the direCtionS oF ChanGeS in the

dairy-FarmS in the yearS 2013-2020

How can the changes in the Polish dairy sector look like in the years 2013-2020? This is a question difficult to answer unambiguously, because to-day it is impossible to predict the out-side conditionings in which the dairy-farms and the creameries will have to function. It results, among other, from a specification of the agricultural pro-duction, which is shaped by such fac-tors as:

• natural conditions

• alimentation as a basic social good (policy towards a sector of agro business)

• dependence of the agricultural pro-duction on the living organisms which affect the natural environ-ment.

Additionally, the distinguishing marks of the agricultural production are accompanied by the changes in the non-agricultural sectors. A progress in a domain of transfer of information and products enhances the analyzis of the mentioned issue in a context of global conditionings. It has to be remembered about a huge variability of the Polish dairy-farms. There are some farms which took up the investment activities and today they are in a relatively good economic situation. However, there is also a significant number of farms

which are to make the tough decisions concerning development or giving up the production of milk.

Taking into account the men-tioned features and thinking about the directions of the changes in the polish milk sector, one has to pay a special attention to:

• competitiveness of the Polish dairy-farms and creameries in relation to the significant countries in the pro-duction and processing of milk

• changes suggested by the agricultur-al policy of the European Union

• factors influencing the interest of the farmers in the development of the milk production (economic stimuli).

4.1. Economic competitiveness of the typical dairy-farms in the selected countries in the world

The competitiveness of the com-panies is one of the main rules being a basis to the market economy. As for the dairy-farms, focused on the produc-tion of the resource (milk) intended for further processing, an element deciding about the competitiveness are the costs of production. Information about their level is really significant, but it does not fully depict the presented issue. The reason for this problem are political regulations (extra charges to the pro-duction, extra charges to the incomes, prices regulations), which disturb the mechanisms of the free market.

In the methodology of the In-ternational Farm Comparison Network (IFCN), the incomes of the dairy-farms are shaped by: income from the sale of milk and beef livestock, direct extra subsidies to the production of milk, as well as the subsidies for the areas not di-rectly linked to the production of milk.

All the incomes are related to 100 kg of milk produced in the farm. Among the selected 134 typical dairy-farms from 44 countries in the world, the highest level of extra charges characterized the Eu-ropean farms. The highest level of these extra charges war realized in Iceland. In

2007, the subsidies to the production of milk in a typical dairy-farm in this country constituted almost 40 percent in the income structure. The farmers from Iceland were getting the direct extra charges as high as 58 USD/100 kg of the milk amount. Additionally, they were given the extra charges to the maintained milkers, dependent on the number of cows in a farm. In other countries, in which the participation of the extra charges in the structure of the income was also significant, also other ways of support were realized.

In the dairy-farms of Finland was real-ized a program of support for the farms located in the disadvantageous envi-ronmental conditions and additional bonus were paid to the milk produced there. These extra charges depended on the location of the farm and were growing from the south to the north.

In the Austrian farms the significant extra charges were given to the farm-ers producing eco-friendly production or production in an integrated system.

There were also additional payments depending on the environmental con-ditions of the location of the farm.

While calculating the economic results of the breeding of milkers in the methodology of the International Farm Comparison Network (IFCN) all the income connected with the breeding of milkers are taken into account, and then the costs of the breeding of milkers (real and alternative costs) are subtract-ed. A difference between the income from the breeding of milkers and real costs (direct) gives information on the income. One can distinguish several levels of the income in the dairy-farms.

The first level is a difference between the income and real costs, giving infor-mation on the income from the breed-ing of milkers in the farm. The second level is a difference between the income and the total costs (real and alternative costs) of the management of the milkers in a particular farm.

The data from 134 typical dairy-farms from 44 countries in the world shows that only 70 farms (52 per cent) was reaching a positive level of income from the management without taking into account the direct extra charges.

In general, the highest income from the management, without taking into account the direct extra charges, was gained in the non-European farms.

On the level of income from the cattle breeeding, established according to the direct extra charges and ignor-ing the alternative costs, the ratignor-ing is slightly different. Among the first thirty countries, there are as many as 19 typi-cal European dairy-farms of Europe.

This rating is opened by the farms of Norway, and the following positions belong to the farms of Austria, Iceland, The Netherlands and Finland. This situ-ation is strongly shaped by a high level of the direct subsidies.

Analyzing the costs of the milk production in the dairy-farms in the selected countries in the world, it has to be underlined that the costs of milk production are raising (Table 3), but the rate of the changes is different. The highest increase in the costs of pro-duction (among the analyzed farms) is visible in Poland and China. The reason for this is mainly the increase of alternative costs - especially of the work and land.

4.2 A common Agriculture Policy of the European Union as an important factor influencing the de-velopment of the dairy-farms in Eu-rope.

