25 years of the agricultural market agency

BIULETYN
INFORMACYJNY
NR 4/2015, QUARTERLY
25 YEARS
OF THE AGRICULTURAL
MARKET AGENCY
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On the occasion of 25th anniversary
of the Agricultural Market Agency
President of the Agricultural Market Agency
Mr Radosław Szatkowski
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 22nd September 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
Coffee 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
Coffee 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 influence 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
Honorary Patronage
Minister of Economy
Mr Janusz Piechociński
Media Patronage
Telewizja Polska S.A. Polskie Radio S.A.
Minister of Agriculture
and Rural Development
Mr Marek Sawicki
Conference Partner
Table of Contents
2
We have been supporting the Polish agro-food
sector for 25 years
Radosław Szatkowski
4
25 years of efficient
activity of the Agricultural Market Agency
for the Polish agriculture, the agro-food economy
and consumers
Mirosław Drygas
10
Biuletyn Informacyjny ARR
quarterly
ISSN 1233–2437
Polish food industry during the period
of political transformation and membership
in the European Union
Andrzej Kowalski
EDITOR: Agencja Rynku Rolnego
01-207 Warszawa
ul. Karolkowa 30
2
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 beneficiaries, farmers, institutions, and economic
operators for the many years of cooperation and involvement
and to invite them to make use of the support offered by the
ARR and to further cooperate for the development of the Polish
agro-food sector.
L
et me recall that the establishment of the ARR in
1990 was one of the most important signs of institutional change in the environment of the Polish
agro-food sector. The ARR helped the agricultural producers 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 launched, 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 contracts 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 first agricultural commodity exchanges and wholesale markets. In 1999, the ARR began the
preparations to meet the requirements of the EU paying
agency. The organisational structure, principles of operation 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 challenges. The implementation of new tasks would have
been impossible without the involvement of qualified
workforce, and the smoothly running systems: organisational and technical, financial and accounting, IT, and
audit and control systems. The now frequent crises in
the agricultural markets reinforced the need to improve
3
rapid response procedures and preserve the institutional readiness. In the past years, the Agency supported
various groups of producers affected by the market crises 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 agricultural 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 stimulating 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 markets: 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 information.
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
25 years of ARR
fits into the EU policy for 2014-2020 of increased expenditure 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 agricultural 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 individual 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 turbulence, 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 processors 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 fostering Polish agro-food sector.
Radosław Szatkowski
President of the Agricultural
Market Agency
4
25 years of efficient
activity of the Agricultural
Market Agency
FOR THE POLISH AGRICULTURE, THE AGRO-FOOD ECONOMY
AND CONSUMERS
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.
T
he period may be described as short, however rapid
changes which the Agency then underwent were
challenging and required huge effort and involvement 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 important facts (in the writer’s opinion) of the past 25 years of
the 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 being a response to the increasing globalisation and liberalisation of economic relations, often entailing unpredictable
fluctuations in global agricultural markets.
5
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 departure 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 dissatisfaction of farmers. In such situation, it was necessary to build
an institutional system of agricultural environment operating within the market economy standards, including institutions 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 using a variety of instruments. In this context, the main objective 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 stabilise 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 mechanisms to those in the EU,
• from 1 May 2004 – implementation of the CAP mechanisms as an accredited paying agency1.
After the signature of the Association Agreement with the
European Communities by the Republic of Poland it became clear that the Agency was a natural candidate to perform the function of the paying agency in charge of implementation of the selected mechanisms within the common
organisation of agricultural markets.
After Poland’s accession to the EU, the ARR’s tasks largely derive from the implementation of the CAP instruments. The
period may be divided into sub-periods identical to the successive CAP programming periods and the corresponding
financial perspectives, i.e. 2004 to 2006, 2007 to 2013 and
25 years of ARR
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 periods:
Years 1990 to 1995
The period featured the creation of solid and lasting fundaments for the intervention policy to stabilise the agricultural
and food markets in Poland. The task was performed in parallel 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 countries 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.
Division into periods was adopted after: W. Rembisz and A. Kowalski, The ARR in the Polish agricultural market regulation system [in:] Agencja Rynku Rolnego
1990–2005, ARR, Warsaw 2005.
