Stayko Staykov: Farmers are an impulse to the land market
More and more macroeconomic signals are alerting the crisis about to approach next
By definition, the fields are preferred asset-asylum
-You recently seised the state and the public about the unfair rules of forced expropriation of farmland. How should the rules be changed?
-The amount of the compensation is very low and does not conform to market conditions. The Bulgarian Association of Agricultural Land Owners (BAALO), represented by me, insists on normative changes that create safeguards for owners of private properties, for determining fair and market-corresponding benefits in cases of forced expropriation of agricultural land and also for the establishment of servitudes on it for state and/or municipal needs.
There are more and more cases of forced expropriation and establishment of servitudes on private land for the construction of national sites. Often this happens in violation of the rights of the owners in terms of determining the amount of compensation due to them.
In the Constitution of the Republic of Bulgaria is written that enforced expropriation of property for state and municipal needs can only take place after a preliminary and equivalent compensation.
The State Property Act (SPA) provides equivalent cash compensation. However, in the general case of compulsory expropriation of whole or parts of agricultural property, no equivalent real estate benefit is offered within the meaning of the law. The lack of justice forces the owners to defend their rights in court.
Another problem is the unjustified long period, which passes between the time of determining the amount of compensation until its actual payment. Often during this period, the current property market has changed, prices have risen and the initially determined compensation becomes inadequate. The private owner’s compensation, respectively, is not sufficient to buy the same amount of agricultural land.
At the heart of the problem are inadequate rules for setting the price levels at which the compensatory benefits are paid.
-Do you have any specific proposal in mind?
-BAALO offers a number of changes related to the actualization and the updating of the prices for compensation of forced expropriation and the establishment of the right of way. We appeal for a minimum compensation price to be set. Assigning land into different categories should be abolished. The leading factor to be considered should be the size of the land. Often land categorizing does not reflect whether the land is consolidated, arable, irrigated, and last but not least, it doesn’t specify the yields obtained from it.
It will only be fair to the owners of agricultural land, who have to go through forced land expropriation, for their costs related to the procedures and the provision of the necessary documents, to be covered by the institutions, which in no doubt can obtain them on their own with no further cost to the landowner. There are cases in which the administrative costs of the owners of expropriated land properties exceed the amount of the compensation received by the state.
BAALO demands that the start of any construction and/or preparatory activities related to the establishment of rights of way of a given land, is initiated only after harvesting is completed. In this way, the damage incurred to owners and tenants can be minimized.
-Fragmented agricultural land continues to be a big problem. What is the way to solve the problem? Is there a chance to draft a specific law for land consolidation?
-The intentions in that respect, in the past year, are to gather all regulations regarding agricultural land, into a new unified and comprehensive legislation. The lack of a specialized law for agricultural land consolidation does not allow for the enlargement of ownership and to developing modern agriculture.
The problem is that the general public does not understand the meaning of the term “commassation”. It originates from Latin word “commassatio”, which in Bulgarian is translated as grouping. Commassation or consolidation (in English), is a systematic approach to agricultural land aimed at defining the rightful owners of the land, redesign the land, restore and construct infrastructure, irrigation, drainage, enlarge the plots, implement environmental measures, etc. The ultimate goal (besides higher productivity at lower cost) is to achieve a combination of private and societal benefits.
By improving the agrarian structure (of a municipal land or any land plot), the social viability of the agricultural region is developed and supported. The development of rural areas bringing (improving their standard to that of the urban one), is stimulated.
Conditions for opening new jobs are created. Last but not least, is also important for the development of competitive and profitable agriculture.
This is also the main cause that at the primary market, property has changed only 15-20% of the total Agricultural Land Fund in Bulgaria (arable and undeveloped agricultural land, pastures and meadows), which is approximately 55 million acres and approximately 25-30% of the arable land, which is nearly 36 million acres.
For the last 30 years, only 6 commassation projects have been successfully completed under BAALO initiative and financed by private funds.
