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| >> E&E Home >> Lithuania >> Land O’Lakes Program Impact Report | |
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During the Soviet era, relatively high-quality agricultural products from Lithuania were sold throughout the Soviet Union. Shortly after Lithuania regained its independence in 1990, these traditional export markets evaporated. Most of Lithuania’s newly privatized dairy farms and local farmers found themselves in a critical situation. Rising production costs and difficulties competing in international markets (due to outdated facilities, techniques, and management) forced some two-thirds of commercial farms and food processing companies into bankruptcy by 1993. In response, USAID signed a cooperative assistance agreement with Land O’ Lakes (LOL).
LOL was active in Lithuania from early 1994 until the end of 1998. Initially, it was charged with reform of the newly privatized dairy industry. This included technical support and consultations for leading companies concerning all aspects of their work, from production to marketing. Later, LOL focused more on public policy development and regulation of the dairy industry. It worked closely with the Government of Lithuania, the Ministry of Agriculture, and other official institutions such as the National Veterinary Laboratory (which is responsible for milk testing and quality control).
LOL left a legacy of sustainable success in Lithuania’s dairy sector. In part due to LOL’s efforts, nine of Lithuania’s largest dairies received quality certifications from the European Union. This authorizes them to export products to the EU. Two of the dairies that received significant technical assistance from LOL, Birzai Dairy and Rokiskis Cheese, are among the strongest companies in Lithuania, with significant export markets and internationally traded shares. As a result of LOL’s work, trade associations and self-regulatory mechanisms are considerably stronger, and official policies and regulation of the dairy industry are more efficient and progressive.
During the early 1990’s, the process of transformation from a command to a market economy was having very serious affects upon newly privatized dairy companies, cooperatives, and farmers in Lithuania. Production was very inefficient, equipment was outdated, product quality was uneven, distribution was slow, marketing was ineffective, and payments were often delayed. Adverse market conditions included rising costs and the loss of traditional export markets. Management could not meet all of these challenges simultaneously. As a result, bankruptcies were common, and the entire dairy sector faced collapse.
Pursuant to its agreement with USAID, LOL began providing financial support, technical assistance, and consultations to various components of the dairy sector in Lithuania. The four main objectives were enhancing the income of farmers, developing dairy processors, building industry and trade associations, and reorganizing dairy farms. Technical assistance focused on restructuring enterprises, strengthening the production-distribution chain, refining management and marketing practices, and enhancing efficiency and quality control. LOL concentrated its work in Panevezys and Telsiai, the two most northern districts of Lithuania, which account for two-thirds of total milk production.
Following an assessment of the dairy industry, LOL concluded that raw milk quality was the weakest link in the production process. The quality of raw milk had to be raised in order to improve the end product, increase safety and consumer acceptance, and generate more profits for suppliers, often small and medium-scale family farms. Working closely with the Lithuanian District Veterinary Stations and the Veterinary Service Department, LOL initiated the "Milk Quality Improvement Program," modeled on the Five Point Plan developed in the U.S. by the National Mastitis Council. Four veterinarians were trained to monitor somatic cell counts and diseases in selected herds, and ensure proper cow disinfection. This led to a dramatic improvement in milk quality, and thus income. To amplify the results, LOL worked with the Lithuanian Agricultural Advisory Service (LAAS) to train farmers and milk processors concerning sanitary practices for milking and milk storage, and helped the Lithuanian Veterinary Station Laboratories introduce faster and more accurate tests for assessing milk quality. Recently, several additional companies have formally joined this initiative to improve raw milk quality.
Additional LOL goals included more efficient use of productive resources and increased milk output. LOL identified inefficient pasture management as a major limitation on production, and thus profitability. Accordingly, twenty demonstration farms were selected, in cooperation with the LAAS. Farmers were encouraged to introduce rotational grazing and use electrical fences, instead of tethering their cows. Output was increased, while labor and feed costs were reduced. These improved business practices have become widespread.
