Taking a bite out of growth
Prices of agricultural products in Poland have skyrocketed over the past year, according to data from the Central Statistical Office. What customers have been complaining about for months is now making a significant indent on the statistics - and could squeeze producers. Compared with the same period last year, prices for wheat had risen by 40 percent in June 2007, whereas the price of milk rose nine percent, poultry by 30 percent and rye by 60 percent. After this year's late frost, experts also predict fruit prices will soon be on the rise.
Expensive consequences
Experts say the boom will have a serious impact on both the Polish economy and that of the EU. Jan Małkowski from the National Research Institute of Agricultural and Food Economics (IERiGŻ-PIB) pointed out the threat to Polish exports. "The growing price of Polish meat hinders its competitiveness both in the domestic and foreign markets," he said.
End consumers won't remain unaffected by the rises either. "As for milk, the high demand will soon force producers of some foods such as sweets to increase prices," stressed another IERiGŻ-PIB expert, Jadwiga Seremak-Bulge. Still, according to Łukasz Hardt, an analyst from the Sobieski Institute, the high level of competition in these markets means producers will be cautious about how high they raise prices. Although in the long run the market will finally adjust, said Hardt, the higher production costs will bite into producers' revenues.
Hardt noted that the growth in food prices will speed up inflation, which may in turn lead to higher interest rates. Higher food prices will also affect the spending structure of domestic households, which already spend as much as one third of their income on food. In contrast, UK households spend just about 12 percent of their income on food.
Moreover, with the recent popularity of Polish foods being dampened within the EU by the higher prices, the bloc may look to increase imports from outside countries, added Hardt.
Reasons for the rise
The reasons for the price rise are manifold. According to IERiGŻ-PIB's Małkowski, the meat market has been strongly affected by the slumping supply of pork, resulting from the current stage in the pig reproduction cycle. Poultry prices have increased due to the soaring price of rye, which is used as feed.
Rye prices have hit such highs due to poor weather conditions in some parts of Europe, increasing the demand for Polish rye, whose crop was relatively large this year. Sobieski's Hardt points out that farmers are keeping their hands on their crop, waiting for higher prices before they sell. The popularity of biofuels has also contributed, as more farmers are switching to growing crops for that industry, rather than the traditional rye.
The demand is growing for milk too, while worldwide production has remained stable. "Prices rocketed at the beginning of 2007 due to the growing prices for powdered milk in China as well as Middle Eastern countries, reaching up to $5,000 per tonne this year, as compared to $2,200 in 2003," explained Seremak-Bulge.
