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Viewing cable 08TALLINN153, IMPACT OF RISING FOOD/COMMODITY PRICES - ESTONIA

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Reference ID Created Released Classification Origin
08TALLINN153 2008-05-02 11:52 2011-08-25 00:00 UNCLASSIFIED Embassy Tallinn
VZCZCXRO3938
RR RUEHAG RUEHAST RUEHBW RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTL #0153/01 1231152
ZNR UUUUU ZZH
R 021152Z MAY 08
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0608
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASH DC
UNCLAS SECTION 01 OF 02 TALLINN 000153 
 
SIPDIS 
 
DEPARTMENT FOR EEB/TPP/ABT/ATP JANET SPECK 
WARSAW FOR REGIONAL AG OFFICE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL EN
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES - ESTONIA 
 
REF: STATE 39410 
 
1. As requested reftel, below is a readout on the Impact of 
Rising of Food/Commodity Prices on Estonia. 
 
Demand and prices 
----------------- 
 
2.  In Estonia, the most essential foods/agricultural 
commodities are dairy products, meat, grain, potatoes, and 
fodder crops for animal feed. In 2007, overall food prices 
in Estonia rose approximately 16 percent.  According to the 
Estonian Institute of Economic Research (EIER), the 
Estonian food market immediately reflected world food price 
increases that began in June/July 2007.  The total food 
price increase was three times higher than in other 
European countries. Dairy products saw the most severe 
price increases. While locally produced dairy products 
comprise 66 percent of  market share, and only one-third of 
Estonian dairy products are exported (cheese, butter and 
milk powder) they also account for the increase of prices 
on the local market.  From March 2007 to March 2008, some 
selected price increases were as follows: 
 
-- butter up 38.4 percent 
-- milk in cartons up 52.3 percent 
-- milk in plastic packages up 71.7 percent 
-- domestic cheese up 38.5 percent 
-- cream up 32.8 percent 
-- sour cream up 40 percent 
-- bread up 30 percent 
-- pork 9.1 percent 
-- beef 13.3 percent 
 
A few commodities saw decreases in prices, including 
imported salmon and trout (34.5 percent and 15.8 percent 
respectively). The prices of vegetables, mainly imported, 
have remained stable or decreased slightly.  One exception 
has been potatoes, which decreased 21.3 percent in the past 
year. 
 
Consumer behavior 
----------------- 
 
3.  A recent EIER survey demonstrated that Estonians prefer 
locally produced, less-processed products.  (Note: Only 26 
percent of those surveyed said they trust food from the 
United States.  Eighty-four percent trusted neighboring 
Latvia as a source of food.  End note.)  Price still ranks 
only fourth in importance when Estonians buy food 
(outranked by food quality, tidiness of the store and good 
service).  Consumers typically shop every 1-2 days for 
fresh meat, bread and produce, rather than shopping once a 
week.  As evidence of this, EIER Director Marje Josing 
noted that long-life, ultra high temperature (UHT) 
processed milk - though widely available in Estonia - has 
only 2 percent market share, while in much of the rest of 
Europe UHT milk is 80 percent of the market.  Despite the 
recent severe price increases, EIER has not seen marked 
shifts in consumption towards alternative food commodities. 
Director Josing said that while some substitution is 
occurring, roughly half of those surveyed had wage 
increases in the past year sufficient to off-set the rising 
share of their monthly budget that goes to food.  The other 
half have cut back on entertainment, hobbies, and other 
discretionary expenses.  Overall, food makes up 25 percent 
of a typical Estonian household budget, or roughly double 
the share of U.S. household budgets spent on food.  While 
lower income families will be hit harder by these price 
increases, Josing did not anticipate any major social 
disruption. 
 
Supply and Producers 
-------------------- 
 
4. Severe food price increases from March 2007 to March 
2008 were also due to increases in local purchase-in prices 
as follows: 
 
-- wheat up 56 percent 
-- rye up 59 percent 
-- barley up 61 percent 
-- oats up 46 percent 
-- milk (purchase-in price) up 36 percent 
-- pork (purchase-in price) up 54 percent 
-- beef (purchase-in price) up 3.5 percent 
 
5.  Political Impact.  Post does not anticipate any 
significant negative impact on the stability of the host 
 
TALLINN 00000153  002 OF 002 
 
 
government caused by rising food prices.  In the assessment 
of EIER's Josing, the Government of Estonia (GOE) has 
little control over the forces driving these increases. 
She laid blame primarily on well-known global macro forces 
such as rising demand in SE Asia, global climate change 
such as Australian drought, and the unforeseen impact that 
promotion of biofuels is having on corn prices.  She 
attributes EU reform of the Common Agricultural Policy 
(CAP) for eliminating intervention stocks that might 
otherwise have been available to cushion supply-driven 
price shocks. Still, she said, there will be no hunger or 
social problems in Estonia. 
 
Economic Impact 
--------------- 
 
6.  Since re-independence in 1992, Estonia has established 
one of the most liberal economies in the world.  In the 
late 1990s, Estonia's trade regime was so liberal that 
adoption of EU and World Trade Organization norms actually 
forced Estonia to impose tariffs in agriculture, which had 
previously been tariff-free. According to the Bank of 
Estonia, the convergence of Estonian income and price 
levels towards the EU average is accelerating inflation in 
Estonia.  Estonia meets all criteria for the adoption of 
the EU single currency, except for inflation.  While 
Maastricht criteria for Euro adoption stipulate no more 
than 2.5 - 3 percent inflation, the 2007 inflation rate, 
was 6.6 percent.  Inflation of food prices contributed 
heavily to this.  As a result, Estonia's accession to the 
Euro zone will be delayed until at least 2011. 
 
7.  Environmental Impact: The rising prices have not had 
any significant impact on environmental issues. 
 
8.  Government Policy Response: As Estonia has a free 
market economy, the GOE has not imposed any additional 
tariffs, quotas, import or export restrictions on 
agricultural products. The GOE does not provide subsidies 
to farmers or to the food industry. The amount of EU 
subsidies that Estonian farmers can apply for is equal to 
only 25 percent of the support that farmers in 'old' EU 
member states receive.  There are no police efforts to 
promote food production, as it is fully market-driven. 
 
9. Impact of Post programs: N/A 
 
10. Policy proposals: N/A 
 
PHILLIPS