'Polish milk lake can grow by 50% until 2030'

The Dutch-Polish 'Chamber of Commerce' organized a webinar on Tuesday, June 22, with the Dutch Agricultural Council on the Polish dairy sector. Speakers from different disciplines answered questions about the development of the sector, the influence of European policies and the future of the Polish dairy industry. Investing in Poland nowadays also requires a good business plan.

Polish dairy farming is still characterized by the presence of many small family businesses, according to a report by the agricultural council. More than 50% of farms still only keep 1 to 9 dairy cattle. About 4.100 companies milk more than 100 cows. In total, the country has approximately 240.000 dairy farmers (latest official figures 2016). Milk processors (163 companies) are trying to concentrate milk input more. This can provide efficiency and cost benefits for the entire chain. The aim is to get more milk from fewer companies, which means there are opportunities.

Labor and land costs have risen sharply
While in the past many farmers were attracted by the relatively high subsidies and the low costs (for labor/land and no milk quota), these principles are no longer entirely valid today. Costs for labor and land have risen sharply. Moreover, (European) subsidies are under discussion and subject to change. In addition to the increased costs of labor, it is also difficult to find good and motivated staff, says Arend Jan Hendriks, a Dutch dairy farmer who has been running a dairy farm in Poland since the late 90s. This requires efforts to organize the companies properly from a labor perspective. Automation is therefore playing an increasingly important role. 

According to Hendriks, but also other speakers, there is a lack of clear policy regarding the provision of leased land by the government. This creates uncertainty and therefore reluctance to invest. Good agreements with the lessors are important. Furthermore, the Polish government seems to have a preference for smaller companies. Awarding subsidies for improving animal welfare, for example, depends on the size of the company. Farms above 100 dairy cattle will then gradually receive less subsidy than smaller farms. Poland still has a cost price advantage, but this is no longer as great as in the past.

Perspective for growth
The Polish dairy sector has developed rapidly over the last 10 years, according to Paweł Wyrzykowski, sector analyst at BNP Paribas. The total milk supply in the country increased by almost 40% while the number of cows shrank by 200.000. Poland accounts for 8,5% of European milk production (the Netherlands 9,7%). He is also positive for the next 10 years. He explained 3 possible scenarios, which assume that the milk supply in Poland will increase between just under 15% and more than 50% during this period.

Wyrzykowski also indicates that the number of processors has fallen by 17% in recent years. However, the profitability of the processors has grown and there is still potential here. Polish processors still charge relatively low prices for many products, which means there is still opportunity to realize more added value in exports.

Andrzej Babuchowski, director of a dairy innovation institute, further mentions the total processing capacity in the country as a point of attention. The supply of milk in Poland is too small to fully utilize the processing capacity. Many processors are actively looking for new milk suppliers. This partly results in a relatively good milk price and promotes production growth. Risk factors for the growth of the milk pool include stricter environmental requirements (including as a result of the European Green Deal) and a lack of interest among young people to follow companies.

Commitment to quality
A relatively small milk processor present, who focuses on quality, warned not to focus blindly on just more milk. He called it very important to do business in a more demand-driven manner and all this in long-term partnerships with milk suppliers. As an example, he mentioned the production of Kosher dairy products for the Israeli market. This ensures that you do not end up in an endless cost price race.

Klaas Johan Osinga, senior advisor in Brussels for LTO Netherlands, adds that he expects the social debate on animal welfare, for example, to become more prevalent in Poland. Although this is not currently the focus of Polish consumers, it could certainly play a role in the future. Additional demands from Brussels will also affect the Polish dairy sector.

Expect the unexpected
The influence of direct income supplements is becoming smaller and more and more requirements are being imposed on the payment of these funds. Moreover, subsidies do not last forever, according to Osinga. You should therefore not invest based on these funds: "You build a stable for 20 years, so a financier also demands a financially sustainable perspective." You also have to be flexible and be able to show resilience: expect the unexpected, corona has made that clear, Osinga concludes.