Turning lemons into cider

In the second instalment of our two-part series, we search for perspective again through Poland’s history, but this time we’re exploring the country’s conduct through the global financial crisis, Russia’s embargo on Polish agricultural products (#jedzjablka) and the Yamal affair.  

Poland’s 19th and 20th centuries were marked by war, foreign occupation and communism – as seen in the first instalment of this series. Despite all that they had to endure, the Polish people managed to hold on to their language, culture and dignity. The country’s 21st century, on the other hand, has largely been determined by its economic success, rising from post-communist basketcase to tiger economy and the first CEE economy to reach Developed Market status, all in one generation. But it hasn’t been all smooth sailing. The country had to earn its economic success as global headwinds buffered its borders over the years. In the second instalment of our two-part series, we jump to the 21st century to look at the economic bumps that Poland had to negotiate as a new market economy, including the global financial crisis, Russia’s embargo on Polish agricultural products and the Yamal contract.

Global financial crisis

Most economists consider the global financial crisis of 2008-2009 as the largest financial crisis the world has seen since the Great Depression – although the history books may change with the current COVID-19 crisis. Poland was one of only two OECD countries (the other being Australia) to survive the economic crisis without falling into recession. This allowed the country to register 28 years of continuous economic growth – a record also jointly held with Australia. It remains to be seen whether Poland will be able to maintain that record this year, with most economists predicting a major plunge in economic growth. But there’s no denying the feat that the country achieved in 2008-2009.

It could be argued that Poland’s preparations to negotiate the 2008-09 crisis began long before Lehman Brothers collapsed. A flood of foreign capital had followed the country’s accession into the EU in 2004, bringing inflationary pressures with it. In close cooperation, the government at the time and the National Bank of Poland (NBP) were quick to react by tightening both fiscal and monetary policy respectively, as well as instituting a regime of tight financial supervision. For example, to reduce exposure to international currency markets, a limit was placed on the issuance of FX home loans. The government had also managed to cut general government debt from 55.5% in 2003 to 51.1% in 2007.

As a result, the economy did not overheat and the credit boom had already cooled down by 2008. All the economic fundamentals were sound and thanks to the above policies and relatively low government debt, the government possessed a decent fiscal war chest to cushion the blow by injecting cash into the economy while the NBP was well placed to influence the exchange rate in favour of the country’s exports. 

In 2007, the Polish government had also passed a series of tax reforms with an implementation date of 2009. Whether it was luck or not, these tax cuts arrived just at the right time with the right amount of fiscal stimulus. On top of that, Poland had already begun large infrastructure developments with the help of EU funds.

#jedzjablka/#eatapples
Sources: Facebook, Instagram, Twitter, YouTube

On 1 August 2014, Russia placed an embargo on Polish fruit and vegetables, hitting the apple growing industry the hardest. At the time, Poland was the largest apple exporter in the EU and the ban left the country with 670,000 tonnes of apples that had nowhere to go. Russia claimed the ban was due to sanitation-related reasons, although the timing was very suspect. It was announced right after Poland had voiced criticism around Russia’s actions in Ukraine. 

Polish-Russian relations had been turbulent throughout history and Poles remember their history well, so as soon as they heard about the ban, the nation united as a whole in support of the apple growers and in condemnation of Russia. They turned to social media and posted selfies of themselves eating apples with the tag #jedzjablka (#eatapples). However, the movement went past social media posts and into the commercial realm. One industry that thrived as a result of the national movement was the country’s burgeoning cider industry. All of sudden, drinking cider became a patriotic act for Poles. Poland became one of the fastest-growing cider markets in the EU with a 37.37% growth rate between 2011 and 2016, according to the European Cider & Fruit Wine Association (ACIV). At 489.20 hectolitres, it recorded the EU’s 6th highest output over the same period.

The Yamal contract

In 2010, Poland signed an annex to the Yamal gas contract with Russia’s state-owned energy giant Gazprom, which effectively placed Poland’s energy security in the hands of Russia. After the Russian-Ukrainian gas crisis, a draft of the contract was drawn up hastily and major negotiation errors occurred while reviewing the document, ultimately violating the working regulations of Poland’s Council of Ministers. The Energy Regulatory Office only had two minutes to look through the document. Neither Poland or the European Commission was happy with the deal, and as it turned out, the agreement was not only against Polish law but also EU law. 

Since then, Poland has been overpaying for gas from Russia. This is largely due to a take-or-pay clause whereby Poland must pay for a minimum of 8.7 billion cubic metres of gas per year regardless of domestic demand or whether other cheaper options are available on the market. However, Poland’s dependency on Russian gas may soon come to an end. Although the Yamal contract (originally concluded in 1996) doesn’t expire until 2022, Poland is already making preparations for the future. 

There are efforts to expand the Świnoujście LNG terminal on the Baltic Sea to import more liquified natural gas (LNG) from the US, Qatar or Norway. Poland has already begun to increase LNG imports through the terminal. Poland’s state-owned gas operator PGNiG reported that imports last year grew by 27%. The Baltic Pipe project will also be a game-changer when it is completed in 2022, allowing Poland to import gas directly from Norway via the pipeline that runs through Denmark and along the Baltic Sea floor. Furthermore, in 2018, a new gas deposit was discovered in Poland’s Przemyśl offshore gas field with the potential of producing 20 billion cubic metres. 

In November last year, PGNIG declared its intentions of terminating the Yamal contract on 31 December 2022.

As (Good) Will Hunting famously said: how do you like them apples?

To read more

Read the first instalment “Tracking back for clues” which focuses on the Partitions, WWII and communist Poland here:

April 01, 2020
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Written by: PT Team