POLAND, AN ATTRACTIVE - Centrum Kompetencji PUŁAWYckpulawy.com/wp-content/uploads/2015/10/The-Report-2015... · 2015-10-26 · POLAND, AN ATTRACTIVE PRODUCER AND SUPPLIER OF FOOD

Scientific editing by: Prof. Janusz Irgas, Ph.D.Prof. Andrzej Kowsalski, Ph.D.Dr Zenon PokojskiWojciech Nalazek

Graphic design by: Grupa Wzór Editing and proofreading by: High Profile Strategic Advisors Sp. z o.o.

Photographs by: Adam Dauksza

Copyright by Centrum Kompetencji Puławy; Puławy 2015

All rights reserved. Copying, replicating, or distributing any portion of this paper without prior written consent of the Puławy Competence Center is strictly prohibited.

The report was prepared in collaboration with the Market Analyses Teamof Grupa Azoty Zakłady Azotowe “Puławy” S.A.

Published by:

Centrum Kompetencji Puławy; 24-110 Puławy; al. Tysiąclecia Państwa Polskiego 13phone: +48 81 565 38 89; fax: +48 81 565 38 40; e-mail: [email protected]

www.ckpulawy.com

POLAND, AN ATTRACTIVE

PRODUCER AND SUPPLIER

OF FOOD

3

Contents:

Introduction

1. Increasing role of the agri‑food sector in the economy

- Dynamic development based on agriculture and food industry

- Economy based on knowledge and innovation

- Intense fertiliser production

- Large internal market

- Conditions for boosting the sector’s growth

2. Income situation in Polish agriculture

- Performance of the agricultural sector according to the Economic Accounts

for Agriculture

- Income of agricultural households in recent years

- Dynamic income growth after the accession

- Difference between urban and rural areas

- Agricultural income in the European Union in 2014

3. Foreign trading in agri‑food products

- Trade expansion after the borders were opened

- What do we sell the most often, i.e., the structure of Polish exports

- Main selling markets

- Structure of agri-food imports

- Russia – an important but unstable partner

4. If not Russia, what else? New selling markets?

- Effects of the Russian embargo in 2014

- Growing demand for food in the world

- Polish food in Africa

- Polish food in Asia

- Challenges for the producers

Conclusion

Authors of the report

Literature

7

8

20

30

44

50

52

54

4

INTRODUCTION

By handing you this Report, we would like to spark off a debate about the model of Polish agricultur in the future. Because it is agriculture, along with the food industry, that constitutes the key sector of our economy. A sector that has undergone an impressive transformation after Poland’s accession into the Europe-an Union, becoming a driver of exports. As estimated by the Ministry of Agriculture and Rural Development, the value of Polish food exports is rising steadily and will amount to at least EUR 25 billion at the end of 2015. We are a leading player in this domain and provide an example for the best possible use of agricultural aid.

Analysts indicate that Poland – a country surrounded by 200 million citizens – is in the best position of all states to become the European centre of food production and processing. In order to make a good use of the existing reserves, the authors of this report will suggest taking specific actions, necessary to achieve this goal and to build additional competitive advantages, both in Europe and on emerging markets. Indeed, our agriculture and processing industry still operate within the initial stages of the value chain, and our products are characterised by low added value per work unit. Boosting the sector’s productivity is therefore of key im-portance for increasing growth rate, especially since Poland will probably fail to avoid the effects of adverse demographic changes and the expected workforce shortage.

The authors of the report will also analyse the income standing and economic viability of agricultur-al production as well as the possibilities for financing agricultural entrepreneurs. It is because the funding of agricultural activities is among the crucial elements ensuring stable production and continued holding de-velopment. This, in turn, is a condition for providing citizens with food security, which is the chief function of agriculture.

Poland is already perceived as a country producing healthy and safe food. Polish food products enjoy a growing interest from foreign recipients, and their quality – as seen by the consumers – is the highest. This makes us the key trading partner for the European Union. And for others as well. Polish food is present on 73 other markets, including Africa, or Asia – in China, Hong Kong, Malaysia, Japan, Singapore, and Korea. It should also be noted that we are selling more and more food to the Middle East.

For this reason, the uninterrupted growth of Polish agri-food exports and the positive balance of this trade should encourage entrepreneurs to intensify actions promoting the Polish brand. It is at this very mo-ment – when we enjoy good and sizable exports – that we must start working on the image that will keep us safe in the future. Yet, we should be aware that this work will take years and could cost us hundreds of millions of złotys.

At the same time, we must remember that it is not the European Union or the CIS countries that constitute the most dynamically developing markets in the world. It is thus in the best interest of Polish economy that our companies deliver their agri-food products to the faster developing regions, even though these markets are located far away. This is the true challenge of the future.

5

POLAND, AN ATTRACTIVE PRODUCER AND SUPPLIER OF FOOD

Over the last 25 years, Poland has followed the path of dynamic growth, and our economy has doubled in size (as measured by real GDP). In terms of GDP per capita, we have narrowed the gap with the Western Euro-pean countries (EU-15)1 by nearly a half – from 32 to more than 60 percent of the average rate in these states. After two decades of uninterrupted growth, Poland is nowadays the eight economy in the EU as regards real GDP. Yet, it has to develop at a much faster pace than today if it is to join the most advanced economies in the world. According to a report by McKinsey and Company2, such growth is possible provided that it is based on four principal elements:

1. overcoming barriers impeding growth (chiefly in the following areas: mining, energy sector, and agriculture);2. expanding sectors with a significant growth potential (such as advanced business services, process manufac-

turing, and food processing);3. effective acceleration in the area of technology (for instance, through advancing process manufacturing

or in the pharmaceutical sector);4. halting demographic pressure.

Dynamic development based on agriculture and food industry

Poland ranks fourth in the EU as regards the area of agricultural land, after France, Spain, and Germany. We have seriously grown in importance as a supplier of food for Europe over the recent years, and it cannot be forgotten that the European Union represents more than 500 million consumers. However, as a country, we will be unable to maintain the present development rate given the discrepancy between our agricultural productivity and the average ratio in the “old Member States,” which is 59 percent. The authors of the McK-insey & Company report claim that if the Polish food processing industry is to see further growth, the follow-ing actions must be considered:

• increase the complexity of agri-food products and strive for higher positions in the value chain;• strengthen the competitive abilities of commercial farms;• develop brand marketing, that is, build Polish agri-food brands; also consider purchasing foreign well-es-

tablished brands;• accelerate the consolidation of businesses in the food processing sector to boost competitiveness on foreign

markets (also by employing the cooperative consolidation model);• improve the financing conditions for the economic activity undertaken by agricultural market participants;• make a better use in the agri-food industry of the results of research and development work carried out by

universities and institutes, thus make knowledge more available to agricultural entrepreneurs and broaden the scope of agricultural advisory services;

• develop the system of governmental support in the form of indicating new markets and directions for marketing Polish agri-food products.

The actions suggested above will lead to boosting productivity while reducing the number of workers, which is of key importance for increasing the growth rate of agriculture and food processing.

To enter the next stage of development, Poland should also make an effective use of its present advan-tages, which certainly include the large pool of well-educated workers. Almost 22 percent of Poles aged 24 and above hold a higher education degree. It should be noted, though, that for many years there has been

1. EU-15 includes: Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Italy, Ireland, Luxem-bourg, the Netherlands, Portugal, Spain, and Sweden – European Union Member States in the years 1995–2004.

2. Report titled “Poland 2025: Europe’s new growth engine,” McKinsey & Company, Warsaw 2015.

INCREASING ROLE OFTHE AGRI‑FOOD SECTOR IN THE ECONOMY

1.

6

a substantial imbalance in the level of education between rural and urban areas. In 2012, alike in the previous years, the percent of people with secondary and higher education recorded in rural areas was much lower (Table 1). It is encouraging, however, that the percent of university graduates in rural areas has risen nearly twice over the last decade.

Table 1.Economic activity of the population aged 15 and above taking into account the level of education in the first quarter of 2015

Source: CSO, Economic activity of the Polish population in the first quarter of 2015, 28.07.2015

Agricultural economy based on knowledge and innovation

Agricultural entrepreneurs are more and more keen to recognise the importance of knowledge for their activities. It is necessitated by the growing competition from other EU businesses, and the increasingly inten-sive and specialised agriculture. The knowledge gained under the previous educational scheme appears in-sufficient. The research conducted by, inter alia, the Institute of Agricultural and Food Economics (IAFE-NRI) reveals that rural populations are deeply interested in various forms of education and skills improvement3. This tendency is well evidenced by the attention attracted by the post-graduate studies organised jointly by the Warsaw University of Life Sciences, Grupa Azoty Puławy, and the New Chemical Syntheses Institute in Puławy.

The prerequisites for rising to the challenges of modern agriculture also include the access to new technol-ogies and the ability to use them. The last decade has brought a considerable increase in the number of both rural residents and farmers using the Internet (Figure 1). It follows from the CSO data that in 2013 2/3 of rural households owned a computer; almost all of these households had Internet access.

Figure 1.Percent of rural households having a computer and Internet access in the years 2007–2013

Source: Developed on the basis of the CSO data, 2007–2013

3. “Human capital in the structural transformation process of rural areas and agriculture,” paper edited by Agnieszka Wrzochalska, Ph.D., and published by IAFE-NRI, Volume 130, Warsaw 2014.

YEARSPRIMARY, INCOMPLETE PRIMARY,

AND LOWER SECONDARY

RURAL AREAS

2002 38,3% 29,2% 22,4% 4,3%

2012 31,6% 26,5% 25,5% 9,9%

Q1 OF 2015 28,7% 30,5% 28,1% 12,8%

2002 22,0% 21,1% 38,5% 13,7%

2012 18,0% 18,5% 35,3% 21,4%

Q1 OF 2015 14,9% 20,6% 36,5% 28,0%

URBAN AREAS

BASICVOCATIONAL

SECONDARY AND POST‑SECONDARY HIGHER

2013

2011

2009

2007

0 20 40 6010 30 50 70Internet

computer

7


Yet, it should be highlighted that in farms with an area exceeding 50 ha, that is, with a business-wise approach to agriculture, these ratios are now bordering on 90 percent and do not diverge from the average levels in the EU.

But as far as the command of foreign languages in concerned, the farmers’ skills leave a lot to be desired. Indeed, as regards the knowledge of English Poland ranks sixth out of over 60 non-English speaking countries of the world surveyed4, but this does not yet apply to rural areas. The percent of rural residents using this language has risen remarkably in the recent years, yet this group remains small. A survey conducted in 2011 by IAFE-NRI indicated that 11.3 percent of the total rural population could speak one foreign language, includ-ing 7.3 percent using English. The low level of foreign language proficiency translates into limited abilities of establishing trade contacts on foreign markets.

Polish workers earn much less than their colleagues in the Western Europe, the agri-food sector included. The total cost of remuneration for an average worker borne by the Polish employer is four times lower than in the case of, for example, their German counterpart (Figure 2). Since the average monthly disposable income per capita in agricultural households is lower than the income of households in total, it can be assumed that similar proportions are observed in the farmers’ income in these countries.

Figure 2.Labour cost in 2013 (in USD per hour)

Source: Report Economist Intelligence Unit; UN

Taking into account the differences in land productivity or labour productivity, it can be expected that the cost advantage will remain strong, although its decline is probable (Figures 3 and 4). At the same time, it should be remembered that Poland is facing more and more competition from countries offering lower labour costs, such as the members of the Commonwealth of Independent States as well as India, Vietnam, Ma-laysia, or the Philippines, yet the cost advantage of the latter group is weakened by the considerable distance and logistic difficulties.

4. English Proficiency Index for non-English speaking countries, EF Education First, 2014.

Romania

Portugal

Hungary

Spain

France

Poland

Italy

Germany

Czech Republic

Netherlands

Denmark

0 10 20 30 40 50 60

5,2

12,5

9,3

26,8

41,9

11,7

35,8

48,8

11,9

41,4

50,7

Universal fertilizer for vegetables and flowers, Copyright by Grupa Azoty Puławy

8

Source: Calculated on the basis of the Farm Accountancy Data Network figures.

