POLISH AGRICULTURE IN TRANSFORMATION PERIOD AND ENTREPREUNEURSHIP AMONG RURAL COMMUNITY

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1 Tomasz Bernat Jarosław Korpysa Department of Microeconomics University of Szczecin 64 Mickiewicza Street, Szczecin Phone / , fax / POLISH AGRICULTURE IN TRANSFORMATION PERIOD AND ENTREPREUNEURSHIP AMONG RURAL COMMUNITY Abstract Agriculture as well as entire Polish economy had undergone transformation. The results, however, were much more intensified in country than town. Farmers and their families faced the results to a greater extend in accordance to real income, impoverishment as a social group, or the level of unemployment. During the transformation, Polish governments tried to implement different projects in order to improve the situation in the country and condition of farm households. In fact, they weren t successful. At present, after Poland s accession to the European Union, new opportunities for farmers families arose, they concern not only direct payments but also activities encouraging entrepreneurship among rural community. The aim of this paper is to describe the problem of entrepreneurship in the country in comparison with the socio-economic changes that have been taking place since the 90 s. Keywords: Micro Analysis of Farm Firms, Farm Households, Agricultural Finance, Entrepreneurship, JEL Classification Q12, Q14, D29 Introduction The role of the agriculture sector, its importance and functioning in the national economy have been changing for the last 15 years as a result of changes in the socioeconomic sphere. Privatization and reorganization of the economy led to decreased number of working in the sector and increased unemployment rate, what caused impoverishment and marginalization of rural community. A deepening discrepancy in living conditions between town and country is more and more visible, it s seen mainly in structure of income and expenses, household appliances. It results in decreasing share of the agriculture sector in GDP. Moreover, unfavourable tendency in conditions of education and bringing up the youth living in the country has still existed. Children from rural families, only because of the fact they were born and live in the country, face selective processes which reduce their chances for further education and their carriers in comparison with children living in town. All mentioned above factors cause that human capital in the country isn t properly used and its value is still being deprecated. We should bear in mind that currently it s not only means of conveying information but also has impact on competitiveness of this sector. The aim of this paper is to describe the effects of transformation of Polish economy on the agriculture sector. The analysis was made using various rates of rural community development in the context of current situation on the labour market. Moreover, the results of

2 Polish agriculture in transformation period and entrepreuneurship among rural community 97 national research on employment and unemployment in rural area are shown in this paper. It also contains the EU and World Bank s reports on the implementing Common Agricultural Policy. Description of rural areas in Poland Among 10 countries that joined the European Union in May 2004, Poland is the biggest one in regard to area and population, the total area is sq km (9th place in Europe and 69th in the world), population amounts to 38,2 million people (8th place in Europe and 30th in the world). Rural areas (according to OECD classification: open, agriculture or forest areas, outside towns with population density less than 150 inhabitants /sq km) cover the area of sq km 2, it constitutes 93 % of Poland s area and are inhabited by more than 38% of total population. Development of rural areas is closely connected with transformation begun in 1989, it meant mainly commercialization of the entire food economy and influenced as follows: 1. prices for farm goods weren t controlled anymore and subsidization of farm products was also stopped 2. openness of agriculture economy 3. decrease in incomes of farm households 4. increase in unemployment of rural community Processes adjusting Polish agriculture were caused by changes in market mechanism, they can be distinguished into four phases: 1. liberalization of the sector ( ) 2. state intervention in the agriculture sector ( ) 3. introduction of diverse agricultural and rural policy ( ) 4. establishing new socio-economic structures in the country (1996 present) (Sokołowska 2002 ). The aim of the first phase, which had began in 1990, was to commercialize economic processes. It caused adjustment of production and supply to demand that had decreased. In end-1991, protection of Polish market was increased by rising import duty on agriculture goods what resulted in decreasing import of agriculture goods. Moreover, new institutions such as: the Agricultural Market Agency and the State Treasury Agricultural Property Agency (STAPA) were established, they were mainly responsible for effective management of the property of the State Treasury as well as creating favourable conditions for structural changes in agriculture. The second phase that began in 1992 was aimed at protection of farmers incomes, it was achieved by introduction of guaranteed minimum prices and imposing import duty. Moreover, active privatization of state-owned farms was started, what resulted in decrease in employment by nearly 41% in 1993, as well as decrease in usable area by state-owned farms by 64% (Psyk-Piotrowska 2004). Privatization of former state-owned farms, except for rising unemployment, caused a range of socio-economic consequences such as: rising workers discontent showed by not obeying work discipline, stopping work, stealing equipment and destroying property. The workers, started to realise that the market didn t belong to workers any more and became the market of employer, who decides on employment and has detailed requirements toward labour force needed in an enterprise. The third phase that began in 1994 introduced division between agricultural and rural policies, the character of agricultural counselling was expanded and new foundations supporting changes in the sector were established. Rural bank system was implemented, in the meantime STAPA completed allocation of property received in the 90 s among the farm households.

