ZAMĚŘENÍ LITEVSKÉHO PŮDNÍHO SEKTORU NA NOVÉ SPOTŘEBITELE

Focusing Latvia food sector towards new consumers

zaměření litevského půdního sektoru na nové spotřebitele

B. Rivza

Address:

Dr. Baiba Rivza, Latvian University of Agriculture, Faculty of Economics

18 Svetes Str., LV - 3001 Jelgava,Latvia

Abstract:

The given report deals with the current changes influencing the development of food industry in Latvia. A great attention is paid to reasons of the decrease of agriculture as the main source of food industry. Factors preventing the growth of food industry in Latvia are analysed. Main problems to be solved are mentioned to stimulate the development of food processing enterprises, such as privatization process, new markets, marketing strategy, training of specialists meeting the needs of today and even tomorrow, creating of system of quality provision et.

I Current changes in food processing sector Latvia is moving from a centrally planed system to the market economy. Latvia is small country of 2.6 million people. Independence was restored in 1991.

Abstrakt:

Následující zpráva pojednává o nynějších změnách ovlivňujících rozvoj potravinářského průmyslu v Litvě. Velká pozornost je kladena na růst zemědělství jako hlavního odvětví potravinářského průmyslu. Jsou zde také analyzovány faktory zajišťující růst potravinářského průmyslu v Litvě. Hlavní problémy, které jsou řešeny, jsou zaměřeny na stimulaci rozvoje podniků potravinářského průmyslu, privatizačního procesu, nových trhů, tržní strategie, školení a setkávání specialistů k potřebám dnešním a příštím, vytváření systému kvality a tak dále. Současné změny v potravinářském průmyslu Litvy přecházejí od centrálně plánovaného systému k tržní ekonomice. Litva je malá země s 2,6 mil. obyvatel. Nezávislost byxla znovu ustavena v roce 1991.

During 1991-1998 there are several positive features in the development of national economy as regards food production -

1. In 1996 for the first time since the beginning of the reform the volume of industrial production has increased, particularly in food industry and some other branches. There is a tendency that the increase of industrial production is focused in the branches having a small additional value and a large labour consumption. Such is food industry too.

2. The climate of entrepreneuship has improved, special measurements have been taken for the development of regions to be supported.

3. Total home produce has increased almost in all branches except of agriculture.

4. More than ten free trade agreements have been concluded including those with both EU and Lithuania and Estonia.

5. The experience in the trade of food- stuffs with EU has made it possible to improve both the qualitative features of produce and the packing of goods. For example, the quality and packing of butter no longer differs from that produced by EU countries.

6. Trade with EU stabilised the market of Latvian dairy produce, particularly in summer.

7. The financial support by foreign companies is continuing in improving the technology of the production of food enterprises in Latvia.

However, there are still problems to be solved, e.g., the total home produce of agriculture connected with food industry (including huntmanship, forestry and fishery) has decreased by 10.1 per cent when compared with that of the previous year. In 1997 the volume of agricultural production was 44.8 per cent from the volume of 1990. Most of all meat and dairy production has decrease.

What are the reasons of it?

1. Almost 95 000 farmer farms have been formed during the agrarian reform, and they are mostly engaged in small-scale production. It results in a small volume of production sold in the market as well as in a small incurs. Moreover, it should be mentioned that every third land owner does not live on his land practically.

2. The continuous increase of production costs are not compensated by the growth of prices of agricultural production. They fall behind the total inflation.

3. Foreign and home commodity market is reducing. Before 1990 Latvia exported its agricultural production particularly to the East. At present in the foreign trade structure 11.5 per cent have been taken by EU countries, 67.9 per cent - by Union of Independent Countries. The demands of qualitative production increase too. It must be admitted that some part of agricultural production is not able to compete with the imported one, which is subsidised, by their countries.

4. The level of unemployment in Latvia is from 3,I per cent in Ventspils region to29.5 per cent in Rezekne region. The unemployment in rural regions and provincial towns carries poverty and psychological depression with it. The low incomes of the population have a similar negative influence on their purchasing power. The materials of the State statistical committee of Latvia Republic show that 68.1 per cent of Latvia population are poor because their monthly expenses per one adult person is approximately $100.

II How does the situation of agricultural production influence food industry?

1. The volume of self-produced goods does not ensure the present production capacity. The data of the annual balance of production and consumption of agricultural goods may be seen in the annual report of agriculture prepared by the Ministry of Agriculture.

Table 1

Provision with selfproduced stock - farming and plant cultivation goods for Latvia population

Data on the production of stock-farming goods show that milk and eggs produced in this country cover only the minimal needs of the population, but meat products may meet the needs of only 48 per cent.

