Estonian industries’ search for markets in the West

Today the fishing, dairy and meat industries have begun to comply with the strict sanitary and quality requirements of the European Union. This requires large investments and a number of smaller businesses will have to be closed.

Food industry
Production of the food industry, which constitutes 20-30 per cent of the total sales volume of all industries, decreased during 1995-1999 (with the exception of 1997). In 2000, production volumes started to rise, as demand within Estonia and abroad increased due to better production quality and better choice. The favourable trading conditions established with the European Union (EU) in summer 2000 provided increased opportunities for the export of dairy products and, as a result, prices for these products rose as well. Sales in the meat industry have been affected, in the last few years, by foot-and-mouth disease, the so-called "mad cow disease" (bovine spongiform encephalopathy, BSE) and other diseases that have spread all over Europe.

The share of meat products as a percentage of exports has risen from 10 per cent in 1995 to 14.5 per cent in 2002. The share constituted by the export of dairy products has dropped within the last seven years from 40 per cent of total production to approximately 20 per cent in 2002. Publicity campaigns, such as “Made in Estonia” (Eelista Eestimaist), have been mounted in an attempt to boost the consumption of local foodstuffs instead of imported products.

One of the largest employers of unskilled workers in the food industry is the fish (canning) industry. Almost 80 per cent of its production is exported, mainly to the CIS, the biggest share going to the Ukraine. Other Eastern European countries also constitute markets for Estonian fish products, whereas fish eating traditions are different in the West. However, the relatively successful fishing industry may run into problems in future, as the import prices paid for Estonian canned fish in the CIS countries are low and the prices of raw fish are rising rapidly as a result of international quotas imposed on fishing in the Baltic Sea.

Legal production of alcoholic beverages, including both beer and strong liquors, has increased during the last few years, even though illegal alcohol is still widely consumed as well. After the restoration of Estonia’s independence, the state monopoly on strong alcohol was abolished. There was no monopoly on beer and wine-based drinks during Soviet times. Grape wines and brandy-type drinks are not produced in Estonia. Estonians have been drinking beer for longer than any other alcoholic drink. The production, consumption and abuse of vodka increased when members of the ruling class, who were mainly of German origin, established distilleries at manor houses a few centuries ago.

The export of beverages has constituted between 10-20 per cent of exports since 1995. With the help of an international marketing partner, Estonian producers of vodka have also been able to place Estonian-produced vodka on the highly competitive American markets, under a brand named after a small Estonian town – “Türi Vodka”.

Light industry
Light industry, which is one of the largest industries besides the food industry and which is mainly concerned with the production of textiles and clothing, went into decline in the early 1990s due to the restructuring of sources of raw materials and sales channels. However, it recovered during the mid-1990s. After a standstill during 1998-1999, textile production has been on the rise again at the rate of 10-20 per cent a year. Cotton fabric, pantyhose, socks and carpets are the products that mainly account for the increase in production. The production of clothing has also been steadily rising during recent years due to large export orders.

The volume of Estonian fabrics and household linens has increased in the markets of several Western European countries and the United States. Clothing producers have moved out to neighbouring markets as well. Besides production, larger clothing manufacturers have also started to develop their own sales chains, mainly in Estonia, Latvia, Lithuania and the Ukraine, in order to economise on expenses and increase sales figures. Clothes manufacturers in Estonia mainly produce collections of evening-wear and street-wear for men and women as well as work and leisure clothes.

Major clothes manufacturers tend to use more expensive services instead of sub-contracting at low prices. They have increased production bearing their own trademarks. Smaller businesses in this industry are facing more problems since large sales chains are not interested in them due to limited product range, which results in the products being more expensive. Such a situation forces small businesses to survive on sub-contracting, which, being less profitable, does not allow the businesses to work on product development or reach out to foreign markets. In light industry, investments in high technology are becoming gradually more important as such investments ensure the competitiveness of products on external markets. These investments also allow for increases in labour productivity and reduced expenses for salaries and wages in this relatively labour intensive industry.

