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Agricultural Situation and Perspectives in the Central and Eastern European Countries
Economic and political background
Poland is the ninth largest country in Europe sharing borders with seven others and the Baltic Sea. Most of the country is generally low lying. The climate is a transition between Central European and the more moderate Atlantic climate. This can lead to unstable weather conditions, fluctuations in the length of seasons and in agricultural production.
The Polish people adopted an amended Constitution in October 1992 to enable Polands transition to a parliamentary democracy. The Sejm or lower house is the supreme legislative body and the Senate (upper house) are the two chambers of Parliament. Members are elected every four years. The President, elected for a five year term is the representative of the state.
From 1993 to 1997, the Democratic Left Alliance (SLD) including many former communists and the Polish Peasant Party (PSL) drawing its power from a small-farmer base formed a governing coalition. The government encouraged privatisation programs and economic reform and aimed to improve the climate for foreign investment while paying attention to agricultural constituents. The coalition was defeated in September 1997 by Polish Solidarity Electoral Action (AWS) and the Freedom Union (UW). The AWS is the electoral wing of the Solidarity trade union and an umbrella organisation formed to bring unity to the very fragmented political right.
The Polish economy experienced a severe recession in 1990 and 1991. In 1992 the decline came to an end, real GDP accelerated steadily, averaging an annual growth of 5.3% in 1993-95 and 6.9% in 1997. Poland's economy continues to grow quickly on a sound macroeconomic basis, which appears to be strengthened further with the implementation of the new central bank law and the financial strategy of the new government.
Polish trade has been reoriented since the beginning of the economic transformation process in 1989. The major structural change in Polands trading relationship is due to the collapse of the COMECON-trading block. In 1997, Poland exported 64% of total exports to the EU and imported 64% from the EU. Poland is the seventh trade partner for the EU. More recently however, Polish exports to Central and Eastern Europe and Russia has rapidly expanded (presently 20-24% of Polish exports).
The year-on-year rate of consumer price inflation in May 1998 was 13.3%, still down from 14.2% in February 1998. Inflation now appears to be back on course to fall to single-digit figures by the end of 1998.
The unemployment rate in the country as a whole fell from 13.2% at the end of 1996 to 10.5% at the end of 1997. In urban areas, unemployment is very low (3%), but rates of more than 25% are observed in the northern part of Poland, where state-owned farms have collapsed and obsolete factories have closed down.
Agriculture in the economy
The contribution of agriculture to total GDP is falling though still relatively important at an estimated 6.0% in 1996 compared with 12.9% in 1989. Since the beginning of the transition, agricultural recession has been caused by an unfavourable development of the terms of trade and reduced production, mainly in the livestock sector. The agricultural labour force still holds a 26.7% share of the total employment. This high figure is inflated by a certain amount of underemployment and hidden unemployment in rural areas. Nevertheless, this important difference between GDP contribution and persons employed in agriculture indicates very low labour productivity and reflects the importance of part-time farming. The degree of self sufficiency for main products is still close to 100%.
In recent years the average ratio of the value of crop production to animal production has been 55 to 45 though with considerable fluctuations. In terms of marketed production, the ratio is the inverse as crop products are used for intermediate and home consumption.
Of the 31.3 mio ha total area in Poland, 59% was Utilised Agricultural Area (UAA) in 1996, amounting to 18.5 mio ha. Of the UAA, arable land is by far the most important at 14.1 mio ha, followed by meadows (2.8 mio ha), permanent pastures (1.4 mio ha) and orchards (0.26 mio ha). The share of arable land in relation to UAA is around 76 % whereas the corresponding figure for the EU-15 is 56%. Only 3.3% of the soils are classified as good quality, most are rather sandy which together with low rainfall has a substantial impact on agricultural production.
By far the most important crops are cereals, particularly wheat and rye, less significant and in order of area are potatoes, fodder crops, sugar beet, oilseeds and pulses. For most crops, production has been lower in recent years than before transition. Self sufficiency in most crops is generally between 90 and 100% except for oilseeds (ranging between 55% and 146%) where the area has fluctuated considerably in recent years and for sugar where there is generally an exportable surplus. Fruit and vegetables account for 3% of the agricultural area and 10.3% of agricultural output. There are strong exports, in particular of fruit and fruit products.
The economic transformation process affected the livestock sector more than the crops sector. State farms in particular let their livestock production fall and concentrated on crops. Falling incomes together with the elimination of consumption subsidies severely reduced meat consumption.