The dominating part in meat production belongs to pig raising in its share slowly increases (in 1995 - 45%, in 1997 - 46.5%). Still, Latvia pig breeders today produce much less pork than demand in the domestic market.

At present partly the needs are being met by pig import, both legal and illegal. Because of that practically pig consumption in 1997 in Latvia was:

self - produced meat (dead weight) - 37.1 thous.t

legal import of meat - 5.9 thous.t

illegal import (by the estimation of

Veterinary department) - 4.8 thous.t

Together consumer - 32.9 thous.t

In order to meet the needs for beef, it is necessary to increase the beef production at least up to 80 - 84 thous.t (dead weight) or increase beef import up to 25 - 25 thous.t. Taking into consideration the natural conditions in Latvia, it is practically possible to meet 90 per cent of beef needs with meat produced in this country and besides that to prepare the meat for export too.

The present situation is even more serious because in food industry meat production in the main branch and at the same time it is half of the food industry.

Now well take potatoes as a kind of production may wholly meet the needs of the home market.

During the recent years, particularly in 1997, the volume of processed potatoes grew rapidly:

1. - 7.1 thous.t,

1997. -22 thous.t.

The reasons for it-

o at the potatoes processing enterprises the network of seed growers and growers of market production was formed,

o varieties particularly suitable for processing are grown (e.g., according to ”Aloja - Starkelsen” data the average starch content in potatoes supplied has creased from 14.4 per cent in 1993 to 18.8 per cent in 1996),

o particular growing technology is used.

As a result in 1997 the capacity of the processing enterprises was used of 70 per cent. It is a high index during the previous years it was only 25 - 27 pr cent.

1. Farmers production has not the appropriate quality. A qualitative product may be obtained only from a high - quality material. Example - cheese production in which all the quality stager may be seen.

Quality stages

Therefore cheese production is to be estimated according to the milk of highest rate

purchased, because good cheese may be produced only from such - best quality milk, as

the quality of the product is of the layest significance besides the assortment.

1. For the time being, peasants not always are able to supply this production regularly all the year, which is important for the successful work of the processing industry. E.g., seasonability of milk production. Milk yields increase in summer, but decrease during the winter period. The problem is to produce intensively all the year.

III What prevents the development of food industry itself?

1. Situation in Latvia agriculture.

2. Continuous increase of prices of all kinds of electro resources and materials.

3. Incomplete use of existing capacities.

4. Low purchasing power of population.

5. Out-of-date technology unable to produce competitive production.

6. Rather weak development of marketing.

7. Lack of highly - qualified specialists, particularly in marketing problems.

Principal problems to be solved for the promotion of the development of processing enterprises:

1. To modernise production, to improve crediting system for the producers and processors so they could increase the amount of their circulating capital, to attach investments.

At present the largest foreign investors in food industry are Hartwall Pripp (Finland) and

Ringness AB (Sweden), who have invested 160 million USD in a beer production

Enterprise in Latvia, Kelloggs has invested 22 million USD in Latvia; AB Chips (Finland)

which has invested 4 million USD in Latfood, Cular Oy (Finland) - 10 million USD in

bread production.

The necessity for investigations may be characterised by the fact that for the

modernisation of a milk processing enterprise 30 million USD are to be invested,

otherwise it will be necessary to shut down this enterprise.

2. The privatization process is to be finished. As regards the privatization of the processing enterprises of agricultural production, the privatization of milk processing enterprises was started as the first and it was finished in 1994. The privatization of other groups of processing enterprises is going on and its process may be seen in Table 2.

Table 2

Process of privatization of enterprises of agricultural production processing and agroservice on May 1, 1998.

It could stimulate a further coming in foreign investors in Latvia.

1. Stimulation of the development of agricultural production that could be carried out by optimally realising the conditions included in the law on agriculture passed recently.

2. New markets are to be developed, marketing strategy out (development, diversification of products) should be burned upon! Positive examples to be mentioned are the skill to advertise their production by ”Aldaris”, ”Staburadze”, ”Rigas piena kombinâts”as well as to work with the buyers. The buyer should receive not only qualitative products but also a qualitative information about these products. The consumer should be able to decode the product identity at first sight. The information of full value is of large significance for studying and forecasting the market.

3. Training of specialists meeting the needs of today and even tomorrow. Specialists of food industry (technologists) are trained by Latvia University of Agriculture, and the faculty works very seriously together with the producers and the teaching staff of universities of other countries.

4. System of quality provision is to be created, and its further development is to be stimulated. The first steps in this sphere have already been taken and there are already some achievements (standards and certification system).