Riga-based Laima estimates the move will lead to 100 job cuts.
Feeling the pinch of tariffs installed to protect Latvia's domestic sugar beet farmers, Laima's share of the Baltic caramel market has dropped consistently since early 1998, according to company Chairman Ivars Kalviskis.
The move, scheduled for this summer, will affect the company's production of sugary hard caramel candies, which are no longer price competitive with candy from countries like Estonia that have no domestic sugar production and import much cheaper cane sugar from abroad.
Latvian sugar importers currently pay about $207 per ton in tariffs plus an 18 percent excise tax aimed at protecting markets for domestic sugar production.
"For us it's three times more expensive," said Kalviskis.
Estonian importers pay about $178 a ton for cane sugar from places like Brazil and Cuba, while Latvian importers pay about $525 per ton.
He estimates Laima's caramel market share of 85 percent in early 1998 has dropped to 53 percent.
Laima has relied on locally grown beet sugar, buying 3,000 tons last year, but it too is more expensive.
"We made the decision to move our sugar confectionery production out of Latvia," said Kalviskis.
The company has signed a joint agreement with a Russian company to produce caramel, which currently accounts for 20 percent of its candy production.
Laima will continue to produce chocolate and other products that require less sugar in Latvia.
Latvia has been diligent in recent years to protect domestic sugar production, even implementing regulations last December to limit the amount of sugar individuals can bring into the country to three kilograms.
Tariffs on sugar and other agricultural products like pork have become an issue on farms and in the halls of government, where legislators have tried to balance the tenets of free trade with the financial health of its rural population.
Farmers have protested the inflow of cheaper agricultural products from EU countries and are among those unhappy about Latvia's march toward the European Union.
The country's agriculture ministry has not come up with any firm strategies for dealing with EU accession. But officials there point to free trade as an obvious foundation of the European trade bloc.
"When Latvia is close to joining, the tariff structure will be the same as the EU," said Martins Roze, a policy director in the ministry's EU integration department. "There is no doubt about that."