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Success Stories Assistance Areas SEED Reports Contact Information Last updated: Thursday, 25-Jun-2009 16:23:59 EDT     Transformation of the Polish Agricultural Sector and the Role of the Donor Community Magdalena Wyganowska, USAID/Warsaw Project Specialist September, 1998   Table of Contents Introduction Description of Polish agriculture at the beginning of the transition period Major stumbling blocks Current state of the Polish agriculture and future forecast Major donor involvement Bibliography   I.  Introduction The objective of this paper is to compare the state of Polish agriculture at the beginning of the transformation process in 1989 with its present state, and to examine foreign donors' input in the development of agriculture. Currently, the main priority for Poland on the international forum is integration with the European Community (EU). The negotiations began in March 1998 and Poland's accession to the EU is anticipated in 2003-2006. The EU has set reform targets for all Central European applicants. Among the agricultural tasks which must be completed by Poland or taken forward in 1998 are accelerated privatization (including farmland), establishment of a coherent rural development policy, and upgrading dairies and meat processing. Agriculture with its low productivity level, and labor force retention is one of the anticipated problem areas for Poland, together with the coal and steel sector, the slow pace of privatization, the issue of purchase of land by foreigners, and the free movement of workforce within the EU. Changes in Poland's agriculture do not happen fast, and today it still suffers from an outdated agrarian structure, low productivity levels, and the worsening economic conditions of agricultural production. The appearance and size of an average Polish farm has not changed much since 1990, and the quality of life of the farmers has deteriorated. The farmers no longer have the luxury of guaranteed sale of their output. Today as many as 65% of farmers assess their financial situation as much worse than a year ago, attributing this fact to growing difficulties in selling their products at profitable prices. Also, the price of agricultural products rose on average 8% in 1997, while that of agricultural inputs by 14%. Right now, 53% of the 2 million farms in Poland are not engaged in agricultural production and virtually lack contact with a real agricultural market, at the most producing enough to sustain themselves. Those farms are usually owned by very conservative peasants, yet politically astute. A substantial structural reform agenda remains to be implemented. Many large, socially-sensitive or politically powerful state-owned agribusinesses and the main bank for crediting agriculture, the Bank for Food Economy (BG_), have avoided major restructuring; their loses or inefficiency continue to hamper the underlying growth potential of the economy. The Ministry of Agriculture and Food Economy (MAFE) has experienced frequent change of leadership. The conservative Peasants Party, one of the two leading parties in the previous coalition, demonstrated its inability to introduce reforms. Below is a table comparing some indicators of economic and agriculture development in 1990 and 1996. Indicators 1990 1996 inflation 585% 18,5% budget deficit 8% of GDP 2.3% of GDP per capita monthly income $29,41 $249,80 share of agriculture in GDP 12% 6% * employment in agriculture 28% of the work force 25% of the work force rural population 40% of the whole population no change since 1990 average farm size 6 hectares 7,9 hectares income spent by households on food 55% 36% number of private farms 14,119 15,173 number of ex-state farms (now owned by the Treasury's Agricultural Property Agency) 3,698 1,242 unemployment 6.3% 13.6% agricultural GDP (billion PLN) 1.0 (1989) 13.5 (1995) share of private farmland (% of total farmland) 80.3 (1989) 89.8 (1995) * The declining GDP share was due in part to the deterioration of agricultural prices. Since 1990, after the reduction of input subsidies, agricultural wholesale prices have not kept pace with the resulting new prices for inputs. This has resulted in a price-cost squeeze for agricultural producers, which is a common element observed after market forces begin to take over from administrative pricing. Back to Top   II. Description of Polish agriculture at the beginning of the transition period The macroeconomic context of Polish agriculture When the Mazowiecki government took power in September 1989, it inherited a difficult economic situation. Inflation was reaching triple digit rates, the budget deficit was about 8% of GDP, and debt service was five times export earnings. Subsidization of the economy, and particularly of state enterprises, which made up 70% of the industrial sector and controlled virtually all exports, was so high and disproportionate to budget revenue that the budget deficit reached 29% of expenditures in the first half of 1989. Per capita income had declined by about 20% over the previous 10 years, although farmers and part-time farmers were in a better position than the rest of the population, as their real incomes had declined by only 3% and 1% respectively. The economy was essentially bankrupt. The first actions taken by the new government were to regain control over the budget and introduce bankruptcy procedures to let the worst state enterprises fail. This was accompanied by a package of fiscal and monetary restraints and a massive devaluation and complete liberalization of trade. Market mechanisms were then expected to select the most efficient enterprises. It was recognized that this process would create unemployment, but that it was expected to generate a drive toward efficiency through competition. Agriculture was expected to become more efficient and competitive, to deliver products to local markets at prices closer to world levels without the previously existing shortages, and to take