Danute Jasjko’s scientific contributions

Based on the analytical framework of the structure-conduct-performance paradigm of the theory of industrial organisation, the paper analyses those economic conditions that determine the degree of competitiveness in the Latvian dairy and milling industry. The analysis is based on information from milk and grain processing enterprises acquired through a survey carried out at the beginning of 1998. It is shown that the development of market conditions and market behaviour in the sectors examined has in general progressed. Privatisation in both sectors has been completed. While in the dairy sector the majority of processing enterprises were privatised as co-operatives, in the milling industry all enterprises have become closed joint-stock companies. Since the legal status of a co-operative has turned out to be quite problematic for enterprise restructuring, more and more dairy enterprises have started to change into joint-stock companies. Competition in the investigated processing sectors can be considered as functioning. However, in the dairy sector tendencies of stronger horizontal concentration can be observed. The majority of enterprises react in quite an active way to the market conditions. Procurement and marketing channels have been diversified, and considerable investments have been undertaken. Further investments, however, are impeded by high interest rates for credits. As for performance, quite a considerable differentiation between the enterprises in the considered branches could be shown. The main problems seen by the processors are the saturation of the domestic Latvian market, the lack of investment funds, the unstable legislation, the absence of any substantial support from the government, and, in the dairy sector, the low quality of the raw milk.

The food industry is one of the most important sectors in the Latvian economy. However, due to its close links to agriculture, the structural crisis in the processing sector is the main obstacle to increasing output, productivity and profitability in the entire agricultural sector. Based on the structure-conduct-performance framework developed by the economic theory of industrial organisation, the objective of the present discussion paper is to identify those economic conditions that are giving rise to the low degree of competitiveness in Latvia's food industry. For this purpose, the paper analyses the impact of the macroeconomic environment, the change in demand and input supply conditions, and the privatisation process on the development of the food industry. The analysis shows that, although major progress has been made in macroeconomic stabilisation, privatisation and institution building, the efficiency and performance of this important part of the Latvian agrofood chain are far from perfect. Current problems of the Latvian food industry that result in low profitability are increasing input costs, low labour productivity, low domestic and foreign investment activities and excess capacities. The main causes for these are unfavourable interest rates on bank loans, ineffective corporate governance in privatised firms, and deficiencies in the building and implementation of institutions.