Overview: Defining the Baltic bread market

Riga / LV. (tbt) Gone are the days when each Baltic village had its own unique style of bread, however, and the market today is dominated by large multinational companies. All three Baltic states have recently seen a rapid consolidation of bakeries, with the few largest companies controlling ever greater shares of the market and many smaller bakeries being forced to close their doors, The Baltic Times describes the market.

Today in Latvia, the eight largest bakeries control 60 percent of the market, and the smallest 31 – about a third of the total number of bakeries in operation – control only 40 percent. The number of Latvian bakeries has decreased by more than 2,5 times in the past five years. The trend is even more drastic in Estonia, where the top four bakeries control an amazing 60 to 70 percent of the market.

Lithuania is experiencing a sharp amalgamation of bread companies as well. «Market entry is quite easy, everyone with an oven at home can call themselves a baker… but over the past five years there has been a lot of consolidation with the biggest five companies taking control of more than 50 percent of the market», says Marius Horbacauskas, general director of the Lithuanian division of Fazer bread.

Fazer bread is in itself a prime example. In the five or six years that the Scandinavian bread giant has been operating in Latvia and Lithuania, they have managed to become the second largest bakery in both countries. The bread industry in the Baltics is thriving. In Estonia, where people eat an average of 35 kilogram of bread per year, bread accounts for almost 15 percent of the food and beverage industry. In Latvia, bread is the second largest contributor to the food and beverage industry.

Despite the apparent strength of the market and the relative stability of demand, the bread industry in the Baltic states faces a number of challenges. Many bakeries are being hit especially hard by the same general problems that are affecting other sectors. «I think the biggest problem that we have is organization of labor», Heiki Hallik says, general manager of the Hagar, a major Estonian bread company. Hallik explains that the difficulty in finding good workers and low worker productivity are forcing him to look for alternative ways to improve efficiency. «We need to improve our efficiency in the workplace by instituting different plans», he says, adding that the company was also trying to upgrade their bakery’s technology to help increase their capabilities.

Hagar is quickly moving up in the world of Estonian bakeries and is now the fourth biggest bakery in Estonia. They operate all over the country, and have even begun exporting to Finland and the other Baltic states. A recent survey conducted by Anastasija Vilcina, Ingride Kantike and Aija Eglite of the University of Agriculture in Latvia found that the labor shortage was one of the worst problems facing Latvian bakeries. «All (100 percent) of the surveyed experts pointed to the lack of a qualified labor force as a very important and hindering factor in the successful performance of bakeries», the survey concluded.

Horbacauskas says that the labor shortage was also stymieing his Lithuanian business. «The labor costs are increasing as people go to Ireland or Great Britain», he says. «One way to modernize is self-sufficiency, we are working for a less labor intensive process in the future, and we will incorporate more machinery».
Horbacauskas says that the biggest problem facing his company, however, is the rapid inflation and price increases being experienced in Lithuania and Latvia. «The price increase is the most important thing; people are reacting negatively to the increased bread prices. Also, the grain harvest will be low this year and so the prices will continue to increase».

With an attitude that is characteristic of how intense the bread industry in the Baltics is becoming, Hallik says he welcomes the price increases. «The bread prices are so low in Estonia that a small increase is not so problematic. We have very good economic development, so this is not a problem for us. On the Latvian side it is good that the prices are rising because then we have more opportunity to export there» (Source).