Poland: challenges for the dairy sector

On Sept 7-8 the International Dairy Forum took place in Bialystok (Poland). One of the most important events in the dairy industry in Central and Eastern Europe, with participation of European and Polish stakeholders including the European Commissioner. With an unstable global situation, increasing market pressure,  rising consumer expectations and the upcoming Green Deal there was a lot to discuss.

Dairy sector in Poland
mr Alexander Anton, European Dairy Association

Green Deal and Farm to Fork Strategy

Deputy Prime Minister and Minister of Agriculture Henryk Kowalczyk and EU Agricultural Commissioner Janusz Wojciechowski were guests at the Forum. Both spoke a lot not only about the dairy sector, but especially about policy, both EU and Polish aspects. They took part in a session on opportunities and challenges for the dairy sector in the context of the new Common Agricultural Policy, the Green Deal and National Strategic Plans.

"Poland in the dairy industry can be said to be a huge tycoon, it is an exporter" - Kowalczyk said, and added that the industry is stable mainly thanks to cooperatives, processing, which is in domestic hands.

Kowalczyk declared how important a well-secured and well-functioning dairy industry is for the Polish agri-food sector. In the case of the need for power cuts, the dairy and meat industries will be protected, given priority - assured Deputy Prime Minister, Minister of Agriculture and Rural Development Henryk Kowalczyk.

-    “The regulation's plans to reduce crop protection products by 50 percent are absolutely unacceptable. It is unfair because we are starting from very different levels. (...). However, I trust that there will be a reflection, if not in the EC, then maybe in the European Parliament” said Deputy Prime Minister Kowalczyk. – “This is not a good time to implement this provision, which could result in a significant reduction in production, now that we are all concerned about food security. It is important to maintain the continuity of agricultural production throughout the EU” he added.

EU Agricultural Commissioner Janusz Wojciechowski reported that after the abolition of milk quotas (limits on production), milk production is increasing, and in Poland we are talking about an increase from 9.5 to 14 million tons. He also reported that due to the increase in energy, fertilizer and feed prices, prices of dairy products have increased by 38 % across the EU, including in Poland.

Wojciechowski pointed out that "for the time being" food security is assured in the EU, a shortage of food - including from the dairy sector, in the short or medium term does not threaten EU countries. In dairy, the EU is the largest exporter - exports amount to 21 million tons.

The Commissioner stressed that it is in the EU's interest to open markets as much as possible. He mentioned the negotiations with New Zealand, declaring that he was satisfied with the outcome, as they yielded an agreement that is relatively in line with what was envisioned, and are very important from the point of view of the dairy industry.

A strong counterpoint to Kowalczyk's declaration and Commissioner Wojciechowski's assurances was a speech by Jerzy Plewa, Team Europe's expert in Poland and former director of DG AGRI. Mr Plewa pointed out that the transfer of 30% of funds from the second pillar (RDP) to direct payments in the National Strategic Plan of Poland, means that "small, even symbolic amounts" remain to support modernization investments, digitalization, knowledge transfer, infrastructure development, i.e. modernization and improvement of the competitiveness of the Polish agri-food sector.

- "Poland has shifted funds from Pillar II to Pillar I, which has consequences and does not increase, but actually decreases the budget for agriculture, stating that the loss from this shift is almost PLN 1.5 billion. Despite the transfers from Pillar II, the basic subsidy is very low, at around 118 euros/ha. It could be increased by clarifying the requirements of an "active" farmer, but this has not been done. Transfers from Pillar II significantly increased the necessary amount for ecoschemes - a new instrument, the architecture of which, was thoroughly changed in the last version of the SP, without public consultation" - Plewa pointed out. "Undoubtedly, there will be very limited, even negligible, access to funds for modernizing and raising the competitiveness of the dairy sector"  – Plewa said.

The impact of Farm to Fork Strategy on the dairy sector was summarized by Prof. Babuchowski.
- " The farm-to-fork strategy has an asymmetric impact on animal and crop production. Gross margins for animal products, especially milk, beef and pork, increase by 55 billion euros, while gross margins for plant products are reduced by 21.3 billion euros", Babuchowski said. In addition, according to Babuchowski, the dairy industry will face a relatively small profit loss, but farmers can expect a decrease in production and a corresponding increase in prices in the EU, with a 6.3% decrease in milk deliveries projected. The cattle population would also decline (down 45 % for beef cattle and 13.3 % for dairy cows and young cattle).

