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Agriculture is one of the most significant sectors of the Latvianeconomy. 32% of Latvia's inhabitants live in rural areas andagricultural production is their main type of employment. Thesector's main task is to provide Latvia's inhabitants with healthyand valuable foodstuffs. Besides that agriculture plays asignificant role in the conservation of valuable biotopes and

species, as well as traditional landscapes. These are values thatmay be preserved only by extensive production practice thatis not focussed solely on the maximal acquisition of products,therefore agriculture is a sector whose objectives go beyondthe earning of direct profit.

23. Agriculture

Indicators23.1. Value added of agriculture23.2. Labour productivity in agriculture 23.3. Eco-efficiency in agriculture23.4. Condition of land utilised in

agriculture 23.5. Conserving the fertility of

agricultural lands

In the period from 1995-1999, the agricultural sectorwitnessed reduction in its value added; it reached its lowestvalue in 1999 - LVL 103.9 million or 78% of the comparablelevel in 1995. The year 1999 showed the beginning of anincrease in value added. Nevertheless, the proportion of valueadded of agriculture in GDP within the total GDP continues todecline - from 4.5% in 1995 to 2.8% in 2001. This means thatthe development of the sector is slower than the developmentof the national economy as in general. The reduction in thesectoral value added was caused by a fall in prices foragricultural products or due to prices, which remainedunchanged under conditions of growing production costs.

In the crop sector, industrial crops (sugar-beets, rapeseed) andsectors of cereal and vegetable production are showing signsof growth. However, production levels are declining in flaxand dried fodder production. In the livestock sector, only beefand veal production are showing signs of growth. In contrast,pig meat, milk and sheep production levels are declining alongwith horse breeding. The number of agricultural holdings,which are engaged in the organic production and non-traditional agriculture sectors is rapidly growing. It is notpossible to create an unlimited value added in agriculture,because its fundamental nature is linked to the production ofraw materials. It is also largely influenced by climaticconditions. Introducing more intensive productiontechnologies could increase agricultural value added.However, such a course of action might contradict the visionof environmental and nature conservation, because it wouldentail the establishment of large-scale agricultural holdingsand the application of agro-chemicals.

The growth of the agricultural sector is closely linked to the

framework set up for integration into EU such as referenceareas, productivity and production quotas. In total, thisreference framework corresponds to the production levelsreached in 2000 with the margin for growth of productionlevels in certain sectors such as milk, beef and vealproduction. In comparison with the current level of the statesupport, a significant increase is likely to occur in the level ofdirect payments for production, however, initially, this will,on average, be 45% lower than that in the existing EUMember States. It is vital to maintain and increase the currentlevel of self-sufficiency with agricultural production. Growthperspectives are mainly linked to non-traditional sectors andorganic farming. The safety and quality of production mustbecome the basic criteria for the production value of food insaturated market conditions. Organic production systems andintegrated agricultural systems are the most closely related tosuch basic criteria. It is imperative that they should become

23.1. Value added of agriculture

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the leading systems in agricultural production. During theperiod of gradual transition, the proportion of intensive

agriculture must be reduced until it reaches 25-30% ofproduction levels.

In Latvia, it is still characteristic for the economy as a wholethat the main type of employment for the majority of ruralinhabitants is agricultural production. Agriculture represents asignificant proportion of the total employment figure - in2001, 120 thousand people or 12.5% of the total employmentwere employed in agriculture. At the same time, labourproductivity in agriculture is the lowest of all the sectors of theeconomy, reaching only LVL 1,000 per employed person in2001, which is four times lower than the national average.After a decline in 1997-1998, the labour productivityindicator has gradually increased and in 2001 it reached thecorresponding level last reached in 1995.

Increase in the labour productivity indicator is not likely in the

near future. This would require introduction of a moreintensive technology - the purchase of modern equipment,specialised production on agricultural holdings and theestablishment of co-operatives and producer organisations.

A comparatively low level of labour productivity is a result oflow retail prices for agricultural products, as well as themethod of calculation used. According to agriculturalaccounting data of 2001, 174 thousand agricultural holdingsare linked to agricultural production of which 67% or 117thousand agricultural holdings do not produce marketablegoods. In general, the number of people employed full timeon 57 thousand agricultural holdings should be included inlabour productivity calculations as this would give a moreaccurate picture of the actual situation regarding labourproductivity in agriculture.