During its early work with dairy enterprise reform, LOL developed close relationships with a number of local counterparts. Aside from semi-official institutions such as those mentioned above and trade associations, LOL worked particularly closely with the Birzai Milk Company and Agrivita. LOL also cooperated with USAID and other donors to enhance results. For example, the Director of the Marketing Department at Birzai Dairy visited the United States through the Entrepreneurial Management and Executive Development (EMED) program, and brought new marketing and sales techniques back to the then struggling company. Within two years of her visit, Birzai had developed Western style packaging and a new line of products, setting standards for the industry. LOL also cooperated with the Volunteers for Overseas Cooperative Development (VOCA), which set the stage for LOL’s work with dairy businesses and farmers by supporting large, newly privatized farm cooperatives or "bendroves" between 1992 and 1995.
The results of the first years of LOL’s work in Lithuania were evaluated in 1996. USAID and LOL concluded that remarkable success had been achieved with specific Lithuanian companies, many of which were well on their way to profitability. Further, their "best practices" were being adopted throughout the dairy sector. However, the regulatory environment and specific government policies were creating significant constraints, and adversely affecting farmers and dairy businesses across the board. Also, USAID and LOL decided that without cooperative and consultative mechanisms, the dairy sector would not be able to successfully interface with authorities and improve the business climate.
During the last two years of its work in Lithuania, LOL devoted less attention to specific companies, and focused more on wide-scale initiatives to make the entire dairy sector more profitable and sustainable. There were two aspects to this work. First, LOL helped officials and governmental institutions to improve the general regulatory and legal environment for dairy farmers and processing companies. Second, LOL helped the private sector to develop trade associations, consultative bodies, and NGOs that could represent its position before government officials, and participate in the development of sound public policy. Increasing public policy advocacy on the part of the private sector and civil society, as a means to achieve sector-wide results, was in full accordance with USAID’s new Strategic Objectives and general strategies.
Technical assistance and consultations concerning the regulatory system and policy development focused on key official institutions, such as the Ministry of Agriculture, the Veterinary Services Department, the National Veterinary Laboratory, and the Lithuanian Agricultural Chamber. To promote regulatory reform, LOL advised the Ministry of Agriculture concerning improved veterinary practices and milk testing procedures, in cooperation with the National Veterinary Laboratory. To support the development of sound policies, LOL helped several counterparts build their analytical expertise, and learn to carefully consider the actual repercussions of different approaches and regulations. Positive results were achieved in the areas of economic modeling, price and income support analysis, and development of the overall dairy strategy.
In order for policy makers and regulators to reach sound decisions, they must consult in a meaningful fashion with economists, industry representatives, trade associations, NGOs, and farmers. Accordingly, the second component of LOL’s strategy was to work with the private sector to develop collective mechanisms that could engage in regular and constructive interactions with officials and government institutions. Two LOL counterparts that stand out in this regard are the Farm Women’s Association (FWA) and the Milk Producer’s Association (MPA). LOL helped turn the FWA into a truly national and effective voice for rural agricultural women, that could identify social problems, propose solutions, draft policy statements, and communicate with the government. LOL provided institutional support and guidance that enabled the MPA to emerge as an effective and well-organized voice for the interests of dairy farmers.
Finally, after building the capacity of both the official and private sectors to engage in policy development, LOL facilitated interactions between them, by building bridges and introducing concrete consultative mechanisms. Excellent examples of this are the Milk Quality Working Group and the Milk Policy Working Group, which are discussed in greater detail below.
LOL achieved results on two distinct levels. It helped specific enterprises and institutions, and it set in motion cross-cutting reforms which strengthen the entire dairy sector.
At individual enterprises, LOL improved a wide range of practices, directly increasing their profitability and ability to serve clients in Lithuania and abroad. For example, Birzai Dairy has seen its milk quality improve by 50% since it joined the Milk Quality Improvement Program in 1995, and it continually leads the sector in this regard. LOL extension techniques adopted by four dairies in northern Lithuania led to greater output and $430,000 in additional revenue. Also in part due to LOL’s assistance, nine of the country’s major dairy producers obtained licenses to export products to the European Union. Indeed, the Lithuanian dairy sector has more EU quality certifications than any other part of the economy.