At present, BAALO has fifteen ongoing procedures for consolidation of agricultural lands in the following municipalities: Strajitsa, Sredets, Borovo, Letnitsa. Elhovo, Gulyantsi, Kaspichan, Pleven, Lovech, Gorna Oryahovitsa, Suhindol and Ugarchin. So far 100 000 acres have been declared for participation in the process, but there is a potential interest from other participants as well. Maps are being drawn for these territories regarding the current state of the land there: soils, climate, nature, roads, industry, as well as the areas that need to be consolidated. Maps outlining future plans for reconstructions, protection of the environment, etc. are also drafted.
Additional challenges for the industry are the lack of investments in irrigation facilities (watering, drainage and prevention).
There are no working solutions for protection from hail, for insuring of agricultural production, for prevention against erosion, etc. Bulgaria has lost a lot of time and our lagging behind regarding the above has deepened even further. For years, these problems have been neglected, which led to the impossibility of Bulgarian farmers to be competitive.
All these problems in the agricultural sector and the use of agricultural land, have logically affected the price of farmland as well.
-Why is the land-use consolidation no longer effective?
-In recent years, in Bulgaria, land consolidation is only performed on tenancy and temporary land use terms (the so called “white spots”).
This is one of the reasons why there is actually no real consolidation of agricultural land. The specific law giving similar rights to redistributing land for administrative use is contrary to the Constitution, which protects the privacy and integrity of private property.
This mechanism was adopted ten years ago as a temporary measure under different from today’s circumstances. The owner was obliged to submit an explicit written declaration every year until 31 July, whether he would work his land.
Failure to submit this statement practically deprives the owner of all the principal attributes of the right to property. Ultimately, a third party is accommodated within his ownership without his knowledge and/or consent. Nevertheless, these persons have a number of rights, including declaring the property officially and receiving EU subsidies and national surcharges. The only obligation for this user of someone else’s land is to pay the average rent for the land and transfer the amount to an account for foreign funds of the respective regional Directorate “Agriculture”, which is then kept for a 10-year period. Again, the whole procedure is performed with disregard of the rights of the actual owner.
The problem is the administration of these funds and especially the control of their payment. The fact that these directorates have no obligation to inform the rightful owners about the availability of funds to be received by them, is also quite perplexing.
We are witnessing a number of cases in which users are deliberately prevented from concluding contracts of use (rent or lease) of agricultural land. It would not have been possible for this to happen without the above -discussed mechanism specifying agreements of use of agricultural land. They provide the legal basis for establishing reputed ownership of someone else’s land and these mechanisms also allow to obtain subsidies without the rightful owner’s explicit agreement statement.
This long-term practice violates the rights and harms more than 3.5 million owners of agricultural land and their successors. What’s more, it severs the historical relationship between the Bulgarian and his land. The result is a permanent tendency for depopulation of Bulgarian villages.
The official redistribution of the so-called “white spots” (consolidation based on tenancy use), in combination with extremely fragmented properties, are one of the main reasons for the owners of approximately 2 million acres (almost 6% out of the total of 36 million acres of arable land), to not wish to care about their land.
-How has the agricultural land market transformed over the past years and what is the configuration of the current players?
-In recent years, a tendency to exiting the market from speculative and partially of foreign capitals, has been noted.
With the expansion of land relations the secondary market of agricultural land is developing. It will become more and more important.
-What is the role of farmers in the land market?
-An impulse for the market is the growing role of farmers, who developed their farms and who now enjoy financial stability, and are convinced of the advantages of handling their own land.
Through practice, they realised that in developing conventional agriculture (Bulgaria and Bulgarian farmers have been assigned to develop the most undesirable and unprofitable type of farming within the EU), they should seek security and predictability.
For southern Bulgaria, the crops we can call conventional or typical, are grown for a period of between 6 and 10 months, after which they are harvested and then sold.
The main crop among them is the wheat. Rapeseed crops in recent years have been problematic. The other one is the sunflower. Recently, however, its price is very low. Next comes the coriander, which is not a stock commodity. We also know about the very popular chickpeas, but popular only as a seeding culture and not in terms of its sale results. There is no market for chickpeas right now.