Pigmeat production avoided the worst depression though there has been some fluctuation in particular due to high feed prices in some years. Poland is one of the biggest pig meat producers in Europe. Poultry production was badly affected initially but has recovered to be by far the most dynamic sector. Cattle and particularly sheep numbers were severely cut. The fall in beef production has slowed down in recent years. For milk, the first sign of a small increase occurred in 1997.
Within global external trade, agricultural products represent a significant part: 13.0% for exports and 11,0% for imports in 1997. Agricultural trade has increased consistently since 1992 but with imports at a faster rate. As a result, the agricultural trade balance, which was in surplus at 971 mio, ECU in 1990, deteriorated to 418 mio ECU in 1997. Important exports for Poland are live animals, meat and meat products, milk products and processed fruit and vegetables and confectionery. Imports are more diverse but include cereals, oilseeds and most importantly fresh (citrus) fruit, coffee, cocoa and tea.
EU-15 is Poland's most important agricultural trading partner. However the EUs share is diminishing at an accelerating rate. The EU took 60% of Polish exports in 1989 which was down to 39% in 1997. Official statistics show the Polish agricultural trade balance with the EU has become negative. It is the former Soviet Union in second place to which Polish exports have increased considerably, in particular for processed products.
The farm size is small and changes in farm structures are rather slow. The average farm size only increased from 7.0 ha in 1988 to 7.9 ha in 1996 though this is faster than longer term trends. Projections suggest that no more than 40% of agricultural land will be part of holdings greater than 15 ha by 2005. In 1996, the average number of milk cows per holding is 2.6 and for pigs 16.
The public view of MAFE is that in the medium term only 400000 to 500000 farms are sustainable (of the current 2.1 million holdings) and this is supported by other studies. Yet given the strong cultural attachment to "small scale farming" in many areas, typified in south east Poland, significant changes to the size and number of small holdings cannot be expected. This phenomenon has a strong social impact. If this population stay attached to their land on increasingly unsustainable holdings, then important rural development policies will be necessary.
Farming was not comprehensively collectivised in Poland Successive communist governments finally accepted the private farm as the main base for food production in Poland. Some 18% of land was in State hands. While most of this agricultural land is still not sold by the state, most is now leased to private managers.
Poland is an extremely rural country, predominantly urban regions account for only 19% of the population. The rural areas vary greatly in structure, economy and demography. Regions where state farms predominated tend to have high unemployment levels and tend to be amongst the poorest in Poland. In voivodships where farms are smaller, rural dwellers activities are more diversified. Agriculture accounts for 44% of total employment in predominantly rural regions. This extremely high level of agricultural employment is one of the biggest challenges facing Poland as it seeks to modernise and restructure the agricultural sector without destroying rural communities.
Rural areas in Poland suffer from a number of constraints which restrict development and reinforce rural communities isolation and remoteness. The dispersed settlement pattern makes the provision of infrastructure (water, gas, telephones, sewerage) and services (post school education, banking, professional services) difficult, and lack of access to transport in rural areas only exacerbates the disparities with urban centres.
In general, agriculture is less intensive in Poland than in most current EU Member States, and the rural areas support a rich variety of wildlife and range of habitats. Modernisation programmes, investment and education will also tend to increase the levels of inputs used, as farmers seek to increase productivity.
Livestock farming is an important sector of Polish agriculture, but stocking densities have declined considerably as a result of the economic transition process. 27% of the land area is considered to be in a "natural" or "extensively managed" state, with approximately 11% designated as of international importance.
Upstream and down stream sectors
After 1990, as a result of the worsening price ratio between inputs and agricultural products, inputs use - in particular fertilisers, lime and crop protection products - rapidly decreased but a gradual recovery is discernible.
The banking sector in Poland is not well developed and the rural banking network is fragmented with up to 1322 co-operative banks in 1997. A restructuring strategy is proposed which seems to progress slowly. Despite these problems the situation appears to be improving.
Polish farmers use relatively little debt in their farming operations and rural businesses generally use their own funds to finance investments. Nevertheless a feature of agricultural support in Poland are interest rate credits for approved investments. The 1998 budget however has reduced the number of credit lines from forty to eight. More emphasis is being put on structural inputs such as restructuring and modernisation rather than for production inputs such as fertiliser and seed purchase.
The food industry has for the most part undergone a dynamic transformation in privatisation, profitability and investment. In particular nearer the retail end. The process has been much slower in the "first stage processing sector" such as slaughtering, milling and freezing. These sectors still present a barrier to farmers benefiting from the higher purchasing power of consumers.
In 1997 the budget expenditure for the agricultural sector amounted to 3,4 bio ECU (9,8% of the total budget expenditure). By far the biggest part (72%) of agricultural budget expenditure is destined for the farmer's social security system.
