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Bulgaria - Food & Beverage

Bulgarian Food Processing Equipment

One of the historically traditional sectors of the Bulgarian economy is the food processing sector. The most dynamic food processing sub sectors are: brewery, dairy, meat processing, sugar and oil refinery, fruits and vegetables canning, beverage, drying and dehydrating, bakery and confectionery, wine production and honey processing. The importance of this sector is determined by its share in the total industrial output (within the range of 19-20%).

After 1997 some sub sectors such as the brewery, wine production, beverage production including mineral water bottling and to certain extend oil refinery, confectionery, bakery, meat processing, fruits and vegetables processing and cold chain sub sectors are indicating positive development trends. These dynamics determine increase in imports and investment in corresponding equipment.

Despite the negative trends in production and export of processed foods, the major factors which may positively affect the whole food processing sector and the food processing equipment segment in particular could be determined in the following groups:

• Ongoing process of the sector technological infrastructure restructuring– establishment of capacities for production of proteins, enzymes, vitamins and spices.
• Ongoing innovation processes targeting: production of new type of food products, introduction of new high-tech equipment, techniques and technologies, improvement of quality, introduction of the EU standards for quality of foods and drinks and their packaging and introduction of environmentally friendly production processes and packaging. Increase of investments in the food processing and related bottling and new-packages activities
• Introduction of the EU requirements related to Hazard Analysis and Critical Control Points (HACCP) which basically means good production and hygienic practices for food and drinks safety

Statistical Data of Exports and Imports (USD Million)

The major import markets are Germany, Italy, Belgium, the Netherlands, Austria, Switzerland and UK, while the major export markets are the former Eastern block countries, Greece and Israel.

Best Sales Prospects

The funded National Agriculture and Rural development Plan in Bulgaria is directed to the rapid harmonisation with the EU hygienic and quality standards. The existing technology and machinery for farming is in many cases obsolete. Most of the activities in the animal breeding sector are not mechanised or the equipment is quite old resulting in low quality of production. All of it makes investment in agricultural holdings one of the priority areas in Bulgaria. The support of milk and meat production aims the improving of animal welfare and hygienic conditions that will result in the improvement of products’ quality mainly in milk production. The measures include modernisation of premises for breeding animals and poultry, upgrading farm machinery for meat production, construction and modernisation of premise for poultry for eggs, construction and equipment of small enterprises for sorting, marking, washing and packaging of eggs for consumption.

The Bulgarian food processing market and the food processing equipment market in particular indicated the highest need in upgrading in the following sub sectors:

• Brewery
• Dairy
• Meat and poultry processing
• Beverage, juice and mineral water
• Bakery
• Sugar and pastry
• Canned, frozen and dehydrated fruits and vegetables
• Honey processing
• Wine production

The dynamics and growth in the food processing market though is strongly influenced by the EU accession and by the European Union donor programs assigned for the development of the agriculture and the food processing industry in Bulgaria.

Above sub sectors of the food processing market determine the best sales prospects for food processing, packaging, bottling and laboratory equipment procurements.

Competitive Analysis

Pricing, reputation, quality and after-sales services are main competitive factors in securing contracts. Pricing is the primary competitive factor. Availability of financial sources and their origin is another key competitive factor. Foreign firms should follow up with end-users with the assistance of their local representatives, agents and distributors, determine their future needs and status of development and upgrading and should be aware of the EU SAPARD program competitive subsidies too.

1. Domestic production

Local competition is insignificant with approximately 23% of the total machinery and equipment market. Such equipment manufactured in Bulgaria focuses on packaging, filling and closing equipment, milk processing aggregates, some bakery equipment, meat processing, canning and bottling equipment. None of the Bulgarian companies are presently serious competitors to western firms although they can be considered good partnership prospects.

2. Third country imports

Despite the major role that pricing plays in shaping competition on the Bulgarian food processing machinery and equipment market, competition among foreign suppliers is also strongly influenced by the availability of donor-assistance EU and PHARE programs and financial packages such as the SAPARD program. And secondly, the competition is affected by the customs preferences offered to EU manufacturers compared to the third country equipment manufacturers and exporters.

The exports have primarily been filling, bottling, packaging and labelling equipment. Historically Bulgarian food processors are familiar with western food processing equipment brand names of cutting, slicing, dehydrating, filling and pasteurizing equipment.

It is expected that western manufacturers and exporters of filling, packaging, de-bone, gutting, heads-and-tail-off equipment as well as cold-chain and cold-storage equipment will increase export business contacts and sales on the Bulgarian market.