In northern Bulgaria, we must first mention one of the major crops grown there- the corn, which comes second after wheat. Not that in southern Bulgaria there is no corn grown, but it takes up symbolically small plots of land where irrigation facilities are meager. The rapeseed and the sunflower are the next two conventional crops for Northern Bulgaria. There, the yields are significantly better because the climate is much more favorable, including the quantity of rainfall. Another factor is the soil and it is normal to have better yields.
– What are the current year’s prices and annuities by region? What’s the trend?
-Agricultural land is a finite resource. The trend for an increased demand for agricultural land on a global scale will be kept.
The population of the Earth continues to increase, it already comes to more than 7 billion people. This leads to an increased demand for food. In the developing giant countries in the East, together with the improvement in their standard of living, there is also a change in their eating habits. The increased use of animal products leads to an increased demand for animal feed. Environmental policies, in particular the requirement to produce bio fuels, increase the demand for specific agricultural raw materials, etc.
Against this background, Bulgaria cannot be radically different from the global trends. Agricultural land enjoys a permanent interest. In 2019, the market was competitive. We observe a growth in prices of nearly 7%. Selling is limited. We can say that the market is dictated by the sellers. In renting and leasing agricultural land, the picture is slightly different. An upwards tendency is also noted, but a smaller one.
Assuming that global recessions (crises) are cyclical in nature, we are seeing more and more macroeconomic signals that alert to the approaching of the next one.
By definition, agricultural land is a preferred asset-refuge. It has low correlation in comparison to traditional asset investment classes and possesses high yield at limited risk. The price is influenced by political risks and economic cycles only to a smaller extent. At some point, I expect capital from other sectors of the economy to be redirected towards more secure investment alternatives, respectively agricultural lands. This will of course be reflected in both the price of the asset and the volumes traded and the levels of the money payments.
-Why are more and more foreigners, who have invested in agricultural land in Bulgaria, are now selling their land and leaving?
-It’s a perfectly normal business cycle and logic. This process applies not only to foreign investors, but also to Bulgarian ones.
Most of those who have invested in agricultural land, have done so under different economic conditions and at a much lower price than the current one at the moment. By deciding to sell the asset, assuming they had it for around 10 years, they made a profit between 200 and 250% for the period of the possession.
-What happens to the initiative for creating a National Chamber of Agriculture and a National Agricultural Land Bank?
-Personally, and also in my position of a chairman of BAALO, I still keep dreaming about these two initiatives to be realised.
I would like to thank all my colleagues from BAALO for their support, together in the past ten years, we have been fighting for Bulgaria to have a united agricultural community. A united community that will be the face of the agricultural industry, to represent the community to the executive, legislative and local government, and also to the partners abroad-the European Parliament (EP), the European Council (Consilium) and the European Commission (EC).
The National Chamber of Agriculture is not a panacea though. But it is the only chance for the future of our agriculture. On the basis of maximum participation, united and forgetting our differences, we should strive to make Bulgarian farmer and owner equal and competitive to his European counterparts. We should also aim at developing modern forms of agriculture based on the latest scientific achievements. Let’s also develop the rural municipalities. Let’s get them closer to the urban standard. We have to offer decent jobs and decent pay to people in those areas. Let’s provide them with alternatives different to Terminal 2 or migration to the city.
After attending all the meetings, I am optimistic. The Ministry of Agriculture, Food and Forestry supports the cause. We are preparing an official workshop with some of the landmark NGOs from the agricultural industry. If we are successful, the creation of a National Chamber of Agriculture from a pipe dream will turn into a reality. The creation of a National Agricultural Land Bank (NALB) is one of the so-called “whales” or a pillar, around which modern relations in agricultural land use, competitive and profitable agriculture will be developed further.
The logic behind the Agricultural Land Bank is for this institution to be an active participant in the processes of establishment and maintenance of consolidated agricultural territories and for the effective management of farmland in attracting investments in agricultural sectors. It will help to implement the country’s agricultural policy for sustainable development of agricultural land relations, activation of the agricultural land market, etc.