3 98 Tomasz Bernat, Jarosław Korpysa The last phase was based on establishing two kinds of farm households: farming, producing mass and cheap food and traditional ones producing food for family needs, thanks to such division, the farmers received statutory law to establish the groups of producers, this way they became eligible to apply for bank loans. All mentioned above phases weren t, however, as successful as it was expected. Despite of the transformation and reorganization, rural community still faces many problems, the most important are as follows: (Kożuch, 2001): diversification of territory, insufficient level of education and low social initiative, high unemployment rate and slim chances of employment or gaining income outside the sector, low effective demand for goods and services due to very low incomes of the vast majority of inhabitants. Social structure of population and socio-economic mobilization of rural community The problem of significant diversification of arable land ranging from 1 ha to bigger than 50 ha has been occurring in Poland since the transformation. (Table 1). Table 1. Number of farms using the area over 1 ha Number of privately owned farms Groups of farms in thousands in % in thousands in % in thousands in % in thousands in % Total 2041, , , , ha 462,4 22,65 449,4 22,59 448,2 23, , ha 667,6 32,7 675,5 33,96 613,6 32,62 629,9 32, ha 520,8 25,51 491,2 24,69 447,7 23,8 426,9 21, ha 217,2 10,64 202,8 10,2 185,7 9,87 182,7 9, ha 89,4 4,38 84,1 4,23 83,9 4,46 83,9 4, ha 75,3 3,69 76,5 3,85 89,2 4, ,91 >50 8,9 0,44 9,7 0,49 12,6 0,67 19,8 1,01 Source: Narodowy Spis Powszechny, GUS, Warszawa 2002 The figures in table 1 show that small farms (1-5 ha) predominate in the structure of farms over 1 ha, they constitute 58,63% of total number of farms. However, they use only 16,8% of arable land, and products are mainly used for family needs. Farms with area of 15 ha and over constitute 34% of total number of farms with area of 1 ha and over, they use 51,4% of arable land. Such farms sell a significant part of their production (Rosner, 2005). Remaining constitute 10,21% of total and use 31,8% of arable area. It s visible that such fragmented ownership, particularly among 1-5 ha farms results in ineffective functioning and deepening marginalization of rural community. Analyzing the dynamics of changes in the structure of farms, it should be stated that the most significant decrease was noticed in case of 5-10 ha farms in comparison with 1996,1998 and The number of the biggest farms increases, the number of ha farms increased by 27% in 2002 in comparison with 1996, whereas farms with area over 50 ha by more than 120%. The main reason for such situation is privatization of big arable areas, the state-owned farms in particular. In 1996, the number of state farms in the public sector amounted to 2016, in 2000, it decreased to 1600 (Dzun, 2002 a). According to the last agricultural census, there are 1266 state units in the public sector (Marodowy Spis Powszechny 2002). At the same time, the area of farms is decreasing because farmers sell land or rent out to another entities. The undergoing changes aim at making organizational structure of farms more clear and simple, what is reflected in