End-user Analysis

1. Brewery market segment

The most dynamic food processing sub sector was established in Bulgaria in 1881. Between 1995 through 2000 the total amount of investments in the brewery industry was USD100 million. All 13 breweries in Bulgaria were successfully privatized and all of them still operate very successfully. Majority of these breweries are either members of one and the same consortium or have the same owner. Very few of them are independent – example Bulborg (Plovdiv brewery) or Veliko Tarnovo brewery.

Market shares in this industry are split among 7 large companies some of them with major participation of the largest Dutch, German and Greek breweries and beverage producers, namely Heineken, Interbrew, Leventis Group (the Greek branch of Coca Cola) and Carlsberg. At present only the three largest European brewery groups own 65% of the production capacity and the brewery market in Bulgaria.

• Brewinvest, with 27% market share, producing two brand names of beer namely Zagorka, Amstel, Gold, Stolichno and Ariana
• Interbrew, with 23% market share, producing 4 brand names of beer namely Kamenitza, Astika, Plevensko Pivo and Bourgasko Pivo
• Bulbrew, with market share 19% market share, producing 2 brand names of beer namely Ledenika Varnensko Pivo and Ledenika
• Carlsberg, with 18% market share, producing Shoumensko Pivo and Pirinsko Pivo
• Boljarka, with 9% market share, producing Boljarka brand name beer
• Lomsko Pivo, with 3% market share, producing Lomsko Pivo brand name and
• Sofia brewery, with 1% market share, producing Shopsko, Sofiisko and Lyulin

Short and medium term investments in terms of equipment in this sub sector are expected to be in PET type of bottling machines, can filling machines, mashing equipment, in laboratory equipment for introduction of the latest ISO 9001:2000 standards and for the GMP introduction.

2. Dairy market segment

There are 495 operating dairy factories in Bulgaria of which 450 newly established ones. In 2003 the domestic production of milk reached 1,700 million tons while in 2002 it was 1,589 million tons whereby approx 80% of it is cows’ milk and the rest is sheep, goats and buffalo milk.

The dairy food sector products manufactured in Bulgaria are sterilized UHT milk, pasteurized milk, powdered and concentrated milk, cream, powdered milk products, cottage cheese, butter, milk oils, milk drinks, yogurt, milk deserts, ice cream, creams on vegetable and milk base, yellow cheese, yellow cheese, cream cheese, rolls and curds.

The tradition of manufacturing white i.e. Feta cheese (produced through ultra-filtration), yellow cheese – Kashkaval, yogurt and other dairy products is as old as the country itself. So are the dairy products from sheep, goats and buffalos

The largest foreign investment in the dairy sector has been made by the French Danone Group, Land O’Lakes, Kraft Foods, the Greek company Delta, the Greek risk management and investment fund Global Finance together with EBRD. United Milk Company (UMC), a joint Bulgarian/Greek investment acquired the former government owned dairy network facilities Serdika in Plovdiv, Stara Zagora, Bourgas and Shoumen. It occupies 30% of the pasteurized milk market share and 20% of the fresh milk market share. UMC performs 30% of the export of white cheese and sheep yellow cheese to other than EU countries. Traditional export markets for the Bulgarian diary sector are Greece, Italy, Russia and Germany.

Major investments in the dairy sector are expected in cooling containers, milking parlours, stations for collection and storage of non-pasteurised (raw) milk, new packaging equipment and sanitation equipment.

3. Meat processing

One typical characteristics of the meat-processing sub sector in Bulgaria is that it is one of the most dynamic ones regardless of the decline in the domestic consumption. This sub sector is among the first ones in the food processing industry which is trying to find its market niche on the EU and the Near East markets. It absorbs a lot of investments in new technologies, new equipment and packaging which lead to reduction of the cost and improvement of the final product. The largest meat processing companies in Bulgaria are Mekom-Silistra, Tandem-B, Sofiz, Boni M and few others. They are the largest importers of meat processing equipment and short-term imports are estimated to be in slaughter houses, sausage production lines, implementation of the latest quality standards, HACCP and GMP-s.

The export of lamb, sheep and goats’ meat and processed meat products for the entire 2002 and 2003 has increased by 10-14% annually. Major markets remain Greece, Italy, Austria, Germany, Near East countries, Russia and Ukraine.

As far as import of poultry is concerned the cumulative characteristics is that the equipment of all 10 poultry slaughtering houses is more than 13 years old and the sanitary requirements are far below the requirements. Estimated short-term investments in new poultry slaughter equipment and facilities are EUR7-8 million.

