RIGA - Lithuanian dairies' increasingly aggressive milk purchases on the Latvian market are having a negative impact on the economy, a minister has said.
Agriculture Minister Martins Roze, speaking in an interview with Baltic News Service, said Lithuanians were using "an interesting strategy" for winning market share in Latvia.
"The Lithuanians are paying our farmers prices 40 percent higher than those they are paying their own farmers. From the point of view of our farmers it is good, but it is very bad for the country's economy since our dairy companies, which are large taxpayers, are left without supplies," Roze said.
As a result, added the minister, milk processing is more expensive and the end-product is less competitive on the market.
Roze explained that Lithuania eventually returns the milk to Latvia in the form of value-added dairy products.
"We are interested in seeing the goods processed in Latvia, to produce the added value, as it is our economy, our budget," said Roze.
"The Agriculture Ministry will carefully watch the competition to ensure it is fair from a legal standpoint and doesn't use substandard quality criteria," he said, hinting that he had information that Latvian dairies had run into difficulties trying to purchase cheap Lithuanian milk.
"One of the reasons is the improper quality," he said. "We have talked to the European Commission about this situation. Lithuania has the lowest milk purchase prices, according to statistics, but milk is imported to countries with higher prices. It is a paradox. If we do not explain the whole circle related to winning the market, it would seem absurd."
The minister said that milk purchase prices in Latvia will remain high for about another two years but may then stabilize at 0.16 - 0.17 lats (0.23 - 0.24 euro) per liter compared with the current 0.19 - 0.20 lat.
Roze said that prices might drop because Lithuanian farmers will not tolerate being "made fools" for so long, and the purchase prices in Lithuania will grow. This will allow companies with less capital to buy more expensive milk, he added.
"On the other hand, our production is undergoing consolidation, making it more competitive. There will be closer cooperation between milk producers and processors. Such cooperation is also envisaged in the Latvian rural development plan," said Roze.
Lithuania is indeed importing milk on a vast scale. In July Lithuania's Agricultural Information and Rural Business Center reported that local dairy producers imported 65,310 tons of milk from other EU countries in the first half of this year, a rise of 38.9 percent year-on-year.
In 2006 Lithuania imported 119,500 tons of milk from the EU, more than a threefold increase compared with 2005.
Latvian dairy companies have frequently voiced concerns over the Lithuanian attempts to control milk resources in Latvia.
The Competition Council also investigated the situation on the market but at the end of last year came to the conclusion that none of the Lithuanian dairy companies had a dominating position in the Latvian milk procurement market and there were no violations found.
The council said that the Lithuanian dairy companies are paying prices respective to the amount and quality of milk in Latvia.