Required Report - public distribution

**Date:** 9/27/2004

**GAIN Report Number:** EN4001

**Estonia**

**Exporter Guide**

**2004**

**Approved by:**

![](media/image1.wmf)Lana Bennett, Agricultural Counselor

U.S. Embassy Riga

**Prepared by:**

Jolanta Andersone, Agricultural Marketing Specialist

**Report Highlights:**

Estonia joined the EU on May 1, 2004. The accession affects on U.S.
exports will be mixed since EU wide distribution systems will facilitate
US imports to the small Estonian market of 1.3 million population, but
for some commodities, the implementation of restrictive EU trade regimes
may reduce sales and halt exports, ex. poultry. The Estonian food retail
market holds considerable potential for a wide range of competitively
priced packaged goods targeted at high/middle income groups. The inflow
and fast development of large Nordic/European retail chains into Estonia
along with other Baltic countries offer new opportunities for American
exporters who can successfully connect with them.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Riga \[LG1\]

\[EN\]

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# Table of Content

[SECTION I: MARKET OVERVIEW 3](#section-i-market-overview)

[SECTION II: EXPORTER BUSINESS TIPS
4](#section-ii-exporter-business-tips)

[Local Business Practices and Customs
4](#local-business-practices-and-customs)

[Entry Strategy 4](#entry-strategy)

[Distribution 5](#distribution)

[Consumer Tastes and Preferences 5](#consumer-tastes-and-preferences)

[Food Standards and Regulations 6](#food-standards-and-regulations)

[General Import and Inspection Procedures
6](#general-import-and-inspection-procedures)

[SECTION III: MARKET Sector Structure and Trends
6](#section-iii-market-sector-structure-and-trends)

[Food Retail Sector 7](#food-retail-sector)

[Food Processing Sector 7](#food-processing-sector)

[HRI Food Service Sector 8](#hri-food-service-sector)

[SECTION IV: BEST HIGH VALUE PRODUCT PROSPECTS
8](#__RefHeading___Toc84068539)

[SECTION V: KEY CONTACTS AND FURTHER INFORMATION
8](#__RefHeading___Toc84068540)

**TABLE A: Key Trade and Demographic Information 10**

**TABLE B. Consumer Food & Edible Fishery Product Imports 11**

**TABLE C. Top 15 Suppliers of Consumer Foods & Edible Fishery Products
12**

#   {#section-11 .unnumbered}

# 

# SECTION I: MARKET OVERVIEW

Growth of domestic expenditure and increased exports, supported by low
interest rates, rising real incomes, and high investment demand, remain
the main drivers of the economy. In 2003, the Estonian economy grew 5.1
percent, and growth accelerated to 6.8 percent in mid 2004, following
Estonia's May 1, 2004 EU accession date. Per capita GDP of US\$ 6,690
was the largest among the three Baltic countries in 2003, although
several times lower than the average among other countries of the
European Union. The prices of goods and services rose on average by 1.2
percent.

Trade and investment in the country has also increased in the last
decade due to business incentives. Among other incentives, Estonia does
not tax corporations for re-invested profits. There is a very
competitive work force, readily available and well educated. Stimulated
in part by the expectation that Estonia would accede to the EU, the
inflow of direct foreign investments amounted to 5.13 billion at the end
of 2003, an annual increase of 27 percent. Swedish companies accounted
for the largest share (42.8 percent) of foreign direct investments in
Estonia, followed by Finland (27 percent). U.S. companies accounted for
a 5.5 percent share. The fast-developing consolidation of retail outlets
through investment by large Scandinavian chains has led to the
construction of ultra-modern, self-service, fully-assorted supermarkets
and hypermarkets that may provide new opportunities for exporters who
can successfully connect with these companies. The major investment in
the Estonian food and agriculture sector is the Coca-Cola Beverages
bottling plant in Tallinn, supplying the Baltic States. Investment will
continue to increase and there may be opportunities for U.S. suppliers
of inputs to these operations.

In 2003, the domestic retail grocery sales were US\$ 948 million, of
which food products accounted for US\$ 685 million. The remainder
consisted of alcoholic beverages and tobacco products. Imported foods
added much to the variety of products on the market and accounted for
nearly 35 percent by value. Consumption patterns and demand for imported
food products have been affected by increased consumer purchasing power,
an increase in the expatriate community, and the growth of tourism.

