Dairy producers seek coordinated policies

Dairy producers of the three Baltic states aim to create a common diary market to strengthen their bargaining position on the eve of EU enlargement.

At the first Baltic Dairy Producer Conference held in Riga last month, organizers signed a resolution which proposes to coordinate vital issues facing the industry, such as quotas, in order to compete with EU dairy producers. A copy of the resolution was sent to all three governments and parliaments.

Baltic dairy producers insist that their demands be considered while negotiating with the EU and drafting a common dairy policy in the Baltic states.

According to Ligita Silaraupa, chief of the board of Latvia's Milk Producers Association, the situation in the regional dairy industry is difficult due to the high level of competition in a relatively small market. One can, for instance, easily find Lithuanian milk in Latvian and Estonian shops.

Silaraupa also said that production output and costs vary widely among the three states, creating unique industry challenges in each country.

The tendency in the European Union, however, is to lump all three Baltic states during negotiations.

"The situation in the dairy industry in each Baltic state is different. It creates a high level of competition and damages the market," said Kristians Liepins, public relations consultant for Latvia's Central Dairy Union.

Silaraupa said that dairy production costs in the Baltics are the lowest among EU candidate countries, in large part because less money is paid to farmers for their output.

In Lithuania wholesale milk prices fell 21 percent year-on-year to the end of September, forcing the government to intervene and allocate 11 million litas (3.2 million euros) in subsidies to dairy processors in late August.

Milk purchase volumes in Lithuania sank by 20 percent over the same period, and exports of dairy products have also fallen by 7 percent.

Dairy producers want to establish a coordinated market intervention policy that would guarantee an equal minimal price level to cover production costs. If they can accomplish that, dairy producers hope to eliminate the market differences between countries.

"I want to stress the words 'mutually coordinated'," said Andris Milglavs, director of the Latvian State Agrarian Economics Institute. "Because if market intervention is not accomplished throuhg joint coordination the differences between Baltic dairy industries will noticeably increase, which could lead to a serious crisis in one of the countries."

A coordinated dairy policy must be implemented as soon as possible, perhaps in spring 2003, said Milglavs.

Dairy producers at the conference also stressed the importance of quotas for the future of the industry.

While establishing quotas for Baltic dairy exports, the EU is using production data from the years 1995 - 1999. This, say regional producers, does not reflect the industry's needs and if used for a final decision will lead to a decrease in production.

At present Baltic dairy producers are working at 50 - 70 percent of capacity. If EU quotas are used, however, output could decrease to 30 percent and will result in the closure of many dairy farms throughout the Baltics.

"The milk quota is priority number one," said Silaraupa.

Also, in order to compete in the common EU dairy market all three Baltic nations will need significant investments in order to meet tougher EU standards. A whole range of production and infrastructure issues - animal-care, road, water supply - will require substantial capital investment, money dairy producers do not have.

For this reason conference participants called for favorable credit terms and repayment conditions for regional dairy producers.

The conference also formed a working group to coordinate information flows and decision-making between all three nations' dairy associations.