Source: Calculated on the basis of the Farm Accountancy Data Network figures.

Poland, the leader of fertiliser production

Polish producers manufacture all mineral fertilisers necessary for agricultural production. In the recent years, domestic producers have been showing more and more boldness in introducing new fertiliser formulas that are better suited to different plant species. We produce about 1.7 million tonnes of mineral fertilisers, which gives us second rank in the EU in this respect. The greatest share in the production structure be-longs to ammonium nitrate, urea, and saletrzak, yet producers are increasingly interested in soil-applied liquid

70

80

60

30

50

20

40

10

0

8 ‑ 25

1,8 2,2 2,5 3,2 3,52,3 2,65,8 4,3

3,2 3,9 5,1 4,8

10,1

5,9 5,2 6,2

13,4

70,8

3,7

25 ‑ 50 50 ‑ 100 100 ‑ 500 >500

Poland

Hungary

Germany

Denmark

Netherlands

Poland

Hungary

Germany

Denmark

Netherlands

47,5

Figure 3.Land productivity (EUR thousand/ha of agricultural land)

* Labour productivity defined as the ratio of production value to labour input in total expressed as AWU (Annual Work Unit).

* Labour productivity defined as the ratio of production value to labour input in total expressed as AWU (Annual Work Unit).

350

450

400

300

150

250

100

200

50

0

8 ‑ 25 25 ‑ 50 50 ‑ 100 100 ‑ 500 >500

Figure 4.Labour productivity (EUR thousand/AWU*)

12,123,120,6

32,2

57

159,3

40,4

71,8

111,5

42,662,5

80,278

165,6190,5

116,5

281,4

311,5

116,5

279,4

428

9


fertilisers, such as urea and ammonium nitrate solution (UAN). As regards the application of nitrogen fertil-isers, Poland holds the third position among the EU Member States (after France and Germany, Figure 5), and the use is rising. The most popular fertilisers include urea and ammonium nitrate.

Figure 5.Use of nitrogen fertilisers in selected EU Member States in 2013

The largest fertiliser producer in Poland – and the second largest in Europe – is Grupa Azoty, which offers a broad range of nitrogen and compound fertilisers. The company also conducts research aimed at increasing nutrient use. Polish scientists are currently cooperating with the fertiliser producer to develop a targeted fer-tilisation system. The idea is to create fertiliser formulas that will be delivered directly to the plant root system, so that fertilisation is more efficient and the negative impact on the environment is curbed.

Poland’s potential as an attractive producer and supplier of food is amplified by our strategic location be-tween Western Europe and the Eastern European states, including Russia or Ukraine. As the authors of the McKinsey & Company report point out, the areas within 1,000 km from the Polish border are inhabited by over 200 million EU residents with a relatively high income. This opens up excellent opportunities for developing the agri-food product offer. A great potential for selling food products is also represented by the markets of Turkey, Ukraine, and the Middle East, which are currently being discovered by the entrepreneurs of the sector in question.

Map: use of nitrogen in kg of N/ha ofagricultural land

Source: International Fertilizer Associacion, 2013.

46 kg/ha

77 kg/ha

64 kg/ha

70 kg/ha

78 kg/ha

125 kg/ha

103 kg/ha

83 kg/ha

50 kg/ha

Italy

Spain

Great Britain

Poland

France Table: nitrogen use in million tonnes

Germany

0 20001000 3000

597

956

1011

1103

1694

2183

10

Sizeable croplands, not the best of soils

Another of Poland’s advantages consists in the cropland area – Poland ranks fourth in the EU, after France, Spain, and Germany (Figure 6). Yet, the quality of our soils is not too great. It follows from the research by the Institute of Soil Science and Plant Cultivation (ISSPC-NRI) that good and very good soils constitute 28.6 percent of the total arable land, average soils – 39.1 percent, and poor and very poor soils – 32.3 percent5. About 80 percent of soil in Polish agricultural land is characterised by a certain degree of acidity, while the remaining 20 percent has neutral or alkaline pH. Since the majority of crops require slightly acidic or neutral soil to grow properly, experts advocate necessary liming of most cropland. It is because poorer soils limit crop yields, which in turn reduces productivity.

Figure 6.Area of arable land in selected European countries (in million hectares)

Source: Eurostat, 2012.

5. Report titled “25 years of Polish agriculture. Food security in Europe,” Puławy Competence Center, 2014.

0 84 12 182 10 166 14 20

France 18

Romania 9

Spain 12

Italy 7

Bulgaria 3

Germany 12

Czech Republic 3

Poland 11

Hungary 4

Denmark 2

6Great Britain

ZaksanTM (ammonium nitrate from Kędzierzyn) Copyright by Grupa Azoty

11


Water shortage and efficient water management

Another factor that lowers production is water deficit. Poland falls into the group of countries with scarce water resources per capita6. In addition, seasonal fluctuations in the amount and distribution of precipitation cause periodic droughts in certain regions and, every few years, across the entire country. The phenomenon is exemplified by this year’s situation, with the drought affecting the entire territory of Poland, significant-ly reducing the size and quality of yields. Taking into account the global warming, it is very probable that droughts in Poland will be more frequent and more severe.

A major challenge is thus connected with the expansion of pressure irrigation systems, since in Poland this domain has been particularly neglected. The total irrigated area, as estimated by the ITP, does not exceed 0.5 percent of agricultural land (for instance, in the Netherlands it is 29 percent and in France – 7.6 percent of total agricultural land)7. Solving the problem of water deficit is of key importance for ensuring stable and high-quality yields.

Internal market as an opportunity

A crucial reason for treating the agri-food sector as one of the foundations of accelerating Poland’s devel-opment over the upcoming years is the large internal consumer market. It has 38 million consumers with ev-er-growing incomes. May it be reminded that, according to the CSO, the real value of remunerations in Poland has risen by more than one third in the last decade.

And, as follows from the World Bank’s ranking that measures the ease of conducing business activity in 189 global economies, Poland moved up from the 76th position in 2009 to the 32nd position in 20148. We also ranked very well in Bloomberg’s list of most innovative countries, with the 24th position out of 215 countries surveyed9.

Similarly, in terms of public spending as a share of GDP, Poland performs much below the EU average (Fig-ure 7). It is estimated that in 2015 this expenditure will be the lowest in history, achieving the level of 41.5 per-cent of GDP while the average share is 47.8 percent for the entire EU, and 49 percent for the eurozone10.

As estimated in the McKinsey & Company report11, Polish economy is characterised by a solid growth rate, which can be maintained or event improved in the years to come, provided that it is based on elements men-tioned in the introduction, including the elimination of barriers impeding the growth of the agri-food sector.

6. EUROSTAT, using data for 2012, estimates that in terms of fresh water resources per capita Poland holds a very low position in the ranking of the EU Member States. There are 20 countries ahead of us; we rank better than Czech Republic (1,600 m3/resident/year) as well as Cyprus and Malta, which have much less fresh water (400 and 100 m3/resident/year, respectively).

7. Institute of Technology and Life Sciences, data for 2010.

8. Doing Business 2015, World Bank Group, 2014.

9. Bloomberg’s Global Innovation Index, 2015. In this ranking, the position achieved by a country results from the sub-scores for seven criteria regarding, inter alia, economic efficiency, role of the industry, research and development spending, performance of the post-secondary education system, or number of innovative publicly listed companies.

10. Bloomberg’s Global Innovation Index, 2015.


Oleśnica, grain elevators, Osadkowski S.A.

12

Figure 7.European Commission’s forecast about the amount of public spending as compared to GDP in selected coun‑tries in 2015

Source: Forecasts of the European Commission based on the Eurostat data.

The outlook for Polish exports is positive as well. As predicted by Oxford Economics and the HSBC bank, its growth in the years 2014–2016 will reach approximately 9 percent.

Large number of traditional farms

Polish agriculture differed from farming in other European countries for a long time. Its specific features consisted mainly in a high percent of small farms owned by natural persons, having a relatively narrow con-tact with the market and deriving most of their income from non-agricultural sources. The socio-economic transformation at the turn of 1980s and 1990s initiated the process of changes towards the commercialisation of agricultural production. A portion of agricultural holdings begun to develop dynamically, treating agricul-ture as a business activity, while the so-called traditional farms were rather oriented on subsistence. According to Wojciech Jóźwiak, because of the increasing process of social, economic, and technological diversification, these groups can be divided by agriculture type into: commercial, multifunctional, and subsistence farms. The latter group of farms lacks competitive abilities and practically does not deliver products to the market12.

The total number of farms with competitive abilities and farms capable of achieving such abilities quickly was approximately 209 thousand in the years 2010–2012 (Table 2). As compared to the years 2005–2007, an about 20-percent growth can be observed in this farm group. Remarkably, as many as 1.27 million farms are perceived as lacking competitive abilities.

Table 2.Number of individually‑owned farms having competitive abilities or being capable of achieving such abilities

12. “Effectiveness, production costs and competitiveness of Polish agricultural holdings at present and in the medium- and long-term perspective,” collaborative paper edited by Prof. Wojciech Jóźwiak, IAFE-NRI, Warsaw 2014.

LATA

2005 ‑ 2007

Farms with competitive abilities

Source: calculations by J. Sobierajewska and W. Jóźwiak performed on the basis of monitoring results delivered by the Polish FADN

and the CSO data

Farms with the potential to develop competitive abilities

Farms without competitive abilities

Number (thousand) Number (thousand)

90,7

83,8

1 567,1

90,3

119,1

1 270,8

Share (%) Share (%)

5,2

4,8

90,0

7,1

8,0

84,9

2010 ‑ 2012FARM GROUPS

70

60

30

50

20

40

10

0

41,535,1 34,9 34,7 36,8

58,9 58,1 56,1

53,447,8 49,1

FinlandFrance

DenmarkBelgium

PolandRomania

LatviaLithuania

IrelandEuropean Union

Eurozone

13


It is estimated that in 2010 farms with competitive abilities or with the potential to develop such abilities held about 52.5 percent of agricultural area owned by natural persons, but their share in our country’s com-mercial agricultural production was most certainly higher13. A similar analysis performed for legal persons indicates a much larger share of farms that already have or can soon acquire competitive abilities (93–94 per-cent).

In closing, it should be stressed that out of nearly 1.5 million agricultural holdings in Poland a clear mi-nority (about 210 thousand) consists of commercial farms, and the dominant group is composed of subsistence farms (1.3 million)14.

Higher position in the value chain

Agriculture has a relatively limited share in generating GDP, that is, only 3.4 percent. However, inter-national trading in agri-food products already plays a major role in our economy. In 2014, the value of such exports surpassed EUR 21 billion and accounted for over 13 percent of the entire Polish exports. It should be added that the positive balance of trade in the said products exceeded EUR 6.5 billion15.

Agriculture and agri-food industry represent almost 7 percent of economic activity in Poland (in terms of gross added value). None of the “old Member State” recorded a higher value. The sector continues to grow and has not yet unlocked its full potential. In the years 2008–2011, Polish agriculture and agri-food industry boosted their productivity by 12 percent, while in the EU-15 countries this growth amounted to only one percent.

Polish agriculture and food-industry are dominated by products with a low added value. Poland has a 43-percent share in the EU production of raw products, but only a 28-percent share in processed products16.The former products are usually sold at a low margin. Hence, it is worth reaching for higher positions in the value chain in order to “take over” a larger portion of a product’s added value.

The global value chain (GVC) concept is gaining recognition17. Apart from manufacturing, it takes into account the whole scope of activities, from product design to marketing and delivery to the end customer, and illustrates the distribution of benefits at individual stages of the chain (Figure 8).

Figure 8.Creating value in the value chain

Source: Management in Conditions of Uncertainty, Andrzej Krzysztof Koźmiński, Polish Scientific Publishers PWN, Warsaw 2004

13. “Effectiveness, production costs and competitiveness of Polish agricultural holdings at present and in the medium- and long-term perspective,” collaborative paper edited by Prof. Wojciech Jóźwiak, IAFE-NRI, Warsaw 2014.

14. It can be assumed that commercial and multifunctional holdings constitute farms with competitive abilities or with the potential to acquire competitive abilities.

