Zin.publikācijas

Grain Market in Latvia

Andris Miglavs report in Finnish-Baltic Joint Seminar, Saku, Estonia, published in 'Agricultural Development Problems and Possibilities in Baltic Countries in the Future' (1993) Agricultural Economics Research Institute, Finnland, ISBN 952-9538-35-9, ISSN 0788-5393, pages 67-71 Oriģinālajā salikumā lasāms PDF fails pielikumā

GRAIN MARKET IN LATVIA
ANDRIS MIGLAVS
Latvian State Institute of Agrarian Economics
Riga, Latvia

1 Situation in Grain Market Before Reorganization

Till 1992 from the 2 million tons of grain annually consumed in Latvia only 15-20% were produced by agricultural enterprises and marketed, in most cases, to the state (in approximately egual shares as food grain and feed grain); about half was consumed locally at the agricultural enterprises as feed; the rest 40-50% of grain was imported.

At that time Latvia was integrated in the USSR grain procurement and distribution system where the price was uniform and very low, if compared to the world market prices (considering the exchange rate for hard currency). This and a number of other reasons accounted for the absence of real grain market in Latvia. In the current situation when Latvia has gained its political independence, an independent grain market is beginning to establish. The difference of grain prices in Latvia, in CIS and the world play an important role here.

Figure 1. Grain consumption in Latvia according to source.

Figure 2. Producer price for grain in Latvia, in the world, in the neighbouring countries.

As a result of this Latvian agricultural producers find it very hard to compete with the grain produced in the CIS, or imported from the EEC as humanitary help. This originates the need for protectionism of local grain market, in defence of Latvian farmers' interests.

2 The Basic Goals of the Reorganization of the Grain
Market in Latvia

The previous of grain procurement and marketing might seem to be very attractive in this aspect. As to their legal status, ali the grain procurement, storage and processing enterprises in Latvia were  state-owned, and functioned as a concern with uniform price they paid to the producer, actually the state was a monopolist in grain marketing. In order to establish market relations also in grain market it is necessary to abolish this monopolist situation, at the same time care should be taken that Latvian farmers can compete with the imported grain. This can be only accomplished with a certain state control on grain market.
The following tasks were set for restructuring off the existing system, in order to attain the above goal: 
- to eliminate monopoly situation with grain and grain products, as well as in baking
industry;

- to ensure the possibilities to implement the principles of market economy in the branch;

- to ensure the right of the government to maintain control over state grain reserve, as
well as over the price of grain and products in order to protect them from considerable
fluctuations; 

- to create prerequisites for privatization of the enterprises, however, taking into ac
count theabove said tasks.

In order to fulfill these tasks, the following principles are being adhered to:
1. Grain and bread market in Latvia predominantly consists of independent enterprises, operating as business units. They may differ as to their legal status and forms of ownership. Profitability is the efficiency criterion. 

2. State has regulating functions in grain market by ensuring balance between demand and supply of grain. The regulating influence of the state will be implemented through: 

- state grain reserve;

- state control on grain balance and foreign trade with grain.

3. Competition is being promoted among grain producers, buyers, processors, as well as bakers. Competition is being restricted among flour-mills, but not eliminated altogether. 

4. The existing state enterprises may be privatized in future in accordance with relevant
of the Republic of Latvia, provided that several additional prerequisites are conside red, which are aimed at ensuring the development of uniform grain and bread market, as well as at retaining the present specialization of the enterprises. 

3 Projected Scheme for Grain and Bread Markets Possibilities for Regulation

Grain and bread markets in Latvia are a uniform structure, uniting grain producers, meat and dairy producers, grai n storekeepers and processors, bread producers and tradors the final part being the consumer.

3.1. Grain Sources
3.1.1. Agricultural producers in Latvia.
3.1.2. Grain imports.
Total volume of grain source should meet the demand in Latvian grain market. This
depends on:
- grain price;
- marketing possibilities for other agricultural products; theirprice level, which has the
main influence on grain consumption for the needs of livestock production.

The increase of grain import volume and prices causes price fluctuations in domestic
market as well. 

The grain produced by agricultural production enterprises is marketed to flour mills to he ground into flour and groats; to feed mills, to distilleries for spirits, as well as for creating state reserves or other reserves. Besides, part of grain is consu med locally at agricultural enterprises as feed or laid aside for seed. In future the export of surpluses is also possible.

The total volume of grain to be produced largely depends on general production provisions both for grain and other agricultural products.

Taking into account the present balance between grain production and grain consumption, as well as the relations between grain production and grain consumption structures, part of grain has to he imported. Therefore one of the most effective tools for price regulation is import-export regulation both as to the volumes and as to the import and export tariffs.

3.2 Grain Buyers
3.2.1. Grain procurement and storing enterprises.
3.2.2. Flour mills, at the same time serving as elevators.
3.2.3. Feed milling and mixing enterprises, at the same timeserving as elevators.
3.2.4. State grain reserve.

Grain office can entrust, on contract basis, the procurement to state reserve to any viable grain purchasing and storing enterprise. To ensure the procurement of bread grain in sufficient quanties, a higher price should he set in comparison with feed grain.

3.3 Utilizers of the Purchased Grain
3.3.1. Flour mills.
3.3.2. Feed mills.
3.3.3. State grain reserve.
3.3.4. Other processing enterprises (distilleries etc.)

At present the majority of the above said enterprises are stateowned. In future their ownership form and legal status should he changed, by turning them into joint-stock companies and by selling the shares to various physical and legal entities.

3. 4 Bread Bakeries
3.4.1. State bread bakeries.
3.4.2. Consumers' cooperative enterprises.
3.4.3. Bread bakeries owned by other entrepreneurs.

3.5 Bread Marketing Enterprises.

4 State Role in the Regulation of Grain Market.

The state exercises its influence on grain market through the Latvian State Grain Office, which is an independent non-profitmaking business organization. Its task is to prepare recommendations, and, after they have been accepted, implement the govemment grain policy. The functions of the Grain Office are as follows: 

- to determine the demand on grain and the possibilities to meet it with local grain supply at present and in future;

- analysis of price formation in Latvian grain market, price forecasting, calculation of the expected expenses for the procurements to state reserve and for storage; 

- working out recommendations for setting these prices;

- regulation of the foreign trade of grain in compliance with the order set by administrative institutions of the Republic of Latvia;

- procurement and storage of state grain reserve;

- state grain inspection;

- the Council of Ministers has the right to impose on the Grain Office any other related
functions

The activities of the Grain Office and grain policy it is implementing is under the control
of the board of Grain Office, which is constituted from representatives of various state and
business institutions.