advantage of the devaluation of the currency by increasing agricultural exports, despite the decrease or elimination of subsidies. The sector was also expected to help absorb the unemployed in the short term by transforming some of the part-time farmers (40% of the farming population) into full-time farmers. Despite employing 28% of the work force, agriculture in Poland created only 12% of GDP. This relatively low figure hid the fact that Poland depended on agriculture for 87% of its food consumption. Similarly, 20% of industrial output derived from agro-industries, which in turn depended on agriculture for 90% of raw materials. The sector was thus much more important to the economy than its size would have indicated. The projections in 1990 assigned an important role to the sector; it was supposed to grow at 3-4% per annum over the next five years, and was also expected to increase its exports substantially, to 30% of its contribution to GDP. Until 1990, the agricultural sector in Poland was closed and inward-looking. Agricultural policy was based on notions of income parity with the urban sector and on food selfsufficiency. To achieve those objectives, prices were manipulated, subsidies were given, production targets were established, and imports and exports were controlled with little consideration given to economic costs. Since prices were not allowed to reflect scarcity, central allocation had to be used, resulting in large distortions and waste. Although about 75% of total agricultural land in Poland was farmed by private farmers, they were entirely dependent on state agencies and state-controlled cooperative sectors for input purchases and sale of their products. In the state and cooperative sectors, capital was immobilized, since investment was always a government decision and bankruptcy of public firms was not allowed. Similarly, labor was immobilized because housing and other social benefits were linked to employment, itself considered a basic right. The result was a highly distorted sector that was unable to realize its economic advantage. The social context of Polish agriculture Unlike many countries of Western Europe, the Polish rural sector is of major importance to the social and economic equilibrium of the country. The rural population had remained approximately at the same level (15 million) since 1950, and in 1990 was 40% of the population. This population stability, largely the result of easier access to housing and food, was a major advantage for the economy during the transition crisis. The average farm size was 6 ha. There were 21 persons per 100 ha in Poland, about three or four times the number in EC countries. Although the rural population is generally stable, its composition had changed with time. The share of the rural population working outside agriculture increased from 15.7% in 1950 to 40.7% in 1988. Only 20% of the actively farming population derived their income exclusively from farming; 40% supplemented their income with outside activities, and the rest were part-time farmers. This high level of nonfarming activities directly related to the small size of farms was a major structural characteristic of the rural population. The Polish rural sector represented a unique combination of the private economy, dominant at the farm level (75% of area, employing 85% of the active agricultural population), and cooperatives and state enterprises, dominant in activities other than agriculture (92% of the active nonagricultural population). Historically, this combination of decentralized and centralized economies was a result of the failure to introduce agricultural collectivization in Poland and of the subsequent policy of indirect collectivization. Back to Top   III. Major stumbling blocks Inefficient agribusiness In 1990, the agricultural sector was beset by major obstacles to transformation that were outside the farming sector itself. It was clear that the agribusiness sector was critical to the development of agriculture, and that the roots of the agricultural crisis were to be found there, rather than on the farms themselves. The crisis was clearly not one of lack of production at the farm level: the government had to deal with a glut rather than a shortage. Symptoms of these obstacles were that price transmission mechanisms did not function: there were large gaps between Polish and world market prices for agricultural products; stocks had accumulated (dairy products, grains); little competition was present on agricultural markets; and credit remained so expensive that many agro-industries were facing acute difficulty and farmers were unwilling to borrow. The agricultural sector, although mostly private, was totally dependent on the state and cooperative sectors for the procurement of all inputs and services and for the sale of all production. The previous economic system had successfully discouraged private wholesale and retail trade, and producers were tied to cooperatives that enjoyed territorial monopoly. All marketing systems, whether for grain, milk, or animals, were largely vertically integrated. The producers had no access to markets above the level of their cooperatives, which in general they did not control. In practice, therefore, a largely private rural sector was in fact completely dependent on an omnipresent state and cooperative sector that enjoyed monopolistic and monopsonistic privileges. The state and cooperative agribusiness sectors' primary objective was to maintain the labor force at pre-reform levels, and to retain all social benefits. They had no incentive to maximize return on capital invested, since there was no advocate for efficient capital utilization in their management. Because they enjoyed monopolistic privileges, their preferred solution, when confronted with a decrease in demand, was to keep their margins constant by manipulating prices, rather than by increasing efficiency through a reduction in costs and an increase in sales at lower prices. It even seems possible