The agri-food sector plays a slowly declining but fundamental role in
the national economy and in the trade balance. Agricultural trade
accounted for US\$ 337 million in exports and US\$ 591 million in
imports in 2003 (excluding forest products). Estonian forest products
dominate Estonia's exports, and were valued US\$ 674 million in 2003 (15
percent share of country's total exports). The most significant
agricultural imports included beverages, meat products, fresh and
preserved fruits and vegetables, coffee, tea, cotton and animal feeds.
Over 60 percent of Estonia's food imports originated from the EU.

The agricultural sector has many traditional ties to the United States,
especially in the area of genetics. Estonia's imports of U.S.
agricultural and food products totaled US\$ 26.8 million in 2003. The
U.S. accounted for 33 percent of Estonia's imports of poultry for its
domestic market (7.8 thousand MT, US\$ 6.1 million). Other major U.S.
exports were cotton (US\$ 4.61 million) and fish (US\$ 4.1 million, of
which 20 percent was surimi paste). US agricultural imports from Estonia
totaled US\$ 11.2 million in 2003, and included beverages, frozen fish
and canned fish preparations. In addition, U.S. imported US\$ 14 million
of Estonian wood products.

In January 2004, the population of Estonia was 1.351 million people,
which represents a decline by almost 8 percent over the past decade due
to lowered birth rates and migration. Business and tourist travel to
Estonia has increased since it voted in favor of joining the EU and it
will continue to increase.

In 2003, the fast-growing tourism business brought 3.45 million visitors
to Estonia, mostly Finns and Swedes. Estonia can play an extremely
important role, for western companies aiming to be based within the EU.
Tallinn, the capital city of Estonia, is rising as a strategic hub,
linking northern Europe with the St. Petersburg region in the Northwest
of Russia with a population of 44 million, as well as Belarus with a
total of 10.3 million people, and with the aggregate Baltic market with
a combined population of almost 8 million.

  ----------------------------------- -----------------------------------
  ADVANTAGES                          CHALLENGES

  Retail sector is by far the largest Long-established consumer
  market for imported food. Large     preference for domestic fresh
  retail chains are developing        products with no additives. Strong
  economies of scale in purchasing.   competition on the local market
                                      between domestic producers and
                                      increasing imports from EU

  Purchasing power of the population  Small market of 1.3 million; small
  is on the rise                      delivery volumes required

  Growing and substantial HRI sector  Variety is of growing importance to
  interested in high-value products   Estonian consumers

  The country is viewed as a gateway  Strong European competition. The EU
  to larger markets in Northwestern   tariff schedule disadvantages U.S.
  Russia, Ukraine, and Belarus.       exports vis-à-vis products from
                                      European Union member countries

  The general image of U.S. products  Minimum volumes required by U.S.
  is positive                         exporters may be too large for the
                                      Estonian market. Consolidation of
                                      varied products in a shipment is of
                                      major interest.

  Purchases by tourists and transit   Restrictive EU trade regimes
  shoppers are large and growing      applied Hormone beef, GMOs,
                                      poultry)

  Unexplored commodity areas.         Estonian customers are unfamiliar
  Consumers associate imports with    with many U.S. products
  high quality                        
  ----------------------------------- -----------------------------------

# 

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# SECTION II: EXPORTER BUSINESS TIPS

## Local Business Practices and Customs

### Entry Strategy 

As a result of the fast-developing consolidation process, perhaps the
most effective strategy for U.S. exporters would be to connect with
European parent companies of the major food retail chains (mainly in
Finland and Sweden) that are expanding their outlets in the Baltics.
These chains already have a degree of familiarity with U.S. products and
may supply their Estonian outlets through their central warehouses.
Another strategy is to explore possibilities of consolidating shipments
for Estonian importers who supply both the retail and HRI sectors.

Market entry strategies for U.S. food products should include:

1\) Market research in order to estimate product opportunities.

2\) Advance calculation of the landed cost of a product in order to make
price comparisons vis-a-vis competitors.

3\) Locating an experienced distributor or independent reliable
agent/dealer with strategic distribution channels to advise on import
duties, sanitary and phytosanitary regulations, and labelling
requirements. It is advisable to initiate personal contact in order to
discuss marketing matters such as funding for advertising, slotting
allowance, in-store promotions and tasting events. Estonian importers
will expect American traders to bring or send samples and quote prices
in the early stages of negotiation. Suppliers may also wish to consider
trade fair participation to raise awareness of the product.

4\) Explore the purchasing arrangements of the larger retail chains.

U.S. products traditionally have lower customer awareness due to fewer
promotional activities than those of domestic and European competitors.
For many product categories, new market entrants will have to be
aggressive to compete with the more established European suppliers, as
their commercial relationships have been built up and maintained over
the past decade.

