Aid
for consumption
Food
promotion
Market interventionAid for pr
oduction
Specific market support External tradeBIULETYN
INFORMACYJNY
NR 4/2015, QUARTERLY
Aid for pr
oduction
SPECIAL EDITION
Specific market support25 YEARS
OF THE AGRICULTURAL
MARKET AGENCY
invites to conference
“25 years of ARR support to the agri-food sector”
under the auspices of
Mr Janusz Piechociński – Deputy Prime Minister, Minister of Economy
and
Mr Marek Sawicki – Minister of Agriculture and Rural Development
on 22
ndSeptember 2015
in Poznań Congress Center, Pavilion No. 15, Room 1.E
ul. Głogowska 14, Poznań, Poland
during International Fair for Food “Polagra Food”
10.00 – 10.30 Registration of participants
10.30 – 10.45 Welcome – Mr Radosław Szatkowski, President of Agricultural Market Agency 10.45 – 11.00 Speech of Mr Marek Sawicki, Minister of Agriculture and Rural Development 11.00 – 11.30 Agricultural Market Agency – 25 years of activity in agri-food sector: experience and challenges – Mr Lucjan Zwolak, Deputy President of
Agricultural Market Agency 11.30 – 12.00 Coff ee break
12.00 – 12.30
Common Agricultural Policy: the last decade and the new perspective – Mr Czesław Siekierski, Chair of EP Committee on Agriculture and Rural Development
12.30 – 13.00 Transformation of Polish agricultural sector, with particular emphasis on the role of the ARR. 1990–2015 – Prof. Andrzej Kowalski, Director of Institute of Agricultural and Food Economics
13.00 – 13.30 SIAL – international ARR partner. Boost your export with SIAL Group– Ms Julie Hernandez, Account Manager, Ms Elly Habt, Sales Team Manager SIAL Group
13.30 – 13.45 Speech of Mr Mihail Spătărelu Puţintei - Director General of APIA (Romanian Paying and Intervention Agency for Agriculture) Signing the agreement between ARR and APIA
13.45 – 14.30 Coff ee break
14.30 – 14.50 Polish agri-food sector – Promotion in prospective sales markets – Mr Bartłomiej Kulisz, Agricultural Market Agency
14.50 – 15.15 Technical advancement – success of Polish agri-food sector – Mr Tadeusz Pawłowski, Director of Industrial Institute of Agricultural Engineering
15.15 – 15.40
Barriers in agri-food products trade in the common EU market and their infl uence on competitiveness of Polish export – Mr Andrzej Gantner, Director of Polish Federation of Food Industry Union of Employers
15.40 – 16.00 Polish food export – success and what next? – Mr Michał Koleśnikow, BGŻ Bank
16.00 – 16.10 Drawing lots for an exhibition stand - SIAL Middle East 2015– Mrs Julie Hernandez, Account Manager, Mrs Elly Habt, Sales Team Manager SIAL Group
16.15 – 16.30 Closing remarks – Mr Radosław Szatkowski, President of Agricultural Market Agency
Media Patronage Conference Partner Minister of Economy
Mr Janusz Piechociński
Honorary Patronage
Minister of Agriculture and Rural Development
Mr Marek Sawicki
25 years of efficient
activity of the agricultural Market agency
for the Polish agriculture, the agro-food economy and consumers
Mirosław Drygas
We have been suPPorting the Polish agro-food sector for 25 years
Radosław Szatkowski
Polish food industry during the Period of Political transformation and membershiP in the european union
Andrzej Kowalski
4
2
10
Biuletyn informacyjny arr
quarterly issn 1233–2437
eDitor: agencja rynku rolnego
01-207 Warszawa ul. karolkowa 30
L
et me recall that the establishment of the ARR in 1990 was one of the most important signs of insti-tutional change in the environment of the Polish agro-food sector. The ARR helped the agricultural pro-ducers and other agricultural operators to adapt to the free market economy. In order to prevent price volatility, the purchases of surplus agro-food products were laun-ched, and the tasks of managing the national reserves of agricultural and food products were implemented. The Agency also applied other forms of intervention enabling economic operators to realise the purchases, such as con-tracts with authorised warehouses, advance payments and loan guarantees. The ARR acquired a part of public cereal storage and created a large storage company. It also supported the fi rst agricultural commodity exchan-ges and wholesale markets. In 1999, the ARR began thepreparations to meet the requirements of the EU paying agency. The organisational structure, principles of opera-tion and procedures were aligned with the UE standards. On 1 May 2004, the Polish agro-food market became part of the single market. The ARR was entrusted with the implementation of the selected mechanisms of the Common Agricultural Policy. Over 11 years, the Agency’s activities were changing along with the CAP evolution, the changing needs of the market participants and chal-lenges. The implementation of new tasks would have been impossible without the involvement of qualifi ed workforce, and the smoothly running systems: organi-sational and technical, fi nancial and accounting, IT, and audit and control systems. The now frequent crises in the agricultural markets reinforced the need to improve preparations to meet the requirements of the EU paying
We have been
supporting the
Polish agro-food
sector for 25 years
For 25 years, the activity of the Agricultural Market Agency has been associated with the changes following the system transformation in Poland. I would like to use this opportunity to thank all the benefi ciaries, farmers, institutions, and economic operators for the many years of cooperation and involvement and to invite them to make use of the support off ered by the ARR and to further cooperate for the development of the Polish agro-food sector.
rapid response procedures and preserve the institutio-nal readiness. In the past years, the Agency supported various groups of producers affected by the market cri-ses on a number of occasions. It paid special support in the milk and milk products market and compensated the producers the loss caused by e.g. the avian influenza, Escherichia coli, African swine fever virus in wild boars, and the Russian ban.
