Competitiveness of the Estonian dairy sector, 1994–2014

Abstract

Historically, the dairy sector has been one of the most important and competitive branches of the Estonian agriculture and food industry. Since the beginning of the transitional period 25 years ago, Estonian society and its economy have gone through significant institutional, political and societal changes, which have also affected the dairy sector. This paper provides a review of the competitiveness of the Estonian dairy sector. The competitiveness of dairy farms, the dairy processing industry and dairy exports are discussed from several perspectives applied in the studies of competitiveness. Also, the context of the transition to a market economy and institutional, policy and market changes are considered. In the past 20 years, the Estonian dairy sector has maintained its competitiveness in export markets. However, there are several aspects that need to be addressed in order to maintain competitiveness in the long term. Estonian dairy farms need to increase their total factor productivity. The negative trends in the declining lifespan of dairy cows and declining content of milk components should be stopped. The Estonian dairy processing industry needs to increase labour productivity and value per kg of processed milk. To avoid the negative effects of specialisation on certain products and markets, the portfolio of export markets and products should be expanded. The EU dairy market is going through deregulation, and farm payments in Estonia fell in 2014. This is not the first time in 20 years that agricultural policy has not been overly protective of the dairy sector. Therefore, the future competitiveness of the Estonian dairy sector depends mainly on its adaptive capacity in the light of changing markets, policies and institutions.

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