Restructuring the sugar industry in Poland: Transition from state socialism to the common agricultural policy

This dissertation uses an industry-level model of plant location to analyze the effects of privatization, liberalization, and regional integration on the structure and performance of agro-industrial activities, specifically Poland's sugarbeet-processing industry. Because of lack of investment during Poland's socialist period, the highly fragmented sugar industry currently uses outdated technology in 78 small-scale plants.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, modernization, and relocation within the beet-processing industry. Progress has been slow, however, because of political opposition to privatization and prospective job losses.The multiple-location, non-linear, numerical optimization 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.The model's solution indicates 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 13 scale-efficient facilities would reduce per-unit sugar production costs by about 14 percent. However, the reconfiguration across space and scale would require investment funds of about ECU 2 billion and would shrink employment by about 80 percent. 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.The medium-term prospect of European Union membership and participation in the EU's rigid production-quota regime for sugar provides an incentive to speed up sugar sector reforms in Poland. The adoption of the EU's regime would hinder a subsequent restructuring of sugar factories in Poland. Even so, experiments with the model indicate that Poland should not encourage an expansion of aggregate sugar production in anticipation of future sugar-quota rents.More generally, the modeling approach demonstrates the considerable potential for large-scale agro-industrial restructuring in formerly socialist economies, where decisions on factory location and scale were too often dominated by political considerations rather than economic efficiency.