Price of 6-8 euros per kg. cheese - is it possible? Simeon Karakolev to FACTI

Bulgarian consumers pay too high a price for basic food products, while producers often work at the edge of profitability. Do excessive markups in the retail chain distort the market, and can Bulgarian farmers offer quality dairy products at significantly more affordable prices. What is the solution… Simeon Karakolev, co-chairman of the National Sheep and Goat Breeding Association, speaks to FACTI.

- Mr. Karakolev, what do you think is a fair price, what kind of request did we hear from the government? And who in a pricing chain must lose so that the end customer can win?
- I look at the fair price in two directions. First - the price at which the specific food or production starts. In order for a product to become food, someone has to produce the raw material. In this case, what we observe is a lack of a fair price for the one who produces the respective product. At the same time, we see an excessively burdened markup towards the last link - the consumer. Why do I call it fair? Because a fair price would be one that satisfies both parties. Currently, both the producer and the end consumer participate in the chain not with satisfaction from the transaction, but out of compulsion. That's how I read it.

- You claim that the difference between the purchase price of the raw material and the final price in the store is often huge. Where do you think the biggest markups accumulate - at the processors, traders or throughout the chain?
- I can categorically say that it is not throughout the chain, because we observe an asymmetry in markups. In the first link - the producer of the raw material - If we talk about cheese, the milk producer is subsidized by the state so that it does not go bankrupt. There is no markup for it. It often sells at a loss. At the other end - in the retail chain - we observe markups of 60-70%, and sometimes even 100% on the respective product. We are already waiting for the competent authorities to decide what part of these markups represent unfair trade practices.

- You expected an effect from the markup law. Do you already see a decrease in prices?
- In my opinion, this is not a short-term instrument. This is an instrument that clears the field for a fair competition. Ultimately, the Bulgarian producer is placed in uncompetitive conditions compared to the foreign one. If we talk about cheese, it is presented differently to consumers, which distorts its competitiveness. On the other hand, the Bulgarian consumer does not deserve to buy such an expensive product, because the product itself does not cost that much. Bulgarian cheese does not cost 12 euros per kilogram, as we see in most retail chains. The Bulgarian consumer is forced to pay similar prices.

- What do you think should be the normal price of one kilogram of cow's milk cheese for the end consumer?
- There was a sheep farmers' meeting recently and we had a stand - I'm talking about our cooperative, which is the largest, because it includes over 350 livestock breeders. We set up a cooperative stand where we offered the end consumer cow's milk cheese made from Bulgarian milk at a price of 6 euros per kilogram, and sheep's milk cheese made from Bulgarian sheep's milk at a price of 8 euros per kilogram. In my opinion, these should be the prices at which Bulgarian consumers can buy quality Bulgarian food.

- And why have we not been able to find a balance for so many years, so that the end consumer can get produce at a normal price?
- Because this market defect that we are currently observing is due to years of underestimation of short supply chains. Short supply chains are a tool that works throughout Europe. This is the way in which the path between the producer and the consumer is shortened. Farmers and cooperatives, especially cooperatives, are encouraged to build their own store network in which to sell quality produce at an affordable price. This has been underestimated for years. This is how this market defect that we are currently observing is created.

- Are you already negotiating with large retail chains as a cooperative or does each farmer continue to struggle on his own to market his produce?
- We have already started negotiating as a cooperative, but I can say that our ambition is to build our own store network in which to offer this produce throughout the country. I repeat - we offer cow's cheese for 6 euros per kilogram and sheep's cheese for 8 euros per kilogram. This is our ambition and our plan. We will start building this store network very soon.

- Why hasn't this happened before?
- The reason is that we still do not have a law on cooperatives. There are many administrative obstacles. So far, there have also been problems with lending. No one wants to finance such projects because they are relatively new in our economy, especially in the last 30 years in agriculture. On the other hand, the cooperative has its own specifics.

- What needs to change in order for such an initiative to be launched?
- Partial legislative changes are needed to subjectify cooperatives in Bulgarian legislation. Then, guarantee instruments are needed, such as those that already exist. We already have bank guarantees that cover up to 80% of cooperative projects. But there must also be lending for working capital to support their activities. This is how all cooperatives in Europe started. Subsequently, many of them also became owners of banks. A cooperative owns a bank called “Société Générale“, a cooperative of livestock breeders owns “Raiffeisenbank“.

- I understand that you are posing a serious challenge to the large retail chains. Is this the path that Bulgarian livestock breeding should take?
- This is the path that Bulgarian livestock breeding will take. For a large part of the sectors in agriculture, cooperation is the only possible path to create lasting sustainability.

- Can the cooperative you are creating and the development of your own store network guarantee sufficient production for the end customer all year round?
- I am sure that we can maintain product security all year round. I am aware of consumption. I know what the consumption of cow and sheep cheese is, I know what the capabilities of people involved in this sector are. Maybe at first we will not be able to satisfy Bulgarian consumption 100%, but over time it will happen. But I am sure that Bulgarian producers can cover to a very large extent the consumption of cheese from Bulgarian milk right from the beginning.

- Many countries around us rely on serious state subsidies. How does this issue stand in Bulgaria? How does the state support a livestock farmer?
- For example, in Greece there are serious subsidies, but I can say that in Bulgaria the subsidies in livestock farming, if we talk about direct payments, are above the average European level. The big problems of Bulgarian livestock farmers are two. On the one hand, there is not enough land. A large part of the payments under the EU Common Agricultural Policy go through the land, and the Bulgarian livestock farmer does not have enough land. Here, changes in the law are needed that would enable the Bulgarian livestock farmer to reach Bulgarian land – municipal or state.

- You often give Greece as an example. What is the difference in the policies for promoting local dairy products?
- Greece provides a lot of funds – over 10 million euros just for promoting Greek Feta cheese. Let's see how much money Bulgaria provides for promoting Bulgarian sheep cheese.

- You must have checked to say that. What is the amount?
- In our case, the amount does not even reach 100 thousand euros, which Bulgaria spends on promoting Bulgarian dairy products abroad. In Greece, we are talking about over 10 million euros. Do the math for yourself.

- The vision you are working on – the creation of cooperative stores – in what time frame can it be realized?
- We have divided the process into several stages. I hope to launch the first stores of the cooperative within three months. Within six months, we hope to have 50 stores, and within three years - about 300 retail outlets. This will be a tool that, on the one hand, must be supported by the state, and on the other - to be respected by consumers. Ultimately, I think that the consumer and the producer should be connected much more directly. I want to emphasize that we are talking about livestock farmers, because some of the cheese producers do not work with Bulgarian milk. Therefore, it is very important to direct the focus of consumers to livestock farmers who produce Bulgarian milk, from which Bulgarian dairy products are made.