Post-pandemic recovery: changes in Latvian political economy’s framework

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The EU-wide integration process has developed a conceptually different style of “European capitalism”: so-called social market economy, which is presently a guiding “framework” in the member states’ political economy. Positive factor in the Union’s development is that the “leading integration’s ability” to organise all vital growth facilities in any EU country includes budget funding and academic community’s efforts around progressive socio-economic growth.  

The pandemic crisis accelerated the EU and the states’ policy priorities towards modern challenges, which include, among other directions, three most important: i.e. new EU-wide industrial strategy, the SME’s approaches to sustainable and digital transition, and the “European Green Deal”, alongside several others. These priorities have made the national governance re-oriented towards new and perspective guidelines in decision making in view of the following European priorities: a) more enterprises shall be in the cross-border operations, b) activate start-ups, young entrepreneurs and SMEs, and c) efficient corporate strategies with attention to accounting, VAT procedures, corporate survival, etc. Thus, for example, transformations in the European ‘green deal” imply that the following aspects in the SMEs and corporate strategies shall be revised: corporate contingency planning and ethics, sustainability issues and optimal supply-chain structures, as well as cross-border mobility, etc. Latvian “capitalism’s version” has been changing significantly during pre-pandemic period; more dramatic changes occurred in the post-pandemic period.
People’s quality of life and well-being are increasingly considered as key determinants in politics and socio-economic development as the most fundamental factors in perspective growth; hence, measuring progress only using gross domestic product (GDP) indicators means ignoring both the modern societies’ complexities and transformations in political economy. In search for the multifaceted approaches to long-term recovery and creating resilient societies, modern governance has to take into account all growth factors (i.e. not only economic, political and legal but social, cultural, environmental, etc.) which are dominant for national progress and peoples’ well-being.
From the health’s side, during pandemic in Latvia only through one 2020 about 37 thousand people have been infected and the level of unemployment increased by about 8% by the end of 2020. Since January 2021, new amendments to LV’s taxation regulations have been introduced, including: a) personal income taxation (20% to a yearly income of up to € 20.004; 23 % for income over € 20.004 but not more than €62.800; and 31% to income over €62.800; and b) increased minimum salary to about €430-500, etc.
However, according to Latvian National Bank governor’s account, the present pandemic negatively affected mostly the following three economy sectors: transport-transit by about 15 percent, tourism and entertainment by 22,4%, and hotel and restaurants by 28,6%.
However, some economy sectors, e.g. agro-food even increased profitability in 2020 by about 6% compared to 3 quarter in 2019 due to lower infections in the rural areas and extremely favorable climate conditions for agricultural production. Several sectors: e.g. mobile operators and internet-providers as well as manufacturing sector, retail traders and civil servants (!) have been in better positions as well… Nevertheless, the populations’ real income has reduced in about 42% of Latvians by the end of 2020; besides, about 14% reported “the disastrous deficit” (during the first wave of pandemic it was “only” 25%).
The general Latvian efforts towards recovery and resilience included new approaches to decision-making, governance and political-economy’s components in the perspective reforms. To be effective, these reforms shall be concentrated on most important priorities, in which the project has chosen three aspects in recovery: economic, political and legal issues.
However, slightly different approaches are needed to analysing the roles of the most important “socio-economic operators” in the post-pandemic period. In some EU states, the following “transitional components” in perspective growth have been under scrutiny: a) workforce and labour market, b) business and entrepreneurship, and c) regional and national governance as the most important aspects in both recovery and resilience efforts.
Some analysis of these factors has been made by the European Integration Institute/Denmark in the research papers published at the end of 2020:
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Agro-food situation in a post-pandemic Latvia
A set of global and European challenges, e.g. digitalisation, sustainability and green transition, etc. greatly affected in the negative sense both the EU’s strategic security issues and Latvian food production and processing. Hence, the priorities include: e.g. a strategy for sustainability, an updated industrial strategy, the EU-states climate adaptation strategies and the EU-wide soil and forest strategies, when all are closely connected to agro-food production and manufacturing.
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Socio-economic problems in Latvian agro-food sector have been apparent before the pandemic: the latter only increased the necessary transformations: e.g. the regional reform in Latvia is one of the most urgent followed by the need of structural changes in the economy. However, the growing in size and influence Riga municipality (with over 70% of population and dominant share of national GDP) resulted in an almost devastated situation in the rest of the country…
In its landmark “from farm-to-fork strategy”, the European Commission sets out to foster a transition in the EU food system to improve its fairness, healthfulness and environmental sustainability. There is an urgent need to address these objectives extensively in order to promote in Latvia a fairer and healthier agro-food system.
Agro-ecology has become one of the main directions in the Commission’s recommendations towards “future farming” in the member states, as a concept and a movement that encompasses both the environmental and agronomic benefits of sustainable farming. Hence, agro-ecological food systems are oriented both towards a fair treatment of farmers in the food production/processing sectors and created changes in consumption’s patterns and increased peoples’ wellbeing.
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There is an apparent trend in Latvia towards a large-scale industrial agriculture with a high degree of mechanization and the labour force that is often seasonal and short-term in the nature of agro-production; for example, in the EU-27, about four out of ten million people employed in European agriculture, in addition to landowners and their families, are temporarily employed as the profit from a “main employment” do not suffice for a decent living conditions.
As Latvia and other member states are engaged in combating the post-pandemic effects, the national governments are being committed to continue work towards a better future where people and nature thrive together: getting the future of agro-food and farming systems right is a crucial part of it.
Reference to:

