However, to improve sales, discount campaigns and offer special prices, as customers are very price-sensitive.

The food industry in Estonia has faced challenges in recent years, following the coronavirus crisis, and then the soaring energy and raw material input costs.

In early March this year, Kehtna lihatööstus announced it would cease operations in June to avoid going through formal winding-up procedures. Rahinge lihatööstus, owned by Tartu Agro, has also said it will stop production by the end of this month. Last summer, Saaremaa lihatööstus announced it was laying off half its workforce.

Lihatööstus simply means "meat industry" in Estonian, hence its recurrence in various private sector producers' names.

Ragnar Loova, CEO of another firm, Nõo lihatööstus, told ERR that the meat foodstuffs sector in Estonia suffered total losses of €21.5 million in 2022, though while the first three quarters of 2023 were challenging, the fourth quarter of last year provided hope for signs of improvement.

Nõo was the only one of four firms ERR spoke to which made a profit in 2022.

The main current issue lies in falling demand, Loova said.

"We can clearly see why demand has fallen: On the one hand, due to tax policy decisions, and on the other than monetary policy decisions, which are inevitably Europe-wide. Consumers' purchasing power is facing an onslaught, but, overall, we may not have to see the whole picture in such pessimistic tones."

Loova added that some meat processing plants have indeed had to close their doors due to circumstances, but the overall forecast for the sector could be considered "optimistic."

Olle Horm, CEO of another company engaged in the sector, Atria, said their recent sales have been buoyant and at last year's level, or even higher, while the company's market share is growing too. "Our financial results are entirely acceptable; it would be wrong to complain," Horm said.

Horm added that what he called Atria's uniqueness lies in producing a large part of their own raw materials, and serving retail customers. "These are hard times in retail, but people need to eat. Perhaps our products are priced lower than those of the smaller producers. Most likely, people have become very cautious and conservative in their purchasing decisions. Price decides much," he went on. "At present, price sensitivity is so significant that customers are moving towards larger stores and producers with reasonable prices. Generally, small producers' price level is a bit higher because the share of handcrafting is so large."

Horm said that consumers, perhaps unsurprisingly, warmly welcome campaigns and special prices.

Nõo lihatööstus leader said that people are planning their weekly food budget more carefully than before – not so much a case of choosing sausage over ham, say, but rather buying ham in larger or bulk packs, whose price per kilo is necessarily cheaper.

Manufacturers need to be aware of what consumers pick for their shopping baskets, Ragnar Loova reported that his company has analyzed market conditions and sales figures and, based on this data, brought in products that could appeal to those target groups currently facing difficulties.

"Ultimately, we must stick to the principle that the consumer chooses between two things on the market: To reduce consumption, which affects meat product sales, or to look for cheaper alternatives. Often, we come to a realization that changing the product selection and structure is not as important as how we appear on the shelves," Loova went on.

"Unfortunately, or fortunately, the yellow (ie. budget price) label currently works significantly more intensively than it had done earlier, but if smart decisions are made there, changing the selection becomes secondary," he continued.

Speaking of future developments, the leader of Nõo lihatööstus expressed a hope that no further inflation when it comes to foodstuffs will be seen this year. "Instead, we can see that prices have peaked and so will remain stable this year. That said, in the meat market, at least with pork products, we might unfortunately see some price spikes come summer, but then again much depends on how companies have hedged their raw material input price risks. We can say that we have not fared among the worst."

Nõo lihatööstus is eyeing the future optimistically; otherwise, there would be little point in operating in the sector in any case. "We are optimists, and we hope that what we envision and desire will indeed manifest. This is not just pie in the sky; it is supported by definite figures," Loova said.

Signals are coming from the government that they have started listening to businesses more, as well, he said.

Atria's chief did not venture to make bold predictions. He said that since the pandemic, he no longer dares to forecast anything, as business has become so unforecastable. "It started with the rise in electricity prices, then the explosive growth in beef prices, followed by poultry, pork... Now electricity prices have come down, but changes have been so rapid and incomprehensible that I can't say where the next blow will emanate. Currently, there's some calm on the raw materials side, but that will only last until the next big scare," Horm said. "And I dare not jinx anything."

Roland Lepp, board member at the Maag Grupp, said his firm is doing well, and the news of small meat processors closing does not affect them. "Small meat processors are an entirely negligible size. There's not even anything to discuss about taking over customers," he stated, indicating that the turnover numbers of the closed meat processors are insignificant compared to a large industry.

Last summer, the sale of HKScan's Baltic units to Maag Grupp was finalized, and, according to Lepp, there's nothing further to discuss – the company has been taken over.

The Competition Authority (Konkurentsiamet) approved the transaction on the condition that Maag must divest the Rannamõisa and Rannarootsi meat industry trademarks. Lepp said that they are dealing with this.

The bankruptcy threat hanging over Saaremaa lihatööstus is however not over yet. The company is going through a challenging time – a year ago, it filed for restructuring, and last summer, it laid off about half of its employees. The company cited the recent years' rise in pork prices, the coronavirus epidemic, and the increase in energy carriers as the reasons for its difficulties.

Kristjan Leedo, the head of the firm, said that due to the restructuring that began last summer, they reorganized their entire production, and their current situation cannot be compared to other industries because their volumes dropped to practically zero, and only in September did they start returning to grocery stores. "Volumes are slowly rising, but compared to the volumes we had before restructuring, we are significantly behind," he said.

Leedo added the situation at Saaremaa lihatööstus is currently very challenging, and if they can get the company functioning by summer, that would be good. However, the bankruptcy threat is not over. "We have post-restructuring payments coming up in the summer; until now, we could work without them, but towards summer, we have to start fulfilling obligations. If we don't increase our volumes by that time, it will be quite difficult," Leedo explained. "Honestly, the current situation does not favor volume increase; volumes are generally decreasing around us because consumers' purchasing power and willingness to spend are relatively low."

According to the business register, Saaremaa Meat Industry's current tax debt is approximately €837,000, more than half of which consists of VAT and social security debts. Leedo noted that this is largely the amount that must be paid off according to the restructuring schedule over five years. "If we work properly, there's no problem in clearing these monthly payments, provided we can handle other things," said the head of the meat industry.

Leedo said he does not believe that meat production will, despite the current trend, end up being concentrated across just a few larger industries, on the grounds that consumers wish to see a variety of products in stores.

Leedo added that while he is an optimist by nature, time will tell what happens next with Saaremaa lihatööstus. Each month is a challenge, he said, but if the company can make it to summer, they can likely continue beyond that. There are still a few months to go until summer, he noted.

Saaremaa, Nõo, Maag and Atria revenues for 2022

In 2022, Saaremaa lihatööstus' revenue came to close to €16 million, with losses of approximately €2.5 million.

Meanwhile, Nõo lihatööstus revenues for that year were €42 million, losses, €569,000.

Maag Grupp incurred losses of €1.2 million euros with consolidated revenues of €276 million that year.

The latter company attributed this to the fact that cost rises in the meat industry were significantly ahead of the growth in sales revenue.

Atria's reported revenues for the same period were around €53 million, the this company cleared a profit, of €1.7 million.

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