Special regional features are an equally important parameterin establishing labour productivity in agriculture. The diverseclimactic and soil conditions in Latvia are major factors,explaining the measurable differences in labour productivitythat arise between individual regions such as the intensiveagricultural production in Zemgale and extensive agriculturalproduction in Latgale. The EU Common Agricultural Policyreform is focussed on linking direct payments to the unit ofland farmed as opposed to the unit of product produced or inother words to move away from a system of product supportto a system of producer support. Implementation of suchpolicy will help to ensure application of the principle ofsustainable development in agricultural production.

23.2. Labour productivity in agriculture

Agriculture is a sector where activities carried out may causea diverse and harmful impact on the environment. Majorpollution is caused by various substances that are used to treat

agricultural lands in order to improve their fertility and toprotect crops.

Compared to 1995, the quantity of fertilisers applied in 2001has increased 2.4 times and the area of land treated withpesticides has increased 2.2 times. Nevertheless, the totalproductivity of cereal crops treated with chemicals hasincreased only 1.4 times. Such unsatisfactory results in thecereal production sector demand an assessment of theusefulness of existing fertilization and crop protectionpractices from the perspective of the economy and theenvironment.

Changes in other eco-efficiency indicators (manure spreading,the number of livestock, the area of land under crops anddirect emissions of greenhouse gases) during this period havedeveloped along the same lines as the sector's value added inGDP. There has been a noticeable reduction (a 57% decline)in the final consumption of energy in agriculture thatdemonstrates a favourable trend and points towards a morerational utilisation of energy resources.

23.3. Eco-efficiency in agriculture

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In Latvia, soils that are fertile and rich in organic matter makeup only 7% of all land area used for agricultural purposes.The remaining land belongs to the category of less fertile soils.Basically, soils in Latvia, tend to be podsolised and gley-basedand to contain a low level of organic matter. Long-termfertility of soil can only be ensured by sufficient application ofmanure and application of plant nutrients which must bechosen depending on soil reaction. The preservation of soil atan optimal level requires a regular application of ground-limestone supported by maintenance liming. The intensity ofmanure spreading and soil liming characterizes humanactivity in maintaining the fertility of soil.

In comparison to the early 1990's, there has been a noticeablereduction in the application of manure. In 2001, the totalvolume of applied fertilisers in Latvia constituted only 30% ofthe comparative level of 1990. Since 1994, it has changedfrom 4-6 million tonnes annually. The optimal intensity ofapplication of manure is an average of 40-60 tonnes perhectare of arable land once every 3-4 years and currently thisnot being ensured.

The natural acidification of soil is characteristic for Latviansoils. In order to prevent this, 100,000 hectares of agriculturalland should be limed in Latvia on an annual basis. After 1991there was an extremely rapid reduction in the volume of limedareas and in 2001 this only amounted to approximately 0.1

thousand hectares.

In general, it is possible to conclude that the nutritionalmeasures being taken to ensure soil fertility are insufficientand particularly so in respect of liming. With the establishmentof agricultural holdings, specialising in crop production,utilisation of fertilisers such as cereal straw and interplantfertilisers is becoming more important . Bearing in mind thehigh costs of soil liming, there is a definite need for an increasein the current level of state support measures in the form ofadditional subsidies.

23.5. Conserving the fertility of agricultural lands

There has been a slight reduction (by 2%) in the totalagricultural land area used in the period between 1995 and2001, however, in the last three years this figure has stabilised.

Along with the decline in agricultural production levels, therehas been a corresponding increase in the proportion ofunused agricultural land. This has increased from 11% in 1995to 21% in 2001 or on average by 34,000 hectares annually.Mainly extensive agricultural methods are used in Latvia.

Abandoned agricultural land has become overgrown withweeds and bushes. In 2001, the proportion of weed-infestedareas reached 7.2% and areas overgrown with bushes reached1.7 % of the total area of agricultural land. If the total area ofweed-infested land has remained relatively constant duringthis period, then the proportion of overgrown areas of land isincreasing - in 2001 it was three times larger than in 1995.

From the perspective of agricultural production, land areaspolluted with weeds are considered to be reserve areas, whichare possible to return into production. Lands that areovergrown with bushes are much more difficult to use and itwould be worthwhile to plant trees there. From theperspective of nature conservation, the overgrowing ofagricultural lands is an unfavourable trend, because it resultsin the disappearance of many valuable biotopes (see chapter7. Biodiversity).