15. “Foreign trading in agri-food products in 2014, including exports of the main commodity groups,” Agricultural Market Agency, Analyses and Programming Office, Warsaw 2015.


17. More on the topic in: “Global value chains – a challenge for the agricultural sector in Poland,” R. Grochowska, IAFE-NRI, Warsaw 2014, Volume 127.

Suppliersas partnersin the production network

Supply chain management

R&D management

Production management

Distribution channels and sales methods

Customer relationship management

Customer service

Perceived value of the product or business

Abilityto create innovations

Capacity for “world class” manufacturing that guarantees a product’s use value and individual character

Sales channels and methods adjusted to the customers’ preferences, abilities, and habits

Customer satisfaction and loyalty, continuous contact, abilityto respondto the buyers’ needs

Service basedon the knowledge of needs, expectations, requirements, and aspirations

Abilityto attract customers, investors, partners, and quality workforce

14

The analysis of the global value chain concept shows that the suppliers of raw materials strive to attract producers, who in turn attempt to attract retailers. Therefore, the challenge faced by the Polish agri-food com-panies consists in advancing as close as possible towards the end customer.

Yet, the vast majority of domestic producers are unable to undertake such action on their own. Thus, the government’s systemic and institutional support is necessary.

Accelerate and facilitate the consolidation of businesses

There are significant discrepancies across Polish regions when it comes to the level of socio-economic development. It is also reflected in the level of agricultural management (Figure 9). The reasons are multifold:

• historical context – the impact of the division after the partitions; • result of different mechanisms that influenced agricultural development after the affranchisement period;• environmental factors, that is, geographical and agrometeorological conditions.

Figure 9. Differences in the level of socio‑economic development across the country

Source: Foundation for the Development of Polish Agriculture, 2012.

Low agricultural productivity is, above all, a consequence of agricultural land fragmentation. The average farm area in Poland borders on 10 hectares, whereas in Germany or France it amounts to 50 hectares and in Great Britain – to even 90 hectares.

It is a well-know fact that the highest added value in the value chain is captured by the strongest entity, therefore small-scale farmers and other rural residents should be encouraged to consolidate land. Smaller agricultural businesses should associate into larger organisations taking the form of producer groups. A good example is provided by the apple producer groups, which dealt very well with the crisis caused by the Russian embargo. Whereas the Polish government together with its agencies should promote horizontal integration by means of such instruments as varied conditions for granting EU aid or a system of tax and insurance rebates.

Another element of actions encouraging the consolidation of holdings should consist in propagating and supporting land leasing. It is becoming more and more popular in Poland, yet the area of leased land is still twice as low as in other European countries (informal lease arrangements are common, thus there should be an incentive system for owners and lessees aimed at legalising the phenomenon).

Farm consolidation is also favoured by contract farming. Contracts enable processing companies and pro-ducers to determine the conditions of future deliveries far in advance, which is in turn conducive to stable development in spite of highly uncertain environment.

Level of development

High

Medium

Low

15


Financing the economic activity undertaken by agricultural market participants

The agri-food sector, given the considerable growth dynamics, is enjoying an increasing interest on the part of banks. However, this market is characterised by significant difficulties in developing the offer of fi-nancing for its participants, which applies especially to individual farmers. One of the major problems con-cerns the severely restricted access to reliable data describing the scale of their economic activity. Individual farmers are subject to very few inventory or reporting requirements, which makes it difficult to assess their trustworthiness and credit standing. Another obstacle to obtaining loans is the necessity to pledge a collateral required by the bank. It should be noted that agricultural producers, despite the many risks involved, are re-luctant to make use of security measures against these threats. Insurance policies remain uncommon, which raises the cost of the loans offered.

Many of the above mentioned limitations do not apply to lending offered by the suppliers of agricultural means of production, for example, in the form of a buyers’ credit. The distributors credit the purchase of ag-ricultural means of production (such as fertilisers for the entire cycle, from sowing to harvesting) and collect the aggregate balance at the end of the year. The distributors are free from the strict requirements imposed by the Polish Financial Supervision Entity, and use additional instruments for assessing credit standing and ensuring collectability. They can, for instance, claim rights to a field, or take over fixed assets or yields and then store or sell them.

In consequence, the distributors actually assume the role of shadow banks. Of course, their services are not complimentary; the mutual settlements take into account an additional margin covering the price of mon-ey over time. It is a part of a sui generis market play: for example, a farmer withholds from selling cereal yields in hope for better prices, as he has to compensate for the higher price of agricultural means of production, which must be paid after the yield is sold.

Nation Branding, that is, building strong Polish brands

In order to sell on the domestic market and to win foreign markets, products manufactured in Poland must become a strong brand. A brand allows for identifying a product and distinguishes the merchandise from many others. Effective branding can lead to sales growth of not only one, but multiple products associated with the brand.

Careful brand management is aimed at ensuring a product or service that is relevant to the target group. Brands should be perceived as something more than the mere difference between the actual cost of a product and its sales price; they should constitute a sum of all product features valued by the consumer.

In the case of agri-food products, special importance is attached to nation branding, which serves the pur-pose of building and managing the reputation of a country as the place of origin of certain products. Hence, it is crucial to build a strong image of Poland as a place where very high-quality and healthy agri-food prod-ucts are manufactured, which can be best summed up with the phrase: “it’s good because it’s Polish.”

Cooperation with scientific centres, changes in the advisory system

Over the last ten years, Polish agriculture has made a giant leap forward. The further growth dynamics will largely depend on transferring the know-how and innovations developed by the scientific and research centres to agricultural holdings. Changes should therefore be introduced in, among others, the curricula used for educating future agricultural managers. More emphasis should be placed on various aspects of manage-ment (such as market, change, project, or financial management), marketing, or communication techniques (for example, interpersonal, negotiation, or self-presentation skills). There should also be a broader offer of educational and skill-improvement programmes carried out jointly by business circles, universities, and, for example, advisory or consulting companies.

Agricultural advisory bodies constitute the most common final stage of this transfer as they come into direct contact with agricultural entrepreneurs (only the largest entities collaborate directly with scientific centres). Thus, the quality of knowledge provided to farmers will depend on the level of agricultural advisory services. In general, advisory services represent a potential for intellectual capital that should be converted into a rise in the market value of agricultural services.

The designers of the advisory services model should bear in mind the existence of three organisational and legal forms, namely public services, local government/private services, and private services. The advisory services model should satisfy the following requirements:

16

• there should be a certification system for advisory bodies, and a system for supervising and monitoring the quality of the advisory services provided, maintained by independent auditors; it is recommended that advisors take exams;

• the competition mechanism, intrinsic to the advisory model, should require the advisors to continuously improve their skills and competences – to seek new sources of agrotechnical knowledge, to research tech-nological, organisational, or marketing innovations in agricultural holding management;

• a broad portfolio of advisory services should be maintained, and, at the same time, the rules of applying for support should be simplified;

• a system for registering advisory bodies should be established, and farmers should be provided with a free access to the list of such entities;

• the system should allow for using online advisory services, based on IT tools taking into account the most recent solutions in agricultural holding management;

• consideration should be given to ensuring accountability of advisors for losses caused by faults in advisory services;

• advisory services should be made available to small-scale farmers.

The competition among advisory bodies as regards gaining customers and funding should bring about a steady increase in the quality of services based on the transfer of knowledge from domestic and foreign scientific centres and research units.

Sobienie Jeziory, fruit and vegetable producer group. Wilga Fruit

17


INCOME SITUATION IN POLISH AGRICULTURE18

Since Poland joined the EU, there has been a systematic decrease in the disproportion in agricultural in-come levels between Poland and other EU Member States19. In a decade, the value of income at constant prices per full-time employee in Poland surged by 92 percent, while in the case of the EU agriculture it rose only by 35 percent. In the year of Poland’s accession into the EU, the income of the agricultural sector was nearly PLN 20 billion, but in 2014 it surpassed the level of PLN 36 billion (Figure 1).

Figure 1 .Income of the agricultural sector in 2004–2014 (constant prices in PLN million)

The performance of agricultural holdings taken into account in the FADN20 statistics indicates that over the recent years the income from a family farm per full-time employee in the farmer’s family has increased slightly, event though the income per holding has dropped. This phenomenon is attributed to the decline in the labour input from a farmer’s family, coupled with a greater interest in non-agricultural labour markets.

18. Developed on the basis of a paper by Lech Goraj, Ph.D., titled “Income standing and cost-effectiveness of production in Polish agriculture in 2014 as compared to the preceding years,” Warsaw 2014.

19. The analysis of income changes in Polish agriculture was performed on the basis of macroeconomic calculations, ac-countancy data obtained from agricultural holdings, and household budget surveys.

20. FADN is the only unified system for collecting accountancy data from a representative group of commodity holdings operating in the EU territory.

2.

2004

15000

20000

25000

30000

35000

40000

2005 2006 2007 2008 2010 2012 2014*201320112009

19927,7 18364,420905,3

27196,9

23345,6

27106,5

30940,1

38949,2 36695,9 38636,1 36164,8

Source: Economic Accounts for Agriculture is an instrument used in agricultural statistics by the Eurostat to fulfil the needs of the Eu-

ropean Union. They are employed for calculating the volume and value of agricultural production in the EU Member States.

* estimate figures

18

Figure 2.Income from a family farm per full‑time employee in the farmer’s family and average annual net remuner‑ation in the national economy (in PLN thousand)

When considering individual regions of the country, major discrepancies in the income earned can be noticed. Hence, in Lesser Poland and in the foothill areas it keeps within the range of PLN 20 thousand a year per holding, whereas in Pomerania and Masuria it exceeds PLN 60 thousand.

As estimated by the Economic Accounts for Agriculture, in 2014, the agricultural income dropped by nearly 7 percent as compared to 2013. It was caused primarily by a reduction in prices of basic agricultural products and a simultaneous increase in the volume of agricultural production. It is assumed that despite hav-ing decreased in 2014, the income remains almost twice as high as in 2005. Performance of the agricultural sector according to the Economic Accounts for Agriculture

The value of agricultural production in 2013 increased in nominal terms by over 2 percent as compared to 2012, and was by 29 percent higher than the average in the years 2008–2010 (Table 1). It was chiefly a con-sequence of an increase in the value of animal production and, to a lesser extent, of plant production as well as other production and services.

Table 1.Economic performance of Polish agriculture in 2013 and estimates for 2014 as compared to previous years (current prices in PLN million)

total

20

10

0

30

40

50

60

70

field crops horticulturalcrops

permanent crops

dairy cows grain‑fed animals

mixedgrass‑fed animals

Source: Economic Accounts for Agriculture

Agricultural production

2008 ‑ 2010 2012 2013 2014*

77 072 97 078 99 247 95 297

27 131 36 696 38 636 36 165

15 402 16 358 16 345 16 043

56,8 44,6 42,3 44,4

Income of an “agricultural entrepreneur”

Total aid and subsidies

Share of aid and subsidies in the income (in %)

Source: Polish FADN. average annual net wage in the national economy

* estimate figures

19


Plant production

Out of all branches of plant production in 2012, the greatest upsurge in the production value occurred in the case of vegetables – by about 21 percent (including over 40 percent for tomatoes), and fruits – by almost 20 percent (including some 50 percent for apples). At the same time, there was a 15-percent fall in the produc-tion value of cereals (especially barley – by over 30 percent), and a decrease in the production value of root plants for animal feed purposes and tobacco – by 18 and 12 percent respectively. In the end, the 2012 value of plant production was higher than the year before by approximately 1 percent.

In 2013, there was a delicate rise in the value of plant production as compared to the preceding year. It was connected with a 1-percent volume increase and simultaneous price stability. The most visible rise concerned the production volume of fruits (apples in particular), tomatoes, rye, triticale, and oilseed rape (from nearly 8 to over 43 percent). In the case of the above product groups, the volume increase was coupled with a very strong rise in the price of apples and tomatoes (by 30–40 percent), while the prices of rye, triticale, and oilseed rape production fell (by 15–25 percent).