4 Polish agriculture in transformation period and entrepreuneurship among rural community 99 changes of population. Table 2. Population of farm households with used arable area over 1 ha in 2001 Type of farm Total in thousand people Share in % 1-2 ha 1764,1 23,65% 2-3 ha 1005,1 13,48% 3-5 ha 1306,5 17,52% 5-7 ha 845,2 11,33% 7-10 ha 854,9 11,46% ha 784,1 10,51% ,2 5,07% ,9 5,99% ,3 0,73% 100 ha and over 18,5 0,25% Total 7457,8 100,00% Source: Narodowy Spis Powszechny, GUS, Warszawa 2002 According to the National Population and Housing Census and Agricultural Census, both conducted in 2002, 7 457,7 (i.e. 787,100 less in comparison with 1996) lived in farm households (with area over 1 ha) in The main reason for the decrease by more than 10% in rural population in is migration from country to town, international migration of rural inhabitants mainly the youths, and change in the country s administrative division. Analyzing the structure of rural population, it should be stated that more than half (i.e. 54,65 %) inhabits small farm households sized 1 5 ha, 44,36 % inhabits medium farm households (5 50 ha), whereas only 0,99% inhabits large farm households over 50 ha. Comparing the data with used arable land by farm households (table 1), it can be noticed small farms are the most ineffective because they cover only 16% of arable land but they are inhabited by more than 50% of total rural population what makes them the main source of unemployment and deepening marginalization of rural community. It s mainly reflected in economic initiative of population connected with agriculture. Activity rate distinguishes three main professional categories: working, unemployed and professionally inactive. Working and unemployed constitute the category of active professionally, i.e. labour force. Working on their own farms is classified as people aged 15 and more running individually farms over 1 ha. Unemployed are defined as persons who don t work but they look for a job actively, i.e. they made attempts to find a job during last 4 weeks and are ready to start a job. The last category includes economically inactive persons who live on unearned income and all persons supported by them (Rosner, 2005). Data concerning economic activity of rural population is showed in table 3.

5 100 Tomasz Bernat, Jarosław Korpysa Table 3. Population in the age 15 and more by economic activity and place of living in 1988 and economically economically economically economically Specification Total active inactive Total active inactive in thousand in thousand Total 28269, ,5 9816, , , ,2 Town 17481, ,4 6778, , ,4 8540,7 Country 10787,5 7749,1 3038, ,3 6329,1 4915,5 Source: Narodowy Spis Powszechny, GUS, Warszawa 2002 The above table shows that the total number of rural population increased from 10787,5 thousand in 1988 to 11512,3 thousand in 2002 i.e. by 6,7%. It resulted mainly in increase in the number of economically inactive persons from 3 038,4 to 4 915,5 and decrease in working in farms from 7 749,1 thousand in 1988 to 6 329,1 thousand in The drop of 18% in the number of economically active and increase by 61% in the number of economically inactive was caused by decreasing number of farm households, increasing number of individual households that don t run any farms and increasing number of unemployed formerly counted as working only or mainly in the farm. In the situation where the state economy wasn t so ready for labour force as a result of developing rationalization of employment, more and more people decided to retire. It was the only way to avoid unemployment. In 2001, increase in the number of pensioners was noticed by 132,5% in comparison with 1990, the phenomenon was the most visible among farmers. In 2000 comparing with 1990, the number of pensioners in this socio-economic group increased by 82,6%, what placed a heavy burden on working people by non-working in the working age. The increase in the rate of non-working to working was noticed, in 1992 it was 1:1 in town, 0,7:1 in the country, whereas in 2001 it was respectively: 1,25:1 and 1,12:1 (Sosnowska 2003). Comparing activity rate of rural population, it should be noticed that in comparison with 1988 there is a downturn in the rate by 11,62%. The most significant difference was noticed in the country- decrease by 16,85%. The main reason for such low activity rate in the country is high unemployment rate and lasting downward trend in education of youths and insufficiently developed system of life-long learning among adults. From the beginning of structural transformation in Polish economy, disproportion in the level of supply and demand for labour force was growing. Growing deficit caused a significant increase in unemployment in rural areas. In 1999, the level of unemployment amounted to 16,5% w in the second quarter At present, the share of unemployed living in the country in total unemployed amounted to more than 40% in the fourth quarter The most recent data shows that nearly 1,1 million people living in the country are jobless (Mały Rocznik Statystyczny 2005). The level of unemployment in the country between 1992 and 2004 is revealed in chart 1.

