Integration will shrink food industry

The Baltic Times, TALLINN
May 18, 2000
By Kairi Kurm

Only one fourth of the Estonian food enterprises will survive European integration, PricewaterhouseCoopers reported to the Ministry of Economic Affairs.

“The number of Estonian food industries has swelled,” said Tanel Tang, specialist from the ministry.

“During the Soviet period, Estonian enterprises were capable enough to produce and sell their products to the large northwestern part of Russia and the Leningrad region. When the Soviet Union collapsed, these markets disappeared. The decrease of production was steep and has lasted until today,” said Tang.

There are 41 dairies, 120 fish processing and 281 meat- packing enterprises in Estonia. According to PwC, about 100 to 150 are likely to survive European integration. According to the pessimistic scenario, the number of enterprises could be even smaller – 60 to 80 companies.

“The reduction of enterprises does not necessarily mean that the volume of Estonian food industries will decrease,” said Tang. He said the existing technologies enable processors to produce more to market, so surviving enterprises will work more efficiently when they start using all of the production capacities.

“Besides the problem of over-capacity, companies have very limited resources,” said Tang. Estonian companies need investments before they are ready to go on the European market.

“Food industries do not make enough profit to cover the necessary investments before European integration. Some have borrowed so much they are not able to pay it back,” said Kaili Roonet, finance director at Tallegg meat packing industry.

She said Tallegg had done most of the necessary investments in technology and is almost ready for European integration. At present only 20 percent of the company’s production is exported.

Tang said that Estonian meat packing enterprises have difficulties with exporting their products in a cheap eastern market and a limited European market.

Andrus Sonts, sales director at the Estonia’s biggest meat-packing company, Rakvere Lihakombinaat, said European markets are closed at present and in the Russian and the Ukrainian markets it is difficult to compete with cheap European meat, subsidized to a large extent. He said that Rakvere Lihakombinaat sells most of its products on the local market, while subsidiaries in Latvia and Lithuania sell in the neighboring countries.

“We make a lot of investments in the company in order to raise the quality to an appropriate level before European integration,” said Konts. Rakvere Lihakombinaat laid off a large number of employees after the Russian crises but is now hiring back employees because of increased sales.

He said there are less than 281 serious meat-packing enterprises in Estonia and only 20 will survive the integration.

“The reduction will take place at the cost of unfair competition, illegal production channels and places of sale not in accordance with necessary requirements.”

About 80 percent of the sales of the Estonian fisheries come from exports. Russia and Ukraine are the biggest markets. Tang said fisheries are the biggest employers in food industry enterprises and may thus have to dismiss the most employees. In 1994 the Estonian food industry employed 28,000 people; but in 1999, only 23,000, and the number may even decrease to 14,000 by 2003.

He said the biggest concern of the Ministry of Economic Affairs and the Estonian government is to find new jobs and create new companies. The other tasks of the government include explaining the importance of mergers and consolidations in the food industry and the mediation of European Union funds.

According to the study, the fish industries require 600 million to one billion kroons in investments to meet EU requirements, about 12 percent to 14 percent of total sales. The dairy industries require 600 million to 1 billion kroons, only about 3-4 percent of total sales. Meat packing enterprises need about one billion to 1.6 billion kroons, about 10 percent -12 percent of sales

The share of exports has always been around one-third of the sales in the food industry, although the volume of production has decreased since the collapse of the Soviet Union. Fisheries and dairies are the biggest exporters in Estonia, while bakeries sell to local markets mostly.

Ants Promann, managing director of the biggest Estonian bakery, Leibur, said that the Estonian bakeries’ market decreased only by 6 percent during the Russian crisis last year, while dairies and meat packing enterprises lost almost 40 percent to 60 percent of their market.

Estonian dairies as well as bakeries, alcohol and soft drink enterprises have already accomplished most of the investments. Promann said that Leibur had made restructuring investments some years ago and had already reduced personnel to an optimum number.

Most of the enterprises from the Soviet period need to invest in their buildings, technologies and training. “Those, who have not done any strategic plans for the future and have a short term vision, may disappear,” said Promann.

Source: http://www.baltictimes.com/news/articles/1441/

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