"Polish farmers profit on the EU market, thanks to it they develop in such a way" - this is how Professor Babuchowski began his speech. He continued, more specifically, paying attention to the maintenance of Western standards, as an example he pointed to the Netherlands, in food production as a very important challenge that should be feasible for Poland with appropriate efforts by both the authorities, farmers and consumers. In his opinion, while in the case of pesticide reduction Poland has a good start - 22% below what is required, the use of antibiotics in Poland is problematic and here it will be the most difficult.

Babuchowski appealed for common sense in the implementation of new solutions, especially those pro-environmental, showing statements, for example, in water consumption in dairy production. As for the future of milk and the entire industry, Babuchowski believes that the most important factor determining the success of a given producer, processor, will be the highest, precise standardization of raw material production, because "milk will be purchased only for specific parameters, for specific final parameters".

Deputy Prime Minister and Minister of Agriculture Henryk Kowalczyk

Future of Agriculture in Poland

The future of Polish agriculture is young people. According to Professor Babuchowski, it is worth supporting and inspiring farmers to stay in this profession. New farmers, young farmers do not know what to do next, do not know whether to invest, they abandon their farms because there is a lot of uncertainty. According to the speaker, “Young farmers feel a great deal of uncertainty in the industry. No wonder. Young farmers must have organizations, organized forms, so that, for example, it is possible to take leave sometimes, count on others. It may be prosaic, but it is really crucial".

According to Jerzy Plewa, a farmer, in order to still want to be a farmer, must have basic security ensured - "Farmers must be able to earn a living from agriculture, they must live with dignity. We also need to provide opportunities and help to larger farmers, because they often support small farmers, who often do not even cultivate the land”. Moreover, Plewa emphasized that the Polish administration should know what is interesting for young farmers and provide them with opportunities for implementation and development in this direction. As an example, he gave precision agriculture - "Young farmers are passionate about precision agriculture, and there is no promotion of this agriculture in the Polish National Strategic Plan".

Plewa's conclusion was quite pessimistic, as he summarized his view on the future of Polish agriculture as follows - "We're going towards museum-ish of the Polish countryside".

Commissioner Wojciechowski had a different opinion, saying that "We currently have the greatest reform in the European agricultural policy in 30 years" and Poland has chosen a very good path for agriculture and has a good National Strategic Plan. He also declared that aid for small economies is a pan-European tendency and he did not see it as a threat to Polish agriculture. According to him, a chance for a good future is also the cooperative movement - “where there is a well-developed cooperative movement, the situation in agriculture is also good and he recommends this system to other agricultural sectors. It is also the basis for ensuring food security in the coming years ”. The Commissioner also announced that he would like more funds in the next Common Agricultural Policy - "We are trying to increase funds for the future CAP".

Speaking about the future of agriculture, Minister Kowalczyk said that "only time will show whether our actions meet the expectations of farmers", while the Polish government created two large incentives for young farmers: 200.000 PLN (approx 42.000 euro) for a young farmer to start and 60 EUR per hectare for the first 5 years for the young farmer when he takes over the farm. Kowalczyk, like the previous speakers, is aware that without young farmers there will be no future for Polish countryside and agriculture, especially in such a difficult industry as the dairy industry - "We need new successors, milk production requires constant work, there are no days off, this is the toughest agricultural sector".

Although the global situation of agriculture is not easy, the panelists emphasized that the time for changes could have been worse. Regardless of what the next crises await us all, we should take care of common security. "Food security, next to energy and military security, is of key importance, it is a pillar of all security" Commissioner Janusz Wojciechowski declared during the conference.

European Commissioner for Agriculture, mr Janusz Wojciechowski

The biggest challenges for the dairy sector

-   "As a Finn, being in Poland, I know the situation of Ukraine and I support Ukraine very much." This is how Pesonen, Secretary General of COPA COGECA, began his speech.

Pesonen pointed out that energy prices, which are starting to become problematic, have a major impact on the sector. Common sense dictates the use of natural energy sources, renewable energy, and the industry itself also presents many opportunities, such as investing in biogas plants. Pesonen also stressed that the agri-food industry also needs to start communicating more with the public, to take care of its image.
-    "The case of animal welfare is becoming more and more important to consumers, you can see this very much in Brussels, where various NGOs do not let us forget about it. We must try to come out in front of them, but without forgetting a certain injustice. The emphasis on agriculture is too much in the context of the environment compared to the transportation or chemical industries." Moreover, another challenge in Pesonen’s opinion is that the industry feels the pandemic effect all the time, especially through retail, which has not recovered from the crisis.