6 Polish agriculture in transformation period and entrepreuneurship among rural community 101 Chart 1.Level of unemployment among rural population 20,00% 18,00% 16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% 0,00% * Source: Mały Rocznik Statystyczny, GUS, Warszawa 2005 Analyzing the level of unemployment between , it should be stated that a significant impact on decrease in labour market receptivity had changes in the organization and ownership of business entities, state-owned farms in particular. In end-1992 employment in state-owned farms amounted to 236 thousand people and decreased by more than 200 thousand comparing with Process of closing down and reorganization of big-sized farms taken over by STAPA in the following years caused a decrease by 120 thousand people in 199. It should be stated that such a big reduction of employed caused inactivity of rural community. Among more than 350 thousand employees dismissed as a result of closing down state-owned farms, only a part of them took advantage of retiring. Most of them decided to be on a dole, in many cases they turned down offers of jobs in another places (Psyk-Piotrowska 2004). Although the government introduced the dole to protect rural community, it wasn t sufficient to provide families from dissolved state-owned farms with support. Numerous families are one of the distinctive features of rural community, it results in poverty and marginalization, and also young people aged face inactivity. They don t have any chances for better future because after they graduate from schools, they become unemployed. The situation on the rural labour market is correlated with new market economy that is being established as a result of transformation. Competition on the labour market caused that people with low qualifications have very slim chances to get a job. The system of market economy proved that investment in and development of human capital are of key importance. Collapse of enterprises functioning in town and the country connected with agriculture sector contributed to the sector depreciation, as a consequence there is a surplus of labour resources in farm households. It also caused hidden unemployment in individual farms, in 2004 it was estimated to amount to 0,8 1 million people (Rosner 2005). Lack of education and qualifications made the situation even worse. The structure of education of rural population presents table 4.

7 102 Tomasz Bernat, Jarosław Korpysa Table 4. Structure of education of rural and urban population in the age 15 and more between 1992 and 2002 Education (in %) Tertiary Postsecondary Vocational secondary Secondary Primary and incomplete Vocational primary 1992 town 9,8 3,8 21,4 9,3 23,8 31,9 country 1,8 1,5 11,8 3 25,8 56, town 10,8 3,1 22,4 9, ,9 country 2,1 1,3 12,4 2,3 28,6 52, town 12,7 3,3 23,2 10,8 25,6 42,4 country 3,4 1,5 14,5 4, ,3 Source: Narodowy Spis Powszechny, GUS, Warszawa 2002 The education improved significantly in the last decade (between 1992 and 2002), however, education of those working in the agriculture sector is still rather low. A steady increase in post-secondary education is a positive tendency, it amounted to 43,9% in 1992, whereas ten years later it increased by 55,7%, including an increase in tertiary education from 1,8% to more than 3,4 %). The share of people with incomplete primary and without any education decreased (from 56% in 1992 to 44,3% in 2002) at the same time. The above data shown a tendency for rural population to improve their knowledge and proves that professional mobilization policy implemented among rural community becomes more and more successful (Psyk-Piotrowska,2004. Nevertheless, the comparison with education of urban population is still unfavourable. Urban population is definitely distinguished by higher percentage of people with post-secondary education and nearly three times lower percentage of people without any education. Mentioned above structure of rural population has impact on the remaining increase in unemployment rate in rural area. Therefore, it is necessary to create new jobs and find new sources of income outside agriculture, it is possible only thanks to the entrepreneurship among rural community. Entrepreneurship among rural community There are many definitions of entrepreneurship in the literature. Most of them concern the phenomenon as ability to self-employment and running own business. It means that people look for new solutions, seize opportunities in order to find additional and alternative sources of income. (Drygas, Kania, Wiatrak,2001) Entrepreneurship among rural community is concerned not only as the process of development and management based on profit (Frenkl, Hunek, Tomczak, 2002 ) but also as a distinctive feature of human being consisting of resourcefulness, initiative, making attempts to meet aspirations as well as it contributes to local development (Duczkowska Małysz, 1993). Mentioned above definitions concern entrepreneurship as mobilization of rural population, it became the main objective of reforms of the economy in the context of unfavourable changes in the labour market. Numerous new small and medium-sized enterprises have been established since the beginning of transformation. At present, they become dominant in the economy thanks to flexibility and adaptive capacity (Kłodziński, Dzun, 2002). They are the main source of

