The Baltic states consist of three geographically connected countries — Estonia, Latvia and Lithuania — that lie on the eastern shore of the Baltic Sea. The countries were the only members of the League of Nations to lose their independence following World War II, when the Soviet Union gained control in 1944.

Until independence in 1990–91, the Baltic states’ agricultural sectors were integrated into the Soviet centralized economy. The Soviets imposed a framework of regional specialization, within which the three countries were required to supply other Soviet regions primarily with livestock products.

After regaining independence, the Baltic countries began to rebuild the basic legal structures and institutions for the operation of a democratic political system and a market economy. All three adopted the "shock therapy" approach to macro-economic reform, liberalizing domestic prices and foreign trade, strongly devaluing local currencies, imposing tight fiscal and monetary policies, privatizing industry and implementing property restitution programs.

As in other transition economies, the reforms initially caused many dislocations, including declining grain and livestock supplies and pressure on consumer incomes, which affected food demand. But the situation has stabilized and been reversed in more recent years.

Over the past decade, the Baltic states also have been working to join the enlarged European Union, with their entry scheduled to take place this month. (See related article on E.U. Enlargement on page 24.) Agriculture plays an important role in the three countries’ economies, accounting for about 8% to 9% of gross domestic product and between 7% and 24% of total employment, and Estonia, Latvia and Lithuania are implementing domestic agricultural policies and regulations to harmonize with the E.U.’s Common Agricultural Policy.

In early 2004, major Baltic grain processing companies formed the Baltic Millers Association, led by Mindaugas Gedvilas, the chief executive of Malsena, a leading Lithuanian flour milling company. Other founders were Lithuanian milling company Kauno Grudai, Latvia’s Rigas Dzirnavnieks and Dobeles Dzirnavnieks and Estonia’s Tartu Veski.

The association is designed to represent Baltic flour producers as they integrate into the European Union. The Baltic millers intend to join GAM, the E.U. millers association, to take advantage of GAM’s food safety programs and to lobby for E.U. flour export subsidies to expand their member mills’ markets.

ESTONIA

Agriculture has been important for Estonia since the Bronze Age, and grain exports were a key part of the country’s economy in the 17th and 18th centuries.

Currently, grain production occupies about one-third of the agricultural area of 1 million ha, down from 45% in 1992. The decline in grain emphasis has been based primarily on trade liberalization, which encouraged cheap grain imports.

Estonia’s domestic grain needs total about 700,000 tonnes annually, with about 278,000 of that wheat use, mostly for food. Since wheat production averages only about 134,000 tonnes a year, imports are needed to make up the difference.

Estonia’s average per capita annual consumption of food grains as of 2002 had fallen to 88 kg from 98 kg in the late 1990s (average annual consumption in 1985-1989 was 87 kg). The Estonian Institute of Economic Research forecasts that domestic food grains use will remain constant in the near future.

As of 2002, Estonia had 24 primary processors (flour mills) and 179 secondary processors (bread, bakery, confectionery and pasta makers). Five flour milling enterprises accounted for 23.8% of all output, while in bread and bakery products, four and eight of the largest enterprises, respectively, accounted for 65% and 86% of those sectors’ total output.

According to a 2002 Agriculture Ministry analysis, the Estonian grain processing industry had relatively small levels of concentration, low foreign investment and a need for modernization. For example, the analysis said existing grain processors needed investments of EEK 384 million (U.S.$30 million) through 2005 to bring facilities in compliance with new food and food safety regulations.

Because flour milling capacity utilization was estimated at only 24%, investments of that scope would be difficult for some processors, leading to fewer enterprises and more concentration. In fact, the report said the slow pace of structural change and attaining compliance with requirements would remain a problem and could become a key factor hindering the sector’s development.

LATVIA

In Latvia, agricultural sector reform proceeded at a faster rate than in Lithuania and Estonia, with 95% of agricultural output coming from the private sources as of 2000.

Latvia is self-sufficient in cattle and dairy products, pork, sugar beets, flax and potatoes. Surpluses are exported to Russia, other republics of the CIS and the E.U.

Decreases in grain production immediately after independence stemmed from structural reforms; a lack of modern technology and the money to buy it; distribution problems, particularly from small private farms; and an absence of bank credit combined with high interest rates. But after the mid-1990s, production recovered to levels reaching near self-sufficiency.

Average annual wheat output for the past five years is 405,000 tonnes, with average use at 423,000. Of that use total, 67% is for food.

The most important products, measured by their share of the value of agricultural output, are grains (16.5%), potatoes (9%), vegetables (4.4%) and sugar (4.2%).

A strategic policy goal under the Law on Agriculture is "to develop agriculture into a competitive sector in terms of product quality and cost efficiency, capable of manufacturing goods complying with the world market requirements."

Food sector privatization has been completed, and the sector also has many newly formed small processing enterprises. Although capacity utilization is characterized as low, food processing in 2000 contributed about 27% of total industrial output.

According to government figures, about 225 food processing enterprises of various types operated in Latvia in 2000, a number that included a total of 14 flour mills and feed producers and 55 bread, pastry and cake producers. Official "concentration indexes" showed that the four largest flour-feed makers had a market share of 72%, with the remaining 10 enterprises sharing the remaining 28%.

Although Latvia exports some of its agricultural output, the domestic market is primary, and here, consumer purchasing power and preferences play a large role in guiding demand.

