BULGARIAN TOBACCO SECTOR- PAST, PRESENT AND FUTURE Binnaz Ramadan-Department of European Integration and International Cooperation TOBACCO FUND BULGARIA

BULGARIAN TOBACCO SECTOR - PAST, PRESENT AND FUTURE I. HISTORICAL REVIEW II. BULGARIAN RAW TOBACCO PRODUCTION III. CURRENT LEGISLATION IV. BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE HISTORICAL REVIEW Bulgaria is a traditional producer and exporter of tobacco, predominantly Oriental tobacco The raw tobacco production and its processing have more than 100-years history Up to 1950s – a small scale and extremely parcelled out tobacco production 1976 crop – has reached peak values, achieving the yield of 140 000 tons

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE HISTORICAL REVIEW 1960 – 1989 the average annual tobacco production varies between 78 000 and 145 000 tons 1989 and the following decade – drop and fluctuations in tobacco production. The annual tobacco production is within 35 000-37 000 tons 1995- the production of Oriental leaf drastically drops to the lowest level with 15 000 tons 1995 – 2001- the production varies between 24 851 and 44 395 tons

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 1. VARIETIES Oriental tobacco - 90% is from the group of Basma type Burley (light air-cured) Virginia (flue cured) The ratio of the produced quantities of tobacco between the three varieties is: Oriental with 68% Virginia with 24% Burley with 8%

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 2.TOBACCO PRODUCTION VOLUME FOR 2004, 2005 AND 2006 (FORECAST) CROPS IN TONS TYPE 2004 2005 2006 ORIENTAL 39 983 36 574 29 178 VIRGINIA 14 233 10 466 12 015 BURLEY 4 627 5 055 4 944 TOTAL 58 843 52 095 46 137

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 3. AREA PLANTED WITH TOBACCO FOR 2004, 2005 AND 2006 BY VARIETIES TYPE 2004 2005 2006 ORIENTAL 27 225 ha 27 835 ha 19 259 ha VIRGINIA 7 342 ha 7 954 ha 5 886 ha BURLEY 2 987ha 4 234 ha 2 658 ha TOTAL 37 554 ha 40 023 ha 27 803 ha

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 4. NUMBER OF REGISTERED TOBACCO GROWERS FOR 2004, 2005 AND 2006 TYPE 2004 2005 2006 ORIENTAL 58 712 63 849 44 603 VIRGINIA 127 114 118 BURLEY 2 200 2 236 1 566 TOTAL 61 039 66 199 46 287

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 5. EXPORT OF RAW TOBACCO Bulgaria is a traditional exporter of Oriental tobacco and has gained good positions at the world tobacco markets The Bulgarian tobacco production is export-oriented. More than 70 % of the Oriental tobacco is planned for export The total quantity of exported raw tobacco including other tobaccos, waste and tobacco steams for 2005 amounts to 32 891.3 tons

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION EXPORT OF RAW TOBACCO FOR 2004 AND 2005 ACCORDING TO THE DATA OF CUSTOMS AGENCY TYPE 2004 2005 ORIENTAL 36 439 t 29 270 t VIRGINIA 2 287 t 1 705 t BURLEY 693 t 774 t TOTAL 39 419 t 31 749

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE II. BULGARIAN RAW TOBACCO PRODUCTION 5. IMPORT OF RAW TOBACCO According to the data of Customs Agency the total quantity of imported raw tobacco including other tobaccos, waste and tobacco steams for 2005 amounts to 13 950.7 tones of which: Virginia – 3 630.4 tons Burley – 1 245.8 tons Oriental – 240 tons

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Tobacco production and processing have always been subject to special regulation and support by the government The state management and the control in the field of tobacco and tobacco products is carried out by the Council of Ministers The main legal acts and rules regulating the sector are: Law for the tobacco and tobacco products (LTTP)

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Regulations for the implementation of the law for tobacco and tobacco products Regulation on the terms and conditions for issuing and revocation of permits for industrial processing of tobacco and manufacturing of tobacco products Ordinance for the conditions and the order of recognising organizations of tobacco producers

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION LAW FOR THE TOBACCO AND TOBACCO PRODUCTS Adopted in 1993 Regulates the production, the grading, the buying out, the industrial processing of and the trade with tobacco, the production and the trade with tobacco products Covers the whole chain from production to final realization of tobacco

