Electronic Journal of Polish Agricultural Universities (EJPAU) founded by all Polish Agriculture Universities presents original papers and review articles relevant to all aspects of agricultural sciences. It is target for persons working both in science and industry,regulatory agencies or teaching in agricultural sector. Covered by IFIS Publishing (Food Science and Technology Abstracts), ELSEVIER Science - Food Science and Technology Program, CAS USA (Chemical Abstracts), CABI Publishing UK and ALPSP (Association of Learned and Professional Society Publisher - full membership). Presented in the Master List of Thomson ISI.
2011
Volume 14
Issue 1
Topic:
Economics
ELECTRONIC
JOURNAL OF
POLISH
AGRICULTURAL
UNIVERSITIES
Ginter A. , Szarek S. 2011. INCOME SITUATION OF CEREAL PRODUCERS ON THE EXAMPLE OF WHEAT PRODUCERS, EJPAU 14(1), #05.
Available Online: http://www.ejpau.media.pl/volume14/issue1/art-05.html

INCOME SITUATION OF CEREAL PRODUCERS ON THE EXAMPLE OF WHEAT PRODUCERS

Agnieszka Ginter, Stanisław Szarek
Department of Economics and Agribusiness Organization, University of Podlasie, Siedlce, Poland

 

ABSTRACT

Cereals are cultivated nearly on 75% of an area of an arable land in Poland. Cereal production contributes to 22.9% of the global agricultural production and 38.8% of plant production. An income situation of the Polish producers of cereals was disadvantageous in 2009. There was observed a decrease in profitability of this branch since 2008. An essential role for the income situation of wheat producers was played by payments, which guaranteed a positive financial effect of this production activity. Research allowed to displaying a small role of an intervention purchase as a factor stabilizating income on this branch market.

Key words: wheat production, income, cereal market.

INTRODUCTION

Cereals are the most important group of plants cultivated in Poland and the European Union (the EU). According to the Central Statistical Office (CSO) they take the largest area in a structure of plant cultivation in Poland. Cereals are the basic agricultural resources having a strategic role because as the most important food product they decide on a food safety in a country [6]. Cereals are a large production potential allowing to competing with other countries [3].

Poland has a great area of agriculture land which can be used for plant production, which is important for cereal cultivation. A special place within cereals is occupied by wheat. Besides of barley it is the oldest bread cereal cultivated at least for 6 thousand years [1]. This kind occupies the first place in the world cereal production and it is typical mostly for moderate climate. It is cultivated in the whole world for grain rich in starch, consisting of the largest proportion of proteins and gluten in the group of all kinds of cereals.

The Polish accession to the EU changed conditions of economic activity running both in a production sphere as well as in a trade one [4]. Polish entrepreneurs gained free access to a large and rich European food market. At the same time new market and law regulations forced Polish agricultural producers to many adapting activities.

AIM, MATERIAL, RESEARCH METHODS

The aim of the research was to determine factors influencing on the income situation of the Polish producers of cereals on the example of wheat cultivation as well as an attempt to find effects of global processes on the cereal market in Poland in the years 2007–2009.

Results of the empirical research from 15 individual farms placed in three districts of the Mazovia province (Siedlce – 4, Sokołów Podlaski – 6, and Węgrów – 5) were the material for an analysis of profitability. Data was collected with use of an interview questionnaire for the period of three years. The researched farms paid VAT.

There were also used secondary data published in the Statistical Yearbooks of CSO as well as market analyses concerning cereal market, which are presented continuously and published by the National Research Institute of Agricultural and Food Economics (IERiGŻ-PIB) in cooperation with the Agricultural Market Agency (AMA) as well as the Ministry of Agriculture and Rural Development (MARD) in the period 2004–2008. The elaborated empirical data was presented in a form of tables and descriptions. There were also used descriptive and functional analyses.

CEREAL PRODUCTION IN THE WORLD

The world production of cereals was on a level of 1.71 billion tonnes in the researched period. A significant position was noted in a case of wheat, which contribution in the characterized period was on average on a level of 37.3%. In a case of the world crops of fodder cereals, the most important role was played by maize – on average 71.8% of the world production of cereals for fodder purposes (Table 1).

