Packaging industry slightly out of breath
Last year was a difficult year for all segments of the packaging industry in Poland. The first summary of production results shows that there was a drop in the value of production for the first time since the Central Statistical Office (CSO) published data for the sector, i.e. since 2006. Santander Bank Polska analysts’ estimates show that the decline was about 6% year-on-year, to nearly PLN 67 billion.
A preliminary estimate of the sold production of plastic packaging indicates a decrease of around 10% y/y, while paper and cardboard packaging may have fallen by between 5 and 10% y/y. More accurate results will only be known in a few months’ time, but they may turn out to be even worse than the preliminary estimates. First and foremost, this is due to the intense deflation that is sweeping through company balance sheets on the price side of raw materials and materials used in the industry.
On the packaging buyers’ side, the industry was hit hard by the deceleration of the food industry, which according to Santander Bank Polska analysts was still the biggest driver of packaging demand growth in 2021. Seasonal factors also had their impact, with beverage producers scoring a weaker year. However, these results do not have to be interpreted as entirely negative.
Firstly, the rapid increase in raw material prices in 2022 clearly shook the liquidity position and profitability of packaging manufacturers. In this respect, we recorded an improvement last year. The funds released from working capital were not entirely swallowed up by payment bottlenecks and improved liquidity in all segments of the industry. Last year was also a period of stabilisation in the profitability of plastic packaging production after more than 2 years of decline or even improvement in the case of paper and cardboard packaging producers.
In the longer term, if the industry maintained its historical growth rate, it could be worth up to PLN 180 billion in a decade. However, this will be a major challenge with growing environmental awareness among consumers, business customers and increasing regulatory requirements.
Today, business is facing a huge challenge with new packaging regulations and a strategic shift in the European market towards sustainability. This change will require companies to look for new solutions, which is important not only from an individual company perspective, but also from a collaborative value chain perspective. Without it, it will not be possible to introduce effective alternatives, such as reusable packaging to the extent expected by the legislation. An excellent tool for financing this transformation is the various EU funds. I am very glad that we, together with our Pact member Santander Bank Polska, can bring this topic closer to the business community across the whole spectrum of changes in the packaging market.
Outlook for 2024
With the fifth position on the EU market by turnover, Polish manufacturers can boast the largest increase in sales over the last decade. Behind this success is not only the high growth rate of our economy, which is steadily increasing its contribution to the GDP of the European Community, but also how our industry operates.
Two factors that definitely distinguish the domestic packaging sector are: its fragmentation (almost 20% of EU packaging companies are based in Poland) and its high investment intensity (3rd position in the EU in terms of the value of investment in machinery and equipment). Regarding fragmentation, a trend of consolidation, which is strong in other markets, almost bypasses Poland. Increasing regulatory challenges and changing customer requirements are prompting companies to diversify. Polish companies, which on average achieve 60-70% less turnover than their foreign competitors, cope with these challenges thanks to high investment activity, supported by funds from EU programmes.
We are at an ideal moment in the current EU perspective 2021-2027. After the run-up year 2023, calls under all the national and regional programmes of most interest to businesses which support both innovation and development and green transformation are scheduled for this year. The budget of the already announced calls for proposals for development and innovation amounts to nearly PLN 6 billion and for transformation to nearly PLN 5 billion. On top of this, there will also be currently unspecified funds from the NRP, which can support, among others, investment projects related to green transformation and the automation and digitalisation of operations. The funds in the current perspective are not limited to promoting investments made by small and medium-sized companies, but in many cases are also available to large companies. Such a dynamic and developing sector as packaging production will certainly be the beneficiary of most of the funds available in this year and the next few years. The important thing is to prepare for this properly.
Thanks to a combination of relatively high fragmentation and significant scale in the EU market, many companies can boast state-of-the-art production machinery and high efficiency of manufacturing processes thanks to support from EU funds.
The bank also invites companies from the broader industrial processing sector interested in learning more about the opportunities related to the financing of pro-environmental investments, automation or innovation to a series of regional meetings on EU programme opportunities.