Several constraints have contributed to the small market presence of
U.S. food:

\-- Trade terms from U.S. companies tend to require advance payment of
up to two months.

\-- An aversion to the assumption of exchange rate risks.

\-- Minimum quantities offered have often been too large for the small
Estonian market (e.g. full container shipments).

\-- A perception that persists among Estonian importers is that landed
costs of U.S. products will be higher compared to European products due
to higher transportation costs.

\-- A perception that U.S. exporters are simply too far away to service
the Estonian market.

### Distribution

Distributors are moving toward direct deliveries with their own sales
force and delivery trucks to service retail grocery stores and chains.
The large, new grocery chains have developed their own warehousing and
distribution centers to increase direct purchasing. Usually one
exclusive agent/distributor is appointed to cover the entire country.
Most Estonian importers represent several different product lines.
Importers may serve a large customer themselves or work with
dealer/distributors. Only a few wholesalers undertake nation-wide
distribution, and almost none carries a complete range of products.
Small and medium-size companies make their purchases of imported
products through importers and wholesalers.

## 

### Consumer Tastes and Preferences

Consumption patterns appear to be dependent on income rather than price.
Of the 1.3 million people of Estonia, 20 percent of the population has
the purchasing power to live \"Western lifestyles.\" Although Estonians
have a preference for traditional domestic products, they are
increasingly interested in trying new and different products and
cuisine. Preferences for new products are strong among the younger
population. Major factors in upper income purchasing decisions are
quality, packaging, and brand recognition. Sellers cannot rely on brand
power for sales and price premiums to the same extent as in other
European countries. The brand recognition and brand loyalty is much
stronger for the average Estonian consumer.

Women account for nearly 48 percent of the workforce and contribute to
the increased demand for meals consumed away from home. With a large
proportion of two-income families, most Estonian customers prefer meals
that are quick to prepare. Therefore, prepared, frozen and convenience
food should be a key focus of US exporters. Income growth is mainly
occurring in urban and suburban areas. Nearly 30 percent of the
population lives in rural areas, however, in July 2004, the average
gross monthly wage was US\$ 580, of which 29 percent was spent on food
and alcohol. Consumer concern about the presence of genetically
engineered products does exist to some extent, and there is a clear
interest in local organic foods.

## 

## Food Standards and Regulations

Estonia is an EU member, effective May 1, 2004, and all shipments to
Estonia must comply with EU import requirements (incl. certificates,
plant lists, residues levels, required treatment procedures, etc.) and
imposed bans. These requirements are available in the EU section of the
FSIS Export Library of export requirements. Please visit
<http://www.fsis.usda.gov/OFO/export/euroreqs.htm> and find [EU
Additional Residue Testing
Program](http://www.fsis.usda.gov/ofo/export/euresidu.pdf) and
requirements for exports of pork and beef to EU.  U.S. origin poultry
exports to EU were halted in 1997, after the EU imposed a ban on the use
of chlorine as an antimicrobial compound. (Note: U.S. poultry producers
use low-concentration chlorine as an antimicrobial treatment).

Labeling in the Estonian language, which includes product name, the name
of the manufacturer or importer, the origin, a listing of ingredients,
additives, net quantity, name and contact information for the importer,
instructions of use, storage directions and expiration dates is
required, and energy value, if decided so by producer. With regard to
bio-engineered ingredients, Estonia will follow EU regulations and
certification requirements. Importers should be consulted for proper
labeling information that best suits for the intended distribution of
imported goods.

## General Import and Inspection Procedures

Trade relations with third countries are subject to the European
Community\'s common trade policy, and EU model certificates are applied.
Challenges in this market for U.S. exporters include tariff
disadvantages vis-à-vis Estonia's trade with 25 EU member countries,
since imports from the United States are facing EU import rates and
requirements. The EU tariff schedule is available at:
<http://europa.eu.int/comm/taxation_customs/dds/en/home.htm>

As an EU member, Estonia is affected by the EU applied market protection
measures, import licenses, guarantee deposits, levies and standards that
could lead import prices up. A guide to EU food laws and regulations is
available at: http//www.useu.be/AGRI/expguide

Customs authorities require the following documentation for imported
products: a copy of the contract, an invoice, a bill of lading,
indication of the amount, weight and value of the goods and the original
certificate of origin, as well as veterinary and phytosanitary
certificates.