4. Soft drinks, juice and mineral water

Soft drinks production in Bulgaria started back in 1880, while juice production and mineral water bottling have less than 20 years of history. Leader in this sub sector remain the so called group of the “Cola” drinks. In 2002 the cola drinks had a 34% market share, the fruit flavoured carbonated soft drinks had 24% market share and the lemonade only had 23% market share. Due to the low purchasing power of the population, consumption of cola drinks has declined while consumption of the fruit drinks has increased. Large investors such as Coca Cola and Pepsi started production of fruit flavoured carbonated soft drinks.

Domestic juice production slowly but steadily regains its market share. There are 8 Bulgarian juice producers which keep 93% of the market share. They compete successfully the foreign importers quality and price wise.

Bottled water market segment shows the most stable and upward trend. This category incorporates still and sparkling mineral water. The consumption of bottled mineral water has increased more than 5 times for the recent period. This is the most dynamic sub sector almost entirely dependent on introduction of new outlook and packaging.

The first standard looking glass jars and bottles are now being replaced by Tetrapack, Tetrabrick, PET bottles, cans etc. Wholesale packaging, so called premixes becomes popular lately as well.

Largest investments in this sub sector has been and will remain in production halls, bottling lines, PET bottles production lines, cooling and carbonating utilities, production of juice concentrate.

5. Bread and Bakery

After 1990 the bread and bakery market marks down considerable decentralization and increase of private enterprises. It is undergoing not only structural changes but significant changes in the quality of the final products, diversity in brands and assortment. Bulgarian bakeries are investing in new modern type of equipment and are expanding the sales of mass produced breads and pastries. Bakeries have recently began import of specialty flours from abroad either for special products (croissants and health foods) or for blending with domestic flour for better baking quality. Some bakeries are looking for bulk mixes as well.

As far as bakery equipment is concerned there is potential for importation of computerized automated bakeries following the international standard for bread production S88 and incorporation of the S88 standard with the S95 standard for Manufacturing Execution Automation System and further on with the Enterprise Resource Planning system.

Only 10 of the 350 flour mills in Bulgaria are technologically equipped to manufacture whole grain flour by one time milling process and only 3 of these 10 flour mills produce whole-grain flour. This is another market niche which is healthy food and EU integration driven.

6. Sugar and pastry

The sugar processing companies in Bulgaria are close to the sugar beet regions and to water resources. In the 1970s the sugar refinery production yield was 350,000 tons sugar of which 173,000 were based on domestic sugar beet. The sub sector changed during the last decade indicating annual sugar production of approximately 240,000 tons of which only 4,000 tones are based on domestic sugar beet. Major players in the sub sector are the sugar refinery Devnya, privatized in 1997 by a Turkish company; the sugar refinery and confectionery Gorna Oryahovitza (management buyout in 1999); Rousse sugar refinery (privatised in 1996) and Kristal 91-Plovdiv (privatised in 1996).

The sugar refineries are now processing mainly unrefined sugar imported from Brazil, Thailand and Germany.

Pastry sub sector is developing very dynamically. It is presented by several successful green-field Bulgarian investment called Royal Group (consisting of Royal Cake, Royal Potatoes, Royal Foods, Royal Storage and Devin mineral water bottling) and other confectionary chains Luchano, Atlantic, Jimmy’s, Anelbo, Dunkin Donuts (franchisee), Chipita (Greek investment), Delta (Greek investment), Nestle Sofia, Kraft Foods Bulgaria, Pain D’Or and many small pastry manufacturers. The largest and regular investments are being and will be made in the pastry and confectionery sub sectors in companies’ brand names production lines.

7. Canned, dehydrated and frozen fruits and vegetables

The Bulgarian market of processed fruits and vegetables traditionally and historically has developed three main sub sectors – canned and pasteurised fruits and vegetables, dehydrated (lyophlization and cryobiology processed) and frozen fruits and vegetables. After 1990 all companies in this sector have been privatized. Per the Bulgarian Association of Fruits and Vegetables Producers, the market share of canned fruits and vegetables is 6-8% of the food-processing industry sector and it employs 9% of the labour force in the sector. At present there are 150 canning factories 65 of which produce 85% of the final product. Dehydrated and frozen fruits and vegetable production will continue to develop and will build up a strong market niche for smaller capacity drying and freezing equipment within the range of 1 ton per hour with a possibility to be moved from field to field.

