Lithuania has been living with double-digit inflation for almost a year. Food prices have gone up particularly sharply, by around a third. Economists say consumer sentiment is pandemic-like, which means austerity will drag on, especially as more income will be consumed by heating bills.
Food producers and processors are frank – prices will have to rise further, especially in the absence of government support. Farmers say that most other countries both support their own businesses and try to reduce final prices for consumers through preferential Value Added Tax (VAT) rates. Competing in such an environment is difficult for the Lithuanian food industry.
Rolandas Vestartas, the owner of the company Rolando Darzoves, which sells locally grown vegetables, says his suppliers have already increased the prices.
“All farmers are raising prices by 5-10%,” he said.
Vegetable growers have seen a rise in the cost of fertilisers, gas and electricity, and greenhouses have been hit particularly hard. Fuel, which has only recently started to become cheaper, has also raised their expenses. Agricultural produce, the company’s director reflects, should cost more in real terms, but farmers are held back by competition.
“Lithuanian farmers are keeping a close eye on the prices of Polish and imported goods. Vegetables are such a thing – they spoil and grow quickly. You can produce less milk or cottage cheese, but vegetables grow and need to be sold,” Vestartas says.
This year’s harvest is far from good everywhere, he says. A good one would slow down the rise in prices on the stalls.
“Let’s say potatoes – there are some, but there is no surplus. It is much more expensive than last year. If you compare it to last year, it is probably 100% up,” says Vestartas.
On average, vegetables in Lithuania are 22% more expensive than last year. Meat prices have risen by a similar amount – 21%.
“Although many people think that if costs rise, a grower can ask for a higher price for their produce, this is not the case because the market is free. If some Latvians or Poles produce cheaper, you will not be able to raise the price due to the laws of the market,” Algis Baravykas, director of the Association of Pig Breeders, says.
The cost of rearing pigs, according to him, has risen unprecedentedly over the years.
“Feed grain has gone up by a factor of two. Soya beans have also gone up. These are the main components of the feed. Oil has gone up four times at almost the same time,” says Baravykas.
The cost of bread has also risen considerably.
“Since the beginning of the year, flour has become 40% more expensive. Oil has doubled in price, so to speak. But the main thing is electricity. Prices have increased 7-fold,” says Vaidas Baranauskas, head of the bakery Velzelio Duona.
As a result, customers have to pay more.
“Since the beginning of this year until now, bread has gone up by 23% and we are planning to go up by another 10% in October,” says Baranauskas.
On average, bread prices in Lithuania have risen by 33% over the year. This is a steeper rise than for vegetables and meat, but not as much as the price of milk, which went up by 47% on average.
According to the Statistics Department, inflation for food and non-alcoholic beverages reached double digits in December last year for the first time in years and has been rising ever since.
“The annual increase in food prices is around 30%. Some consumers, because of high food prices and simply because of the high prices of goods and services in general, have certainly started to save money at the expense of food and have probably started to cut back on, say, non-essential food items. These are things you can live without for a certain period of time,” comments economist Aleksandras Izgorodinas.
“There are extreme cases. Those with lower incomes have long forgotten the taste of meat,” says Petras Cepkauskas of price-tracking service Pricer.lt.
As to what will happen next, opinions are divided. Some say that the price peak has already been reached, while others are doubtful, saying that food will continue to get more expensive, albeit at a lower rate.
“Meat, sausages, chicken, dairy products – they will continue to get more expensive. In October, we will have a situation where some will try to say that inflation is no longer 20% and for food, it is no longer 30% but something like 25% and 15%, but this is no fall,” says Cepkauskas.
Energy resources will further inflate costs, producers and growers warn.
“Let’s see what happens in the cold season, in December, in January. If electricity prices are at such a high level, or still rising, it is likely that at the end of the year or the beginning of next year, prices will have to be reviewed again,” Baranauskas believes.
There is no longer any way to save money on lighting, as livestock requirements must be met.
“The government is saying, we’re not going to help you, all sectors are doing badly. So, if no help comes, then the weakest farms will have to go under. Production will fall and, consequently, prices to the consumers will rise. To put it crudely, it is one thing to produce bricks, metal or other materials, but the food is something we need every day,” says Algis Baravykas, director of the Association of Pig Breeders.
Economists say it is impossible to save one sector, such as agriculture. But all of them should be supported, and the criterion could be the cost of electricity, which has already been mentioned by the government itself.
“Around 18 European Union countries are currently applying a wide range of measures to help businesses. Not only consumers but also businesses,” stresses Izgorodinas, an economist with SME Finance.
He lists possible measures the government could use: tax deferrals, state guarantees for loans, direct grants or subsidies. Lithuania has the money to help, he insists.
“The budget has received 1.3 billion euros more revenue than in the first seven months of last year, excluding European support. This means that the inflation we are seeing in Lithuania is killing the economy and killing consumption on the one hand, but on the state revenue side, it is very useful because, in Lithuania, around 60% of the budget revenue is generated by VAT and excise duties. And as prices rise, so do state revenues from these taxes,” the economist says. (LRT/Business World Magazine)
