EU quotas push up dairy production

Will Estonian dairies merge to cut costs?

TALLINN - Estonian dairy industries may merge under EU quota pressure.

Three major Estonian dairies, United Dairies, Tallinn Dairy Industry and Lacto, were considered by Estonian media as possible merging parties, although the dairies' representatives say the merge is still more speculation than anything else.

However, Randar Tamm, Lacto Ltd. administrative director, commented on the benefits a union could bring: "As the EU quota for dairy production exports have risen, the merger of two or three major companies could make the position of Estonian dairy exporters in the EU market more stable. Besides, the Estonian home market is small, and the dairy industry is the most advantageous branch of agriculture."

According to Tamm, the merged company would have fewer employees.

"It is inevitable that too-high production capacities would end," he said.

Rein Reisson of Estonian Dairy Union disagrees.

"The direction of export will change, but the number of employees will remain the same. Estonia will export less to Russia and Ukraine."

"Recall that the 20 percent tax paid to the state by EU importers will stimulate Estonian dairy exports as well," Reisson added. Hansapank loans director, Aivar Rehe, said possible merger talks may be most intensely connected with the desire to replay the raw milk market and to optimize production costs, according to a BNS report. Hansapank is dairies' major creditor.

The increased EU export quota lasts from July 1 to next June 30, during which the overall amount of milk in Estonian exports to the EU will be 74,000 tons. The staple exports are cheese and milk. Other products like yogurt, sour cream and cottage cheese do not find as strong a market in the EU, Reisson noted.

The new quota will affect the Estonian market, according to Reisson. "The prices for milk production will rise this autumn, because the purchase price is growing."