Beating the Competition of Imports: The Experience of Dairy Processors in Poland

1. Beating the competition of imports.The experience of dairy processors in Poland supplying the supermarkets The -WB-CEI-FAO Workshop on Agriculture, Agri-Business and the Retail Sector in South-East Europe Sarajevo, May 24-26,2004

2. Situation in Poland before 1989 • More than 350 dairy processing co-operative organised in Central Association of Dairy Co-operatives • Strict regional allocation of milk collection and product distribution • No competition • All local dairies produced the same products to supply the local markets • Short product shelf life • Cheese, butter, SMP production in some regions of Poland with milk overproduction • High seasonality of production Beating the competion of imports Piotr Maj

3. Situation in Poland before 1989 • Dairy products distribution organised by regional dairy warehouses belonged to Central Association (storage and product transfer) • Local distribution organised by local dairies • Government established prices (relatively low) for dairy products and raw milk (relatively high) • very high production subsidies • Huge consumption of dairy products Beating the competion of imports Piotr Maj

4. Consequences • Dairy co-operatives had to process more than better • Relatively low quality of products • Dairy co-operatives had no experience in competition on market • Production subsidies (difference between sales volume and costs of production) Beating the competion of imports Piotr Maj

5. Recession times in early ’90 • Politically driven changes in economy • Dissolution of Central Association, each cooperative became independent • Small increase in number of processors (co-operatives, private and foreign) • Huge inflation • Very though time for companies with investment credits • Termination of production subsidies • Huge increase in dairy product prices(1300%) and rapid decrease in demand • Raw milk prices fall dawn Beating the competion of imports Piotr Maj

6. Number of milk producers and raw milk supply in 1989-2002 Beating the competion of imports Piotr Maj

7. Recession times in early ’90 • Market became competitive • Poland became open for foreign companies (multinationals) • With much better resource and market experience • Large import of new dairy products • Polish processors faced modern products, nice packed, professionally introduced on market and with much better quality Beating the competion of imports Piotr Maj

8. Recession times in early ’90 • Changes in distribution • Dairy industry lost its distribution chains • Former co-operative and state retailers lost their position • Private warehouse and retail became more important • Some dairies kept their local markets other try expansion (less or more successful) Beating the competion of imports Piotr Maj

9. Number of retail outlets Beating the competion of imports Piotr Maj

10. Changes in distribution during last 10 years • Concentration of wholesalers • Some of them bankrupt • Rapid expansion of multinational chains • 30% to 50% dairy products are presently distributed by • Cash and carry • Hypermarkets • Supermarkets chains • Discount stores • Concentration of Polish retailers Beating the competion of imports Piotr Maj

11. Changes in consumer paterns • New products promoted by foreign companies • Competition hawever they have also built new categories of products • Consumer became more conscious of product range availability, quality and brand • New trends in nutrition • Convenient packages • Expecting more value added products Beating the competion of imports Piotr Maj

12. Other issues • Foreign companies grew together with retailers for decades • Polish producers (not only dairies) had to face large retailers in just few years • Very well trained stuff • Luck of experience in dealing with specific requirements • Difficult negotiations Beating the competion of imports Piotr Maj

13. First strategies developed by Polish dairy companies • Product differentiation strategy • Cost and price leading strategy • Market penetration • Foreign investor • Or alliance with foreign companies • Concentration (not successful on beginning) Beating the competion of imports Piotr Maj

14. Wide product assortment Effective distribution channels Total market share and sales scale Volume of processed milk Marketing based strategy Sales volume and market share Sales promotion Sales structure profitability Crucial marketing factors seen by Polish dairies vs. foreign companies Beating the competion of imports Piotr Maj

15. Main sources of Polish dairy development • „Environment” • Adequate natural environment • Milk production was always important stable source of farmers income • Private structure of Polish farms • Large state and co-operative farms closed their production • High unemployment- luck of other income source Beating the competion of imports Piotr Maj

16. Main sources of Polish dairy development • Ability of fast adjustment to fast moving market conditions and fast changing consumer (and also customer) needs • Managerial skills and leadership • Involving personnel and farmers • Lower dairy product prices - low cost production • Raw milk price • Lower trade and marketing costs Beating the competion of imports Piotr Maj

