The factors shaping the competitiveness of domestic agricultural holdings in the mid-term perspective

It may be safely assumed that in 2015-2020 some of our business-oriented agricultural producers will still take advantage of the progress which results from implementing various projects, specialising production and increasing its scale as well as from other efficiency-oriented solutions aimed at the improvement of farms’ operation. It is known, however, that the payments will be slightly lower when it comes to an increase in income than in 2004-2013. It will also be the final stage of the current global economic recession, combined with a probable increase in the demand for agricultural produce in developing countries as a result of the globalisation of world economy with simultaneous reduction of an increase in the supply of these goods due to climate change. All this could translate into conditions in which agricultural products and food may enjoy a similar, if not better, situation to the one observed presently. However, there are unanswered questions which tone down this optimism.

European and Polish analysts estimate¹³ that abolishing quota for the production of milk in the whole European Union in 2015 will translate into

13 Commission Report: Zniesienie kwot mlecznych to wzrost produkcji mleka, http:/finanse.wp.pl/kat, 1034079. Title. Raport-KE-zniesienie-kwot-mlecznych-to-wzrost-produkcji-mleka, wid.16680187, wiadomoĞü.html?ticaid=112e7e [access: June 2014]; Zachód Europy szykuje ekspansjĊ, czy wytrzymamy zniesienie kwot mlecznych?,

a drop in prices for this commodity by 10-20%, leading to an increase in its demand. They predict a modest increase in the supply of milk in Poland due to unfavourable climatic conditions (increased drought in growing seasons reducing the harvest of grass and other forage crops) and an unfavourable economic situation of smaller agricultural holdings specialising in milk production. This is due to the fact that lower labour and service costs are levelled out with great unit costs of keeping animals in small herds, poor reproduction, increased cow culling and high mortality among calves. This is accompanied by ambitious plans of Asian and South American countries to increase milk production. It is known, for example, that by 2020 the Chinese plan to increase the production of milk by 40% in order to satisfy the needs of the domestic market. Some experts predict, however, that not all developing countries can afford to make such an effort.

The doubts also concern the cultivation of sugar beets after 2017, when quotas for sugar and its competitor, isoglucose, will not be applied any more.

The cultivation of sugar beet is profitable in Polish agriculture, not only compared to winter rye but also in the context of income obtained from winter wheat and the second important industrial crop in the country: winter rapeseed.

The rules based on which the EU sugar market will function after abolishing production quota have not been specified yet, but it can be expected that the increased sugar production will lead to a decrease in sugar prices and consequently the average sugar beet price. Based on the analysed literature, it is also likely that the variability of prices will be increased year after year¹⁴.

Moreover, the problem of extending the moratorium on the import of soy meal, which is largely produced from modified soy with the use of genetic engineering (GMO plants), will return in 2017. Modified soy is cheaper although its properties do not differ from those of soy obtained from traditionally grown varieties. Soy meal is a rather irreplaceable fodder component used in breeding young poultry, broilers, piglets and wild boar piglets, but the Polish public opinion is prejudiced against such crops, so it cannot be ruled out that the moratorium on the import of genetically modified soy meal will not be extended. This means that we can expect an increase in the cost of the production of eggs, slaughter poultry and pork livestock starting from 2018¹⁵.

http://mlecznaferma.pl/zachod-europy-szykuje-ekspansje-czy-wytrzymamy-zniesienie-kwot- mlecznych/ [access: April 2014]; A. SkarĪyĔska, Koszty, dochody i opáacalnoĞü pozyskiwania wybranych produktów rolniczych w Polsce w latach 2006-2011 oraz w perspektywie Ğrednioterminowej, IAFE-NRI, typescript, Warszawa, December 2014.

14 E. BolisĊga, PrzyszáoĞü rynku cukru, Biuletyn Informacyjny ARR 2012, no. 4.

15 W. Józwiak, Polskie rolnictwo i gospodarstwa rolne…, op. cit.

The percentage of milk, poultry and pork livestock, eggs and sugar beet in 2013 was 52-53% of the domestic production of agricultural goods, so the changes outlined above may have a considerable negative influence on economic effects for a great part of domestic agricultural holdings.

The projection for 2020¹⁶, prepared for the conditions resulting from long- -term tendencies, indicates that in the case of cereals there is a likelihood of an upturn of income as an effect of better harvesting and a higher price of grain.

However, the production of winter wheat and spring barley can be characterised by a sharper rise of the costs incurred than that of the profit, so there might be a slight decrease in the profitability of the production of these commodities. On the other hand, it is probable that the production of rye will increase due to the fact that the income will be increasing faster than the production costs. It is also estimated that winter rapeseed harvest will increase, along with its price. Thus, the profitability of this oilseed may increase in the target year.

Over the next few years, due to changing weather and prices, there may be deviations from these average tendencies that characterise the profitability of the production of agricultural goods. The conducted estimates¹⁷ conclude that rye is an activity that is distinguished by the greatest susceptibility to all profit- -forming factors – harvest, price of the grain and production costs – out of all cereals. Only under exceptionally favourable conditions can rye crop ensure a tolerable profit, but its cultivation will probably still be burdened with great risk, perhaps due to the fact that it is grown at the worst stations. But then, winter rapeseed – in comparison to cereals – will probably be characterised by a higher percentage of income deviation from the projection established on the basis of trends depending on the variation of harvests resulting from weather changes, mainly in late autumn, winter and early spring.

The experiences from recent years described in the analysed literature also indicate that the demand for organic food will probably increase, although its share in the domestic food production will be small.

Nonetheless, we cannot completely rule out the worst-case scenario, mainly resulting from prolonged economic recession, reflected in the situation of the southern states of the EU, such as Greece, Portugal, Spain and Italy. Other factors which may prolong the recession are: the tensions arising in Eastern Europe and some Muslim countries of the Middle East as well as the deterioration of economy in China and Brazil.

16 A. SkarĪyĔska, Koszty, dochody i opáacalnoĞü pozyskiwania wybranych produktów rolniczych…, op. cit.

17 Ibidem.

All that may exert a negative impact on the economic situation of some countries of the world for several subsequent years, and deteriorate the market for agri-food products. There might also be other phenomena specific to our country, which could contribute to this situation. This year’s parliamentary elections can lead to a political power shift in 2016, which would entail a long delayed reform of social insurance for farmers and a change of the agricultural holdings taxation system¹⁸. Of course, we can count on the adaptation of the domestic food industry and domestic agricultural holdings to the new situation, which would reduce negative effects of the mentioned phenomena, but the adaptation will not eliminate the difficulties completely.

Actually, in such a situation we can form a conclusion that new domestic agricultural holdings with competitive capacity will appear at a reduced rate in the period leading up to 2020 and we may even risk a conclusion that their number will drop, as they will lose their status of competitive farms and be classified as holdings with opportunity to regain competitiveness.