LTV's De Facto probes dairy industry crisis in Latvia

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Latvian dairy farmers have been experiencing a crisis for several weeks. This week, the Ministry of Agriculture will present a plan to support the sector to the government, while the industry is planning protests, Latvian Television's broadcast De Facto reported on February 26.

The crisis affects both Latvia and Lithuania.  In Lithuania, dairy farmers have been regularly holding various protests this month warning that the low milk purchase price will lead them to bankruptcy. The Latvian and Lithuanian dairy industries are closely linked because the Lithuanian purchase approximately 40% of raw milk produced in Latvia. For example, the Jelgava municipality co-op “Pienupīte”, with about 130 members, sends all their milk to Lithuania.

Mirdza Feldmane, president of the Co-op Board, said: “You know, there was a moment when I was told in February, Mirdza, we will not take 50 tonnes. Imagine, 50 tonnes a day... I don't know what to do now. Of course, we found a solution, we got someone to give milk to. But you know what it means – it just won't be taken?”

After high prices last year, following overall inflation trends, the purchase price of raw milk has now seen a substantial drop to around mid-2021 levels. The agricultural data center estimates show that from around 50 cents per kilogram, the price has now fallen to an average of 37 cents, however, farmers say the fall is even steeper. They described the overall situation as very bleak.

The main reason for the price drop is the overproduction of milk in Europe and the fall in demand. Jānis Šolks, head of the Central Union of Latvian Dairy Farmers, said that Latvian dairy processors currently pay a little over 30 cents per kilogram of raw milk. They can't afford more.

“We are price takers and are absolutely dependent on the situation the world is in. If there is overproduction in the world, the price is low, we can't do anything about it,” said farmer Imants Šalna from the farm "Sidrabes".

Milk production is the second largest agricultural sector in Latvia in terms of turnover after grain production. Whether and how to save dairy farms will be discussed by the government on Tuesday. The Agriculture Ministry will, for the time being, recommend the reallocation of a larger amount to dairy farmers from existing state aid programs. More money from the budget could be demanded if the crisis lasts, said the Minister for Agriculture Didzis Šmits: “If we had the highest price of [raw milk] a few months ago, and for an estimated half a year, it actually coincides with the average European milk price, then it is not even a month when we have this big fall. I think we have to be able to stand it for a month, and two or three too.”

In the State budget of 2023, a total of €59 million is currently earmarked to support farmers, which is 20 million more than last year. There is no specific offer for dairy farmers.

Šmits said that it would be good for the sectors themselves to agree on the amount to be reallocated. If it fails, the offer will be calculated by the Agriculture Ministry (ZM).

Dairy producers blame stores

According to Mirdza Feldmane, representative of the “Pienupīte” cooperative, in any event, the larger subsidy would only be a patch for a moment. In her opinion, the main culprits are stores that put too much of a markup: “All the blame, I believe – the trade has put us where we are today."

In the ZM report to the government, the average price of raw milk decreased by more than 10% in January, but the average price of milk in the shops also increased slightly and reached EUR 1.30. Traders have been regularly criticized by the processors' association for a high markup. There are no specific statistics because it is a commercial secret.

Recently, prices in stores have slightly declined and the head of the dairy processors association, Jānis Šolks, said that cooperation with individual traders is improving. As a big problem, he mentioned the proportion of imports on the shelves: “Why is Latvia prepared, for example, to purchase more than 50% of the total volume in Lithuania and Estonia? It's very difficult to answer.”

“Maxima Latvija” spokeswoman Laura Bagātā said that lower prices play an important role in this regard: “The fact that there is also import milk – we are also responding to demand from the customer, and the price is very important.”

She also stressed that Maxima Latvija has now increased its share of domestic products in helping Latvia's dairy sector. The cheapest milk sold in the film packaging is also produced in Latvia. On the other hand, the representative of “Maxima” denied a gross surcharge and said it takes time for the fall in the price of raw milk to be reflected on the shelves.

“Rimi” network representative Inga Bite also said that products on the shelves will get cheaper when prices are reduced by suppliers. She said that Rimi's prices of dairy products have been gradually declining since January. For everyday products, the markup was very small according to Bite: “Kefir, milk, curd, which is in every customer's basket nearly every day, this markup is very minimal here. There are also, of course, product groups, so-called premium products, which are, for example, foreign cheeses that cannot be offered by Latvian producers, where this markup can be [high]."

The Minister for Agriculture is inclined to agree with the view that the markup rice is too high. Therefore, in the hope of increasing competition in food marketing, Šmits has proposed to limit the working time of supermarkets, thereby favoring small shops.

The ministry is now studying the experience of other countries in order to then prepare the necessary changes to the laws. At the beginning of the week, Šmits presented the idea to his coalition partners: “I did not see any negative reactions. I couldn't say I saw a lot of positives at once, but neutrally positive, let's say so."

Maxima's position on restricting supermarkets is not clear yet, because more information is needed, while Rimi expressed a number of objections, such as inconvenience for customers.

The ZM will also offer other measures to improve the situation in the dairy sector in the longer term. Šmits said that the country could ask dairy farmers to enter into long-term contracts with an indexation on milk supply, which would avoid fluctuating prices on the stock exchange.

It is also planned to develop a new methodology for calculating the price of raw milk, which would take into account not only the weight of milk but also other indicators that play an important role in processing such as the content of protein and fat. 

Meanwhile, the co-op "Pienupīte" has agreed to hold widespread protests if there is no solution this week. The co-op plans to distribute milk to the public free of charge.

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