Agribusiness Finance - ebook

INTRODUCTION

The production and processing of food, creation of the means of production for agriculture and food industry, as well as related services – in other words, the entirety of agribusiness – have their own, distinct specificity. Unfortunately, from the viewpoint of a producer or a financier, a disadvantageous one. Agribusiness tends to be a difficult endeavor, much more so than other businesses due to inherent, natural (in the most literal meaning of this word) factors, leading to high expenditures (including costs), long production cycles, long payback periods and various risks not present in any other business activity. Therefore, the topic of agribusiness finance is very complex and much wider than, say, the finances of a business producing industrial goods, such as consumer electronics, home appliances or footwear.

From a financial viewpoint, agribusiness is distinguished by, among others, falling employment levels and the need to finance numerous new, increasingly complex fixed assets. These are, of course, becoming increasingly expensive. This is due to technical and technological progress, which in turn forms a precondition for increasing the value of commodity production, both overall and per employee. Therefore, employment infrastructure costs are increasing along with the passage of time and progress. From a financial viewpoint, this process is closely linked to another disadvantageous trait of agricultural production, namely the relatively long production cycle. Therefore, the return on capital invested in agricultural fixed assets simply cannot be competitive to other types of production, due to the aforementioned organic and natural character of said capital. This necessitates an appropriate agricultural policy aiming to prevent hunger in a given state and to reduce dependence on other countries. Thus, the financial conditions are making it much harder to create new agricultural holdings from scratch than to maintain and modernize pre-existing ones.

The financial value of agricultural land is a key aspect of this topic. Given this context, it bears mentioning that in agriculture land is not merely the place where the work is being conducted, but also a means of production on its own. Moreover, it is also the subject of work, which in terms of commodities is also the case for gardening. However, from the financial, biological and environmental viewpoints, land as an asset should be increasingly valuable and unlimited in time. This means that land might not only sustainably retain its financial value and fertility, but even increase them. This is on account of producer’s efforts, if they adhere to the principles of crop rotation and current agricultural and technical developments. Moreover, the amount of cropland is steadily diminishing, primarily due to new constructions. This forms yet another factor increasing its value and prices. Going further, one could also link this to yet another distinguishing trait of agricultural production: the environmental risk.

An agricultural businessman wishing to reduce this risk should intensify their production in a comprehensive manner. By providing all that is required by modern technology, the direct costs – including fixed assets – increase, but at the same time the environmental risks decrease. In general, the environmental risk tends to have a larger impact for extensive or ecological production. Having said that, the environmental risk usually decreases along with increased productivity of agribusiness, yet rises along with an increased scale of production – despite the fact that large scale production arises from having increasing amounts of valuable fixed assets – and therefore tends to bring heavy financial consequences. This makes the costs of financing fixed assets a key issue for agribusiness.

One should remember yet another distinctive trait of agribusiness: the seasonality and relatively short use periods of specialized machinery and equipment within a single year. This leads to a widespread usage of physically old, but technically sound equipment an agricultural businessman does not include in their fixed costs. However, by caring for these assets the costs of agricultural production can be lowered, thus becoming a factor helping an agricultural holding survive the periods of financially disadvantageous external conditions and allowing to, for example, continue the production of goods selling at a given time for low prices, which would indicate unprofitability of such production. From a common sense standpoint, such a situation is somewhat paradoxical, as the agricultural holding keeps producing unprofitable goods. However, this does not take into account the fixed costs – and even the costs of own labor – as maintaining the production might be valuable in itself, as the costs of restarting it after a stop might exceed these fixed costs.

Agribusiness finance issues are covered somewhat extensively in subject literature, but at the same time in a rather fragmented manner. Up to this point, there has been no major work applying financial sciences to the sphere of agribusiness. This textbook is therefore a modest and pioneering attempt to fill this theoretical, educational and practical void.

At the same time, I would like to thank all my wonderful friends who have chosen to co-author this book.

Sławomir JuszczykCHAPTER 1
FATHERS OF AGRIBUSINESS FINANCE

This chapter will answer the following questions:

• Who was Professor Władysław Grabski and what were his contributions to Poland’s development?

• What are the scientific accomplishments of Professor Władysław Grabski?

• What issues concerning the economics and organization of agriculture has Professor Władysław Grabski focused on?

• Who was Professor Ryszard Manteuffel and what are his contributions to Poland’s development?

• What are the scientific accomplishments of Professor Ryszard Manteuffel?

• What issues concerning the economics and organization of agriculture has Professor Ryszard Manteuffel focused on?

• Who was Professor Stefan Ignar and what are his contributions to Poland’s development?

• What are the scientific accomplishments of Professor Stefan Ignar?

