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Sunday 24.06.2018 | Name days: Jānis

Lithuanians damage Latvian milk processing industry to overtake it later

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Latvian Dairy Producers’ Central Union’s (LDPCU) Board Chairman Jānis Solks tells the business news portal BNN about the fuss around the state guarantee granted exactly to the company Latvijas piens and Lithuanians damaging the Latvian milk processing companies to gradually overtake them.

Why did dairy products prices surge in late 2010?

Baltic news, News from Latvia, BNN-NEWS.COM, Jānis Solks

Latvian Dairy Producers' Central Union's Board Chairman Jānis Solks

Unfortunately, it is logical and inevitable we will have to pay more for dairy products. The price of milk purchased by processing companies spiked already in September 2009, from 11.5 santim/kg up to almost 20 santim/kg. The price climb for milk as a raw material amounts to 60%, while for the production – three times less. Milk processors have been subsidising the low milk prices in the stores for nine, ten months already, in order facilitate the lives of people in Latvia; that way spending all the reserves accumulated during the past few years. Dairy combines managements turned out to be tougher than the notorious Latvian malevolence. It was only in December 2010, when the processors decided to raise dairy products prices by 10% on average. Why didn’t we raise the prices already before? Because five months ago Lithuanian dairy products were declared of insufficient quality and the Russian market was shut for them, hence Latvian stores abounded in Lithuanian products for dumping prices. The next price climb is expected in January – February by 5-15%.

Can farmers make profit with 20 santims/kg?

Sure they can. We can see this judging from their welfare (clothes, properties, cars) and the expensive agricultural technique. Those perceiving agriculture as a business are the ones who make profit. If a farmer is complaining about his actual costs of milk production surpassing the procurement prices, obviously something is wrong with his business plan. All dairy farmers forecasts should be based on calculations with the procurement price up to 18 santim/kg, as recommended by the Ministry of Agriculture specialists in 2007 already. Only then farmers’ activities will be sustainable. The type of the business – be it a limited liability company or a farm is not that important.

Why does LDPCU permit exporting 300 tons of milk a day?

It’s even more – about 450 tons a day. Lithuania is interested in paying a higher price for milk purchased from Latvia and partly also from Estonia (about 200 tons a day). They have three large companies in a cartel agreement and they process 75% of all the Lithuanian milk. Therefore the Monopoly Supervisory Council imposed them a fine at the extent of 0.5 million lats. Lithuanians are thrice as powerful as we are, so their long-term plan is to weaken our milk processing companies, in order to overtake them. They will achieve it with an artificial milk price rise, which is good news for thousands of milk producers. The rest of milk producers are tense, because Lithuanians offer more per each liter. They are nor even hiding the intentions to get our market and processing industry. A normal market situation would be if Lithuanians offered the lowest milk procurement price for their local producers, with a slightly higher one for Latvians, however our dairy combines are keeping the highest price. Three leading dairy companies Rīgas piena kombināts, Valmieras piens and Preiļu siers could take these 450 tons, as they have enough capacity, yet farmers have already concluded agreements with Lithuanians for at least six months ahead. It is simply that we are too small players in the global dairy market. From the perspective of processing, we cannot develop export to external markets with favourable prices, because we are aware that we do not have milk enough. We do not get EU subsidies for exporting to third countries and Russia since November 2009. Dairy products form 20% of total Latvian products export. It is a considerable amount.

Why did you call irresponsible Latvijas Piens project of building a dairy in Jelgava with the state guarantee at the extent of 8.7 million lats?

Unfortunately, there is no dialogue between dairies and the LDPCU. The issue became so political the Agriculture Minister Jānis Dūklavs was even threatened shortly before the Saeima elections. What would have happened if the government had forbidden to build the dairy in Jelgava? The government’s decision to grant state guarantee to this project is not fair to the whole industry in general and it damages the domestic market as well. I will never take back my words that this move is irresponsible and hasty. We are called LDPCU, because it is our duty to promote the Latvian industrial prospects by implementing innovative projects, while this means supporting a company that is going to produce for Lithuanian dairy combines.

We sharply object to the government hasty decision to include five million guarantees in the budget to support a questionable project that has not even been subject to neutral experts assessment. But we were not righteous to express our opinion to the government. Obviously, there is no wiser man that the Prime Minister Valdis Dombrovskis’ advisor on agricultural matters Uldis Krievārs. Moreover, already for the third year in a row they cannot manage to find half a million lats co-financing for the school programme providing each pupil gets a glass of milk every day. Money for that comes from EU funds. We expect the government’s equal attitude towards all food industry representatives this year.

But wasn’t it rational to modernize one of the existing dairy combines by extending the range of shareholders?

Exactly. We proposed carrying this out in Rīgas piena kombināts or elsewhere. Latvijas Piens representatives met with the managements of the leading dairy combines, but the meetings turned out to be simply formal and lacking interest from their part. Their argument was they had a different legal form of business, thus no collaboration is possible. They announced publicly that none of the dairies was ready to yield. I am not righteous to indulge into details. But I wonder why no decision, profitable from the perspective of business, was taken. Mister Petrevics (dairy Dzēse) told me personally he thought they are going to deceive us any way. However, I must say all parties interests can be protected and respected. Any way, up to 30% of shares are owned by farmers who are not members of a cooperative. Therefore the cooperatives created fuss around farmers interests protection is, to put it mildly, nonsense.

Why can’t Latvians switch to the profitable dairy industry after loosing the sugar one?

Because the EU regulations have set quotas for the total output of milk till 2015. After 2015 wealthy dairy giants will be able to develop production here and dominate the local market. We have to get ready for that.

Did we overdo by introducing too high hygiene requirements for farmers?

Yes, officials did overdo. Quite many legal acts and the Cabinet of Ministers regulations exceed the required by the EU. We do not understand why. Did Latvians want to look better and stricter? Other states orientate only on minimal compliance with the EU regulations. We have proposed to develop the Cabinet of Ministers regulation nr.521, softening some norms on labelling. Since the Agriculture Ministry announced they were going to focus more upon the arrangement of the food industry, no one is listening to us any more. Although we do get the latest data on the situation in the industry, as we comprise dairy combines, processing more than 90% of all the milk in Latvia. We collaborate also with the Estonian Dairy Farmers Union and the neighbouring states Agriculture Ministries to get the latest data.

Do milk processors still owe farmers?

They don’t, we do not allow any exceptions, because the law stipulates obligatory settlement for the purchased milk in a month’s time. However, we are not always capable of turning assets in 30 days time, because semi-hard cheese (Russian, Dutch) maturation period amounts up to 90 days, while for the hard ones (Cheddar, Monterigo) – from 12 up to 18 months. They have to be sold as well, so investment returns only much later. Certain stores require including cash on delivery within 60 to 90 days in the contracts. Considering all that, milk processing can survive only with the help of loans.

Are there any prospects for businesses bypassing supermarkets by creating dairy selling points where they pour milk in the bottles of customers?

Well, it is some kind of a niche. It is a small but not at all an easy business for those who do that. In the summer of 2009 many farmers were exceedingly delighted at the possibility to sell milk themselves, but they got disappointed very soon and stopped doing that. This has been a short-term market phenomenon also in Italy, the Netherlands and Finland. Do not risk drinking milk of unknown origin!

Leave a reply

  1. Pop says:

    What kind of a brother (Lithuania) would do that???

  2. Leave says:

    Lithuania alone!!!

  3. wio pio says:

    There’s no use complaining. The Latvian agriculture policy has always been against its local producers, no matter how hard you try, take loans. The main thing is you pay taxes to them. Such a hypocracy!

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