The Organic Food Market in Poland Is Taking Off

The boom in organic food in Western Europe has been going on for more than ten years with hardly any interruption. Poland that has been in the EU since May 2004 and is therefore subject to the EU organic regulation, now seems to be becoming a part of this trend. A new report by the German-Polish management consultancy SixtyTwo International Consultants has analysed the chain of value added in respect of organics in Poland and estimates the Polish market for organic food is worth 50 million Euros per year.

Picture: Ekovita Wholefood Shop in Warsaw

With the experts anticipating a tenfold increase in market volume within the next ten years, the Polish market would be as big as in Holland or Denmark today. The production area is expanding dynamically, and there is plenty of consumer interest, but the elements that are lacking are professional wholesale and retail structures and sufficient processors.

In Poland, organically farmed land as a proportion of the total cultivated area is only a third of the EU average, but the rate of expansion is enormous: in 2005, a year after Poland joined the EU, the area cultivated by mostly very small organic farms had doubled. This means that the organically cultivated land in Poland has already reached a good 20 % of the total in Germany, and the proportion of the total area of land is likely to equal the current EU average of 3.4 % in five years time. Subsidies, some of which are considerably above the level of those for conventional farmers, are a significant incentive for organic farmers, who until fairly recently consisted mainly of idealists. If a Polish farmer converts to organic cultivation, it is interesting to note that, as a rule, yields per hectare do not drop appreciably, because most farmers farm their land in keeping with traditional small-farm methods, with a far smaller input of artificial fertiliser and pesticides.  In the case of strawberries, apples and potatoes, organic farmers’ yields are on average even higher than those of conventional farmers. Moreover, what makes Poland competitive is the low level of wage costs that are only a fifth of the EU average. (Picture: Catholic nuns, too, appreciate organics and shop in wholefood store in Krakow).

The wholesale structure at a local level has hardly been developed at all in Poland. The few wholesalers that do exist concentrate for the most part on importing organic products from abroad and on dry goods. On the one hand, this state of affairs forces many organic farmers to sell their produce via conventional sales channels. So organic grain is milled with conventional grain, organic pork ends up as conventional sausage and organic milk is processed together with conventional milk to make cheese. On the other hand, many organic shops are forced to limit their range to dry goods unless they establish contact with organic farmers in the locality and go and fetch fresh produce themselves every day. In any case, Polish organic farmers sell a far larger proportion of their production direct to the consumer than, for example, their counterparts in other accession countries such as the Czech Republic.

Another bottleneck along the route to the consumer is the still small number of processing facilities. It is true that in 2005 the number of processors almost doubled from 55 to 99 (the figures for the first half of 2006 indicate a further doubling this year), but per inhabitant or per hectare of cultivated land the number remains very low. Most processors produce organic products in parallel with conventional, the biggest problem being procurement and not the lack of demand. Markus Hoyer from SixtyTwo: “What sausage manufacturer can afford to drive 200 km to get two or three pigs from a little organic farm? But it is the small-scale farms that predominate among organic farmers, and production cooperatives hardly exist at all.” (Picture on right: Figs being packed by hand at a whole food wholesaler in Krakow)

The retail scene is clearly dominated by small organic shops managed by their owners, who in most cases sell health food products as well. With the exception of just a few local supermarkets, the conventional food trade has not jumped on the organic bandwagon. The result is that the major chain stores, ranging from Auchan to Tesco, that play a very significant role in Poland, have so far not gone in for selling organic foods. There have certainly been negotiations with Polish producers, but as yet nothing concrete has resulted. On account of the wholesale situation described above, the small organic shops have had problems finding reliable suppliers of organic fresh food and dairy products - precisely the products for which there is great demand by consumers.

In July 2006, some 300 Polish consumers were questioned about organic food in a market research study carried out by SixtyTwo (picture: Markus Hoyer and Barbara Kowalcyzk-Hoyer). The results proved interesting:  7 % of Polish consumers are already buying organic food; a further 38 % are convinced they are buying organic products, although in reality the products purchased are only ‘similar to’ organic - in other words products that do not carry an organic stamp and have not been produced in keeping with certified organic guidelines. The Polish Ministry of Agriculture is already working on a campaign to inform people about organic food, and this initiative could raise demand for certified organic products significantly. Barbara Kowalcyzk-Hoyer, co-author of the report on market conditions, explains the main reasons for buying organic products: “Health is clearly at the top of the list, with 73.2% of people interviewed immediately referring to it. And in second place comes the better taste of organic products.” Surprisingly, a relatively large proportion of Polish consumers is prepared to pay a premium of 50 % and more for organic food, and many consumers would like to buy more of these products but can still hardly find any in the shops. The reason for this is not only the small number of shops that stock organic products but also consumers’ low level of awareness of how to recognise ‘genuine’ organic goods.

This report presents for the first time a sound valuation of the organics market based on consumer prices in Poland. “We used three different methods to estimate the value of the market, and each time the result was around 50 million Euros for 2006,” explains Markus Hoyer from SixtyTwo. “We analysed both the retail side and the production side as well as the self-evaluation by consumers. To look at the retail side, for example, we asked the owners of organic shops about their monthly turnover and took into account the proportion of organics in the product range, the number of shops and the volume of the retail trade compared with direct sales. The typical monthly turnover is between 10.000 and 18.000 Euros, with organic products accounting on average for about a half of total turnover. So with 300 shops stocking organic food in Poland, the value of the retail trade is around 25 million Euros. However, we also have to bear in mind the structure of agriculture in Poland, with its many small farms, so that direct selling, representing 50 % of sales, plays a much bigger role than in many other countries.” A new study by the agricultural advice centre in Radom confirms how important direct sales are - for example, on-farm sales and selling at small markets or by delivering to regular customers. To compile the information for the report, 100 organic farmers meticulously recorded for a year what products were sold, which sales channels were used and what prices were achieved. (Picture on left: weekly markets are common in Poland, although organic stalls are still rare.)

“On the basis of our consumer enquiries, and making very conservative assumptions, we have gone a stage further and calculated that a hard core of just under 2% of the Polish population spends around 15 % of their food budget on organic products. This method, too, produces a value in the region of 50 million Euros,” explains Markus Hoyer. “The figure that emerges, one euro per inhabitant and year, is comparable with data for the Czech Republic where, however, the development of the market is more apparent because of better distribution in the retail trade.”

Conclusion: interesting opportunities for investors

The marker report produced by the management consultants SixtyTwo comes to the conclusion that now is the right moment to invest in the organic food market in Poland: this market already offers great potential, but the pressure of competition is still low. Thanks to its low wage costs and its extensive agricultural land area, Poland is not only an interesting production location and supplier of raw materials (especially labour-intensive products like fruit and vegetables) but also, with rising consumer demand, a very promising market for manufacturers and wholesalers. In all instances, success is wholly dependent on being prepared to set up your own structures or, to overcome the barriers that are still encountered, to join forces in a joint venture with an existing partner firm on the spot.

More detailed information and free excerpts from the report “The Organic Food Market in Poland” are available on the internet site www.sixtytwo.biz