Currently, there are very conflicting forecasts regarding both the development scenarios of the economic situation and the risk of food shortages. Essentially, we had just overcome the crisis caused by the pandemic, and now a new one has begun—due to Russia's aggression in Ukraine—which seems to have had much more severe consequences for the global economy. How do farmers view the situation today and in the near future?

Your question is as complex as the answer itself. I will start with the crisis caused by the pandemic. It must be admitted that we had never before experienced such a situation as arose with the pandemic. We have had various crises—droughts, prolonged rainfall, and various other problems. Essentially, every sector tends to have different crises—from time to time there is a price drop—but the pandemic caused a general crisis when many industries were shut down, which affected food producers and processors. For example, during the pandemic, travel was impossible, borders were closed, and neither hotels nor cafes—the HoReCa sector—were operating, so there was no need for food raw materials there either. It is clear that this significantly affected everyone. The first thing we did at that moment was to create a crisis management group, which included specialists from the Ministry of Agriculture, food producers and processors, and traders—in principle, all parties involved in the food supply chain. Since the borders were closed, the very first question raised in this working group (and never before viewed from such an angle) was whether we could feed ourselves. At that moment, it worried everyone, and moreover, we had never looked at this aspect before. The good news is that we concluded we can feed ourselves fully, except for a few areas—poultry and pork, which we produce less of than we consume and therefore import the missing portion. However, in general, we have no problems with the food supply for Latvia's internal consumption, and overall, we can provide for ourselves. For example, we produce significantly more milk and grain than we consume, and we also process grain into other products—bread, pasta. At the same time, this realization forced us to draw significant conclusions for the future: that food security should be a priority in all sectors, so that in any situation we could eat fully on a daily basis—so that we wouldn't, for example, have to rely only on one type of product. Therefore, in our opinion, the state's agricultural provision must be such that all agricultural sectors operating in Latvia are able to produce food in the necessary volume—meat, fruit, vegetables, milk, and everything else.

Currently, the working group continues to operate—even now, in the war situation, we are constantly analysing the situation, and if any sector needs to discuss certain issues promptly, we do so within this working group.

In this context, we—the farmers—are increasingly realising that food production and food security should actually be considered a national security issue. That is essential!

Currently, in connection with food, there is growing concern about prices, as we see inflation figures rising already, and it looks like this jump will not stop in the coming months. What will the situation be in the food sector this year? It is implied that farmers will be able to produce food in sufficient volumes, but what will it all cost?

Since, unlike during the pandemic, the borders are not currently closed and cargo transport is not so heavily hindered, we will generally be able to provide for ourselves in terms of food in both the Latvian and European context. That is not the problem. What makes us (the farmers—Ed.) anxious is the purchasing power of the people. The current observations of traders are also worrying because they can clearly see how the food basket that people buy at the store is changing, and that basket is becoming leaner—people carefully evaluate what they buy each time, and the basket is getting thinner in terms of content and also total volume. And my worry is whether the residents will be able to buy the food they need in the necessary amount.

As I already mentioned, producing food will not be a problem; for example, the harvest of grain (used both for food and animal feed)—as it looks right now—could be very good. Of course, we do not know what the weather will be like in a couple of weeks or a month, on which so much depends.

Talking about the rise in food prices, several factors must be mentioned. One is the production cost price, which has currently risen significantly. If we compare it with the very beginning of the pandemic—which was characterised by a significant drop in the milk purchase price, at which time the milk price was below the cost price (the average price was about 26 cents per litre of raw milk). Currently, the average milk purchase price is about 50 cents per litre, and this price is slightly above the cost price. Essentially, dairy producers—generally speaking—cannot complain about such a price right now. However, the emphasis here is on the word 'slightly' above the cost price, because the rise in raw material prices is enormous. To mow the grass and collect silage, fuel is required, the price of which has risen significantly. And the next story—the rise in the milk cost price and, consequently, the price, drives up the cost price of milk processing, and as a result, the milk processing sector is currently operating below the cost price. Prices in stores are rising, but they have not risen enough to cover the processors' cost price. Therefore, the government approved support programmes for certain sectors that are truly in a crisis situation right now. But here again is another nuance—on the one hand, we see that we can import and accordingly purchase cheaper dairy products from Poland, but then we must realise—if we act this way, we will destroy our milk processing industry. And what will happen then? At that moment, we will no longer be self-sufficient, as we will no longer be able to process the milk we produce for ourselves, which will create security risks in terms of food supply. That is why it is important to implement balanced action from all sides—to look at this issue comprehensively.

