3. Influence of global factors on the Polish food economy
3.3. The influence of global factors on the current and future developments in the Polish food industry
The assessment of the impact of globalisation processes on the Polish food economy in 2004-2011 is not unanimous, since its scope, progress and results were different. In foreign trade in agri-food products the assets were as follows: High dynamics of turnover growth, positive trade exchange balance, higher protection of the internal market from the inflow of cheaper products and raw materials, and the defeat – low diversification of export directions (too high potential of export to the EU countries exceeding 80%). In food industry, there has been a slowdown in the globalisation processes compared to the previous years (in particular to the privatisation period). The share of transnational corporations in production increased, though, and production and export of producers with national capital also increased. However, in several industry sectors there has been a concentration of production by TNCs. Generally speaking, globalisation processes have had a positive impact on Polish food industry, which is confirmed by high production and export dynamics and other economic factors. In agriculture significant funds from the EU directed to agriculture sped up its modernisation, but still it is not a competition for global agriculture. The increase in subsidies for agriculture weakened the regime of efficiency improvement for economy, intensification of agricultural production or restructuring of agriculture. Agriculture seems to be the weakest link in Polish food industry. Direct influence of globalisation on agriculture was slight (for instance, by foreign trade in agricultural products, supplies of raw products to the TNCs branch), as it was protected by the EU provisions. The growth of world prices of agricultural raw products also did not make any improvement for the profitability of Polish agriculture. Big changes that were initiated by the globalisation were observed in consumer behaviour on the markets of food products. They were inspired to a large extent by the activities of TNCs, and the opportunities for free movement. The biggest changes took place in internal (national) trade. Global corporations play a much greater role here than transpires from their market share. Not only are they responsible for changes in trade as such, but also in its environment. These influence, inter alia: foreign trade turnover, production of food industry, prices of food products, consumer behaviour. They are the best example of vertical and horizontal integration in the agri-food sector. Changes in globalisation of particular sectors of Polish food economy may be indicative either of the growing similarities between the processes, or their links with the global economy.
From the point of view of globalisation processes’ impact on Polish food economy67, in the short period to 2013, the most significant factors will be:
67 It should be pointed out that the influence of globalisation on particular chains of food
x Global economic conditions. Currently world economy has been touched by a wave of financial crisis, the so-called debt crisis (affecting in particular the developed countries, to a lesser extent, also Poland). It seems that in conditions when governments need to limit expenditures and household make savings, growth can be generated mainly through the increase in export. An obstacle for Polish export of agri-food products may be unfavourable situation in the majority of EU Member States (which are the main importer of our food). On the other hand, Polish products have a comparative advantage on this market (both in terms of price and quality) and at times of crisis these may even increase, as price is the factor that counts most. Activities of global networks of commerce, which contribute to the growth of export and depreciation of the currency rate of PLN, may also be factors in this case. What may also contribute to the growth of export is growing demand of the developing countries and a relatively good condition of our biggest trade partner – Germany. In export of agri-food products the decisive, ca. 80% share has food industry, which has recently had an advantageous financial situation, which may facilitate export even with lower profitability.
x The growth and volatility of prices on global markets of agricultural products. Per
analogiam, by 2009-2010 it might be suspected, that at times of crisis – as today –
prices of agricultural raw products decrease. It may facilitate import (hence also production growth) for some re-exporting sectors of food industry: fish, tobacco, sugar, coffee and tea processing etc.
x Fluctuations in currency rate of PLN. The depreciation of PLN which started in August 2011 will probably last for several months to come. The weakening of PLN will have a positive impact on our economy, and in particular, export.
x Integration with the EU still contributes to the development of Polish food economy. Resulting from the accession to the EU, globalisation processes in the Polish economy slowed down, the economy is protected by the EU provisions, and enterprises have opportunities (means and time) to adapt to the market conditions. The European Union still helps level opportunities for low-globalisation sectors and vast number of small and medium enterprises by support from Structural Funds under different programmes, like Innovative Economy, Human Capital, Infrastructure and Environment, Regional Operational Programmes and government activities supporting promotion of Polish food products abroad, as well as the development of R&D activities related to food economy.
x Domination of transnational corporations. In the nearest years the role of TNCs in Polish food economy as a factor that influences the shape of the internal trade, production of food industry and turnover in foreign trade will increase. This will be, to a greater extent, the role of an integrator and coordinator than a producer or exporter.
