Latvia: how to make food affordable?
Latvia's rising food prices are currently around four percent above the EU average even though the country has one of the lowest income levels in the EU. Economics Minister Viktors Valainis has now announced plans to bring down prices, including an upper limit on retailers' profit margins, the introduction of a digital price comparison tool, a ban on destroying unsold food and measures against price dumping.
Price of sausages not the problem
For Neatkarīgā the problems are the result of deep-seated structural deficits in the Latvian economy:
“For future prosperity, Latvia needs not just price cuts and the elimination of distortions of competition, it also needs increased labour productivity and efficiency, innovation and new technologies, the use of artificial intelligence and small nuclear power plants that produce cheap electricity. We need to activate exports and develop the infrastructure. Reducing the price of sausages by 20 percent is of little use if purchasing power parity [the ratio between income and the cost of living] is 40 percent lower than in Estonia.”
Best option is to lower VAT
Latvijas Avīze discusses an alternative:
“Retailers are right to say that the most effective state mechanism for lowering food prices would be to lower VAT on the basic food basket – provided the state can control where the difference not collected as tax goes. We must not end up in a situation where Latvian fruit and vegetables, which are already subject to a reduced VAT rate, are still being sold for the same prices in shops. A reduction in VAT on other foods is not to be expected: the painstakingly drawn-up state budget is being stretched to the limit. And in such a situation a reduction in the most easily raised tax is not to be expected.”
Not at the expense of domestic producers
On TVnet, journalist Toms Lūsis speaks out in favour of supporting Latvian farmers:
“I really hope that the measures bring clear benefits for consumers. ... At the same time, in the current geopolitical circumstances a strong agricultural sector and a country's ability to be self-sufficient for food are crucial. We need local meat, vegetables, flour and dairy products. The near-closure of the borders during the pandemic proved that, but far more serious things are going on around us now. The government's plan to reduce food prices should be examined more than carefully so that there is no risk that this is done at the expense of local producers.”