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Lithuanian meat industry: Local pigs are not enough

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Šarūno Mažeikos/BFL nuotr. / On average, all Lithuanians eat a steak a day.
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A Lithuanian can hardly imagine his or her daily meal without a pork stake or a chicken wing. If experts be trusted, it can soon change. According to scientist of Stockholm International Water Institute, meat might well become a luxury product by 2050.

It is estimated that, within 38 years, the world's population will have reached 9 billion, making the Earth's water resources insufficient to produce enough food. Water is needed to grow corn that is used to feed cattle and therefore corn yields affect meat prices. Beef might become the most expensive kind of meat, as oxen consume most fodder compared to the amount of meat thus produced.

The Swedish scientists warn that the mankind will have to switch to an effectively vegetarian diet by 2050 – animal products will make up mere 5 percent of what we eat, four times less than today.

Meat pricey but available

The Lithuanian meat industry does not plan for a future that far ahead. Linas Grikšas, CEO of Krekenavos agrofirma, says he hopes that meat will not become a dish reserved for special occasions only.

“Beef is already a luxury good, Lithuanians – due to both price and tradition – consumes little of it, compared to developed countries. In terms of pork consumption, we look quite average. However, starting next year, the EU is tightening regulations on pig farms, so meat prices are going up and this will undoubtedly affect consumption. Rapid population growth, too, has a bearing on meat prices.”

The Lithuanian Institute of Agrarian Economy has presented forecasts that the number of cattle will go down by one percent next year, but the number of oxen, cows, and calves should increase by one-tenth.

It is unlikely, therefore, that Lithuania will run out of meat in the near term.

A steak a day

According to national statistics, per capita consumption of meat in the country last year was the following: 42 kg of pork, 4 kg of beef, 21 kg of poultry, and 2 kg of category 2 meat subproducts. So each Lithuanian ate, on average, 69 kg of meat last year – or 189 grams daily.

There are now 121 slaughterhouses and meat processing plants in Lithuania. There were 127 last year, 127 the year before, according to the Centre of Agriculture and Rural Entrepreneurship.

Despite the smaller number of companies in the industry, meat production grew 3 percent last year and totalled 309,800 tons. Most of it was pork and poultry. Carcass meat, too, grew more than one percent.

Too few pigs

But that seems not to be enough – according to statistics by the State Food and Veterinary Service, Lithuanian imports more and more of meat and meat products.

This shows that local producers cannot cope with domestic demand. Lithuanian pork accounts for mere 53 percent of the market.

In 2011, Lithuania imported 102,100 tons of meat and meat products – 8,800 tons or 9 percent more than in 2010. Most of it was pork, 53.6 percent, meat products (20.5 percent), and poultry (15.7 percent).

“It is abnormal that half of all the pork we eat is imported,” says Grikšas. “Lithuania is an agricultural country, yet we rear twelve times fewer pigs per hectare of land than they do in Denmark, fourteen times fewer than in the Netherlands. We have no shortage of land or grain, yet, for some reason, we do not rear pigs. Perhaps there are too many populist, unreasonably strict and unnecessary environmental regulations.”

In fact, it is only Lithuanian pork that fails to satisfy domestic demand. Locally-produced beef and poultry take up almost the entire market – 96.5 and 82.4 percent, respectively. Imports of lamb, goat meat, etc., are negligible.

Unequal competition with Poland

At the moment, Krekenavos agrofirma is the biggest supplier of fresh meat in the country – it takes up over half of the fresh meat market and 12.5 percent of the market for thermally processed meat products. The company had a record turnover this year. In 2011, it amounted to 260 million litas (75 million euros).

Grikštas says the results could be even better, if it weren't for unequal competition with Polish producers: “We do not fear competition, Lithuanians are as good as Poles, even better in some areas – but we should compete on an equal ground. VAT rates vary widely in borderline zones. Why do people (from Lithuania) go to shop for meat there (in Poland)? Because Polish VAT rate for meat products is 8 percent; fresh meat, 5 percent, even though base VAT rate is 23 percent. Here, it is 21 percent without any variations.

“Lithuania might not necessarily adopt equally low rates, they can just as well be 8 or 12 percent – but then we could truly compete, people would not be going to buy meat in Poland, we would be creating jobs, money would stay in the country and taxes would flow to our state coffers.”