In the years to come, one might expect that the share of global companies in Polish food industry will continue to increase. Premises supporting such a development
are the following: The growth of interest of the EU Member States in products of Polish food industry, relative low production costs compared to the other EU Member States, opportunities to buy enterprises relatively cheap, the occurrence of relatively significant comparative advantage between TNCs and national companies, the increase of wealth of the Polish society (consumption growth, including highly processed high- quality products).
The development of global companies brings our industry closer to the global level, but on the other hand, is related to diverse consequences for the economy. The majority of the expected structural transformations in the food industry have been and will be first and foremost a reaction to growing competition from global companies. The presence of TNCs in food economy activates national entities. This contributes to the development of the whole sector. Therefore, one can expect that the nearest years will be a period of further significant progress in growth of labour efficiency and the productivity of the majority of food industry.
For Polish food industry, in particular for agriculture, the biggest risk would be liberalisation of trade, which would prevent continuation of support and CAP mechanisms. Lack of the inflow of the EU funds could prevent processes of production and productivity growth, resulting from structural changes and technological progress. Difficulties originating from the second wave of crisis probably will not allow fast conclusion of the Doha negotiation round. Modern economy, including food economy, functions in the conditions of many links and co-dependencies. It makes the situation on the markets increasingly less predictable.
Against other European states, the economic growth in Poland in Q2 2011 was very good and amounted to 4.3% GDP. Among the European countries, only Sweden and the Baltic states had higher GDP growth. The condition of the Polish economy, compared to other states, is good. In 2011 the dynamics of investment grew, which shows that enterprises expect further production and sales growth. Consumption in single households remained at a high level, even though in Q2 2011 we were dealing with a speedup in inflation, which might be a problem for the real income. Export was again accelerated and its dynamics was again higher than that of import. Such good economic information failed to protect Poland against the August (2011) downturn on Warsaw Stock Exchange, or depreciation of the PLN (probably yet another speculative attack on our currency). In food economy we also have examples of the impact of world phenomena on our economy. The collapse of the vegetable market in June 2011 was a result of a panic related to EHEC coli poisoning. Russia used this pretext to put embargo on the import of vegetables from the EU. Exporters from Poland also suffered as a result of this policy.
The condition of the Polish economy, including food economy, is good. It seems that we are quite well-prepared to face potential problems. However, we are but a part of the global economy, hence we are prone to be affected by serious regional or global trends. Recent events were also indicative of polarisation of the global economy.
Reactions of markets in particular countries, to a growing extent are related to political and economic events in the largest countries, such as: USA, China, Japan, but also: EU, NAFTA, ASEAN, MERCOSUR. The countries that participate in these organisations are evaluated not only in the context of their national economies, but as participants to the entire organisation.
Economic crises in recent years (financial, food) added to the uncertain environment. On the one hand we have natural calamities such as hurricanes, droughts, floods which destabilise agricultural production, on the other hand – more and more turmoil in the economy. These appear, unexpectedly, as in nature. In this context, one can list, inter alia, increases and decreases of currency rates, stock exchange listings, changing prices of raw products, crude oil and gas, economic protectionism with economic barriers (custom duties, a wide range of non-tariff barriers), as well as barriers of political (national security, consumer protection), ideological, religious character, and the activity of transnational corporations. It is impossible to predict all the factors.
In the light of the limiting opportunities for traditional developments in food production by the increase of the cultivated area, lack of water, removal of economic barriers and development of science, in particular genetic and biological engineering will be particularly important. As a result, limited natural resources will not be an obstacle in feeding the human population, but will have a potential for making the world even more dependent on the activities of transnational corporations, with all the results possible, including the negative ones, such as the growth of food prices, speculation on agricultural raw products markets, limited access to modern technology.
Global food economy requires changes which would help combat increasing risks. Such changes would include, inter alia, increasing transparency of global food market, for instance, regulating the market of futures contracts, increasing food reserve, liberalisation of trade, legal regulations, activity of transnational corporations, including in agriculture, food industry and trade. Current distortions on the food market should also point out the importance of a long-term strategy for strengthening of global food security. Since food prices may dynamically increase in the future, common adaptation mechanisms should be developed by the international organisations.