that some state industries (not only in the food sector), by extending credit to each other through delayed payments, contributed to the perpetuation of inflation. This situation was made worse by the fact that the food-processing sector (the downstream sector for most of the farmers), was particularly inefficient in Poland. It ranked second to last in a review of the 17 major Polish industrial groups, declining in productivity by 6.1% from 1978 to 1982. During the overall resurgence in output growth between 1982 and 1986, food industry sector productivity grew by 1.2% but still ranked second to last in growth. Nationally, the food industry showed negative value added at world prices in 1986, and 90% of the loss-making public enterprises were in the food-processing sector. This gross inefficiency means that there was no incentive for farmers to improve their quality or productivity once those gains were likely to be confiscated by subsequent processing. This inefficiency also further reinforced self-sufficiency attitudes in farmers, with negative consequences for productivity. The consequences of inefficiencies in the agribusiness sector went much beyond the agricultural sector. In fact, they threatened the stabilization program. Farmers found it difficult, if not impossible, to sell their products; consumers saw no decrease in food prices; dairies were unable to purchase milk; and buying prices were not being announced by purchasing agencies. Farmers therefore asked with increasing insistence for government-guaranteed crop prices. Because of very low prices, sometimes much below production costs, and, as in the case of milk, well below world prices, farmers felt justified in demanding minimum prices or even minimum income guarantees. Because the cost of credit remained at prohibitively high levels, farmers were also asking for preferential credit at fixed and lower interest rates. Government intervention The liberalization of prices and trade, withdrawal of consumer subsidies, privatization, demopolization of sectors formerly dominated by state-owned enterprises, and adjustment of the role and function of state versus the private sector, has resulted in a more competitive environment for agriculture and agroindustry. However, state intervention remains quite significant in areas such as high tariffs and activities of state agencies. The state intervention entity, Agency for Agricultural Markets (ARR) has often demonstrated ad hoc operations. The ARR which was set up to cushion the effects of swings in demand and supply on the food and farm produce market, recently faced the threat of bancrupcy when it bought too much surplus produce at too high prices. Its strategy was based on the unjustified assumption that the only way the prices of produce can go is up. Last year, it was paying 640 zloty for one ton of wheat. This year, the price it is offering is between 520 and 540 zloty a ton. The government also intervenes through the system of credit subsidies and guarantees of the Agency for Restructuring and Modernization of Agriculture (ARMA) and ARR. In 1995, transfers and subsidies to agriculture represented about 17% of the agricultural GDP. Other direct or indirect transfers, such as transfers for the replenishment of the Bank for Food Economy, or from the resources capitalized by ARR, ARMA and the Agricultural Property Agency have to be added to this figure. Inefficient financial sector in agriculture The main source of credit in agriculture has been the state-owned Bank for Food Economy, BGZ, together with small cooperative banks all over Poland. It has a large credit portfolio in poorly performing state farms and other segments of agroindustry, and is tied to about 1,200 small cooperative banks catering to the private sector in agriculture. BGZ became profitable in 1996, however, it is still losing money on its core banking business at the rate of 1% of assets each year. BGZ is in need of deep restructuring, but its majority owner, the MST, has not yet expressed its intentions relating to the future structure of the bank and to the group of local and regional cooperative banks affiliated with BGZ. The BGZ affiliated local and regional cooperative banks are generally small and weak, despite the 1994 attempt (The Law on the Restructuring of the BGZ and the Cooperative Banks, effective as of July 24, 1994) to revamp the system by creating a three tier system: BGZ as an apex bank, 11 regional banks in the middle, and about 13 hundred of local cooperative banks constituting the bottom level structure. The reform succeeded in that it created three BGZ-independent Banks of Affiliation (Wroclaw based GBPZ, Warsaw based BUG and Poznan based GBW), which at present are the most efficient and best managed cooperative banks in Poland; the three banks, because of their financial strength, are considered to be the centers of the consolidation process which takes place among all cooperative banks. However, the problems of financing the agriculture in Poland go much further that the relative inefficiency of the banking financial system per se. The major flash points would include: system of subsidies to the agriculture distorting economic relations: this year phased out subsidies show that farmers are unable to finance their activities with market rate loans from the commercial banks; tax system favoring the farmers: once full rate VAT is introduced, many farmers may face bankruptcy; small size of most of farms, making the effect of scale impossible to achieve; poorly managed operations of the Agricultural Market Agency. There are few financial instruments available to agribusiness. The "commodity exchanges" in Poland are unsophisticated, trading to a large extent physical goods and not future contracts. Recently the Pozna_ Commodity Exchange started trading futures. The legislation regulating the commodity exchanges and warehouses has not been passed, even though the work on it has been going for three years. One of the USAID