Small Saaremaa bakery closes doors as logistics costs balloon
After more than 30 years of baking bread on Saaremaa, Karja Pagar will shut down in April and lay off 25 workers, citing difficulties competing.
Founded in 1993, Karja Pagariäri, a private limited company based in the village of Karja on Saaremaa, produces pan bread, hearth bread, rolls and sweet pastries. However, the bulk of its output is traditional rye bread.
The company will cease operations in early April and a notice of collective layoffs affecting 25 employees has already been submitted to the Unemployment Insurance Fund.
Owner Aivo Kanemägi told ERR that while there are many reasons behind the decision, the main issue is that for a small producer located in what he called "the middle of nowhere" by Estonian standards, logistics costs are high and competition with large-scale producers in the retail market is intense.
"We can't produce and sell at the prices they operate with. For some products, the price gap has grown to three times or more and at that point, it's clear our sales will drop while our fixed costs remain. Logistics is expensive. We've managed until now, but the current situation is such that we simply can't keep going," Kanemägi said.
He added that consumer price sensitivity has grown significantly and it's becoming harder to sell products at regular prices, as customers increasingly hunt for discounts. Offering such discounts is beyond the means of a small company, as the campaign costs are not covered by the resulting sales.
Karja Pagar has handled its own logistics through larger distribution centers for years, but as volumes have declined, fixed costs have remained unchanged.
"We want to end with dignity, meet all our obligations and leave no debts. That's why we chose this moment," Kanemägi said.
Some of the employees receiving layoff notices have already reached retirement age or are approaching it, according to Kanemägi. However, for those who need to find new jobs, the prospects may not be easy: commuting to regional capital Kuressaare for work is difficult and nearby employers are unlikely to be hiring.
Kanemägi confirmed the decision to shut down is final, unless someone steps in to take over the business. Until early April, however, the company will continue production.
In 2024, Karja Pagar's sales revenue fell by 17 percent to €1.16 million, resulting in a loss of nearly €33,000.
In the third quarter of last year, Karja Pagar's taxable turnover exceeded €280,000 and the company has no outstanding tax debts.
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Editor: Karin Koppel, Marcus Turovski