1
6
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 conducted in the following markets: honey,
wool, tobacco, hops and flax fibre;
• loan guarantees to entities purchasing and
exporting agricultural
products;
• co-creation of modern market infrastructure, also the commodity 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 security;
• creation of the agricultural market information system
necessary to take business decisions.
Years 1996 to 1998
During this time, the institutional system solutions were further built to improve the Agency’s efficiency and effectiveness 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 – depending 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 agricultural markets, and on this
basis – to prepare for the
accession negotiations
and adapt to the acquis communautaire.
Years 1999
to 2004
The adoption of
Agenda 2000 at
the Berlin summit in
March 1999 formally
determined the directions of the CAP reform and
the Members States’ desire to
expand the EU with 10 new states,
also Poland. This intensified work on harmonisation 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 Republic 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 standards. 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 Finance.
7
To this end, it was necessary to adapt the Agency’s organisational and functional 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 internal 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 applications submitted by beneficiaries: from formal verification through administrative control up to payment
verification and authorisation, making the payment and
booking it;
• large number and wide range of mechanisms to be implemented required preparing an efficient IT system for
handling them,
25 years of ARR
• there was a need to ensure in the organisational structure 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 administering 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 accreditation 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 issued an unconditional accreditation act to the Agency. This
is how the ARR obtained the right to handle all planned support mechanisms in the EU standards beginning with the
first day of Poland’s membership in the EU.
in
billion € – in current prices
w mld euro - ceny bieżące
The structure of CAP expenditure 1980–2020
Source: European Commission.
Export subsidies
Other market measures
Coupled direct payments
Market-related expenditure
Direct payments
Rural development
Decoupled direct payments
8
Years 2004 to 2015
The functioning of the ARR after accession may, in principle, 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 successive 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 market mechanisms in the structure 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 improvement 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 national promotion funds.
Also, the Agency, using its extensive experience, was undertaking new tasks, such as those related to extraordinary
situations in agricultural markets. In 2014, the Agency implemented mechanisms launched by the European Commission 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 vegetables 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 readiness to immediately launch the necessary actions.
In parallel, the Agency implemented other mechanisms,
which may be considered as due to the extensive experience in their implementation. These are2:
subsidies to the seed material,
support for market in apiculture products,
promotion of consumption of milk and milk products among children and school youth (“School
Milk Scheme”), and fruit, vegetables
and juice among the “1-year preschool” 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 production 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 settlement of agro-food product import/export licences,
The exact summaries of activities implemented by the ARR by year may be found in reports summarizing successive years, placed on the Agency’s website.
2
9
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 abolished – a mechanism that was administered by the ARR, and
sugar quotas are going to share the same fate at end-September 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 national legislation. This is not a baseless assessment but one
relying on audit and control results from 2014 to 2015 conducted by external, competent authorities, such as the Ministry 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 expenses under the CAP from the European Agricultural Guarantee 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 implementation of programmes co-financed by the EU. There
have been no irregularities or negligence found in the functioning of the Agency in the controlled scope. In such situation, which is extremely rare, the Supreme Chamber of
Control did not produce any comments and follow-up recommendations.
25 years of ARR
The professional manner of the Agency is also corroborated
by only a small percentage of repealed administrative decisions. On average, out of ca. 300,000 administrative decisions 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 survey, 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 action and in adaptation to the changing global conditions
and the readiness and quick mobilisation to grasp the challenges of extraordinary circumstances displayed by the ARR
should be emphasised again. Those arguments themselves
suffice to praise the achievements represented to the present day as well as the current the ARR position and professionalism among the rural environment and agricultural
institutions.
Dr Mirosław Drygas
The Institute of Agriculture and Rural Development
Polish Academy of Sciences
10
Polish food
industry
during the period
of political transformation
and membership in
the European Union
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.
Macroeconomic environment
affecting the development of agribusiness in Poland
The 1990s are known in the Polish history as a period of political 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 introduced 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 subsidies were provided exclusively for funding meals in „milk
bars” (a form of low-budget cafeterias). Elimination of subsidies 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 significant
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 transformation period consumption of fruit, vegetables, vegetable 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 potatoes and sugar shows a relatively stable trend. There is a
marked tendency to diversify the range of consumed products due to an increase in the consumption of processed
foods and quality requirements.
