Will the rise in global food prices stimulate food production in Latvia?

In December the producer price level rose month-on-month after dropping for two consecutive months. The main contributor to the increase was the price rise in the recycling of waste; also, the costs involved in the manufacturing of food products sold in the domestic market continued to climb. The monthly and annual rises in producer prices were  0.3%  and 8.0% respectively.

The producer price dynamics in Latvia in 2010 was significantly impacted by the rise in the prices of imported raw materials. On average, producer prices were 3.1% higher year-on- year and this increase was primarily on account on the rise in the prices of exports, which reached  7.6%. The producer prices of products sold domestically rose only 0.3%. Even though the rise in global food and energy resource prices intensified at the end of the year, the level of producer prices remained quite stable. Among the contributing factors here was the October drop in the prices of natural gas, which brought down the costs of domestic energy production.  At the end of the year, however, the wood pulp prices also dropped as a result bringing down the prices of the production of the Latvian exporting enterprises.

Even though no price rises as steep as last year are expected this year, they will continue to be reflected in the price dynamics: on the one hand, they will make the raw materials used in production more expensive thereby bringing up the prices of goods, particularly food products, in the domestic market; on the other hand, they will allow the export businesses whose number has expanded to sell their products abroad for a higher price. Taking into account that the global demand for food has grown substantially with the development of Asian countries, the Latvian food producers could use this opportunity to develop their supply by making production more efficient and use the rise in prices to make extra profits.