Russia's restrictions on the Lithuanian food imports will not have so powerful effect as expected earlier. Lithuania's milk processing companies will find it easier to cope with the market loss. Meanwhile dairy farmers and meat sector will face bigger challenges. They appear to need the attention from the state state authorities most.
According to DNB bank's chief analyst Indrė Genytė-Pikčienė, Russia's food embargo hit Lithuania the hardest among all EU member states both in terms of relative ratios and by the absolute financial value. Food export to Russia, including re-export, accounts for 3.7 per cent of Lithuania's overall goods export value.
"As for Russia's banned products of Lithuanian origin alone, this would make just 0,9 per cent of the country's overall goods exports. Even this share is the highest among the EU member states," says Indrė Genytė-Pikčienė.
However, the analyst says that the impact of the trade restrictions on different agribusiness sectors will be less significant as large efficient dairy processing companies have financial reserves to endure until alternative markets are found for the products. And also, many large dairy farmers are diversified and beside dairy production are engaged in other agricultural activities. This year's grain harvest should be better than expected at the beginning of the year which should at least partially ease the unexpected extra burden.
"This is not the first time that our dairy processing companies are facing Russia's capricious behaviour. Over the past few profitable years helped to accumulate some financial cushion, so they will manage to meet the challenges, especially now that they are finding ways to enter other markets. We believe that meat farmers will have the biggest test as they are double hit: they need to cope not only with Russia's trade restrictions, but also with the outcome of African swine plague," - says Indrė Genytė-Pikčienė.
Dairy processing companies are most resilient
Exports to Russia helped Lithuania's dairy companies to sustain positive growth rates during the crisis - from 2009 the exports of dairy products of Lithuanian origin to the Russian market were steadily increasing and in 2013 accounted for LTL 501 million.
Recently, the Lithuanian dairy processing companies managed to shift exports to other markets. In the first half of 2014 the overall dairy product export went up by 15 per cent, although export volumes to Russia fell. Exports to Italy, Germany, Latvia increased considerably. Exports to smaller and more exotic markets like Vietnam, Cuba or Morocco also rose.
According to DNB bank's chief analyst, the Lithuanian dairy processing market is highly concentrated with strong companies able to compete and increase their export volumes in foreign markets.
"Small dairy farmers face a bigger challenge as the milk buy-up prices have already dropped and business is becoming loss making for many of them. This means that without the state support some dairy farmers will have to shift to a different business sector which will result in a higher concentration in milk production industry," says I. Genytė-Pikčienė.
Meat sector - double hit
Russia is the second largest (after Germany) export market to meat processing companies: meat products worth LTL 69.6 million were exported to Russia last year (14 per cent of total export of meat products of Lithuanian origin). Until recently Russia used to be an important market to meat farmers: 25 per cent of meat of Lithuanian origin was exported to that country in 2013.
The Lithuanian meat processing companies suffered from Russia's trade restrictions before and the recent years have not been particularly financially successful to this food industry. Not many companies have sufficient financial reserves, therefore the sanctions have a damaging effect. African swine plague poses another threat to the meat sector, especially to Lithuanian pig farmers.
Targeted support
According to the DNB bank's chief analyst, the food processing companies are diversifying their export markets to minimize the adverse impact of the sanctions. Exporters should also receive more aid from the authorities, who have to find ways to reduce the barriers for Lithuanian exports especially to large markets like the USA or China.
"Direct state support should be considered with caution as it should be short-term and aimed at the mostly hit agribusiness sectors. Appropriate forms of aid should be found to help the market participants; it could be intervention purchases or direct support to agricultural producers. On the other hand, the market participants should also realise that the aid given to them must not turn into a lasting fiscal burden for the state," the analyst says.
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