Table 1. World production of cereals (million tones)

Specification

2007/2008

2008/2009

2009/2010*

Cereals, of which:

1673.5

1726.6

1754.3

- wheat

606.4

656.0

663.6

– maize

779.8

777.6

794.1

– barley

134.3

141.8

142.9

– sorghum

64.9

62.6

62.4

– oat

25.6

25.0

23.7

– rye

14.4

16.2

16.6

– rest of cereals

48.2

47.4

48.7

Source: Data from CSO, * forecast.

The world crops of cereals have an increasing tendency. It results mainly from a record crops of maize in the USA. There were also higher crops of wheat but not to an expected extent because of disadvantageous weather conditions in some regions of the world (drought in Europe and Australia). A significant further increase in the world crops of cereals was expected in the season 2009/2010.

Wheat crops in the EU-27 were on average on a level of 132.7 million tones in the described period [2]. There were noted 119.5 millions tones of wheat in the season 2007/08. A forecast for 2009/10 assumed its crops on a level of 140.0 million tones. A situation was similar in a case of fodder cereals.

The EU was a significant exporter of grain in the period 2004–2006 but a considerable volume of grain had to be imported from other countries since 2006 [5]. A market situation in particular countries was diverse. There was a decrease in production in Poland in 2006 which caused a necessity of an increase in import. On the other hand, the Polish crops rose in 2007 which, in a situation of lower production, influenced on higher grain export.

CEREAL PRODUCTION IN POLAND

Cereal cultivation dominates in plant production in Poland. Similarly as in the world production of these plants, wheat crops play the basic role in the group of cereals. In the period 2007–2009, production of cereals was on a level of 28.0 million tones, of which 9.06 million tones of wheat.

Table 2. Cereal production in Poland in million tones

Specification

2007/08

2008/09

2009/10*

wheat

8.3

9.2

9.7

rye

3.1

3.4

3.6

barley

4.0

3.6

4.9

oat and mixtures

5.7

4.9

5.3

triticale

4.1

4.4

5.2

maize

1.7

1.8

1.6

Cereals - total

27.0

27.5

29.5

Source: Data from CSO, * forecast.

Cereal crops had an increasing tendency in the researched period (Table 2). After the top-level harvests in 2004 there was a decrease during the next two seasons, especially in 2006 when disadvantageous climate conditions took place (long-term drought). This year can be described as the year of disaster. In 2007 there were noted high crops of cereals; from a level of 21.7 million tones in 2006 they increased to 27.0 million tones. In 2008 crops were even higher. A forecast for 2009 assumed their further increase. A significant role on the domestic market is played by wheat, in the researched period it contributed to 31.9% of cereal crops in Poland. During the next years of the research its crops had an increasing tendency.

DETERMINANTS OF CEREAL PRODUCTION ON THE RESEARCHED FARMS

Farms specializing in plant production, with a high proportion of cereal in plant production, were selected for the research (Table 3). An area of the researched farms was diversified. In the first year of the research the smallest farm had 15.0 ha whereas the largest one was more than 17 times bigger.

In majority of farms their area of agriculture land was the same as their arable land. There was noticed an increase in the farms' area in the researched period, in the second year of the research it took place on two farms whereas in the third year even on eight farms. The average farms in the researched population increased from 56.8 ha to 57.2 ha and next to 61.0 ha. The highest average area was noticed in the Sokołów Podlaski district whereas the lowest one in the Siedlce district.

A role of wheat, measured by its proportion in a total area of cereals, was different in the researched years. In the first year of the research it was in the range from 32.3–65.9%, in the second 30.8–66.1% and in the last 34.9–79.6%.

Table 3. Area of cereal cultivation, of which wheat, on the researched farms

Number of farm

2007

2008

2009

Area (ha)

Area (ha)

Area (ha)

farm

cereals

wheat

farm

cereals

wheat

farm

cereals

wheat

Sokołów Polaski district

1

23

20

11.5

23

13

8.5

25

18

12.5

2

27

19

8.5

27

19

12

27

18

8.5

3

34

22

14.5

35.5

28

18.5

35.5

24.5

19.5

4

48

34

17.5

48

36

19.5

48

39

17.5

5

105

89

34.5

105

91

28

109

91

38.5

6

258

202

87.5

258

210

79.5

288

255

111

Mean

82.5

64.3

29.0

82.8

66.2

27.7

88.8

74.3

34.6

SD

91.1

72.5

30.1

90.9

75.8

26.3

102.5

92.7

38.8

CV(%)