• What issues concerning the economics and organization of agriculture has Professor Stefan Ignar focused on?

1.1. Professor Władysław Grabski (1874–1938)

Władysław Grabski was born on July 7th, 1874 in Borów and died on March 1st, 1938 in Warsaw. He was an economist and a historian, a politician of the National Democracy movement, Minister of the Treasury and had been appointed twice as Prime Minister of the Second Polish Republic. He authored the currency reform. In the years 1926–1928 he held the position of rector at the Warsaw University of Life Sciences (SGGW). He has been a statesman, an exceptional financier and a reformer, also in the agricultural sphere.

Today, his accomplishments in unifying and stabilizing Poland’s economy in the aftermath of World War I are undisputed. His best known contribution is the currency reform, which has been well covered in subject literature. His accomplishments in the spheres of finance and sociology (including economic history works) are of particular note. His immense influence on the economic development of Poland arose from the fact that he did not shy away from making difficult decisions and bearing their consequences. He believed that a healthy and resilient currency forms the basis of healthy economic growth and State funding. To achieve and sustain this, society as a whole needs to be ready to make sacrifices. In 1917, Grabski published a pamphlet titled The basis of Poland’s internal strength, in which he highlighted the necessity for all social strata to cooperate for the sake of Poland’s independence. He also believed that the reborn nations have to care for their citizen’s material wellbeing and cultural growth.

Since 1923, Władysław Grabski held the position of full professor at the Warsaw University of Life Sciences. In 1926, he published the On its own merits series of articles, in which he stated his opinions concerning Poland’s finances. A year later he wrote Two years of work on the foundations of our statehood (1924–1925), in which he described his activities as the head of government and the reforms he had instituted. The following years of Grabski’s life were devoted to scientific work at the SGGW. He established the Economic Politics Department at the Forestry Faculty and organized the Social Agronomy Section. He was a member of and led numerous scientific societies, and acted as chairman of the Polish Society of Economists and Statisticians (in the years 1928–1934, remaining an honorary chairman in the 1934–1938 period).

1930 saw Grabski publish another book, Village and manor. Small and large agricultural holdings from an economic viewpoint, in which he described the advantages of Poland’s agricultural households. In 1935, he published History of the Polish village, consisting of a series of lectures given at the SGGW in the years 1921–1922. The book describes Poland’s agricultural development in comparison to the situation in Western Europe. During the 1929–1935 crisis, Grabski made numerous statements on the current economic situation. He had a positive opinion of Eugeniusz Kwiatkowski’s four-year investment plan, while himself being involved in planning rural investments, postulating the need to concentrate them in areas enabling large profits due to the existence of absorptive markets for agricultural goods.

In 1936, acting on Grabski’s initiative, the Agricultural Faculty Council at the SGGW decided to create the Institute of Rural Sociology, which published the “Rural Sociology Yearbooks”. By the end of his life, Grabski was an active member of numerous organizations, such as the editorial committees of the “Economist” and “Political Science Encyclopedia” (responsible for the agricultural policy topic), the Warsaw Scientific Society, Social Institute, Society for Research into International Matters and the Czechoslovak Agricultural Academy in Prague. He was the chairman of the supervisory board of the National Rural Institute, the chairman of the National Institute of Rural Culture, the first Polish member of the International Society of Statisticians, chairman of the Middle and High School Teacher Association. He has also taken part in the works of the scientific council of the International Agricultural Institute in Rome. He has authored approximately 150 works on economics, banking, political sciences, social agronomy, history and rural sociology.

The lesser known works of the Professor that are still of importance to the topic of agricultural finance include:

• The goals and objectives of Poland’s agricultural policy, Warsaw 1918.

• Grain prices, peasants, agricultural policy, Warsaw 1924.

• Burdens of self-governance in the Kingdom of Poland, Warsaw 1908.

• Depression and recovery, Warsaw 1934.

• Agricultural economics of smaller holdings, Warsaw 1910, 2nd extended edition.

• History of the Agricultural Association, volume I, II, Warsaw 1904.

• History of Poland’s village, Warsaw 1929.

• The idea of Poland, volumes I and II, Warsaw 1935; 3rd edition, Warsaw 1998.

• Agricultural investments, Warsaw 1939.

• Joining of land and cultural work in the countryside, Warsaw 1912.

• Agricultural crisis, Warsaw 1929.

• Global crises in Poland and abroad, Warsaw 1930.

• The culture of Poland’s village and common education, Warsaw 1929.

• Materials on peasant matters, volume III, Warsaw 1907–1919.

• New budget after the currency reform. Speeches of the Prime Minister, Warsaw 1924.

