Focus on Poland

by World Grain Staff
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by Mario Sequeira

Polish agriculture entered a new era with accession to the European Union on May 1, 2004. Producers and processors now have access to a single market, trade barriers have virtually disappeared and large E.U. funds are available for all manner of agricultural activity, from direct subsidies for production to aid for technical improvement on farms or processing plants. Poland had to make significant changes to meet mostly quality related standards required for E.U. membership and the job is not yet finished. Among the biggest challenges is modernization of the agricultural system dominated by small, fragmented and hence inefficient farms. That is a situation difficult to change quickly; agriculture is not only an important economic activity in the countryside, it is socially important too. Farming has been a traditional enterprise in Poland, largely run by private individuals. Even during the Communist era, which stretched back from the end of World War II to 1989, the collective farming system never took hold in the country.

Nearly 30% of Poland’s labor force is employed in agriculture but the sector accounts for less than 5% of Gross Domestic Product, a sign of low productivity.

Poland’s agricultural productivity is lower than that of the E.U.-15 (the 15 member countries of the Union prior to the accession of Poland and nine other new members in May 2004). One of the reasons for this is over-employment, which happens for social reasons and a lack of alternative employment for farm workers.

Poland is estimated to have about two million farms, most of which are small. The average farm size is about eight hectares. About 57% of farms are smaller than five hectares, and only 10% are bigger than 15 hectares.

About half the number of farms produce for their own consumption, another third have a small marketable surplus and only about 600,000 to 700,000 are considered to be commercial producers.

The main crops are wheat, barley, maize, oats, rye and triticale. Poland also produces oilseeds, vegetables, sugar, potatoes and fruits. It is self sufficient in all cereals except barley and maize.

Annually, Poland grows about 8 to 9.5 million tonnes of wheat, 2.5 to 3.5 million tonnes of barley, 3.5 to 5 million tonnes of rye, 2 million tonnes of corn and 1.2 million tonnes of oats.

Pork is the biggest sector in the livestock industry. About 1.7 million tonnes of pork are produced annually, accounting for about three-fourths of the meat output, followed by poultry and beef.

While agricultural production is unregulated, the government exerts some influence in marketing by intervention though the Agency for Agricultural Markets (AMA), which conducts intervention purchasing, sets minimum prices, procures wheat and rye and provides guarantees to buyers to enable them to obtain preferential credit.

Since accession to the E.U., the AMA administers all E.U. intervention programs and makes purchasing of commodities eligible for intervention under the E.U.’s Common Agricultural Policy.

The E.U. has provided considerable financial support to Poland to smooth the transition to a market economy.

A sum of € 1.2 billion (U.S.$1.6 billion) was made available from 2000-2006 under the Special Accession Program for Agriculture and Rural Development. According to the United States Department of Agriculture, subsidies worth U.S. $2.3 billion ( € 1.8 billion ) will be available in 2004 and U.S.$3.8 billion ( € 2.9 billion) in 2005.

Some effects of Poland’s entry into the E.U. are already being seen. Prices of grain and meat products are rising towards E.U. levels. The higher profits to be made by producers and processors are prompting increased production.

WHEAT AND FLOUR MILLING Poland’s government statistical office estimates 2004-05 wheat production to be 9.5 million tonnes, 21% more than 2003-04’s weather-affected crop of 7.8 million tonnes.

An E.U. study projects wheat production to increase after accession from an average 9 million tonnes to 10 million tonnes by 2006 and to continue rising.

With wheat use fairly stable, the increased production will provide surplus stocks for exports of up to 1.5 million tonnes by 2008.

Of total wheat production, about 5 million tonnes is used as food and about 4 million tonnes as feed. Food grain consumption, of mainly wheat and rye, is about 5.8 million tonnes annually, with wheat’s share being about three-quarters.

Poland imports approximately 50,000 tonnes of durum wheat annually for pasta production, which amounts to 110,000 tonnes. High quality pasta producers use 100% durum; others blend durum with wheat and some do not use durum at all.

In the lead up to E.U. accession, hundreds of milling operations emerged. There are a small number of large operations but a large number of small mills, most of which are family owned with capacity of 20 to 100 tonnes per day.

Before 1989, flour milling in Poland was dominated by state enterprises. During the early 1990s, more than 200 private mills were built. Although these mills were small — most had capacities of 30 to 60 tonnes per day — they were aggressive and took over a large seg- ment of the flour market from the slow and inflexible state-owned facilities.

In the second half of the 1990s, the privatization of some state mills and growth of the new private milling sector changed the Polish milling industry, and the process of consolidation began. Today there are about 40 large mills in Poland with capacities of 200 to 600 tonnes per day.

The biggest milling company is the Polskie Mlyny group, with a market share reported at 20 to 30%. Polskie Mlyny has seven mills with a annual capacity of 820,000 tonnes.

Poland’s livestock industry faces the greatest challenge from entry into the E.U. Polish farms and meat plants now have to comply with a formidable set of E.U. regulations, from animal welfare rules and plant sanitary requirements to environmental regulations.

More than half of Poland’s livestock is kept on small farms with fewer than 10 animals, and before accession, about 40% of Polish meat output came from small plants that do not meet E.U. standards. They will now have to meet those standards or close.

However, there are incentives available to producers that could lead to increasing production and a stable if not strong demand for feed grains.

Once standards are met — and there are E.U. and government funds available to meet those standards — accession to the E.U. will open new markets for meat products and raise their prices in line with E.U. levels. This is expected to stimulate pork and poultry production, the two largest meat sectors.

Poland’s cattle industry is made up of dual purpose animals, with the emphasis more on dairy than beef production. In the 1990s, the cattle herd shrank as milk consumer subsidies ended and drove demand down. Since then, however, with incomes gradually rising, the dairy and beef industries have stabilized.

A record grain harvest in 2004-05 will provide enough feed at low cost for producers in 2005.

According to the USDA, pork production is predicted to fall 6% in 2004 and 3% in 2005 because of low hog inventories. Poultry production is estimated to have grown about 4% in 2004 and to continue growing in 2005 to meet export demand from the new E.U. markets.

Beef production is forecast to continue falling in 2005 because of strong export demand for live cattle.