On the verge of becoming the fourth largest producer of fresh fruit and vegetables in the European Union, Poland was in a peculiar win or lose position before its accession to the EU. Poland accounted for more than 50 per cent of the fruit production and over 75 per cent of the vegetable output that became part of EU production on May 1 last year.
The fruit and vegetable sector represents 16.8 per cent of the agricultural production of the EU25 by value. The 10 new member states (NMS) added nine million tonnes to the region’s vegetable production volume, which now stands at 64mt, and 5mt to the EU’s fruit output, up to 40mt a year. All in all, that represents an increase in production of 15 per cent.
Of the new members, only Poland and Hungary register amongst the top 10 nations in fruit and vegetables. Poland produces eight per cent of the EU’s vegetables and seven per cent of its fruit.
So the entrance of the 10 NMS was a significant moment in Polish fresh produce history. But, one year on from accession, has the market yet felt the tremor of expansion? Most analysts wisely predicted that the integration of 10 relatively under-developed economies and societies into a well-established free trade area consisting of 15 nations would take time.
“There are two aspects to the enlargement process as far as fruit and vegetables are concerned, one being production and the other trade,” says Philippe Binard at European trade association Freshfel. “There has been a lot of effort made in the new EU countries to bring them into line with the EU15 and recognition of the importance of gaining producer organisation status. There are of course countries where this process will be faster, Poland, Hungary and Cyprus for instance, but for other new member states the transition involves a lot more work and will be relatively slow.
“Progress is definitely being made,” says Binard. “But it can be a complicated process to put new structures in place.
“On the trade side, I don’t think there have been major changes in terms of flow of product yet,” says Binard. “A lot of the countries were well prepared for enlargement and the 2000 arrangement had put a lot of things in place that had increased trade even before accession eventually took place last year. We will see greater participation by the NMS in the market for some specific products, but in the first 12 months nothing has changed significantly.
“If there are to be big changes in the short-term, they are more likely to occur in the vegetable sector,” says Binard. “It will take the fruit industry time to adapt its varietal mix to suit the demands of the western market, as it takes three to five years for new plantings to come through. In vegetables, if you have the infrastructure in place, cheaper human resource options and a distribution channel, it is possible to make an impact more quickly.”
In Poland the fragmented nature of the fresh produce industry has hindered immediate progress, although there are a number of companies that already had the infrastructure in place to take immediate advantage of the country’s new-found opportunities. There and elsewhere, it will understandably take time for the eastern European production network to become fully conversant with the opportunities that EU membership offers, and conversely also the potential threat from free trade flow.
Prior to the accession, the over-riding emotion amongst producers was scepticism, based on the belief that competition from western produce would push domestic produce off the shelves in both domestic and export markets. Consequently, the country’s producers could see the opportunity to win new market share with its huge production capacity. But they were also wary that that potential could disappear due to the western European markets being oversupplied. But contrary to that, in the year since accession, Poland has enjoyed a healthy rise in exports, with fresh produce one of the country’s leading sectors. In 2004, exports of mushrooms, for example, reached the 110,000t mark for the first time.
Ireneusz Nawrot, president of one of Poland’s leading fresh produce exporters Nawrot, says: “Although we supplied to Europe long before the entrance, last year we noted demand for our produce was increasing at a growing pace. The reason for that was not only a competitive price, due to lower labour costs, but also good quality which satisfied western importers.”
According to Simon West, co-owner of Onix, a Polish grower, storer and processor of onions, with the majority of its export business in the UK, “accession has made things a lot easier”.
He explains that the logistical and practical processes involved with getting his product to the UK have been enhanced by the disappearance of red tape at border controls, for instance. “We have received some funding from Brussels and for the country in general, new windows of opportunities have definitely opened up. However, it also makes it easier for other people, so there has been a flurry of Polish exporters jumping on the bandwagon,” says West. “That has caused a glut of onions in western Europe.”
Jakub Jazdon, West’s partner and co-owner of Onix, adds: “In the first year, overall there has been a negative effect on our business. Being one of the leaders and best companies exporting out of Poland, increased market access has made it easier for our competitors. There has been a particular impact on the onion sector and, although it has not been disastrous, it has been a bad year for onions.”