The „tri-factor function of the production” in the agriculture is more and more visible. The productivity of a factor of capital and a factor of work is influenced by the productivity of the land factor. It has a great importance especially with regard to the produc-tivity of the work factor (efficiency of work), the level and increase of which are naturally limited by the possibilities of the increase of the productivity of

land [Rembisz 2007, p. 53]. Engaging the land factor as an elementary fac-tor of the production gives a reason for the intervention activities, especially intervention activities supporting the income of the farmers.

A special meaning and the po-sition of the agriculture were taken into account in the documents of the countries of Western Europe. One of the most significant documents was the Roman Treaty from the 25^th of March 1957 constituting the Common Agri-cultural Policy. In this period it was said that the agriculture is going to be the pier of the European integration.

The Common Agricultural Policy of the European Union underwent and is still undergoing evolution. It is planned that there will be the next reform of the Common Agricultural Policy of the European Union after 2013. It is based on the inner need for the changes of the functioning of agriculture in the EU and the postulates from the world Trade Organization (WTO). Tak-ing into account the emergTak-ing shape of the compromise (between EU and WTO), one could expect a partial (or even complete) liquidation of the ex-port subsidies, a significant opening of the European Union market for the import from the other countries and decreasing of the limitations for the to-tal support. The main opponents of the European Union in the contemporary round of the WTO consider the real improvement in a field of an access to the homogenous market as an intro-ductory condition and postulate the re-duction of the customs duties. It seems to be logical the consequence of the growing access of hte other countries (from outside the European Union) to the market of the agricultural products of the EU will be departing from the limitations of the production in these countries. Hence, there are serious changes waiting for the milk market among the others.

Despite the certain signals re-ceived from the European Commission, indicating the direction of the planned changes in the agricultural policy, there are still no final directives. In November 2010, the European Commission pre-sented an announcement concerning the future of the Common Agricultural Policy of the European Union entitled Common Agricultural Policy after 2020 - how to come up to the expectations of the future connected with alimenta-tion, natural resources and territorial aspects [http://europa.eu/, Commis-sion Communication on the future of the CAP]. Three variants of the future Common Agricultural Policy of the Eu-ropean Union were presented. As it is indicated by the presented information, the agricultural policy after 2013 is still indeterminate. In the first variant, the offer is to leave the present situation in the system of direct extra charges unchanged, whereas in the third vari-ant - a total elimination of the direct extra charges.

4.3 The economic potential of an average Polish dairy-farm

In the finished quota year 2009/2010 the national milk quota for Poland (with the consideration of the increase of 1 per cent) was 9,663 mil-liard kg, including the national milk quota of supplies of 9,503 milliard kg, and the national quota of a direct sale was on the level of 161 million kg. Ac-cording to the data given by the sub-jects purchasing to the Regional De-partments of the Agricultural market Agency (OT ARR), in the quota year 2009/2010 almost 9,07 milliard kg of milk was purchased (after converting to the milk with a referential content of fat). The level of using the individual quota to which the wholesale suppliers are entitled was about 96 per cent. How-ever, the number of suppliers of milk to the dairies dramatically decreased. In the end of the quota year 2009/2010 (according to the data from the end of March 201), there were almost 178

thousand of them, meaning almost 3 percent less than at the beginning and about 43 per cent less than in the end of the quota year 2004/2005. At the same time the delivers of milk increased by 3 percent higher, to over 51 thousand kg.

As the given information indicates, the production of milk in Poland is based on the dairy-farms annually deliver-ing to the dairies 50-70 thousand kg of milk. It can be asked whether the farms annually selling such a quantity of milk will further develop the production or resign from this kind of activity.

At the beginning it has to be stated that there are many factors influencing the farmer’s decision in this respect.

Undoubtedly an important group are the economic factors, which will be de-scribed at the example of a model farm, close in the productive potential to the average farm selected out in the Farm Accountancy Data Network (in 2009), in the productive type called „milkers”.

The productive potential of a model farm was slightly changed in regard to a farm selected out in the FSDN (Table 4.). This change was aimed to be clos-er to an avclos-erage farm occupied with a manufacturing of milk in the quota year 2009/2010.

In the analyzed farm, there are buildings from the seventies and the eighties in quite a good technical condi-tion. Barn is a building, the importance of which in the contemporary technol-ogy of fodder preparation is rather low.

With an appropriate modernization, it can be definitely used more effectively.

The soil resources are characterized by an average quality and relatively small number of fields, not far away from the economic center. A farmer in the model farm has an indispensable tech-nical stuff necessary to the agricultural production. The modeled farm is lead by the agricultural family.

4.4. Possible directions of the de-velopment of the analyzed farm.

In the presented simulation, four directions of the modeled farm are

analyzed. The modeled farm is close in its potential and scale of the pro-duction to an average farm occupied with the milk production of Poland.