17. Main sources of Polish dairy development • Developing in short time resources to produce new dairy products and introducing them on market • Investment in new production lines • Changes in technology and packaging • Improving distribution • Developing marketing activities Beating the competion of imports Piotr Maj

18. Main sources of Polish dairy development • Economic, marketing and management advisory and training • Not only source of knowledge but also information and experience exchange • Farmers training • Developing quality of raw milk • Concentration of milk production Beating the competion of imports Piotr Maj

19. Main sources of Polish dairy development • Publicity, influence on political decisions • Influence on trade barriers (custom tax etc.) • Some of foreign producers had to move some production to Poland • International negotiations (EU accession) • Agriculture policy intervention on dairy product market • Stabilising farmers and processors income and ensuring investment • Dairy products generic promotion Beating the competion of imports Piotr Maj

20. Main barriers of development • Unwilgness to concentration • Wrong experiences from past • Personal aspects • “Production oriented” management • Difficult to implement new marketing activities or management rules • Not enough financial resources Beating the competion of imports Piotr Maj

21. Financing of development (both on farm and processing level) • “Internal” financing – farmers • Low price paid for farmers • Long period of payments • Shares paid by farmers • lower than nominal credit rate loans sponsored by Polish government • SAPARD, PHARE programs • Suppliers Beating the competion of imports Piotr Maj

22. Many Polish processors started to compete with imported products or produced in Poland by multination companies • Not only price but also as product and service quality • Developing HACCP programs and quality standards (egg. ISO certification), investing in brand building allowed Polish dairy processors to became partners to distribution chains. • Some companies decided to produce product under distributors brand (own label) Beating the competion of imports Piotr Maj

23. Types of successful companies • Large, national scale processors • Big volume of production (economy of scale) • Big chains need stability of deliveries • Few production specialised factories • Active national promotion • Large resources (financial, production, human etc.) • Wide product range Beating the competion of imports Piotr Maj

24. Types of successful companies • Local companies • Very high local awareness (local publicity) • Very effective local direct distribution • Often very flexible and more fast in their activities on local market • regional products • Entering in one retail outlet of chain often opens opportunity for further expansion Beating the competion of imports Piotr Maj

25. Types of successful companies • Niche product companies • Lower volumes • Few niche products • High margin • However still satisfying consumers (and those customers) Beating the competion of imports Piotr Maj

26. Brand is always an asset • Consumer (and consequently distributors) are willing to pay better price for product • Better margin for producer • Retailers must have those products on their shelf's • Recognised brand helps to introduce new products on the market Beating the competion of imports Piotr Maj

27. Importance of raw milk and working together with farmer • Better price allows to pay more for raw milk • That allows farmer to invest and produce more and better • Milk price based on quality • On time payments • Better service and advisory – compensate payments • Feeding, fertilisers. • Training • Implementing higher level of raw milk standard Beating the competion of imports Piotr Maj

28. Quality and product standard • Safety of product (HACCP) • Product has to be the same all time • Essential to keep recognised brand on market for long time • Wide understand quality • Service • Distribution • Sales activities Beating the competion of imports Piotr Maj

29. Quality and product standard • Developing of new standards of co-operation with large retail distributors • Own label products • Implementing of EDI standard Beating the competion of imports Piotr Maj

30. EDI Standard –need co-operation of both sides • Speed up sales procedures • Ordering and invoicing • Workload reduction • Cost reduction • Better information flow (eg. sales and stocks level) • However needs additional investments • Web sites the most simple way Beating the competion of imports Piotr Maj

31. Companies with proper quality, brand, consumer willing to buy product, volume (market share etc.), market and customer oriented –are and will stay in business. • For discount stores some aspects are less important but safety of product and deliveries stability - always. Beating the competion of imports Piotr Maj

32. Threats • Cost advantage of dairy production will decrease • Polish dairy processor are still not enough market oriented • Concentration of dairy production is still to law (both on farm and processor level) • Competition from EU companies Beating the competion of imports Piotr Maj