• On common education and public schools, Warsaw 1913.

• On its own merits. A collection of current articles, Warsaw 1926.

• Projects of Poland’s economic policy and financial programs after the war, Warsaw 1920.

• Agricultural reform backwards, Warsaw 1929.

• Reform of social agronomy, Warsaw 1928.

• Budgetary balance in light of the economic situation. Prime Minister’s exposé, Warsaw 1924.

• Public agricultural holdings in Poland, Warsaw 1923.

• Polish village in terms of historical evolution. Introduction to rural history in Poland, Warsaw 1939.

• Economic education of society, Warsaw 1929.

• Expropriation of manors and the agricultural reform program in the Kingdom of Poland. A speech to the peasantry, Warsaw 1907.

• The issue of agricultural development in light of a crisis, Warsaw 1930.

Professor Władysław Grabski died due to abdominal cancer. He was buried on March 4th, 1938 in the family tomb at the Powązki cemetery. He was – and still is – an example of an extraordinary life, attitude of servitude and passion for the common good. The scale of his accomplishments might serve as a source of inspiration for striving towards what is most noble in the public life. He was a distinguished statesman, social activist, scientist and a man of a great heart and mind – one of the foremost Poles of the interwar period.

1.2. Professor Ryszard Manteuffel (1903–1991)

Ryszard Manteuffel was born on August 13th, 1903 in Mińsk Mazowiecki and died on October 5th, 1991 in Warsaw. He was an exceptional agricultural economist, a professor at the Warsaw University of Life Sciences (SGGW); a member of the Polish Academy of Sciences since 1965. In 1938, he developed a new technique of agricultural accounting.

His youth was spent in a 20-hectare Stary Zamek manor, the remains of a destroyed familial holding in the Lucynów poviat in Polish Livonia. It was there that he began growing his economic and agricultural interests and gained his first experiences in managing an agricultural holding. After his father’s death in 1918, his mother left Livonia along with her family and moved to Warsaw. Ryszard enrolled to the Wojciech Górski gymnasium and gained his baccalaureate in 1912.

Given the unexpected opportunity of inheriting land after his mother’s childless brother, after passing the baccalaureate exam and several months of agricultural practice, Ryszard had chosen to enroll to the Agricultural faculty of the SGGW. He finished his studies in 1926 and gained an agricultural engineer diploma (equivalent to a master’s degree). During his studies, acting on the advice of prof. Stefan Moszczeński, at the beginning of the third year of his studies he took on the position of a junior assistant at the Department of Rural Economics at the SGGW. Leading classes on agricultural calculations, the profitability of production departments and branches, and creating statistical materials for econometric research during the last year of agricultural studies had whetted his appetite for scientific and educational work. To deepen his economic knowledge, he simultaneously studied for a year at the Higher School of Economics (nowadays: Warsaw School of Economics).

Two years of work at the university had further strengthened Ryszard Mantauffel’s opinion that scientific and educational work in the area of farm economics and organization requires practical experience. Therefore, with prof. Moszczeński’s permission, he ceased his work at the university and took up agricultural work. He returned to academia in 1948, after 22 years. In that same year, he achieved a doctoral degree in agricultural sciences, based on his work Attempt at finding an organic method for the profitability of various branches of rural farms written under the supervision of Prof. Wiktor Schramm at the A. Mickiewicz University in Poznan. He could not work on it with prof. Moszczeński, who died in 1946. Ryszard gained the doctor habilitatus title in 1960, after it had been restored after World War II. He was one of a handful of people going through the habilitation process despite already being a professor.

Using unpaid leaves of absence and National Culture grants, he enjoyed economic and agricultural studies abroad, in agreement with Prof. Stefan Moszczeński. In 1935, he attended six-month studies in Germany and Austria, while in 1936 he visited Switzerland, France and Great Britain. Therefore, he had the opportunity to directly learn about agricultural economics and the research methods used in Western Europe at the time. He renewed his contacts with foreign academic centers after World War II, following his return to work at the SGGW. His participation in global congresses of scientific associations became the foundation for these contacts. He spoke fluent French, English, German and Russian and read in several other languages. He took part in three congresses held by the International Association for Applied Econometrics (IAAE) in Mexico, France and Belarus. On their initiative and with their support, in 1926 he received an invitation from the Ford Foundation to stay in the United States of America for several months. There, he visited many academic centers and befriended many agricultural economists with whom he maintained in touch throughout the rest of his life. In the 1960–1976 period he attended 8 congresses held by CIOSTA. He organized the Regional European Seminar of the International Association of Agricultural Economists in 1968 and the 1970 CIOSTA Congress. He closely befriended many members of these associations, such as Nils Westermarck (Finland), Gary Johnson and Earl Heady (USA), Denis Britton (Great Britain), Erwin Reisch and Gunter Steffen (Federal Republic of Germany), and Piel Descrouisseaux (France). Thanks to these contacts, Prof. Ryszard Manteuffel could give his coworkers at the SGGW and other universities many opportunities, such as studies and scientific internships abroad.

