Pētījumi

Development of farm income in Latvia

ISSUE PAPER NO. 2 RIGA JANUARY 2001 ## Pētījums ## Starptautiskās grupas Network of Independent Agricultural Experts in the CEEC Candidate Countries darba ietvaros

1.      Data

1.1.               Simplified Economic Accounts of Agriculture (EAA)

Sources: LVAEI (2000, 2001)

The data, presented in the table, comes from the EAA, prepared by the LVAEI in co-operation with CSB and MoA. It indicates the permanent trend of the decreasing of the income from agriculture - total and per person engaged. It was impossible to give a picture of income per family labour person, because the correspondent labour input is not reported in the statistics.

1.1.               Income of farm households other than from farming

Income of farm households other than from farming can only be characterised in comparable way, using the data from household budget surveys. Data from 1996-1999, presented in Table 2, indicate the permanent decrease of total disposable income in farmers’ households, although the sample of this survey does not fully represent the same group of people as Table 1, because in this survey also other family members are included.

However the general trends are the same, as described by the data from EAA. Household budget surveys indicate the permanent decrease of net income from agricultural production, which is replaced not by the earnings from other businesses, but rather by different type of social transfers.

1.1.1.                       Farmers income versus rural and urban

As the result of decreasing profitability of agricultural production, the gap between the urban and he farmer income levels is steadily increasing. It can be illustrated by the development of farmers average income relative to urban average income, calculated from household budget survey data, and presented in Table 3.

The opportunities of farm households to find non-agricultural employment in rural areas are very limited, their ability to migrate to the urban sector is also limited typically by the law level of their skills and also high transfer costs (also due to the low real estate prices in rural areas and growing ones in the cities). As a result agricultural households have become increasingly dependent on social transfers.

1.1.               Agricultural annual work units

There is no data available about the agricultural labour input in the whole agricultural sector. Only the private individual holdings are surveyed. Therefore the relative data are presented in Table 4. It is assumed, that AWU corresponds to the work of 2440 hours per year. Data show the decreasing labour consumption for agricultural production in private individual holdings. It might indicate on some increasing labour efficiency.

1.      Assessment of past trends and future developments

1.1.               Reasons for development and main problems 

Latvia is maintaining quite liberal agricultural policy. The possible impact of relatively high bounded import tariff rates is almost completely offset by the Baltic FTA, including Estonia, which does not have any effective tariffs. It is resulted in relatively stable food prices, which also limits the possibilities to increase the agricultural output prices, which were decreasing since 1997 and, even after some increase is 2000, are still well below the 1998 level, preceding the “Russian crisis”.

The level of support, given via payments from state budget is also limited, and it cannot offset the impact of decreased output prices and also increased input prices. 

The high number of people engaged in agricultural production and its subsistence character also puts some additional pressure on agriculture. It does not allow to speed-up the technological modernisation, which might be necessary in order to compensate the increase of the input prices. And the imputed labour costs are lower as real capital costs needed to improve the technical efficiency of the production.

1.2.               Key drivers of income (e.g. price development, productivity gains, farm support policies)

Agricultural production related price indexes, estimated by LVAEI, (based on data from National accounts statistics, CPI, and EAA) are presented in Table 5.

1.      Summary statement on farm income and key issues indicating your overall assessment.

¨      On average agricultural income is low. And it has a further polarisation trend if to compare with the averages in national economy (Table 6).

¨      The main trend in net farm income - decreasing of that per person and in total

¨      One of the reasons for this is cost-price squeeze, which is not compensated by the improvement of technology used, due to generally low income level, which does not stipulate pay back of the investments needed.

¨      Lack of alternatives, It is characterised by the dependency of rural households on farming.

¨      High dependence of rural households and, especially of the agricultural ones-  on social security payments

1.      References

CSB (central Statistical Bureau) (2000): Household budget survey of 1999, Statistical bulletin, Riga.

CSB (1999): Household budget survey of 1998, Statistical bulletin, Riga.

CSB (1998): Household budget survey of 1997, Statistical bulletin, Riga.

CSB (1997): Household budget survey of 1996, Statistical bulletin, Riga.

CSB farms (2000): Agricultural farms in Latvia in 1999, Statistical bulletin, Riga.

CSB farms (1999): Agricultural farms in Latvia in 1998, Statistical bulletin, Riga.

CSB farms (1998): Agricultural farms in Latvia in 1997, Statistical bulletin, Riga.

CSB farms (1997): Agricultural farms in Latvia in 1996, Statistical bulletin, Riga.

LVAEI (Latvian State Insitute of Agrarian Economics) (2000): Latvian agriculture and rural areas 1999: policy and developments (in Latvian), Annual review, Riga.

LVAEI (2001): Review of agricultural market and policy - 3^rd quarter of 2000, (in Latvian), Quarterly review, Riga.

OECD (2000). Electronic database about the non-member economies.