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION THE LAW FOR TOBACCO AND TOBACCO PRODUCTS COMPRISES DETAILED RULES ON: The quota system for tobacco production Grading of tobacco at buying out Buying out of tobacco Minimum buying out (purchase) prices of tobacco Tobacco producers support mechanism (subsidies for the growers) Tobacco Fund First processing of tobacco

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION QUOTA SYSTEM FOR TOBACCO PRODUCTION Only tobacco growers registered under the LTTP are entitled to produce raw tobacco Every year till December 1 the buyers of tobacco declare at Tobacco Fund the quantities, necessary for contracting and buying out of tobacco for municipalities, types and varieties for the following year Till November 15 of the current year the tobacco producers submit applications at the municipality at the location of production about the quantities of tobacco with types and varieties

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Tobacco Fund summarises the information from the buyers and producers and prepares a proposal to the Minister of Agriculture who upon this proposal every year till January 15 determines with an order the quantities, the regions, the types and varieties for production of tobacco On the basis of the order of the Minister of Agriculture, every year till February, the mayor of the municipality determines with an order for the producers- the quotas for production of tobacco, the areas, the types, the varieties and the quantities for production of tobacco. The order is to be presented at Tobacco Fund

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION A register of the tobacco producers and of the areas for growing tobacco is kept at the municipalities and at Tobacco Fund A certificate is issued to each tobacco producer about registration in which is described the quota allocated to him The tobacco producers registered under the law receive tobacco seeds free of charge The resources for production of tobacco seeds are ensured by Tobacco Fund

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION 2. GRADING OF TOBACCO AT BUYING OUT The grading of tobacco is implemented jointly by the producer and the buyer and according to the minimum quality requirements, co-ordinated with minimum three classes, determined with the regulations for implementation of the law At dispute the grading of tobacco is implemented by state tobacco expert

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III.CURRENT LEGISLATION 3. BUYING OUT OF THE TOBACCO The buying out of tobacco is implemented by persons who have right to carry out first processing of tobacco, received permission by the Council of Ministers The production and purchasing of tobacco is implemented with written (cultivation) contracts between the buyers and the tobacco producers. Contracts cannot be concluded without a certificate for quota The buyers are obliged to buy out the contracted quantities of tobacco up to 20 % of the extra quantities produced from the same area

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The buying out shall be implemented till March 1 of the next year The buyer has to present the contract at Tobacco Fund Every year the buyers have to present to Tobacco Fund information about the bought out quantities of tobacco with types, quality and prices, at which it has been bought Tobacco is to be bought cured, manipulated and packed by the producer The re-sale of cured, manipulated by the producer tobacco is prohibited

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION 4. BUYING OUT PRICES OF TOBACCO Every year upon a proposal by the Minister of agriculture the Council of Ministers determines the minimum buying out prices of the tobacco The proposal of the Minister of Agriculture is prepared by Tobacco Fund The tobacco cannot be purchased lower than the determined minimum buying out prices The minimum prices are applied for tobaccos produced in line with the requirements of the law

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION 5. PREMIUMS FOR THE TOBACCO PRODUCERS Premium may be directly granted to the tobacco producers by Tobacco Fund for regulating the tobacco production Tobacco Fund may grant additional premium to the producers for improvement of the quality of tobacco and for the encouragement of the production of certain types of tobacco Along with the premiums the producers may receive targeted financial aid within the minimum purchasing prices

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The premiums can be granted to the producers only for produced and bought out tobacco The premium for improving the quality of the tobacco is paid only for tobacco first and second class Tobacco Fund proposes to the Council of Ministers for approval the extent, the kind and the conditions for granting of premiums for one kg raw tobacco

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The proposal shall be made for tobacco types in Bulgarian leva for kilogram raw tobacco within the fund approved in the budget of Tobacco Fund The premiums shall be paid after the end of buying out in 60 calendar days after the approving decision of Council of Ministers Tobacco Fund pays the premium directly to the tobacco producers through a bank by: Opening officially for its account to the name of each tobacco producer, who is registered at Tobacco Fund and received quota for production of tobacco, an account in the bank, servicing the respective municipality

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Informing the tobacco producers about the payment of the premium by the mass media and by the municipal administration Closing officially the bank account 60 days after its opening and the resources are restored to Tobacco Fund The bank account of the tobacco producer can be used only for payment of the premium

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Amount of the premium paid per one kg produced and bought out raw tobacco for the period 2003-2005 in euro TYPE 2003 2004 2005 ORIENTAL 1.03 1.11 1.31 VIRGINIA 1.02 1.12 BURLEY 1.15 1.30 1.33

