CAP Reform Profile - Poland

1 Introduction: Economics and Politics

2 The Polish Government’s Attitude Towards the CAP

2.1 The Polish Government’s View of the CAP Health Check

2.2 The Current Polish Position on Further Reform

2.3 Views on Direct Payments

2.4 Views on the EU Budget

3 Background Information

Footnotes

Sources

1 Introduction: Economics and Politics

When Poland joined the EU in 2004 it became a net recipient of EU funds. The general opinion of farmers and experts is that the accession negotiations were successful and facilitated favourable conditions for the further, stable development of the country’s agricultural sector. The general public is broadly thought to be positive towards the CAP in its present form.

The 'shape' of the CAP in Poland is different to that of the EU-15 members. For a start, Pillar 1 is financially of a similar size to Pillar 2, with the effect that Poland is allocated a relatively large level of rural development funding in comparison to the direct payments it receives. Direct payments have been phased in, starting at a level of 25% of the EU average prior to EU accession, with a proportion of funding coming from national co-financing intended to help farmers maintain their competitive position. In combination with the co-financing of rural development, this is perceived to have created a heavy burden on the state budget, although Poland remains a net EU budget recipient.

At the top of the Polish Government’s agenda for rural development during for the past decade and the foreseeable future has been the enhancement of competitiveness in rural communities in order to maximise their contribution to national economic development. The main challenge for developing a competitive agricultural and rural economy stems from the fragmented structure of small farms which generate low levels of agricultural income and which are hampered by a still weak market organisation. Such farms exist alongside a relatively small number of larger, more economically viable farms. Thus, modernising overall agricultural production to a similar level of technological advancement as seen in the EU-15 is an overarching objective.

2 The Polish Government’s Attitude Towards the CAP

Following four years of Polish membership of the EU, it is still very important for the country to properly and fully utilise the various benefits seen to be provided by the CAP. Both Pillars have contributed to the development and modernisation of Poland’s rural economy. Maintaining this active and relatively economically secure agriculture and food industry is also seen to be closely connected to maintaining landscape and the cultural aspects of the Polish rural environment.

Obtaining the benefits of CAP support under both Pillars was a fundamental political lever in persuading the Polish population to accept EU membership.

The principal discussions among farmers and other stakeholders centre on how reform should address disparities in the level of direct payments between the New Member States and EU-15 Member States, as well as the historical basis for national allocations, which, in the EU-15, is related to past levels of production. It is often argued that the current system results in the unjust treatment of New Member States, particularly in regard to its impacts on competitiveness. By the end of 2013, Poland will have reached the full level of CAP receipts agreed prior to accession. Obtaining the benefits of CAP support under both Pillars was a fundamental political lever in persuading the Polish population to accept EU membership.

With an agricultural economy still in transition, it is perceived…to be unfair to implement full cross compliance before Poland reaches full payment levels.

Another aspect of the CAP which remains controversial is the timing at which full cross compliance obligations are to be introduced in the New Member States i.e. the Statutory Management Requirements (SMRs) (standards for Good Agricultural and Environmental Condition must already be in place). Poland has, for a long period, claimed that the scope and method of implementing the full requirements of cross compliance do not fully encompass the structural and financial conditions which apply to Polish agriculture. With an agricultural economy still in transition it is perceived, by the Government and farmer groups, to be unfair to implement full cross compliance before Poland reaches full payment levels (due to be phased in by 2013, although payment rates will remain below the EU-15 average). The current proposals make it statutory for the first SMRs to be implemented as early as 2009.

Rural society is generally thought to view present agricultural policy in a positive light, although this should be measured against a lack of knowledge on the topic. Broadly speaking, it is believed that Europe has good conditions for farming and that its resources should be utilised, particularly in the face of global problems with food security.

2.1 The Polish Government’s View of the CAP Health Check

Food security is still considered an important objective to the largely rural society of Poland. Poland sees a role for European agriculture in feeding the world. It is also regarded as a necessity for the Polish agricultural sector to catch up and secure stable conditions for the further development of its agriculture and for continued rural development.

…[the CAP's] instruments should be modernised and ‘cleaned’ of outdated elements, including coupled payments and the use of historic reference periods...

