Going sour?

Poland's dairy industry is facing another wave of consolidation in 2008. Leading the way is Polmlek, the third-largest domestic dairy producer and also a yellow-cheese specialist, whose milk retails under the well-known Warmia brand. The firm is planning to acquire two firms this year, Stargard Szczeciński-based Starco and Poznań-based Mleczarnia Naramowice.

The first- and second-largest companies on the domestic market, Mlekpol and Mlekovita respectively, are also planning further acquisitions in 2008. Meanwhile, multinational giant Danone remains a major player on the Polish dairy market, but domestic companies rule the roost.

"Polish people want their dairy to be Polish," said Michał Sznajder, professor at the Agricultural University of Poznań and editor-in-chief of dairy industry website Mleczarstwo.com. "The dairy business will probably remain Polish forever. The problem for Polish firms in the next five years is that they don't have enough capital to build the facilities they need to process the amount of milk produced," he said.

Several factors are threatening to sour 2008 for Polish dairy producers. Exports, which have been the engine behind the industry's growth over the past few years, is losing profitability as the złoty grows stronger. Also, increased production in dairy powerhouses such as New Zealand and India means that global dairy prices are on their way down, and this is starting to have an effect in Poland.

"There was an extraordinary rise in the prices of dairy products such as butter and cheese on the global market [in 2007]," Sznajder explained. "Prices are going to come down, but they won't go down any lower than they were before the boom. But people in the Polish dairy industry will not be happy. This will impact the relationship between farmers and producers, and may result in major strikes by farmers, which could be an opportunity for [populist politician and former pig farmer] Andrzej Lepper to make a political comeback," predicted Sznajder.