Work with specific regulatory institutions included the Lithuanian District Veterinary Stations and the Veterinary Service Department, which collaborated on the Lithuanian Milk Quality Improvement Program. Within one year, several dangerous bacteria were eliminated from the six participating herds of approximately 3,000 cows, and 90% of their milk received the highest quality classification. This resulted in a net annual increase in per cow earnings of approximately $150, which is comparable to the average monthly salary in the agricultural sector. With LOL support the National Veterinary Laboratory reduced the cost of milk testing by two-thirds and halved turnaround time, while LOL-trained microbiologists shared their skills with colleagues in regional laboratories and at dairy plants.
With regard to sectoral reform, LOL provided technical assistance and guidance concerning regulation and policy development to both government and industry. LOL strengthened the capacity of these parties to develop sound policies and analyze the effects of various regulations, and helped establish a constructive dialogue through concrete consultative mechanisms.
One such mechanism is the Milk Quality Working Group, assisted by the Dairy Processor’s Association. Constituents from regulatory agencies and trade bodies are working together to raise milk production standards, through education, training, regulatory reform, and improved quality control. Their results include both increased industry profits and better consumer protection.
Another example is the Milk Policy Working Group. In order to change pricing policies that created a disincentive for producing higher quality milk, LOL helped set up a Working Group of producers, processors, and government officials. They developed an economic model to predict how different price differentials would affect production. This use of consensus and sound economic analysis to assist policy formation was a first in Lithuania. As a result, milk subsidies are now more efficiently structured to promote milk quality.
LOL has contributed substantially to the dramatic turnaround in the Lithuanian dairy sector. LOL’s grassroots approach to providing technical assistance and training to private dairy companies and farmers achieved significant results like enhanced milk quality, greater productive efficiency, improved marketing, and higher profit levels. The Lithuanian dairy industry is now among the strongest in the country. It exports more than half of its production, and has clients throughout the European Union.
LOL has improved policy analysis and regulation of the dairy sector, and facilitated a dialogue between officials and invigorated industry representatives. For example, the Lithuanian Farm Women’s Association and the Milk Producer’s Association now act in partnership with government officials to create a suitable enabling environment for the dairy industry. The Lithuanian Milk Quality Improvement Program has been widely acclaimed, and serves as a catalyst for additional quality control and training programs. These types of initiatives offer good long-term prospects for the development of the dairy sector, based upon a consultative dialogue between the government and the governed.
By strengthening the capacity of the Lithuanian dairy industry as a whole, in close collaboration with businesses, officials, institutions, and industry representatives, Land O’ Lakes has set in motion a sustainable process of modernization that will carry the Lithuanian dairy industry into the next century.
The Birzai Milk Company is a leading force in the Lithuanian dairy market. Land O’ Lakes (LOL) began working with Birzai in 1995, and developed a strong, hands-on relationship. LOL’s specific goals were to improve product quality, total sales, and marketing (consumer recognition). Land O’ Lakes began by introducing an intensive education program, including product research and development, which was administered through veterinarians and field personnel. This had a dramatic affect on milk quality. Within one year, raw milk quality improved by 50%, as measured by the percentage of milk receiving the highest category rating, and Birzai assumed industry leadership in this regard. This program also resulted in increased production capacity and sales. For example, milk capacity went from three tons per day to more than 100 tons per day. In economic terms, Birzai improved cash flow by more than $750,000 monthly.
In order to promote sales and profitability, LOL provided technical assistance concerning financial management, public relations, and advertising. With LOL assistance, Birzai introduced a new US manufactured packaging system, and developed marketing campaigns for new products. The logo of Birzai Milk Company, which was developed with the assistance of LOL, has become a symbol of quality in Lithuania.
The quality of milk and the safety of consumers depend upon how well bacterial infections in cows are detected and eradicated. As part of its efforts to help the dairy industry in Lithuania, Land O’ Lakes (LOL) provided technical assistance and training to the Lithuanian National Veterinary Academy (Academy), which plays a critical role in testing for diseases and monitoring milk supplies. LOL began by assisting the Academy to improve laboratory procedures, with new equipment and testing methodology. This increased accuracy and turnaround times, and reduced costs by 75%, to $3 per milk sample. LOL then helped the Academy to develop its educational outreach work. As a result, the Academy is now able to play a more effective and pro-active role for the entire dairy industry.