ARR also administered other activities stabilising the agri-cultural markets such as intervention purchases and aid for private storage as well as production quota systems. It paid out export refunds, supplementary payments to tobacco and starch potatoes, and a series of subsidies sti-mulating demand for raw materials of agricultural origin and increase in production profitability. In supporting consumption, the Agency implemented socially crucial programmes helping develop good eating and nutrition habits in children – “School Milk Scheme”, involving 2.5 million children and “School Fruit and Vegetables Scheme”, which resulted in 1.3 million pupils receiving free 262 million servings of fruit, vegetables and juice. Poland is one of the EU leaders in implementing both programmes. No less important from the social point of view was the Programme of Food Aid for the Most Deprived Persons (PEAD), under which ca. 1 million tons of prepared foodstuffs worth PLN 2.4bn were distributed. In production support, farmers received subsidies to the certified seed for 6.3 million ha. Aid was paid to the apiculture industry. The ARR implemented mechanisms monitoring and controlling the functioning of the mar-kets: milk and milk products, sugar, fruit and vegetables and wine, and also in renewable energy sources. The Agency also carried out foreign trade activities. It was also an institution active in the area of analyses and forecasts presenting the situation on demand and prices in the agro-food market. For years, the ARR studies have been a well-established element of the national market infor-mation.
Rapid development of the Polish agro-food sector after accession to the EU, thanks to among others work and involvement of institutions supporting the sector made our country a leading food producer offering competitive prices and good quality. The growing globalisation and increased competition make the expanding into and retaining markets increasingly difficult. Therefore, the Agency’s involvement in food promotion is growing, and is financed both with the EU and national funds as well as individual branches’ funds. Such direction of functioning
fits into the EU policy for 2014-2020 of increased expendi-ture for this area and a new promotion strategy. With the support or upon initiative of the ARR various campaigns and promotion and information activities were carried out on various continents (among others in countries such as China, Saudi Arabia, Japan, Singapore, South Korea, Vietnam, US, and Germany), and businesses had an opportunity to participate in international trade fair and economic missions. Polish food specialities and brand were promoted. New trade contacts were facilitated. For the effectiveness and competitiveness of national agriculture it is important to form associations of agri-cultural producers. In view of advanced concentration in other food chain links, integration becomes one of the most urgent tasks faced by farmers and institutions that support them. The Agency gets involved in this area – it will be in charge of e.g. recognition and supervision of producer organisations and their associations in indivi-dual agricultural product sectors.
Going back in time, it should be noted that the period of functioning in the UE and implementation of CAP has led to positive change in the domestic agro-food sector. Despite growing competition and the market turbu-lence, such as the Russian ban, Poland’s foreign trade in agro-food products is growing. In 2014, exports came to €21.9bn (up 5.5 times than in 2003). Positive foreign trade balance was more than 13 times larger and came to €6.7bn. The 2015 estimates are also bright.
The capacity of the Polish agricultural sector is huge. Still, its innovation and efficiency must be developed further and the consolidation of agricultural producers and pro-cessors must be supported. The ARR is also in charge of supporting those processes. The Agricultural Market Agency, as a paying and executive agency, is prepared to grasp the upcoming challenges and efficient work foste-ring Polish agro-food sector.
Radosław Szatkowski
President of the Agricultural Market Agency
T
he period may be described as short, however rapid changes which the Agency then underwent were challenging and required huge effort and involve-ment of its employees in practically all positions. To make the conclusion understandable to a reader who may get lost in the meanders of the agricultural policy, the most im-portant facts (in the writer’s opinion) of the past 25 years ofthe ARR activity have been told briefly, illustrating the great challenge faced by the Agency and its ability to adapt to rapidly changing external and internal environment. The challenges result chiefly from the evolution of the CAP be-ing a response to the increasbe-ing globalisation and liberali-sation of economic relations, often entailing unpredictable fluctuations in global agricultural markets.
25 years of efficient
activity of the Agricultural
Market Agency
This year marks 25 years of efficient activity of the Agricultural Market Agency fostering the Polish agriculture, the agro-food economy, and what seems no less important, the interests of consumers, and therefore the whole Polish society.
FOR THE POLISH AGRICULTURE, THE AGRO-FOOD ECONOMY
AND CONSUMERS
The Agency was established as a direct consequence of the Poland’s system transformation that began in 1989. In agriculture and the agro-food economy, the first sign was the so-called marketisation of the economy. This meant de-parture from the centrally determined purchase prices and retail prices. At the beginning, in the situation of shortages of food products, retail prices rocketed and farmers enjoyed the unprecedented profitability for a short period of time. The market, however, abhors vacuum, and the borders now open to import caused a dramatic change and high dissatis-faction of farmers. In such situation, it was necessary to build an institutional system of agricultural environment operat-ing within the market economy standards, includoperat-ing insti-tutions stabilising the situation in the agricultural markets. The establishment of the ARR in 1990 responded to this need and the Agency was entrusted with the tasks of the state intervention purchases in the agricultural markets us-ing a variety of instruments. In this context, the main objec-tive of the Agency was to ensure the country’s food security and counteract the consequences of price fluctuations in the markets in agricultural products, and, in result, to stabi-lise the income gained by farmers.