In September 1948, he started working at the SGGW as a senior assistant at the Department of Agricultural Economics. In 1950, he was nominated an assistant professor. In this very year, the department was renamed the Department of Agricultural Management and Organization. In July 1954, he became an associate professor and in 1965 a full professor.

In 1965, he was chosen to be a correspondence member and in 1971 a full member of the Polish Academy of Sciences (PAN). He was a member of the PAN Presidium for three terms. In the years 1957–1974 he was the chairman of the PAN Agricultural Economics Committee. Under his leadership, the committee was among the most active of all committees within the Pan Department of Agricultural and Forestry Sciences. Its scope encompassed the entirety of economic and agricultural sciences and, partially, related sciences. Through the scientific sessions held in the Center as well as various provinces, and periodic assessments of the state of Poland’s agricultural economics, the Committee fulfilled an inspirational and coordinating role in developing these sciences. It advised the PAN and state authorities on economic issues, primarily related to agriculture and rural matters. The Committee integrated the scientific community of Polish agricultural economists and represented it in international organizations.

The key scientific areas researched by prof. Manteuffel are reflected, in a somewhat simplified way, through his published books. He worked in a rather peculiar way. When faced with a given scientific or research problem, he gradually “chipped” at it in a number of smaller works published as articles. Then, after gathering the necessary knowledge he wrote a full book in the form of an academic textbook or a monograph. His books, ordered by publishing date, include:

1. Effectiveness of investing in agriculture. Monograph, 1963.

2. Agricultural accounting. Textbook. Volume I – accounting, 1963, Volume II – costs and calculations, 1964.

3. Economics and organization of agricultural manual labor. Textbook, 1971.

4. Economic basis of production-related decisions in state-owned agricultural holdings. Monograph, 1974.

5. Size of an agricultural holding and company. Monograph, 1976.

6. Economics and organization of an agricultural holding. Textbook, 1979.

7. Managing and directing an agricultural holding. Textbook, 1981.

His key achievements in the sphere of agribusiness finance include:

• developing per-unit cost estimates, which became a model for all cost estimates;

• introducing the gross profit category to Polish economics and popularizing special costs;

• introducing program planning techniques to holding organization;

• stating and popularizing his opinions on the size of agricultural holdings and companies, as well as the effectiveness of economies of scale;

• promoting a rational approach towards production processes in agriculture and combating gigantomania;

• organizing the terms and their definitions in the field of economics and organization of agriculture, as well as introducing some of the assessment and factor indicators.

It should be mentioned that Professor Manteuffel was an incredibly wise, righteous, humble and kind-hearted man.

Professor Ryszard Manteuffel, PhD, doctor honoris causa, gathered a wide group around him, primarily composed of young researchers and practitioners – agricultural economists, including financiers. He established the Scientific School of Agricultural Economics and Organization. He promoted several hundred masters dissertations and oversaw 12 postdoctoral dissertations. Among Prof. Manteuffel’s school participants, approximately twenty have become titled professors. He was, one could say, the professor of professors.

1.3. Professor Stefan Ignar (1908–1992)

Stefan Ignar grew up in Bałdrzychów in the Łęczyca poviat, in a peasant family. He graduated highschool in Lodz and university in Poznan. He had entered adulthood at a time of economic crisis and high unemployment and was under the strong influence of the “Wici” Rural Youth Association. A notable trait of Stefan Ignar in that period was his critical and stubborn drive to understand the financial matters of agricultural holdings, which he found interesting. He possessed unique intellectual capabilities. He was also deeply devoted to peasant issues and a great politician, statesman and researcher.

After completing his studies and military service, he unsuccessfully sought employment, to eventually become a lecturer at the Solarzów University in Gać Przeworska. Throughout the years 1935–1936 he served as the chief editor of the “Rural Economic Life” bi-weekly magazine published by the Lodz branch of the “Wici” Rural Youth Association, earning a key position among the radical rural youth thanks to his exceptional essay writing skills, educational and pedagogical activities. In later years, he became the chief editor of the “Wici” weekly magazine. During the Nazi occupation, he became a commandant of the Łódź district of Peasant Battalions. After the restoration of Poland’s independence, he first took up work as a teacher in a rural gymnasium in Godzianów and later in the “Wici” Association again. In 1946, he became the President of its Executive Board. He was also the President of the Executive Board of the Peasant Self-Help Union. During the unification congress of the SL and PSL parties, he was appointed vice president of the Chief Executive Committee. Following October 1956, he became the leader of ZSL, as its President. He held that position until 1962, later returning to this role in 1981.

