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Industrial organisation of the food industry in Lithuania: results of an expert survey in the dairy and sugar branch

Vilija Girgzdiene

No 21, IAMO Discussion Papers from Leibniz Institute of Agricultural Development in Transition Economies (IAMO)

Abstract: Based on the analytical framework of the structure-conduct-performance paradigm of the theory of industrial organisation, the paper analyses economic conditions that determine the degree of competitiveness in the Lithuanian dairy and sugar industry. The study is based on information from milk and sugar beet processing enterprises acquired through a survey carried out at the beginning of 1998. The results reveal that the development of market conditions and market behaviour in the sectors examined has in general progressed. This holds especially for the dairy industry. In the sugar bran ch state intervention is still considerable, since the sector is regarded as 'strategic'. Privatisation in both sectors has been almost completed. Competition can also be considered as functioning, although horizontal concentration has increased over the last years. Economies of scale are of relevance in both food branches. They play a particularly important role in the sugar industry. With regard to capacity utilisation, the sugar industry is in a better situation. A common problem for both sectors is the low investment activity, mainly due to a lack of own funds and unfavourable credit as well as macroeconomic conditions. In addition, the Lithuanian dairy and sugar sector have to cope with a very fragmented input sector which leads to high transaction and transportation costs. In the dairy industry, high seasonality of production, state regulation in the procurement of raw material and unfavourable export conditions are regarded as additional major problems.

Date: 1999
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