According to Grikšas, illegal trade is another headache. Cunning sellers buy cheap meat in Poland and then sell it in Lithuania, without paying taxes or including revenues in the books.

Another impediment to fair competition is the difference in marking regulations for Lithuanian and Polish producers. Lithuanians must indicate whether their product is of top, first, or second class; Poles, meanwhile, do not have to abide by any such rules and can therefore make second-class sausages and sell them at prices well below those of similar Lithuanian top-class products.

“The fact that Lithuanians can still manage to compete under tougher conditions shows their competitiveness vis-a-vis foreign producers. I think that it is up to every state to take care of its home market. Foreigners should be placed under tougher conditions,” Grikšas says.

Virginijus Kantauskas, CEO of Biovela Group, thinks otherwise: “Production imported from Poland is often cheap and of lower quality. The buyer's choice, in this case, comes down to price, not quality. We, meanwhile, target the top-quality market, therefore we do not feel any direct competition.”

Expansion through export

The Lithuanian meat industry is locked in a vicious circle: local production cannot fill the market because much of it is exported; and it ends up in exports because the local market is filled with imported production.

Augenijus Gudžiūnas, CEO of Agrovet, states bluntly – there are too many producers in Lithuania.

“We could easily feed two Lithuanias with meat, but the population is contracting, add to that importers – and the only road that remains is export. We sell around half of our production abroad. 60 percent of it goes to EU states and 40 percent to third countries,” Gudžiūnas says.

Biovela Group – which is comprised of four companies, Biovela, Utenos mėsa, Maisto pramonės logistikos grupė, and Žiobiškio kompleksas – is taking the same route. The group's annual turnout is 344 million litas (100 million euros), it produces 40 thousand tons of meat and meat products. This year's production is expected to grow 7 percent.

Roughly 50 percent of its production goes to Latvia, Estonia, Russia, Great Britain, Ireland, Germany, Poland, the Netherlands, Azerbaijan, Kazakhstan, Belarus, Ukraine. The company's exports grew 55 percent last year alone.

It is planning to open export routes to the United States next year. After extended talks, US, Australian, and New Zealand inspectors have started auditing Biovela Group and should soon make a decision whether to allow the company sell its production in the three countries. The company has also opened talks with Moldova and Turkmenistan. There are even more ambitious plans to start export to China.

However, Kvantauskas says, exports have no bearing on meat sales in Lithuania: “There is no shortage of local pork, the group uses locally-bred pigs, because the slaughterhouse of Utenos mėsa is one of the biggest in Lithuania.”

Expansion to Russia

Danish company Saerimnet is the biggest breeder of pigs in Lithuania. It runs 11 out of 43 pig farms in the country, so the company is well in tune with trends in both the Lithuanian and global market.

The company's CEO Saulius Leonavičius gives two explanations for the shortage of pork in the country: public interest manipulations and economic reasons.

“Over one year ago, 20 percent of shares in Saerimner's mother-company, Idavag, was purchased by the International Finance Corporation, which is owned by the World Bank. Funds acquired from the transaction are invested into new farms. However, the company chose to expand in Russia and not Lithuania. The reason behind such a decision is legal uncertainty following manipulations of public interest – it arises from a case in Kalvarija, where six plaintiffs and two associations (their members are the same 6 individuals) claim to be representing “public interest” which looks more like racketeering and blocks any development in pork farming.

“The company has invested money in Kalvarija, justifiably believing that a licence issued by state institutions were valid. However, the validity of this licence, issued seven years ago, is being debated in courts, because the six individuals, who live further away from the farm, are unhappy about the neighbourhood, despite the fact that it provides jobs to 25 residents in the village and pays hundreds of thousands of litas to municipal coffers. We have planned several-million-litas investments into the farm, but we cannot go through with it amid uncertainty whether or not we'll have a licence to run a farm.”

Saerimner exports 40 percent of Lithuanian-grown pigs to Poland and Latvia – all due to the fact that the neighbours are quicker in settling accounts. “Lithuanians pay up within 45 days, on average, while Poles, within 14 days. So even if we sell a little cheaper to the neighbours, the cost of money makes the cooperation more attractive,” Leonavičius explains.

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