His service to the state took form of holding numerous key positions: in the early 1950s he was the Deputy President of the Council of State, he remained a member of parliament and the Constitutional Commission for 24 years and between 1956–1969 he served as the Deputy Prime Minister.

Through his active participation in politics and statecraft, he strived for the adoption of a more scientific approach to economic activity. He conducted research into the functioning and financial effectiveness of different forms of agriculture.

He began his scientific work in 1945, at the Lodz University of Life Sciences, founded thanks to the efforts of “Wici” and himself. Prof. Ignar was already respected back then, not only by rural activists, but also – and perhaps primarily – economists. Later on, when he moved to Warsaw, he became involved with the Warsaw University of Life Sciences. He initiated and organized the creation of the Economic and Agricultural Department and became its first head. Due to his interest in agricultural finance and his academic position in these areas, in the 1950s he was assigned the function of the President of the Scientific Council of the Institute of Agricultural Economics. He wrote numerous articles, published in “Matters of Agricultural Economics”, “Polish Science”, the “Modern Countryside” monthly magazine, as well as weekly and daily magazines.

At the Warsaw University of Life Sciences, he led the Agricultural Politics Department for numerous years. He promoted over a dozen of doctors and assistant professors, who up to this day form the core of the professorial staff at the University’s Faculty of Economic Sciences. When teaching, he knew how to carefully listen to his colleagues and students, which brought him many supporters and much respect. His deep knowledge of agricultural and rural finance, as well as his pro-peasant activism formed an inextricable part of his rich and versatile way of life. His numerous speeches, lectures and readings have worked towards the adoption of a more scientific approach to economic activities. The concept of multidisciplinary research on the development of newly industrialized areas (and more accurately: the financial circumstances of rural communities in major investment areas, such as the petrochemical refineries in Płock and Puławy, or mining hubs of Konin, Lublin, Tarnobrzeg or Belchatow) arose directly from his scientific activity.

Research into newly industrialized areas was based on the thesis that a program for rural society (especially agricultural society and agriculture) can only be formulated rationally once the development interdependencies between industry and agriculture are discerned, especially in financial terms. He presented these issues in publications such as Peasant family and agricultural holding. Thanks to his scientific achievements, he was appointed the Chairman of the Committee for the Study of Industrialized Regions of the Polish Academy of Sciences. He established the Committee’s branches in Poznan, Wroclaw, Lodz, Krakow, Lublin and Katowice. He intensified field research and revitalized economic research in many scientific communities. At least 60 young researchers have obtained their doctorates and habilitations based on materials from said research, proving the worth of the scientific movement spearheaded by Prof. Stefan Ignar. Professors such as Józef Chałasiński, Jan Szczepański, Stefan Golachowski, Kazimierz Romaniuk, Maria Dobrowolska, Władysław Markiewicz, Antoni Rajkiewicz, Jerzy Piotrowski, Bohdan Jałowiecki, Franciszek Kolbusz, Andrzej Stelmachowski, Bolesław Strużek, Zygmunt Lachert, Mikołaj Kozakiewicz, Zbigniew Kwieciński, Tadeusz Hunek, Jerzy Dietl, Wacław Piotrowski, Irena Fierla took part in it, among others. Younger, yet very active coworkers of Prof. Ignar included Marek Kłodziński, Karol Michna, Kazimierz Odziemkowski and many others. Professor Ignar gave them respect and friendship.

The wider academic community, and agricultural economists in particular, have greatly respected Prof. Ignar, who up to this day remains a scientific authority.

Supporting literature

Ignar S., 1986, Rodzina chłopska i gospodarstwo rolne, Ludowa Spółdzielnia Wydawnicza, Warsaw.

Runowski H., 2016, Ryszard Manteuffel-Szoege – wybitny ekonomista rolny, twórca szkoły ekonomiki i organizacji gospodarstw rolniczych. Wspomnienie w 25. Rocznicę śmierci, “Roczniki Naukowe Ekonomii Rolnictwa i Rozwoju Obszarów Wiejskich, vol. 103, no. 4.

Skodlarski J., 2015, Władysław Grabski jako ekonomista, Wydawnictwo Uniwersytetu Łódzkiego, Lodz.CHAPTER 2
AGRIBUSINESS – THE TERM, ITS SCOPE AND SPECIFICITY

This chapter will answer the following questions:

• What is agribusiness?

