Estonia: the days of cheap thrills are over

  • 2007-11-21
  • By Joel Alas

PAINFUL PRICES: Even expats who have been in Estonia only a short while have noticed considerable increases in the cost of going out.

TALLINN - It was during a recent weekend trip to Berlin that it dawned on me 's Tallinn ain't cheap no more.
I drank beer in a bar for 1.5 euros (23.4 kroons) and ate a spicy curry dish at an Asian restaurant for 3.5 euros (54.7 kroons). As we wandered the streets of Prenzlauer Berg, my German friend pointed out various fliers advertising rooms for rent in decent apartments in funky suburbs for around 200 euros (3,129 kroon).
When I started to compare these figures with my budget back in Tallinn, I realized the true impact of Estonia's rapid economic growth.

"I remember when I got here 18 months ago, beer was 25 kroons," another friend told me as we waited for our food at Hell Hunt pub in Tallinn. Hell Hunt is reliable and enjoyable, the standard choice for ex-pats and locals alike. Its costs are middle-of-the-road. If any place could be considered a barometer for economic change, it's Hell Hunt. "Today, a beer here costs 40 kroons, and the food is more expensive," he finishes his story. Looking at the menu I realize he's right 's costs have crept up in recent months. Nothing startling, just five kroons an item each six months or so.
I seem to eat out four or five nights a week. Meat and vegetable prices in the central supermarkets make it cost just as much to cook for ourselves as it does to order at a restaurant. But in recent months, both options have become more expensive. In my four or five favorite eateries, prices for a main dish range from 60 to 150 kroons.

Is there any substance to my observations and complaints? Well, yes, actually. Everyone knows that prices go up over time, but statistics show that the increases of the past year have been extraordinarily high.
The consumer price index jumped 6.4 percent between the third quarters of 2006 and 2007. Goods increased by 4 percent, foodstuffs by 6.4 percent, services by a nincredible 11.1 percent, and housing costs a ridiculous 16.4 percent.
Marje Josing, director of the Estonian Institute of Economic Research, said Estonia isn't the only nation experiencing price hikes.
"Food prices across the world are much higher this year," Josing explained. "Cereals and grains have become more expensive, while the volumes are lower due to bad weather. When cereals are higher, then milk and meat prices increase. Normally prices for food increase by 6 or 7 percent. Last year it was 20 percent for several products.

"If you visit our shops as a simple consumer, you will see that bread and butter are far more expensive. It's not just an Estonian problem, it's the world market."
Josing agreed that Estonia has become a more expensive place to live, though she said it was still cheaper than many parts of Europe.
"Our general food prices are 75 percent of the European Union average. In Finland prices are slightly higher, while in Latvia and Lithuania they are slightly lower. If you look at costs in our supermarkets compared to those in Berlin, they are quite similar."
A quick look at the financial news of the past year confirms the trend. Across Europe and the world, people have been complaining about the cost of staple products like bread and pasta.
This is because the cost of wheat, corn and other grains 's the basic products used in nearly all food production 's have all increased substantially. The cost of a ton of grain in the UK shot up from 130 pounds to 250 pounds, according to one report.

Supply and demand
Economists speculate that this is due to several factors, but most of them relate to the increased living standards in many formerly impoverished nations. The world's population is growing, and so is its middle class, leading to an increased demand for goods. The new rich in Asian nations are demanding more meat on their plates, leading to a demand on more grain-based cattle feed. In the wake of Middle East instability, America is turning to biofuels to quench its insatiable thirst for oil 's biofuels made primarily from corn and other grains. As populations increase and cities expand, land once used for farming is being given over to housing. Wild variations in weather patterns due to global warming are forcing droughts and floods on tracts of land once used for farming. All this is pushing up the demand on grain, while reducing its supply 's the simple economic formula for price increases.

However there are some Estonia-specific issues driving up prices here 's salaries and production costs. One man who should know is Veiko Hinstov, a partner at Deloitte Eesti, one of Estonia's biggest auditing and financial consulting firms. Hinstov has a unique insight into the true economic situation because he looks at the books and balance sheets of hundreds of companies and individuals.
"This year in Estonia, especially in construction, we faced a deficit issue that we haven't seen since Soviet times," Hinstov explained. "Things like construction materials were very difficult to get. The price of cement products, gravel and sand grew quite rapidly, orders were standing in a line. That affected specific booming industries, such as real estate and road construction.
"On the people side, salaries were an issue in all sectors. They are growing very fast. We are seeing a spiral of salaries going up, and prices going up as companies have to find a way to pay those salaries. It's a very dangerous cycle.

"It has happened more rapidly over the past two years than ever before. We have experienced sometimes unreasonable salary increases, therefore companies have increased the service prices. It comes out of our pockets in an indirect way."
Strangely, though, most companies are not being adversely affected by the increased costs of doing business. Hinstov said nearly all companies returned record profits in their annual reports.
"I don't think companies are trying to be cost efficient at this moment. It will be the keyword for the next year. They will have to go back-to-basics to understand where they can save money and renegotiate contracts."
Is it a bad thing that goods and services here are no longer a bargain? Not according to Josing, who believes Estonia should shed its image as a cheap destination.

"Is Estonia no longer cheap? Well, if you come from London, it's very cheap. If you come from Berlin it's not so cheap," Josing said. "But the future of Estonia is not as a cheap country. There once was an image of cheap vodka and cheap girls. I am happy this image is disappearing. It's not a nice perspective. We must be a country of good quality things and high education. I hope we are able to offer something more than just cheap things."