The stabilisation activities of the intervention organisation apply to wheat, rye, butter, skimmed milk powder, pigmeat and beef, sugar, potato starch and occasionally honey and hops. However, intervention measures are of more importance for the grain, dairy and pig meat markets. For market stabilisation, a price range is fixed in which prices are allowed to fluctuate. These reference prices have increased in real terms in recent years.
While in the pre-transition period Poland's agriculture and food exports were fairly highly subsidised, since 1990 export subsidies were rarely applied and were limited to sugar, SMP, butter and pork.
For animal products, the beef price in Poland is only half that of the EU and partly reflects lower quality and the low demand in Poland but of course the higher support price in the EU. However, pig and poultry meat is at an equivalent price, the lower pig meat price in Poland caused by generally poorer quality carcasses. The milk price in Poland has increased since 1993 and is currently around 50% of that in the EU. For high quality milk (equivalent to that in the EU), a premium is paid by processors which would bring the producer price much closer to the EU level for milk of equivalent quality
Trade policy in the agricultural and food sector is governed by a number of multilateral and bilateral agreements, GATT/WTO, CEFTA, Europe Agreement, and Free Trade Agreements with Lithuania and with Israel.
Poland's commitments on domestic support are expressed in $ and therefore shielded against the devaluation of the zloty. Total Aggregate Measurement of Support (AMS) is limited to 3.3 bio$ by the year 2000, an amount which seems rather comfortable, considering the high level of support during the reference period 1986-88. Current levels of domestic support are much lower than the commitments
Producers subsidy equivalent (PSE) calculations show that at the beginning of the transformation process in 1989-90, Poland intended to build up a very liberal market economy with low support levels. Since then Poland reinforced the border measures and equivalent price support systems mainly due to increasing competition problems caused by structural deficiencies particularly in the food processing industries. Support to farmers as measured by PSE and in particular the MPS component has therefore increased.
A comparison of the PSE of Poland and the EU show that the support of agricultural producers in the EU has been more stable and higher than in Poland though Polish farmers now enjoy substantial support following being implicitly taxed in 1990-91.
Since 1994 rural development has been increasingly recognised as a priority by successive Polish Governments, due to the high levels of agricultural employment, the need to modernise and develop agricultural practices and the need to create non-agricultural jobs in rural areas. In 1994, it was one of the 10 key objectives included in the Governments development plan.
This "Strategy for Poland" gave four objectives for rural development policy: village renewal including job creation and encouragement of non-agricultural activities; encouraging the modernisation of agricultural structures and processes; supporting the development of socio-economic infrastructure such as co-operatives, commodity exchanges, telephone and road networks and the agricultural advisory service; and lastly recognition of the natural value of villages. The National Programme for the Adoption of the Acquis (NPAA) recently presented by the Polish Government follows a similar line to the "Strategy for Poland" in regard to rural development policy. Policy measures to assist farms in less-favoured areas are under development. Currently the only preferential treatment for these areas is an exemption from the agricultural tax for land of the poorest quality (land classes V and VI).
The principal environmental problems in Poland are linked to industrial, rather than agricultural activity, and so even though Poland was the first CEEC to develop a national environmental policy, it is only recently that agri-environmental issues have begun to receive much attention.
As regards policy, it is expected that Poland will gradually adapt its market and structural policy to be more compatible with the Community aquis. Border measures will remain compatible with international agreements.
The general economic background is for sustained moderate to good growth which will impact positively on the demand for agricultural products.
The food processing industry will continue to develop vigorously with the exception of the first stage processing sector where changes will remain slow.
In the farm sector, big structural changes cannot be expected and the small farms size will continue to be a particular handicap for modernisation. This will be especially important for land dependant activities such as arable crops and grazing livestock but less so to intensive animal production and perhaps fruit and vegetables.
Cereals area and production will increase but the balance will be taken up in feed use due to the forecast increase in animal production. The potato area will continue its decline. Rapeseed area will increase to its pre 1989 levels but will be influenced strongly by short term weather and price fluctuations. In this case, Poland would again become an exporter. Sugar production can expect to be contained by the support system (quota). It is assumed that some of the idle land will come back to cereals production but most will go for afforestation, be converted to pasture or remain idle.
Milk production is foreseen to expand slowly but not reach pre 1990 levels, exports will be maintained. Beef production is unlikely to recover greatly given current prices and low consumer demand. Pigmeat production which was least affected by the economic transformation process will undergo a modest growth with some exports. The most dynamic sector will be poultry where very strong growth is already apparent though this may not be sufficient to meet consumer demand.