Agriculture

Financial analysts of Lithuania state in unison the following: agriculture is most resistant to the crisis. The industrial and building sector have drastically declined due to the economic crisis; however, farmers did not experience such cataclysms. Why?

Leader in economics

In 2009, the gross domestic product (GDP) in Lithuania, as compared to that in 2008, decreased by as much as 15 per cent. That was a great shock to the entire economy, industry and consumers of the country. At that time Lithuania was on the list of the states of the European Union, which have experienced the greatest losses due to the crises.

However, the same statistics showed that during the year 2009 that was the hardest one for Lithuania, the growth of GDP was recorded in two sectors of economy – agriculture and fishing industry. If representatives of other branches of industry could only dream about slighter losses, representatives of the agricultural sector took pride in the growth of 1.6 per cent. Though this figure is small, it still means growth. For example, in building sector value added has dropped by as much as 43.3 per cent, and in the sector of trade, transport and communications the fall accounted for 17.3 peer cent.

Financial analysts and the highest officials of the country’s authorities noted that it was manoeuvrings of the companies of the agricultural sector that helped the boat of economy not to sink to bottom during the hardest times.

As Rimantas Rudzkis, chief analyst with DnB Nord bank noted, agriculture is the only sector of economy to have been hit by the economic crisis least.

Historically, this business has always been one of the most significant ones in Lithuania. Agriculture creates a relatively large share of the gross domestic product, as compared with the average of the European Union.

“Agriculture is that branch of economy, which revives our economy, creates the gross domestic product. Statistics show that every Litas invested in agriculture brings one Litas and a half later. Our Government understands it very well and devotes great attention to it”, stated Minister of Agriculture of the Republic of Lithuania Kazys Starkevičius.

Workers of the agricultural sector in Lithuania take the lead according to the use of funds allocated by the European Union. Farmers outstrip greatly representatives of other spheres. Last year, at the end of the year, more than LTL one and a half billion was paid out of LTL 7,8 billion allocated to the Rural Development Programme for 2007-2013. Beneficiaries were given many privileges therefore their flow did not decrease. This only testifies to the fact that during the crisis agriculture might become a flagship of Lithuania’s economy.

Results depend on export

As the financial analyst Rimantas Rudzkis notes in the microeconomics review, the development of production and export of the country’s largest branch of industry – food industry – depends on the agricultural results.

Lithuania’s agricultural sector is of a sufficiently high level to meet challenges of globalisation. The least losses during the crisis were incurred on resourceful managers of agricultural companies, processors, who found export markets.

According to the Director of the Lithuanian Institute of Agrarian Economics Rasa Melnikienė, during the crisis agriculture remained one of the most important exporters in Lithuania. During several past periods agriculture managed to achieve certain essential qualitative changes, which were determined by several reasons.

First, during several past years demand for agricultural products was on the increase in the world therefore buying up prices grew. The second reason is that after joining the European Union Lithuania’s agriculture receives assistance (direct and compensatory payments, assistance to investments).

For example, Lithuanian cheeses have been working their way to international market for more than ten years. Every year more and more cheeses are being exported. And after the crisis had hit the country, larger amounts of cheeses were exported than before the crisis.

"Lithuanian cheeses have become the main part of dairy products being exported. Long and hard work bore fruit, and even the crises could not affect the results”, summed up the Director of the Economics Department of the Ministry of Agriculture Vygantas Katkevičius.

Large amounts of cheeses are sold not only in Russia but also in the countries of Western Europe. Some cheese products are unique; they have no analogues on the markets of foreign countries.

Another example is that Lithuanian pork has always enjoyed great demand in Russia. However, at the present time the Lithuanians export live pigs especially successfully. The amounts being exported have doubled. “This is determined by demand for these products in Russia”. Simply there is a shortage of pork in Russia because the westerners have built modern meat processing enterprises in that country, but there is a lack of raw materials. Our manufacturers make use of that”, characterised the situation Vygantas Katkevičius.

It is easier for farmers

Labour market specialists also note that farmers find it much easier to go through the crisis than do other businesses in Lithuania. Of course, prices fall, salaries decrease, but farmers can be happy with the fact that people will have to eat all the same. Demand for their products will remain and they will be paid for them. Hence, people working in efficient agriculture are not threatened by danger of becoming unemployed.

The Ministry of Agriculture of the Republic of Lithuania conducted the investigation “Assessment of the efficiency of the European Union assistance to agriculture and rural development”. Prospects of agriculture were studied in the investigation. The conclusions of the researchers surprised nobody – today prospects of agriculture are the best ones because there is assurance. Of course, the bad thing is that prices are too low but on the other hand prices of recourses used for production are also falling. Hence, the investigation shows that the situation is not so bad.

At the present time projects of the agricultural sector are the only ones to be financed, they can be implemented and loans to banks can be paid back.

Investors do not grudge good words

Foreign investors in Lithuania also confirm that agriculture and people working in it are the most resistant to economic shocks. Upon arriving in Lithuania they do not conceal their surprise at farmers’ success.

For example, upon arrival in Lithuania, the heads of the world largest agricultural equipment manufacturing company John Deere stated that this branch of industry would overcome economic recession easier than other spheres of business.

Robert W.Lane, Director General of John Deere, decided to see for himself the country in which demand for production manufactured by the Company he heads increased dramatically. In 2008, the Company Dojus agro situated in Kaunas district sold more than 500 pieces of various kinds of machinery manufactured by John Deere.

“We are interest in the success story of every country. We want to see how our best representatives work”, R.W.Lane, Head of the Company, did not grudge good words to the representatives in Lithuania. According to him, agriculture has only one recipe for success not only in Lithuania but also all over the world.

