Publication: Monitor Volume: 7 Issue: 213

Agriculture has been having a tough time in Lithuania. Accounting for 10-12 percent of Lithuanian GDP, a much higher share than the EU average, agriculture also accounts for 18 percent of employment in the country. Yet past output data have not been encouraging. Then earlier this year, the World Bank postponed payment to Lithuania of a loan tranche, citing among other concerns the slow pace of reform in the agricultural sector.

Crop output, which accounts for about two-thirds of agricultural output, has fluctuated wildly. The grain yield this year is expected to total 2.4-2.5 million tons, a drop of 10 percent from last year (BNS, November 6). Although livestock production has been more consistent, the consistency has unfortunately been in declining output. The recent outbreaks of mad-cow disease and hoof-and-mouth disease in Europe will make it even more difficult for the sector to recover. Through July, the purchase of livestock and poultry was down 21 percent year-on-year.

Recently, however, there has been a bit more positive news. In late October, World Bank officials said they were, after examining new legislation on agriculture and rural development, more optimistic about the sector’s future. The new law incorporates the basic EU provisions on agriculture, including prohibiting the government from regulating agriculture (BNS, October 25). Certain anecdotal information on increased export potential and greater foreign investment also suggests more hopeful prospects. In late October, three Lithuanian companies became the first meat processors in the Baltics allowed to export their products to the EU (BNS, October 24). At the same time, the Finnish meat processor HK Ruokatalo bought the trademark and recipes of the Lithuanian meat processor Klaipedos Maistas (BNS, October 31). Increasing foreign investment in the sector will raise competitiveness in EU markets.

The numbers are also looking up in the dairy sector. In the first nine months of 2001, the milk purchase volume grew by 6 percent to 877,000 tons, and the average purchase price rose by 15 percent to 488 litas (US$122) per ton. But it is unclear whether either Lithuania’s dairy producers or farmers will be able to withstand competition from EU farmers and producers. Consolidation would increase the sector’s chances of survival: One possibility that has been mooted is a merger of the country’s three largest dairies, Zemaitijos Pienas, Rokiskio Suris and Pieno Zvaigzdes, which combined currently control over three-fourths of the Lithuanian market. A foreign strategic investor such as the Swedish/Danish Arla Foods might be able to bring the three under one roof (BNS, October 23).

The impact of past reforms is already showing up in increased exports. Lithuanian exports of agricultural and food products were up by 10 percent in January-September 2001, to 1.54 billion litas (BNS, October 31). Cheese and other dairy products account for the largest part of exports, which are sent mainly to CIS countries (532 million litas) and the Baltic states (289 million litas). Only 44 million litas worth of dairy products were exported to EU countries, suggesting room for rapid growth. In early November the Lithuanian grain processors Litagra and Siauliu Malunas exported 27,000 tons of grain to Tunisia, the largest shipment of grain from Lithuania so far. In 2000, Lithuania exported around 140,000 tons of grain; a similar level is expected this year despite the smaller harvest (BNS, November 6; for data on the sector, see Economic and Social Development in Lithuania published by the Lithuanian Statistical Department, or Std.lt).