Poland’s priority is to maintain the CAP roughly in its present state. In the opinion of the Government, the instruments should be modernised and ‘cleaned’ of outdated elements, including coupled payments and the use of historic reference periods for calculating the value of direct payments. Nevertheless, in its official position the main goals of the CAP - such as food security, stability of agricultural markets and support of agricultural incomes - are still considered to be relevant to a future CAP. At the same time, the ‘new challenges’, which relate to the environmental priorities of climate change, biodiversity protection and the sustainable management of water, should be added to the CAP’s traditional goals. A new method for calculating direct payments should be developed which takes account of both the ‘new challenges’ and traditional objectives. Payment rates should be more uniform across the EU.

The Single Area Payment Scheme (SAPS), which is used to administer direct payments in Poland, is considered to be a modern (decoupled) and simple system and Poland has requested the extension of its use into the future. The concept of determining upper and lower limits (capping) to direct payments at farm level is accepted by Poland.

The current policy objective of the government is to maintain Pillar 1 funding.

Since the two Pillars of the CAP are of a similar size in Poland and the majority of farms are small, the need to modulate funds within Poland is not seen as a priority. The current policy objective of the government is to maintain Pillar 1 funding. Despite this, Polish analysis of the outcomes of the CAP Health Check suggests that the Health Check reforms will do little to level the differences between the EU-15 and the New Member States. For example, the lack of progressive redistribution between Member States of funds raised through additional rates of modulation, as is the case for the 5% rate of compulsory modulation already in place, is viewed as sanctioning existing disparities between the New Member States and the EU-15 Member States. Poland is, therefore, opposed to the higher rate of modulation introduced through the Health Check mainly on the basis that the new rules do not include an element of redistribution between Member States. In addition, modulation is not regarded as appropriate for Poland given the relatively equal distribution of funds between these two parts of the CAP already.

The debate on milk quotas and its abolition continues. Despite several dairy industry-led reassurances within Poland that the 'hard landing' (2% increase per year in all Member States) approach would entail relatively low risk, the official Government policy now favours a 'soft landing' (1% increase per year in all Member States) approach to phasing out milk quotas. Poland has, however, called for an increase in its national quota of 2% per annum to allow for the further development of its competitive dairy holdings.

The stance for market measures related to cereals calls for the maintenance and retention of the intervention system. The system is still seen as an important safety net for cereal producers. Poland was opposed to the system proposed by the Health Check for the intervention purchasing of cereals through tender.

...Article 68/69 has been presented as another ‘bad solution’ for Poland...

The use of Article 68/69 has been criticised in Poland. The government objects to its use on the basis that Poland receives a relatively low allocation of direct payments compared to the EU-15. Therefore, the funds which could be raised through this measure would be lower as well. As a result, Article 68/69 has been presented as another ‘bad solution’ for Poland as the instrument’s budgetary capacity is conditional on direct payments which are relatively low and, in any case, are still being phased in.

2.2 The Current Polish Position on Further Reform

...Poland supports a strong and modern CAP with a large Pillar 2 and full decoupling, but also stands for maintaining a certain level of market support and border controls...

It is considered to be more efficient and cheaper to protect the environment through the use of agricultural policy rather than through, for example, purely environmental regulations. Thus, the goals of the ‘new challenges’ could be efficiently addressed by a system which also incorporates the issues of food security, and the sustainability of rural communities and the environment.

In this context, according to Polish understanding, Europe needs a Common Agricultural Policy with a Community character, to address both new and traditional objectives. From the perspective of the New Member States, still working on catching up with the EU-15 in terms of budget allocations, there is still a need for stable conditions for development. Poland supports a strong and modern CAP with a large Pillar 2 and full decoupling, but also stands for maintaining a certain level of market support and border controls – allowing for faster and more stable development of its, and other New Member States’, sectors. The volatile market situation from 2007 and 2008 has been viewed to provide evidence to support this stance.

The Polish Government’s general approach to CAP reform has been to support the Commission in their attempts to include the ‘new challenges’ within the CAP, whilst opposing the use of higher rates of modulation as a means of increasing Pillar 2. In Poland, a commonly expressed view is that there is already a good balance between Pillar 1 and Pillar 2 funds and thus there is little need to increase the latter.

In the opinion of the Polish government, all of the following principal elements of the CAP should be maintained, namely: a common market organisation which can act as an effective safety net; a direct payments system adjusted to the changing expectations of both farmers and the general public; as well as a rural development policy which facilitates restructuring, and thus increased competiveness, balanced with the environmental objectives of the ‘new challenges’.

[Poland believes that] A modern strong CAP is needed to ensure a level playing field within the single market as well as a European approach to the ‘new challenges’.