In 2014, the overall value of plant production was 10 percent lower than in 2013. The most significant – about 36-percent – value drop was recorded for fruit production (including apples – by over 50 percent, in consequence of lower prices), and the value of vegetable production diminished by nearly 13 percent (in-cluding onions and cabbage – by approximately 45 percent, because of lower prices). Simultaneously, there was a 30-percent increase in the production value of protein plants, yet this area of production plays a relatively inconsequential role in shaping the production value in Polish agriculture.

The 2014 value of cereal production shrank by about 3 percent (especially in the case of rye, as a result of over 30-percent lower yields and prices), and of sugar beet and potato production – by 15 percent. The decline in the value of plant production in 2014 as compared to the year before was primarily caused by the reduced prices of basic agricultural products.

Animal production

A nearly 5-percent rise in the value of animal production was observed in 2013 (as compared to 2012), which was in turn connected with an increase in the production value of eggs – by nearly 11 percent, and poultry – by 10 percent.

In 2013, there was also an improvement in the production value of sheep – by nearly 20 percent, and, like in the previous years, of eggs (but only by 2 percent). Whereas the value of cattle and pig production decreased by 3–4 percent.

The 2013 increase in the current-price value of animal production by almost 5 percent as compared tothe year before and by nearly 29 percent as compared to the average in the years 2008–2010 resulted from both a rise in prices in this branch (by over 3 percent) and an increase in the production volume (by 1.5 percent).

The domains of animal farming that experienced a clear upsurge in the production volume included the production of poultry (by 8 percent) and eggs (by 6 percent). However, 2013 brought a further decrease in

Krotoszyn farm, Kombinat Rolny Kietrz

20

the production volume of pork – by nearly 3 percent – along with a slight fall in prices.In 2014, in comparison to the preceding year, animal production rose by almost 5 percent. It was caused

by a higher production value of milk – by nearly 11 percent, and poultry – by almost 6 percent. Yet, in the case of poultry production, the reduced prices were compensated by a solid rise in production volume. In 2014, unlike in the previous years, there was a fall in the production value of eggs (by about 11 percent), sheep (by 14 percent), and pigs (by 2 percent).

Animal production saw a considerable increase in the production volume of live cattle (by 17 percent), poultry (by 10 percent), and pigs (by 7 percent). There was a drastic 27-percent decline in the volume of sheep production, despite a 4-percent rise in prices.

Income standing of commodity farms

In 2013, there was yet another increase in the constant-price production volume, which suggests that the growth of agricultural production has continued. Thanks to a higher agricultural income generated with-in the broadly defined market, the farmers’ income became less dependent on direct support. Nevertheless, aid remains a crucial factor in shaping Polish agricultural income.

Figure 3.Value of Polish agricultural production in the years 2004–2014 (in PLN million)

70000

65000

60000

55000

50000

80000

75000

90000

85000

100000

95000

Source: Economic Accounts for Agriculture.

* estimate figures current prices at 2005 prices

2004 2005 2006 2007 2008 2010 2012 2014*201320112009

Wysokie Mazowieckie, Dairy Cooperative MLEKOVITA

21


In 2013, similarly to the year before, we observed a stability of income from factors of production per full-time employee in the EU agriculture. At the same time, in real terms, that is, after eliminating price movements, this income increased in 2013 – as compared to 2005 – by nearly 35 percent. This figure settled at the level of 90 percent for Polish agriculture, which indicates a considerably stronger income increase.

Within the period from 2005 to 2012, only in 2011 did the income from factors of production per full-time farmer in Poland surpass the value recoded in 2013. The EU Member States that reported the greatest – over 10-percent – increase in real terms in 2013, as compared to 2012, included Bulgaria, Romania, Italy, and the Netherlands. Whereas the most serious income drop concerned Danish, French, and Belgian farmers – by over 10 percent.

The fact that the income growth dynamics in Polish agriculture exceeds the EU average suggests a steady levelling of disproportions in agricultural income between the “old” and “new” EU Member States.

It follows from the estimates by the Economic Accounts for Agriculture that the production value of the agricultural sector decreased by 4 percent in nominal terms in 2014, as compared to 2013. Yet, this value was nearly 24 percent higher than the average for the years 2008–2010 (Table 1).

The reduced income in Polish agriculture in 2014 (in relation to the preceding year) was mainly a result of the drop in prices of agricultural products. In such circumstances, a further rise in the production volume depends on boosting the productivity of factors of production and the competitiveness of Polish agriculture. Aid, which accounts for 44 percent of agricultural income, remains a crucial factor in shaping Polish agricul-tural income.

When summing up the income situation in commodity farms in the years 2009–2013, the following issues must be discussed:

1. The average value of income generated by an agricultural holding in the farm group under analysis was about 3 percent lower than the average net remuneration in the national economy, mostly because of a large share of mixed farms, which earned almost 50 percent less than the parity income.

2. Within the farm group examined, aid constituted on average 60 percent of the income earned, and was of principal importance in holdings oriented on grazing animals (excluding dairy cows), which would suf-fer losses without support.

3. In very small and very big farms (as regards economic size), the income from a holding was entirely com-posed of aid. Without subsidies, these farms would close the year 2013 with financial losses.

4. The income generated by farms located in the Western regions of the country (Pomerania, Masuria, Great-er Poland, and Silesia) was about twice as high as in holdings situated in the Eastern regions (Mazovia, Podlachia, Lesser Poland, and the foothill areas).

5. In 2013, the income from a family farm per full-time employee in the farmer’s family remained relatively unchanged. In comparison to 2012, this value rose by 1 percent, while the income per holding dropped, which indicates a decrease in labour input from a farmer’s family members in 2013.

Monthly agricultural income is rising but remains low

The information about the level and structure of income in agricultural households is obtained mainly through household budget surveys. Household groups are determined by the Central Statistical Office (CSO) on the basis of the sole or primary source of livelihood. In analysing budgets, the CSO uses the category of disposable income.

In 2013, the nominal disposable income (that is, the average monthly income per person) in agricultural households amounted to PLN 1,156.13 and – in comparison to 2012 – rose by 5.9 percent (in 2012, there was a 10.9-percent increase in relation to 2011). It overlaps with the trend in other households (outside agriculture). Also in 2013, we saw an increase in disposable income in nominal terms by 1.6 percent in all households (rise by 4.2 percent in 2012 as well), by 1.3 percent for employees (rise by 3.6 percent in 2012), by 2.9 percent for the self-employed (rise by 2.6 percent in 2012), and by 2.4 percent for retirees and pensioners (rise by 5.3 per-cent in 2012). Changes over the years 2004–2013 are presented in Table 2.

22

Table 2.Average monthly disposable income per person in households in the years 2004–2013 (current prices)

To sum up: in 2013, the increase in the level of real disposable income took place in all household groups (0.7 percent as compared to 2012). It was the highest in the case of farmers – by 5.6 percent (in 2012, a 7.5-per-cent increase was observed as compared to 2011), and the self-employed – by 2.2 percent (in 2012, a 2-percent drop was recorded). As far as farmers are concerned, attention should be paid to the low absolute value of income in 2011 (on average PLN 983.33 per person per month) and the substantial fluctuations in agricultural income across successive years.

Disposable income in agricultural households was rising faster than in other groups, which contributed to narrowing the gap between the farmers’ income and the national average and earnings of other household groups (with the exception of manual worker and pensioner households).

However, despite the increased dynamics, in 2013 –for yet another year – the income of agricultural households was lower than in the majority of other household groups (with the exception of manual worker and pensioner households). Disposable income in agricultural households was lower:

• by 11 percent than the average household income in the country;• by 11.5 percent than the income of employees (by 32 percent than in the case of employees in non-manual

jobs);• by 26.9 percent than the income of the self-employed and by 13 percent than the income of retirees.

Source: Developed on the basis of household budget surveys by the CSO.

Households

in PLN per person per month (current prices)

Employees

Job type

Self‑employed Retirees Pensioners

TotalYears Farmers

935,12 869,01 612,34539,93 1 030,94735,40 543,80

977,10 883,81 621,75606,17 1062,82761,46 565,78

1102,63 943,89 684,95689,75 1125,06834,68 622,73

1251,07 999,05 754,52846,76 1232,24928,87 700,95

1338,51 1096,87 802,38887,35 1392,231045,52 815,18

1396,47 1180,65 870,55884,01 1489,611114,49 863,02

1468,38 1244,77 925,631024,53 1591,731192,82 896,27

1497,43 1297,96 968,98983,88 1625,611226,95 936,07

1536,68 1371,62 994,131091,55 1695,641278,43 967,06

1581,05 1415,23 1006,801305,88 1156,131399,07 1699,89

2004

2006

2008

2010

2012

2005

2007

2009

2011

2013

Manual Non‑manual

23


It was higher, though, than the income of workers in manual jobs (by 16.8 percent) and pensioners (by 14.8 percent).

In 2013, the average monthly income per person from an individual farm amounted to PLN 1,305.88 and was 16.4 percent higher than the year before (against PLN 1,091.55 in 2012). A particular rise concerned the income from working on one’s own account (nominal increase by 38.2 percent and real increase by 37.8 per-cent). The income from social insurance and other benefits rose as well (by 5.3 percent in nominal terms and 5 percent in real terms). Whereas the income from hired work fell (by 4.6 percent in nominal terms and 4.9 percent in real terms)21.

Years 2004–2013: the highest rise in agricultural income

After our accession to the EU, it was the income of farmers that has been rising the most dynamically, and its increase was faster than in the case of other social groups (Figure 4). In the years 2004–2013, the nominal disposable income of farmers rose more than twice (by 113.7.2 percent), while in the remaining groups this growth was lower. On average, this was a rise by 76.6 percent for the whole country, by 66.9 percent for em-ployees, by 69.1 percent for the self-employed, and by 70.5 percent for retirees and pensioners.

Figure 4.Dynamics of real household income in the years 2004–2013 (year 2004 = 100; at 2010 prices)

The better income growth dynamics in agricultural households, as compared to other groups, confirms that the post-accession period was mostly characterised by factors conducive to an increase in agricultural income. It was particularly because of the various forms of financial support under the Common Agricultural Policy, addressed to the agri-food sector, farms, and rural areas.

Poland has become the EU’s leader in implementing the Rural Development Programme. Thanks to the accession, an average farm has experienced a considerable social and economic development. An exception to this rule is provided by farms with a small area of agricultural land; and it is this group that substantial-ly benefits from the money distributed under the CAP, not only directly to farmers, but also to rural areas. It is because of investments in rural areas that new jobs are created, which allows for supplementing agricul-tural income with non-agricultural earnings.

21. Own calculations by Lech Goraj, Ph.D., on the basis of “Condition of households in 2013 in the context of the results of household budget surveys,” CSO, Social Surveys and Living Conditions Department, 2014.

160

140

120

100

80

180

Source: Calculated on the basis of household budget surveys by the CSO.

total

employed

farmers self-employed

retirees and pensioners

2004

100

110

124

149 150145

164

150

161

170

2005 2006 2007 2008 2010 2012 201320112009

24

Income gap between urban and rural areas is narrowing

Household budget surveys suggest a slow elimination of the income disproportion between rural and urban inhabitants. In the years 2004–2013, the advantage of urban income over rural earnings declined from 52.5 to 37 percent (Figure 5).

The amelioration of the income disproportion between rural and urban populations mainly resulted from a higher income growth in rural areas (in 2004–2013, by 90.7 percent in nominal terms) as compared to ur-ban residents (71.3 percent in nominal terms). Moreover, rural areas are inhabited by a lower number of the long-term unemployed, i.e., jobless for more than 12 months.

Despite the decrease, the income of urban dwellers, especially in large cities, remains much higher than the earnings of rural populations. It depends primarily on the concentration of the best-paid jobs in big cities, number of family members, and level of education in a household. Rural residents are still less educated, and their families are larger.

Agricultural income in the European Union in 2014

In closing, let us present some basic information about agricultural income in the European Union in 2014:

1. In that year – like in the preceding one – agricultural income in the EU decreased. Income estimates, performed on the basis of macroeconomic calculations for 28 Member States, indicated a decrease in the real income value per full-time employee by 1.7 percent (as compared to 2013). The same calcula-tion for 2013 revealed a 1.3-percent income drop in relation to 2012.

