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Lelde Weinberga, la.lv
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The increase in the prices of energy resources, a new wave of Covid-19 morbidity and Russia’s invasion of Ukraine – in less than a year, agricultural companies and food producers have received several blows. According to the head of the office of the Minister of Agriculture, Jānis Eglītis, in this situation, state support is needed not only to not lose the competitiveness of companies, but also to control the price on the shelves of grocery stores.
The agricultural industry in Latvia faced the first shocks at the end of last summer, when the prices of energy resources started to rise, which was the next blow after the Covid-19 pandemic. “At that moment, if we are talking about processing or agriculture, animal husbandry, or anything else where energy and resources are consumed, the situation in the industry became quite tense,” notes J. Eglītis.
For example, for milk processing companies, both procurement prices and processing costs rose, which was a double blow, because the price on store shelves could not change so quickly. Also, the producer’s costs rose – diesel fuel is needed to sow the field, and electricity is used to transfer the grain to the dryer.
According to J. Eglīš, Latvian farmers were strong enough to survive the first wave of price increases themselves. When the second covid “lockdown” came, the situation became even more tense. “At the end of the second wave of Covid-19, we already talked about the necessary support measures in the government. We are no longer talking about ensuring competitiveness in the same sense as before, but so that these companies can “make ends meet”. At that moment, this offer was not considered by the government and got stuck in inter-ministerial agreements,” says the head of the office of the Minister of Agriculture Kaspars Gerhards.
The next big blow was Russia’s invasion of Ukraine at the end of February, when raw materials used in Latvia were subjected to European Union (EU) sanctions. “If we talk about agriculture, it was mineral fertilizers, individual fodder components, as well as wood products, etc. This put our farmers in a much more uncomfortable situation,” says J. Eglītis.
Support measures in the amount of 50 million euros
All these three stages – the increase in energy prices, the wave of covid-related diseases, and the war created a kind of beaver dam, which forced the Ministry of Agriculture (MoA) to look for a solution in the form of support to ensure the ability of both farms and companies to continue working.
“We offered the government support instruments in the amount of almost 50 million euros. 30 million related to investments in tangible assets so that our farmers can become more competitive. The other part was 10 million for processing and 9.23 million for agricultural primary producers. It should be understood that any support from the state to an entrepreneur reduces or keeps the price on the store shelf at the level it is at,” notes J. Eglītis.
Out of 9.23 million euros (5 million euros from the state, 4.2 million euros from the EU budget) were allocated to pig farming, poultry farming and vegetable growing in the covered areas, which is the agricultural production in Latvia most affected by the impact of the Russian war in Ukraine. To apply for support, farmers must submit an application for support to the Rural Support Service by July 20.
The support will be paid until September 30, 2022, and it will cover 70% of the increase in costs for diesel fuel, electricity, fuel, mineral fertilizers (only in vegetable cultivation of covered areas) and purchased fodder and feed raw materials (only in pig farming and poultry farming). The increase in costs will be determined by comparing the costs of February to June 2022 with the analogous five-month period in 2021.
On the other hand, 10 million euros from the state budget have been diverted to the processing of agricultural products, with the exception of producers of alcoholic beverages, fishery and aquaculture processing products, in order to partially cover the increase in the cost of packaging or energy resources or to cover the EBIT (the net income of the economic operator in the agricultural products processing sector before interest and income tax payments ) reduction, or to partially cover a significant increase in the price of natural gas or electricity.
The maximum support for one applicant to cover the increase in the cost of packaging or energy resources or to cover the decrease in EBIT is 400 thousand euros. The maximum support for one applicant to cover a significant increase in the price of natural gas or electricity is 2 million euros.
“It is important that we try to help the farmer as soon as possible, and in this case it is enough that a sworn auditor certifies the data and there is no need to wait for the annual reports. We have reduced the time periods of bureaucracy as much as possible,” states J. Eglītis.
Similarly, in response to the situation on the fuel market after the start of the war, farmers could buy 2022/2023 as early as March. in advance of duty-free diesel fuel intended for the financial year, not in accordance with the established norms for the specific time period.
On the other hand, at the request of the Minister of Agriculture, a working group was established and a memorandum was concluded between the Ministry of Agriculture, producers and traders, that the traders will review the prices offered by the producers every 15 days, taking into account that the prices for the producers change very rapidly and often due to the geopolitical situation and the increase in the prices of raw materials. The memorandum is valid until January 1 of the following year. “The state support is actually for the entrepreneur, but in fact it is for every citizen of Latvia who shops in a grocery store,” says the head of the minister’s office.
The achievements of Latvian farmers are appreciated in Europe
The competitiveness of the Latvian agricultural sector is also affected by one of the lowest direct payments in the EU. “We are particularly proud of what the minister has achieved in the new period of Europe’s Common Agricultural Policy, where Latvia is one of the four countries to which an increase in direct payments is expected. We have managed to make Europe see the results of our country in order to continue investing in raising the competitiveness of entrepreneurs,” J. Eglītis expresses his satisfaction.
When asked what to do in the future in connection with the suspension of the import of mineral fertilizers from Russia and Belarus due to the sanctions imposed, the head of the office of the Minister of Agriculture states that we are in the conditions of a global market and one product exclusively for one country is rare.
In the issue of mineral fertilizer supplies, farmers will not be left without raw materials, but at what price: “The Minister of Agriculture has had several meetings with both the USA and Norwegian companies regarding the possibility of purchasing mineral fertilizers for Latvian farmers. The question is about the price and who will be able to afford to buy the fertilizer. The price difference will be extremely large and farmers have to make a very important choice – they have to calculate whether it is profitable for them to buy mineral fertilizer or switch to greener technologies, because the situation is not the same throughout Latvia.”
Food sufficiency
Currently, there is no reason to believe that Latvia could have problems with the ability to provide food for the consumption of Latvian citizens. “The question is whether we will have enough food if we don’t provide any kind of support. One of the conditions for state support is that the company must continue its work and be involved in supplying the population with food in case it becomes necessary,” emphasizes J. Eglītis.
Likewise, every dairy processing company that is able to employ people in the regions and gives the opportunity to transfer milk to farmers is important to the state. “It can be said that the war situation was an additional factor for the companies that did not receive support and stopped operating. Currently, no company has ceased operations because it did not receive timely support from the state,” says the representative of the Ministry of Economy.
The good news is that the purchase price of milk has risen and reached the European average, which means that our farmers are no longer relegated to the background. This may be a very important factor for the future of dairy farming in Latvia.
Reduction of the VAT rate for food
“Evaluating the situation in the EU, we see that only three countries have not introduced the reduced value added tax (VAT) for food, two of which – Bulgaria and Latvia – are not the richest countries. Bulgaria, by the way, has just reduced the VAT rate for certain groups of goods. If we look at richer countries, the standard VAT for food has already been reduced, and in some countries it was reduced even more.
There is also a 0% rate, which is quite normal. In our opinion, Latvia should have taken such an action already two years ago. Unfortunately, we have not been heard by the Ministry of Finance, but it is clear that, first of all, it reduces the price on the store shelf, and the price comparison with Lithuania and Estonia conducted by the Latvian Agricultural University (LLU) allows us to make such a statement. In Latvia, with the reduced rate for fruits and vegetables, the price on store shelves is 11 percentage points lower than in Lithuania and Estonia. Every person who claims that reduced VAT stays in the trader’s pocket is misleading the public.
Reduced VAT is a support for both society and the primary farmer who grows it all. Likewise, the LLU study showed that by reducing the VAT on fruits and vegetables, many producers came out of the gray zone, which in the end is more beneficial for the state,” emphasizes J. Eglītis.
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