programs (described in the section on donor assistance) created a pilot program of warehouse receipts and licensed grain elevators, where farmers can store grain in exchange for a warehouse receipt. This system has not taken off the ground due to the lack of legislation, but it has created a solid base for licensing elevators once Poland is ready to develop the chain of licensed elevators, and receipts which can become collateral in return for loans, and eventually become traded on commodity exchanges. Back to Top   IV. Current state of the Polish agriculture and future forecast Restructuring of agriculture The process of restructuring Polish agriculture began in 1991 with the appointment of the Treasury's Agricultural Property Agency. Its task was to take over and privatize land once owned by the state farms. To date, the Agency took over the assets of 1,667 farms out of 3,698, and it concentrates in its hands one-fifth of all farmland. The Agency did not manage to sell most of its land, with farmers preferring the cheaper possibility of leasing it. By the end of 1997, the agency leased to farmers 74% of its land resources. Limits to foreign investment in farmland have contributed to slowing down the privatization process. Privatization of agroindustry is well underway - about 70% of state-owned agroindustrial enterprises have been privatized - with significant participation of foreign capital. The remaining agroindustrial state-owned private sector primarily consists of large enterprises with more than 250 employees. The most significant delays in the privatization process are in the sugar, spirits and cereal subsectors. Agrarian structure The E.U. experts agree that Poland must modernize its agriculture and change its agrarian structure in favor of multihectare, efficient farms if it wants to join the E.U's Common Agricultural Market. The structural problem of agriculture is the wide dispersion of land, and from the viewpoint of desired land consolidation, the number of farms should decrease, while their average size should increase. Even though there is an increase in the number of farms over 15 hectares, its scale is not large enough to compensate for the simultaneous, unfavorable drop in the number of farms in the 10-15 hectare group. 41.5% of all farmland is concentrated on farms counting over 15 hectares, with 30.8% being concentrated on smaller farms: 16.8% on farms counting 10-15 hectares and 14% on farms between 2-5 hectares. Rural employment The present employment structure in agriculture is archaic and ineffective. Poland has 23 farmers per 100 hectares, which is the largest number among all European countries. Decreasing the number of people employed in direct agricultural production necessitates the creation of new jobs in rural areas. However, rural infrastructure remains to be undeveloped and unemployment is high, especially in regions where state farms have been dissolved and there is no alternative employer. Necessary steps in agriculture and future forecast. Wage growth - driven by fast productivity growth in the industrial and service sectors - will put pressure on agriculture to increase productivity. This will mean bringing forward the structural reform agenda to strengthen the competition framework. Adopting EU prices during the preaccession period would not help toward that end; free-trade prices (in line with the WTO) in agriculture is a better strategy. A related challenge is the need to create the kind of market conditions to allow the absorption of the expected outflows of workers from agriculture. Aside from deregulating agricultural markets and developing rural market institutions (such as efficient land and wholesale markets), this requires completing the privatization of the agroindustry, improving basic infrastructure, and training and education to promote labor mobility. The Polish state has an important role to play in agriculture. However, its role lies not in direct intervention, participation in markets, price support or production subsidies. It is rather in creating market incentives and institutions, providing training, facilitating technical harmonization with the EU, and providing basic infrastructure and income support to the poor. There are several key structural policies that are needed for improving the efficiency of farming, agricultural marketing, rural services and agroindustry. 1) Land market: - farm restructuring through a well-functioning land market is crucial for the competitiveness of agriculture (farm productivity is a fraction of that in the EU). This means introducing an efficient system of standard contracts to transfer ownership and lease land; facilitating the use of land as collateral; introducing low-cost procedures for dispute resolution; and developing an accessible information system for land transactions, prices and ownership; - speeding up the sale of state-owned land (including that of remaining state farms) is needed through streamlined privatization procedures and elimination of barriers to foreign entry. 2) Agricultural marketing: - strengthening market institutions through the creation of wholesale and commodity exchanges and the development of private marketing cooperatives is required; - reduced intervention by the ARR in the grain market and fast privatization of the cereal storage and processing sectors will help increase the efficiency of markets and so improve incentives for the private sector to invest in grain storage and trading. Most activities of the ARR need to be reviewed and (to the extent possible) privatized to harmonize it with its EU counterparts. 