8. Honey processing

The Bulgarian Ministry of Agriculture and Forestry estimates an annual increase of honey processing in Bulgaria by 13.3% whereby the quantity should reach approximately 9,000 tons. A large investment has been made in 2003 in honey processing and related laboratory equipment. The PHARE program subsidized 38 projects for approx BGN4.3 million (EUR2.15 million).

9. Wine production

Wine production has long history and tradition in Bulgaria. Since 1980 it lost many of its old markets in the former eastern block countries due to poor and inconsistent quality, limited assortment, lagging behind the new requirements for packaging, poor marketing etc. In 2003 the wine production reached 160 million litres. The export of wine amounted to nearly half of this amount. The new factors of the EU integration force the wine producing companies reconsider their overall technological strategy towards introduction of latest technologies in wine growing and wine production.

For the short period of time after EU started its cohesion program for support and development of the agricultural sector in Bulgaria, wine producers received subsidies of approx BGN76 million (EUR38 million) from the SAPARD program and separately BGN150 million (EUR75 million) government subsidies for new vintage areas.

Best prospects in this sub sector exist in equipment and technologies for achievement of consistency and improvement of the quality, establishment of new unique series, diversification of packaging and introduction of new marketing approaches.

Market Access

The growth of the agricultural sector in general and the food processing machinery and equipment market in particular is attributed exclusively to the Agreement which the Bulgarian Ministry of Agriculture and Forestry signed up an with the EU for agricultural sector support under the SAPARD Program (Special Accession Program for Agriculture and Rural Development). Initially, the National Program had a budget of EUR115.4 million annually for the period 2000-2006, but had to be re-negotiated for a longer period of time.

The programme’s priorities are the improvement of the agriculture, forestry and food processing manufacturing standards to comply with the EU requirements (70%); sustainable development and integration of the rural areas in support of the economy and the farmers’ societies (19%); farmers' training and HR (4%) and technical assistance (7%).

1. The import climate

There is no restriction on importing food processing machines and equipment in Bulgaria. Local agents and distributors should only notify the Ministry of Economy and Ministry of Agriculture and Forestry of imported items and obtain customs clearance.

However, there are customs tariffs differentials between machinery and equipment imported from the EU and from other countries. According to the EU accession agreement, the majority of the EU originating machines and equipment are exempt of duty.

In cases of government procurement, under the Government Procurement Law, foreign companies are allowed to participate in tenders, but the performance must be carried out by a company registered to do business in Bulgaria under the Bulgarian Commercial Code or by a company which is representing the foreign entity and which is registered in Bulgaria under the Bulgarian Commercial Code. Registration can be as a branch, subsidiary or independent company.

Some international financing requirements such as the European Union's SAPARD program funds are tied up aid, which restricts other than EU companies from participating in a tender.

2. Distribution and business practices

Distribution of food processing equipment in Bulgaria is through an agent or distributor, preferably someone with extensive experience, good knowledge of the market, good contacts with producers, processors, branch associations, farmers and cooperatives, solid financial status and who has good reputation among decision-making authorities. There are no intermediate wholesalers for food processing equipment in Bulgaria.

Experienced agents distributors may provide leasing schemes, or deferred payment schemes to their reliable customers.

Important marketing promotional instrument applied by experienced agents and distributors are on-site demonstrations with specific product which introduces new or high tech technology and equipment or demonstrations during the specialized trade fairs.

In some cases, distributors or branch associations organize group visits to largest worldwide exhibitions. Overall, the western suppliers of food processing equipment and machines should consider the long-term potential of the market and not focus only on momentum sales volume.

3. Financing

The Ministry of Agriculture and Forestry allocate money for project financing either from its budget and/or from international financial programs such as the European Union accession program cohesion funds such as SAPARD. Money will be granted to individual projects by the paying Agency i.e. the Agriculture Fund.

The EU is providing between EUR10,000 and EUR15,000 to a total of 80 meat processing companies for them to introduce a new system for management and control of the production process critical segments (HACCP requirements). Ministry of Economy intends to implement similar project in the milk production sub sector.

Ministry of Economy and other involved Ministries are expected to provide another EUR30 million to support the local business of which EUR22.75 million will come through the PHARE program and the rest will be national co-financing.

In other cases the Bulgarian companies are trying to locate sources for financing through Bulgarian and/or international banks.

Agents and Distributors

Foreign exporters, especially small and medium-sized enterprises, generally choose to enter the Bulgarian market through an agent or distributor. This is a recommended approach due to the nature of Bulgarian market and helps the western firm manage language, cultural, legal and other differences effectively. Even some well-known large companies follow this route in Bulgaria for the same reasons.