2. The 2014 fall in income per capita was due to a decrease in the real agricultural income by 4 percent (value based on current prices, adjusted by the deflation index) and a decline in the employment rate by 2.3 percent.

3. In 2014, the value of agricultural production in the EU fell by 3.4 percent as compared to 2013, and was mainly caused by a drop in the real value of plant production (by 6 percent) and in the value of animal production (by 0.9 percent).

4. The 2014 decrease in the value of plant production was a consequence of a reduction in prices (by 9.5 percent), partially mitigated by a rise in the production volume (by 3.8 percent).

5. During this period, there was a drop in the price of potatoes (by 24.5 percent), oleaginous plants (by 14.7 percent), cereals (by 13.9 percent), sugar beets (by 11.6 percent), fruits (by 10.7 percent), olive oil (by 8.2 percent), fresh vegetables (by 6.5 percent), wine (by 4 percent), as well as cuttings and flowers (by 0.5 percent).

Source: Calculated on the basis of household budget surveys by the CSO

rural areas

all urban areas

100 ‑ 199

below 20

200 ‑ 499

20 ‑ 99

500 and above

0,0 150,0100,050,0 250,0200,0

100,0

112,9

137,0

123,6

130,4

149,7

202,2

Figure 5.Ratio of the amount of disposable income of rural and urban populations in 2013 (in percent)

25


6. Year 2014 also brought an increase in the production volume of olive oil (by 46.4 percent), oleaginous plants (by 8.2 percent), sugar beets (by 6.9 percent), cereals (by 5.9 percent), potatoes (by 5.5 percent), fresh vegetables (by 1.9 percent), and fruits (0.4 percent); at the same time, there was a fall in the pro-duction volume of cuttings and flowers (by 0.4 percent) and wine (by 2.6 percent).

7. The 2014 decrease in the value of animal production led to a reduction in prices (by 2.8 percent), par-tially mitigated by a rise in the production volume (by 1.9 percent).

8. In this period, there was a fall in the prices of pigs (by 6.1 percent), cattle (by 5.2 percent), eggs (by 5 percent), as well as sheep and goats (2.7 percent). The prices of milk as well as sheep and goats rose by 1.2 percent.

9. In 2014, the EU recorded an increase in the production volume of milk (by 3.6 percent), poultry (by 3 percent), cattle (by 1.5 percent), and pigs (by 0.6 percent). Yet, there was decline in various types of animal production: eggs (by 0,8 percent) as well as sheep and goats (by 1.1 percent).

10. As a consequence of the decrease in the value of plant and animal production, real agricultural income diminished in 2014 in 28 Member States.

11. In Poland, the real income value per full-time agricultural employee fell in 2014 by 5.7 percent as com-pared to 2013.


27


FOREIGN TRADE IN AGRI‑FOOD PRODUCTS

3.

Since Poland’s accession to the European Union, there has been a significant intensification of trading in agri-food products. We have joined the European single market, which is founded on the free movement of capital, goods, services, and persons among the Member States. The objective of such a system is to ensure a sustainable development of trade through reducing customs barriers and minimising international trade restrictions. The main tool for achieving this goal consists in introducing uniform principles of the common commercial policy in the area of commercial and customs agreements, changes in customs duties, export pol-icy, and market protection instruments.

Polish entrepreneurs now enjoy the same conditions of participating in the international trade, plus the opportunity to benefit from the export support scheme and increased customs protection.

In 2003, for the first time in ten years, Poland recorded a positive balance of trade at EUR 454 million and became a net exporter of agri-food products. In the year of our accession, there was a 30-percent rise in the turnover value. This trend continues until today. Only the year 2009 was an exception to this tendency, bringing an about 5-percent turnover decrease as compared to the year before, which was due to the global financial crisis.

Over the last two years (2013–2014) as well, the geographical structure of Polish agri-food exports changed slightly, because of, inter alia, the Russian embargo. The EU countries remain the principal consumers of Pol-ish products, yet the share of the developing countries has stared to increase.

The upward trend continued also in 2014, when the exports value reached the level of EUR 21.3 billion, that is, 4.5 percent more than in the previous year.

The imports figures for the period under analysis indicate a 3-percent rise to about EUR 14.8 billion.

2004 2008 20122006 2010 20142005 2009 20132007

Exports Imports Balance

20112003

0,50,8

1,7 2,1 2 1,42,2 2,6

2,6

4,36,1 6,56

0

5

15

10

20

25

Figure 1.Foreign trade in agri‑food products (in EUR million)

43,6

11,5

9,3

7,1

5,4

15,2

12,6

10,1

8,1

20,4

14,3

5,2 4,4

13,5

10,9

8,5

6,4

17,9

13,6

11,7

10,3

21,35

14,79

Source: Own analysis on the basis of the Agricultural Market Agency data

28

The post-accession surge presented in the chart is merely a confirmation of the previously overwhelming influence of the technical and volume limitations and customs barriers on trading.

After the borders were opened, a trade expansion took place. It was possible because Polish entrepreneurs had a good insight into the requirements of the European market, and the food industry businesses were pro-fessionally prepared for the international competitive environment.

The adjustment of the production policy in the businesses in question to market requirements in the Western countries involved a modernisation of the food processing enterprises in the years 2004–2012. There was an influx of strategic investors from the EU into Poland, which in turn allowed for associating Polish businesses with international companies. A crucial role in the process of globalising Polish enterprises was also played by the EU funds.

The actions aimed at securing our country’s good market position and gaining a durable competitive ad-vantage included the introduction of quality management systems along with the development of intellectual capital, as well as the promotion of Polish food.

As a result of the EU’s Common Agricultural and Commercial Policies, our principal partners for trading in food products include the EU Member States, whose 2014 share in our exports structure reached 79 per-cent. In 2014, there was a 5.3-percent increase in agri-food exports into the EU as compared to the year before. The chief recipient of Polish food is Germany (EUR 4.8 billion).

Source: Own analysis on the basis of “Foreign trade in agri-food products. Current state and perspectives,” No 21–41, “Market Analyses”

series for the years 2005–2012, IAFE-NRI, Agricultural Market Agency, Ministry of Agriculture and Rural Development, Warsaw.

Table 1.Results of foreign trade in agri‑food products (in million EUR)

TRADEFLOW DIRECTION 2003 2005 2007 2009 2011 2012 2013 2014

EU-28a

EU-15

EU-13 a

Total 4 010,4 9 942,5 11 277,6 17 891,37 028,0 15 223,5 20 427,2 21 347,9

2 616,7

2 175,9

440,8

8 001,4

5 347,4

2 654,0

9 066,9

6 320,4

2 746,6

13 763,9

9 284,4

4 479,5

5 190,8

3 388,2

1 802,6

11 906,6

8 813,3

3 093,3

16 020,8

9 950,3

6 070,6

16 876,7

10 210,7

6666,0

2 041,6

1 848,5

193,1

5 941,2

4 484,6

1 456,6

6 698,8

5 448,9

1 249,9

10 295,2

7 802,1

2 493,1

4 063,0

2 938,0

1 125,0

8 789,0

7 511,4

1 277,6

11 956,2

8 472,3

3 483,9

12 576,5

8 763,4

3 813,1

575,1

327,4

247,7

2 060,2

862,8

1 197,4

2 368,1

871,5

1 496,7

3 468,6

1 482,2

1 986,4

1 127,8

450,2

677,6

3 117,6

1 301,9

1 815,7

4 064,7

1 478,0

2 586,7

4 300,2

1 447,3

2 852,9

1 393,7

1 381,0

12,7

1 941,1

2 624,9

-683,8

2 210,7

2 790,6

-580,0

4 127,4

4 272,9

-145,5

1 837,2

1 985,3

-148,1

3 316,9

3 814,9

-498,0

4 406,3

4 362,1

44,1

4 471,2

4 581,5

-110,3

3 556,9 7 972,3 9 111,0 13 557,35 373,5 12 628,2 14 312,5 14 792,2

453,5 1 970,2 2 166,6 4 334,01 654,5 2 595,3 6 114,7 6 555,7

EU-28a

EU-15

EU-15

EU-13 a

Outside EU-28

Exports

Imports

Balance

Total

EU-13 a

Outside EU-28

Outside EU-28

a until 2006 – data for EU-25, since 2007 – data for EU-27 (for EU-15 and EU-12 respectively), since 2013 – data for EU-28 (for EU-15 and

EU-13 respectively)

Total

EU-28a

29


However, the members of the Commonwealth of Independent States remain an important selling market for the Polish agri-food products. The factors favouring the growth of Polish trade with the East include espe-cially: logistic advantage due to the proximity of the target markets, lack of self-sufficiency in food on the part of the CIS countries, and the introduction of the export refunds scheme. In 2014, the share of the CIS countries in Polish exports reached EUR 1.7 billion.

It should be noted, though, that over the years the share of these countries in Polish food exports§ has been subject to considerable fluctuations, which was a consequence of the unstable commercial policy of

Figure 2.Geographical structure of Polish agri‑food exports in 2014


other countries

CIS

EU

13 %

8 %

79 %

Oleśnica, grain elevators, Osadkowski S.A.

30

the region’s leading country, i.e., Russia. The best example was provided by the year 2014 when the Russian embargo caused our food exports to fall by about 30 percent as compared to 2013.

What do we sell the most often?

The commodity structure of our exports is dominated by the meat, fruit and vegetable (including juices, mushrooms, and potatoes), and cereal sectors. The year 2014 was characterised by an increase in the share of cereals, dairy products, and tobacco and tobacco products. The greatest rise, taking into account the volume and value of exports, was recorded in the case of cereals, meat, and tobacco.

Poland ranks third among the European cereal producers. Over the last decade, the yields have varied from 21 to 30 million tonnes. Before joining the EU, our country released to the external markets only the surpluses produced in very good years. Currently, cereals hold a permanent place in our exports.

The dominant role in our exports is being taken by oilseed rape. After the introduction of biofuel regula-tions into the EU policy, the cultivation of this crop became the fastest growing area of production. And given the negligible increase in the domestic demand for rapeseed oil, Poland transformed itself into a major export-er of oilseed rape, rapeseed oil, middlings, and margarine. It is also worth noting the surge in the demand for protein feeds and biofuels.

Today, Poland occupies the fourth position among the poultry meat producers in the EU and is the third largest exporter of this product. 90 percent of the poultry meat volume was sold to the EU Member States. Yet, a significant rise in meat imports was observed in the developing countries – as compared to the year 2013, its value rose by 40 percent. There are new selling markets emerging in Asia and Africa.

The largest increase in the exports volume of tobacco and tobacco products was recorded in the EU mar-kets (16 percent). It is because we offer lower productions costs, while remaining highly efficient since we have modernised our processing facilities.

A slightly less dynamic expansion of exports occurred in the case of dairy products, meat preparations, coffee, tea, cocoa, and feed products, feeding cake included. Nevertheless, Poland firmly remains the fourth largest exporter of dairy products in Europe. The fall in the dairy cow population did not affect our milk yields. The domain of dairy production provides an example of taking actions that can result in offering prod-ucts with a high added value.

Figure 3.Commodity structure of Polish agri‑food exports in 2014

Source: Own analysis on the basis of the Agricultural Market Agency data.

* including potatos, mushrooms, and juices

3 % 4 %5 %

7%

7 %

9 %

9 %

12 %

14 %

19 %

11 %Animal feed products (including feeding cakes)

Fish and their preparations

Tobacco and tobacco products

Oleaginous plant seeds, vegetable fats

Sugar and confectionery

Cereal grains and their preparations

Live animals, meat, and its preparations

Alcohol, coffee, tea, cocoa

Dairy products

Fruits, vegetables, and their preparations*

Others

31


A broad range of products with varied degrees of complexity reach customers in the developed countries, such as Germany, Italy, or the Czech Republic. It is worth noting that exports into African and Asian markets increased considerably, for instance, 66 percent for China, or 18.5 percent for Saudi Arabia. Hence, the new selling markets for dairy products compensate for the decline in the value of exports into the CIS countries.

