Latvian dairy industry experiencing a crisis

25-02 | |
Photo: CANVA
Photo: CANVA

A group of Latvian dairy companies has applied for urgent financial aid from the government since high gas and electricity prices have driven the industry into a deep crisis, Janis Šolks, head of the Latvian Central Dairy Industry Union said.

“We are now living a day-to-day existence and see for how long our dairy producers can survive,” said Szolks to Latvian Radio 4.

There are around 50 companies in Latvia registered to process milk, but more than half of them are either inactive or manufacture dairy products in tiny quantities, Szolks said, adding that the country’s dairy industry is mainly presented by 20 companies. Almost all of them have found themselves in difficult financial situations, especially those that operate mostly on the domestic market, he added.

“Those who also focus on foreign markets, depending on the export volume, are doing a bit better. Oddly enough, the price for dairy producers that we sell outside Latvia more or less corresponds to the current situation, which cannot be said about the prices on the local market,” Szolks said.

Government support needed

Szolks explained that the dairy industry saw no room to raise prices even to reach a breakeven point since the local population “is not wealthy enough” to sustain a sharp rise in retail prices. He added that even the increase of prices by 10% to 15% doesn’t change things dramatically for business profitability.

“In this context, we have already turned to the government to find some options on how the industry could be supported at such a difficult moment. We understand that this [crisis] will end sooner or later, but we need to survive it,” Szolks said.

The dairy union suggested allocating state aid in the form of subsidies of €50 to 55 per metric tonne of milk processed since December. If approved, the payments, named by local dairy companies as ‘Covid support’, are estimated to cost the national treasury €9-10 million.

“Now everyone operates with a negative cashflow. Some producers can withstand these conditions for 6 months, others for 8 months, while some for 3 months, but no one can endure indefinitely,” Szolks said, adding that without the government’s assistance, the fallout of the current crisis is going to be quite painful for the Latvian dairy industry.

The government has instructed the Agricultural Ministry to consider allocating state aid to dairy processors, but so far, no decision on this issue has been made.

Vorotnikov
Vladislav Vorotnikov Eastern Europe correspondent
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