The Polish sugar industry undergoing structural change A study on optimising the location and scale of agro-processing facilities in transition countries
This paper uses a non-linear, numerical optimisation model of plant location to analyse the effects of privatisation and liberalisation on the structure and performance of agro-industrial activities in Central and Eastern Europe, specifically Poland's sugarbeet-processing industry. The model explicitly incorporates three fundamental factors that determine the optimal size and location of agro-processing plants: (i) regional differences in farm production costs, (ii) transport charges for shipping the raw material to the processing facility, and (iii) scale economies in processing.Because of lack of investment during Poland's socialist period, the sugar industry currently uses obsolete technology in 76 small-scale plants. Moreover, some facilities have for political reasons been located in areas poorly suited for sugarbeet cultivation. Hence, there is considerable scope for a consolidation, modernisation, and relocation within the beet-processing industry. Progress has been slow, however, because of political op position to privatisation and prospective job losses.The model's solution confirms the impression of a considerable potential for a large-scale restructuring of beet-processing facilities. The abandonment of uneconomic locations and old, small-scale plants and the consolidation of beet-processing into only 12 scale-efficient facilities would reduce per-unit sugar production costs by about 21 per cent. However, the reconfiguration across space and scale would require investment funds of about 3.3 billion DM and would shrink employment by more than 80 per cent. The results thereby highlight the need for a stable, investor-friendly political environment and a rural development policy that focuses on non-agricultural employment opportunities.