The Agency’s activity may be divided into four main periods:
• years 1990 to 1995 – creation and implementation of
the intervention policy,
• years 1996 to 1998 – improvement of intervention forms
and methods,
• years 1999 to 2004 – adaptation of intervention mecha -nisms to those in the EU,
• from 1 May 2004 – implementation of the CAP mecha -nisms as an accredited paying agency1.
After the signature of the Association Agreement with the European Communities by the Republic of Poland it be-came clear that the Agency was a natural candidate to per-form the function of the paying agency in charge of imple-mentation of the selected mechanisms within the common organisation of agricultural markets.
After Poland’s accession to the EU, the ARR’s tasks largely de-rive from the implementation of the CAP instruments. The period may be divided into sub-periods identical to the suc-cessive CAP programming periods and the corresponding financial perspectives, i.e. 2004 to 2006, 2007 to 2013 and
the current 2014 to 2020. Therefore, it can be said with full certainty that the post-accession period demonstrated the fastest change in the Agency’s operation. This called for a high level of flexibility and involvement of human resources in making adjustments to the continued mechanisms and the preparatory measures to implement new programmes. The following is a short description of the highlighted pe-riods:
Years 1990 to 1995
The period featured the creation of solid and lasting funda-ments for the intervention policy to stabilise the agricultural and food markets in Poland. The task was performed in par-allel with departure from the direct interference of the state with the agricultural market processes. The process may be defined as pioneering and extremely difficult - for the first time ever the system transformation involved transition from the centrally planned to the market economy. In such a sensitive sector as agriculture and the agro-food economy, this was huge challenge, especially given the fact that the system solutions could not be just taken from other coun-tries and planted at home. Foreign experience and good practice were largely used but the solutions implemented in Poland were modified and adapted to the specificity and social and economic conditions that are typical for Polish agriculture and the agro-food economy.
1 Division into periods was adopted after: W. Rembisz and A. Kowalski, The ARR in the Polish agricultural market regulation system [in:] Agencja Rynku Rolnego
The key tasks were:
• Introduction of conventional intervention mechanisms
such as purchase and sale of agricultural products in the situation of extreme price volatility: cereals, pigmeat, beef, milk and milk products, sugar and starch potatoes; occasionally such activities were
conduct-ed in the following markets: honey, wool, tobacco, hops and flax fi-bre;
• loan guarantees to en -tities purchasing and exporting agricultural products;
• co-creation of mod -ern market infrastruc-ture, also the com-modity exchange and brokerage houses;
• capital commitment in
commercial companies having capacity enabling the stockpiling of the country’s reserves and intervention stocks fundamental for the country’s food secu-rity;
• creation of the agricultural market information system
necessary to take business decisions.
Years 1996 to 1998
During this time, the institutional system solutions were fur-ther built to improve the Agency’s efficiency and effective-ness and strengthen the cooperation with other agricultural institutions. The issues were reflected in the amended Act on the Agricultural Market Agency of 1996 and in the new Agency’s statute. The adopted acts enshrined increased control and supervision of the ARR tasks in the intervention policy and defined the ARR’s relations with other agricultural market players. The conditions that must be met – depend-ing on the supply and demand situation in the markets of agricultural products – for the Agency to intervene in the domestic market (to launch the purchase or sale) were also
defined. These rules applied to four markets: cereals, meat, milk and milk products, and sugar.
The last year of the period featured intense involvement of the ARR representatives in the working groups created by the Ministry of Agriculture and Food Economy. The work was to review the Community law, including the regulation of the
ag-ricultural markets, and on this basis – to prepare for the accession negotiations
and adapt to the ac-quis communautaire.
Years 1999
to 2004
The adoption of Agenda 2000 at the Berlin summit in March 1999 formally determined the direc-tions of the CAP reform and the Members States’ desire to expand the EU with 10 new states, also Poland. This intensified work on har-monisation of Polish law with EU regulations. The Agency was also obliged to continue intervention activities in accordance with national rules within an annual plan. The implemented intervention mechanisms were increasingly aligned with the EU requirements.
As early as in 2000, the Agency began the preparation to act as a paying agency after Poland’s accession to the EU, which was formally acknowledged by the Government of the Re-public of Poland in 2001. This fact determined the directions of further Agency’s alignment activities for the preparation of the accreditation package compliant with the EU stand-ards. The package enabled to gain the paying agency status after positive audit conducted by an independent auditor and issuance of the accreditation act by the Minister of Fi-nance.
To this end, it was necessary to adapt the Agency’s organisa-tional and funcorganisa-tional structure so as to make it correspond to the EU requirements:
• it was necessary to change the Agency’s organisational
structure and create new departments, such as the in-ternal audit department;
• books of procedures, implementing instructions and
various guidelines had to be prepared for more than 50 mechanisms to be implemented, covering the whole handling procedure of support and payment appli-cations submitted by beneficiaries: from formal verifi-cation through administrative control up to payment verification and authorisation, making the payment and booking it;
• large number and wide range of mechanisms to be im -plemented required preparing an efficient IT system for handling them,
• there was a need to ensure in the organisational struc -ture the so-called division of functions in application handling and to implement a policy of rotating staff in sensitive positions;
• all the Agency’s employees had been trained in admin -istering specific mechanisms;
• potential beneficiaries were provided with information
about the possibility to receive support.
