PRIVATIZATION OF AGRICULTURE IN NEW MARKET ECONOMIES: LESSONS FROM BULGARIA

NATURAL RESOURCE MANAGEMENT AND POLICY

Editors:

Ariel Dinar Agricultural and Natural Resources Dept. The World Bank 1818 H Street, NW Washington, DC 20433

EDITORIAL STATEMENT

David Zilbennan Dept. of Agricultural and Resource Economics Univ. of California, Berkeley Berkeley, CA 94720

There is a growing awareness to the role that natural resources such as water, land, forests and environmental amenities play in our lives. There are many competing uses for natural resources, and society is challenged to manage them for improving social well being. Furthermore, there may be dire consequences to natural resources mismanagement. Renewable resources such as water, land and the environment are linked, and decisions made with regard to one may affect the others. Policy and management of natural resources now require interdisciplinary approach including natural and social sciences to correctly address our society preferences.

This series provides a collection of works containing most recent findings on economics, management and policy of renewable biological resources such as water, land, crop protection, sustainable agriculture, technology, and environmental health. It incorporates modem thinking and techniques of economics and management. Books in this series will incorporate knowledge and models of natural phenomena with economics and managerial decision frameworks to assess alternative options for managing natural resources and environment.

The transition of Eastern European countries from central-planned to market­oriented economies has significant importance to the agricultural and natural resources sectors. This book is a comprehensive study of such transition in Bulgaria. It provides new insights on the phenomena in general. It also demonstrates the usefulness of new methodologies and concepts of environmental and resource economics in the process of developing efficient and sound policies and institutions in Eastern Europe.

The Series Editors Recently Published Books in the Series

Wilhite, Donald A.: Drought Assessment, Management, and Planning: Theory and Case Studies Spubler, Nicolas and Sabbaghi, Asghar: Economics of Water Resources: From Regulation to Privatization Hueth, Darrell L. and Furtan, William H.: Economics of Agricultural Crop Insurance: Theory and Evidence Gowdy, John: Coevolutionary Economics: The Economy, Society and the Environment

PRIVATIZATION OF AGRICULTURE IN NEW MARKET ECONOMIES: LESSONS FROM BULGARIA

edited by

Andrew Schmitz University of California, Berkeley

Kirby Moulton University of California, Berkeley

AlIan Buckwell University of London, Wye College

Sofia Davidova Research Institute of Agricultural Economics, Sofia

Springer Science+Business Media, LLC

Library of Congress Cataloging-in-Publication Data Privatization of agriculture in new market economies : lessons from

Bulgaria / edited by Andrew Schmitz ... [et al.]. p. cm. -- (Natural resource management and policy)

Includes index. ISBN 978-94-010-4608-4 ISBN 978-94-011-1388-5 (eBook) DOI 10.1007/978-94-011-1388-5 1. Agriculture--Economic aspects--Bulgaria. 2. Privatization­

-Bulgaria. 3. Bulgaria--Economic policy--1989- I. Schmitz, Andrew. II. Series. HD2042.P68 1994 338.1'84977--dc20 94-33091

CIP

Copyright © 1994 Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1994 Softcover reprint ofthe hardcover 1 st edition 1994 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC.

Printed on acid-free paper.

Contents

Contributing Authors Preface Acronyms

1 Agriculture Reform S. Davidova and A. Buckwell

2 Agriculture: Diversification and Productivity N. Cochrane, A. Schmitz, and S. Bojnec

3 Land Reform: How Will the Future Look? A. Buckwell, S. Davidova, and R. Trendafilov

4 Land Markets and Tenure S. Bishop, K. Howe, D. Kopeva, and P. Mishev

5 Disruption and Continuity in Bulgaria's Agrarian Reform R. Lyons, G. Rausser, and L. Simon

6 Political Economy of Reform in Bulgarian Agriculture J. Swinnen

7 Food Consumption During Economic Transformation A. Buckwell, J. Davis, K. Balcombe, and S. Davidova

8 Agriculture and the Environment D. Zilberman, N. Naidenov, and F. Castillo

9 Price Policies During Transformation A. Buckwell, N. Ivanova, and S. Davidova

vii xiii xv

1

23

55

75

87

119

149

169

187

VI

10 Agricultural Trade: Post-Reform Challenges S. Davidova, S. Tangermann, and A. Tosheva

11 The Grain Sector: Wheat is King R. Meekhof, A. Schmitz, and I. Penov

12 Wine and the Politics of Survival K. Moulton, A. Simova, and N. Young

13 The Cotton Industry in Decay A. Schmitz, K. Moulton, R. Trendafilov, and J. Slavova

14 Liquidation Committees, Land Commission and No Fruit K. Moulton, A. Schmitz, and A. Simova

15

213

235

263

283

313

Improving Markets and Marketing 335 P. Mishev, M. Mihaylova, N. Young, D. Hughes, and S. Hamm

