According to a new report, Estonian agricultural producers are operating at a loss, despite investments and growth in productivity, rising costs and a low level of value added to raw materials reduce competitiveness.
Uku Varblane, the head of research at the Foresight Centre, the think tank that authored the report, said that although subsidies have helped agricultural producers invest and increase production volumes, the sector has not made a profit in recent years.
“Farmers provide the population with high-quality and valuable food and ensure Estonia’s food security, while having to produce internationally competitive products and add as much value as possible to their produce,” he said.
Although Estonia’s strengths are cereal farming and dairy production, lower-value products, such as raw milk, tend to be exported in these sectors. Since 2018, the share of value-added products in exports has decreased, from 55% to 48%. The share of value-added products in exports is highest among dairy products, accounting for around 60%; however, it is still lower than imported dairy products, where the share of value-added products is nearly 70%.
Farmers operate at a loss
“Today, the Estonian dairy sector is actively seeking opportunities for developing and adding value to products, but as Estonian companies are small, competing with large foreign groups is difficult for us,” Varblane said.
In the report, the Foresight Centre points out that Estonian agricultural producers have been operating at a loss for the past two years.
“This is because the prices of goods and services used as inputs in the production process have increased faster than sales revenue and the level of value added to agricultural products is low,” the think tank said.
“In the last five years, the prices have increased rapidly for energy and motor vehicle fuels (82%), animal feed (38%), fertilisers (35%) and seeds (31%). Also, Estonian agriculture uses more foreign-origin production inputs than our neighbouring countries do.”
Good conditions for organic farming
Use of by-products and product development, including in organic production, are considered to be future trends in agricultural production. Experts have found that Estonia has good potential for developing mixed production, for example by combining cereals, milk and biogas production and a circular bioeconomy, according to the think tank.
The Foresight Centre stresses that in the last decade, the level of value added to agricultural raw materials has not changed significantly in Estonia. The share of value-added processing in cereal products with the largest production volume has actually decreased, while in meat and dairy products it has remained stable. In recent years, the share of value-added products has grown the most among fruit and vegetable products, having increased by a fifth in monetary value.
The expansion of organic farming has good prospects, as Estonia has favourable climatic conditions for this. However, the Foresight Centre finds that it is also important to look for ways to process organic production into products with higher added value.
The Foresight Centre is a think tank at the Estonian parliament that analyses socio-economic trends and builds future scenarios.
