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Monday 24.10.2016 | Name days: Renāte, Modrīte, Mudrīte

Economic Diary of Latvia. Rivers of milk and colourful river banks

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week went by under context of Russian sanctions on certain sectors of Latvia’s national economy. Losses were counted and solutions were sought by dairy farmers, fish processing entrepreneurs and florists.

Representatives of Latvian dairy industry tried calculating losses caused by the ban to sell their products in Russia. The tried calculating the amount to request as compensation from Brussels. They failed, because calculations of farmers and Agriculture Ministry differ from one another.

Dairy farmers claim that in order to calculate losses it is necessary to consider too many aspects – volume of milk, number of cows, feed expenses and others. The main object of discussion is the average self-price of milk. The problem is that this index fluctuates in different farms from 24 to 30 euro cents per 1 kg of milk. The price depends on the size of the farm and labour efficiency. According to calculations from Agriculture Ministry, the average index is 27 euro cents. Because calculations of the two sides differ, they cannot come to a consensus. Therefore, it is not possible to ask for assistance from the EU.

Lithuanian farmers, on the other hand, have successfully calculated their losses and have requested a specific amount from Brussels – approximately EUR 11 million. Estonians have done their homework as well.

Last autumn, when milk procurement prices suffered a decline, losses of Latvian dairy industry were estimated at EUR 9 million per month. Last year, European Commission announced that it would review the matter of financial assistance if the situation in the industry does not improve.

Latvian Agriculture Minister Janis Duklavs hopes farmers will not start liquidating their farms and putting down their livestock. With that, however, he admits that the consequences of the crisis are becoming apparent, and some of the farmers will have to put down their livestock, because finding new markets to sell products is hard.

It was recently announced that Latvian Food Union has decided to reduce milk procurement prices by 1.5 euro cents per 1 kg – down to 20.5 euro cents. Farmers predict that this price decline will continue, as other milk processing companies could follow the example set by Food Union.

Because of the crisis, Latvijas piens was forced to request a grace period in order to put off the repayment of the loan that was provided with a state guarantee. It has become known that two largest Scandinavian cooperatives – Arla Foods and Valio – are interested in buying the Latvian milk processing company. Duklavs has confirmed there are three companies interested in procuring shares in the Latvian company.

Fish starts rotting from its head

Latvian fish processing companies have been struck as well. Russian Rospotrebnadzor has imposed an embargo on canned fish products of multiple Latvian companies because of problems with labels. From 1 August onward, canned fish products of Latvian companies Ventspils zivju konservu kombināts, GAMMA-A, Sabiedrība IMS, UNDA and Saldus gaļas kombināts are prohibited to be imported to Russia, as mentioned in an announcement published on the website of Rospotrebnadzor. It is worth mentioning that four of those production plants are the main supplier to Russia’s largest cities.

One of the recently surfaced versions for this decision has nothing to do with politics and is purely economic. According to this version, Rospotrebnadzor’s recent embargo on Latvian canned fish products can be linked to a powerful lobby of fish processing companies from Kaliningrad. They do their best to push their products to Russia using state institutions.

As part of a federal support plan for the development of fishing in Svetly village of Kaliningrad Oblast, a massive fish processing complex was established there last year. There are 80 companies in Kaliningrad that are engaged in fish processing. Founder and Director General of Zapadnaya Ribnaya Kompaniya Nikolai Nechai had previously said that 50% of fish caught in 2014 was used to produce livestock feed. According to him, his company could not compete with Latvian companies capable of dumping, because the EU compensated 50% of costs and provided 70% grants for opening new production lines.

Furthermore, Kaliningrad fishermen and fish processing companies asked the federal government to impose a ban on supplies of products from Latvia and Estonia in June 2015.

And what a coincidence it must have been for a different Russia food supervisory institution – Rospotrebnadzor – to impose a ban on imports of Latvian and Estonian canned fish products at the beginning of June. It was allegedly done due to a high concentration of substances dangerous to human health.

What did tulips do to deserve this?

Latvian florists have ended up the sights of Russian sanctions as well. Rosselhoznadzor has announced that it could decide to ban imports of flowers and plant products. This embargo, if applied, can potentially affect Netherlands, Poland, Lithuania, Slovakia, Czech Republic, Italy and Germany. The reason for the embargo is allegedly because phytosanitary services of these countries certify flowers grown in the Netherlands without providing safety of their transport to Russia. The discovery of California Western flower thrips, chrysanthemum white rust and Silverleaf whiteflies in flowers grown in the Netherlands were the main violations mentioned by Russian authorities.

Eurostat data shows that Latvia exported flowers worth a total of EUR 34.5 million to Russia in 2014. According to information for Latvian Agriculture Ministry, the total value of flowers of Latvian origin was EUR 14 million. This means that approximately two-thirds of flowers and plant products sent to Russia consist of re-exports. With that, it can be estimated that Latvia was used as a corridor to carry Dutch tulips worth EUR 20 million to Russia in 2014.


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