3) Services to agriculture: - rural financial markets can be improved through: development of a reliable warehouse receipt system; strengthening of cooperative banking; simplified collateral arrangements; elimination of subsidized interest and guarantees which distort the market and deter commercial lending; and radical restructuring and privatization of the BG_; - support needs to be provided through training (technical and managerial skills) in development of rural infrastructure and rural services. There is plenty of scope for the transfer of labor from agriculture to the service sector with potentially large efficiency gains for agriculture. Reforms in farming and agroindustry can boost demand for rural services from these sources. The ratio of employment in services to agricultural employment is two to three in the EU, one to four in Poland; - support the financing of a minimum level of rural infrastructure needs to be instituted, particularly in disadvantaged regions where poor infrastructure is a bottleneck for rural development. Support ought to be restricted to pure public infrastructure goods and should avoid being driven by job creation through public works. 4) Agroindustry: - it is desirable to speed up privatization (particularly cereal storage and processing, sugar processing and large meat processing enterprises and slaughterhouses) and encourage mergers and acquisitions (in sugar, potatoes and dairy processing). A restructured and more efficient outlet for agricultural products would emerge and strongly improve prospects for competing in the EU single market. Faster privatization of agroindustry will also improve access to modern technology, including modern marketing and market-based risk management techniques; - streamlined quality control (covering, in particular, potential health hazards, and environmental impact) will lead to a better performance by agroindustry (as well as being a key requirement for access to EU markets). In terms of product standards, despite improvements, the quality gap remains significant in dairy products, pig meat and beef. The Government is aware of the pending problems of harmonization. Among the decisions to be taken are the transfer to the private sector of tasks now undertaken by numerous state agencies, and a reduction in the number and reassignment of the roles of state agencies and standards. Back to Top   V. Major donor involvement  Assistance from the European Union (EU) In 1989 and 1990, food aid was the first priority, and around 140 million ECU was allocated for this purpose for Poland. Further assistance, as much as 80 million ECU, has come from the proceeds from the sale of the food aid. This cash formed the basis of the Cooperation Fund, which in turn created the Fund for the Development of the Polish Village. This Fund has been used to finance investment by private farmers, for the development of villages and in the processing industry. It has also been used for the purchase of agricultural machinery, the construction of new farm buildings, or to finance small on-farm processing units, and farm infrastructure projects. The resources from the sale of the food aid were also provided to the Water Supply Foundation, a church non-profit organization supporting rural wastewater treatment plants and sewage systems construction. The Cooperation Fund has also distributed PHARE funds for support to agriculture through its Agrolinia program. Agrolinia had 27 million ECU for loans provided through Polish banks, and 3 million ECU for technical assistance for cooperative banks and advisory institutions supporting borrowers. Loans were provided mainly for the purchase of machinery. Technical assistance was provided with Polish institutions as training and publications for agricultural investors. The largest EC program has been implemented by the Foundation of Assistance Programs for Agriculture (FAPA). FAPA was created in 1991. It is located at the Ministry of Agriculture and Food Economy. To date, 65 million ECU were allocated for Polish agriculture through FAPA, and over 160 projects were completed in the areas of: establishing the agricultural policy, reconstruction of rural cooperatives, reform of the system of banking services for agriculture, forming the modern agriculture extension system, working out the structures of the agricultural market, preparing Polish agriculture for integration with the EU, structural and property transformations in the agricultural sectors management of water resources. In the years 1995 through 1998, FAPA has concentrated on the preparation of integration of Polish agriculture with the EU, and on the development of rural areas. The total value of assistance to Poland is approximately 61 million ECU. FAPA's organizational structure is linked with several units at the Ministry: ASAP, the Office of Agricultural Sector Adjustment Program for the World Bank Agricultural Sector Adjustment Loan of $300 million (ASAL), Policy Analyses Unit, Foreign Agricultural Market Monitoring Unit, Office of Agricultural Integration, Office of Wholesale Markets and Commodity Exchanges, and Foundation of Agricultural Cooperatives. In addition, 800,000 ECU was provided through the Foundation for Privatization to prepare the privatization of 21 fruit and vegetable processing companies. FAPA, or one of its offices, Agricultural Sector Adjustment Program Office, ASAP, is responsible for the monitoring and evaluation of the adjustment loan from the World Bank. The $300 million Agricultural Sector Adjustment Loan, ASAL, is being used for the activities adjusting Poland's economy to market economy: marketing of agricultural products, privatization of food processing, state farms privatization, development of agricultural education, research and extension, public investment in agriculture, restructurization of the Ministry of Agriculture and Food Economy.  