Bulgaria Food & Drink Report Q1 2008

Bulgaria's food and drink industry continues to show major signs of development and improvement. In a key step for the country's dairy industry, in late September 2007 a virtual ban on Bulgarian dairy and meat products into the European Union (EU) was lifted following the approval of 15 Bulgarian companies for free trade with the union. The EU Standing Committee on the Food Chain and Animal Health made the decision to allow these companies free access to the EU market, bringing the total number of approved companies up to 71. However, this still leaves another 585 dairy and meat companies in a 'transition period' and still unable to meet EU standards. EU membership has been a challenge for the country's food and drink producers who have been struggling to meet the high level of industry standards, though the long-term benefit of these reforms will be a significantly stronger industry.

There have also been major investments into the Bulgarian drinks industry by international operators. In September 2007 US-based PepsiAmericas announced that it had formed a joint venture through its purchase of a stake in Agrima AD, the company that bottles, sells and distributes PepsiCo-branded products in Bulgaria. The company has said that Agrima will help it gain a foothold in the country's emerging beverage market. Although the terms of the transaction were not disclosed, PepsiAmericas said that it owns 20% of the joint venture, with plans to increase its stake to 100% by 2012.

PepsiAmericas is the second-largest Pepsi bottler globally, with operations in the US, Central Europe and the Caribbean. With this deal Pepsi is making a clear commitment to the Bulgarian market, which is expected to have strong long-term potential.

This was followed by an announcement in October by Dutch brewer Heineken that it will increase its production capacity at its Zagorka brewery in Bulgaria as a part of its plans to increase local investments. Heineken has said that it will invest EUR15mn (US$21.2mn) between 2008 and 2009 with the funds used to increase production capacity, to construct a 2,100m2 warehouse and to increase its fermentation capacity. Other planned upgrades include expanding the plant's bottling capacity, adding new filter lines and reorganising glass bottling lines. Given this increased investment, Heineken clearly feels that the Bulgarian market is one worth investing in, and has no doubt been encouraged by the country's recent EU membership, which has given a major boost to both consumer confidence and the business environment. Finally, Austrian real estate company announced that it plans to invest around EUR300mn (US$428.6mn) in the Bulgarian soft drinks sector. Soravia already owns the Devin water bottling company, and is now looking for potential acquisition targets such as beverage, fruit juice and mineral water bottling companies in south-eastern Europe. What all of these investments indicate is the growing interest and confidence in the country's food and drink sector, with the drinks sector in particular illustrating strong growth potential.