It should be emphasised that the Agency went through the accreditation relatively quickly and efficiently. The accredita-tion package was submitted to the Ministry of Finance on 31 October 2003, and as early as on 19 April 2004, after audit and presentation by an external auditor (KPMG Company) of a positive accreditation report, the Minister of Finance is-sued an unconditional accreditation act to the Agency. This is how the ARR obtained the right to handle all planned sup-port mechanisms in the EU standards beginning with the first day of Poland’s membership in the EU.
w mld eur
o - c
en
y bieżąc
e
Export subsidies Coupled direct payments Market-related expenditure Rural development
Other market measures Decoupled direct payments Direct payments
The structure of CAP expenditure 1980–2020
Source: European Commission.
in billion € – in curr
en
t pric
Years 2004 to 2015
The functioning of the ARR after accession may, in princi-ple, be divided into three sub-periods closely related to the continued CAP reform, i.e. 2004 to 2006, 2007 to 2013 and the current – 2014 to 2020. In successive periods this was associated with making changes in the implemented mechanisms, eliminating old or introducing new ones. In general, the successive CAP reforms limited the scope and forms of intervention in suc-cessive agricultural markets. This was an effect of arrangements made and commitments undertaken in WHO negotiations.
Since Poland’s accession to the EU, the share of the mar-ket mechanisms in the struc-ture of the Community the CAP budget has been diminishing,
and the there have been changes in the structure and functioning. The reduction of the EU budget for market mechanisms in the current financial perspective limited the scope of Agency’s work in this area.
Over that period, the Agency’s activity was oriented towards: stabilising the agro-food market, promotion and improve-ment of competitiveness of the Union’s agro-food products on foreign markets and support of food consumption. The tasks were financed with EU funds, the state budget and na-tional promotion funds.
Also, the Agency, using its extensive experience, was un-dertaking new tasks, such as those related to extraordinary situations in agricultural markets. In 2014, the Agency im-plemented mechanisms launched by the European Com-mission in the aftermath of the African swine fever virus and the Russian ban on imports of some agricultural products from the EU. Consequently, the Agency paid to the farmers of compensation for loss in the pigmeat and fruit and veg-etables markets.
It should be emphasised that in the two aforementioned cases, the Agency demonstrated great flexibility and ability to quickly adapt to the unexpected challenges and its readi-ness to immediately launch the necessary actions.
In parallel, the Agency implemented other mechanisms, which may be considered as due to the extensive experi-ence in their implementation. These are2:
subsidies to the seed material,
support for market in apiculture products,
promotion of consumption of milk and milk prod-ucts among children and school youth (“School
Milk Scheme”), and fruit, vegetables and juice among the “1-year
pre-school” and the primary 1-3 year pupils (“School Fruit and Vegetables Scheme”),
financial support for branch promotion and/or information campaigns financed from nine agro-food promotion funds,
implementation of delegated activities as part of RDP 2007-2013,
initiation of promotion activities aimed at local produc-tion development (with particular emphasis of regional, traditional and ecological products and food produced under food quality schemes),
implementation of the Sector Promotion Programme for Polish Food Specialties,
administering milk, sugar and isoglucose quotas, administering the import quotas, issuance and
settle-ment of agro-food product import/export licences,
payment of beef and poultry export refunds, payment of aid for private storage of butter, making intervention purchases,
recognition of producer organisations and associations of producer organisations in the milk sector.
In 2014, the ARR was also entrusted with tasks related to the implementation of the Operational Programme Food Aid 2014-2020, financed by Fund for European Aid to the Most Deprived (FEAD).
Due to the 2013 CAP reform, in 2015 milk quotas were abol-ished – a mechanism that was administered by the ARR, and sugar quotas are going to share the same fate at end-Sep-tember 2017.
***
For the past 25 years, the ARR proved that it has been an institution implementing the entrusted tasks efficiently and effectively, and most notably – in line with the EU and na-tional legislation. This is not a baseless assessment but one relying on audit and control results from 2014 to 2015 con-ducted by external, competent authorities, such as the Min-istry of Finance and its subordinate Tax Control Offices and the Supreme Chamber of Control.
After the audit of the Agency’s activity in the financial year 2014, the Certifying Authority in charge of certifying ex-penses under the CAP from the European Agricultural Guar-antee Fund (EAGF) issued the Annual Account Certificate of the European Agricultural Guarantee Fund accompanied by unqualified opinion. This means that there have been no irregularities in the functioning of the Agency in managing the EU funds and the compliance of the procedures with paying agency accreditation criteria was acknowledged. A similar result was produced by control of the state budget implementation for 2014 carried out by the Supreme Chamber of Control in 2015. The control also included im-plementation of programmes co-financed by the EU. There have been no irregularities or negligence found in the func-tioning of the Agency in the controlled scope. In such sit-uation, which is extremely rare, the Supreme Chamber of Control did not produce any comments and follow-up rec-ommendations.
The professional manner of the Agency is also corroborated by only a small percentage of repealed administrative de-cisions. On average, out of ca. 300,000 administrative deci-sions made by the ARR, there were only a few repealed by administrative courts.