The EU entry ports are listed in 2001/881/EC regulation, by category of
cargo (available at http:
//europa.eu.int/eur-lex/pri/en/oj/dat/2001/1_32620011211en00440062.pdf )

# SECTION III: MARKET SECTOR STRUCTURE AND TRENDS

## 

#### Food Retail Sector

Retail sector is by far the largest market for imported food, due to the
expansion of supermarkets. In 2003, grocery sales totalled US\$ 948
million, of which food accounted for US\$ 685 million or 72 percent. The
remaining consisted of alcoholic beverages and tobacco products.
Imported foods added much to the variety of products on the market and
accounted for nearly 35 percent by value. Consumption patterns and
demand for imported food products have been affected by increased
consumer purchasing power, an increase in the expatriate community, and
the growth of tourism. A 15 percent growth in retail food trade turnover
is projected for 2005. In 2003, food was sold in 2,562 retail outlets,
of which 112 were supermarkets. There were 12 retail food chains of
broadly diverse sizes.

Nordic retail chains entered the Estonian retail market in the mid
nineties and contributed to the consolidation of retail outlets. Several
large self-service shopping centers with supermarkets and hypermarkets
have emerged in suburbs of Tallinn. The large retail chains have
observed that they are capturing market share from traditional farmers'
markets. With the reduced price sensitivity of customers, the share of
open-market food sales has fallen to 20 percent. Supermarkets have
experienced growth, especially in the suburbs, accounting for a 45
percent share of food retail sector sales, at the expense of small
shops. Currently, the food retail trade is largely controlled by only a
handful of companies. Opportunities exist for new-to-market products -
particularly for products marketed through the developing retail chains.
Best prospects are in fish and seafood and convenience foods, and
products of well-known brands. Given the relatively small consumer base
in the Baltic region as a whole, the emergence of pan-Baltic food
companies with centralized distribution schemes will help to achieve the
economies of scale needed to make imports of a wider range of products
viable.

For a new-to-market exporter targeting the Estonian food retail sector,
it is advisable to find a professional wholesaler or a local agent with
strategic distribution who is knowledgeable about the Estonian market
and is able to negotiate and implement product introduction and
promotion.

#### Food Processing Sector

The food industry yields about 4 percent of Estonia's GDP, and 4.4
percent of total exports. In 2003, the total output of the food industry
amounted to US\$ 976 million, accounting for 22 percent of the country's
total industrial sales. Raw inputs included fish, wheat flour, and meat,
and valued over US\$ 350 million, of which about 40 percent was
imported. The food industry has 15 sub-branches. Of the total gross
output by food and beverages manufacturers, dairies accounted for 26
percent, the meat industry for 15 percent, beverage manufacturers for 19
percent, the fish industry for 11 percent, and bakeries accounted for 9
percent. With the expansion of this sector, the demand for imported
agricultural product ingredients should also continue to rise. It should
be noted that the choice of imported raw material might depend on the
decisions made by the plant's foreign investors. Foreign investors,
mostly Finns, have acquired significant interests in the Estonian food
industry and strengthened their presence in the entire Baltic region.
Given the relatively small consumer base in the Baltic region,
pan-Baltic food companies are beginning to emerge to enhance the
competitiveness of the region's food industry. The largest food
processors purchase raw materials and food ingredients directly from
foreign exporters and through their own networks. Such products include
raw fish, surimi paste, meat, spices, spirits, juice concentrates, wheat
flour and condiments. US exporters should focus primarily on connecting
with the larger players seeking direct relationships with foreign
suppliers.

#### HRI Food Service Sector

A successful hotel/restaurant trade has rapidly developed in the past
3‑4 years, in many cases as joint ventures with foreign firms. Tourism
is also becoming more important and hotels and restaurants are demanding
higher quality foods and services. In 2003, the 3.25 million visits of
tourists to Estonia generated revenues of roughly US\$ 682 million.
Eating out on a regular basis has become increasingly popular within the
higher income groups, which account for 15 percent of the population. An
additional 25 --30 percent eat out occasionally. Catering services are
primarily undertaken by individual restaurants. In 2003, there were over
500 restaurants in the market. Of the fast food enterprises, the largest
chains were McDonald's (U.S.), Hesburger (Finland), Peetri Pizza, and
Pappa Pizza. The new fast food outlets and restaurants with
international style cuisines such as Mexican, Chinese, Vietnamese,
Italian and Indian, have begun to change the structure of the food
service market. Chinese and Japanese fast food outlets have become
popular at hypermarkets. Fresh products are the priority for a-la-carte
restaurants, which purchase from both local suppliers and importers.
Hotels and catering companies use a lot of imported food products,
beverages, wine, and ingredients, which they purchase from local
distributors or direct importers. Poultry, pork, fish and seafood,
beverages, fruits, vegetables, nuts, sauces and spices are major
imports. Major hotels include the Reval Hotelligrupp AS and the Scandic
Hotels, each of which has 4 hotels in Estonia, and Viru Hotel and SAS
Radisson.

