The state horse breeding in Poland is carried out in 13 companies whose core activity is horse breeding and in 7 companies that deal mainly with crop plant or livestock breeding. For those companies, horse breeding is an additional activity. In state-owned companies supervised by the National Support Centre for Agriculture (KOWR) horses of 9 breeds are kept. In Poland also private companies deal with horse breeding.
The companies’ primary goal is the implementation of breeding programmes. The horse’s genetic material collected in the companies should be the basis for genetic gain. This allows the national agriculture and horse industry to take advantage of subsequent generations of breeding animals.
The horse breeding companies run their business in two areas:
- the companies keeping herds of stallions maintain the stallions and provide them to other breeders by offering horse reproduction services for field breeding;
- the companies maintaining horse farms conduct breeding to protect and refine the most precious genetic material for the needs of the national breeding and to preserve Polish breeds. The breeding run in horse farms should make it possible to complement the population in the herds of stallions, improve their usability, and also to ensure continuity of Polish breeds.
From 1 January 2015 to 31 December 2019, NIK audited the National Support Centre for Agriculture and nine horse breeding companies.
Key audit findings
The financial standing of horse breeding companies deteriorated. The key reasons behind, such as lower proceeds from the sale of horses, were independent of the companies. The to-date operational strategy of the horse breeding companies was no longer effective. It was about the maintenance of horse breeding by other types of the companies’ activity, such as cattle breeding, milk production, and plant production. Other factors that had an adverse impact on the companies’ strategy included adverse weather conditions in 2018 and 2019, i.e. drought. Besides, since 2015 direct payments being part of the Common Agricultural Policy have dropped considerably.
The worsening results of the activity of horse breeding companies were mainly caused by the following:
- reduction of direct payments as part of the Common Agricultural Policy (for the years 2015-2018 by nearly PLN 21 million),
- no compensation due to drought in 2018 and 2019 (losses in 2018 were estimated at nearly PLN 21 million and in 2019 a bit more than PLN 32 million),
- horse breeding costs were not fully covered by proceeds from that business (negative result of horse breeding for 2015 was a bit more than PLN 10 million, for 2016 it was nearly PLN 13 million, for 2017 PLN 14.5 million, and for 2018 slightly more than PLN 17 million).
According to NIK, the aggravating financial standing of horse breeding companies may in some cases increase the risk of bankruptcy of entities being particularly important for the national economy. This, in turn, may pose a threat to the stability of horse breeding. Therefore, a change in the companies’ legal status should be considered.
Net profits generated by pure Arabian horse breeding companies were achieved mainly thanks to the sale of horses at auctions organised in Janów Podlaski. Proceeds from the sale of Arabian horses in 2015 (EUR 1.4 million for mare Pepita for the horse stud in Janów Podlaski and EUR 625 thousand for mare Pistoria for the horse stud in Michałów) covered the losses incurred in 2015 on other activity totalling PLN 2.68 million (the horse stud in Janów Podlaski) and PLN 263 thousand (the horse stud in Michałów).
From 2015 to 2018, horse prices were falling systematically. The average price in the audited companies was PLN 29.4 thousand. An average price for a sold horse in three companies dealing mainly with pure Arabian horse breeding went down from PLN 104 thousand in 2015 to PLN 23.8 in 2018. The average price of horses sold by those companies decreased mainly as a result of the record sale of horses in 2015 and lower demand for pure Arabian horses in subsequent years. Three Arab breeding companies sold the most precious horses in annual auctions organised in Janów Podlaski, such as the “Pride of Poland” and “Summer Sale” as part of the Arabian Horse Days. In 2015, the companies sold 52 horses for PLN 19.3 million, in 2016: 35 horses for PLN 7.2 million, in 2017: 13 horses for PLN 1.7 million, in 2018: 11 horses for PLN 1.9 million, and in 2019: 26 horses for PLN 7.4 million. From 2015 to 2019, the companies’ costs related to the organisation of annual auctions and accompanying events exceeded PLN 4.6 million. The costs of organising the Arabian Horse Days in Janów Podlaski in 2015 absorbed more than PLN 2 million (over 44% of this amount).
In other audited companies, the number of horses sold and average prices did not change considerably in the audited period.
Horse breeding in the audited companies showed a downward trend. The systematically aggravating financial standing of horse breeding companies was mainly a consequence of worsening horse breeding results. Proceeds from that business no longer covered the costs. In 2015, out of 20 horse breeding companies, only two generated a profit of over PLN 7 million, whereas as many as 18 companies reported a loss of over PLN 10 million. In 2018, only one company generated profit of about PLN 23 thousand, whereas 19 companies reported a loss of more than PLN 17 million.
The financial results of the horse breeding business were mainly influenced by three factors: the situation in the market of utility and sports horses, lower interest in the market of pure Arabian horses, and decreasing demand for reproductive stallions. Any losses from horse breeding were covered by the companies from their business operations, e.g. plant production, milk production, and cattle breeding. NIK already pointed to the downward trend in the horse breeding industry after the audit of horse breeding companies in the period 2013-2014.