The Agency may also derive satisfaction from the opinion on its activity by inhabitants of rural areas. In the recent sur-vey, as many as 89% of respondents assessed the quality offered by the Agency as very good or good.
To conclude, great expertise in task delivery, flexibility in ac-tion and in adaptaac-tion to the changing global condiac-tions and the readiness and quick mobilisation to grasp the chal-lenges of extraordinary circumstances displayed by the ARR should be emphasised again. Those arguments themselves suffice to praise the achievements represented to the pres-ent day as well as the currpres-ent the ARR position and profes-sionalism among the rural environment and agricultural institutions.
Dr Mirosław Drygas
The Institute of Agriculture and Rural Development Polish Academy of Sciences
Macroeconomic environment
aff ecting the development of
agri-business in Poland
The 1990s are known in the Polish history as a period of po-litical transformation. In the food sector, this process began earlier than elsewhere, as already in the summer of 1989 the prices of some agricultural and food products (with some exceptions) were released, which marked the beginning of market liberalisation.
Substantial changes in the State’s economic system were in-troduced at the beginning of 1990s. Step-by-step, the new legislation eliminated centralist instruments for regulating the economy and introduced market solutions. The State discontinued to subsidise food products for consumers and agricultural production inputs from the budget. In 1988, food subsidies accounted for over 40% of total subsidies and 17% of total current expenditure from State’s budgets. In 1990, their share fell to around 5% of total subsidies, the amount of which also decreased to around 1% of total
cur-rent expenditure from State’s budgets. In 1992, food sub-sidies were provided exclusively for funding meals in „milk bars” (a form of low-budget cafeterias). Elimination of subsi-dies triggered a rise in food prices.
At the same time, prices of other consumption components, such as rent and energy, have also increased. Changing price ratios of consumption goods resulted in a signifi cant change in the structure of household spending. Household expenditure on food (excluding stimulants) fell from 38% in 1986 to about 32.5% in 1997. Since the transformation, food consumption patterns have also changed. During the trans-formation period consumption of fruit, vegetables, vegeta-ble fats, bread and other cereal products, and in recent years also cheese, has increased, but the consumption of meat, milk, butter and eggs has fallen. The consumption of po-tatoes and sugar shows a relatively stable trend. There is a marked tendency to diversify the range of consumed prod-ucts due to an increase in the consumption of processed foods and quality requirements.
Poland’s integration with the EU has been a strong impulse for the development of the Polish food industry. It opened up an unrestricted access for food producers to the EU market of around 500 million consumers. The current commodity structure of trade in agricultural products illustrates the pro-export character of the development of the national food industry.
Polish food
industry
during the period
of political transformation
and membership in
A number of institutions in the agricultural environment have boosted their margins, which – coupled with an ear-lier release of purchase prices of agricultural products and retail prices of food products – resulted in a sharp increase of food prices and high inflation. As a result of these events, the supply of food products has gained advantage over the demand for food, although generally the society tried to safeguard the previously achieved level of consumption. The economic conditions of food production have also changed. Subsidies to prices of energy carriers and produc-tion inputs were significantly reduced. In the years 1987– 1989, the share of grants in the value of production sold by manufacturers supplying the agricultural sector amounted to 33%, in 1990 it fell to 9%, and in the following year these grants were discontinued. One exception are the subsidies to stimulate the biological progress in agriculture and subsi-dies to agricultural limestone.
The political transformation took place in the context of se-vere recession. Recession in the food sector was secondary in nature, which means it came from other branches of na-tional economy. The first symptom of this recession was the emergence of a demand barrier and market restriction. It was the decline in the level of real income of the population (by 1/3 in a very short time) that caused a sharp decrease in demand for food products, purchase prices offered to farm-ers, as well as their income. This is how global changes that took place in the whole economy triggered the recession in the agricultural sector.
The agribusiness must have faced competition on two im-portant fronts. Firstly, the liberalisation of economic relations has given new meaning to intersectoral competition. The liberalisation has exposed agriculture to competition from stronger and better organised branches.
The second significant competition front, which was opened up by restructuring policies, turned out to be com-petition from external partners. The abolition of the state monopoly in foreign trade, release of free circulation, and reduction of import duties in practice opened the State borders, which in the period 1990–1993 resulted in a sharp increase in imports of food commodities (2.3-fold, including a 4.1-fold increase in imports of agricultural products) with a
decline in exports of agri-food products by 25% and of ag-ricultural products by 46% (in USD terms). In later years, the balance between imports and exports have improved, and in 1997 the imports of agri-food products were 1.7 times higher than in 1993, while exports were twice as high1.
Adjustment processes in the food
industry to market conditions and EU
membership
The processing industry was in a relatively better situation than other sectors of the economy. The period 1989–1992 saw the launch of rapid adjustment processes of the pro-cessing industry to market economy conditions. Three phenomena were characteristic to this period, namely rapid development of local processing, sharp reduction of production in industrial companies and a global decrease of processing in fields, in which – after getting the prices right – there was a drop in national demand or an increase in self-supply. The development of local processing has oc-curred in three different ways:
• by increasing production in food industry, which only after
the abolition of restrictions on access to resources, loans and outlets could have exploited its potential,
• as a result of rapid privatisation of cooperative and agricul -tural processing plants,
• by way of private investments in the construction of pro -cessing plants, mostly small and medium-sized.