When Poland acceded to the EU, it was assumed that the Commission would work towards greater standardisation of payment rates both within regions and between Member States. The main priority for Polish policy makers is to call for greater standardisation in the allocation of CAP payments, firstly through the introduction of regional flat rate payments in all Member States as well as greater parity in the payment rates between Member States. From this it can be seen that Poland does not favour a decreasing role for the CAP, rather a CAP which is capable of effectively expanding to cover new policy areas. A modern strong CAP is needed to ensure a level playing field within the single market as well as a European approach to the ‘new challenges’. Such a CAP should also have the effect of increasing territorial cohesion in Europe, increased competition of the agricultural sector and higher efficiency in meeting both the new and the traditional goals.

2.3 Views on Direct Payments

Poland…is in favour of maintaining a system of direct payment systems which evolves towards full decoupling and a regional flat rate system.

Much of the Polish agricultural landscape is characterised by small farmers who experience low returns on sales of agricultural commodities and as a result have low household incomes. Direct payments are an important part of farm income for large numbers of small farms in Poland and, together with small off-farm sales, are one of the most important sources of income in many rural areas.

Without these payments there is some question as to whether important objectives of maintaining rural landscapes could be met. For example, there is a risk of land abandonment in some regions. These small farmers tend to be relatively uncompetitive compared to their EU-15 counterparts (or indeed larger Polish holdings), as they are unable to achieve the economies of scale linked to larger-scale and typically more intensive forms of production. On the other hand, environmental benefits are often attributed to the management practices which are likely to occur on small farms. The mosaic patterns of agricultural fields with a wide range of crops and related vegetation (hedges, shrubs, alleys) enhance the quality of habitats for a vast amount of species (a).

…[there is] potential for conflict between [the] on-going trends of restructuring and modernisation…and [the] retention of environmental benefits associated with the traditional structure of [Polish] agriculture.

It is worth noting that environmental benefits are often attributed to small-scale, traditional forms of agriculture. As a result there is, at least in theory, potential for conflict between, on the one hand, ongoing trends of restructuring and modernisation (likely to result in increased intensification, specialisation, etc) and, on the other hand, the retention of environmental benefits associated with the traditional structure of agriculture (typically low intensity, low input, high nature value) in Poland. Whilst it is legitimate to justify a degree of restructuring and modernisation on socio-economic grounds, the challenge for policy makers in Poland, from an environmental perspective, is to manage this process in such a way as to optimise the provision of environmental benefits (and mitigate the negative impacts typically associated with restructuring and modernisation) associated with agriculture in the longer term. However, it appears that such discussions have, thus far, had a relatively low profile in the public debate in Poland.

Poland, rather, is in favour of maintaining a system of direct payment systems which evolves towards full decoupling and a regional flat rate system. The system of designating payments on the basis of historic production, either at Member State or at farm level, is viewed as obsolete and only of benefit to certain EU-15 Member States. In the opinion of the Polish Government, direct payments should remain as the main instrument of the CAP, and be responsible for income support and stabilisation as well as compensating farmers for meeting high community standards and changing market conditions. Payments should reflect the effort that the farmer provides to sustain European landscapes and the natural environment.

2.4 Views on the EU Budget

In Poland many of the recent discussions on EU budgetary policy have been seen as a threat to European added value.

The Polish Government believes that any changes to the EU budget should be motivated by a wish to increase integration and efficiency and to achieve common EU policy goals. There is a concern that a move away from the idea of the community financing could threaten the process of European integration.

In Poland many of the recent discussions on EU budgetary policy have been seen as a threat to European added value. Particularly perceived as central to this threat are suggestions that permanent national co-financing for the direct payments should be introduced. There are new goals for the CAP emerging which encompass an increasing number of policy areas (e.g. environmental, climate issues). Any budgetary cuts would significantly affect European efforts to meet these challenges.

Another perceived threat posed by the introduction of co-financing direct payments is that this could force New Member States to increase public spending on agriculture, which could slow down the rate of convergence between the EU-15 Member States and the New Member States and possibly destabilise the single market.

3 Background Information

Poland is a relatively large European country with a large agricultural sector covering more than 16 million hectares of Utilised Agricultural Area (UAA). The country’s agricultural sector is considered to be in a transitional 'catch up' period relative to the EU-15 Member States. National GDP per capita is increasing and amounted to €8,500 in 2007, still well below the EU average. An underlying factor to this stems from the fact that 38% of the population live in rural rather than urban areas. The contribution of agriculture to national GDP has been steadily decreasing over the years and now amounts to less than 3%. However, employment within the agricultural sector and related food industries is still high at about 19%.

