Development of farmers’ co-operation in Latvia

1. Development of farmers’ co-operation in Latvia Linda Bille Executive Director, Latvian Agricultural Cooperatives Association

2. Latvian Agricultural Co-operatives Association (LACA) • LACA – one of the most influential farmers’ organizations in Latvia, also a member of the advisory board to L. Straujuma, the Minister of Agriculture • LACA – association that performs compliance assessments of agricultural services co-operative societies (ASCSs). • LACA – improved the compliance assessment system of ASCSs, also enabling compliant co-operatives to receive various types of support and other advantages.

3. Support to/advantages of compliant ASCSs (1) • Support under the measure “Modernisation of Agricultural Holdings” of the Rural Development Programme. • Support under the measure „Adding Value to Agricultural Products” of the Rural Development Programme. • Support under the measure „Setting up of Producer Groups” of the Rural Development Programme (only to commitments undertaken). • Aid in the form of state subsidies to compliant ASCSs for long-term investments (construction projects) and for the partial settling of interests of short-term credits, leasing and factoring deals. • Compliant ASCSs are exempt from corporate income tax. • Compliant ASCSs pay only 50% tax on their trucks.

4. Support to/advantages of compliant ASCSs (2) • ASCSs are exempt from tax on service cars. • Compliant ASCSs are eligible for credit guarantees from the Rural Development Fund. • Compliant ASCSs are eligible for credit guarantees from the Latvian Guarantee Agency. • Compliant ASCSs are eligible for export credit guarantees from the Latvian Guarantee Agency. • Compliant ASCSs can obtain loans from the Mortgage Bank pursuant to Regulations on loans to foster the development of micro-, small and medium merchants and agricultural services co-operative societies. • Pursuant to Section 3 Commercial mortgage law, an ASCS may be registered as an aggregation of property subject to the mortgage.

5. Support to/advantages of compliant ASCSs (3) • Compliant ASCSs can obtain loans from the Mortgage Bank for the purchase of current assets. • Pursuant to the Law “On Value Added Tax”, a farmer handing over unprocessed self-produced agricultural products to an eligible ASCS, shall receive a compensation amounting to 14% of the value of these products. The compensation may also be received by the compliant ASCSs if it is not the taxable person and of it pays the full amount of the compensation received to the farmer. • Pursuant to the Law “On Value Added Tax”, an ASCS may pay the tax and deduct the input tax on a cash basis regarding the supply of the following agricultural products: - live animals, milk and dairy products, birds’ eggs, natural honey, vegetables, roots, tubers, cereals, oil seeds and fruits, different grains, seeds and fruits

6. Development of co-operation in Latvia in various fields (1) co-operation has developed best in the dairy and cereal sectors; these sectors have the highest number of co-operatives, too. co-operation has seen little success in the meat sector due to the grey market and the poor experience by other co-operatives. fruit and vegetable sector – large potential for development due to the support available from the EU.

7. Development of co-operation in Latvia in various fields (2) most agricultural services co-operative societies only sell their produced outputs and do not process the outputs produced by their members. successful examples in dairy farming – 4 dairy-producing co-operatives have their own processing enterprises; 3 dairy-producing co-operatives started the construction of a joint dairy-processing enterprise in the second half of the last year.

8. However.............. • A large part of the co-operatives are “stagnating”. • LACA is not fully aware of the needs and objectives of co-operatives / the co-operatives wish to obtain direct support which was supposed to be granted for start-up co-operatives. • LACA is involved in lobbying matters of minor importance which are relevant for specific co-operatives only instead of working on issues of strategic importance for the promotion of the development of co-operation. • The next “wave” in the development of co-operation in Latvia could be propelled by large co-operative projects.

9. What should be done? • The co-operatives themselves should define what the strategic needs of the co-operatives of their sector are and what instruments are required to address these needs. • LACA must work on the formation of a more favourable environment to help the co-operatives address their strategic needs. • Considering the foreign experience, we ask you to identify the strategic needs of the co-operatives of the sectors given!

10. Outlook for brainstorming (1) • Promotion of co-operation has been defined as a priority in agriculture on a national level. National policy is oriented towards the promotion of co-operation. • Tier 2 co-operation should be developed in the cereal and dairy sectors, preserving the identity of small co-operatives. This means having a single central co-operative in these sectors, whose members would be the smaller co-operatives. • The number of co-operatives in the cereal and milk sectors should be reduced at the expense of uncompetitive co-operatives. Practices whereby a co-operative is viable only through state and/or EU support covering its administrative costs should be discouraged.

11. Outlook for brainstorming (2) • Agricultural co-operatives do not compete against each other. In each county of Latvia, a maximum of one sector-level co-operative should operate. • Processing capacity of co-operatives should be developed (processing enterprises owned by 1-2 co-operatives of a sector, gradually involving all co-operatives). • Shared points of sales of co-operatives should be set up. • Baltic-level co-operation should be developed. • ASCS compliance should serve as a proof of the co-operatives trustworthiness for farmers, not a leverage for obtaining state and/or EU support.

12. Outlook for brainstorming (3) • Development of shared pools of agricultural machinery (pool of agricultural machinery — an association of agricultural undertakings whose members may buy and sell machinery services (machinery owned by individual members)). • Development of co-operation in meat sector and unconventional sectors (e.g. growing of flax, growing of earthworms (vermiculture) etc.). Co-operation of organic farmers should also be developed. • Priorities in the promotion of agricultural co-operation is a bank policy favourable towards co-operatives, availability of investment-type support, tax reliefs. • Professional staff – availability of qualified managers of co-operatives.

13. Outlook for brainstorming (4) • Awareness-raising among farmers on the need of co-operation. Farmers feel as owners and decision-makers in the co-operative, aware of their rights and obligations. • Professional staff – availability of qualified managers of co-operatives.

14. Thank you for your attention! Latvijas Lauksaimniecības kooperatīvu asociācija Republikas laukums 2 – 519, Rīga Tel.+371 67027546, e-mail: birojs@llka.lv www.llka.lv