Bilateral assistance There have been numerous programs implemented by various governments, with or without coordination from the Ministry of Agriculture and Food Economy. The agricultural program of the British Know How Fund, the Agricultural Development Fund, was established in 1991. It is located at the Ministry of Agriculture and Food Economy, and it has spent about 10 million pounds on : a) institutional support for the Ministry, including assistance in preparation of economic analyses the FAPA' Policy Analysis Unit; b) support of market infrastructure development, that is creation of wholesale markets in Gda_sk and Wroc_aw, support in creation of producers groups; c) support for the dairy sector in form of quality and technology training, and advise in restructuring of dairy cooperatives. Denmark and the Netherlands have been particularly interested in agricultural (often dairy) cooperatives. Improved meat and food packaging and processing has been of concern to the Danes. Swiss aid tended towards dairy and livestock production.UK and Germany provided technical assistance to a wide range of needs, including agricultural policy. French assistance has been provided to assist in land consolidation and cadastre in certain rural areas, and an MBA program has been started for rural managers at the Agricultural University of Warsaw.  Support from the U.S. The USAID program for agriculture concentrated on the provision of economic and technical information to farmers and agribusinesses (farm viability), upgraded capacity of extension services, rehabilitation of the rural credit delivery structure, upgrading of the dairy cooperatives and dairy producers, and support for privatization of state-owned agribusinesses. Around 1995, the program walked away from assistance at the farm level, and worked with agricultural institutions (associations or foundations). USAID also became involved in the creation of legislation for the system of licensed warehouses and warehouse receipts to help regulate the commodities market. The approximate amount of USAID assistance to the Polish agriculture has been about $30 million. USAID has used mainly American non-profit organizations, other U.S. government agencies and a couple of private firms to implement its activities in Poland: a) under an inter-agency agreement with the U.S. Department of Agriculture, USDA, assisted from 1991 to 1997 on the modernization of the Polish agriculture advisory (extension) service through placing the U.S. advisors at the 37 extension centers. The U.S. assistance led to organization of extension advisory councils, agribusiness planning seminars within the centers, agro-tourism development, promotion and development of the Polish 4-H Foundation and its membership. USDA also helped the Ministry of Agriculture and Food Economy to begin and institutionalize the production of regular situation and outlook reports for important commodity markets through the work of the Economic Research Service. Another component of the USDA's work was training for the Polish Central Statistic Service conducted by the National Agricultural Statistic Service, which helped to improve methodologies for conducting the agricultural census. Agricultural Cooperative Development International (ACDI), and Volunteers in Overseas Cooperative Assistance (VOCA), individually carried out several activities for USAID before their merger into one organization, ACDI/VOCA. b) ACDI Agribusiness Exchange Training, completed in 1995, organized tours in the U.S. for numerous groups of Polish agriculturalists, for example dairy producers, women agribusiness professionals, bank managers, fruit and vegetable processors. ACDI also carried out training for extension advisors, farmers, and agribusiness managers on how to organize a farmer cooperative and how to be an effective member of a farmer cooperative. c) ACDI Cooperative Bank activity helped the development of a system of independent local cooperative banks and to enhance their capacity for providing credit and other financial services to their customers. ACDI worked with the banks on information processing systems, financial software packages, and teaching tools. Computer programs on bank budgeting, interest income analysis, and market planning have been developed. To help cooperative banks understand their competitive position relative to their peers, a performance evaluation system has been created, as well as other publications helping banks increase their performance based on financial performance indicators. The 300 participating banks continue to show strong operating improvements. This activity ended, but the Polish trainers who participated in it created a limited liability company, "Opcja", which continues providing training to cooperative banks. d) Two separate programs, Volunteers in Overseas Cooperative Assistance (VOCA) Farmer to Farmer program, and Winrock International, both completed in 1994, brought over numerous volunteers to individual farms, agribusinesses, farmer organizations, and helped them enhance their performance, business management, or technology. After the merger of ACDI and VOCA, they worked together on the following activities: e) Small and Medium Agribusiness Resource Triangle, which ended in 1996. It worked with local business support organizations such as business incubators or regional development agencies to help them deliver support services and assistance to agribusinesses. It was done by providing consultancies It also worked with those business support organizations to develop them institutionally, and to help them become financially sustainable. f) ACDI/VOCA, Grain Storage and Marketing Project, to be completed in December 1998, has worked with farmers, grain warehouses, the Ministry of Agriculture and Food Economy, ARR, the State Inspection of Purchase and Processing of Agricultural Products (PISIPAR), banks, and insurance companies on creating a pilot activity of licensed grain elevators issuing warehouse receipts. The activity enjoyed a mixed success. It managed to license several elevators using PISIPAR, but the political situation and the lack of warehouse law discouraged the remaining participants of the envisioned system from active participation. The farmers lacked an incentive to use warehouse receipts, because they could not receive subsidized credit using warehouse receipts as collateral. All Polish authorities agree that the introduction of the licensed elevators system is necessary for