As of early 2000, nearly one-third of total caloric value was provided by bread and cereals, followed by potatoes and sugar. On average, Latvians consume 86 kg of bread a year, with 45% of the bread market consisting of wheat bread, 45% rye bread and 10% pastry breads.

LITHUANIA

Lithuania also experienced changes in its farm structure, declining grain output and an eventual recovery as the sector adjusted to reforms.

Private commercial farms by 2000 accounted for 60% of all cropped area, with small households accounting for 20%. And, according to the state Statistical Office, the number of farms declined to about 477,000 as of early 2001 with an average size of 7.0 ha.

Measured by share in the value of agricultural output, grains are the largest agricultural segment at 17.2%, followed by potatoes at 10.4%.

Wheat production in the past five years averaged about 1.1 million tonnes a year, with total use at 940,000. About 57% of that use is for feed.

Lithuania’s per capita consumption of bread and grain products has declined since reaching a high of 153 kg in 1998. Per capita use in 2001 was put at 131 kg, still ranked as the highest of the three Baltic states. Lithuanian officials forecast that grain consumption for food will continue to decrease, but that grain for feed use should increase.

Lithuania’s flour production since independence has taken a big hit. In 1990, flour output stood at about 467,000 tonnes, but sank to a low of 205,000 in 2000. Flour production has increased slightly since that low, reaching an estimated 214,000 in 2002. Still, the industry is looking for exports to help recover demand.

KEY FACTS

ESTONIA

Capital: Tallinn.

Demography: Population 1.4 million (July 2003), -0.49% growth rate (2003 estimate); Estonian language; Evangelical Lutheran, Russian Orthodox, Estonian Orthodox religions.

Government: Parliamentary republic. Chief of state is President Arnold Ruutel, head of government is Prime Minister Juhan Parts.

Official agricultural agencies: The Ministry of Agriculture, under Minister Tiit Taamsar.

G.D.P. per capita: U.S.$11,000 (purchasing power parity), 6.0% growth rate, 3.7% inflation, 12.4% unemployment (2002 estimates).

Currency: Kroon (EEK), Euro after May 2004 accession. April 12, 2004 exchange rate: 12.9625 EEK = 1 U.S. dollar; 15.6466 EEK = €1.

Exports: U.S.$3.4 billion f.o.b. (2002), machinery and equipment, wood and paper, textiles.

Imports: U.S.$4.4 billion (f.o.b., 2002), machinery, chemicals, foodstuffs.

Major crops/agricultural products: Potatoes, vegetables, livestock and dairy products, fish.

Transportation: Highways, 51,411 km, 10,334 paved; railroads, 968 km, all 1.520-m gauge; Tallinn, Muuga are major ports.

Internet: Country code, *ee; 38 service providers (2002); 429,700 users (2002).

LATVIA

Capital: Riga.

Demography: Population 2.3 million (July 2003), -0.73% growth rate (2003 estimate); Latvian language; Lutheran, Roman Catholic, Russian Orthodox religions.

Government: Parliamentary democracy. Chief of state is President Vaira Vike-Freiberga, head of government is Prime Minister Indulis Emsis.

Official agricultural agencies: The Ministry of Agriculture under Minister Martins Roze.

G.D.P. per capita: U.S.$8,900 (purchasing power parity), 6.1% growth rate, 2% inflation (2002 estimates); 7.6% unemployment (2001 estimate).

Currency: Lati (LVL), Euro after May 2004 accession. April 12, 2004 exchange rate: 0.538658 LVL = 1 U.S. dollar; 0.650159 LVL = €1.

Exports: U.S.$2.3 billion (f.o.b., 2002), machinery and equipment, wood and products, foodstuffs.

Imports: U.S.$3.9 billion (f.o.b., 2002), machinery, chemicals, fuels.

Major crops/agricultural products: Grain, sugar beets, potatoes.

Transportation: Highways, 73,202 km, 28,256 paved; railroads, 2,347 km, all 1.520-m gauge; Riga, Ventspils are major ports.

Internet: Country code, *lv; 41 service providers (2000); 312,000 users (2002).

LITHUANIA

Capital: Vilnius.

Demography: Population 3.6 million (July 2003), -0.23% growth rate (2003 estimate); Lithuanian language; Roman Catholic (primarily), Lutheran, Russian Orthodox religions.

Government: Parliamentary democracy. Chief of state is President Rolandas Paksas, head of government is Prime Minister Algirdas Mykolas Brazauksas.

Official agricultural agencies: The Ministry of Agriculture and Forestry under Minister Jeronimas Kraujelis.

G.D.P. per capita: U.S.$8,400 (purchasing power parity), 6.7% growth rate, 0.8% inflation (2002 estimates); 12.5% unemployment (2001 estimate.).

Currency: Lita (LTL), Euro after May 2004 accession. April 12, 2004 exchange rate: 2.86056 LTL = 1 U.S. dollar; 3.45280 LTL = €1.

Exports: U.S.$5.4 billion (f.o.b., 2002), mineral products, textiles, foodstuffs.

Imports: U.S.$6.8 billion (f.o.b., 2002 estimate), machinery and equipment, transport equipment, clothing, metals.

Major crops/agricultural products: Grain, potatoes, sugar beets, flax.

Transportation: Highways, 75,243 km, 68,97 paved; railroads, 1,998 km, 1,807 1.5245-m gauge; Butinge, Kaunas, Klaipeda are major ports.

Internet: Country code, *lt; 32 service providers (2001); 341,000 users (2002).

(See related charts of Baltic State's Wheat Production in WG's May digital edition.)