Polish milk producers have bigger profits than Irish
Real estate firms like Brown and Co, who are helping investors in Polish farms, admit that variable and fixed costs are only 11% lower than Ireland, and catching up, as the economy adjusts to EU membership.
Brown and Co's figures for a 400,000 gallons farm in Poland include a milk price much the same as Ireland's.
When the net profit margin is calculated before tax, repayments, drawings, rent, and entitlements, the Polish farmer seems to have 36c per gallon left. A large dairy farm in Ireland might only return about 29c per gallon.
Despite the impressive profitability, Adam Oliver of Brown and Co says that €1.1m will "buy" a 600 ha dairy farm near Poznan, its 450 cows, the follower stock, the silage and the milk quota, and the modern (by Polish standards) farmyard complete with milk parlour. But it's not near as simple as bidding for a farm in Ireland.
Perhaps one of the reasons why it's so much cheaper to start farming in Poland is that foreigners can't own land directly, until 2016, unless they have been renting land in Poland, in which case they can buy and own land within seven years of the start of their land lease or rental agreement.
The alternative route which foreigners are taking into Polish farm ownership is minority (up to 49%) partnership, with Poles. For the Poznan farm on Browns' books, the €1.1m changes hands when the minority partner from overseas "lends" the partnership the funds to buy into the farm.
But the land is not included in the deal.
With many of Poland's most attractive farm properties, the land is leased long term from the state, but there is an option to purchase the land at Poznan, according to Brown and Co.
There are many other aspects an Irish farmer would find unfamiliar. The ICMSA study tour which recently visited Poland saw how the vast majority of dairy cows are tethered and fed and milked in situ, as in much of the continent.
Ireland's grass growing advantages become clear for a visitor to Poland. There, lack of rainfall seems to be the main factor militating against grazing.
The reason why the €1.1m, 600 hectare farm (about 1,500 acres) carries only 450 milkers is that its other acres are needed to grow grass and maize.
A farm of this size needs a few workers; they are paid about €550 per month, but worker productivity levels are far below western expectations.
Wages may rise, if Poland can quickly get to grips with its 20% unemployment
Already, some farm buyers have reportedly found it hard to get farm workers (many of them may have emigrated to Ireland!), and the latest trend is to import them from even poorer countries to the east, like Belarus.
In rural areas, an Irish buyer would find relatively few English speakers among the older generation.
Adam Oliver, who has worked for five years in Poland, admits that foreigners may not be welcome in some areas, but this is a problem farm buyers may have to live with wherever they invest. Neighbours will probably still be glad to rent out their land for €30 or €40 per hectare, which is often done in cash-poor rural Poland through some kind of barter deal.
The e1bn of farm aid from Brussels this year, (rising to €2bn in 2006) will smooth out many farming difficulties.
Demand for milk seems assured. There are some hiccups along the way, with Poland's dairy industry recently hit by the retraction of all export licences to Russia, a key market for yoghurt and other refined dairy products.
But the still-growing EU export market makes up for interrupted sales to Russia. In the first six months of this year, Poland's dairy exports grew by 60%, to reach a value of €235 million. In the long term, Poland's milk quota will feed only two thirds of the population, if dairy product consumption rises to the EU level. Right now, some farmers cannot fill their quotas, which will be topped up by about 10% in 2006.
Milk quota trading is just beginning, says Adam Oliver. His best guess at the quota price is about half the milk price.
Fast movers will also be able to enjoy an €8 per hectare income tax, payable to the local parish. But farmers will sooner or later be brought into the tax net for the first time, perhaps in the form of a rake-off from their EU direct payments, in an effort to improve Poland's public finances.
Repatriation of profits is "no problem", says Adam Oliver, who also says farm buyers need not worry about inheritance down the road, but he admits that investors could find Poland's levels of bureaucracy demanding.
Allied Irish Bank sponsored ICMSA's recent study tour, and the Irish farmers learned that Poland has a "credible" legal and regulatory environment, from Kevin Knightley, head of corporate banking with Bank Zachodni WBK, which is owned by AIB. However, investors will probably come across corruption, endemic in much of central and eastern Europe. The Transparency International watchdog ranks Poland as the 64th most corrupt country in the world.
Other Polish dairy farms on Brown and Co's books recently included a 650 cow outfit for €1.275m and an annual rent of €125,250. As well as the tenancy, which was being renegotiated, but was likely to have eight to 12 years left to run, buyers would get all of the cows, young stock, silage, machinery and milk quota on the farms.
The 650 cows were being milked in a 28 point rotary parlour, there was 3.5m kg of milk quota and 5,000 acres of land that could also be used for cereal production.
Brown and Co have established an office in Torun, Poland to serve existing farming and investment clients. Adam Oliver can be contacted by email at a.oliver@brown-co.pl