[]{#__RefHeading___Toc84068539 .anchor}**SECTION IV: BEST HIGH VALUE
PRODUCT PROSPECTS**

There are opportunities for dry, chilled and frozen processed products,
candies, snack foods, baking chocolate/chips, barbeque foods/sauces,
fresh fruits, vegetables, seafood, nuts, ready prepared meals or
quick-to-prepare dishes. Products which are rather unfamiliar to
consumers but may present some potential include low fat, low salt,
sugar-free and cholesterol free products.

[]{#__RefHeading___Toc84068540 .anchor}SECTION V: KEY CONTACTS AND
FURTHER INFORMATION

Veterinary and Food Board

Vaike Paala 3

Tallinn 11415

ESTONIA

T: 372 638 0079

F: 372 6211441

Email: vet@vet.agri.ee

[www.vet.agri.ee](http://www.vet.agri.ee/)

Plant Products Inspectorate

Teaduse 2

Saku Harjumaa 75501

Estonia

T: 372 671 2602

F: 372 671 2604

Email: plant@plant.agri.ee

www.plant.agri.ee

Chamber of Agriculture and Commerce

Vilmsi 53b

10147 Tallinn

Estonia

T: 372 600 9349

F: 372 600 9350

www.epkk.ee

Estonian Enterprise Register

T: 372 6113841 F: 372 6460165

Email: eer@eer.ee

[www.eer.ee](http://www.eer.ee/)

Estonian Chamber of Commerce and Industry

Toom-Kooli 17

Tallinn 10130

Estonia

T: 372 646 0244

F: 372 646 0245

www.koda.ee/english.html

Estonian Investment Agency

Roosikrantsi Street 11

Tallinn 10119

Estonia

T: 372 627 94 20

F: 372 627 94 27

info@eia.ee

[www.eia.ee](http://www.eia.ee/)

Estonian companies database

Valge Register

www.roland.ee

Association of Estonian Fruit and Vegetable Wholesalers

Parnu mnt. 139c-513

Tallinn 11317

Estonia T: 372 50 66339

epkhl@anet.ee

For including your product offers into the Baltics regional virtual
trade fair, check site

[http://www.food-fair.com](http://www.food-fair.com/)

For general questions about product import, please contact:

Foreign Agricultural Service

U.S. Embassy Riga

Raina Blvd. 7

Riga LV1510

Latvia

Tel: +371 7036 212, 371 7036 200

Fax: + 371 7820047

<agriga@usda.gov> or visit the homepage of the regional Foreign
Agricultural Service at U.S. Embassy Stockholm, Sweden:
[www.usemb.se/Agriculture](http://www.usemb.se/Agriculture)

For information on exporting U.S. agricultural products to other
countries, please visit the USDA, Foreign Agricultural Service home
page: [www.fas.usda.gov](http://www.fas.usda.gov/)

**TABLE A. Key Trade and Demographic Information**

  ------------------------------------------------------------ ------------
  Agricultural Imports From All Countries (\$Mil) /U.S. Market 
  Share (percent)\*/                                           

  Consumer Food Imports From All Countries (\$Mil)/U.S. Market 
  Share (percent)\*/                                           

  Edible Fishery Imports From All Countries (\$Mil)/U.S.       
  Market Share (percent)\*/                                    

  Total Population (Millions)/Annual Growth Rate (percent)     1.351/-0.8

  Urban Population (Millions)/Annual Growth Rate (percent)     0.9/-0.8

  Number of Major Metropolitan Areas                           1

  Size of the Middle Class (Millions)/Growth Rate (percent)    0.6/N/A

  Per Capita Gross Domestic Product (U.S. Dollars)             6,690

  Unemployment Rate (percent)                                  5.4

  Per Capita Food Expenditures (U.S. Dollars), year            546

  Percent of Female Population Employed                        48

  Average Exchange Rate US\$1                                  13.9 EEK
  ------------------------------------------------------------ ------------

\*/ Data from United Nations database

Note: Many products U.S. products are transshipped from European
suppliers and do not appear on official statistics.

**TABLE B. Consumer Food & Edible Fishery Product Imports**

![](media/image2.wmf)

**TABLE C. Top 15 Suppliers of Consumer Foods & Edible Fishery
Products**

![](media/image3.wmf)