A year after Russian sanctions: how is agriculture in Estonia doing?

In the closing week, Statistics Estonia updated several indicators regarding agriculture. At the same time, there came more news of swine flu spreading to new farms, which have already suffered greatly as a result of the closed Russian market and very low market prices.

This week also marked one year since Russia imposed sanctions on many food products imported from the European Union. For this reason, this weekly commentary focuses on the agricultural situation – what is Estonia producing and exporting, and how have the difficult circumstances affected us?

How important is the agricultural sector to Estonia’s economy?

In 2014 there were slightly more than 16,000 persons employed in agriculture, comprising 4% of the total workforce. The importance of farms is, of course, far greater in rural areas, and in some rural municipalities the local farm might even be the biggest employer. Agricultural products and services produced last year amounted to around EUR 900 million, with a net added value of EUR 222 million to the economy. In comparison, the total added value of Estonia’s economy was around EUR 17 billion. While agriculture’s financial contribution seems small, domestic raw material forms the basis for Estonia’s food industry, which is a major employer and grower of national wealth.

What is Estonia’s agricultural industry producing?

In 2014, the most important part in Estonia’s agricultural production was played by stock-breeding, accounting for 48% of the total value of agricultural production. The total value of crop farming was 43%; the remaining production was made up of various services and other production. Milk was the most important product, with production amounting to nearly EUR 250 million last year, accounting for 58% of total stock-breeding production. Pork production, which is currently being threatened, placed a respectable second with 20% of stock-breeding production. Poultry and beef both accounted for 7% of stock-breeding production, with the share of other production types being lower.

Crop farming production was somewhat more varied: while wheat production formed the biggest part financially (24%), a significant part of production was also made up of various types of grass fodder (19%), barley (16%), and oilseed rape (14%). Potatoes, a favourite of Estonians, made up 12% of total production.

How have the prices of important agricultural products changed?

Compared to 2013, the prices of primary agricultural products have fallen. The price of milk has fallen most – while last year producers could get above EUR 400 for a ton of milk, by July of this year the price had fallen to nearly EUR 230. Besides Russian sanctions, the decline in milk prices is also due to the end of the milk production quota system of the European Union, which increases supply and forces prices down. Regionally, milk prices in the Baltic States are also influenced by the seasonal nature of outside herding: in summer, supply is greater and prices are lower. Low prices have also put pork farmers in a difficult situation. While pork sold for EUR 1800 per ton in 2013, breeders now have to settle for EUR 1550 per ton. Grain producers have fared somewhat better, with grain having lost less than 10% in price compared to 2013. The falling prices of milk and pork are largely due to the sanctions imposed by Russia, which for a year now have prevented Estonian farmers and food producers from marketing their meat and dairy products there. The prices of grain and oilseed rape have fallen somewhat as a result of very good yields in previous years and the resulting increase in supply.

What has happened in terms of the exporting of agricultural products?

Measuring agricultural exports is quite a difficult task, since the assortment is vast and products get classified under different product groups according to their added value. Likewise, not all raw produce and products sold abroad are of Estonian origin. In recent years, live animals and animal and plant products have made up around 5% of Estonia’s total exports. Combined with the exporting of fats and processed food products, the share of agricultural products in exports is 10%. The most important export articles are milk, dairy products and eggs; various beverages and alcohol; fish and fish products; meat and meat products; and grains.

Based on the first five months of the year, the exporting of agricultural products and food products has decreased by 15%. Considering the closing off of the Russian market and the fact that the prices of several product groups have fallen significantly, such a small decrease is actually surprising. The decrease has come precisely at the cost of the exporting of animal products and processed foods, while the exporting of plant based products has actually increased 16% compared to the previous year. Out of the biggest product groups, the exporting of milk, dairy products and eggs, has decreased the most (-37%), along with beverage and alcohol exports (-36%). At the same time, grain exports have actually doubled when comparing the first five months of both years. Grain exports have increased as a result of last year’s good yields, which could not all be exported in 2014.

Naturally, the biggest decrease in terms of target countries is towards Russia – nearly 60%. While in the first five months of last year Russia dominated as a target country for agricultural products and food exports, this year Russia has actually fallen into fourth place. Exports to other primary target countries have also decreased: Finland -1%, Latvia -12%, and Lithuania -23%. Some re-aligning onto the markets of Germany, Sweden and other countries has been possible.

What does the future hold for agriculture?

In the short term, finding new markets is of critical importance for Estonia’s meat and milk producers. Russian sanctions will likely remain in effect for an extended period of time and, as a result, competition is heavy. Prospects are better for entrepreneurs who are able to extend the shelf life of their products, making it possible to export to places further abroad. The European Commission estimates that in the medium-term the outlook for meat and dairy products will be favourable due to ever increasing global demand. The depreciation of the euro, compared to many other currencies, also helps. The spread of swine flu has already put several producers out of business and threatens others with sales restrictions. Farmers who have taken effective countermeasures to fight the epidemic should face better marketing opportunities as a result of decreasing supply. The life of grain producers, meanwhile, looks to be rather calm in the near future.

Mihkel Nestor
Economic Analyst, SEB

For more information:

Maarja Gavronski
Project Manager for Communication
Marketing and Communications Division
SEB Pank

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