One of the most essential conditions that will determine futuredevelopment trends in the use of agriculture lands is linked tothe adoption and introduction of a national bio-fuelprogramme. One requirement of this programme would be aconsiderable increase in the area of land under rapeseed (an

increase by 100,000 hectares until 2007), as well as anincrease in the area under cereals in order to ensure theproduction level of methanol.

It is foreseen that areas of unused agricultural land will bereduced in the future as a result of the forecast increase inland values following Latvia's accession to the EU and alsobecause of an increased motivation encouraging theproduction of agricultural products.

With the introduction of a system of sustainable agriculturalproduction (agricultural production that is carried out in anenvironmentally safe, economically viable and sociallyacceptable manner), the total area of land used in agriculturalproduction might remain at the level of about 2 millionhectares and 1.2 million hectares of land used in intensiveproduction.

23.4. Condition of land utilised in agriculture

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Agricultural policy and instruments for itsimplementationSince 1996, the basic instrument determining nationalagricultural policy has been the Agricultural Law which laysdown legal basis for agricultural policy. In addition to this,the Agricultural Development Concept was drawn up in1997 and adopted in 1998.

Further, developing the Agricultural Development Conceptguidelines and political guidelines adopted nationally inregard to the development of agriculture and determiningthe measures necessary for their implementation, adocument “Principles of the Development Programme forAgriculture and its Sectors” was prepared in 1998.

In accordance with the Agricultural Law, the AnnualAgricultural Development Programme is prepared everyyear, which determines the assignments for agriculturaldevelopment for the next year and the key tasks for a threeyear period, as well as specific measures and a specificmechanism for the implementation thereof.

Within the context of the Rural Development Programmeadopted in 1998 that lays down the general guidelines forrural development policy, agriculture is looked upon as oneof the constituent elements of the rural economy.

Since 1998, state budget resources have been utilised for theimplementation of an agricultural support programme incompliance with the guidelines incorporated in thedocument adopted by the Cabinet of Ministers of May 13,1997 “Concept and Justification for the Concept andProgrammes for Utilisation of Agricultural Subsidies in1998– 2002”.

The Rural Problem Solving and Rural DevelopmentConcept provides for the commencement of work aimed atthe formulation of a new rural development policy. Thispolicy is intended to be compliant with the new trends ofrural and national strategic development, accession to theEU, as well as ensuring that the rural development supportpolicy is strategically planned and implemented by means ofeffective, co-ordinated and financed action programmes.

State Subsidy Programmes. For the enhancement ofagricultural competitiveness, the state is providing a supportin the form of subsidies. Pursuant to Section 16 of theAgricultural Law, subsidies may not be less than three percent of the total expenditure of the annual budget of thestate, to be funded out of subsidies from general revenue.Subsidies, like the overall agricultural policy, are aimed atdeveloping agriculture as a sector capable of integrating intothe European single market and producing produce thatmeet the requirements of international markets, competingwith the produce of other countries in terms of quality andproduction costs. The following directions for state supportare set forth for the achievement of that objective:

technological modernisation of production;

quality management through the entire production andsales process;

promotion and development of produce marketing.

A more rapid development of agricultural establishments willbe provided for by the Agricultural Long-term Investment

Crediting Programme, adopted by the Cabinet of Ministers.The main tasks of the programme are creating long-termfinancing offers that are acceptable to agricultural holdings,to facilitate investments necessary to create farms of optimalsize and to facilitate an increase in the competitiveness ofagricultural holdings. The Mortgage and Land Bank of Latviais involved in implementation of this programme. TheProgramme aims to ensure that Latvian farmers have accessto cheaper loan facilities.

As a European Union Candidate State, Latvia has access tofinancial support incorporated within the Special ActionProgramme for Agriculture and Rural Development(SAPARD). Financial support has been allocated to Latvia forevery year from 2000 to 2006. On joining the EU before2006, Latvia may continue structural reforms, receivingsupport from the EU Structural Funds and EuropeanAgricultural Guidance and Guarantee Fund (EAGGF).SAPARD objectives are as follows:

to bring Latvian legislation in line with the EU legislationin the area of agricultural and rural structural reforms;

to promote income growth and reduced production coststhrough the modernisation of agricultural technology,equipment and building constructions;

to support the diversification of the rural economy, thusreducing migration from rural areas to the cities;

to promote compliance with EU quality and hygienestandards at the level of agricultural holdings andagricultural product processing;

to preserve the countryside and the rural landscape.