Wanted: ambitious national goals
Analysing the outcomes of the pandemic crisis on food supply chains shall go through a “double approach”: on one side, it assesses the rapidly changing shifts in food supply, consumption and peoples’ behavior: on another side, it analyses the Latvian dependence on global/regional supply, digital issues and e-trade possibilities. It is quite important that both aspects of approach are aimed –at the same time- at addressing the national food security risks.
Besides, there is a need of assessing the resilience’s potentials in developing the “nationally appropriate” agro-food supply chains in post-pandemic period; this approach is based on fact-collecting, as it is stemming from the Latvian data in agro-food supply chains, including fruits and vegetables, which are vital for Latvian consumers.
However, present situation is such that most of fruits and vegetables’ items are imported, except from spring-time availability and associated problems facing the local and municipal bodies.
Possible solutions and recommendations can be seen in at least two implementation phases: a) identifying urgent problems and preparing a “cost-benefit” analysis with possible solutions, b) preparing socio-political recommendations based on existing socio-economic, technological and other scientific evidences.
In general, the national strategy shall be concentrated on possible innovative corporate and governance’s solutions in promoting efficient food supply and mitigating risks.
Exciting situation in the Latvian agro-food sector’s production and supply chains shall be seen in a historic context: qualitative research methods in the sector started to be effective “only” from 1989 with the Sage’s university papers series on qualitative research methods. Hence, a thorough analysis of complicated risks’ paradigm involved in Latvian post-pandemic situation is often coped with an adequate interviewing methodology.
National governance institutions provide for easy-understanding of the agro-food sector in the country, as well as feasible perspectives in the post-covid development.
Recovery spheres dealing with the food production, agro-sectors’ feasibility and peoples’ wellbeing are both sensitive and important for Latvian and for the EU-wide integration. Various contemporary European Commission’s recommendations suggested revised and “reinforced” Common Agricultural Policy, CAP; one of the latest is concerning the “financial impetus”, i.e. through the Union’s long-term budget, which included two key aspects: a) support for rural areas and farmers as guarantors of ensuring food security, and b) providing adequate means in implementation of the European Green Deal; both directions are instrumental to the success of farmers in the member states and the European agriculture in general.
The EU multi-annual financial framework (called MFF budget for 2021-27) adopted on 2 June 2020, substantially reinforces the initial CAP funding: thus, € 391 billion is proposed for agriculture and rural development during this period, which signifies the importance of agriculture and rural development in the member states. Both the farmers and fishermen will be given additional resources to continue agro-food production and fisheries in a more sustainable way, especially during and after the pandemic crisis. These financial resources will also make both sectors more resilient to external shocks while continuing to benefit from the Single Market with strong competitive advantages. They will also contribute to the European Green Deal objectives, including the 2030 Biodiversity and Farm to Fork strategies.