Within the following 2–3 years a dense network of small agricultural and food processing plants was established, whose number has doubled (to more than 30,000 process-ing plants). These plants were developed mainly in the field of slaughtering and processing of meat (including poultry), in the bread-making and cereal milling sectors, as well as in the production of beverages, processed fish goods and processed fruit and vegetable products. Small pasta duction plants, oil mills, potato and food concentrates pro-cessing plants were also established. Those plants didn’t however improve the technical standards of processing, as their development occurred at a relatively small cost and us-ing national and used technological lines. Only a small part
of plants that were constructed at that time was equipped with modern technological facilities. Most of them did not reflect the standard which would ensure competitiveness in a developed market economy, however, in the first phase of the transformation they contributed to the development of competition and threatened state-owned enterprises. In the first phase of the transition there has been a large decline in the production of the food industry. Its value in terms of fixed prices fell at that time by 29.5%. This phenom-enon has occurred in almost all sectors of primary process-ing and production of standard processed products. During this period, upward trends could be seen only in the production of frozen foods and fruit and vegetable beverages, confec-tionery products, poultry products and beer. While the first phase saw no sig-nificant transformations in the indus-trial part of processing, the follow-ing years marked a period of deep restructuring and transformation of functioning of the food industry. The characteristic features of the period 1993–1998 in fact included:
• return to trends towards industrialisation of
agri-food processing,
• strengthening the food processing sector,
• accelerated modernisation of the sector’s production ca -pacity,
• fast and diversified privatisation of state-owned enterprises,
• return to trends towards concentration,
• development of vertical integration processes and mod -ern management systems. All these developments not only transformed the structure of enterprises and the market structure of individual sectors, but also changed the nature of the development of the food industry: from extensive, which was dominant in the early years of po-litical transformation, to intensive, relying on increasing the efficiency of production factors that were involved. This has led to the improvement of production efficiency. A significant increase in the efficiency of work and in the share of the value added in the sectoral production has already been achieved, with an important decrease in the consumption of energy.
Modernisation processes of the
processing industry after accession to
the EU
After the accession Polish producers have gained an unre-stricted access to the community market, as well as a pos-sibility to benefit from Union funds, which were aimed at supporting the process of modernising enterprises and adapting them to the functioning of the single European market. At the same time, opening up the domestic market to Union producers posed significant challenges, including handling strong international competition,
which required investments and the re-lated processes of consolidating and
restructuring industries. This period has also seen the strengthening of horizontal (between the
pro-cessors) and vertical integration processes (between agricultural producers, processors and trad-ers).
In the period 2003–2013 within the aforementioned aid schemes to sup-port investments in the food industry the amount of PLN 5.9 billion has been earmarked, including PLN 4.3 billion (73.6%) from the UE budget. All this support, however, constituted for about 8.4% of the total value of investments carried out at that time in the Polish food industry.
The first EU-funded programme implemented under the pre-accession assistance designed to provide support to the food industry was the pilot SAPARD programme. Financial support was based on investment aid to entre-preneurs in the four branches of the food industry: meat, dairy products, fish and fruit and vegetables. The support was granted to projects strictly related to adapting food processing plants to the sanitary and veterinary EU require-ments, increasing the added value, improving the quality of the products, and introducing new technologies and inno-vations. 1,268 projects were implemented totalling to PLN 1,525 million in grants (including PLN 1,143.8 million). The average value of funding granted to one project amounted to PLN 1.2 million. The largest share in terms of the number
and the amount of support had the meat industry (51.3%), followed by dairy (25.5%), fruit and vegetables (15.9%), and fish (7.3%).
Another EU aid programme was the Sectoral Operating Pro-gramme „Agriculture”. The support was granted for improv-ing the sanitary and hygiene as well as the veterinary condi-tions of production, orientating the production towards the market and making use of existing market niches, creating new sales channels and rationalising the existing ones, im-proving product quality, increasing the added value of pro-duction, reducing the negative impact on the environment, improving animal welfare, and introducing new production technologies and renewing the existing ones. The range of branches in the food industry, which qualified for grants for investment activities, was also expanded. The food industry has received support in the amount of PLN 1.7 billion.
Providing support to the agri-food
sector by means of CAP instruments
Part of the EU common agricultural policy, known as the market support for the agri-food sector, allows for funding selected types of operating activities from the EU budget. Polish food producers could on equal footing with Union producers make use of a very wide range of instruments under this type of support. These instruments included among others: market interventions (purchases, sales, private storage, crisis support), subsidies for the production and processing of selected agricultural products, subsidising exports of agri-food products, as well as supporting consumption and promotion. Some of them aimed at stabilising the market, some at increasing production, while others at increasing consumption. In the Polish legislation the leading role in the implementation of market support has been given to the Agricultural Market Agency (ARR). In the years 2004–2013, the agri-food sector in Poland has received market support amounting to PLN 11.3 billion. Most of the measures (33%) were used for intervention activities – PLN 3.77 billion – of which over 50% was spent on intervention purchases of cereals, sugar and butter, the sugar sector received 33% of measures for restructuring aid (in 2009), and the remaining 17% was appropriated to sub-sidising private storage and other activities.