11
A number of institutions in the agricultural environment
have boosted their margins, which – coupled with an earlier 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 production 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 subsidies to agricultural limestone.
The political transformation took place in the context of severe recession. Recession in the food sector was secondary
in nature, which means it came from other branches of national 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 farmers, 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 important 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 competition 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 agricultural 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 processing 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 occurred 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 agricultural processing plants,
• by way of private investments in the construction of processing 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 processing 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 production plants, oil mills, potato and food concentrates processing 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 using national and used technological lines. Only a small part
Analysis of Production and Economic Situation of Agriculture and Food Economy in 1997, Warsaw 1998, IERiGŻ, p. 251.
1
Food industry
12
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 phenomenon has occurred in almost all sectors of primary processing 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, confectionery products, poultry products and
beer. While the first phase saw no significant transformations in the industrial part of processing, the following 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 capacity,
• fast and diversified privatisation of state-owned enterprises,
• return to trends towards concentration,
• development of vertical integration processes and modern 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 political 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 unrestricted access to the community market, as well as a possibility 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 related processes of consolidating and
restructuring industries. This period
has also seen the strengthening
of horizontal (between the processors) and vertical integration
processes (between agricultural
producers, processors and traders).
In the period 2003–2013 within the
aforementioned aid schemes to support 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 entrepreneurs 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 requirements, increasing the added value, improving the quality of
the products, and introducing new technologies and innovations. 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
13
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 Programme „Agriculture”. The support was granted for improving the sanitary and hygiene as well as the veterinary conditions of production, orientating the production towards the
market and making use of existing market niches, creating
new sales channels and rationalising the existing ones, improving product quality, increasing the added value of production, 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 subsidising private storage and other activities.
Food industry
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 funding 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), sugar (PLN 551.9 million), butter and SMP (PLN 232.6 million).
A similar effect could be seen in case of aid for private storage 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 providing support to producers and food processors in crisis situations caused by instability of markets, weather anomalies,
animal diseases, infections or food contamination. In the
last decade such support was provided to eggs and poultry 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 Escherichia coli bacteria (in 2011). These measures, by stabilising
the market situation, improved the condition of the companies operating in these industries, strengthening their competitive 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 production 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 support 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 apiculture. Financial assistance granted in the period 2004–2013
to honey producers in the form of subsidies (PLN 144.5 million) aimed to improve the quality of honey and strengthen
14
individual links connected with the production and marketing 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 mixes. 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 refunds. 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 markets. 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. However, 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 promotional 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 educational 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 completed. These campaigns were supported with the amount of almost PLN 148
million, including PLN 86 million from the EU
budget. The largest amount of support for promotional and information activities support went to the meat
industry – 37.8% of the total funds allocated under this action. 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 market 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 constituted 53% of funds allocated to promotional activities
under CAP in the years 2004–2013) was spent on promotional 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,
Food industry
15
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 extremely rapid growth of food exports due to competitiveness (quality and price) of the agri-food sector on the single
European market has become the most important factor in
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 European Union and at promoting its quality, originality 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 developed 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 nature) tariff barriers, effectively protected the internal market,
and preferential access was strictly limited2. In 2002 Poland
transformed from a net importer into an increasingly important net exporter of food products. In the years 2000–2014
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 agrifood 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 estimate share of food industry products in the total Polish
Polish foreign trade in agri-food products (€ billion)
25
20
imports
exports
balance
15
10
5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
Source: own elaboration based on CAAC data.
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.
2
16
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 agricultural production and the food industry exceeds the dynamics of the demand for food. The greater part of production
growth in the sector is targeted at foreign markets, therefore 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 accession 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 vegetable, 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.
* **
The established commodity structure of trade in agricultural products is beneficial for the Polish economy and it confirms the pro-export character of the development of the
national food industry. By exporting processed products,
producers reap much greater benefits from their added value than by exporting only raw materials required for their
production. What is more, industrial processing of food intended 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 finished 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 markets, 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 products from organic or integrated production;
-new products with specific and at the same time desired
characteristics (e.g. plant products produced from genetically modified seeds, i.e. GMO plants), which are used as raw
materials for the following industries: fodder, pharmaceutical, 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, electricity), 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