• Which segments constitute agribusiness?

• What are the specificities of agribusiness and key financial traits?

• What agribusiness fixed asset resources are available in Poland and what are their tendencies?

• What factors limit agricultural production and what are their consequences?

2.1. The concept of agribusiness

The term agribusiness was first used in scientific literature in 1957, by John Davis and Ray Goldberg. According to these authors, agribusiness is a system integrating American farmers with their surroundings, including:

• trade;

• processing; and

• the distribution of food.

In Poland, up until 1989, this system of interdependencies between agriculture and other branches of the national economy was also examined, under the name: food economy complex. Nowadays, agribusiness is defined as a subsystem of the national economy created as a result of a vertical integration of all the cells of the national economy involved in food production. Therefore, agribusiness encompasses:

• agriculture;

• fishing,

• forestry;

• agri-food industry;

• industries manufacturing means of production and services for agriculture and other industries involved in food production;

• procurement;

• transportation of agricultural goods and means of production;

• trade in finished food products.

Agribusiness as examined from the perspective of the department-and-branch structure encompasses to following:

• agriculture focused on the production of resources used for food production;

• fishing;

• forestry, which also provides resources used for food production or finished food products;

• the food industry focused on processing agricultural resources and on gastronomy;

• industries manufacturing means of production and services for agriculture and the food industry;

• trade in agricultural raw materials and finished food products (wholesale and retail trade, marketing);

• services for agribusiness (financial, transport, communication, information, construction, education, consulting).

2.2. A historical perspective on agribusiness

From a historical perspective, in the early phases of social and economic development food was provided primarily by agriculture. Later on, new activities arose in this process, such as agri-food processing, trade, services and manufacturing, as well as craftsmanship providing the means of production for agriculture and food industry. With time, these separatist food production processes began to integrate, forming modern agribusiness encompassing three segments:

• industries manufacturing means of production for agriculture and the agri-food industry;

• agriculture;

• the agri-food industry.

In summary, agribusiness is a subsystem of the national economy, technologically, financially, legally and organizationally linking all of the branches involved in the production of agricultural raw materials, processing and distribution of food and derivative products.

Agribusiness can also be defined as a branch of knowledge, scientific research and academic teaching. This concerns primarily the assessment of the changes in the presence of agribusiness in the national economy, its structure and control mechanisms. Figure 2.1 presents a branch structure diagram of Poland’s agribusiness.

Agribusiness is a subsystem of the national economy, which contributes to the gross national product. This product is created by all branches constituting agribusiness. However, one should note that their impact on the national GDP differs. Simplifying slightly, we can create the following formula for the impact that agribusiness has on the creation of the gross national product:

where:

NPGA – gross domestic product of agribusiness;

Pglr – total agribusiness production;

Pglps – total food industry production;

Pgli – total production of the i-th branch partaking in food production;

bi – coefficient determining the flow of goods and services from the i-th branch to agriculture and food industry.

Figure 2.1. Branch structure of Poland’s agribusiness

Source: author’s own elaboration.

In the case of Poland, a characteristic trait of agribusiness is the quick pace of changes. Up until 1990, agriculture held a dominant role in it, both in terms of participation in production resources and the production created. Agriculture’s presence in this period amounted to a 77.2% and 52.5% share, respectively. A larger share of agriculture in agribusiness resources, relative to its share of production, arose from a lowered effectiveness of labor and resources, as a result of the laws of biology and market circumstances. The former limit the growth of production in time, as per units of area and per animal.

As for limitations concerning the size of agriculture production per unit of area, they arise primarily from the characteristics of the soil. Through its quality, location and variation in these regards, soil impacts economic activity and its profitability. These traits turn agricultural land into a source of land rent. And even Adam Smith himself had noticed that agricultural activities carried out in different locations lead to differences in both costs and results. These observations were continued by David Ricardo, Karl Emil Maximilian “Max” Weber and others. Differential rent I is created due to differing quality of agricultural land and its positioning in regards to the market. Differential rent II is a relative beneficial effect arising from differences in the intensity of agricultural activity. Another relevant rent is the urban rent, constituting a relative benefit gained by landowners in beneficial locations (reflected in subject literature as differential rent III). Recently, environmental rent (differential rent IV) is also being acknowledged. In this case, the increased value of lots may arise from environmental determinants, characterized by a high natural value, microclimate, etc. Due to transfers within the Common Agricultural Policy, capital rent has appeared, implemented by agricultural landowners.

