From production to shelves: CPC reveals alarming market distortions in Bulgaria

The first sectoral analysis of the food market by the Commission for Protection of Competition (CPC) has revealed alarming distortions at all levels – from production to retail shelves. The picture looks bleak: Bulgarian foods are gradually disappearing, replaced by imports, while consumer prices are rising. Suffice it to say that milk production has fallen by 25% in four years, imports are growing by 43%, while at the same time retail chains are charging markups of up to 135% after discounts on the delivery price. Against this backdrop, however, there is no shortage of criticism of the regulator's methodology.

The analysis is interim and more work is still to be done on it. The presentation of the first results of the CPC's six-month work was followed by a public discussion that brought together producers and processors, traders, and state institutions. All of them agreed on the need for such studies, but they did not overlook shortcomings such as the fact that focusing on only 10 retail chains ignores nearly half of the market in traditional trade, the analysis of six product categories did not provide a complete picture, and the "snapshot" of markups did not take into account the weighted average values.

Prime Minister Rosen Zhelyazkov also made a brief appearance at the event to quote one of the conclusions declared by the CPC:

The sectoral analysis of the pricing policy of retail chains in June, July, and August clearly shows that there is no evidence of collusion and speculative price increases in connection with the introduction of the euro."

Producers in the dairy, meat processing, and sheep farming sectors expressed great relief that the state was finally addressing the problem they had been reporting since 2012. Their statements painted a picture of dying farms and production below cost.

Crisis in production

The figures are a clear warning sign: between 2020 and 2024, the production of raw cow's milk fell by 25%, cheese by 9%, yellow cheese by 14% and eggs by 17%. At the same time, imports of milk and dairy products have increased by 43%.

The sheep farming sector has suffered greatly – small farms are the most vulnerable, yet they produce the highest quality Bulgarian products," said Petya Kumanova from the National Sheep and Goat Breeders Association (NSGA).

Alexander Alexiev from the Bulgarian Farmers' Cooperative was even more categorical: "All my colleagues are selling below cost. Over the last three years, our prices have fallen by 17%, while at the same time we are seeing huge markups in stores."

There is no competition, we are fighting for survival."

Unlike agriculture, the vegetable oil sector has modern facilities for over 4 million tons of sunflower seeds. But there are serious problems there too – climatic conditions limit production to around 1.5 million tons, while demand is twice as high. Yane Yanev from the Vegetable Oil Producers Association pointed to the protectionist measures of Russia and Ukraine as the main reason for the lack of raw materials.

The markups sound alarming

The CPC's analysis revealed significant markups on basic food products. For mineral water, they reach 135% after discounts from the delivery price, for yellow cheese – up to 91%, and for white cheese – up to 82%.

These markups do not mean profit for traders, but represent commercial practices that can lead to market distortion," explained Zhelo Boychev from the CPC when presenting the data.

However, high markups limit the price freedom of producers and make it difficult to negotiate with large retail chains.

Kiril Vutev, chairman of the Association of Meat Processors in Bulgaria (AMB) and Minister of Agriculture in the Denkov cabinet, proposed a controversial measure: "Within the same product group – cheese with cheese, ham with ham – no markup higher than the lowest agreed upon should be allowed."

The response of retailers

Heavily criticized for their high markups, the Association for Modern Trade pointed out that the analysis only covers 6-7 product categories. Nikolay Vulkanov, chairman of the Association, emphasized the lack of a comprehensive picture:

The focus is on 10 market players, without paying attention to strong regional companies. The share of traditional trade is between 40 and 50% – half of the market. We cannot make recommendations for agricultural production without covering the processes in half of the market.

With regard to markups, Vulkanov insisted on a more balanced approach and pointed out that they represent "a snapshot of selected products." In support of his words, he drew attention to the gross margin visible in the companies' publicly available financial statements.

Just as there is a 60% markup, there is also a 5% and a 2% markup. The correct approach is to calculate the weighted average markup – then it will become clear that such huge distortions represent only a small fragment of commercial policy."

Vulkanov also emphasized that the concentration of modern trade in Bulgaria is "among the lowest in the European Union" and warned: "The introduction of additional regulations would close the door to new players, which would be beneficial for everyone."

Translated with DeepL.