What exactly allows both Polish and, to a certain extent, Lithuanian processors to offer a lower sale price for dairy products than Latvian entrepreneurs?

It is the difference in volume—Poland has enormous volumes.

However, it seems it would be only logical and understandable that at the moment when a buyer has to make a choice at the store shelf, they will, with their wallet in the current price avalanche, at some point pick the cheaper Polish milk. In your opinion—what can we do in this situation to balance this, so that Latvian buyers do not, due to objective reasons, have to completely replace Latvian-produced food with cheaper imports?

There are several factors here. In any crisis, there is a portion of society that can afford a specific product, no matter what its price is, but this portion of buyers is not that large, and it is precisely for this reason that these buyers should be even more aware that by buying a product produced in Latvia, they are to some extent protecting the local market. We have never objected to the buyer's choice—if they want to buy imported milk, that is their right, but the results of a survey conducted a few years ago showed an interesting nuance—often the buyer does not even know that they are actually buying an imported product, and they buy it with the thought that it is of local origin. The name and design of the product are very Latvian, but somewhere in small print, the true country of origin is indicated.

And one more factor—we always appreciate it when the government provides support to sectors in crisis situations, but it is important to emphasise—those sectors that receive help must also assume obligations. They are helped, but accordingly, they undertake not to stop the production of specific products; in certain crisis situations, these sectors undertake to ensure the state's primary needs and supplies.

Of course, in this context, we must not forget that we are in a single European market, where there are specific conditions regarding the granting of state aid to national companies. But if we look, currently there are very similar problems in all European countries. That is why this year the European Commission met all countries halfway, announcing that all those lands which, according to previous conditions, farmers had to leave uncultivated as fallow, can be cultivated this year—sown with agricultural products. Essentially, there is an understanding even at the EU level that in current war conditions, there is an opportunity to deviate from regulatory requirements so that European farmers can produce food in sufficient volumes and so that it is not very expensive. Of course, the rise in resource prices will still make food more expensive, but food produced in larger volumes could slow down the price increase, which is why the LOSP also called on farmers to use this EU permission this year.

There is still the tax rate as an instrument to regulate prices, including for food. In many countries, they are currently reducing not only fuel taxes but also VAT on food—by setting a significantly reduced rate, or in some cases, abolishing the tax for a time. In Latvia, for some reason, this idea seems completely absurd to politicians.

We have for a long time emphasised to the Saeima and the government that a reduced VAT rate for food products would positively influence the end consumer. We have had many long debates on this issue with politicians, including government representatives, but we have not arrived at such a solution so far, so we continue to discuss it. The other side's argument is that, in the case of a VAT reduction, stores will simply earn more because prices will remain unchanged. At the same time, we have even had an agreement with representatives of supermarket chains, who point out—similarly to the moment when the euro was introduced in Latvia—they are ready to sign up to be fair implementers of the VAT (reduced rate—Ed.) and follow prices to ensure they truly decrease. Because it is also in the interest of traders not to scare off the buyer when seeing that people's purchasing power is decreasing. Therefore, we will continue to debate this issue with politicians, especially in this pre-election year—we will talk about it both with politicians currently in the Saeima and those who are not yet in parliament but will be candidates in the elections. We still want to achieve an understanding among politicians that this (VAT reduction for food goods—Ed.) could be a solution.