Capital rent often exists in connection with benefits arising from advantageous legislative solutions in the sphere of social security contributions and taxation. Therefore, we might point out yet another rent – the legislative one. The implementation of rents arising from the unique traits of agricultural land has a key impact on the pace of changes occurring within the agrarian structure. Generally speaking, the ability to obtain economic rents, and capital rent in particular, hinders the transfer of land from small agricultural holdings to developmental ones. Therefore, the existence of these rents slows down changes within agribusiness at large. Agribusiness as a production subsystem of the national economy is characterized by certain specificities, namely:

• It is a subsystem producing food and food-related resources necessary for the production of all other products.

• It is a subsystem encompassing different components, characterized by a varied effectiveness, productivity, sensitivity towards external factors of production; agricultural production is particularly sensitive to them. On the one hand, unique traits of the land used for production of food-related resources and laws of biology cause agriculture to have a lower effectiveness of work and capital compared to other components of agribusiness. On the other hand, agricultural production of plants and animals is the most affected by environmental factors. Plant production is basically “defenseless” in this regard. The producer can suffer almost complete losses in adverse conditions, while when other activities reliant on the environment (e.g. construction, transportation) are faced with adverse conditions, the result is unrealized gains (profits) and possible minor losses.

• The above-mentioned biological and technological traits of agricultural production cause the economic relations within agribusiness to become the least advantageous for agricultural resources.

• Prices of the means of agricultural production are overvalued compared to other products. As a result, the market position of agriculture is worsening compared to other branches of the national economy, which is further strengthened by a rigid demand for food.

• The constant problem of income disparity between farmers and other occupational groups. It is the primary determinant of the agrarian issue. Moreover, it bears mentioning that rural areas either lack civilizational infrastructure or have less of it than cities. This entails reduced access of rural population to large supermarkets, public transport, banks, restaurants, stadiums, cinemas, theaters, public administration offices, highways, the subway. A vast majority of this infrastructure has been financed by public funds, and in practice is only available to the urban population.

• Agriculture provides society with public goods, including: the quality of the landscape, environment and space, while receiving no compensation for it. In this situation, agriculture benefits from public interventions on a national and EU-wide scale.

2.3. The structure of Poland’s agribusiness and its changes

The structure of agribusiness both in Poland and other economically developed countries is undergoing changes. This arises from development processes in the economy of a given country or group of countries. These changes to the structure of agribusiness are linked with an increase in total production and gross added value of the food and trade industry. Simultaneously, the presence of agriculture itself and the supply industry is shrinking (for reasons enumerated above). Thus, the participation of agribusiness at large in the national economy is shrinking, while its production is expanding.

The data in Table 2.1 indicates that agriculture holds the largest share in the employment structure of agribusiness. It is almost three times larger than the combined employment in the food industry and industries manufacturing means of production for agribusiness. While in terms of fixed resources, agriculture is almost equal to these two other components of Poland’s agribusiness. Agriculture’s dominance in these two basic factors of production does not result in high economic results. Without a doubt, food industry is best off in these aspects. Agriculture, while using up large amounts of production factors, is reaching relatively low economic results. It also holds a relatively small share of total investment expenditures in agribusiness. All of this causes its role in the national economy to shrink. This relative reduction applies to both the means of production, and economic and financial results. The largest relative decline of agribusiness in the economy is observed on the side of labor resources, which decreased by over 1.5 million people in the years 2000-2015. The labor resources located in agribusiness have relatively decreased by over 10%, from 32.2% in 2000 to 21.7% in 2015.

In terms of available fixed assets, their absolute value grew from 194.0 bn in 2000 to 294.9 bn in 2015. However, when compared to the overall national economy, this marks a decrease from 13.4% to 8.7%. A similar occurrence has taken place in case of investment expenditures. In absolute terms, they have increased – from 10.3 bn PLN in 2000 to 18.7 bn PLN in 2015. Yet in relative terms, their share in the national economy has decreased slightly, from 7.7% in 2000 to 7.5% in 2015.

In terms of gross production in absolute terms, we can notice it doubling, from almost 190 bn PLN in 2000 to over 380 bn PLN in 2015. Despite this absolute growth, agribusiness output has declined against the national economy as a whole in the studied years, from 13% in 2000 to 10.8% in 2015. A similar situation occurs with the gross added value. In absolute terms, it nearly doubled – from 56.3 bn PLN in 2000 to 107.2 bn PLN in 2015. Yet despite this absolute growth, its share in the overall national economy declined from 8.5% in 2000 to 6.6% in 2015.

Supporting literature

Czyżewski B., 2009, Współczesne teorie renty gruntowej, ich geneza i znaczenie dla Wspólnej Polityki Rolnej UE, Zeszyt Naukowy SGGW, “Polityka Europejska, Finanse I Marketing”, Warsaw.