The limitations introduced in these states – out of political reasons – and the increased demand on the part of the European countries, such as Germany, Great Britain, or Italy, have also led to fluctuations in the foreign sales of meat preparations. The upward trend, as seen from the global exports perspective, points to the EU Member States as the strategic recipient.

Our offer also includes coffee, tea, and cocoa in various forms, which are much sought after especially in Germany and the Czech Republic.

The demand for animal feed products is the highest – again – in the EU countries. However, new selling markets have opened up also in the developing countries.

An increase in the foreign sales volume was recorded in the case of vegetable fats, beer, and molasses. The recipients of vegetable fats and beer included both the EU Member States and the CIS countries – in both cases, our exports expanded. Molasses generated demand in, for example, the USA.

The revenue from such food products as fish and fish preparations, confectionery, potatoes and potato preparations, also increased in 2014 as compared to 2013, even though the trade volume was lower. The highest revenue improvement in this commodity group concerned fish and fish preparations, which was con-nected with the growing popularity of the healthy lifestyle in the Western countries. Potatoes sold best in the CIS countries, especially Moldova and Ukraine, whereas potato preparations attracted the attention of the EU customers.

In 2014, the exports value of such goods as live poultry, oleaginous plant seeds, as well as fruit and vege-table juices diminished, but, at the same time, their exports volume rose.

Poland, a fruit and vegetable giant

Poland ranks fourth among the European producers of fresh horticultural products. Our country is the EU’s top supplier of cherries, apples, gooseberries, currants, raspberries, carrots, red beets, and cabbage, and it occupies the second position as regards the production of cucumbers, strawberries, and onions. Furthermore, Polish food industry holds the lead in the area of sauerkraut, dried carrot, and pickled cucumber production. From the global perspective, Poland is the largest producer of gooseberries, currants, and raspberries, and takes the third place in terms of producing frozen fruits and concentrated juices.

Yet in 2014, the exports of these products fell, which was attributable to the embargo imposed by Russia. This decrease could not be compensated even by the upsurge in the demand from the EU and developing countries’ markets.

Figure 4.Commodity structure of Polish dairy product exports in 2014


35 %

4 %

7 %7 %

10 %

14 %

23 %

Cheeses and cottage cheeses

Yoghurts and fermented drinks

Condensed and powedered milk

Ice cream

Whey

Butter and other milk‑based fats

Liquid milk and cream

32

A parallel situation concerns pork, beef, and animal fats. Yet in this case, the limitations introduced by Russia were the most significant: a decrease in the amount and value of pork exports into Russia and Belarus by as much as 95 percent as compared to the previous year. When it comes to the external markets (coun-tries from outside the EU and CIS), similar drops were reported in this area. These were caused by a ban on introducing pork products into the territory of certain states, due to the cases of the African swine fever in wild boars at the beginning of 2015. In the same year, the exports of live animals other than poultry shrunk as well.

What and from whom do we import?

The total value of Polish food product imports in 2014 reached the level of EUR 14.8 billion, and was by 3 percent higher than in 2013.

Raw materials imported into our country most often come from different climate zones. They are pro-cessed in Poland and then exported further, which ameliorates our foreign trade balance. It is possible because we manufacture products with a higher added value. Just as beneficial to the imports of such products is the possibility to improve our market supply by broadening the domestic producers’ offer.

Figure 5.Geographical structure of agri‑food imports into Poland in 2014

Source: Own analysis on the basis of the Agricultural Market Agency data.

other countries

CIS

EU

15 %

4 %

81 %


33


The vast majority of food products that we import, that is, as much as 81 percent, originate from the EU. Ger-many holds the lead in this respect (26.3 percent), but a crucial role is also assumed by the Netherlands, Spain, Belgium, Denmark, and Sweden. There is also a visible rise in the value of commodities imported from the CIS countries.

The largest share in the value of 2014 imports was taken by horticultural products (16 percent) and meat products (14 percent).

A dynamic upsurge in the 2014 imports value was recorded in the case of beer. Other imported goods that rose in value included live poultry, poultry meat, tobacco and tobacco products, and dairy products.

In 2014, Poland sourced less fruit and vegetable juices as well as rice and oleaginous plants from the abroad than in the preceding year. A remarkable decrease in the imports value was recorded in the case of molasses.

Trade in food products is on the rise

As compared to 2013, the balance of domestic trade in food products improved in the last year by 7 percent, reaching the level of EUR 6.56 billion. This value results mainly from trading in tobacco and tobacco products (EUR 1.37 billion), poultry meat (EUR 1.30 billion) and red meat (EUR 1.18 billion), as well as dairy products (EUR 1.15 billion). Other branches that contributed considerably to this increase included the cereal, confectionery, and vegetable sectors.

The positive balance was also attributable to trading in beer, oleaginous plant seeds, sugar, molasses, and animal fats. As for drops, the largest deficit brought by the year 2014 concerned trading in feeding cakes, fruits and their preparations, live animals, wine, coffee, tea, and cocoa

Figure 6.Structure of agri‑food imports in 2014


10 %

6 %

10 %

10 %

5 %

5 %4 %7 %

16 %

14 %

13 %

* including potatos, mushrooms, and juices

Animal feed products (including feeding cakes)

Fish and their preparations


Oleaginous plant seeds, vegetable fats

Sugar and confectionery

Cereal grains and their preparations

Live animals, meat, and its preparations

Alcohol, coffee, tea, cocoa

Dairy products

Fruits, vegetables, and their preparations*

Others

34


Cereal and flour preparations

Meat and poultry offal

Confectionery

Alcohol

Red meat, offal, and its preparations(excluding poultry)

Coffee, tea, and cocoa

Live animals (including poultry)

Dairy products*

Vegetables (including mushrooms)and their preparations

Fruits (including nuts) and their preparations

Feeding cakes

‑ 1000EUR mln ‑ 500 0 500 1000 1500

Cereal grains

Figure 7.Poland’s balance of foreign trade in selected agri‑food products (in EUR million) as compared to 2013

Source: Own analysis on the basis of the Agricultural Market Agency data 20132014

1 304

1 183

1 148

764

711

705

536

‑191

‑194

‑233

‑453

‑766

1 374

* dairy products excluding casein

35


The final balance of foreign trade in agri-food products in 2014 achieved the record value of EUR 6.56 billion. Such a result was possible thanks to the strong competitiveness of this branch of the Polish industry, and to the high quality of products manufactured in modern enterprises across Poland and perfectly tailored to suit the tastes and needs of the developed countries’ populations. Thus, with a 13-percent share, food exports holds the high third rank in general Polish exports.

Russia: agri‑food exports/imports

Russia remains Poland’s most important economic partner among the countries associated in the Common-wealth of Independent States22, with whom, up until the introduction of the embargo on Polish food in 201423, we used to conduct lively trade in agri-food products (Figure 8, Table 2). Even in 2013, Russia was the third larg-est recipient of Polish food, purchasing EUR 1.3 billion worth of our goods. The increase in agri-food exports into Russia in the years 2004–2013 was mainly due to the large supply of such goods in our country and the growing demand for Polish food in Russia.

However, in 2014, the exports revenue diminished by as much as 30 percent, down to EUR 882 million. Rus-sia fell to the seventh rank among the recipients of Polish food.

22. CIS includes such countries as: Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, or Uzbekistan.

23. The embargo was based on political reasons as it constituted a response to the EU’s sanctions against Russia connected with the Ukrainian crisis. In January 2014, Russia banned imports of pork from the entire EU territory (ceased to issue veterinary certificates). In February, it also prohibited Polish imports of pigs, their genetic material, and pork products that have not been subjected to heat treatment; and since April, there is an entry ban on Polish pork preparations. In August 2014, Russia has expanded the list of banned products to include: fresh fruits and vegetables, fruit and vegetable prepa-rations, dairy products, and selected food preparations.

2014*2006 2010 20132008 20122004

0

200

600

400

1000

1400

1200

800

Source: Own analysis on the basis of unpublished data from the Ministry of Finance

* initial figures

Exports Imports Balance

372,4 383,9438,5

706,9

980,1

721,1

Figure 8.Foreign trade in agri‑food products with Russia (in EUR million) in the years 2004–2014

433,8486

751,7

1051,3

1257,8

881,7

404,7

32,349,9 47,5 44,8 71,2 89,8

160,6

1168

36

Fresh fruits and vegetables still constitute a vital product group in the structure of Polish agri-food exports into Russia (the 2014 exports value reached EUR 258 million), yet the decline in these exports as compared to 2013 was considerable and amounted to approximately 40 percent. The revenue from selling apples – in compar-ison to the year 2013 – fell by about 46 percent and amounted to EUR 147 million.

An important role in trading with Russia was also assumed by dairy products (mostly cheese). Yet, in this area as well, substantial decreases were recorded: the 2014 revenue from these sales was EUR 88 million, against EUR 140 million in 2013. The revenue from cheese sales alone decreased to EUR 67.6 million, as compared to EUR 107.2 million the year before.

Whereas the exports of pastry products rose to EUR 55 million (+71 percent), of chocolate products – to EUR 52 million (+14 percent), of flour-based food preparations – to EUR 24 million (+50 percent), of frozen vegetables – to EUR 27 million (+40 percent), and of fruit juices – to EUR 30 million (+40 percent).

Table 2.Results of Polish foreign trade in agri‑food products (in EUR million)

SPECIFICATION 2004 2006 2008 2010 2012 2013 2014*

5 242,2 11 692,3 13 507,2 20 427,28 577,4 17 893,2 21 347,9

684,8 1 100,5 1 375,4 2 194,1867,0 2 016,0 1 698,6

91,0 309,5 306,1 520,6187,3 658,6 601,7

593,8 790,6 1 069,3 1 673,5679,7 1 357,3 1 096,9

404,7 486,1 751,7 1 257,8433,7 1 051,3 881,7

32,3 47,5 44,8 89,850,0 71,2 160,6

372,4 438,6 706,9 1 168,0383,7 980,1 721,1

4 406,5 10 277,4 10 921,1 14 312,56 486,2 13 557,4 14 792,2

835,7 1 414,9 2 586,1 6 114,72 091,2 4 335,8 6 555,7

Agri‑food exports

Agri‑food imports

Balance of foreign tradein agri‑food products

including to CIS

including to CIS

including to CIS

to Russia

to Russia

to Russia


* initial figures

37


To sum up: Russia’s share in the general food exports from Poland in 2014 amounted to only 4 percent (in connection with the aforementioned embargo). In comparison, in 2013 this figure was 6.3 percent.

0 100 20050 150 25025 125 22575 175 275 300

pigs

meat and meat products

milk and dairy products

fresh fruits and vegetables

apples

frozen vegetables and fruits

sugar, confectionery and chocolate products

processed fruit and vegetables

food preparations

animal feed

Figure 9.Agri‑food exports from Poland into Russia in the years 2004–2014 (in EUR million)

Source: Own analysis on the basis of unpublished data from the Ministry of Finance.

2008 2013 20142004 2010

38

As for importing goods from Russia, agri-food products constitute a negligible portion. In the years 2004–2014, such imports increased nearly five times (up to EUR 160 million), yet the importance of supplies from Rus-sia is marginal – they account for only 1 percent of our imports. We buy mostly: fish, cereals, oleaginous plant seeds, and food preparations; and in 2014, we also imported animal feeds (mainly feeding cakes).

The balance of trade in agri-food products remains positive, and in 2014 it settled at EUR 721 million. How-ever, as a result of the embargo, a significant decrease was recorded as compared to 2013, when it reached the level of EUR 1.2 billion.

Source: Own calculation on the basis of unpublished data from the Ministry of Finance

Figure 10.Russia’s share in Polish foreign trade in agri‑food products (in percent)

2014*2006 20072005 20102008 2009 2011 2013201220040

1

3

2

6

8

7

5

4

Exports Imports

0 20 4010 30 505 25 4515 35 55 60 65 70 75

cereals andcereal products

fish

food preparations

vegetable oils

oleaginous plant seeds

animal feeds

Figure 11.Agri‑food imports from Russia to Poland in the years 2004–2014 (in EUR million)


2008 2013 20142004 2010


40


IF NOT RUSSIA, WHAT ELSE? NEW SELLING MARKETS

4.