Poland to develop an efficient grain market, yet there is a continuing battle who should control it, resulting in lack of proper regulations. ACDI/VOCA has helped with the draft of warehouse law which is under consideration in the Parliament. g) National Cooperative Business Association (NCBA) was to provide technical assistance and training for cooperatives and agribusiness, as well as assistance to NCBA's member cooperatives to help them develop economic relationships with cooperatives and agribusinesses in Poland. This project has made very little progress and was terminated in 1993. h) Two small programs with the U.S. Department of Commerce under a CABEE initiative (Consortia of American Business in Eastern Europe) were supposed to encourage American business consortia to establish commercial presence in Poland, none of them being successful. They were Food Processing Machinery and Supplies Association (ended in 1994), and Sun-Diamonds Growers of California (ended in March 1995). The first one was to serve as a marketing center for American food processing machinery and was to provide trade leads for member companies. Its main achievement was publishing a directory of Polish food processing companies. The latter engaged a Polish sales manager in researching and developing sales avenues for Sun-Diamond's products in Poland. Because of their high prices these products did not take off at the Polish market. i) TechnoServe established a non-profit Polish organization, Center for Promotion and Support of Agricultural Enterprise in Sandomierz. This organization functions as a financially independent business support organization, providing business advisory services for small entrepreneurs, restructuring plans for former state-owned farms, and advice on business start-ups and expansions. It is currently included in the Business Support Project/Firma 2000. j) American Breeders Service (ABS), a U.S. cattle insemination firm, attempted to modernize and privatize an insemination station in Olecko. The full privatization turned out impossible because Olecko belongs to a whole chain of state insemination stations and could not be treated on an individual basis. However, it was modernized and the majority of the station's inseminators were encouraged to become independent businessmen, no longer on the station's payroll. Additionally, ABS set up a Polish Foundation to Assist Entrepreneurs in the Insemination and Breeding Industry. The foundation conducts training to inseminators and farmers equation of reproduction, economics of artificial insemination, sire directory use, cattle evaluation, and feeding of the highly productive dairy cows. The foundation's money comes from the monetization of bull semen donated by ABS. The semen is sold in Poland, thus improving Poland's cattle herd genetics. The capital is used by the foundation to subsidize credit to inseminators and breeders. k) The Foundation for the Development of Polish Agriculture, FDPA, a Polish foundation financed by various international sources, also became USAID's grantee. FDPA received a grant for the needs of one of its programs, Women in Rural Enterprise Development (WRED). WRED is a microloan facility promoting entrepreneurship mainly for women as an alternative to unemployment in rural communities by offering small loans, preparatory training in business and management, and advisory services. The primary focus of the project is to develop entrepreneurial skills and to provide access to credit for the support of family business in the most economically depressed areas of rural Poland. Another grant was provided to help WRED scale up, provide regional offices with additional credit officers, loan monitoring software, marketing study and training in preparation for a spin-off from FDPA. Although it was originally envisioned FDPA would help WRED to be set up as a separate legal entity in 1997, FDPA made a decision to keep WRED within its structure until WRED is mature enough and significantly increases the number of loans to be financially self-sustainable. The lending capital of WRED comes from numerous international donors. To date, WRED has given loans worth $2,700,000 with a repayment rate of 98%. The program has 850 borrowers. FDPA carries out many other programs, not sponsored by USAID. The support for those activities comes form philanthropic institutions in Europe and the U.S., international organizations and governments, and funds generated by FDPA. FDPA concentrates on the issues of EU integration by technical assistance, consultancy and policy advisory work, and it continues its agrotourism activity. Land O'Lakes has been extensively used to provide assistance in Poland and implemented several projects: l) Polish International Agriculturalist Program, completed in 1992. The program trained 30 dairy related agribusiness professionals in the U.S. by having them live and work with farm families for six months. m) Free Market Cooperative, completed in 1995, worked on the connections between the farmer, cooperative dairy plant, and the consumer, to improve the relationships within the dairy sector. Numerous training sessions were delivered on dairy production merchandising and distribution, cooperative principles and practices, agribusiness management, dairy procurement and processing, forage production, and dairy herd health and nutrition. n) Restructuring Agriculture and Agribusiness Private Sector, completed in 1996, was to stimulate the privatization of agribusinesses. It worked with privatizing agribusinesses helping them to prepare business plans with participation of American and Polish consultants. The program has trained a group of Polish consultants from faculty of agricultural universities in Warsaw and Olsztyn. The program also provided training in marketing and finance to entrepreneurs. o) Agribusiness Commodity Market Information activity, completed in 1997, concentrated on work with several agribusiness associations (in the sectors of dairy, poultry, and meat) and created bulletins with commodity market information relevant to these sectors. It also worked with a group of agribusinesses to help them collect and use commodity market information, especially concerning prices, in their managerial decisions. Continued assistance to agriculture is being provided by the U.S. government through the Polish American Joint Commission for Humanitarian Assistance, consisting of the representatives of the U.S. Embassy, Ministry of Agriculture, Ministry of Health, and several Polish NGOs. The Commission distributes loans for the development of rural areas and various initiatives in rural communities. The repayment goes for gmina's humanitarian purposes. The Commission's funds come from the sale of agricultural products donated by the U.S. government since 1988.  