Currently, a reduced VAT rate is applied to vegetables and fruit typical for Latvia. Even before the introduction of this rate, there were heated discussions between supporters and fierce opponents. However—if memory serves—in the end, a real benefit from the reduced rate was felt. Of course, there were various interpretations in 'Excel' debates. How do you think, will society force the opposing politicians to make a decision on VAT reduction this time? Although in the last few months, we have experienced how strongly dismissive some of the politicians in power are regarding calls to reduce the excise tax on fuel, even though in Europe we see many good examples where they are trying to mitigate the crisis by reducing both excise tax and VAT. In the end, no one is asking politicians for an open-ended tax reduction; they could set it for a year or two.

It is difficult to answer for the politicians what they will decide. In a way, I also understand their arguments. The support that the government provided on borrowed money during the Covid-19 time was also a very commendable action, and many sectors appreciate it greatly. We understand that the budget is not limitless and the money we spend has to be earned. However, you correctly formulated the essence of the problems—there is a crisis situation, perhaps there are some time-limited solutions. At the moment when politicians say—this will not work (for example, VAT reduction), I always try to ask the question: how can it be that there are four countries left that think it will not work, but all others, including wealthy countries, say that it works? It seems to me, however—if we are in a unified European Union market, then it is important to apply similar mechanisms, seeing that such solutions work after all. Politicians say that instead of reducing VAT, they need to implement targeted support for those citizens who need it. I have also analysed this issue. In a way, it is a double-edged sword. It is stated that VAT will not be reduced so that those who can afford it buy at a high price, but we will help those who cannot afford it. I cannot really even define right now what should be considered the middle class in Latvia, but let's assume that you and I are the middle class—we have a set monthly budget, with which we have provided for our needs until now. But currently, the costs of a number of daily necessary services have risen significantly—for electricity, fuel, and heating. We understand that now the middle class will have to allocate, for example, around 200-300 euros additionally for these payments. That means that they will have to save these 300 euros from that middle-class family budget somewhere—accordingly, these people will not spend 300 euros on something else as they have before. Let's think—what will we no longer spend this money on? If a chair breaks in the kitchen, you will no longer go to the store to buy a new one. Likewise, you will no longer buy as expensive food, or you will walk in your existing shoes longer; in other words, you will shop less. But now let's watch what happens next—if a person does not go to the store for a new chair, which some local company produces—this company will not have orders, and accordingly, a deficit in income arises. This system is fully interconnected, and with the story that we only support the layer that needs it most—by essence, that is already correct, but we do not think that along this chain we are hitting back at the same person who works in the furniture factory. It is not that simple, and everything must be looked at in connection. Of course, I allow that everyone is acting with good intentions and trying to understand, but it is not that simple, and that is precisely why ministry specialists and officials must look for solutions, listen to the opinion of entrepreneurs. Returning to the reduced VAT on fruit and vegetables—those forecasts about minuses in the budget were several times larger than they were in reality, even without counting that the fruit and vegetable production sectors raised wages, and the industries started producing more. Namely, on one hand, we gave the opportunity not to raise prices (even if they did not fall that much in stores), but on the other hand, the sector developed much more, and through higher wages and income, paid more in other taxes; moreover, the earned money returned to the economy anyway. In my opinion, in the context of reduced VAT, the most significant thing is that we say—we don't need it for the rich. But who are the rich in our society? Those who, by not spending so much money on food, accumulate it. If we allow a person not to spend so much in one area, for example, food—let us remember that around 80% of our society lives from paycheck to paycheck—they will spend that money on other needs, and that VAT will return to the state in any case. I think there are no minuses there. On paper, of course, it looks like large minuses, but in real life—I am ready to claim—that is not the case.

What does the year look like for farmers in terms of harvest, essentially the production of output? Is it hopeful, or are there factors that could affect the situation?

