Latvian food producers forced to raise prices due to high production costs

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Latvian food producers say they are no longer able to offset the increase in production costs so the price of the final product on store shelves will rise, Latvian Radio reported December 14.

The dairy sector, especially dairy processors, is worried that the price of milk has been rising rapidly in recent months. Chair of Latvian Dairy Committee association Jānis Šolks forecasts that it will continue to rise.

“It doesn't happen in a monthly cut anymore, but in the span of weeks and days. The price of milk has risen from the usual 30-31 cents per kilogram to above 40 cents over the last month,” he said.

Šolks said that the situation in milk processing is therefore becoming dramatic, since, in addition to the increase in electricity and gas prices and the increase in packaging materials, dairy processors must purchase milk at very high prices. And it is impossible to offset by increasing the price of the end product on retail networks.

“Of course we can model negotiating in some way with retail networks and raising prices in line with the buying price of milk at this moment. If the milk in the shop costs close to two euros, then nobody will buy it. Consequently, this situation has led the dairy sector to a really dramatic situation. The principle is very simple: if, in a normal business, a company still gets something, then now, the more we produce dairy products, the more we pay extra. I therefore really have concerns about the sustainability and viability of our businesses in such circumstances,” said Šolks.

He said that there are two tools to help food producers – reduce the value-added tax (VAT) rate, as well as revise traders' surcharges.

The Latvian Dairy Committee is promising Wednesday to distribute a statement to a number of ministries that will ask for help from the country.

“I'm not just talking empty here. This time the situation is so serious. This is the moment we have nowhere to retreat anymore. We need support,” he said.

The harsh situation, which will lead to an increase in the price of the final product on the shelves of shops, was also highlighted by the representative of the poultry farm Ķekava, Maija Avota, saying that, along with the increase in electricity and gas costs, in the last three to four months, poultry feed prices have climbed by 30%.

“We are now in a situation where we can no longer carry these costs on our shoulders, on our internal reserves, because as a large company, we had the opportunity to optimize our processes, which we did very successfully in the summer and early autumn, of course. But at the moment, it has been several months that we have been on the brink of survival. This means that we are forced to carry over the price of the final product. Unfortunately, we do have to raise prices,” she said.

The head of the office of the Ministry of Agriculture, Jānis Eglītis, said that the matter had also been discussed in the Coalition Council, where it was agreed that a reduction could be made at the electricity distribution tariff stage, which would not only apply to entrepreneurs but to everyone.

He acknowledged that there had not been a discussion in the Cabinet of Ministers at the moment about special state aid, but expressed his readiness to work on it, although there are no specific proposals yet.

He hoped that cost increases would not be critical and no business would have to stop working, and the increase in costs would lead to a review of the percentage of profits for retail operators as well. “If we look at Europe, the average shop surcharge is 10-15%, but it's a bit higher in Latvia,” he said.

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