Successes and failures of donor assistance The foreign assistance programs have been a (very useful) drop in an ocean of needs. On the whole, donor community adequately understood the problems in the sector, but did not always choose to address them. This can be partly attributed to the fact that the majority of foreign organizations have had objectives going beyond assistance to agriculture. They have tried to address too many needs, therefore spreading themselves too thin. In many cases, the programs have not demanded ministerial commitment to the attempted reforms, and have ended without any measurable impact or continuation. There has not been enough interaction among the donors, the Ministry of Agriculture and Food Economy, and the European Integration Committee at the Council of Ministers. This does not concern FAPA, which is housed at the Ministry and remains in close contact with the Polish representatives. In general, the PHARE program seems best focused and able to address the right needs, and through FAPA PHARE has a tool to deal strictly with agriculture. Bilateral donors (embassies) were simply not interested in coordination with others as they had their own agendas; several donors (USAID included) lacked a clear strategy for Polish agriculture, simply adding some agricultural projects to their portfolios without stepping back and creating a long-term plan for assistance. Donor assistance to Poland has developed along the lines characteristic of other programs to developing countries: a tendency for donors at the beginning of the transformation period has been to rush in and address the most visible needs, for example poor quality of milk or farmers' lack of an ability to create business plans in order to obtain loans (such efforts have not always been successful, as proven by the December 1998 EU ban on Polish milk exports on fitosanitary grounds). Then, as the donors gained a better understanding of the needs, and the country reached a further stage of development there was a shift to institution strengthening and policy formulation activities. Some implementation problems were due to over-ambitious project design, and complex institutional arrangements. Others were the result of the many government changes experienced by Poland during the assistance period. USAID has followed the regular path of donor assistance - at first, there were numerous agricultural activities aimed at direct support to farmers or agribusiness owners and managers. From about 1994, USAID started emphasizing the importance of institution strengthening and working with agribusiness institutions rather than individuals. Still, there was not a strategy in place, and the agricultural projects received financing as long as they could be fitted under a wider definition of strategic areas. When reengineering took place at the USAID/Warsaw office in 1996 and the Agency came up with the Strategic Framework, agriculture was not a part of it, and the few agricultural projects which did fit into the strategic objectives ended in 1998, two years before USAID planned the graduation of Poland from its assistance. It is surprising that a significant donor like USAID stresses the importance of Poland's accession to the EU and at the same time chooses not to support reform in agriculture, which is one of the largest problem areas in the integration process. It is characteristic for the international development work that when donors are confronted with a long list of needs of the developing country, they choose not the top need, but what they can address best with their scarce resources. Notwithstanding the limitations, and in some cases narrow focus of USAID and other donors as indicated above, they have provided important and well appreciated assistance to Poland's agriculture. As they pull out, the EU organizations remain on the scene working with Polish policy makers and try to find the best way to utilize the pre-accession resources to help Poland's agriculture make the transition. Already, there is an instrument in place, Support for Pre-Accession Measures for Agriculture and Rural Development (SPAARD). This EU program will provide financial support for projects that modernize agriculture and develop rural areas, and support restructuring of the food economy in order to adopt the Common Agricultural Policy. Poland could receive up to 200 million ECU annually, and following accession, the country will receive from Structural Funds several times the volume of pre-accession aid. This is indeed a happy note to end on. Back to Top   Bibliography Martin Billings, USAID ENI/EUR/DR/FS. Outline of an Agricultural and Rural Development for Poland. March 1994. Polish European Community Wold Bank Task Force. 1990. An Agricultural Strategy for Poland The Foundation of Assistance Programmes for Agriculture. March 1996. Programmes for Agriculture. The World Bank. November 1997. Poland Country Economic Memorandum. The World Bank. April 1997. Poland Country Assistance Review. USAID project reports, press clippings, Boss Rolnictwo publications, Rzeczpospolita daily agricultural sections. Back to Top

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