Antek Kostka of Quadrum Foods says that EU accession has benefited his business. “As an importer of fresh produce, we have less formalities, logistics are easier and cheaper, and we can plan them more efficiently. In my opinion though, of far more importance for the country is the recognition of our people that we are in Europe now, although in reality we have been there for over 1,000 years.
“The impact of accession has been better than expected and the general mood is good. This has probably more in common with the psychology than with the economy,” says Kostka. “The business environment generally appears to offer greater security, and the majority of customers can be insured against commercial risk, which was unthinkable in Poland five years ago.”
Spalding-based Freshworld was involved in Poland before accession and has increased its efforts since May last year. “Poland is a huge country, with massive amounts of good, flat agricultural land. Of the accession countries, it is the only one that can really alter the balance of horticulture in the EU,” says managing director Colin Galbraith. “Some people have taken the bull by the horns and there has been significant investment. The country will also benefit in time from access to grants from the EU.”
Freshworld has part ownership of one Polish company and is also the UK representative for a major tomato producer. It initially worked with Polish onions, but has seen its salads business from the country expand. “We are looking to find specialist partners in each salad product area. We are prepared, as everyone must be, to put in the hard work. You can spend an awful lot of time and effort getting nowhere in such a fragmented market. There are some very good Polish companies, and they stand out, but there are also some bad ones.
“Much of the effort has to be put into education at this stage; talking to Polish producers to ensure that they understand way the UK market works and its particular demands. The choice of supply lines in the UK is so vast that unless the Poles are on their toes at all times, they will find it very difficult,” Galbraith says.
Nawrot adds that the Poles’ attitude to management and conducting business has changed. “We became more confident about our offer and the way we deal with potential clients. The prospect of entering the EU pushed us to employ specialists in sales, finance, and marketing, along with introducing quality schemes in years 2003 and 2004.”
Although traditionally the weakest side of fruit and vegetable growing in Poland was the lack of quality schemes, systems such as ISO and HACCP are now regarded by farmers as standard and exporters are much more aware of market requirements across Europe, including BRC and IFS.
The move towards adjusting to EU and world standards, another integral aspect of joining the EU, has been seen in the form of widespread promotion of EurepGAP, which farmers were given the chance to learn about at AGF Poland 2004 and the latest mushroom growers conference, in April 2005. Nawrot is busy working with its major suppliers on EurepGAP. “We have a person in charge of quality schemes who reports to the Certification Body,” says Nawrot. “This person talks to our suppliers directly, explaining the benefits and importance of EurepGAP. We expect to finish the implementation with our major suppliers within a year.”
There are two sides to every story of course, and while there are farms and fresh produce distributors that have made considerable investment and modernised to strengthen their presence on the EU market, small-sized businesses still account for 92 per cent of all farms in a fragmented industry. Building a competitive offer will prove more difficult for producers who cannot enjoy the benefits of economies of scale or the infrastructure to promote themselves in international markets.
Authorities are using national trade magazines to encourage the formation of producer groups and greater intra-industry co-operation to take advantage of the EU subsidy system. The ultimately necessary free flow of information is not yet fully in place between any of the new member states and Brussels, which means that reliable data has been hard to come by in the initial stages of integration. There are thought to be around 40 Polish producer groups attempting to gain PO status, for instance, but until the European Commission has access to all the relevant detail, exact numbers are impossible to declare.
“The bigger companies have been able to realise the benefits of good structure and communications, but for some smaller operators, all they have seen is a massive overnight increase in costs. There will be better employment security and benefits, but wages are still low in terms of the EU average, and as the cost of living increases in Poland salaries will rise,” says West.
Galbraith says: “People have a view of Poland as an unsophisticated place in terms of production, and it has definitely been a surprise to many people to be confronted by very modern, well-run, efficient facilities. The way it was under Communist rule, the infrastructure was in place, but each grower was producing to demand. Growers have had to develop a commercial attitude and changed their function. A lot of producers have already been doing a very good job for many years though and now each grower has the opportunity to find their own niche in an expanded marketplace.
