2020 was an extremely challenging year for the Polish dairy industry due to lower consumption rates on the domestic market and big bankruptcies. However, the industry’s overall financial performance appeared to be even better compared to the previous year, according to a report published by the Polish Milk Chamber.
The share of profit-making companies in the industry last year increased from 68% to 77%, the Milk Chamber reported.
Total operating revenues increased by 1.8% to PLN 35.5 billion (US$9.71 billion), including revenues on sales by 1.9% to PLN 31.2 billion (US$8.53 billion). The export value increased by 7.2% to PLN 6.0 billion (US$1.64 billion), the Milk Chamber said.
Good revenues secured a substantial increase in profits, which in gross terms increased by 54% to PLN 956.7 million (US$261 million), and in net terms by 63% to PLN 776.0 million (US$212 million), the Milk Chamber estimated.
Solid revenue and profits have been primarily associated with high milk prices on the domestic market, which hit record height on the background of the coronavirus pandemic. Polish farmers account for supplying 8% of the total EU production, the Milk Chamber estimated.
On the other hand, the uncertainty brought by the coronavirus pandemic has hampered investments in the industry. The capital expenditures decreased by 10.5% to PLN 871.9 million (US$238 million) last year.
The number of dairy plants in operation reduced from 163 at the end of 2019 to 148 at the end of last year. To some extent, this dynamics has been associated with ongoing consolidation in the industry, but bankruptcies took their toll too.
Bankruptcies took place not only in the processing but also in the production sector.
Big problems have been brought by Bielmlek, the bankruptcy of which will, unfortunately, hit numerous farmers,” the Milk Chamber said.
Bielmlek was a cooperative of 800 milk farmers. During the past few years, it accumulated debts of PLN 240 million ($65 million), which the farmers would have to pay in equal shares. There are fears that paying this debt would severely impact their businesses.
Farmers have appealed to the Polish Agricultural Ministry seeking some support.
The Bielmlek bankruptcy is likely to fuel the industry consolidation. Between 2010 and 2019, the number of small and medium-sized dairies in Poland dropped by 21%, and their share in the total sales revenues of the industry decreased from 34% to 26%.
It should be assumed that this tendency will continue in the future, and the progressing concentration of production capacities in the hands of large entities will be one of its driving factors, said Paweł Kowalski, agri-food sector expert at the Macroeconomic Analysis Department of Bank Pekao SA.