Sweating over prices

Poland's tourism operators, ice-cream vendors and drink manufacturers may have been reaping the benefits of Poland's scorching summer, but with the heat taking its toll on agricultural production the implications for the economy could be severe.

Polish farmers' output is set for a slump following the heatwave, and the subsequent rise in food prices could push up inflation. At the end of July, the Central Statistical Office (GUS) estimated that the production of grain will be three to seven percent lower than last year, and vegetables grown in open fields nine percent lower. According to Małgorzata Skoczewska, adviser to the management of the wholesale agricultural-grocery market in Bronisze, the vegetable crop will be even lower.

"This year, there will be fewer cauliflowers, carrots and potatoes and this can already be observed in prices," Skoczewska says. She stresses that potatoes have seen the most dramatic price growth. "The wholesale price of Irga potatoes now varies between zł.1.20 to zł.1.46, compared to zł.0.55 to zł.0.70 last year," she says. Some vegetables, such as string beans, cost twice as much as in 2005. On the other hand, Skoczewska points out that the price of tomatoes fell. "Warm weather was conducive to greenhouse production and such vegetables are artificially irrigated anyway," she says.

The drought has yet to take its toll on the price of processed food. However, the price of meat and grain products is likely to rise significantly in the next months.

The chief economist with Citibank Handlowy, Katarzyna Zajdel-Kurowska, says that the price of fruit and vegetables alone does not impact inflation that much, but the resulting increase in prices of processed food could have a significant impact.

"As a result of drought, inflation could rise 0.5-1 percent at the end of the year and could exceed the inflation target of 1.5 percent, reaching even 2-2.5 percent," Zajdel-Kurowska says.