Risk Diversification in the Agricultural Sector in Bulgaria

The Bulgarian and Romanian European Union membership coincides with the Common Agricultural Policy (CAP) Reform. Applied till the 80s of the 20th century, the system of European subsidies which aimed at developing a functioning agricultural sector led to constant surplus of basic agricultural goods with high budget prices. During the 90s production quotas (e.g. the milk quotas of 1983) were introduced an emphasis was put on ecologically clean agricultural production. The CAP reform of 2003 reorganized the European subsidies in accordance with demand and stimulated farmers to produce what the market needed. Direct subsidies changed from payments based on territory to payments for farms. In order to cut surplus, the EU introduced an intervention system; fix quotas for the production of milk and sanctions for breaking them; restrictions on the export subsidies and the amount of cultivated land/number of bred animals for which farmers can receive subsidies. Bulgarian and Romanian farmers receive direct payments which maintain their incomes stable but lower compared to these of their European counterparts. At the same time they have to meet the same requirements concerning environment preservation, food safety, and humane treatment of animals (a requirement for “cross compliance”). These factors together with the heavy dependence of the agricultural sector on climate make the issue of researching the possibilities for minimizing investment risks through product diversification extremely significant. The main aim of this article is to identify the risks in the agricultural sector and assess the priority usage of various forms of diversification as an instrument for controlling risks. In addition, the article outlines / studies the possibilities for adding value to the agricultural sector by diversification of products and activities. The article is written as follows: M. Nikolova – chapter 2; M Linkova – chapter 1; abstract, introduction and conclusion joint action.