16 Developing Human Capital A. Alexiev, S.C. Schmidt, and C. Rust

17 Credit for Agriculture During the Transition S. Petranov and K. Roussinov

18 Credit Subsidies to Support Agriculture L. Karp and S. Stefanou

19 Agricultural Transformation: An Overview K. Moulton, A. Schmitz, A. Buckwell, and R. Trendafilov

Index

357

375

403

419

429

Contributing Authors

This book has involved the collaborative efforts of 38 authors and numerous others who are acknowledged in the individual chapters. The authors are listed in alphabetical order.

Alexi Alexiev A graduate of the University of National and World Economy, Sofia, Alexi Alexiev is a Lecturer in Agricultural Economics and Trade in the Department of Agricultural Economics at the Agrarian University in Plovdiv. Although his research focuses on structural changes and income stability, he has a particular concern in developing an effective curriculum in agricultural economics for Bulgaria.

Kelvin Balcombe Kelvin Balcombe is a Lecturer in the Department of Agricultural Economics, Wye College, University of London. His principal research interests are in the area of the econometric analysis of time series data.

Craig Bishop Craig Bishop is a research student in the Agricultural Economics Unit, Department of Economics, University of Exeter, UK. He is working on the economics of land markets and tenure in Central and Eastern Europe.

Stephan Bojnec Dr. Bojnec has been a Research Economist in the Department of Agricultural and Resource Economics, University of California Berkeley. He has published extensively on agricultural policy, commodity systems, and economic growth.

Allan Buckwell Professor Buckwell holds the Chair in Agricultural Economics, University of London (Wye College) and is Director of the Agricultural Policy Analysis Programme for the EC PHARE Project in Bulgaria. His main research interests are analyzing the impacts of government policy on agriculture and on the economic and structural impacts of technical change in agriculture.

Frederico Castillo Mr. Castillo is a research assistant and graduate student in the Department of Agricultural and Resource Economics, University of California, Berkeley. His research interests include water and pesticide economics as well as development economics.

viii

Nancy Cochrane Dr. Cochrane is an Agricultural Economist with the Economic Research Service of the U.S. Department of Agriculture. For over 10 years she has been responsible for analysis of agriculture in Eastern European countries, including Bulgaria.

Sofia Davidova Dr. Davidova is a Senior Researcher in the Research Institute of Agricultural Economics, Sofia. Currently she is worldng with the Agricultural Policy Analysis Unit in the Ministry of Agriculture.

Junior Davis Mr. Davis is a Ph.D. candidate (1994) in the Department of Agricultural Economics at Wye College and currently is a Research Associate in the Department of Economics of Harriet Watt University, Edinburgh. His Ph.D. thesis is entitled, "Food Consumption Adjustments During Transition From a Centrally Planned Economy."

Shannon Hamm Ms. Hamm is an Agricultural Economist for the Economic Research Service of the U.S. Department of Agriculture, a position that she has held for the past 10 years. She is an expert in the structure of fruit and vegetable industries and is currently assigned as an advisor to Bulgaria in the establishment of a fruit and vegetable situation and outlook reporting system.

Keith Howe Dr. Howe is Senior Lecturer in the Agricultural Economics Unit, Department of Economics, University of Exeter, UK. His research interests include the economics of land reform and food industry transition in Central and Eastern Europe.

David Hughes David Hughes is Sainsbury Professor of Agribusiness, Management and Marketing, Wye College, University of London. His research activities center on marlc.et opportunities for non-traditional agricultural and food products, agricultural marketing policy development in various developing economies and long term food industry training needs in Eastern Europe.

Nedka Ivanova Dr. Ivanova is a Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture and the Research Institute of Agricultural Economics, Sofia Her main areas of interest are agricultural policy and economic modeling.

ix

Larry Karp Larry Karp is Associate Professor in the Department of Agricultural and Resource Economics, University of California, Berkeley. His theoretical and empirical research interests center on trade, environmental, and agricultural policy.

Diana llieva Kopeva Ms. Kopeva is a Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture and a post-graduate student in the University of National and World Economy. Her main areas of work relate to land issues, including reform, taxation, markets, and tenure.

Robert Lyons Mr. Lyons is a graduate student researcher in the Department of Agricultural and Resource Economics, University of California, Berkeley. His research interests include the modeling of political economic systems in agriculture and related sectors.

Ronald Meekhof Dr. Meekhof is an Agricultural Economist with the Economic Research Service, U.S. Department of Agriculture and serves currently as policy advisor to the Bulgarian Ministry of Agriculture. He has specialized in analyzing the economic condition of agriculture in Eastern Europe for several years.

