Rogue meat producers threaten industry overhaul
A bid to restructure Poland's massive meat sector could derail if meat-inspection services fail to clamp down on rogue slaughterhouses and processors across the country, industry officials said last week.
Earlier this month, the government issued a $1 billion plan to overhaul the meat industry. The restructuring focuses on meat production and upgrading facilities to bring production standards in line with European Union (EU) requirements.
According to meat producers, the plan will not succeed in meeting these goals if veterinary, sanitary and environmental inspection services don't do a better job of enforcing laws governing animal slaughter and food production.
"Until (the government) starts fighting unfair competition, plants like mine are going to continue to have problems," said Wlodzimierz Nowaczyk, president of the supervisory board at Pozmeat, a slaughter and processing plant near Poznan. "So what if factories make investments and modernize when next to them small establishments are going to operate in terrible conditions without any veterinary supervision."
At issue for Pozmeat and other large and medium-size producers is the legion of small meat shops running substandard slaughter and processing operations and creating unfair competition by flooding the market with poor quality, cheap products.
According to veterinary services, about 5,000 meat producers are operating in Poland. Industry officials and market watchers estimate that only a fraction of these producers meet veterinary and sanitary standards required by law. "There are still a few thousand companies that continue to operate in the gray market," said Jerzy Majchrzak, director of the nation's largest meat producer, Sokolow.
All five meat plants that make up the Sokolow group have export licenses to the EU and the United States. But the company as a whole is producing at 70% capacity. While the low production levels were brought on in part by the 1998 Russian crisis, which hit meat producers particularly hard, the slow rebound is also due to the many producers of low-quality products on the domestic market.
Not only do small producers avoid bearing the brunt of investments required in modernizing their operations, but they also fail to spend the cash to meet harsh sanitary and environmental standards. "Right now small factories are more competitive because they have lower operating costs," said Bogna Sikorska, an analyst at CDM Pekao. "Their goods are less expensive and that's why they're winning in the market."
Pozmeat is a case in point. Last month, the company received the necessary certification to export its products to the EU and the United States. But the certification came at a hefty price. Earlier this year, Pozmeat moved from a 100-year-old factory in the heart of Poznan to a $30 million state-of-the-art greenfield site outside the city. Despite the move, the company is operating at 55% capacity, Nowaczyk said.
"I bear costs that have to be reflected in (the price) of my products," he said. "What for me is a cost is profit for unhealthy, non-supervised food producers. How am I supposed to compete with them?"
For their part, veterinary officials admit that they are not keeping up with the problem. While over the past two years inspectors have made significant progress in improving the standard of dairy products, long a bone of contention between Poland and the EU, on the whole Poland still lags behind union norms in meat production.
"In the meat sector there is less progress than in the dairy sector," said Andrzej Komorowski, head of veterinary inspection services. Komorowski said that during the past year about 100 producers have been shut down due to non-compliance with veterinary standards. But that leaves several thousand rogue operations unsupervised.
"No one is executing the (current veterinary) laws," Sikorska said. "No one is even checking if the law is respected."
Part of the problem in ensuring enforcement is due to the huge number of producers in Poland, Komorowski said. However, the situation will improve with new, harsher legislation expected to come on the books next year. At present, new veterinary laws are being fast-tracked through the Sejm as a part of the package of laws required to bring Poland in line with EU legislation.
According to Komorowski, the new laws will ultimately lead to a collapse of many rogue operations. "If the Sejm passes the law that will harmonize veterinary issues with EU (standards), the prospect for many (substandard) producers is bad," Komorowski said. "The weakest won't have any chance to compete."
According to the Agriculture Ministry, only one-third of the 4,139 meat producers will have a chance of meeting EU requirements, which means that during the next five to seven years there will be an intensive concentration of production in Poland. Under the ministry plan, the next decade will see the role of small slaughterhouses diminish significantly. At present these small operations account for 50% of the raw meat supplied on the market. That number will drop to 10% by 2005-2007. After restructuring is complete, 70% of raw meat will be supplied by 24 of the largest meat producers in the country.
To foot the bill, the ministry estimates that up to 45% of the $1 billion price tag will come from the producers themselves. The remainder will come from financial markets, strategic investors and pre- and post-accession funds from the EU, according to Stanislaw Zieba, secretary general of the Polish Union of Meat Exporters and Importers (PZEiIM).