The first variant is increasing the scale of milk production, which seems to be the most natural for the farms already breeding the milkers. The second solu-tion is orienting the farm on the plant production (mainly cereals and tech-nologically similar plants). This activ-ity will cause a limitation to the work expense and will let one of the members of the family to work outside the farm.

The third possibility is an orientation on the beef-cattle breeding, which is also dictated by the labor-consumption and money-consumption of this kind of production. Similarly to the second variant, also here emerges a possibility that one of the members of the fam-ily can work outside the farm. The last analyzed variant is a resignation from the agriculture business, giving the land into the lease and selling part of the property (not the whole can be sold, for example the buildings cannot) and taking up a job outside the farm. All the presented directions have certain investment results, which is described in the 4.5 Economic results of the distin-guished directions of development

The economic effects of the solu-tions can be measured in the several ways. For the need of this publication, pthe category of an income of the whole agricultural family (income from a ru-ral farm). This is an economic category, which embraces all the income from the famr and he incomes from outside the farm. Additionally the analyzis will be enriched in the information on the profitability of the invested money and profitability of work. These indicators will let us relate to the clue resource, of-ten minimal in the farm - the resource of work and capital. It has to be em-phasized that the economic results will differ depending on the period which is analyzed. In Table 6. the economic results of the farm after a

transforma-tion are presented. The prices used in the calculations are the average prices functioning on the market in 2009 [Ser-emak-Bulge 2010].It was intentional to resign from the prices on the market in 2010, as the author considers them to be difficult to get in the following years.

As it stems form the data present-ed in the Table 6., the highest total in-come can be reached by the farm when it increases the number of the milkers and the milk production scale (in the presented results the increase in the number of milkers from 15 to 60 was accepted). This activity helps the com-plete use of the resources of the labor force in the farm and subsequently - to a relatively high profitability of work (the highest of the analyzed). With re-gard to the economic attractiveness, the second solution is resignation from the agricultural production. Taking up a job outside the farm, giving the land into the lease and getting the interests from the long-term deposits created by the sale of the real estate give an annual income of about 79,8 thousand PLN.

The profitability of the invested money is the highest in this variant and profit-ability of the own work is on a second position.

After a quite general economic assessment conducted in the second part, there is a question what can brake the „average” dairy-farms against the distinctive increasing the production of milk. One of the factors is a high need for the capital (especially for the foreign capital). It is accompanied by the fear to preserve the payment abil-ity in the conditions of changing prices of milk and means of production. In the assumed solution, the indispens-able investment expenditures are 486 thousand PLN. They can be funded partly thanks to the preferential loan (80 per cent) and by the own means (20 per cent). A minimal need for the own means in this situation is 97,2 thousand PLN. Often these are the means lacking

in the farms. Funding the investment activity based on the structural funds (Rural Areas Development Program, PROW, 2007-2013) also meets the obstacle of the own contribution. In the case of the majority of the invest-ment activities realized as a part of the

„ Rural Areas Development Program 2007-2013” (PROW 2007-2013), first of all a certain investment is needed, and only subsequently there is a possibility to calculate it within the frames of the mentioned structural funds. The barrier of the own capital and a high economic and environmental risk of the agricul-tural production can cause the further resignation of the „average farms” form the agricultural production (especially the production of milk).

reCaPituLation and ConCLuSionS

1. At the beginning of the an-alyzed period (the years 1989-1992), the farms were facing a very difficult economic situation. The effect was decreasing of the agricultural produc-tion, including a very distinctive de-crease of the milk production. In 1989 the production of milk in Poland was 15926 million litres, whereas in 1992- it was 12770 million litres (20 percent decrease). Even the more distinctive changes happened in the purchase of milk realized by the creameries. In 1989 it was 11385 mil litres, but in 1992 it was only 6696 mil litres.

2. The years 1993-1997, de-scribed as a time to regain a new bal-ance despite a generally high rate of an economic growth, were characterized by the slight changes in the produc-tion and purchase of milk. In the initial period (the years 1993-1995) there was still a slight decrease of the milk pro-duction (a decrease of 1467 mil litres of milk). In 1996, the stop of decrease in the milk production and milk purchase was noticed.

3. The years 2005-2009 were known a period of a confrontation of the Polish agriculture with the global agriculture (a period of Polish mem-bership in the European Union). The Polish milk sector bore it quite well.

The beginning of the analyzed period was beneficial for the farmers who got the distinctively higher prices for their milk. A little bit later the manufactur-ers gained some benefits, especially the creameries producing the high-quality products destined for the export.

4. The number of the commer-cial dairy-farms in Poland is constantly decreasing. In the quota year 2004/2005, the number of farmers producing milk for sale was 323, 664, whereas in the quota year 2008/2009 there were only 186 820 of them (42 percent decrease).

However, it is observed that the global production of milk in Poland increases, which means an increase in the

However, it is observed that the global production of milk in Poland increases, which means an increase in the