Two projects are being implemented in Latvia with supportof the PHARE programme:

Modernisation and capacity building of food qualitycontrol at national and regional level. The objective of thisis to guarantee the circulation of safe foodstuffs on Latvianmarket as well as the free movement of food betweenLatvia and the European Union.

Development of an administrative mechanism for Latvianagriculture that would conform to EU CommonAgricultural Policy. The objective of such a mechanismwould be to provide assistance to the Latvian Ministry ofAgriculture in the development of Latvia’s institutionaland administrative capacity to adopt and implementagricultural elements aquis communutaire with aparticular reference to the adoption of CommonAgricultural Policy.

There are also other projects being implemented in Latvia,promoting sustainable agricultural and rural development,which are being supported in accordance with theregulation on agricultural subsidies of 2002, “Procedures forUtilisation of the State Subsidies for Latvian and Foreign JointProjects”:

reduction of agricultural pollution in Latvia;

environmentally friendly agriculture;

development and implementation of a decision supportsystem into integrated plant protection in Latvia;

technical support to approximation and implementationof the EU animal welfare legislation in Latvia;

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information regarding the EU Common Agricultural Policyand rural development policy.

In Latvia, many conventions related to environment andnature conservation are closely linked to agriculture.Examples include the Helsinki Convention on the Protectionof the Marine Environment of the Baltic Sea Area (1974,1992), the Berne Convention on the Conservation ofEuropean Wildlife and Natural Habitats (1979), the Rio deJaneiro Convention on Biological Diversity (1992), theStockholm Convention on Persistent Organic Pollutants(2001). Latvia is also getting prepared to join the UnitedNations’ Food and Agriculture Organisation (FAO) 1951Convention on International Plant Protection.

Legislation of the Republic of Latvia, regarding species andbiotope conservation is laid down to guarantee conservationof certain biotopes, wild plants and animals specified byconventions that are related to nature conservation, as wellas European Union Biotope Directive (92/43/EEC) and BirdsDirective (79/409/EEC). Currently, the work is ongoing,delimiting protected natural territories of Europeansignificance, which will include also conservation ofbiologically valuable grasslands and animal species locatedon agricultural land. In order to protect natural values ofsuch territories, the Ministry of Agriculture is additionallyplanning agro-environmental measures, which will befinanced from the European Agricultural Guidance andGuarantee Fund Guarantee Funds.

The assessment of the expected impact of agriculturalproduction on the environment is carried out in compliancewith the Law On the Environment Impact Assessment(1998). As a result, regulatory documents are in force inLatvia that are in accordance with EU directives (EuropeanCouncil Directive (85/337/EEC) regarding the Assessment ofthe Effects of Certain Public and Private Projects on theEnvironment and European Union Directive (97/11/EC),which specifies and supplements the previous one). Inaccordance with European Council Directive (96/61/EC)regarding “integrated pollution prevention and control”,corresponding rules have been incorporated into the, Law onPollution (2002). Currently, agricultural run-off is the majorsource of nitrogen pollution in waters. Moreover, a significantproportion of pollution from phosphorous compounds islinked to agricultural production. EC Nitrates Directive91/676/EEC regarding the Protection of Waters againstPollution caused by Nitrates from Agricultural Sourcesobliges the EU Member States to take certain measures, inorder to reduce water pollution caused by nitrates and otherplant nutrients. Similar requirements are set out in Annex IIIof the Helsinki Convention.

Sources:

/1/ Central Statistical Bureau

/2/ State Land Service

/3/ Ministry of Agriculture

/4/ Latvian Environment Agency

/5/ State Plant Protection Service

Internet addresses:

Ministry of Agriculture of Latvia - http://www.zm.gov.lv/

Latvian State Agrarian Economy Institute -http://www.econa.lv/

UN Food and Agriculture Organisation (FAO) -http://www.fao.org/

Authors: Jânis Sietiòsons, Andis Þeikars, Edgars Bojârs

Consultants: Jânis Bruòenieks