One area of particular concern for the dairy industry throughout the world is the bacterial infection mycoplasma. In 1988, due to inadequate public sector support, dairy herds in Lithuania had an infection rate of 21%. identifying mycoplasma bacteria in milk. Her 1997 survey of milk samples identified the problem in only 1% of cows, which received immediate attention. Recently, the laboratory staff has been expanded to three full time technicians and two graduate students, who provide a greater range of technical support to the Lithuanian dairy industry.
A broker and wholesaler of agricultural goods, Agrivita focuses mainly on dairy products from the Birzai Milk Company, for which it covers the largest Lithuanian population centers such as Vilnius and Kaunas. Before Land of Lakes began working with Agrivita in 1995, its six-person sales force focused more on taking orders than promoting products and serving clients. LOL’s initial focus was upon building a team of sales representatives with client outreach skills, who understood sales techniques and customer support.
LOL helped Agrivita to develop a general advertising campaign, a program for point of purchase promotions, and consumer surveys. To further expand the role of Agrivita as a service provider, not only to retailers but also to Birzai, LOL assisted with development and implementation of a corporate strategy for managing past due accounts. Working closely with Birzai account managers, Agrivita personnel assumed a more direct role within certain territories. This led to a sharp increase in collections, and generated percentage based collection fees.
Technical assistance from LOL enabled Agrivita to increase contacts with retailers and become more involved in product placement. As a result, Agrivita’s sales of Birzai dairy products in the Vilnius market increased by 15% in 1995 and 10% in 1996. Through these new strategies and practices, Agrivita was able to expand its sales force from six people to fifteen, and increase its profits dramatically. Agrivita also serves as a role model for the industry, demonstrating how an independent intermediary agent in the food marketing chain can increase business, employment, and consumer satisfaction.
Land O’ Lakes provided considerable support to the Milk Producers Association (MPA) during its early, formative years. The basic goal was to turn the MPA into a well-managed and financially viable organization that effectively serves and advocates for the interests of its members.
LOL helped the MPA to develop and put in place a solid organizational structure, characterized by sound management, strategic planning, and financial analysis. The prioritization of goals and the preparation of concrete work plans are now routine practice. LOL also showed the MPA how to evaluate and meet the needs of its members. As a result, educational and training seminars are regularly offered, and valuable information is supplied and exchanged. Also, the position of members on key issues is routinely shared with a large number of governmental and societal institutions. For example, the MPA has become a key participant in the Lithuanian Dairy Policy Working Group, collaborating closely with other dairy interests, in order to represent milk producers.
With LOL assistance, the MPA has more than tripled its membership, and developed into a sustainable and prominent voice for its constituents.
Quality control in the dairy industry depends heavily upon a well functioning laboratory system and highly skilled microbiologists. While Lithuanian microbiologists are well regarded, LOL determined that laboratory facilities and equipment needed to be improved. Accordingly, a technical assistance program was set up, combining donations of equipment and the refinement of laboratory testing procedures. Both commercial laboratories at milk plants and governmental laboratories operated by District Veterinary Stations were targeted.
In order to improve laboratory efficiency and reduce costs, while at the same time enhancing consumer protection, LOL introduced the method of presumptive testing, or "PT". Since it was adopted at the National Veterinary Laboratory, PT has become standard practice in Lithuanian Veterinary Stations. PT involves identifying bacteria by visual examination, and is 99% accurate, with protocols for further testing if any doubt concerning quality arises. The cost per raw milk sample is around $3.00, down from $10.00 under earlier procedures, and tests can be performed in 48 hours rather than 5 days.
The savings in cost and time from PT have been dramatic. For example, veterinary station laboratories in Telsiai and Panevezys, the two top milk-producing districts in Lithuania, saved over $176,400. Further, because farmers and milk companies see the cost effective-ness of the milk quality program, a far larger percentage of milk actually gets tested.
LOL also helped the Veterinary Laboratory system to develop a quality assurance program covering all food samples, not just milk. This has led to greater compliance with internationally accepted protocols.
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