Farmers' Federation: VAT hike to jeopardize competitiveness of Estonian food production

TALLINN - The Estonian Farmers' Federation has turned to Regional and Agriculture Minister Piret Hartman to express their deep concern over the proposed increase in the VAT rate from 22 percent to 24 percent, which is set to take effect on Jan. 1, 2025.

The Farmers' Federation said that the VAT rate hike will negatively impact the competitiveness of agriculture and the entire food production sector, and increase economic pressure on both producers and consumers.

In their appeal, the Farmers' Federation highlights to the minister that with the proposed increase, Estonia would have the second-highest VAT rate on food in the European Union, following Denmark, where the rate is 25 percent. In contrast, most EU member states apply a lower VAT rate on food products to support local food producers and ensure broader access to food for their populations. Currently, only three countries do not have a reduced VAT rate on food -- Denmark, Lithuania, and Estonia.

The Farmers' Federation points out that the VAT rate increase will affect food producers in two ways -- through increased input costs and higher sales VAT. If Estonia were to lower the VAT on food to the level of Latvia at 12 percent or Finland at 14 percent, it would reduce production costs and make prices more affordable for consumers, thereby supporting the accessibility and consumption of local food.

The appeal also references Latvia's experience, where reducing VAT on fruits and vegetables has led to lower prices and increased consumption of these products. The Farmers' Federation  believes that a similar positive impact could be realistic in Estonia if a lower VAT rate on food products were implemented. Lower VAT on food would increase the consumption of local food, stimulate the economy, and likely increase tax revenues.

The Farmers' Federation proposes conducting a thorough impact analysis to assess the effect of the proposed VAT rate increase on Estonian agricultural producers, consumers, and the food production sector more broadly. The federation is ready to collaborate with ministries to find solutions that ensure the competitiveness and sustainability of Estonian food production.

The Estonian Farmers' Federation is an organization representing Estonian farmers and food producers, advocating for their interests and sustainable development.