The structure of the market support for the agri-food sector within the CAP has changed over the years. The European Commission attaches increasing importance to the growth of consumption of selected food products, provides fund-ing to promotional and information activities and limits other types of market support. The CAP instruments with a stabilising effect on the agri-food market in Poland in the years 2004–2013 included intervention purchases and sales of the following products: cereals (PLN 1120.3 million), sug-ar (PLN 551.9 million), butter and SMP (PLN 232.6 million). A similar effect could be seen in case of aid for private stor-age of e.g. pigmeat (in 2008 and 2011) and butter (in 2013), under which the Polish entrepreneurs received a total of PLN 24.5 million. Another form of intervention involved pro-viding support to producers and food processors in crisis sit-uations caused by instability of markets, weather anomalies, animal diseases, infections or food contamination. In the last decade such support was provided to eggs and poul-try producers (PLN 15.8 million) for losses caused by avian influenza (in 2007), to manufacturers of dairy products (PLN 154 million in 2007 and PLN 82.9 million in 2010), as well as to producers of vegetables (PLN 179.4 million) as a result of the crisis on account of an epidemic caused by the Escher-ichia coli bacteria (in 2011). These measures, by stabilising the market situation, improved the condition of the compa-nies operating in these industries, strengthening their com-petitive position on both domestic and European markets. These actions, however, did not have a direct impact on the food industry in Poland.
An important CAP instrument that influenced the growth and profitability of food production was aid for the produc-tion and processing of selected agri-food products. In the years 2004–2013 this aid amounted to PLN 2.9 billion. The aid included, among others, production premiums on the potato starch market (PLN 76.3 million), aid for processing flax and hemp straw into fibre (PLN 2 million) and aid for the production of dried fodder (PLN 5 million). The largest sup-port was provided to raw tobacco producers (PLN 1,952.9 million) and starch potato growers (PLN 241.8 million). The sector which is indirectly supported under the CAP is apicul-ture. Financial assistance granted in the period 2004–2013 to honey producers in the form of subsidies (PLN 144.5 mil-lion) aimed to improve the quality of honey and strengthen
individual links connected with the production and mar-keting of apiculture products and the fight against the bee disease – varroosis. One measure to increase the efficiency of plant production and to improve the quality of food, by biological progress, included subsidies to winter and spring cereals seeds, legumes, potatoes and cereal and fodder mix-es. They amounted to almost PLN 500 million.
Another CAP instrument supporting and stabilising the Polish food industry and improving the competitiveness of Polish food producers on foreign markets were export re-funds. These were provided by the European Commission to selected agri-food products exported outside the EU. By compensating the difference between higher prices on the EU market and lower prices on the world market, they contributed to improving the price competitiveness of Polish food products on third country
mar-kets. This instrument has played a vital role in the early years of our membership in the EU, when subsidy rates were high and covered a broad range of products. How-ever, year by year, the European Commission has been diminishing the funds allocated to this support, until they were entirely suspended in
2012. Polish entrepreneurs have actively participated in this form of support, as evidenced by the amount of over PLN 2 billion in subsidies provided to exports of Polish agri-food products. The largest amount of support was provided to exports of sugar industry products – PLN 1.18 billion (56.2% of total subsidies paid), followed in second place by meat industry products with a share of 19.4% (PLN 0.4 billion), and further followed by dairy industry products (15.9%), processed products (Non-Annex I) (6.2%), cereals and starch (1.3%) and fruit and vegetables (1%).
The share of refunds in the value of agri-food exports outside the EU was the largest in the sugar industry and amounted to almost 70%. Support provided to other industries in the form of export refunds amounted to less than 10% of the value of their exports outside the EU. However, given that the exports of subsidised products outside the EU
amount-ed to only 20% of total Polish exports of these products, this support did not play much of a role.
Support to the consumption of agri-food products was provided among others in the form of financing promo-tional and information campaigns on markets of selected agri-food products, aid for consumption of milk and milk products as well as fruit and vegetables in schools and ed-ucational establishments, or in the form of providing food from intervention stocks to the most deprived persons in the European Union (food aid).
Trade and interbranch organisations may receive funding for promotional campaigns (80% of the net amount of costs actually incurred for the implementation of measures covered by the campaign). The aim of such campaigns is to improve the knowledge of consumers about the benefits of food products produced in the EU and to boost demand for these products, and in consequence increase their production. During the period of Polish membership in the EU 23 campaigns promoting agri-food products were carried out, of which 15 have already been com-pleted. These campaigns were sup-ported with the amount of almost PLN 148 million, including PLN 86 million from the EU budget. The largest amount of support for promo-tional and information activities support went to the meat industry – 37.8% of the total funds allocated under this ac-tion. The dairy industry came second – 21.8%, followed by fruit and vegetables – 18%, organic and regional products – 15% and other agri-food products (rapeseed oil, honey and pasta) – 7.5%.
Promotional and information activities concerning the mar-ket for agri-food products may be conducted both on the EU internal market and on the markets of non-EU countries. By the end of 2013, a total of PLN 78.2 million (which con-stituted 53% of funds allocated to promotional activities under CAP in the years 2004–2013) was spent on promo-tional and information activities on the Polish market. The remaining 47% of funds (PLN 69.5 million) was spent on food promotion on foreign markets, in countries such as Ukraine, Russia, USA, China, Japan, Vietnam, South Korea,
Singapore, Thailand, Romania, Bulgaria, Latvia and Germany. Promotional and information campaigns conducted on the aforementioned markets, aimed at spreading knowledge about the high standards of food production in the Europe-an Union Europe-and at promoting its quality, originality Europe-and taste, contributed indirectly to an increase in exports of European food products (including Polish) to foreign markets.