8 Polish agriculture in transformation period and entrepreuneurship among rural community 103 mobilization of rural community, decreasing unemployment and by increasing employment, they are the source of income. They also speed up changes in social structure, alter rural area and the role of entrepreneur. Development of entrepreneurship among rural community depends on many factors: infrastructure, density, town s proximity, and involvement of local governments and rural community (Pietrzak, 2003). One of the most important factors stimulating entrepreneurship is also education. On one hand it considers social demand for education, on the other hand, it takes into consideration demand for specific qualifications needed on the labour market. That is why farmers who want to be competitive and think of running their own business, should be interested in improving their education. Unfortunately, as it was mentioned before, there are still discrepancies in education between rural and urban population, it depreciates the value of establishing enterprise in the country to a significant extends. Depending on the conditions and investments in regions, various kinds of nonagriculture activity can be developed: 1. connected with agriculture (it concerns mainly food sector, i.e. processing, sorting out, storage, transport, and trade) 2. not connected with agriculture ( small-scale industry, craft, health or repair services, farm tourism) (Duczkowska Piasecka, 1993) Approximately one third of all enterprises is located in the country, they include mainly trade, production and services companies (Kłodziński, Dzun, 2002; Kotala, Moskal, 2000). Service activity is mainly based on transport, building, mechanical services, and catering. Production and trade are mainly based on the food sector. Established enterprises in rural areas are significantly smaller and employ less people comparing with town, they rarely become jointstock companies. The structure of SMEs in Poland with division for rural and urban area is showed in table 5. Table 5. SMEs sector in towns and country in 2001 Number of employed Town Country Only owner 44% 48% % 28% 6 9 5% 3% % 5% % 13% % 1% 100 and more 7% 1% Source: B. Fedyszak-Radziejowski i M. Kłodziński, Przedsiębiorczość wiejska w Polsce i krajach Unii Europejskie, IRWiR PAN, Warszawa 2002 According to figures from table 5, most enterprises located in the country belong to so called micro-enterprises with employment up to 5 people (76%). There are far more companies employing more than 5 people (32%) in big urban areas than in the country (24%). It s caused by character of business activity, most of rural entrepreneurs run family companies with small capital. A special attention should be paid to very difficult conditions for development and functioning entrepreneurship among rural population. They are result of some distinctive features of running business activity in the country. They are as follows (Pietrzak 2003):

9 104 Tomasz Bernat, Jarosław Korpysa significant lack of market concentration, high costs of supply, high costs of transport, low purchasing power of population, lack of sufficient infrastructure, difficulties in finding qualified personnel, access to counselling services, Lack of ability in striking contacts and cooperation between entrepreneurs. Moreover, insufficient access to information about programmes supporting entrepreneurship and lack of experience in bookkeeping, underestimating the importance of promotion and advertising hinder further development. Banks play a vital role in supporting entrepreneurship but they aren t eager to give loans to small and medium-sized companies. Rural companies usually don t have sufficient assets to provide security against a loan, thus banks don t give any loans to rural entrepreneurs, enabling them gaining alternative capital. According to mentioned above factors determining entrepreneurship among rural community, it should be noticed that its development faces many restrictions. On one hand, they are consequences of difficult economic situation in Poland, but on the other hand, they result form local conditions connected with low economic activity of population, insufficient infrastructure, lack of capital and very low incomes of population. Therefore, there are so significant differences between town and country. However, we should bear in mind that steady development of entrepreneurship should smooth negative effects of transformation in the country and give farmers a competitive edge. Conclusion Agriculture in Poland has been undergoing the same changes as urban areas. The analysis clearly shows this trend. The number of population, connected with agriculture and making their living in this sector, is dropping steadily. People in the working age look for a job in other economy sectors, young people from farm families decide on improving education. It creates a window of opportunity for young people to find a job outside agriculture. On the other hand, modernization of agriculture requires involvement of young and better-educated people. Undergoing changes, however, aren t enough rapid and complete and productivity of Polish agriculture is still lagging behind the EU. The main barrier in further and more dynamic transformation in the country seems to be a very difficult situation in Polish labour market, that together with relatively low qualifications of rural population enable employment outside agriculture. Therefore, it is essential to support diversification of employment and production in rural areas in order to develop the services sector. It can enable absorption of rural labour force outside agriculture without migrating to towns. Also support of entrepreneurship is necessary because it can make transformation of agriculture sector more effective and rapid. It is also important to take promoting and educating actions that will show Polish farmers opportunities that arose after Poland s accession to the EU. REFERENCES: 1. Duczkowska-Małysz K., Przedsiębiorczość na obszarach wiejskich. W stronę wsi wielofunkcyjnej, IRWiR PAN, Warszawa Kłodziński M., Dzun W., Aktywizacja wiejskich obszarów problemowych, IRWiR PAN, Warszawa Psyk Piotrowska E., Społeczne Konsekwencje przekształceń własnościowych w rolnictwie państwowym, Uniwersytet Łodzki, Łodź Sosnowska B., Wiejski rynek pracy w okresie transformacji ustrojowej gospodarki

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