“People have to eat. Food must be prepared, therefore farms of high efficiency of labour will always have who to sell their products to”, R.W.Lane.

Farmers have become flexible

Hard times make people reconsider their activities and look for a better and more direct way to the user. The crisis posed a threat to small farmers, growers but last year they found their niche. During the year 2009, the campaign of developing small mobile markets infected two largest cities of Vilnius and Kaunas. Farmers sell their organically grown products there, and city dwellers stand in lines to buy natural meat, healthier fruit and vegetables. Production of supermarkets is loosing part of their consumers. “During the crisis farmers became more flexible”, noted Minister of Agriculture Kazys Starkevičius.

Mobil markets, which function in the largest cities of the country, do not only encourage people to buy directly from the farmers but also fulfil a certain social function. Farmers assure that such trade, which helped them to go through the crisis, would not come to an end after the crisis was over either – it is very important to be independent of the resellers who take huge profits.

Mindaugas Maciulevičius, coordinator of the project of the Lithuanian Chamber of Agriculture Ūkininkų turgeliai (Farmer’s Markets) states that mobile markets that appeared in Vilnius and Kaunas in 2009 did not only encourage to buy products directly from Lithuanian farms (such was the primary aim of this project) but also fulfils a certain social function. “At the same time these are meetings, conversations. By joining life of the urban community we want to contribute to strengthening and improving the urban community. We bring the atmosphere of a real market, and create a certain holiday. This is not only a place of selling but it is also a dialogue between the country and town”, said Mindaugas Maciulevičius.

According to him, the tradition of such a market in Lithuania has almost disappeared during the past decade. Mindaugas Maciulevičius, one of the initiators of the project of mobile markets, states that these places occupy an intermediate place between illegal small marketplaces and large markets.

"Farmers are not large producers. They can correct their production, procedures flexibly enough, and tomorrow, if the buyer finds the cheese too salty, he will deliver a sweeter one to him. This is a natural niche in which we can adapt ourselves to the expectations and desires of our buyers,” explains Mindaugas Maciulevičius.

Dairymen made up their minds to establish a cooperative

During the time that was so hard to economy last year, Lithuanian farmers came up with plenty of good ideas. After the farmers’ markets in which butchers, vegetable growers played masters spread and became popular, the turn for dairymen came. They decided to create large milk processing cooperative Pienas LT in which all milk producers will be able to be partners. There are many such examples in Europe. The site has already been chosen for the building of the cooperative, and the establishment of Pienas LT should receive assistance from the European Union. It is planned that processing capacities of the factory being built will reach at first 650 tons of milk per day, and in the future it is planned to double the capacities up to 1200–1500 tons per day. Earlier it was mentioned that the project might preliminary cost about LTL 100 million.

The future factory of the cooperative will produce milk and whey albumins and casein. “This is a commodity sold in the exchange, therefore we can sell it in any exchange to any country of the world. Costs of export are not high, therefore the distance does not play great importance”, explained the Director of the Lithuanian Chamber of Agriculture Bronius Markauskas. At the present time Pienas LT exports about 100 tons of milk to Poland per day.

Why have dairymen made up their mind to establish a new milk-processing factory during these hard times? Farmers strive for independence and are still displeased with milk buying up prices, which are dictated by other Lithuanian milk processors.

By the way, the Minister of Agriculture Kazimieras Starkevičius and the Prime Minister Andrius Kubilius, as well as President Dalia Grybauskaitė, have expressed approval of the building of a dairy-processing factory.

The future of the sector is promising

According to the chief analyst of DnB Nord bank Rimantas Rudzkis, agriculture is further going to be the most potential “locomotive” of Lithuania’s economy. Rimantas Rudzkis states that when assessing the long-term perspective of agriculture in general terms, it is possible to forecast its growth for the simply reason that the populations of China and India are increasing, hence, demand for agricultural products also increases.

“Of course, there are many problems, but looking at the future, one can say that the food sector is really viable”, says the chief analyst of DnB Nord bank Rimantas Rudzkis, According to the analyst, there are good prospects for dairy husbandry and cattle breeding in Lithuania.

 
The analysis of the economic development of the country “Lithuanian Economic Perspectives” prepared by DnB Nord bank states that the value added fell in agriculture the least. Hence, it seems that agriculture is the only sector of economy, which has been hit by the crisis least. This is confirmed by the surveys conducted by commercial banks whose results show that this branch of economy is assessed in the positive.

Analysts of DnB Nord bank make the supposition that with the situation in building, transport and other sectors worsening, a part of people will naturally go back to the country. That is why it is necessary to implement advanced technologies, attract foreign investments, and create the system of training specialists of high qualification.

“It is time Lithuania realised that agriculture is not only a lifestyle, but it can also be a very profitable business”, states the analysis of “Lithuanian Economic Perspectives”.

According to the Director of the Lithuanian Institute of Agrarian Economics Rasa Melnikienė, agricultural potential will depend on how this sector will manage to adapt itself to gradual liberalisation of the market.

“In assessing the agricultural potential in the future, I want to draw attention to the fact that soil is the main natural resource of Lithuania and we must make an effective use of it. There are really many alternatives – it is not only production of food but also the possibility to provide oneself with alternative energy, to develop forestry, recreation and tourism.

According to the Director of the Institute, investments in modernisation of agriculture determined a very rapid rise in labour productivity and a decrease in employment in agriculture. This is a result of technological progress, which all industrial countries experienced several decades ago. At the present time only one the fourth of the employed in the country are farmers in Lithuania, and the largest part, as in the old member states of the European Union, work in the sector of services.

The agricultural sector is and will be in the future one of the most significant sectors of rural economy.