Competitiveness of the Polish
agribusiness
Progress that was achieved during the preparatory period for EU integration has shown that despite earlier concerns related to the outdated production structures of the Polish agriculture, technology gap in the food industry, less devel-oped market structures, lack of branded products and low level of marketing and promotional activities, the Polish food industry was able to exploit comparative advantages. Previously, this access was restricted by the EU trade policy which, through high (and sometimes even prohibitive in na-ture) tariff barriers, effectively protected the internal market, and preferential access was strictly limited2. In 2002 Poland
transformed from a net importer into an increasingly impor-tant net exporter of food products. In the years 2000–2014
the value of exports has increased nearly sevenfold, while the value of imports increased over four times. As a result, in 2014 the trade surplus in sales of food products exceeded EUR 6.5 billion.
The expectations of those economists (primarily the authors of the shock therapy), who argued that only the process of enforcing efficiency would bring sustainable improvement of the economic situation of the Polish food industry have been confirmed. At the time of Poland’s accession, the ex-tremely rapid growth of food exports due to competitive-ness (quality and price) of the agri-food sector on the single European market has become the most important factor in the development of this sector in Poland.
The growth of agri-food exports at the initial stage of the Polish membership in the EU has helped to triple our share in the total agri-food exports in the EU – from 1.7% in 2003 to 4.8% in 2014. Poland ranked eighth amongst the major EU food exporters. The value of the balance of trade in agri-food products ranks Poland fifth among the eleven countries of the European Union with positive balance of trade in these products (other EU countries are net importers of food). The most traded goods in the Polish foreign trade in agri-products are primarily food industry products. The es-timate share of food industry products in the total Polish
0 5 10 15 20 25 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 exports imports balance
Polish foreign trade in agri-food products (€ billion)
2 The EU trade policy, which is formed by a system of customs duties, preferential quotas, export and import licenses and export refunds, constitutes an integral
part of the CAP aimed at stabilising the internal market while maintaining the preference for Community products. Source: own elaboration based on CAAC data.
agri-food exports amounts to 80–85%. The share of food industry products in agri-food imports is lower and equals to about 70–75%.
Foreign trade is an important factor for stabilising national markets of agricultural products. The dynamics of agricul-tural production and the food industry exceeds the dynam-ics of the demand for food. The greater part of production growth in the sector is targeted at foreign markets, there-fore export became an important channel for managing the surpluses. Thus it constitutes a very important source of revenues for the national food industry. This, in turn, has a positive impact on the economic climate in many sectors of agriculture the food industry. In the years 2009–2010, slightly more than a quarter of the production in the food industry was exported, compared to 13.7% prior to the ac-cession of Poland to the EU. In 2013 this number increased to 32.5%, while in 2012 it was equal to 30,8%. Export has become not only an important sales channel, but also an increasingly significant factor for the development of the food industry, having an essential impact on the balance in most markets. In many sectors of the food industry export has become one of the primary ways to overcome barriers to internal demand (especially in the dairy, fruit and vegeta-ble, tobacco and confectionery industries, and earlier also in the meat industry). In certain sectors imports not only allowed for making better use of the production potential of the food industry and improving its competitiveness (in particular in the fish, fruit and vegetables, coffee, tea, cocoa and chocolate, and spices processing sectors), but also for increasing the consumption level as well as improving the quality of food supply in the society and boosting exports.
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The established commodity structure of trade in agricultur-al products is beneficiagricultur-al for the Polish economy and it con-firms the pro-export character of the development of the national food industry. By exporting processed products, producers reap much greater benefits from their added val-ue than by exporting only raw materials required for their production. What is more, industrial processing of food in-tended for export allows for making better use of resources, and thus allows for exploiting the benefits of economies of scale. Additionally, exports of processed (final) products
have a positive influence on the promotion of the Polish food industry on external markets, which is more difficult to conduct in case of exporting agricultural raw materials or semi-finished products. In turn, importing raw materials (mostly from other climate zones), and then processing them in the country, is more beneficial than importing fin-ished products, because it is conducive to improving the foreign trade balance, and also allows for producing higher added value, making better use of economic potential and creating of new jobs. In the medium term Poland should maintain the cost and price advantage in the production of most agri-food products on the global and European mar-kets, and maintaining the upward trend in exports will be determined by a very broad range of non-price factors. One major factor will certainly be the level of innovation. Contemporary innovations in the food economy involve, inter alia, the production and introduction of:
- food products with specific characteristics, such as prod-ucts from organic or integrated production;
- new products with specific and at the same time desired characteristics (e.g. plant products produced from geneti-cally modified seeds, i.e. GMO plants), which are used as raw materials for the following industries: fodder, pharmaceuti-cal, cosmetic, industry which manufactures eco-fuels, etc.; - techniques (methods) for manufacturing, which allow
for making a more rational use of the limited resources of labour, agricultural land, water, energy carriers (fuels, elec-tricity), etc.;
- solutions for preserving biodiversity and landscapes. On the other hand, modernisation processes must take account of the fact that consumers are reluctant to accept new products based on new technologies, such as GMOs or functional foods.
Prof. Andrzej Kowalski
Ph.D., Institute of Agricultural and Food Economics – National Research Institute
