Identifier | Created | Classification | Origin |
---|---|---|---|
08RIGA222 | 2008-04-30 14:24:00 | UNCLASSIFIED | Embassy Riga |
VZCZCXRO2138 RR RUEHAG RUEHAST RUEHBW RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG DE RUEHRA #0222/01 1211424 ZNR UUUUU ZZH R 301424Z APR 08 FM AMEMBASSY RIGA TO RUEHC/SECSTATE WASHDC 4878 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE |
UNCLAS SECTION 01 OF 02 RIGA 000222 |
1. Per reftel, the following is Post's summary of the impact of rising food and commodity prices in Latvia, related to the seven topics identified: -------------------------- DEMAND -------------------------- 2. According to the Latvian Institute for Agricultural Economy, the most essential food staples and basic food commodities consumed in Latvia are milk, rye, wheat, barley, oats, poultry, pork, beef, tomatoes and cucumbers. Of these commodities, Latvia is only a net exporter of milk. In terms of meat, Latvia produces 50% of its demand for poultry, 90% percent for beef and 40-60% for pork. Roughly 95% of grain consumption is satisfied by domestic production -- Latvia imports rye and barley, but domestic production of wheat exceeds demand by approximately 50%. However, due to more favorable payment terms abroad, Latvian farmers tend to export most their wheat yields in the fall, and, consequently, wheat is imported throughout the rest of the year. Domestic production accounts for 40% tomato and 60% of cucumber consumption. 3. Food demand has generally been inelastic in Latvia, however current conditions are forcing many social groups to make adjustments to their food consumption patterns. Consumers are beginning to give up certain foods and/or shifting consumption to cheaper alternative or substitute goods. The social group most vulnerable to food price inflation is retirees, which account for over 20% percent of the population. The impact is more severe in urban areas where retirees have little means of growing food themselves. There appears not be a difference between the effects of food price inflation on various ethnic groups. 4. Close to home, our local FSN community has also been hurt by rising food costs. Many FSNs are giving up variety in outside eating establishments and are limited to a small number of dining locations; some have even excluded certain foods, such as meat, dairy products and more expensive vegetables, from their diets. FSNs report making hard choices as to the frequency of meals. -------------------------- SUPPLY -------------------------- 5. There have not been any major changes in land use and crop yield identified in response to increasing food prices. There has also not been a noted surge in agricultural investment. On the supply side, the principal reasons for price inflation have included the soaring costs of production, especially energy costs, and the lack of competition among retailers. The latter is often quoted as a significant contributor to inflation, since retailers are believed to have extreme market power. Other issues in the supply chain include weak producer cooperation, fragmented production of basic goods, long payment delays, an inadequately developed and concentrated processing market, and weak farmer market power. 6. Domestically, production of biofuels is not believed to be correlated with increasing food prices. However, the number of new biofuel enterprises is expected to continue to increase. -------------------------- POLITICAL IMPACT -------------------------- 7. Although there have not been any public protests or violence associated with increasing food prices, the growing dissatisfaction with the deteriorating economic conditions is linked to other non-violent, but politically significant, events. The rising cost of food appears to be having a stimulating effect on public support for a signature drive to increase retirement pensions. Similarly, the increasing cost of living and the associated discontent with the government may be motivating Latvians to support a constitutional amendment which would allow the public to dissolve the parliament. 8. There have not been any incidents of violence or any other type of friction between classes or social/ethnic groups resulting from increasing food costs. Frustration over the situation is mostly directed towards the authorities. -------------------------- ECONOMIC IMPACT -------------------------- 9. Food is having a significant effect on Latvia's consumer price inflation. Inflation reached 16.8% in March, annualized, of which dairy accounted for 1.55%; bread and other grain products 1.32% and meat and meat products 0.93%. The increase of the cost of food from March 2007 to March 2008 was 20.8%. RIGA 00000222 002 OF 002 -------------------------- ENVIRONMENTAL IMPACT -------------------------- 10. There are no reports of environmental damage linked to, or caused exclusively by, rising food prices. Issues such as eutrophication caused by the use of fertilizers and pollution related to the use of pesticides continue to be a cause of concern; however, they are not directly linked to the increasing prices. Water availability has not been an issue either, since Latvia has an adequate supply of surface and groundwater. -------------------------- -------------------------- GOVERNMENT POLICY RESPONSE -------------------------- -------------------------- 11. The GOL has not introduced any new import or export quotas/restrictions and no types of land/property redistribution actions have been taken. The GOL has adopted numerous general anti-inflation measures, such as limiting government spending, adopting a surplus budget and mandating a down payment for consumer lending. Some of these measures are planned to be revoked in response to fears of excessive cooling of the economy. One of the measures most pertaining to food inflation is an effort to adopt amendments to the Law on Competition which seek to limit the market power of large retail chains. 12. Relations with other countries have not been affected. However, representatives of local dairy companies have claimed that milk exports to Lithuania, where producers tend to offer higher prices, are causing milk shortages in Latvia. -------------------------- POLICY PROPOSALS -------------------------- 13. Latvia has an official anti-inflation plan and post would recommend that the GOL continue to make serious efforts to adhere the plan's goals, while noting that some adjustments to the plan may be necessary as the extent of the economy's slowing become apparent. -------------------------- IMPACT ON POST PROGRAMS -------------------------- 14. Post has no outward-focused programs that would be affected, though as noted above, FSN wages have not been keeping pace with Latvia's accelerating inflation, causing hardship for our local employees and creating staff retention problems for Post. |