In total there are around 1.5 million farms, of which a third may be considered as commercial, contributing significant quantities of agricultural commodities to EU markets. However, whilst on the one hand there is an economically viable sector consisting of relatively large farms, at the same time there are also a large number of small and very small farms. Many of these farms are semi-subsistence in character. More than 50% of farm households have additional, off-farm incomes. 30% of agricultural household incomes come from various sources of social payments (excluding CAP payments).

Climate and generally weak soils have determined that Poland’s agriculture is characterised largely as extensive and low input (b). In the EU context, however, Poland has an important grain producing sector and a competitive fruit and vegetable sector. The livestock sector also contributes significantly to farm incomes, particularly the dairy sector (Poland is one of the largest producers in the EU) but also the pig meat and poultry production sectors.

Poland is a net exporter of agri-food products, mainly to the EU markets, as a result of an ongoing process of modernisation and restructuring of its agricultural and processing sectors initiated in the period prior to EU accession.

Footnotes

(a) Farm restructuring and modernisation in Poland is ongoing and moving towards individual farmers taking on larger units (a similar trend observed in the EU-27). In many cases a single family member may be running several holdings. For example, out of a total of 2.1 million landowners, there are only 1.4 million applicants for direct payments. Farm incomes generally provide less than the amount required to sustain a family in Poland and thus off-farm incomes and CAP payments may help to support such farming systems and the associated rural way of life (at least in the short-term).

(b) Agricultural potential in Poland is subject to three main factors: a growing season of 200 days; 600-700 mm of annual rainfall of which, on average, 150 is in July; and a relatively high occurrence of poor and very poor soils (light loam or sandy). Polish agriculture is dominated by small family farms with limited financial resources, typically associated with low inputs.

Sources

Ministry of Agriculture and Rural Development (MARD), 2008. Health Check of the CAP. Current Position of Poland and Polish Priorities.

Office for the Committee for European Integration, 2008. Polish Opinion on the Consultation Paper of the EC on the Reforms of EU Budgets.

Health Check Reflection Paper. NMS Agricultural Ministers Informal Meeting. Maribor-Brdo, Slovenia, May 2008.

1 comment posted

  • Bogdan Swidewski March 10th, 2009

    Pani Kasia, Poland acceded in 2004 to the European Union (EU) with great expectations. Those mainly included the opportunity to perform a significant restructuring and modernization of the agricultural sector, to increase the level of support for agricultural incomes and to diversify the forms of agricultural activity in rural areas. As a result of the transfers from the EU budget to farmers in the last four years mainly as direct payments and to a lesser degree funds allocated under the second pillar there is an increase in the level of incomes and support to agriculture there has been some stabilization of the agricultural sector in Poland, which has translated into a rise in investment trends. The agricultural sector has become more credible for investors and banks. Change is now evident. Progress is being made, but the process is not finished The most important issues still include: creation of conditions for competitiveness growth of commercial farms, implementation of structural and technological changes in agricultural production, support to incomes of the poorest farms through Direct Payments and activation of the rural community. As suggested above a future CAP reform should take account of the needs of all EU countries, introducing a greater flexibility in the use of instruments and programs of the Union’s agricultural policy, depending on local needs.

    It would be therefore sensible that the so called New member states wishes that direct support to agriculture under the first pillar of CAP should be observed. Any changes in agricultural policy should be gradually introduced and a based on discussion on further CAP changes only after 2013. If changes occur than an important element after 2013 will be the rule of cross-compliance (CC).CC is currently a great concern as many fear that if a farmer fails to meet requirements, he will lose the right to receive direct payments. He will be punished, even if he and generations of his forefathers farm traditionally they may not meet the Brussels inspired consumer driven model for agriculture. This concerns in particular the countries such as Poland having large number of economically weak farms but traditional farms, which will find it difficult to meet CC requirements. Therefore a simplification of CC implementation and control rules is expected and urgently needed. Polish farmers have survived many a turbulent episode in their history, not least 50 years of centrally planned economy. They have done so by closing the gate and getting on with farm life in a long established and traditional way. However they are now more at risk by changing CAP than they have ever been in their long history.

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PUBLICATION DATE

28 Jan 2009

AUTHOR

Simon Gill

FURTHER INFORMATION

Simon Gill is a Policy Advisor and Director for the Polish Beef Association (PZPBM). He also works as a rural development consultant.


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