Poland - Fragmentation still in milk supply but restructuring of processing

Agriculture, and dairying in particular, has long been important to Poland. State farms never dominated Polish agriculture as they did in the Soviet Union and a relatively large number of co-operatives were and continue to be the main form of organisation processing milk from the many small farms.

However in the course of the last ten years there has been considerable change in the structure of milk processing, if not of milk supply, following Poland's application to join the EU. The significant population coupled with low labour costs have attracted Western food and dairy processing companies as well as Western distribution companies. More consolidation in the number of local co-operatives is foreseen as well.

At the level of basic milk production, fragmentation is still the key characteristic. More than 90% of farms are now privately owned but the average holding is only just under 8 hectares. Less than five per cent of farms exceed 20 hectares. There are 1.3 million farms, of which approximately half a million supply milk for processing.

With the breaking up of the state farms in the early 1990s (occupying 20% of total agricultural land), the national herd declined. In 1980 it was estimated at 6 million but had already fallen to 4.9 million by 1990. Today about half the cattle population of 7 million are cows and this number has stabilised. These 3.5 million cows are in approximately 1.3 million herds i.e. the average herd consists of just under 3 cows with an average annual yield per cow of 3,325 kgs..

The restructuring programme introduced by the Ministry of Agriculture and Food Economy in 1994 is still proceeding. This aims to raise total milk production from 11.6 billion litres in 1997 to 16.0 billion litres by 2006, i.e. following Poland's accession to the EU. The increased production is to come from the same number of cows. In 1999 it is believed that total raw milk supplies slipped slightly from 12.2 billion litres in 1998 to 11.9 billion litres. The average cost of milk production at US$ 0.14-0.16 per kg puts Poland just above Australasian levels but at around half the cost of supply in the EU.

In 1997 only 60% of the milk produced was collected with much staying on the farms. This is targeted to rise to just under 90%, i.e. closer to the EU pattern, and will be processed by a forecast 20-25 co-operatives plus around 15 large private dairy processors as compared with 290 cooperatives and 90 private processors in 1998. About 80 dairies presently process around 70% of the country's milk deliveries with an average milk intake each of about 57,000 tonnes a year. The top ten Polish dairies in 1998, based on milk delivery are shown in the following table. All are coops except for Danone, which is the only Western processor to rank in the top ten.

Milk Delivery 1998
Million litres

Spoldzielnia Mleczarska Mlekovita

250

Spoldzielnia Mleczarska Mlekpol

170

Mazowiecka Spoldzielnia Mleczarska

147

Danone

136

Spoldzielna Mleczarska Spomlek

120

Spoldzielna Mleczarska Gostyn

112

OSM Lowicz

105

Spoldzielna Mleczarska Kurpianka

105

OSM Radomsko

98

OSM Konskie

84

Source: Sparks Europe

In January 2000, new quality standards were introduced, which will effectively take third quality milk out of the commercial market and make more, better quality milk available to processors.

The product pattern

The production pattern in the last few years has been as shown in the following table.

Product

Unit

1997

1998

1999

Liquid milk

M litres

1,340

1,300

1,268

Milk beverages

M litres

255

276

327

Yoghurt

M litres

130

142

165

Cream

M litres

201

175

183

Fresh cheese

000 tonnes

236

248

264

Ripened cheese

000 tonnes

158

159

148

Processed cheese

000 tonnes

42

40

42

Butter

000 tonnes

139

141

133

Milk Powder

000 tonnes

161

158

143

Source: based on Sparks Europe monthly report, Dairy in Poland.

Milk beverages include both cultured and non cultured products (i.e. kefir, buttermilk and flavoured milk drinks).Butter and ripened cheese experienced a drop in production last year owing to a combination of restricted milk supplies and weak demand in the Russian market. Total ice cream production in 1997 was 137,000 tonnes, having doubled in two years.

High rates of inflation during the early and mid 1990's and constrained consumer incomes led to a decline in domestic dairy consumption - from 241 litres per capita in 1991 down to 200 litres by 1997. Sectors presently showing growth or forecast to grow over the next few years are noticeably fresh products such as milk beverages, fresh cheeses (not so much the local traditional variety of quark known as tvorog, but rather spreadable fresh cheese), and yoghurt i.e. the sectors where Western investors have chosen to concentrate their efforts.

Poland has been a net exporter of dairy products since 1992 with export volumes in 1999 80% higher than for imports. The leading export product areas are skimmed milk powder (83,000 tonnes estimated in 1999), cheese (30,000 tonnes including 12,000 tonnes of ripening cheese), ice cream, whey powder and milk drinks. Direct export subsidies for skimmed milk powder were introduced for the first time in mid 1999. Algeria and the Netherlands (for re-export) have been the main markets for SMP with leading markets for Polish cheese being Russia and the US. Russia and other former Soviet markets have been the main buyers of Polish ice cream and the economic difficulties in these countries over the last few years have constrained development of this business.

Western investment attracted

Since the fall of the iron curtain, Poland has been a magnet for Western food processors. According to some observers, Western processors now account for around 30% of the Polish dairy market and are especially strong in short life products and cheese. Danone claims a market share of 29% for the fresh sector overall. Danone has 45% of the homogenised fresh cheese market, dominates in the cream sector (22%) and is strong in yoghurts and kefir (approaching 30%). Campina is a significant player in yoghurts, kefir (9%) and dairy desserts with two plants. Nestlé has a dairy in Slupsk producing yoghurts and milk powder. In the cheese sector, Hochland and Besnier have local plants. Besnier is probably the largest producer of Parmigiano type cheese. Hochland controls the spreadable fresh cheese sector with a third of the market, while Bongrain has nearly 20% of the same product area. Fromageries Bel produces processed cheese locally at Chorzele.

The German yoghurt producer, Zott, has gained 20% of the yoghurt market based on imports alone but is planning to start local production this year. Their domestic competitors, Onken also have a plant under construction in Poland at Makow Mazowiecki. Other European investors include MD Denmark (ripening cheese), Hoogwegt Netherlands (cheese, milk powders), Sodiaal France (yoghurts), Numico Netherlands (liquid milk and milk powders) and Molky of Switzerland (cheese, butter). Land O'Lakes (cheese and butter) the largest co-operative in the US has also invested in dairy processing in Poland.

Unilever's Algida operation and Scholler (Sudzucker) of Germany account for around 40% of Polish ice cream production with a further 30-40% held by four domestic firms - Zielona Budka, Ekko, Augusto, and Kroal Bros. In 1990, local production of ice cream only met 50% of demand. Since the mid 1990s, Poland has become a net exporter of ice cream.

Western wholesalers and retailers have also been attracted. Macro from the Netherlands is the major player in the wholesaling sector. Several retail chains have invested in Poland including Billa (Austria) one of the first to recognise the opportunities, Globa (Belgium), and Rema (Norway). The UK's, Tesco with Poland's Savia company operates 36 stores in southern Poland. Leclerc, the French hypermarket group plans to open over 50 outlets throughout the country and Auchan has already opened in a suburb of Warsaw as has Robert, a Polish-French joint venture. Allkauf Ahold Poland (a German-Dutch joint venture) has acquired part of Mitex trading and is planning to open a chain of supermarkets. Discount supermarkets have also made an appearance with the opening of two Netto (Denmark) outlets.

IMES gratefully acknowledges the assistance of Sparks Europe's office in Poland in preparing this article (email sparkeup@sparkseurope.com.pl)