110.4

112.7

103.7

109.9

114.5

94.9

115.4

124.9

112.3

Siedlce district

7

15

11

7

15

8

5

15

9.5

4.5

8

19

14

4.5

19

13.5

5.5

21

16.5

6.5

9

29

21

7.5

29

23.5

10

29

21.5

7.5

10

38

31

16.5

38

38

18

44.5

38.5

17

Mean

25.3

19.3

8.9

25.3

20.8

9.6

27.4

21.5

8.9

SD

10.3

8.9

5.3

10.3

13.2

6.0

12.8

12.4

5.6

CV(%)

41.0

46.1

59.2

41.0

63.5

62.5

46.7

57.5

62.6

Węgrów district

11

21

16.5

6.5

21

19.5

7.5

21

18.5

8.5

12

28

21.5

7.5

28

23

8.5

33

28

11.5

13

34

34

17

34

34

17

34

34

17

14

58

49

18.5

58

41

16.5

58

44.5

16.5

15

115

103

41

119

83

44

127

113

69

Mean

51.2

44.8

18.1

52.0

40.1

18.7

54.6

47.6

24.5

SD

38.3

34.9

13.9

40.0

25.5

14.8

42.6

37.8

25.1

CV(%)

74.8

77.8

76.8

76.8

63.5

79.2

78.1

79.3

102.6

Source: own research.

Table 4. Production and economic effects on the researched farms in zl* ha-1

Specification

Years of the research

2007

2008

2009

Wheat yield (dt*ha-1)

58.1

69.7

55.8

Net price (zl*dt-1)

85.6

52.6

47.0

Revenue (zl*ha-1) (value of market production)

4973.4

3666.2

2622.6

Net cost (zl*ha-1), of which

     

Sowing material

225.0

330.0

310.0

Mineral fertilizers

437.0

512.0

841.0

Crop protection chemicals

311.0

351.0

389.0

Costs of machines

650.0

700.0

755.0

Transport costs

110.0

150.0

150.0

Total direct costs

1733.0

2043.0

2445.0

Indirect costs (zl*ha-1)

173.3

245.2

293.4

Total costs (zl*ha-1)

1906.3

2288.2

2738.4

Direct surplus

3240.4

1623.2

177.6

Agricultural income

3067.1

1378.0

- 115.8

Payments = Single Area Payment Scheme, additional, less favoured area

775.4

787.6

1042.4

Payment for sowing material

50.0

100.0

100.0

Source: own research.

An especially advantageous situation for wheat producers took place in the first years of the analysis (Table 4, graph 1). Cultivation of this plant guaranteed a high level of agricultural income, which altogether with payments gave an amount of 3892.5 zl*ha-1. A wheat price, at a level of 85.6 zl*dt-1, was undoubtedly a significant factor determining this sum. There was a very high increase in cereal prices in the world in 2007. It resulted from both structural factors, like relatively low crops and decline of stocks on a side of supply as well as demand factors functioning in a longer perspective as economic growth in developing countries in Asia and development of a bio-fuels market. Increase in cereal prices was also caused temporarily by such factors as export restrictions (quotas, fees or a total ban of export) implemented by a few important producers, inter alia Argentina, Russia, and China. Other important factor was connected with devaluation of US dollar towards many currencies, of which especially towards euro, which caused an increase in cereal import from the USA and as a consequence a significant raise of prices on that market and next on other more important markets. A significant role was also played by financial markets where relatively large sources were engaged in a speculation of agricultural commodities.

Fig. 1. Revenues, costs and agricultural income in wheat cultivation (zl*ha-1) in the period 2007-2009 (without payments)
Source: own research.