Davis J., Goldberg R., 1957, A Concept of Agribusiness, Division of Research, Graduate School of Business Administration, Harvard University.

Encyklopedia agrobiznesu, 1998, Fundacja Innowacji, Warsaw.

Mrówczyńska-Kamińska A., 2014, Struktura agrobiznesu w Polsce i jego znaczenie w gospodarce w kontekście integracji z UE, “Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu”, vol. 260, p. 49, Wroclaw.

Mundlak Y., 2000, Agriculture and economic growth. Theory and measurement, Harvard University Press, Cambridge.

Poczta W., Mrówczyńska-Kamińska A., 2004, Agrobiznes w Polsce jako subsystem gospodarki narodowej, Wydawnictwo Akademii Rolniczej im. Augusta Cieszkowskiego, Poznan.

Szuba-Barańska E., Poczta W., Mrówczyńska-Kamińska A., 2016, Zmiany struktur agrobiznesu Polski i Niemiec, “Roczniki Naukowe Stowarzyszenia Ekonomistów Rolnictwa i Agrobiznesu”, vol. XVIII, Warsaw.

Woś A., 1996, Agrobiznes, Makroekonomia, KEY TEXT, Warsaw.

Woś A. (ed.), 1982, Rolnictwo i polityka rolna lat siedemdziesiątych, Państwowe Wydawnictwo Rolnicze i Leśne, Warsaw.

Table 2.1. Production resources and the economic results of agribusiness in Poland (current prices)

Specification

Labor force (in thousands of people)

Gross fixed assets (in bn PLN)

Investment expenditures (in bn PLN)

Global production (in bn PLN)

Gross added value (in bn PLN)

2000

2005

2012

2015

2000

2005

2012

2015

2000

2005

2012

2015

2000

2005

2012

2015

2000

2005

2012

2015

Industries producing means of production for the agriculture and food industry

407

444

434

434

44.1

48.0

50.1

50.1

3.4

4.0

5.1

5.1

37.3

57.0

59.5

59.5

16.8

15.6

16.2

16.2

Agriculture

3932

2084

2326

2384

109.1

112.7

130.3

139.6

2.1

2.4

4.5

5.3

56.0

63.3

103.1

98.6

17.7

22.3

40.7

36.9

Food industry

502

458

443

383

4.08

60.4

94.0

105.2

4.8

6.2

8.1

8.3

96.1

128.4

208.9

222.4

21.8

28.3

40.7

54.1

Overall agribusiness

4841

2984

3203

3201

194.0

221.1

274.4

294.9

10.3

12.6

17.1

18.7

189.4

248.7

371.5

380.5

56.3

66.2

97.6

107.2

Participation of agribusiness in the national economy (%

32.2

21.0

20.1

21.7

13.4

12.0

9.0

8.7

7.7

9.0

7.0

7.5

13.0

13.6

12.9

10.8

8.5

6.0

6.0

6.6

Source: Mrówczyńska-Kamińska A., 2014, Struktura agrobiznesu w Polsce i jego znaczenie w gospodarce w kontekście integracji z UE, “Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu”, vol. 260, p. 49, Wroclaw.FOOTNOTES

J. Skodlarski, 2015, Władysław Grabski jako ekonomista, Wydawnictwo Uniwersytetu Łódzkiego, p. 12.

H. Runowski, 2016, Ryszard Manteuffel-Szoege – wybitny ekonomista rolny, twórca szkoły ekonomiki i organizacji gospodarstw rolniczych. Wspomnienie w 25. Rocznicę śmierci, “Roczniki Naukowe Ekonomii Rolnictwa i Rozwoju Obszarów Wiejskich”, vol. 103, no. 4.

Encyklopedia agrobiznesu, 1998, Fundacja Innowacji, Wyższa Szkoła Społeczno-Ekonomiczna, Warsaw, p. 15.

A. Woś, 1982, Rolnictwo i polityka rolna lat siedemdziesiątych, PWRiL, Warsaw, p. 81.

E. Szuba-Barańska, W. Poczta, A. Mrówczyńska-Kamińska, 2016, Zmiany struktur agrobiznesu Polski i Niemiec, “Roczniki Naukowe Stowarzyszenia Ekonomistów Rolnictwa i Agrobiznesu”, vol. XVIII, no. 6, p. 216.

Encyklopedia agrobiznesu , ibid., vol. 7, p. 35.

B. Czyżewski, 2009, Współczesne teorie renty gruntowej, ich geneza i znaczenie dla Wspólnej Polityki Rolnej UE, Zeszyt Naukowy SGGW, “Polityka Europejska, Finanse i Marketing”, pp. 39-34.

Ibidem.