Presently, the EU is eager to enforce the “green transition” in the member states: suffice it to mention the Portugal’s Council presidency in the first half of 2021, which explicitly included in its priorities the notion of “Green and Resilient Europe” putting at the centre of the member states recovery coherent approaches coped with the “green, social, digital and global Europe”.
The Portuguese motto represent a clearer call for action: “Time to deliver: a fair, green and digital recovery”; it looks as a follow-up of a previous German Presidency’s slogan “Together for Europe’s recovery”. Hence, the EU institutions, key “regulators” along the green recovery roadmap in the member states, are having one of the hottest agenda concerning the perspective agro-sector situation: i.e. the bio-diversity’s regulation, the 8th Environment Action Program and a framework for sustainable governance.

Agro-sector’s socio-economic importance
It is known that the EU’s agricultural policy is of shared competence: i.e. the sector is subject to effect from both sides, the EU institutions and from the member states. From the former, it is the form of huge financial assistance (about 1/3 of the EU budget, including “direct support” and sectoral injections), from the latter it is the member states’ obligation to support the national producers.
For example, already in May 2020, the European Commission approved the Latvian scheme to support companies active in the primary agricultural production sector affected by the coronavirus outbreak in a volume of €1.5 million. It has been since the competence of Latvian authorities to evenly distribute the allowed support for most needed. In this way the EU assists the states in national support measures to mitigate the economic impact of the present crisis in a coordinated way, in line with EU rules. This €1.5 million support will enable Latvian government to provide zero-interest rate loans is size of about €100,000 to companies active in the agricultural sector. It is supposed to assist the farmers to cover their immediate liquidity needs so that they would continue their essential activities during these coronavirus outbreak.
In Latvian agro-sector, there is about 50-50% division between farmers in “crop and animal production” (including food and beverage) and those involved in “forestry and logging”; somehow about a third of the latter is in “wood processing”. Only about 10 per cent of Latvian GDP is produced in agro-sector.
Officially, over 16% of Latvian population is employed in agro-sector, compared to 4,5% on the EU’s average. In some neighboring states the percentage is even higher: e.g. about 22% in Lithuania and 18% in Poland. Two decades ago, there were about 273thousand persons working in this sector; about 70% of farmers have been “consumers rather than sellers of their produce”.
Source: https://www.
In 2010, according to the latest official statistics there have been about 83 thousand “holdings” with about 180 thousand people “working on farms”.

Existing national agro-food data in Latvian agriculture (in particular such sectors as corn, potatoes, fruits and vegetables, milk, fish, etc.) has shown that significant efforts are needed to make the Latvian agro-sector (together with the agro-manufacturing part) more responsive to modern challenges and contribute to the national growth. Thus, in corn production the number of farmers reduced during last decade by 22%, i.e. from 26,4 thousand in 2010 to 20,6 thousand presently. However, it is one of the most profitable sectors in Latvian agro: with a positive balance of €4 mln in 2019 and €8 mln in 2020.
The situation in other sector is not so favorable: e.g. in the fruit and vegetables sector where about 140-160 thousand people employed, the trade deficit is generally negative – in fruit’s sector of € 60 mln and about €30 mln in vegetables…
Same negative aspects are also seen in meat production and processing: it is not only that the dramatic reduction in “own-meat production” is reduced by 27,5 thousand tons since 2005, about 70% of meat consumed in Latvia originates from the neighbouring states –Lithuania, Estonia and Poland. Hence, comes a deficit of about €50 mln in trade on top a lack of support for local producers.
These and other project’s results provide for a solid background of thoughts for the national governance in taking the necessary remedy measures revealing modern challenges for the national governance embedded in a re-designed conceptual reform’s paradigm, i.e. through “transitions” in politics and economics.