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION Farmer price (including average purchasing price and premium) per kg raw tobacco for 2005 crop in euro TYPE Average Buying out price Average premium Average farmer price ORIENTAL 1.61 1.31 2.92 VIRGINIA 1.43 1.12 2.55 BURLEY 0.93 1.33 2.26

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The amount of the totally paid premium to the producers for produced tobacco for 2005 crop is approximately 60 millions euro The amount of the totally paid targeted financial aid within the minimum purchasing prices per kg raw tobacco for 2005 crop is approximately 20 millions euro

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION 6. TOBACCO FUND Tobacco Fund has been established by virtue of the LTTP at the Ministry of Agriculture as a legal entity for regulating the growing, buying out and trade with tobacco Tobacco Fund carries out its activity in compliance with the law Bodies of the Fund are: 1.The Management Council consists of 11 members and its chairman is the Minister of Agriculture

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The other members are representatives of the Ministry of Finance, Ministry of Economy, Ministry of Labour and Social Policy, Ministry of Regional Development and Public Works, and the Bulgarian National Bank Determines the conditions and the order for management of the resources of the Fund according to the objectives of the LTTP Implements control on the spending of the recourses of the Fund

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION 2. Executive Director Elected by the Management Council of Tobacco Fund Implements the decisions of the Management Council Represents the Fund Organises and manages the activity of the Fund There are 8 Regional Directorates at Tobacco Fund in the main tobacco regions

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE III. CURRENT LEGISLATION The financial recourses of the Fund is collected from: Contributions in extent of 30 % of the value of the excise for the purchased excise bands for tobacco products Fines, confiscation and other sanctions in favour of the State under the Law after deducting all cost incurred Donations, supports, obtained sums and other recourses specified by law or an act of the Council of Ministers

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP On January 1, 2007 Bulgaria joins to the European Union According to the Accession Treaty for Bulgaria and Romania: Direct payments shall be introduced in line with phasing-in schedule: 25%, 30%, 35%...of the then applicable level of such payments in the Community as constituted on 30 April 2004 SAPS (Single Area Payment Scheme) + CNDP (Complementary National Direct Payments) shall be applied in the agriculture

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP SAPS + CNDP – are to be applied until the end of 2009 with the possibility of renewal twice by one year (2009+1+1) SAPS amount = national ceiling/ number of elig.ha (utilised agricultural area) CNDP = complementary payment using national budget and RD funds in accordance with provisions on National Strategy for Agriculture and RD; authorised by the Commission

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV.THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP Eligibility criteria for receiving direct payments under SAPS and CNDPs: The farmer has to submit aid application at the Paying Agency ( Integrated Administration and Control System) Minimum size of eligible area per holding- 1 ha (except for permanent crops and vineyards-0.5 ha) Minimum size of the agricultural parcel- 0.1 ha

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP According to the data of the National register for tobacco growers kept at Tobacco Fund only 5 % of the registered growers (mainly Virginia producers) would be able to meet the requirements for receiving direct payments The Accession Treaty for Bulgaria and Romania lays down the possibility for payment, independently of the CNDPs regime, of state aid in the agriculture after the accession

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP “SUNSET CLAUSE” The provisions regarding the state aid and agriculture after the accession stipulate that” (…) aid schemes and individual aid granted to activities linked to the production, processing or marketing of products listed in Annex I to the EC Treaty (…), put into effect in a new Member State before the date of accession and still applicable after that date, shall be regarded as existing aid within the meaning of Article 88 (1) of the EC Treaty

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP The aid measures shall be communicated to the Commission within four months of the date of accession The communication shall include detailed information about the aid schemes-legal basis, form of the aid, amounts foreseen and duration The aid measures shall be regarded as “existing” aid within the meaning of Article 88 (1) of the EC Treaty until the end of third year from the date of accession- “GRACE PERIOD”

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE IV. THE BULGARIAN TOBACCO SECTOR IN THE TERMS OF EU MEMBERSHIP After decision concerning payment of “existing” aid in tobacco sector, at a governmental level being taken, Bulgaria will communicate to the Commission the aid measures laid down in the LTTP If the Commission approves the communicated aid measures, applied in the tobacco sector in line with the LTTP as “existing” aid, then Bulgaria will be entitled to maintain its national aid to the raw tobacco producers until the end of third year from the date of accession

BULGARIAN TOBACCO SECTOR-PAST, PRESENT AND FUTURE THANK YOU FOR YOUR ATTENTION!