Over the recent years, we have observed an advance of alternative directions of Polish food exports. The primary reason behind the search for new selling markets is the uncertainty of exports into unstable markets of countries associated in the Commonwealth of Independent States (CIS). The most remarkable example here was provided by the Russian embargo imposed in 2014 with regard to some products from the European Union, especially fruits, vegetables, and meat. It concerned about 2–3 percent of the Polish exports value, and, although it has not caused a collapse of our exports, it has severely affected domestic producers.

As a result, they started to look for new markets for their products and, indeed, with each year they are increasing their presence on the global market24. A valuable opportunity for Polish exporters is presented by the growing demand for food products in the world.

According to the WTO data, the value of global agri-food exports in 2013 surpassed USD 1.7 trillion and increased by 6 percent as compared to 2012. It is estimated that the demand for food products in the world will rise fast, as a result of, inter alia, the improving condition of the global economy and the constant population growth. Another important factor concerns changes in the model of consumption in the developing countries, which will lead to a greater demand for more complex and healthier food.

Therefore, in order to continuously broaden the possibilities for efficient exports, it is important to build Pol-ish agri-food brands. No less importance should be attached to identifying the legal requirements for accessing markets and the related customs barriers. Additionally, it is worth researching the preferences of local consum-ers, the cultural setting, and geographical conditions in places to which Polish food is to be sent.

At the same time, the strategy for creating new selling markets should also take into account the social development process in the developing countries, which has a major influence on the size and structure of the demand for food products. Plus, it cannot be forgotten that the number of undernourished people in the world (mostly in Asia and Africa) remains very high. And the problem of food shortage on the global scale can deteri-orate as a result of the climate change that causes yields to shrink, coupled with a further decrease in the area of agricultural land and with the population growth.

Polish food in Africa

In 2014, the revenue from exporting food to third countries (from outside of the EU, CIS, EFTA, NAFTA, and MERCOSUR)25 was EUR 2.2 billion (an increase by 31 percent as compared to the previous year) and accounted for 10.4 percent of the total agri-food exports from Poland.

Special attention should be given to the nearly doubled exports into African states, the majority of which are experiencing dynamic economic growth. They represent an enormous selling market since – as estimated by the World Bank – the countries of the Sub-Saharan Africa are already inhabited by almost a billion of peo-ple26. Equally important is the fact that Africa is a net importer of food, as a result of both a very high natural population increase and a low productivity of local agriculture. The poor agricultural productivity is principally a consequence of unfavorable natural and climate conditions – water shortage in particular – but also of a low level of agricultural development. An essential factor conducive to a rapid growth of exports into this region of the world consists in the implementation of capital and social investments by companies originating from the highly industrialised countries.

In 2014 alone, the revenue from exporting goods into Africa amounted to about EUR 660 million and

24. “Irreplaceable Russia? Alternative markets for the Polish exports,” PISM Publications 2015; “Public support and the competitiveness of the Polish economy,” IAFE-NRI Publications, Warsaw 2014.

25. EFTA: European Free Trade Association – Iceland, Lichtenstein, Norway, and Switzerland; NAFTA: North American Free Trade Agreement or the North American Free Trade Area – USA, Canada, and Mexico; MERCOSUR: Argentina, Brazil, Paraguay, and Uruguay.

26. As per the World Bank data, www.data.worldbank.org. 2012.

http://www.data.worldbank.org

41

constituted almost 3 percent of the Polish agri-food exports value. Dominating products included: powdered milk, wheat, food preparations, cheeses, as well as chocolate and confectionery products. The most visible up-surge in the sales of these products was recorded in the case of: Morocco (+457 percent) – EUR 89 million, Alge-ria (+177 percent) – EUR 210 million, Nigeria (+110 percent) – 23 million, and South Africa (+103 percent) – EUR 41 million. Other African countries have also purchased more of Polish agri-food products in the recent years.

In 2014, our largest trading partner on the African continent was Algeria, which mainly bought our pow-dered milk (63 percent of exports value) and wheat (20 percent) as well as food preparations, cheeses, barley, sugar, and confectionery products.

Our exports into Morocco primarily included wheat (86 percent) and powdered milk (7 percent) as well as cheeses, feeding cakes, and food preparations.

The third position among the important recipients of Polish agri-food products on the African continent was taken by Egypt (exports value in 2014: EUR 62 million). To this country, we sold wheat (29 percent), cheeses (15 percent), powdered milk (12 percent), sweets, cookies, and chocolate products (10 percent), tobacco products (9 percent), food preparations (5 percent), as well as whey, frozen vegetables, apples, and others.

South Africa chiefly receives our wheat (42 percent), sweets and chocolate products (19 percent), food prepa-rations (18 percent), leguminous vegetables (4 percent), as well as cheeses, jams, and tobacco products.

Poland is also sending more and more poultry meat to Africa. An especially large amount of this product was bought by Benin, which increased its 2014 purchases up to 30 tonnes, worth over EUR 38 million (rise by 45 percent as compared to the preceding year).

Table 1.Agri‑food exports into selected African countries in the years 2004–2014 (in EUR million)


*initial figures

Algeria 34,47 52,22 77,63 54,87 73,74 102,02 75,74 209,74

2,48 21,29 5,80 8,46 3,18 6,97 15,92 88,78

10,21 34,52 27,50 24,66 22,77 26,17 48,22 61,63

0,76 4,10 7,02 8,18 12,87 18,00 20,05 40,63

0,01 0,04 3,55 11,05 15,88 23,49 26,99 39,68

1,20 4,95 7,41 6,07 4,22 18,95 31,61 34,74

0,03 0,19 0,16 0,97 8,55 17,86 23,99 28,90

3,37 1,15 3,59 8,14 7,97 8,12 10,91 22,93

0,31 0,00 2,65 6,67 13,58 15,02 19,14 17,30

0,15 0,01 1,75 4,08 4,63 5,46 10,57 13,86

0,04 1,60 0,12 0,42 0,62 0,70 6,84 13,62

4,11 1,00 3,48 4,01 7,46 6,47 10,45 8,39

0,55 16,89 1,50 0,86 1,34 7,95 12,13 2,78

2004 2006 2008 2010 2011 2012 2013 2014*

Morocco

Egypt

South Africa

Benin

Libya

Senegal

Nigeria

Guinea

Congo

Kenya

Ghana

Tunisia

42


In the years 2004–2014, the highest growth rate of agri-food exports recorded by Poland concerned trad-ing with such countries as: Benin (+129 percent annually), Kenya (+77 percent), Senegal (+58 percent), and South Africa (+49 percent).

It is worth noting at this point that despite still accounting for only a small share in Polish agri-food exports, African markets are very promising. It is because apart from powdered milk and wheat, Poland has a chance to supply this market also with beef and poultry meat along with their preparations, fruit and vegetable prepara-tions, sweets and chocolate products, cheeses, and other food preparations. And Polish manufacturers can count on business support from the government. Examples include, among others, economic missions or the Go Africa programme, allowing to establish closer contacts with African enterprises and to learn about the needs of local communities.

Polish food in Asia

Asia is the most populated continent in the world – it is inhabited by approximately 4.5 billion people27. Hence, East Asia as well as South and South-East Asia present an attractive direction for food exports, not only given the considerable population, but also because of the fast increase in the number of people categorised as middle class (especially in China). An important advantage of Polish food can consist in its high quality and the fact that it originates from Europe, which is valued in the modern model of consumption in this region.

The Chinese market has no match in Asia. It follows from a report by the Institute of Grocery Distribution (IGD) that in 2011 the entire consumption of food and food products in China reached the value of USD 963 bil-lion and was higher by over 55 billion than in the USA28. The IGD analysts conclude that the growth rate of food consumption in China is rising surprisingly fast, and assume that in 2015 the Chinese food market will grow to about USD 1.5 trillion. Whereas the World Bank estimates that the annual growth of Chinese food consumption

27. As per the World Bank data, www.data.worldbank.org, 2012.

28. “Analysis of the conditions and challenges for the development of the agri-food sector in Poland in the context of glob-al tendencies,” collaborative paper edited by Prof. Andrzej Kowalski, Renata Grochowska, Ph.D., Bożena Nosecka, Ph.D., IAFE-NRI, Warsaw 2014.

2004

0

20

40

60

80

100

120

140

160

180

200

220

2005 2006 2007 2008 2010 2012 2014*201320112009

Source: Own analysis on the basis of unpublished data from the Ministry of Finance.

*initial figures

Algeria

Morocco

Egypt

South Africa

Benin

Libya

Senegal

Nigeria

Guinea

Figure 1.Value of agri‑food exports into selected African countries in the years 2004–2014 (in EUR million)


43

amounts to as much as 15 percent, and the yearly consumption of meat per capita is only a little lower than the global average (about 43 kg) and borders on approximately 38 kg29.

Moreover, the analysts highlight that despite experiencing a considerable decline in its growth rate, the Chi-nese market remains the most attractive for global retail chains. According to the IGD, in 2015, the population of 200 Chinese cities will exceed one million. It is stated in the World Factbook30 that in 2030 the number of urban inhabitants in China will surpass one billion.

For this reason, more and more global food retail giants invest in China and other countries from the list of the fastest growing economies in the world. In the years 2004–2014, Poland recorded a 37-percent growth of agri-food exports into China. In 2014, the value of Polish food exports into the Middle Kingdom amounted to about USD 90 million31.

It is largely attributable to our government units, which have taken a series of beneficial business initiatives, such as the Go China programme aimed at both expanding current collaboration and promoting new sectors.

In 2014, the revenue from exports into Asia surpassed EUR 600 million, which constituted 3 percent of all Polish agri-food exports. The most visible increase concerned the value of exports into Hong Kong (+114 per-cent) – up to EUR 146.5 million, India (+64 percent) – up to EUR 6.4 million, and Malaysia (+56 percent). The most severe drop was recorded in the case of exports into Japan (−65 percent) and South Korea (–39 percent). Only two years ago, these two countries purchased a lot of Polish pork. Yet, after Poland discovered two cases of African swine fever in dead wild boars in February 2014, the said states introduced a ban on importing pork from Poland. The same occurred in other Asian countries, such as China, Taiwan, and Singapore. This situation significantly reduced the hitherto dynamically growing pork exports into these countries (Table 2).

In the years 2004–2014, the fastest growth took place in the case of agri-food exports into: Hong Kong (+38 percent annually), China (+37 percent), India (+36 percent), and Vietnam (+23 percent). Other countries of the Asian continent have also bought more and more food from Poland over the last decade, including: Japan (1.5 times more), South Korea (twice as much), Indonesia (nearly four times more), or Malaysia (over six times more).

Given its large population – about 1.3 billion32 – and the fast economic growth rate33, a potentially big market for agri-food products is offered by India, which enjoys an ever growing number of middle-class consumers34.

29. The Chinese market handbook – the food sector, informational bulletin of the Agricultural Market Agency, 2014.

30. CIA, Central Intelligence Agency, The World Factbook 2013–2014.

31. “Irreplaceable Russia? Alternative markets for Polish exports,” PISM Publications 2015; “Public support and the com-petitiveness of the Polish economy,” IAFE-NRI Publications, Warsaw 2014.

32. As per the World Bank data, www.data.worldbank.org, 2012.

33. As estimated the by World Bank, the GDP growth in 2014 amounted to 7.5 percent.

34. According to the “Exporter’s guide to the market of the Republic of India,” middle class in India includes 200–250 mil-lion people; Polish Chamber of Commerce.

China 79,0

in EUR million

Hong Kong 146,5

India 6,4

Japan 0,9

South Korea 19,6

Malaysia 11,6

Agri‑food exports into selected Asian countries in the years 2004–2014Table 2.


*initial figures


44


India is successful in cooperating with Europe. In Poland too, entrepreneurs as well as representatives of business organisations and self-government units are actively establishing contacts with partners in India, which gives reason to hope for an increase in our exports into this market.

Yet for now, the food trade turnover between Poland and India is negligible. In the previous year, Poland exported EUR 6.4 million worth of food products, against EUR 2.9 million in 2013. India mostly purchased choc-olate and pastry products, fish, flour, and jams.

