Internationalization of the Polish food market – aspects and perspectives

Friday, 31 January, 2020 Food From Poland 37/2020
Let us begin with an anecdotal example. Not long ago, in the past year, a country where store shelves give in under the weight of food products of all varieties, where the percentage of domestically produced food (with the EAN/GTIN code beginning with 590) reaches 80%, not counting products from outside the bar-code system (GS1 system), runs short of the trite and trivial products.
Such as certain vegetables and fruits. A climate and, probably, some negligences – fortunately temporary – were to blame. Over the span of a few days prices „went crazy”, it is suffice to recall parsley priced at PLN20, but gradually reversed definitely a few (well, a dozen or so) days later. To the umbrage and discontent of more foresighted suppliers who took care of the continuity of domestic supply, somewhat against the weather. What went right apart from cunningly taking care of production? Well, the beneficial effects of the participation of Polish food market in internationalization of commercial turnaround (in all the glory of the supply chain – from a farmer to retail network) activated. Import, external supply, barters and disbursements „to be offset” at a later date all activated. Our economy in this sector is, in all fairness, fragmented but it is present on numerous markets owing to the efficient systems of supply accumulation, stock arranging of offers as well as contracting and authentication. It should be duly credited to commercial companies which prevent breaks in the continuity of supply and retail. These companies are able to prevent stoppages because they posses financial and technical means and are intertwined with and incorporated into international division of work and exchange.

Therefore, let this anecdotal example become an inducement for engaging in a slightly broader reflection concerning the role and structure of the process of internationalization of the Polish food market. With particular attention to indicating commerce as the ultimate but nevertheless extremely significant supply chain and retail network link active in organizing fragmented production. Commerce has more than once proven its role in compensating sudden ullage as a factor internationalizing (and internationalized) the food sector and the entirety of the economy. Food products are in this case a particularly illuminating example. It suffices to recall that apart from the short-term vegetable market collapse commerce was , along with the processors, responsible for setting of nearly systemic import compensation of the pork market. Additionally, at the opportunity, it enforced new competitive mechanisms on this particular market e.g. concern for repeatability and uniformity of primary product qualities which is an important issue for processors operating on the domestic and export markets. It is significant in the process of internationalization because Polish export consists mainly (in approx. 80%) of the presence on developed markets – the European Union – and not only as a supplier of primary products. Approximately 80% of our export consists of highly processed products – meats, dairy, fruits and vegetables, confectionery.

Internationalization of food trade (mind you, I do not restrict the process of internationalization to exchange, not by a longshot) has a positive character, it benefits national economy and interests of companies. All of this contrary to complaints of entities which deal poorly with competition and call for support of legal and political, pardon, protectionist in nature. How are we to name the supine and passive argument surrounding the not entirely successful legislation concerning Polish products and new ideas on how to „protect” the market from import? Which, notabene, are expressed in a country which has the largest percentage of domestic food commodities, those with EAN/GTIN code beginning with 590, on the market in the EU? And additionally it imports mainly raw products and after processing and selling them on the domestic market or exporting them it earns significant profit, exhibiting dynamics of food export and food retail market increase unprecedented in Europe (however, recently an inflationary increase to an increasing extent). The opinions concerning diversification of a turnaround structure are varied but it is worth remembering that we realize more than 80% of total export within the EU and to a similar degree in the case of food export. The geographical structure of import in the gross is similar although not as striking – approx. 60% of our import comes from the EU and 40% from outside of the European Union. Structure of surplus and deficits is major as presented by the chart compiled by W. Mroczek – it presents that the opportunity for import is still, although slightly less so, not to be sniffed at as frequently suggested by propagandist and promotional debates. As it is known the excess hurts – in case of import but in case of export as well (sometimes even more).

Regarding foreign food trade proportions differ slightly, but not by much. In export proportions, the degrees of product processing and target destinations are similar but in the case of import they are noticeably different. We import mainly less processed products, chiefly fats and other products and semi-finished products such as meat, fruits and vegetables, fish (mainly sea fish) and, additionally, coffee, tea etc. What is important the majority of these products require further processing which we do with a significant profit. Slightly more than 70% of these products come from the EU. The EU also supplies us with majority of processed products (chocolate, cheese, cereal products and certain types of meat). All in all, import of food constitutes approx. 10% of total import compared to approx. 14% of food export of which processed products constitute more than 80% (e.g. 87.5% in the first half of 2019) whereas processed food constitutes approx. 70% of total food import. However, the degree of processing is priority and in the case of export it is decidedly higher which translates into more beneficial added value indicators, greater profits, competitive position, reputation and other permanent advantages.

What does this data say about the process of internationalization in the commercial turnaround on the product level? It turns out that it is a process based on concentrating activities in the geographical vicinity (the EU and neighbouring countries). It is the indicator of both deficit (predominance of import) and disproportions in extra-European relations. It is symbolically signified by the 12-to-1 surplus ratio of our import from China over our export to China and nearly 8-to-1 surplus ratio of Polish food export to Great Britain over food import from GB or the slightly smaller surplus in exchange with Germany. This situation is good in short-term – in the processes of internationalization we are located where we should be – on wealthy and affluent markets which gladly pay for and appreciate our products. It is also good that the products from these markets are available in our country and we can purchase them but... What could happen if the cooperation was to suddenly collapse for one reason or another? We will not be able to position ourselves on markets other than European. At least not immediately. This necessity will also painfully present itself when we stop making profit in the vicinity and thus we will be able to afford less.Therefore the bellicose political and economical declarations appear foolish rather than amusing when confronted with reality.