Margarita Mihaylova Dr. Mihaylova is a Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture and the Research Institute of Agricultural Economics, Sofia. Her work concerns the food economy and food marketing.

Plamen Mishev Dr. Mishev is a Senior Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture and an Associate Professor in the Department of Agribusiness, University of National and World Economy, Sofia. His main interests are agricultural and food marketing, agricultural policy, and land economics.

x

Kirby Moulton Dr. Moulton is an Economist in the Department of Agricultural and Resource Economics, University of California, Berkeley with responsibilities for research and extension programs. His research focus is on assessing global competition in agricultural products, evaluating the impacts of agricultural and trade policy, and improving enterprise management.

Naiden Naidenov Dr. Naidenov is Associate Professor, Department of Agribusiness, University of National and World Economy, Sofia. His work focuses on the relationship between agriculture and the environment.

Ivan Penov Mr. Penov is a Senior Assistant at the Department of Agricultural Economics, University of Agriculture, Plovdiv. He teaches agricultural economics and trade and has researched problems of agricultural pollution.

Stephan Petranov Dr. Petranov is Senior Researcher at the Agricultural Policy Analysis Unit, Ministry of Agriculture, Sofia, and has held a position at the Institute of Economics of the Bulgarian Academy of Sciences. His research interests include macroeconomics, economic modeling and agricultural finance.

Gordon Rausser Professor Rausser is the Robert Gordon Sproul and Class of 1934 Distinguished Professor of Agricultural and Resource Economics, University of California, Berkeley. His research interests focus on public policy in food and agriculture, and in natural resource systems and economic forecasting in food and commodity systems.

Kyril Roussinov Mr. Roussinov is a Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture and the Research Institute of Agricultural Economics, Sofia. His main topics of interest are agricultural credit and fmance.

Xl

Charles Rust Dr. Rust is Professor and Cooperative Extension Economist at Montana State University. He has specialized for over 25 years in marketing and trade analysis with a particular emphasis on cereal crops and livestock and currently serves as a consultant for the Bulgarian project of the USDA.

Steven Schmidt Professor Schmidt is an emeritus professor of marketing and policy in the Department of Agricultural Economics at the University of Illinois. He has written and taught extensively in the field of international agricultural trade, and was a 1993 Fulbright fellow at the agricultural university in Plovdiv where he taught courses in trade and marketing.

Andrew Schmitz Professor Schmitz holds the Robinson Chair in Agricultural Economics and has been a member of the Department of Agricultural and Resource Economics, University of California, Berkeley since 1968. He has done considerable theoretical work on the international economics of trade and other aspects of agriculture, and has also empirically documented various aspects of trade, including gains from trade and environmental impacts from different trading regimes.

Leo Simon Dr. Simon is Visiting Research Economist, Department of Agricultural and Resource Economics at the University of California, Berkeley. His research activities span a number of areas, ranging from formal economic theory to political economy to Eastern European studies.

Antoaneta Simova Dr. Simova is a Senior Researcher in the Agricultural Policy Analysis Unit of the Ministry of Agriculture and the Research Institute of Agricultural Economics, Sofia. Her research concerns food marketing, agricultural exports, and agribusiness management.

Janka Slavova Ms. Slavova is a Senior Researcher in the Research Institute for Agricultural Economics, Sofia. Her principal area of work relates to commodity analysis, including a specialization in cotton.

xii

Spiro Stefanou Dr. Stefanou is Associate Professor in the Department of Agricultural Economics and Rural Sociology, Pennsylvania State University. His research work focuses on agricultural policy in Eastern Europe and the econometrics of adjustment costs.

Jo Swinnen Dr. Jo Swinnen is an agricultural economist at the Leuven Institute of Central and Eastern European Studies (LICOS) in Belgium. His research focuses on the political economy of agricultural policies in Eastern and Central Europe, and on studying the impact of political and civil institutions on agricultural protection and government investment in agriculture.

Stefan Tangermann Professor Tangermann holds a Chair in Agricultural Economics at the Institute of Agricultural Economics, University of Gottingen, Germany. He is an internationally recognized expert in the analysis of agricultural policy, and has written extensively about the impact of policy decisions in Western and Eastern Europe.

Andriana Sukova Tosheva Ms. Tosheva is a Junior Researcher in the Agricultural Policy Analysis Unit, Ministry of Agriculture, Sofia. She is studying the problems of current integration processes and their impact on agriculture.

Ranguel Trendafilov Professor Trendafllov is Director of the Research Institute of Agricultural Economics, Sofia. His research has centered on agricultural production efficiency, agricultural export efficiency, and more recently farm marketing and management.

