next year.
Host: What is the geography? The Arabic world, Africa?

R.P.:  It varies – third countries outside the EU.

Host: So if an exporter wants to qualify for this subsidy, they must first check what products and destinations are subsidized?
R.P.: The EC determines the entire policy in advance.

Host:  The Minister of Education will be my next guest so I would like to ask if the School Fruit Scheme is working fine and if it will be implemented next year as well.

R.P.: It is working well and it will be implemented next year. The interest in it is growing. In the beginning, a lot of schools didn’t want to get involved because the scheme requires some effort but I can tell from the figures of what we have contracted so far this year that the interest is huge. Another programme that works very well is the Charity Programme, which delivers food products to the most deprived. There are about 300 000 people eligible under to benefit from the programme. Last year, the programme worked very well and our budget for this year was doubled . Currently, we have two public procurements for product delivery worth 40 million BGN.
Host: Would you comment on the subject of moving the Ministry of Agriculture to Plovdiv while SFA remains in Sofia?

R.P.: I wouldn’t comment. The main function of any administration is to provide a service. The service must be of high quality and be given on time so that beneficiaries can take advantage of it and not be impeded by it.

Host: So there is no social aspect to it?
R.P.: When you want to move an administration, you must first make sure that the quality of service will not become worse. That is the most important thing. The social aspect requires a different type of analysis, which I cannot make.

Host: Will it be appropriate for the Ministry to be located in Plovdiv while SFA is in Sofia, given your need for communication?

R.P.: We communicate a lot with about half of the departments in the Ministry. The initial plans had these departments staying in Sofia, but I wouldn’t make comments on whether these departments or any other need to move or stay – it is a whole new subject.

Host: OK, thank you Mr. Porozhanov.

R.P.: Thank you.

Host: Rumen Porozhanov – Executive Director of State Fund Agriculture – our guest in Sedmicata.

17 899 635 BGN

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