The results of the interviews

The managing directors of the companies were asked for their opinion about the impact of EU accession on the selection of their main export markets, on their perception of the changes on domestic and export markets, their production costs, their company’s strengths and weaknesses on different markets, the structure of their exports and innovative activities in their company. In addition, they were asked about their attitude towards the adoption of EU sanitary requirements, the need and potential for government assistance in winning export markets as well as their vision of their future export opportunities. The companies owned by foreign investors were also asked about the role of their parent companies in the choice of and opportunities on export markets. One interview was carried out in English, while the rest were carried out in Estonian.

Only one interview was not recorded. The interviews were undertaken during the period from September 2006 to January 2007. The interview form is given in Appendix A.24.

2.5.2. The results of the interviews

The managers’ responses differed somewhat depending on whether their com-pany was producing primarily commodities or value added products directed at end-consumers. Only one company specialised in producing and selling commodities, and although to a limited extent, this company also produced

products directed at end-consumers. All the other companies specialised in producing high value added consumer products.

Concerning the impact of Estonia’s accession to the EU on the choice of export markets, companies specialised in high value added consumer products in general experienced a positive change. All companies recognised an opening up of the EU market for their exports right after accession to the EU. Not only did it become possible or easier to export to the old members of the EU, but managers also emphasised the opening up of markets in the new member states for their exports. Only one manager (Company D) doubted, whether this change in export possibilities was due to accession to the EU, or rather as a natural development related to firm growth. In contrast, the company specialising in commodities (Company C) did not experience any changes in its export markets as a result of Estonia’s accession to the EU.

The changes with respect to the markets of the old member states perceived by the interviewees can be categorised into two:

1) elimination of formal market barriers, 2) decrease in bureaucracy.

Despite the fact that some interviewees pointed out that the EU quotas applied to Estonian exports to the EU prior to 2004 were sufficiently high, the removal of the quotas and the accompanying licence system appreciably lowered bureaucracy and enhanced the competitiveness of Estonian companies. This quota system was especially bureaucratic in the case of high value added consumer products, and less limiting in the case of commodities. However, one interviewee (Company A) also acknowledged that the opening up of the EU-15 markets was only a precondition for exporting to these countries; export requires a long-term commitment and tight partnership.

Access to the markets of the other new member states of the EU, which joined the EU with Estonia in 2004, was also in general perceived to have become easier after accession. Nevertheless, export possibilities in the case of milk products directed to end-consumers are limited by geographical distance.

This means that even though the barriers were formally dismantled, it did not necessarily open up new markets. The main trade partners – Latvia and Lithuania – were already open for Estonian milk products before accession within the framework of the Baltic Free Trade Agreement, although this agreement was not always obeyed and some problems existed (Company E).

Latvian and Lithuanian markets were considered to have become more open after accession mainly due to global developments and the appearance of pan-Baltic retail chains (Company B, Company D). However, one interviewee (Company C) pointed out that due to their small production volumes in comparison with Lithuanian producers, Estonian companies are not competitive in the long term in supplying orders for the large retail chains.

In terms of factors that hinder exports to EU markets, one interviewee (Company C) mentioned a lack of relevant know-how and small production volumes. He elaborated that small production volumes and the lack of interest

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from the owners has led to insufficient R&D, which hinders product development. The problem of small production volumes seems to be more acute in the case of commodities and not so much in the case of high value added products. Nevertheless, another interviewee, representing a company specialised in the production of high value added consumer products (Company D), mentioned that large European companies have an important advantage in comparison with Estonian milk producers in so far as their large production volumes allow them to be more efficient, lower manufacturing costs and enhancing product quality. One interviewee (Company B) mentioned that one of the main factors hindering exports to the EU is the lack of competence – more specifically, the lack of familiarity with the markets. Two other inter-viewees (Company D and Company E) also emphasised the role of local competitors on export markets and foreign customers’ perceptions and preferences as an important obstacle to exports.

Concerning access to non-EU countries, the removal of double tariffs on exports to Russia was seen as an extremely important and positive result of EU accession. Only one interviewee (Company D) did not mention it since the company had never exported to Russia and did not plan to do so in the near future. However, the interviewees also admitted that many problems still exist when exporting to Russia; these are related to invisible trade barriers and political matters. This is especially problematic in the case of perishable consumer products, and it seems that Estonian milk processing companies specialising in high value added consumer products do not see that many opportunities for exporting to the Russia market. One interviewee (Company B) also mentioned that even though the Russian market has considerable potential, this potential has been long noticed by large international food companies that Estonian companies are not able to compete with. Nevertheless, companies C and E were mainly oriented towards the Russian market. EU export subsidies had been used by some companies, but most of them acknowledge that the sub-sidies were rather bureaucratic and accessing them was very time-consuming.

