In the last ten years, the share of the agricultural sector in GDP has decreased by five times, despite the sustained growth of the Bulgarian economy. This development is surprising given the active support to sector.

Forms of supports to agricultural producers in the period 2001-2007 consist mainly of tax relief and subsidies totaling over 2.5 billion leva.

In the period 2001-2007 agricultural producers have not paid taxes amounting to 779 million leva as a consequence of preferential tax policy including income tax, corporate tax, and excise taxes.

Apart from preferential tax policy, in the period 2001-2007 agricultural producers received a total of 1.750 billion leva in subsidies, with a very strong concentration of the funding towards specific producers. Data regarding funds received pursuant the Single Area Payment Scheme for 2007 clearly show that 80% of the subsidies have been paid to less than 7% of farmers (or 5,000 beneficiaries) and the remaining 70,000 beneficiaries have received less than 20% of the total funding.

The research paper clearly shows that only about 2% of the agricultural producers have declared high income and receive the overwhelming majority of all funding. The rest, i.e. the majority of farmers, do not declare all their income and/or receive additional income, and at the same time receive minimal funding - be it from the national budget or the EU.

The constant interventions in the agrarian sector do not bring about the desired results. The engine of progress in every sector is the people, who, following their self-interest, are willing to take the risk to invest and develop their business. The behavior of these people is defined by incentives, which are greatly distorted in the case of agriculture. Agricultural producers are no longer focused on the customers (consumers) but rather on the government. The incentives are no longer aimed at creating wealth but rather at redistributing most of it towards some interest groups.

In practice, subsidies create a vicious circle of inefficient activity. Agricultural workers are much more than those who receive subsidies. Some of them will have to exit the sector in time as it has to be more effective. The presence of subsidies, financing inefficient producers will slow down this process at the cost of millions of leva and will postpone needed reforms.

The analysis of agricultural support in Bulgaria leads to the following conclusions:

• Agriculture has declined significantly, as measured by its share in GDP and GVA - by more than two times
• State help in the form of subsidies and tax relief increase by almost four times
• The agricultural sector does not develop and slows down the whole economy
• Agricultural producers are no longer focused on the customers but on the government
• Distorted incentives harm everyone - producers, consumers, third-parties and the state

Therefore agricultural reforms are highly needed. Bulgarian agriculture need a change, which would enable producers to make their own decisions (regarding quantity, price, etc.) based on market signals; so that their income depends solely on their customers and not on the state, respectively the taxpayers.

Based on economic logic and good international practice, the following measures for improvement of the agrarian sector in Bulgaria are recommended:

• Abolish tax relief - direct taxes are of the lowest in Europe and therefore an immediate removal of all tax relief is necessary
• Stop state budget subsidies - EU-level agricultural support will reach its peak in the coming years anyway
• Improve the business environment - entrepreneurship and efficiency in all sectors will increase
• Stop market interventions - state interventions are more of a obstacle than a solution to any problem
• Decrease bureaucracy
• Abolish all subsidies in the medium-run - subsidies have a marked negative effect on citizens, the state budget and agricultural producers through unrealistic prices, distorted incentives and decreased productivity.

The research is available here (ENG)