The feelings are anxious. Currently, it looks hopeful, but taking into account the previous couple of years and the events this year, there is no such clear conviction that at some moment something cannot be bad, even not speaking about the weather, which at any moment can significantly affect the situation—from this aspect we cannot avoid it at all—as nature does, so it happens, and we will have to adapt. But the whole other situation in the world globally and also in the immediate vicinity is so strange that it is impossible to make any forecasts. In agriculture, one cannot do without mineral fertilisers; we look at those prices and think—one year one can perhaps not fertilise that field, but if one takes something from that field, one must give it back, but resource prices are currently very high, and an unanswerable question is—what will happen after 1-2 months, even after a week. Therefore, farmers have great concern—on one hand, we do everything we can and know how to produce the product and ensure it is of high quality, but at the same time, there is fear that at any moment anything can happen that can turn the market upside down, and in this situation, you really cannot do anything except adapt to circumstances. There are larger farms with larger resources—they are trying to build some raw material reserves to protect against further price increases. But from the point of view of general feelings—the year looks so far more or less satisfactory; we are hoping for good harvests and accordingly good production volume, but how it will be in the autumn is impossible to forecast.

Due to Russia's aggression in Ukraine, there are forecasts that a grain deficit could arise in the world. Russia is being heavily sanctioned, while from Ukraine, due to the Russian blockade, it is almost impossible to export grain. In Latvia, overall, quite a lot of grain is grown—could this situation create an opportunity for Latvian grain growers to sell grain products at better prices in world markets?

There are several aspects here. If the situation remains as it is today—then yes. But again, an additional factor is resource prices, including fuel, which is necessary for harvesting. However, at such prices, this could be a good year for grain growers with good profit. You are right that Russia and Ukraine are large players in the global grain market and significantly affect it. But currently, for several weeks now, we have also been hearing about international-level negotiations regarding the necessity to provide the opportunity to export grain from Ukraine. We, on one hand, understand well what Russia is doing, but on the other hand, we understand that Ukraine wants to gain financial funds; moreover, they have large grain stocks from last year's harvest, and the new harvest will start soon. I do not know whether and what exactly is being talked about right now by European and Ukrainian politicians with Russian politicians and whether some agreement will be reached (on grain export—Ed.), whether via the Black Sea by ships or by rail. But if this grain reaches the total world market, it will definitely create a significant impact. Let's think—if the Ukrainian grain market opens in Europe right now—how will that affect the price of grain? It is clear that it will fall, moreover in conditions where we in Latvia have produced grain at a much higher cost price. However, it is not clear right now—whether, how, and when that could happen. But again, it must be understood—if nothing like that happens (the possibility for Ukraine to export grain—Ed.), then people in Africa will die of hunger.

But there is one more nuance, which again is directly related to Latvia's internal market—we understand that grain has a very good price, and grain growers can earn well, but let's remember that grain is a raw material for a large part of the production that we use for food. Namely, we need livestock-quality grain, which we usually have imported because we have produced food-quality grain ourselves, part of which we export. That has always been logical, because importing livestock-quality grain has always been cheaper than growing it ourselves. What is happening right now? Currently, we are thinking about how to fully ensure the feeding of poultry and livestock, which, possibly, will mean keeping some more of the produced output in Latvia, because we do not know if there will be an opportunity to buy feed grain in external markets. But if this local producer's grain is of food quality, then it will be more expensive, but that, in turn, means that the price of milk and meat will increase.

Consequently, it must be said—there are currently extremely many unknowns to be able to forecast the development of the situation with any certainty. The only thing I can express again—if no cardinal events happen in the world and the weather is also favourable—there is and will be enough food in Latvia, but it will cost more, and a part of society will need help, either in purchasing full-value food or covering other necessary expenses. And in certain crisis moments, the state must still come to the aid of society—whether it is energy price subsidies or a real estate tax discount for a year, it is not decisive. But it is clear that help will be needed. And once again I will emphasise—we all must understand that food security is a national security issue, and it is exactly like that it must be looked at.
Photograph by Donal Boyd used