Two companies had transferred this function to their parent company or their partners.

Managers’ perceptions of the impact of EU accession on the domestic market differed somewhat. One interviewee (Company A) said that EU membership did not change anything for their business on the domestic market.

Another interviewee (Company C) pointed out that the only change was the disappearance of subsidised imports of butter; overall imports did not increase because of the lack of interest due to the small size of the Estonian consumer market. Nevertheless, two interviewees (Company D and Company E) pointed out a considerable increase in the competitive pressure from imports, especially in the case of yoghurt. The interviewee from Company E also mentioned higher competition in the case of cheeses; however, in contrast, the interviewee from Company D found that Estonian cheese producers face less competition from imports (from Lithuania) as other, larger and wealthier markets have opened up for cheese producers from other NMSs. Another interviewee (Company B) was

of the opinion that during the first two years after accession, no significant changes occurred in the Estonian market, but since then, import competition had become stronger. This tendency was considered as a result of global develop-ments and improvedevelop-ments in the general standard of living in Estonia, rather than the effect of EU membership. The main competitors in the case of imports were in most cases seen as the large pan-European companies.

In response to the question about the impact of EU accession on production costs, all interviewees said that production costs have increased due to global developments. Only one interviewee (Company B) mentioned that the opening up of new export markets had enabled their company to take advantage of economies of scale and become more efficient. Investment support from the EU to food processing companies as a positive effect was mentioned by one interviewee (Company E). In addition, the role of EU investment support to dairy farming in Estonia to ensure the quality of milk was emphasised by two interviewees (Company D and Company E).

The interviewees from companies owned (at least partly) by foreign capital (which originates in all cases from the “old” EU countries) were also asked about the role of the parent company or the owner in choosing export markets.

In only one case, the parent company had a decisive role through a matrix organisation (Company E). In the other three cases, the foreign owner did not intervene in operative decisions; however, in one company (Company C) the owner took the financial risk of applying and waiting for export subsidies.

Hence, it can be concluded that having a foreign investor from an EU country does not necessarily help in gaining export markets in the EU.

High value added products can be sold on export markets either under the producers’ own brand name (private brand), under a retail chains’ brand name (private label) or as contract work for another company (as an ingredient in industrial production). The interviewees were asked about the share of products sold under their own brand names. Company E only exported products under its own brand, while other companies had also participated in competitions for retail chain private labels. It seems that it is relatively difficult to sell products under your own brand name to the old member states of the EU, while the share of products sold under a private brand is in general relatively higher in exports to the NMSs. One interviewee (Company B) even noted that even though a private label offers a lower price to the producer than a private brand, nevertheless it outbids the private brand financially due to the costs related to selling own brands on a foreign market.

In terms of the impact of EU accession on the companys’ innovative activities, only one interviewee (Company B) noted that the motivation and resources for their innovative activities have increased. The other companies did not experience any change in innovative activities after accession or did not answer this question.

The interviewees were also asked about their future vision of the Estonian milk processing industry’s export opportunities. Even though producers specialising in high value added milk products directed at end-consumers saw

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their main opportunities in the domestic market, exports remain an important issue. One interviewee (Company C) pointed out the importance of Russia for the Estonian milk processing industry, due to its large and growing demand, lack of self-sufficiency, low quality of local milk and increasing incomes.

However, the interviewee also admitted that it is quite difficult to enter the Russian market with high value added consumer products. Also, another interviewee (Company E) pointed out their continuous plans to export commodities to Russia; but also emphasised the potential of the NMSs for high value added exports. According to the interviewee, it is easier to export to the NMSs than to the old member countries of the EU. Other companies pointed out the EU countries (Company A), Baltic and Scandinavian countries (Company D), and more precisely, Latvia, Lithuania and Finland (Company B) as their main export markets in the future. Company B did not exclude Russia either, if the political situation should change.

The choice of export markets is, as expected, largely determined by physical distance (especially in the case of high value added products), and new, more distant markets are rather an exception. As one interviewee (Company B) pointed out, milk products are too cheap to transport too far. The transportation costs are too high and the shelf-life of the products too short.

In response to the question of how the Estonian government could promote Estonian milk exports on EU markets, the interviewees were divided with two companies suggesting that the government should intervene minimally, while two other companies expected more promotional work and lobbying from the state.

A summary of the results of the interviews is given in Appendix A.25.