Estonia - Agriculture and forestry sector review

Since regaining independence in 1991, Estonia has followed an economic reform based on establishing a sound currency and macro-economic environment, developing competitive markets with minimal barriers to entry, establishing free internal and external trade, privatizing the ownership and management of productive enterprises and land, and developing a commercially viable financial system. The agriculture sector faced severe initial adjustment problems, with recorded 20 to 30 fall in agricultural Gross Domestic Product (GDP) in the early years of transition. The sector was particularly hard hit by the collapse of trade with the former Soviet Union (FSU) countries. This trade was based on production of livestock products for guaranteed markets in the East using heavily subsidized feed grains, energy, and agricultural inputs from the East. The severe contraction in these markets was compounded by a curtailment in domestic demand for meat and milk products due to the contraction in the domestic economy. In forestry, harvesting volumes dropped significantly caused mainly by propoerty reform which inhibited or prevented normal cuttings in large areas of forest while property rights were being clarified. Presently, harvesting volume has increased spurred by a large export demand for roundwood, as well as a demand from western furniture makers. As Estonia's market reform efforts continue, the role of agriculture and forestry in the overall economy is constrained by several external factors and internal policy choices. Climate and natural resources are not particularly favorable for agriculture, but low wages, low land costs, and the existing stock of skills, equipment and infrastructure indicate the potential for internationally competitive production in a number of key commodity areas. Increased domestic consumption brought about by overall economic recovery will further improve prospects for many agricultural industries. If protectionist policies can be prevented from escalating in the FSU countries, prospects are good for re-establishing trade with the East.