As follows from the analysis presented, non-European selling markets still have a minor share in the struc-ture of Polish exports. It seems, however, that some of them could be very attractive to Polish food producers in the future. In addition, the recent activity of the Polish government agencies has opened up considerable busi-ness opportunities both in African and Asian countries.

The challenges faced by Polish exporters certainly include the still low recognisability of Polish products, but also customs and regulatory barriers.

Furthermore, one of the primary factors that will determine our ability to penetrate new markets in the fu-ture, concerns providing the agri-food sector with capital leverage, so that this branch can compete successfully with the strong local and international players.


46


Over the last 25 years, Poland has largely closed the gap separating it from the highly developed countries of the European Union. After two decades of uninterrupted growth, Poland is nowadays the eighth economy in the EU in terms of real GDP. Now, the crucial question concerns the pace of further economic growth and the related rise in the society’s wealth. If we are to move forward and join the most advanced economies in the world, we must develop faster.

The agri-food sector is among the branches that will determine the GDP growth dynamics in the decade to come. The present report specifies the elements that increase the sector’s attractiveness, and the conditions that must be met for Poland to achieve agricultural production growth dynamics surpassing the EU average.

Since Poland’s accession to the EU, the entities of the agri-food sector have significantly improved their ef-ficiency and productivity ratios, yet their development potential remains strong. The present report highlights the actions that should be taken in order to make a clever use of these reserves.

To a considerable extent, the pace of further growth in the agricultural sector depends on implementing in agricultural enterprises the know-how and innovations from scientific and research centres. Studies reveal that farmers do recognise the need for education, development, and acquisition of specialist knowledge. It is necessitated by the strong competition from other agricultural entrepreneurs in the EU, and the increasing specialisation of agriculture. Agricultural entrepreneurs should expand their knowledge mainly in the area of broadly construed management, finance, marketing, or communication techniques. And the next step should consist in facilitating access to programmes that allow for gaining highly specific, expert knowledge. For this reason, it is important to introduce changes in the curricula for educating future agricultural managers. There should be a broader offer of educational and skill-improvement programmes carried out jointly by business circles, universities, and advisory or consulting companies.

Modern business – today’s agriculture included – should also be based on professional advisory, research, and financial services. The agri-food sector is attracting more and more interest on the part of banks, yet there are barriers to lending, which are difficult to overcome especially to individual farmers. It is due to, inter alia, strictly limited access to reliable information about the scale of their activities, and gaps in inventory and reporting, making it hard to assess their trustworthiness and credit standing. Another problem concerns the reluctance to employ security instruments, which raises the cost of the loans offered.

The next essential element of growth in the agri-food sector, as highlighted by this report, is the necessity to build the Polish brand differentiating our products from those manufactured in other European countries. Indeed, a recognisable brand allows for quoting higher prices. It is encouraging that agricultural entrepre-neurs are aware of the high quality of their products and see a great potential for the future in this respect. Polish food products have already earned a good reputation on many markets and have a chance to gain presence on international markets.

It does not mean that we can forget about undertaking promotional initiatives on the domestic market. Currently, about 70 percent of all food products offered in Polish shops are produced in the country. Promo-tion of the Polish brand should be a priority for all food sector participants, and consumers should be constant-ly encouraged to choose domestic goods.

Polish food producers are strengthening their position, which is evidenced by the development of new directions in Polish agri-food exports. The primary reason behind the search for alternative selling markets was the uncertain and unpredictable character of exports to unstable markets of the CIS countries, Russia in particular. It should be stressed, though, that the Russian embargo on selected produce – mainly fruits, vegetables, and meat – affected only some 2–3 percent of our exports value and did not cause a collapse but a temporary slowdown of our exports.

In such circumstances, Polish agricultural producers started looking for new selling markets. It turned out that a great potential is represented by countries located in Africa, Middle East, and Asia. The recent activities of Polish government agencies have opened up significant opportunities for growing our business in these places. One of the primary factors that will determine our ability to penetrate these markets in the future concerns providing the agri-food sector with capital leverage, so that this branch can compete successfully with the strong local and international players.

CONCLUSION

Sobienie Jeziory, Stanisław Rozum’s Horticulture

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Scientific Director in the New Chemical Syntheses Institute in Puławy, member of the Main Council of Science and Higher Education by the Ministry of Science and Higher Education, and chairman of the Scientif-ic Council of the Puławy Competence Center. Member of scientific boards in the Institute of Catalysis and Sur-face Chemistry of the Polish Academy of Sciences, and in the National Marine Fisheries Research Institute.

He is an expert on fertilisers and fertilisation, he also undertakes scientific activities in the area of chem-istry and agriculture. He assumes the role of the Polish coordinator in the Standing Committee on Agriculture Research by the European Commission. He is also an expert of the HELCOM Helsinki Commission as regards non-point pollution, and an expert of the Ministry of Agriculture and Rural Development in the domain of fertilisers and fertilisation. For many years (1990–2011), he worked in the Institute of Soil Science and Land Cultivation – National Research Institute in Puławy. Author of numerous publications about fertilisation and environmental protection.

Prof. Janusz Igras, Ph.D., Eng.

Zenon Pokojski, Ph.D.

Vice-President of the Management Board of Zakłady Azotowe “PUŁAWY” since 1 July 2009, in charge of units responsible for the following areas: trade, technology and development, support, corporate affairs, and corporate communication.

Graduate from the Warsaw School of Economics – Ph.D. in economics in the area of management sciences. For nearly 30 years, he has been developing his management skills in executive positions.

Vice-President of the Polish Chamber of Chemical Industry, Member of the Responsible Care Committee, and President of the Supervisory Board of Gdańskie Zakłady Nawozów Fosforowych “Fosfory” Sp. z o.o.

Co-author of programmes concerning, among others, company growth strategy, restructuring, coop-eration of business and science, and regional development strategies based on partnership programmes by businesses, local government units, and NGOs. Author and co-author of publications about organisation and management, entrepreneurship, and public relations. Vice-President of the Scientific Board in the Institute of New Chemical Syntheses Institute in Puławy.

He was among the initiators of founding the Puławy Competence Center, which connects agricultural entrepreneurs, agricultural advisors, scientific institutions, and business people.

AUTHORS OF THE REPORT

http://ckpulawy.com/rada-naukowa/prof-dr-hab-inz-janusz-igras/

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Wojciech Nalazek

Prof. Andrzej Kowalski, Ph.D.

Journalist at TVP S.A. (Polish public television broadcaster), specialising in agricultural matters. Cur-rently, he heads the Editing Office for Agricultural Programmes, with which he has been associated from the beginning of the 1990s. Author of numerous episodes in the “Rolnictwo na świecie” (“Agriculture in the world”) series, presenting the directions of changes that await Polish agriculture. He prepared and conducted such programmes as: “Racje i emocje” (“Reasons and emotions”), “Z Polski” (“From Poland”), “Eko echo” (“Eco echo”), “Agrolinia” (“Agroline”), “Europa bez miedzy” (“Europe without boundary strips”), or “Tydzień” (“Week”). Through his materials, he claims that an agricultural holding is nothing else but a company, and its owner – a farmer – is an entrepreneur who has to take into account and calculate risks, and manage expenses, reve-nues, and profits. He received the “Distinguished in Service for Agriculture” award.

He has been associated with TVP S.A. since 1970s. He created and edited many socio-economic series such as: “System”, “Kraje, narody, wydarzenia” (“Countries, nations, events”), “Ludzie, władza, pieniądze” (“People, power, money”), „Pod kreską” (“Below the line”); he headed the producer and creator team called “PIĄTKA.” Author of a series of reports from the world under the collective title “Jakość życia” (“Quality of life”). Winner of multiple journalistic awards and honorary mentions. Graduate from the Faculty of Journalism and Political Sciences of the University of Warsaw.

Director of the Institute of Agricultural and Food Economics. In the years 2008–2010, member of the Rural Council by the President of the Republic of Poland. From 2004 to 2006, Undersecretary of State in the Ministry of Agriculture and Rural Development.

From the beginning of his scientific and professional career, he has been associated with the Main School of Planning and Statistics, currently operating as the Warsaw School of Economics, where he completed subse-quent stages of academic advancement, reaching the position of the Deputy Dean in the Faculty of Production Economics.

His achievements comprise over 400 papers, including articles in domestic and foreign scientific magazines, and the area of his interests covers, inter alia, the issue of adjusting agricultural activities to market require-ments or the integration of Poland with European structures. One of the distinguishing characteristics of his scientific and research work concerns combining economic and social matters. He conducted research in this area in collaboration with partners from France, Japan, and Canada.

Member of advisory boards and editorial committees for scientific press titles in Poland, Italy, Bulgaria, Romania, Serbia, and Ukraine; since 2010, international member of the Ukrainian Academy of Agricultural Sciences. He received a honorary doctorate from the Institute of Ecology in Ukraine and awards from scientific institutions in Ukraine, Bulgaria, and Romania. Since 2001, member of the board in the Committee of Agricul-tural Economics of the Polish Academy of Sciences.

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LITERATURE

Literature

• “Analysis of the conditions and challenges for the development of the agri-food sector in Poland in the con-text of global tendencies,” collaborative paper edited by Prof. Andrzej Kowalski, Renata Grochowska, Ph.D., Bożena Nosecka, Ph.D., IAFE-NRI, Warsaw 2014.

• “Doing Business 2015,” World Bank Group.• “Effectiveness, production costs and competitiveness of Polish agricultural holdings at present and in the

medium- and long-term perspective,” collaborative paper edited by Prof. Wojciech Jóźwiak, IAFE-NRI, Warsaw 2014.

• “Global value chains – a challenge for the agricultural sector in Poland” in: “Development trends in agricul-ture and rural policies – challenges for the future,” IAFE-NRI, Volume 127, R. Grochowska, Warsaw 2014.

• “Foreign trading in agri-food products in 2014, including exports of the main commodity groups,” Agricul-tural Market Agency, Analyses and Programming Office, Warsaw 2015.

• “Human capital in the structural transformation process of rural areas and agriculture,” paper edited by Agnieszka Wrzochalska, Ph.D., and published by IAFE-NRI, Volume 130, Warsaw 2014.

• “Polish rural areas in 2014,” a report about the condition of rural areas edited by Iwona Nurzyńska and Walenty Poczta, Scholar Scientific Publishers, Warsaw 2014.

• “25 years of Polish agriculture. Food security in Europe,” Puławy Competence Center, 2014.• “Poland 2025: Europe’s new growth engine,” McKinsey & Company, Warsaw 2015.• “Irreplaceable Russia? Alternative markets for Polish exports,” PISM Publications 2015; “Public support and

the competitiveness of the Polish economy,” IAFE-NRI Publications, Warsaw 2014.• “Irreplaceable Russia? Alternative markets for Polish exports,” PISM Publications 2015; “Analysis of the

conditions and challenges for the development of the agri-food sector in Poland in the context of global tendencies,” IAFE-NRI Publications, Warsaw 2014.

Internet

• World Bank data.• Polish Chamber of Commerce.

CSO data

• Concise Statistical Yearbook of Poland 2014, CSO, Warsaw 2014.

Source materials

• Torunn Aasmundstad, statement in the “Agrobiznes” programme, TVP1, 8.07.2015.• Bloomberg’s Global Innovation Index, 2015. • “The World Factbook”, Central Intelligence Agency, 2013–2014. • “English Proficiency Index”, Education First, 2014. • “Condition of households in 2013 in the context of the results of household budget surveys,” CSO, Social

Surveys and Living Conditions Department.• Concise Statistical Yearbook of Poland 2014, CSO, Warsaw 2014, p. 203. • “Income standing and cost-effectiveness of production in Polish agriculture in 2014 as compared to the

preceding years,” Warsaw 2014. • “The Chinese market handbook – the food sector,” informational bulletin of the Agricultural Market Agen-

cy, 2014.

Documents

POLAND, AN ATTRACTIVE - Centrum Kompetencji PUŁAWYckpulawy.com/wp-content/uploads/2015/10/The-Report-2015... · 2015-10-26 · POLAND, AN ATTRACTIVE PRODUCER AND SUPPLIER OF FOOD