“But there is a common misconception that product from Poland should be cheap. Why? If they are producing high quality product and it is what the market demands, there is no reason why it has to be cheap.”
On the other hand, French tomato producers were quick to complain last year when Polish tomatoes were deemed to be priced too low on the French market. “If you make up a set of rules for entry into your club, but do not insist that the same wage costs must apply, you can hardly complain if product is cheaper when it arrives,” Galbraith says. “Poland has the advantage of low labour costs at the moment, and with that the capability to come into a well-supplied market and sell at a competitive price that can still return profits to growers. Polish exporters should be allowed to sell at a reasonable price without buyers in western Europe trying to squeeze more out of it.”
Dr Szudyga, chairman of the Polish Mushrooms Growers’ Association, says: “There are still stepping-stones to be crossed. The lack of close co-operation within the horticulture industry, coupled with a strong Polish zloty and gradually rising salaries, may be a problem for the future of the country’s exports.”
The prospect of entering the Eurozone obliged the Polish National Bank to lower its country’s hefty international debt, and therefore maintain the zloty at an unprecedented high level. A 17 per cent rise against the euro from May 2004 to January 2005 left exporters counting their losses and forming an altogether darker impression of their futures.
Nawrot warns: “The strong zloty and higher salaries, which are gradually rising in Poland, may leave our product less competitive. As now more than ever we are affected by the economic changes in the EU, the only way to sustain our competitiveness during the difficulties Poland is about to face is to strengthen and stabilise the industry through market re-organisation.”
“The volatility of the zloty is a major concern,” says West. “Poland is due to join the euro in 2008 and this is part of the process. It will take a while for the transition to have the desired effect, but taking on the euro is at the heart of Polish economic policy.”
Jazdon says that the zloty is 25 per cent stronger against sterling than at the time of accession. “The situation has helped the importers in Poland, but it has been very difficult for exporters. I think only the meat and milk sectors have become more profitable for Polish agriculture in the last 12 months”
In terms of cost expectation, people have the wrong image of Poland, Jazdon says. “This country is not as cheap to operate in as it was three years ago. The cost of petrol for instance was one third of what is now in 2002, and chemicals are as expensive and often more so than they are in western Europe. Labour is still relatively cheap, but the difference is not as big as it was.”
Working to optimise the efficiency of Polish horticulture, the country’s leading exporters have shown they have learned the first lessons of EU membership. Now they, and their counterparts, must illustrate that they can make the necessary strides to cement a place, not only as one of the EU’s major producers, but also one of its top exporters.
“With any transitional process, you should not expect instant success and neither is entrance into the EU the panacea for instant profit,” says Galbraith.
Kostka agrees: “We are what you might term a traditional import/export company,” he says. “Despite many people talking about the disappearance of traditional middlemen, we do believe in our business. The best will survive, those who can operate with the minimum of cost and demonstrate the best know-how. We think the expansion of the EU will bring gradual growth for us in the coming years.”
“All the letters are there, it’s just that the writing isn’t all joined up,” according to Galbraith. “Quality-wise, there have been no problems. Sometimes though, there is a tendency for producers to be slow to react to order potential. It is a question of attitude and I think it will change in the next 12 months. They need to come up to pace with the speed of the EU market. For instance, if there is a shortage of cucumbers in Spain, we need cover immediately, it is not much use saying we might have some a week on Monday,” he says.
Jazdon believes it will take a few years for the country as a whole to bring itself right up to the EU level, but on behalf of Onix, he says: “We have the right quality and logistics in place, and like the rest of Poland, we have changed our outlook. We have always been very good at ensuring the quality of our raw material and that is the key to competing in the European market.”
Kostka gives his insight into the change in mindset of his fellow Poles. “In recent months we have experienced a psychological breakthrough. After receiving the first EU subsidies, farmers are starting to think positively, and looking to invest. As an example, I tried myself to buy a tractor, but they are sold out, with a waiting list of two months. For the first time in their own lives, or the lives of their fathers and grandfathers, farmers see they are getting real financial assistance. Europe will also start to understand us, although we might initially cause a few problems, we are not a poor relative staying for a while, we are a wife, with full rights to change the furniture.”
