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The Warsaw Voice » Business » November 25, 2011
Business & Society
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Polish Agriculture Has Huge Reserves
November 25, 2011   
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Marek Sawicki, minister of agriculture and rural development, talks to Andrzej Jonas and Andrzej Ratajczyk.

There are many indications that a second wave of the global crisis will strike in the coming months. How seriously could Polish agriculture be hit? Are Polish farmers prepared for a potential downturn?
The crisis would certainly send ripples across the economy, including agriculture. But I don’t look at this potential crisis in terms of a threat, but as an opportunity for Polish agriculture. At a time of crisis production costs generally rise significantly everywhere. We are in a good position in the sense that we have lower labor costs. This results from the structure of Polish agriculture and the model of farming. To my mind, in a situation when the costs of producing food in more developed European countries will be growing faster than in Poland, Polish agriculture will be able to increase its role on the European market. However, it is necessary to take full advantage of the time we have.

I keep saying that there are huge reserves in Polish agriculture, for example when it comes to the way in which farmers organize themselves into groups, and in terms of the renewal of the cooperative movement. I do not mean the common use of land, but I’m referring to processing, supplies, and commercial activities. This is what gives the Dutch, the Danes or the French great value added.

Don’t you think that, paradoxically, the relative underdevelopment of Polish agriculture may once again prove to be a godsend for Poland? As in the case of the financial crisis, when the conservatism of Polish banks, reflected by the fact that they were not using sophisticated financial instruments, saved the banking sector from problems.

I am not an expert on banking, but it seems to me that the Polish banking sector avoided the crisis for another reason. The key factor was that there were no big financial institutions on the Polish market whose potential bankruptcy could lead to the collapse of other companies linked with them. However, when it comes to agriculture, this element of lagging behind certainly gives us some advantage. But far more important is another factor that is often forgotten. We still have simple reserves with which to increase efficiency and productivity. We are forgetting that, for example, in Poland we have cow sheds where average milk production exceeds 10,000 kg per cow a year, with the national average at 4,500 kg. We are also forgetting that the average yield of wheat in Poland is 3.2 metric tons per hectare, while in Hungary it is around 6 tons and in France it’s 8 tons. This shows just how much unused potential there is when it comes to the overall production capacity of Polish agriculture. This can be easily put to use through slightly better organization of production, more efficient use of the achievements of biological research in crop growing and animal production as well as through better use of various kinds of external factors that improve productivity, such as pesticides and more rational fertilization.

But boosting production in Polish agriculture by tapping into its dormant potential is not everything. The extra food that will be produced in this way will have to be sold somewhere, because the domestic market will be unable to consume everything. This implies the need to boost exports.
That’s right. There is no other way in which this extra production could be put to use than selling it abroad. And when it comes to the growth of exports, the way I see it, it should be headed in two directions. The first direction is further expansion on the single European market, where Polish products have a good reputation today. And this is not only because of their competitive prices, but also because of their quality. The second direction that we should see not only in Poland, but more broadly in Europe as a whole, is the world’s growing food needs. Unfortunately, France, Germany or the United Kingdom, are refusing to acknowledge that; they are primarily concerned about maintaining their status quo, which means, above all, protecting their own markets, without more widely entering third markets. And it seems that we could bring about a significant increase in the competitiveness of European agriculture, using the same funds that are currently allocated for the Common Agricultural Policy (CAP), but allocating them in a different way.

And what’s wrong with the current method for financing the Common Agricultural Policy?
Developed in the 1980s, the CAP is based on the principle of income guarantees for farmers and maintaining production readiness. But today, because of the world’s growing food needs, it is necessary to give money to those who want to develop, modernize, invest, introduce new technologies and innovations on farms.

Politicians in many countries in Europe do not want to understand that a farmer who derives 60 and sometimes even 70 percent of their revenue from direct payments, or subsidies, is not fully interested in developing. However, if we channeled the money available for supporting investment and development ideas, with a seven- or 10-year time frame, then these farms would contribute to spurring development.

Work to reform the CAP has been under way in Europe for some time. Do you think the proposed changes are headed in the right direction?
Those representing “old” EU countries are aware that the historical entitlements for payments linked with production dating back to the 1980s and 1990s are becoming outdated. They are consequently proposing a move away from these historical entitlements for payments and want to replace them with new rights for farmers. But in practice this means that French, British or Irish farmers, who 20 years ago had 50 cows, for each of which they got 200 euros in direct payments, are still receiving the same money, even though they may not have a single cow now. And under the proposals being submitted by my colleagues from Germany, Britain or France, this system would continue for 14 more years. The only difference is that the direct payments will remain with the farmer not only if they have no cows, but even if they sell or lease out their land.