After Pesonen, mr Alexander Anton the Secretary General of the European Dairy Association continued.  - "The share of the energy cost of the price of milk used to be about 2-3%, and now it is 10 times higher. On top of that, there is the war in Ukraine that also affect the dairy industry strongly" – Alexander Anton, secretary general of EDA, agreed with Pesonen. However mr Anton pointed out that climate change has also become a reality, as evidenced by widespread droughts.  - "Balance between being productive and having foodsecurity is the key." – Anton summed up.

As for China's role in dairy consumption, Alexander Anton pointed out that consumption is already between 200 and 500-600 grams of milk per day per person in China. "There is global fan-club of milk consumption there" –  Anton joked.

In turn, Jakub Olipra, an analyst at Credit Agricole, spoke positively about the structure of the Polish dairy industry, declaring that an industry based on cooperative, skillful transfer of rising costs to subsequent stages of the supply chain is one of the safer solutions. The industry's profitability itself has increased by 3 percentage points, and compared to other industries this is a very good result.

As for threats to the dairy industry, Olipra points to operating on low margins due to the relatively low prices of dairy products compared to other foods, although here he also sees a positive, i.e. "consumers have ample means to pay more for dairy products such as yogurt or cheese, as there are no alternatives to these products, and the fairly low prices of dairy products will continue to be relatively low with large increases", the weakened condition of the global dairy industry and the weakening of the HoReCa industry, which is a very important consumer of dairy products. In addition to the shortage of workers in milk processing, there is clearly a "worker's time" in the industry, they can dictate higher and higher financial demands.

Beeld: C.Spaans

Perspectives of the dairy sector in EU

Speaking of the industry's prospects, it was pointed primarily to the strengthening of a form of cooperativism, which, according to Jakub Olipra, "is the best solution in the food industry, especially in the context of various crises". According to Alexander Anton, in turn, the cooperative model can be combined with new trends in the market, and what's more, this is already happening.

A lot of positivity about the future of the industry was sought by Piotr Wojcik from the National Institute of Animal Science, declaring "more positivity, Europe has all the time been a place affected by crises and has always come out of it. Dairy is the basic, cheapest whole food. You have to teach, watch consumption for future generations. It will be fine”.

In the context of the future, according to many panelists, it is important to know the answer to the question for whom we produce, how to implement changes expected by consumers and improve such production. According to Łukasz Wyrzykowski from the IFCN Dairy Research Network, EU Member States must realize that they produce mainly for the EU market and it is worth relying on these standards.

cows in the sun

Sustainable dairy

The topic of sustainable dairy production came up throughout the event. Sustainable food production is not only an attempt to deal with climatic and environmental problems. It is also a response to the voice of conscious consumers who see what is happening around them, who want to have a positive impact on the environment through consumption. According to the respondents presented by a representative of Bayer - 73% of respondents declare that they are able to pay more if the product comes from sustainable production, and 3/4 is for sustainable production. This may be another argument for changes in the food production system on a global scale.

Examples of sustainable dairy farming in their countries were presented by Carolien Spaans, Agricultural Counsellor at the Embassy of the Netherlands in Warsaw and by Marie-Christine Le Gal for the French Embassy. In the Netherlands topics such as grazing, which contributes to the typical Dutch landscape, and animal welfare are important for the Dutch society and therefore the dairy sector. In the Netherlands all stakeholders work together to achieve an even more sustainable dairy sector. An ambitious goal is also to make the dairy sector energy neutral by 2030. More sustainable production also means drawing on new technological solutions, which can be seen according to Carolien Spaans in the fact that "the Netherlands is leading the way in the development of new technologies in the industry, among others thanks to Wageningen University and Research".

Sustainable milk production, based on animal welfare, environmental and local care, is also an increasingly common situation in French dairy production. Over 92% of dairy farms provide access to an outside area for cows. According to Marie-Christine Le-Gal, it is also important to secure farmers so that the higher costs of such production are not a burden for them. It is important to encourage and support farmers so that they are actively willing to make environmentally beneficial changes to their production.

Friedemann Kraft from the German Embassy in Warsaw drew attention to the fact that these changes are already happening, it is a long process and he asked rhetorically - "Consumers are different, sometimes very aware, sometimes not at all paying attention to what he is buying. There is no one-size-fits-all solution but they are asking and asking for changes, but the question remains, can we afford it?".

According to Klaus Rufli, project manager of Quality Management and Sustainability at QM-Milch e.V., in the long term, milk from tethered cows will no longer have a market in Germany. This is because as much as “90% of German milk producers are already certified to the QM standard”, while German retailers are now introducing rearing type labeling. Also, rearing type labeling on dairy products is an important topic for consumers in Germany.