Timber and paper industry
Production in the timber, paper and furniture industries has shown annual growth since 1995. The availability of raw materials locally and long-standing production traditions contribute to the stable development of the industry. By the end of 2000, the share of the timber industry as a percentage of industrial production had doubled as compared to 1995.

In the early 1990s, logging to supply the Finnish paper industry became a lucrative opportunity for businessmen to earn some fast money. This activity still encourages excessive illegal cutting and other economic crimes and attracts organised crime. In recent years, the value of timber has increased with the addition of wood processing and the manufacture of ready-to-use products; as a result, investments in the timber industry have increased. One-third of the raw wood used in the Estonian timber industry is acquired from Russia, mainly because its price-and-quality balance is very reasonable. This also prevents Estonian forests from being cut in excess of quotas.

Besides sawn timber, the production of particleboard, fibreboard, plywood and prefabricated log home building kits has increased as well. However, the growth of timber production has slowed slightly during recent years as a result of decreases in the prices of sawn timber, reductions in timber quotas, and increases in the price of logs imported from Russia.

Compared to other industries, the largest investments have been made in the timber, paper and furniture industries. Foreign capital has permeated these industries and exports constitute more than 70 per cent of sales. The future of the timber industry will likely include the manufacture of ready-to-use products with guaranteed quality and a higher degree of completeness.

Machinery and engineering industry
The Estonian machinery and engineering industry is a branch of industry with a tradition and accounts for more than one-tenth of Estonia’s industrial production today. During the late 1990s, rapid growth occurred in several different sectors, such as the production of metal products, machinery and equipment, transport equipment, computers and information technology systems, and the manufacture of telecommunications equipment and precision instruments. Producing telecommunications equipment locally, together with sub-contracting, has begun to have a significant effect on export figures and employment.

A decline occurred in computer production during 1999-2000, while producers of telecommunications equipment ran into difficulties in 2001. The volume of subcontracting decreased rapidly due to a world-wide standstill in the field of telecommunications. Equipment sales in the Estonian telecommunications sector dropped 50 per cent. While computer production, where more than 10 per cent growth was achieved again in 2002, is almost fully oriented towards the domestic market, 90 per cent of the production in the telecommunications sector, where the emphasis is on the manufacture of parts for mobile phones, is exported. Production volume in the engineering industry should continue to increase as Scandinavian producers intend to expand their production in Estonia. Whether the production of communications equipment will increase depends on global developments in this sector.

Chemical industry
The Estonian chemical industry has been able to orient itself towards Western markets rather rapidly: more than 60 per cent of production was exported as early as 1994. In 1998-1999, production in the chemical industry decreased. This was partially caused by the restructuring of businesses but also by low purchase prices in world markets, which affected the production of fuel oil made from oil shale. The manufacture of basic chemicals, synthetic detergents, varnish and paint also decreased in 2000, while an increase in the production of fertilisers was a positive development for the chemical industry (the manufacture of phosphate fertilisers was discontinued after Estonia regained independence). Production of rubber and plastic items grew steadily during 1995-1998 and, after a short relapse, production increased again in 2000 as a result of an escalation in the manufacture of plastic construction goods, office supplies and household articles.

Most of the enterprises in the chemical industry are situated in north-east Estonia around the oil shale deposit. However, the chemical industry uses only a small part of the oil shale production – most of it is used for the generation of electricity for Estonia. During Soviet times, other units were built at plants that used oil shale as raw material, for instance, a urea fertiliser and ammonia plant, which used Siberian natural gas as raw material. Various types of chemical plants in north-east Estonia have been privatised using local capital and capital from large Russian and American concerns. Big plants and oil shale mines have long been the main employers in the region; they have, however, also provided employment for the non-Estonian residents brought to Estonia from the Soviet Union during Soviet times.

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