The main problem is that politicians cannot free themselves from thinking about European agriculture in terms of a specially protected area and one based on two assumptions: production of cheap, safe food and income guarantees for farmers.

Is there a chance that the perception of agriculture among European politicians will change and that a system will be introduced in which money earmarked for the CAP will effectively be used for the development of European agriculture?
Unfortunately, it so happens that in May next year there will be elections in France, and a few months later voters in Germany will elect their parliament. So it is difficult to be surprised that ministers and politicians from these countries are hardly eager to hold an open debate with farmers about a CAP reform that would to an extent restrict their privileges.

In the near future, however, a whole series of debates about the reform proposals will take place in Europe, in which representatives from agricultural organizations and economists linked with agriculture will take part, alongside politicians. I would very much want these discussions to be open to the general public, so that people in EU countries could learn what politicians are proposing when it comes to the future of European agriculture. I believe that a time for reflection will eventually come in this open debate, making it possible to reform the CAP and introduce new, simple criteria for dividing up funds for agriculture—so that the money is channeled not for production readiness but for development.

But it won’t be easy to persuade European politicians to introduce a new system..
I realize that this will not be an easy process. This is confirmed, for example, by the dispute over the definition of an active farmer. Under the European Commission’s proposal, an active farmer should be defined as someone who derives at least 5 percent of their family income from direct payments. And this means that you don’t have to deal with agriculture at all, or produce anything, and it’s enough to have payments. And if you have a lot of land, then it may even be worthwhile to give up doing business to make sure that the payment represents the required percentage. Actually, with such a definition, 99.9 percent of existing farmers could be classified as active farmers. And, in my opinion, an active farmer is someone who not only produces for the market, but also has an idea on how to develop their farm.

This process will not be easy also because we are dealing with a certain form of administrative management of the future. In terms of their spirit, the CAP reform proposals, which are part of a legislative package, are unfortunately deeply rooted in the late 1980s and early 1990s, when the EU was different, had different problems, and was struggling with an overproduction of food, and the reality was different in terms of the external environment. What is missing is an analysis of the future, which means a reference to the already adopted Europe 2020 strategy, not to mention the long-term perspective until 2050.

First, funds should primarily go to farmers developing their farms. Second, contrary to what we have right now, the main allocation of funds should be aimed at those regions of Europe where it is still possible to tap into simple production reserves.

Will the expected second wave of the crisis influence the debate on the CAP reform?
If the crisis is acute, then the whole debate on the CAP reform will grind to a halt. But certainly after a year or two, it will force us to bring this issue up again, in a completely different way. I believe that the deeper the crisis the greater will be the chance for genuine reform. Conversely, if the crisis is relatively mild, there will be no determination to reform things and not much will change.

Which member countries are the biggest advocates of radical changes in European agriculture, and which nations oppose such changes? As in many other issues, is there a division in Europe into old and new member states when it comes to how they approach the CAP reform?
As far as the EU agriculture reform is concerned, these divisions run along slightly different lines. The reform is supported, for example, by Northern Europe, which means countries with more liberal views, such as Britain, Sweden, and also—albeit to a lesser extent—Belgium. On the other hand, France, Denmark, and the Netherlands oppose change. The Germans, in turn, argue that they have already carried out a reform, because Germany was the only old EU country that moved from historical payments to regional payments after 2003.

Generally, politicians in old EU countries are trying to use the CAP to recover for their countries as much of the money they have contributed to the “kitty” as possible. They are not looking at what economic effects this may produce and what kind of effect this will have on the EU economy as a whole. The only thing that matters is their national interest. But they overlook the fact that the big money that has come to Poland thanks to European funds since the EU’s enlargement, has contributed to not only the growth of the Polish economy, but also the economic development of neighboring countries. If we have “pumped” around zl.130 billion into Polish agriculture since 2002, then at least 40 percent of this amount has been spent on the purchase of machinery and equipment, mainly from Germany and the Netherlands.

What raises special interest among Polish farmers is the actual amount of direct payments, which is still lower than that pocketed by their counterparts in Belgium or France. Don’t you think that these disparities may affect the development of Polish agriculture if they continue?
Direct payments are certainly an important part of Polish agriculture. Last year, the value of production sold by farmers totaled zl.76 billion and value of direct payments was zl.12.5 billion. This is a significant contribution.

The question of the amount of direct payments is politically charged. But from an economic point of view, it is important primarily for subsistence farms. In the case of active, market-oriented farms, it does not really matter that much if they receive 190 or 260 euros in direct payments per hectare.
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