Searching ways forward…
The “governance’s” issues are most important in formulating political and economic guidelines for a Latvian national perspective growth. In the member states, the governance is balancing between the EU-wide and the national political priorities, while both are oriented towards “common goods” reflected in the peoples’ wellbeing. The latter is seen in the “happiness index”: on one side the wellbeing issue seems rather good: “happiness” situation in the Baltic States and Latvia looks quite positive compared to other states. Among 156 countries in the world by “happiness levels”, based on six main “happiness factors”: GDP per capita, life expectancy, social support, freedom to make life choices, generosity and level of corruption, Latvia ranks 53 between Romania and Japan; Estonia ranks 63 -between Bolivia and Paraguay and Lithuania’ 50th ranks -between Belize and Slovenia. Compared with the data from 2008, Latvia is one of the best in positive changes of happiness’s indices.
All the top countries in the report tend to have high values for all six of the key variables that have been found to support well-being: income, healthy life expectancy, social support, freedom, trust and generosity, to such a degree that year to year changes in the top ranking are to be expected.
More in “World Happiness Report”:

As to a “fair national food” policy, the main perspective is to establish directions for “eating more sustainably” and changing consumers’ attitudes: presently, there are some difficulties in identifying sustainable food options, a lack of knowledge on available sustainable food in consumers’ habitual shopping and eating places. All these parameters are part of the so-called “food environment” aimed to create conducive to sustainable and healthy diets. This task of promoting healthy and sustainable food choices is, actually an integral part of the general project’s “triangle”: economic, political and legal.
Another aspect of mitigating risks is creating a “national food trademarks”: adding value with the CAP’s “Quality schemes through quality policy”, the EU provides a number of measures to help national agro-producers build on the high quality reputation to sustain competitiveness and profitability. A key tool in this is the register of more than 1 300 protected food names which are classified as a Protected Designation of Origin (PDO), a Protected Geographical Indication (PGI) or a Traditional Speciality Guaranteed (TSG). The production of these registered quality products contributes to diversity, development and growth in the rural areas where they are produced and protects local knowledge, skills and jobs. For example, presently, France has 233 food products registered, of which 98 as PDO (such as Roquefort or Beurre d’Isigny), 134 as PGI (such as Saint-Marcellin, Sel de Guérande/ Fleur de sel de Guérande or Melon de Guadeloupe) and one as TSG (Moules de Bouchot).
In contrast, the Baltic States are having just 4-5 items each classified and recognized in the EU as witnessing “national and European food perfection”.
In fact, the EU’s consumer organisation, has already declared that, for example, sufficient food labels could serve as a guide for consumers and in choosing “greener” in production and healthier in diet agro-foods; besides, food companies would stop promoting unhealthy food to children. The co-operative models in agro-business can also help addressing economic risk and uncertainty around market access and value the widespread transition to sustainable farming. Close connections between consumer co-operatives and farmers (individual or farm co-operatives) can help abate risks related to investment in sustainable farm management, for instance by guaranteeing a market for the products and promoting supply chain transparency leading finally to improved producer-consumer relations.

It is high time to initiate a national transition program towards sustainable food and agriculture, as an example for other EU member states’ priorities. Food system requires significant changes throughout supply chains, from the farm to the fork. It is as well necessary to combine sustainability and digitalisation in the agro-food chains: for example, there are good perspectives for hydro-phonic farms (often called e-farms, or “intelligent farms) for all-season fruits and vegetables production and manufacturing in Latvia. This “combination” could both reduce agro-import (in particular during winter time), save work force, fertilizers and energy, as well as respond to modern challenges by using AI-technologies and sustainability principles.
However, the possible transformation of the total agro-food situation in Latvia is to be seen through the National Development Program-2027 (composed of 137 pages!) adopted at a special Parliament session in June 2020; the plan has four socio-economic priorities: a) productivity, profitability and quality of life, b) adequate regional development, c) equal opportunities (GINI-coefficient in Latvia is still 35%), and d) knowledge society.


However, the national program does not regard agro-food sector as a national strategic priority; on the contrary, a cross-sectoral governmental group, composed of 9 Latvian ministries, 3 state bodies, Foreign investment Council and Trade-industrial Chamber, decided in November 2020 that the main “development themes” for the country are those of digitalisation and innovation, nature and culture, human resources and education.
Nevertheless, the agro-sector has to find its role and place in the perspective Latvian growth paradigm, at least somewhere among above mentioned priorities, although it might seem not a really simple task…

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