This week, the government will decide whether to compensate the 36-million-lat ($62 million) loss incurred by the Latvian agricultural sector caused by bad weather. Similar damage was done to Estonian farmers by a particularly wet summer.
Last week, the cabinet announced an emergency situation in the Latvian countryside, but failed to adopt a number of measures, prepared by the Agriculture Ministry to ease farmers' lives.
According to Janis Lapse, state secretary at the Agriculture Ministry, the government should allocate 12.8 million lats from the state budget to help farmers finish harvesting and start winter sowing.
The Agriculture Ministry proposed to pay each farmer 10 lats per hectare sown with grain or vegetables. According to Lapse, winter sowing should be subsidized with 15 lats per hectare sown with rye, and 20 lats per hectare sown with wheat.
"These compensations will only partially cover farmers' losses," said Uldis Apels, director of the information department at the Agriculture Ministry. "The emergency situation had to be announced because this year, the agricultural sector's revenues have decreased by many millions."
The Agriculture Ministry also proposed to change free trade agreements with Estonia and Lithuania so Latvia can close its borders to meat, eggs and dairy products from its Baltic neighbors.
"We hope the agreement with Estonia and Lithuania will be reached soon," Lapse said.
While farmers suffered from rain, Latvian dairy producers lost their sales markets and incurred losses after Russia's financial crisis began in August. Apels said Estonian meat products and Lithuanian dairy products are imported in large quantities, and the state needs to protect local producers.
The government assigned the Finance and Economics ministries to review the Agriculture Ministry's propositions.
Valdis Freinfelds, spokesman for the Finance Ministry, said the Agriculture Ministry proposed to compensate farmers from the income tax collected from businesses.
Collected corporate income tax has exceeded slightly the amount planned for in the budget, but Freinfelds said projected budget revenues are still close enough to what was planned. The surplus in income tax revenues was offset by lower-than-expected revenue collected from privatization and from various administrative fines.
"We can always find the money, but that means we would have to raise revenues collected on some taxes," Freinfelds said.
Freinfelds could not predict whether the ministry would support the compensation plan, but noted that the Agriculture Ministry has to decide how to divide the compensations between farmers.
According to Economics Ministry spokesman Janis Brende, the ministry supports the idea that farmers have to get compensation. Brende said it was necessary to announce the emergency situation because the agricultural sector's output and profit are less than expected.
The initial proposal to announce the emergency situation in the Latvian countryside came from the Latvian Farmers' Union (LZS). Both Economics Minister Laimonis Strujevics and Agriculture Minister Andris Ravins are LZS members and support the compensation plan.
Karlis Boldisevics, an LZS consultant, said the faction submitted to the Parliament the amendments to the 1998 budget in case the government fails to adopt the Agriculture Ministry's propositions.
Boldisevics said times are especially hard for the Latvian grain producers because grain processing companies are not buying grain in large quantities.
"There are no intermediaries between grain producers and grain processing companies. Since the processors are buying grain in small quantities, farmers don't have enough means to start winter sowing," Boldisevics said.
To help farmers, the government started a market intervention on Sept. 1. The state Grain Trade Agency is buying grain that was not acquired by the processing companies for the state reserve.
Last week, the government changed the intervention prices, and beginning Sept. 18, farmers could sell their harvest to the state Grain Trade Agency at the price of 74 lats per ton of wheat and 69 lats per ton of rye.
Previously, a ton of wheat cost 68 lats and a ton of rye 63 lats, but on Oct. 1, the price was supposed to rise to 72 lats per ton of wheat and 67 lats per ton of rye.
The Cabinet of Ministers also revoked the minimum purchase size of 30 tons for the state granaries. The Grain Trade Agency will now accept even a ton of grain for the state granaries.