NIK identified irregularities related to the sale of horses and breeding stock in three companies. 133 horses of nearly PLN 1.5 million net value were allowed for sale without the prior consent of the Agricultural Property Agency (or after its liquidation: National Support Centre for Agriculture). In the horse stud in Nowe Jankowice in 84 cases horses of the total net value PLN 503.2 thousand were sold without a tender, auction, or competitive bidding. That company did not document public sales procedures conducted from 2015 to 2018, which were required in the Strategic Horse Breeding Programme. In the horse stud in Nowe Jankowice in 42 cases horses of the total net value about PLN 250 thousand were sold without prior valuation, which was against the principles set out in the Strategic Horse Breeding Programme. In the horse stud in Iwno 39 horses were sold, which was inconsistent with internal regulations governing the sale of horses. At the same time, the horse stud in Janów Podlaski leased 15 stallions of PLN 180 thousand net worth for breeding purposes. The total lease price was PLN 15, which NIK found uneconomical.
NIK also identified some irregularities related to improper leasing of the companies’ horses and running of hotels for the horses which were not the companies’ property. From 2015 to 2019, the companies’ leasing proceeds exceeded PLN 5.2 million.
In the horse stud in Janów Podlaski some lease agreements concluded before the audited period (i.e. in 2011) were implemented with delays. In some cases provisions of the lease agreements concluded in the period 2013 and 2014 were changed in a manner unfavourable for the company. The changes concerned the extension of the lease period, collection of embryos only by the lessor, and failure to breed a mare, which was one of the conditions under which the mare was leased.
Besides, in the horse stud in Nowe Jankowice in some cases, interest for delay in paying rent for leased horses was not accrued. As a result, the company’s proceeds were not as expected. In two companies the breeding service agreements related to horse leasing were documented inappropriately.
NIK stands in a position that the irregularities related to leasing resulted from improper supervision exercised by the companies’ management boards. Another reason was that the Agricultural Property Agency/ the National Support Centre for Agriculture failed to define the general principles of leasing horses.
In two companies the prices for hotel services for horses were lower than defined in price lists. One company kept four horses in a hotel without a written horse care agreement. It also failed to make a payment of nearly PLN 15.8 thousand.
The Agricultural Property Agency/ the National Support Centre for Agriculture took measures in the audited period to improve the financial results of the horse breeding companies. The measures were ineffective, though. According to NIK actions taken by the Agricultural Property Agency/ the National Support Centre for Agriculture and management boards of the companies to improve their financial standing proved insufficient. Also, the difficult financial condition of most stud farms and stallion herds may pose a threat to the further functioning of the companies in the present organisational form.
Undoubtedly, the situation was influenced by frequent staff rotation of the companies’ management boards. According to NIK that did not help in the continuity and quality of management. From 2016 to 2018, the stud farms in Janów Podlaski and Michałów had 4 CEOs each. All in all, from 2015 to 2019, 43 management board members in 14 horse breeding companies were dismissed. In the same period, 41 new management board members were hired.
The companies not always properly managed their property. In four companies NIK identified the following problems:
- technical condition of the facilities was poor,
- periodic inspections of the facilities were not carried out,
- recommendations aiming to improve the technical condition of the facilities were not implemented,
- construction site log books were not kept.
NIK auditors stated that in most cases the companies ensured proper horse maintenance and veterinary conditions. Veterinary doctors provided animal care services under employment agreements and service agreements. The medical and veterinary documentation as well as the medical treatment register were kept in line with the effective law. But NIK also confirmed some irregularities: in one stud farm, it happened that some devices posing a danger of trauma to horses were placed in a stable. Besides, the floor of the run was muddy and boggy in some cases and there was not enough space for horses. Also, veterinary care services were commissioned without tender required by the company’s internal regulations.
An inspection made by NIK auditors in the horse stud in Janów Podlaski revealed no irregularities in terms of veterinary conditions and horse maintenance. Good condition of the horses was also confirmed by relevant veterinary documentation of 2018 and 2019. Some negligence in cattle breeding was identified, though, as well as irregularities related to the technical condition of cattle sheds.
NIK has pointed out that the audited companies properly pursued breeding objectives imposed by internal and national breeding programmes for individual breeds. Their key task is the protection of genetic resources and the provision of biological material to the national horse breeding. The number of mares of individual breeds in horse stables and the number of stallions kept in stallion herds represented an essential gene pool and a minimum to maintain the continuity of state breeding. The number of horses bred by the companies was adjusted to the recipients’ interest. The stables limited the horses’ reproduction due to the situation in the market of utility horses and the import of race horses. Noble horses and half-blood Polish horses were displaced from the market of sports horses by animals from overseas breeding companies. The breeding value of horses was evaluated in the course of breeding reviews. The lease and sale of horses, except for three companies, was conducted in line with the provisions defined in the Agricultural Property Agency/ the National Support Centre for Agriculture.
Recommendations
Considering the worsening financial results of horse breeding companies, the situation in the horse market in Poland, and changing conditions of horse breeding in Poland and worldwide, the Polish Supreme Audit Office recommends that:
- the Minister of Agriculture and Rural Development should develop (as part of the supervision of the National Support Centre for Agriculture) a new comprehensive concept of the state horse breeding in Poland, including the breeding rationalisation and gradual improvement of that area of agriculture,
- the Director-General of the National Support Centre for Agriculture to:
- take actions to permanently improve the financial standing of horse breeding companies, including analysis of the implementation of the Strategic Horse Breeding Programme, related to the companies’ functioning and horse breeding,
- to strengthen supervision of horse breeding companies in terms of selling and leasing horses and managing their property, also in terms of improving the maintenance of facilities related to horse breeding.
