VILNIUS - The agricultural sector in Lithuania, one of the country's largest industries, has seen purchase prices plummet 27 percent year-on-year in the first quarter of 2009, the Statistics Department reported.
The statistics come at the same time as a report showing that Lithuania is officially in recession after posting a 12.6 percent drop in Gross Domestic Product (GDP) for the first quarter of the year.
The prices of crop sector products dropped 33.6 percent over the year, while the prices of livestock and stockbreeding products went down by 23 percent.
In March, compared with March 2008, the purchase prices of agricultural products dropped by 27.9 percent, signaling more decreases in future.
Vita Vitkauskaite, head of the International Department at the Lithuanian Agricultural Chamber, told TBT their analysis pointed toward falling international demand around the world.
"The main circumstances of why the prices are down are because of the world economic crisis 's this has a bad effect on demand. The other problem is the processor companies, which cannot get loans from the banks and now only use their own assets and are only buying small amounts from the farmers."
"We are a very small country so we need to rely on the world market. A few years ago, the prices were very high and the European Commission thinks that the prices won't go as high as it was at least until 2015. We agree with this analysis," she said.
Nerijus Udrenas, a senior economist at SEB Bankas told TBT that the figures reflect the hard times the country is in, but doesn't expect them to decrease much more.
"In Lithuania, demand has decreased with rising unemployment and consumer expectations have decreased significantly. So companies who use these agricultural products don't have the demand and don't want to stockpile."
"People will still need to consume food products, but it may go down more in the difficult environment," he said.
Tomas Andrejauskas, a Swedbank board member and financial analyst, told TBT the drops are part of the natural readjustment of the economy.
"The price of agriculture drops with the oil price. It's good for the consumer because it takes the pressure off inflation."
"It won't lead to overall deflation because of the increases in utilities and the rises in VAT [Value Added Tax]. These administrative price increases prohibit inflation from becoming deflation. Everything is going 's clothing, fuel and so on."
The Agriculture, Hunting and Forestry industries accounted for 4.4 percent of GDP in 2008, according to the Statistics Department. This figure has seen a steady decline since 1996 when the sector contributed 12.42 percent of GDP
Industrial output in the country saw a sharp decline of 18 percent year on year in March. Manufacturing, which accounted for 18.64 percent of 2008's GDP, dropped by 22 percent.
"Manufacturing output has decreased, but we should remember that the first half of last year was beneficial for exporters 's oil refinery and fertilizers. If we compare to other countries, it has declined by 30 percent. In other countries like Japan and other developed countries, the drop was staggering because of the elasticity of the manufacturing," Udrenas said.
"Oil and fertilizer are inelastic 's we need to fertilize our crops and drive our cars 's sure we might use less and drive shorter distances though," he added.
Udrenas stressed that in the current environment, year on year statistics are not as useful as month-by-month analysis.
"In manufacturing, it has already stabilized and it isn't as bad as it could have been 's in other countries, the numbers month by month are still getting worse," he said.
Andrejauskas said that the downward trend should bottom out by the third quarter of this year.
"In the second half of this year, we believe the process should decelerate. We should reach the bottom in the third quarter. This is related to what is happening externally in the Baltic Rim 's 60 percent of our exports go to these countries 's their bailout plans are working and so we will see recovery in our manufacturing sector too," he said.
"We have falling consumption in Lithuania and in our export markets. Our manufacturers need to adjust production and the costs. A restructure is exactly what is happening 's the money is moving from the places where there is less value to where they have more potential."
The weakening of the manufacturing industry has been a major contributor to unemployment with thousands joining the ranks of the Labor Exchange every week.
Unemployment is currently at 7.9 percent.