Nick Young Nick Young is Managing Director of CEAS Consultants Limited which specializes in the analysis of food and agricultural markets and policy. He has been intensively involved in research on agricultural transition in Bulgaria, Hungary, Poland, the Ukraine, and the Slovak Republic.

David Zilberman Professor Zilberman has been a faculty member of the Department of Agricultural and Resource Economics, University of California, Berkeley for over 20 years. His research interests include the effect of agricultural policies on the structure of agriculture, the economics of technological change, and the design of regional environmental policies.

Preface

The idea for this book began in Sofia, Bulgaria in September, 1992 when we met to plot a course for our University Affiliations project which had been recently funded by the U.S. Infonnation Agency. We believed that worldng on the book would provide valuable learning experiences for all the cooperators, and that the book itself would make a useful contribution to understanding the economic transition process and its policy implications. We recognized that a project of this nature would require the skills and knowledge of many people. To those 34 additional contributors to this volume, and to the many other friends, colleagues, and experts who gave generous advice, we give our sincerest thanks.

We also acknowledge with thanks the support of several organizations that transfonned this book from an idea to a reality. Much of the research reported here was a major part of an educational project funded by the University Affiliations Program of the U.S. Information Agency. The project linked the University of California, Berkeley, Wye College of London University, and the Research Institute of Agricultural Economics, Sofia, in a cooperative effort to improve the quality of policy analysis. The research provided hands-on experience necessary for effective teaching in this area.

The European Union's PHARE program cooperated through support of many of the (west and east) European authors while the research was in progress. The purpose of the PHARE support was to develop capability in analysis of policy issues in the agricultural sector. The interaction of the USIA and PHARE-funded effort was mutually beneficial to all those concerned.

The Centre for European Agricultural Studies, Wye College, provided a grant to cover a major part of the editing expenses. Other needed support was received from the Kingman Foundation, the Farm Foundation, the College of Natural Resources at the University of California, Berkeley, and the Division of Agriculture and Natural Resource of the University of California.

Of course, more than authors, advisors, and financiers are needed to make a book successful. We give our wann gratitude to Carole Schmitz for her intelligent and persistent editing; to Geralyn Unterberg, Carol Stone, and Mary Graham for long hours of manuscript preparation and proofreading; and to Sheila Watson for inputting all tables, producing all graphics, and fonnatting this manuscript.

Andrew Schmitz Kirby Moulton

Allan Buckwell Sofia Davidova

Acronym

1946 Law ACC AIC AMIS

Acronyms

Meaning

1946 Labor Land Ownership Law Agricultural Credit Center Agricultural Industrial Complex Agricultural Market Information Systems and Statistics Project

AOC Appellation d'origin controllee A WP Association of Wine Producers BANU Bulgarian Agrarian National Union BCP Bulgarian Communist Party BNB Bulgarian National Bank BSDP Bulgarian Socialist Democratic Party BSP Bulgarian Socialist Party CAP Common Agricultural Policy CECs Central European Countries CEECs Central and Eastern European countries CEFf A Central European Free Trade Agreement CIS Commonwealth of Independent States CMEA Council for Mutual Economic Cooperation COMECON Bulgarian wine consortium CRI Cotton Research Institute CSE Consumer Subsidy Equivalent CTR Hypothetical "center" political party DEC Decoupled technology EC Agreement European Community Agreement with Bulgaria EC European Community ECU European Community Unit EE3 Hungary, Poland, and the former Czechoslovakia EEC Eastern European Countries EFf A European Free Trade Agreement F AO Food and Agriculture Organization FRS Fruit Research Station FSU Former Soviet Union GDP Gross Domestic Product GNP Gross National Product GSP General System of Preferences lAC Industrial Agricultural Complex IMF International Monetary Fund IPM Integrated Pest Management lREX International Research and Exchange Board LALOLU Law for Agricultural Land Ownership and Land Use

XVI

LC LFA MBF MFN MLC MRF NAFfA NMP NPC NSI OECD

PET PHARE

PIA PIM PSE RC TBS TKZS UDF VIS WSI

Liquidation Council Law for Financing Agriculture Mutual Benefit Fund Most-Favored Nation Municipal Land Council Movement for Rights and Freedoms North American Free Trade Agreement Net Material Product Nominal Protection Coefficients National Statistics Institute Organization for Economic Cooperation and Development Political-Economic Technology Poland and Hungary Action for Restructuring of the Economy (later extended to other CEECs) Program for Immediate Action Power is Money Technology Producer Subsidy Equivalent Reform Council Territory Belonging to a Settlement Bulgarian State Cooperative Union of Democratic Forces Visibility Technology Wheat and Sunflower Institute