World prices of wheat, relatively stable in the season 2006/07, increased dynamically in the season 2007/08. Just in the second quarter of 2008, as a result of advantageous reports of new crops, there were first symptoms of a decrease in prices. At the beginning of the season 2007/08 wheat prices in the Western Europe were lower than in the USA. However, changes of prices in the fourth quarter of 2007 in Europe were considerably larger so in the first quarter of 2008 differences in prices between these markets were not so significant. A further increase in cereal prices was noticed in the second quarter of 2008. From the third quarter of 2008 cereal prices started declining, which lasted to the November 2009. It was displayed in a wheat price on the researched farms in the season 2008/2009, which was at a level of 52.6 zl*dt-1. An increase in crops of this plant was not able to compensate a sudden decrease in the price. A level of agricultural income in the second year of the research was two times lower compared with the previous one. However, after taking into account payments within the Common Agricultural Policy as well as a result of a purchase of qualified sowing material, 1 ha of wheat cultivation provided income on a level of 2265.6 zl.

An important role in formation of domestic prices of cereals was played by external factors, like a situation on the European and world market at that time. There were low crops noted in Europe in the seasons 2006/07 and 2007/08 (especially a large decrease took place compared with the season 2004/05), which caused increased import demand in the countries of the Community. Despite of good domestic crops in the season 2007/08, cereal prices were dynamically increasing which reflected a low level of stores and large demand of the Community's countries. Domestic cereal prices were lower at the beginning of the 2007/08 season, even by a few dozen euro per one tone, than in the neighboring countries of the EU. Next months of this season did not bring a decrease in demand for Polish cereal in the UE countries so it caused that it was one of the most expensive in Europe at the end of the described period.

A breakdown in the income situation took place in 2009, what was mainly caused by a low price for this commodity, which decreased right after harvests. The season 2008/09 brought a large decrease in prices to the level observed in the seasons 2004/05 and 2005/06. It was caused by a situation on the world and EU markets as well as a situation on the domestic market. There was an increase in supply after good harvests whereas demand decreased. Crops in the EU and Russia were also very good.

Increasing production costs of wheat were a next factor contributing considerably to a decrease in agricultural income. Their significant rise was connected mainly with costs of fertilization (they increased nearly two times in 2009 compared with 2007), then costs of plant protection and use of machines. Costs of machines had the highest proportion in a structure of direct costs and their use was becoming more and more expensive during the next years of the research. The second place in this structure was occupied by costs of mineral fertilization, which is necessary for wheat cultivation and it is difficult to limit it taking into account that wheat production on the researched farms has an intensive character so with large doses of NPK fertilizers.

Financial surplus in the third year of the research was guaranteed only by payments. Taking them into consideration, 1 ha of wheat gave income at a level of 1026.2 zl. The last year of the research allowed to noticing an importance of payments within the CAP, especially during a slump on the agricultural market, in this case on the selected cereal market. Wheat production was unprofitable without them in the third year of the research. It indicates a need for making them equal for Polish producers compared with producers from the "old Fifteen" as soon as it is possible.

Cereal prices in Poland are conditioned by a stock exchange of a local character – Budapest Stock Exchange (BSE), because surpluses of Hungarian cereals are to large extent directed to the Polish market. It clearly displays strong connections of the Polish market of cereals with market of other EU countries.

Moreover, the described market is also conditioned by cereal prices in futures on the world markets. In a contemporary price situation (November 2009) it can be seen that prices of milling wheat were a bit lower on the stock exchange in Budapest than on the other world stock exchanges, for example Matif or Chicago (CBoT – Chicago Board of Trade) (Table 5).

Table 5. Prices of milling wheat in futures transactions (November 2009)

Stock exchange

Term of supply

Price [zl*t-1]

Matif – Paris

January 2010

552.7

CBoT - Chicago

December 2009

541.2

BCE – Budapest

December 2009

459.0

Source: www.kfpz.pl.

INTERVENTION FOR CEREALS AND ITS ROLE FOR AGRICULTURAL PRODUCERS

Intervention for cereals in Poland, like in the whole EU, can take place from January 1st to May 31st. It concerns wheat, barley and sorghum in the current year. An intervention price was at the same level of 101.31 €*t-1, which in Poland depended on a rate of exchange between euro and zloty. It should be added that this price can be higher or lower depending on a real quality of purchased cereal. The intervention price is different depending on time of supply for a warehouse, from 0.46 €*t-1 in November to 3.22 €*t-1 in May.

There are many arguments that influence of intervention will be not so high in a market situation. It should be assumed that interest in sale of cereals of high quality for intervention prices will be not significant. A problem of cereal producers is not connected with finding any purchaser but with offering cereals in parts and for a considerably higher price than offered within intervention. The offered price is not comparable with production costs.

