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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 
 
SIPDIS 
 
DEPARTMENT FOR EEB/TPP/ABT/ATP Janet Speck 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL LG
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - LATVIA 
 
REF: State 39410 
 
¶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.