Poland finds itself on an increasingly improving position in terms of global trade exchange: it has 1.6% of shares in global import and 2.4% of shares in global export (a rapid increase occurred – five years ago we held 1.6% of global export shares).Our share in the European Union export is nearly 6% and nearly 4% in import. However, it is to be understood as „only” rather than „as much as”. We should keep this in mind and stop spinning „power status” strategies based on turning our country into autarchy through anti-integrating conceptions of foreign relations. The awakening can be painful, even more so because export will not supplant the domestic market, it simply cannot do so, particularly in case of a domestic market collapse (e.g. as a result of restrictive and social sectoral policy certain circles close to the authorities seem to favour). Stagflation originating in commerce (encumbrances and fixed costs vs inflation is not a favourable collation of factors) and spreading rapidly is not an impossibility. Furthermore, it is prudent to remember that success of transformation and significance in trans-national economical systems can be measured in more than one way. In the ranking of the degree of internationalization of European economies (prepared according to complex criteria) we are preceded by, in order, Austria, Hungary, Denmark, Spain, Germany, Czech Republic and France... And this is an evidence of flexibility measured with resistance to the shifting economical situation and supply/demand structures, also geographical. We are not prepared appropriately for everything – not in the region, not globally.

An important criterion of internationalization is the process of flux of broadly understood investment means – financial capital, technologies, know how and qualifications/competences. Due to these the transforming economy of Poland is becoming increasingly competitive and only such economies can become beneficially internationalized. The point is that the investments from countries of higher level of economic and technological development requiring new competences and qualifications should act as systemic innovations resulting in a number of multiplier effects and mechanism of domestic business binding. Exactly this happens in Poland as indicated by e.g. level of added value contained in industrial export congenial with the European Union average (approx. 37% for the EU, 35% in Poland). It also includes added value of foreign food products re-exported after processing in Poland. The Polish transformation can be considered successful because our internationalization did not lead to the falling into unilateral dependencies – as for instance commercial outlet or a cheap reservoir of resources required by internationalized economies e.g. human resources. It is rather rarely mentioned in the „transformative” literature where we dream about and wish for new Central Industrial Regions.

We may say that a phenomenon of „borrowing” development (Germany – approx. 20%, the USA – approx. 11%, France – approx. 11%) and branches of economy (industry – 32%, finance – 19%, commerce – 16%) occurred. Therefore, if today we may speak about approx. PLN750bln of FDI (foreign direct investments) in general across the span of the last 27 years we owe it to commerce and food trade in particular. Trade in an established domestic market in order to prevent excessive export from disturbing the balanced character of the process of development. Thus we should remember that – as written by J. Schumpeter – the power of economy and benefits of export are based on and backed by the firm domestic market. This classic representative of the so called „Austrian School” did not use the term internationalization but he appreciated the balancing and verifying role of the domestic market supporting quality with proper pricing therefore providing a chance to successfully compete with foreign markets. In Poland this particular role of domestic market is clearly visible – against the complaints of weaker market participants concerning strong internal competition „stimulated” by foreign companies. Present on the market and to a significant degree establishing our presence on the foreign markets.

When considering the role of FDI in the commerce sector we may be tempted to apply journalistically approved „rougher” application of numbers. The role of those 16% of foreign investments „in commerce” is enormous. FDI in total amounts to approx. PLN750bln and 16% of it in the form of commerce translates into approx. PLN110bln, that is approx. Euro26bln, in this sector. Thus if food trade constitutes approx. 40% of retail (various data is available but 40 appears to be an accurate estimation) we can speak about approx. 10 to 11 billion Euros of Foreign Direct Investments in retail food trade in the past quarter of the century. In case of rapid rotation of product and currency the multiplier effects had to be majorly pro-developmental in export and market increase – as evidenced by their dynamics (obviously dependent on not only FDI). Owing to trade and commerce, export did not become a void sucking up Polish resources and added value and import did not become a peculiar „massa tabuletae” of cheap commodities for less affluent and wealthy consumer markets. Furthermore, if we recall that the food industry and the accompanying services amount to approx. 17-18 billion Euros in the period of transformation it proves that our presence in the processes of internationalization of food trade (domestic and foreign; in export and import – role of which should not be absolutised) has strong foundations; at the moment – and we should not squander these achievements.

However, internationalization cannot be boiled down to one country’s companies and capital being present on the other country’s market. Nor can it be understood simply as presence of commodities on numerous markets. It is a much more complicated process, even if we analyze a singular sector or even a single company. Particularly when internationalization is accompanied by economical integration. It is so because multi-dimensional processes related with transfer of technology, competences, development of educational and training systems and, finally, the transformation of people as such occur. To put it simply, the culture of technology and social patterns of administering are changing and the communication and administering in all parties engaged in purely economical processes of internationalization of capital products and operation are being revolutionized. Friction on the domestic market and in the flow of economic factors between domestic markets and areas of integration outside the country occur. Suffice is to mention the internal aspect of this problem – the clash between modernized, highly competitive economic organizations with traditional non-competitive entities (which results in discriminating regulations and practices) – and the external aspects of these clashes – differences in division of modernization and internationalization profits between participating countries. This in turn leads to new frictions and tensions in commercial turnaround and cooperation.

These „frictions” are clearly evident in relations between countries which are more slowly or rapidly reaching various development forefronts. Similar to tensions between newly established „new world” businesses and already existing companies. It arouses the „spirit” and practice of diverse „protectionism” and discrimination – even in integrated economic areas (e.g. the EU). A fact our country is an excellently illustrative example of. However, better ideas for development other than internationalization and joining global processes as well as multi-aspect external support of this development simply do not exist. The ideas for autarchization of increase are simply absurdities, even more explicit when made by leaders of transforming countries who deceive societies with 19th century models of sovereignty, social models based on theories of Bismarck and xenophobia masquerading as patriotism, so easily accepted in plebeian circles.

Andrzej Maria Faliński

tagi: internationalization of the Polish food market ,