The Riigikogu Rural Affairs Committee convened an extraordinary meeting Thursday morning to hear an overview from Anti Orav, CEO of Estonia's leading cheese producer E-Piim Tootmine AS, on the current state of production.

Committee head Urmas Kruuse (Reform) told ERR that the investment in Estonia's dairy production and export capacity is extremely important for the entire sector and that the main reason for the meeting was E-Piim's bankruptcy filing.

"It is fairly certain that the plant must continue production. It is important in the long term as well and will certainly give milk producers — farmers — the opportunity to sell their output for export and receive reasonable prices in the future," Kruuse said.

According to him, reaching the point of filing for bankruptcy has been a fairly natural process as the existing owners were unable to agree on how to proceed, leaving the public limited company with no alternative but to file.

"At present, the plant is operating at a minimum level, processing 300 to 400 metric tons of milk per day. Its capacity exceeds 1,000 metric tons, which is nearly half of Estonia's daily milk production capacity. In order to preserve the asset for everyone, it is extremely important that daily production continues," Kruuse said.

Based on the overview presented to the committee, E-Piim's executives will soon present banks with a plan on how to overcome the situation. Kruuse said committee members were optimistic that a solution allowing the industry to continue operating is possible.

That means farmers' trust must also be restored so they are willing to supply milk. Whereas previously the cooperative paid for raw milk, E-Piim Tootmine will now pay dairy farmers directly under individual contracts — something Kruuse described as very important.

"The biggest concern right now relates to outstanding debts and farmers' ability to continue production so they do not have to liquidate their herds. Here, the state clearly has a greater role than in the context of the plant," the committee chair said. "This means the ministry and the minister must find a way, for example through the Rural Development Foundation (MES), to provide credit to farmers."

Kruuse explained that farmers may be running out of working capital and that a solution must be found to allow them to continue production. In this regard, he is counting on MES.

"Since both large and small producers are involved, some may not need assistance from the Rural Development Foundation at all and can manage through banks and other means," he added. "But MES certainly has some products that can help increase the inflow of working capital or provide land capital loans to manage cash flows."

Asked what sums are being discussed in terms of supporting farmers, Kruuse said the amounts are certainly in the tens of millions.

He noted that over the past two years, markets have been in an unusual situation where cheese prices began to fall while the raw milk purchase price did not, putting processors — including the newly launched plant — in a difficult position.

According to Kruuse, purchase prices this year, or at least in the first half of the year, are at or near the bottom. However, that means growth will begin at some point, which should allow companies to start earning again and find solutions.

"Since the existing owners were unable to reach an agreement, handling the matter through bankruptcy makes it possible to bring in new potential owners or financiers," the rural affairs committee chair noted. "Whether some of them are former owners or whether all new owners come in will become clear during the bankruptcy process."

In Kruuse's assessment, the state's ability to assist the plant is very limited and there is no market failure that would justify such support. Farmers, however, face a problem due to unpaid money owed by the cooperative.

"The state's ability to provide credit in this regard is certainly greater and, as I mentioned, one form is the Rural Development Foundation. To my knowledge, they have also met in recent days to seek solutions," he said. "From my perspective, there are at least two options there — both working capital loans and land capital loans — so we hope these will help overcome the crisis."

If the entire plant were to shut down now, the cost and losses for farmers would be far greater than the unpaid invoices already incurred, Kruuse said. Therefore, farmers who have lost money must be able to limit their losses so they can continue production, while the plant must also be able to emerge from the crisis.

Both sides must cooperate to reduce losses. For Estonia, Kruuse said, it is critically important that the plant continues operating in order to preserve both export and milk production capacity.

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