FRESH CHALLENGES AHEAD
As an association, Freshfel has seen its potential membership swell by the factor of 10 fresh produce industries, and this has brought its own challenges. “Association life has changed and there have been some new priorities for us,” says Binard. “While the agenda has remained broadly the same, we have spent more time discussing certain areas - berries for example.
“The influence of the EU15 has remained and what we have noticed perhaps more than anything is the complexity of the communications process.” Nine new languages were added into the EU mix - Greek was already in use, although there has been debate that Maltese should be included for Cypriots as well - which means that documents have to be translated into a new raft of dialects.
“In purely fresh produce terms, Poland obviously has a strong voice from the word go, and it will certainly begin to have an influence over change in the Common Agriculture Policy in future years,” Binard says.
“The EU agriculture budget has remained more or less the same, which means that 25 countries are now having to share the resources that 15 countries had previously. To some extent that is bound to mean that some countries will have a decreased level of support, which is something we could end up regretting. The promotional budget is exactly the same, which leaves us with less money to promote greater quantities of fresh produce in more countries.”
Binard adds that the next challenge will be the accession of two more countries, Romania and Bulgaria, planned for January 1, 2007. “In fresh produce terms, there is unlikely to be a major impact from either of these two new members,” he says. “In fact, what it does offer is more opportunity for growth and development of consumption in the EU as a whole. The budget is an important issue now, but as not everyone is aware of the funding available in NMS yet, it is likely to become a bigger issue in the years to come. And particularly when we have a further enlargement in 2007.”
POSITIVE CATERING EFFECT
David Burns, commercial director at Redbridge Caterfresh, the foodservice division of the Redbridge Group, says the enlarged EU has had a positive impact on the fresh produce industry.
“The enlarged EU has created new opportunities in the fresh produce industry, making it much easier and cheaper to trade with the accepted countries due to relaxed border controls and import duties. With the reduction in bureaucracy, Redbridge Caterfresh has begun to source more products from Poland, and not just the stable produce that the country is well known for such as brown onions and blueberries, but also for salad vegetables such as mushrooms, peppers, cucumbers, tomatoes, red onions and courgettes,” says Burns.
“We are now sourcing salad vegetables from Poland throughout the growing season, which runs from early March to late October. The low cost and high availability of labour in Poland has led us to begin adding value to produce at the source, for instance, in conjunction with our UK partner Southern Salads, we are now sourcing pre prepared carrots and onions in Poland before importing to the UK and adding further value and various mixes to suit our UK client base.
“The success we have had in working with growers in Poland is something that we are looking to replicate with other countries that have recently joined the EU such as Hungary and looking further into the future, Romania, Bulgaria and Turkey when they join the EU in 2007.”
NEW EU STATES REPRESENT OPPORTUNITY, NOT THREAT
Concerns that the opening up of the EU to a raft of new nations could mean increased and possibly threatening competition to Belgian produce have been discounted by leading industry figures.
“They may be a threat in the short term,” says LAVA’s Maarten De Moor as he considers the effect that new nations may have on the marketplace, “but on the other hand the opening up of the internal market gives us the opportunity to increase supply to these new markets.
“The situation can be compared to what happened after Spain joined the European Community. Initially the market was over-supplied, which pushed down prices, but after a while the situation stabilised.
“The unified supply of the LAVA auctions means that we can offer large quantities of produce of uniform quality through the Flandria label.
“This collaboration between the different growers’ associations has advantages for both producers and retailers. I can’t see the new member states achieving this high degree of organisation quickly.”
BFV’s Diether Everaerts agrees with De Moor though he concedes: “Competition is getting tougher and low prices from countries like Poland are a slap in the face of Belgian growers who were used to dealing with much better prices in the past.
“With high production such as we had last year we are obliged to explore new markets both inside and outside the EU.
“But the opening of the borders has given us a lot of export opportunities and we are now supplying countries like the Czech Republic, Slovakia, Romania, Hungary and the Baltic states.
“We also believe there is a market for products like bicolor apples and Golden Reinders in North Africa and the Middle East.”
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