There was prepared a simulation in order to present a role of intervention and especially its price for the income situation of the researched farms. There was an assumption that farmers used this instrument and sold produced wheat within it. Crops and the level of costs stayed the same, as a result of the research.

The intervention price at a level of 101.31 €*t-1 radically decreased a level of the direct surplus as well as agricultural income (Table 6).

Table 6. Hypothetical effects with intervention price

Specification

2007

2008

2009

Revenue (zl*ha-1)

2114.8

2432.5

2399.4

Direct surplus (zl*ha-1)

381.8

389.5

-45.6

Agricultural income (zl*ha-1)

208.5

144.3

-339.0

Source: own research.

As the simulation showed, the intervention price, which was in the described seasons respectively at levels of 36.4 zl*dt-1, 34.9 zl*dt-1 and 43.0 zl*dt-1, caused significant worsening of the income situation of wheat producers, generating lower efficiency of their work. The highest differences took place in 2007, when a direct surplus was nearly 8.5 times lower whereas agricultural income even 15 times lower. The calculations for the second and third season also displayed considerably lower measures of the income situation on the researched farms. It should be stated that the level of the intervention price was satisfactory only for its purchasers.

The hypothetical calculations indicated that the intervention price does not guarantee satisfactory income for the researched wheat producers. It should be stressed that this price within the Common Agricultural Policy (CAP) did not play even the smallest role in forming market prices in Poland.

CONCLUSIONS

The income situation of the Polish wheat producers was disadvantageous in 2009. There was observed a significant decrease in profitability of this production in 2008 and even its deep breakdown in 2009.

A significant role for the income situation of cereal producers was played by payments. It could be especially noticed in the third year of the research, when they guaranteed profitability of the presented production activity.

The analysis of the cereal market in Poland indicated a strong relationship of the domestic market and situation on the European and world markets. The cereal market is an open market so it reflected changes of situations in neighboring countries. It is impossible that in a result of low supply on this market, for example because of disadvantageous climate conditions, a price is considerably higher than on the world stock exchanges. In the situation of lower crops of cereals in Poland there is import of this commodity from countries where a surplus takes place. On the other hand, when there is a lack in other countries, Polish cereal is sold abroad to neighboring countries.

The research allowed to displaying a small role of the intervention as a mechanism of stabilization of income on the presented branch market. Its only advantage is a possibility of sale.

REFERENCES

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  2. Analizy rynkowe, 2008. Rynek zbóż – stan i perspektywy [Cereals market – state and outlook]. IERiGŻ – PIB, ARR, MRiRW, Warszawa [in Polish].

  3. Jaczewska-Kalicka A., 2008. Czynniki wpływające na wzrost konkurencyjności w produkcji zbóż [Affecting factors on increase of cereals production competitiveness]. Roczniki Naukowe SERiA, tom X, zeszyt 4, Warszawa – Poznań – Lublin, 130–134 [in Polish].

  4. Judzińska A., 2008. Konkurencyjność polskiego sektora zbożowego [Competitiveness of polish cereals section]. Roczniki Naukowe SERiA, tom X, zeszyt 4, Warszawa – Poznań – Lublin, 149-154 [in Polish].

  5. Krzemiński M., 2008. Polski handel zbożami z wybranymi krajami UE [Polish trade of cereals  with selected countries of the EU]. Roczniki Naukowe SERiA, tom X, zeszyt 4, Warszawa – Poznań – Lublin, 203–208 [in Polish].

  6. Urban S., 2007. Zmiany na polskim rynku zbóż i ich przyczyny [Changes on cereals polish market and their reasons]. Roczniki Naukowe SERiA, tom IX, zeszyt 4, Warszawa – Poznań – Kraków, 208–211 [in Polish].

  7. www.kfpz.pl

 

Accepted for print: 5.01.2011


Agnieszka Ginter
Department of Economics and Agribusiness Organization,
University of Podlasie, Siedlce, Poland
B. Prusa 12, 08–110 Siedlce, Poland
email: aginter@vp.pl

Stanisław Szarek
Department of Economics and Agribusiness Organization,
University of Podlasie, Siedlce, Poland
B. Prusa 12, 08-110 Siedlce, Poland
email: szarek@ap.siedlce.pl

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