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The Estonian Chamber of Agriculture and Commerce and the Estonian Merchants' Association have addressed the Government of the Republic of Estonia with a joint position: cutting VAT on food is an unavoidable step to strengthen Estonia's food security, consumer welfare and the competitiveness of the local economy.
Together we represent the entire Estonian food supply chain - farmers, food industries and retail businesses. The shared experience of our members confirms that today's situation in the food market is unsustainable for consumers, producers and retailers alike. Food consumption has been declining for almost three years now, and over half of all food is sold at discount prices because people can no longer afford to buy food at regular prices. The value and volume of the shopping basket has fallen significantly, which shows that people are choosing ever cheaper products. We therefore jointly consider it necessary for the state to take a decisive step that will help make healthy, locally produced staple foods accessible again to the entire population.
In Estonia, the share of food in a family's budget is a quarter higher than the EU average. That means every price hike hits our people more painfully than in most other countries. Cutting VAT on food is a direct and effective measure that helps ease daily financial pressure on families.
A high VAT rate combined with rising production costs - energy, labour, raw materials - puts Estonian producers at a disadvantage. Cheaper imported food is squeezing the market share of domestic food ever smaller. For the Estonian Chamber of Agriculture and Commerce, the most critical issue is that domestic producers can continue to produce and to invest, because without strong agriculture and a strong food industry it is not possible to ensure Estonia's food security. When the consumer has to weigh every euro carefully, the preference for local and healthy food disappears, regardless of its quality and freshness. At the same time, profitability in Estonian food retail is half the European average at just 2%, which does not allow prices to be cut at the expense of profitability. Various regulatory obligations, on the contrary, force retailers to find money for investments in infrastructure, which has to be added to product prices in conditions of the strongest competition in Europe.
Reducing the tax burden improves the competitive position of domestic food and helps preserve jobs in agriculture, the processing industry and retail alike. At the same time, it brings down inflation indicators, of which the food basket makes up a third - which in turn reduces the volume of expenditure in the state budget that is indexed to inflation, and ultimately makes the financial cost of the VAT cut to the state smaller. The leftover money flows back into consumption, which in turn boosts the economy and brings money back into the state budget from another direction.
Today, the Estonian economy needs measures to stimulate it, since domestic consumption, which has long been the engine of the economy, has been struggling for years. Cutting VAT is not just a cost to the state budget; it is an investment in growth in the domestic economy, of which retail makes up more than 10%. Increased consumption, recovering sales volumes and stronger companies mean more jobs and more stable tax receipts in the future. It also helps prevent breakdowns in the supply chain and avoids a situation where producers have to scale back their operations because of economic pressure.
An important component of the high price of food is the 24% VAT. Estonia is one of four EU member states that does not apply a reduced VAT rate to food. In most EU member states, the VAT rate on food ranges from 0 to 15%. This policy reflects the understanding that food is not a luxury but a basic necessity.
A few examples:
- In Sweden, food and non-alcoholic beverages are currently taxed at 12% VAT, and the Swedish government plans to temporarily halve the VAT on food next year to six percent; in Germany and France the rate is 7%
- In Finland, all foodstuffs will soon be subject to 13.5% VAT
- In Spain and Italy the VAT on food is 10%, and on more essential foodstuffs only 4%
- In the United Kingdom, almost all food is VAT-free
- Latvians get a tax break when buying baby food, and a lower VAT rate has been set for locally produced fruits and vegetables
It has been claimed in the public debate that the benefit of a VAT cut would disappear into the supply chain. The intense competitive situation on the Estonian market ensures that the impact of a tax cut is passed on to consumers. The retail sector, for its part, confirms that it will pass on a VAT cut to consumers.
Our goal is to restore people's ability to make healthy, high-quality food choices within their budgets. Improvements in consumer purchasing power make it possible to give greater preference to local and fresh food, which supports both Estonian farmers and the food industry. Today, the share of meat, fish and healthy fruits and vegetables in the shopping baskets of low-income people is too small. Making healthy and varied food more affordable also contributes to healthier eating among less well-off people, which is why we recommend cutting VAT precisely in healthy food categories with a high share of domestic production.
If the state does not wish to cut VAT on food permanently, the alternative is to consider a temporary reduction. A temporary cut could also be considered for individual product groups such as fresh meat, fruit and vegetables and dairy products. In the case of meat, this is particularly important today in light of African swine fever, where the previous outbreak showed that pork production in Estonia did not recover, and the first pig farm has already closed itself due to the new outbreak. A lower VAT rate on pork would send a positive signal to pig farmers to grow volumes again, since it would boost consumption.
In Germany, VAT was reduced from 19% to 16% during the period July-December 2020. The reduced rate on most food items dropped from 7% to 5%. Independent in-depth price studies using sales data have confirmed that the cut was passed on to food prices to a significant extent.
In Spain, between January 2023 and December 2024, VAT on basic foodstuffs was cut from 4% to 0%. This was a government-initiated decision in response to rising food inflation. The measure was later phased out. Spain's competition authority studied the impact and confirmed that supermarkets did apply the VAT cut. When the policy ended in December 2024, prices normalised and the tax increase was passed back into sales prices.
Poland cut VAT on foodstuffs from 5% to 0% between February 2022 and March 2024. Studies have shown that the VAT cut led to an overall fall in supermarket food prices of approximately 2.1-2.8%. The pass-through rate peaked at around 95%, indicating that customers benefited from lower prices as a result of this policy.
Portugal cut VAT from 6% to 0% on 46 products (the "essential basket") between April 2023 and January 2024. The shelf prices of the 46 products were estimated to have fallen on average by approximately 5%. After the VAT cut ended, however, prices quickly returned to their previous levels.
Sweden plans to temporarily cut VAT on foodstuffs from 12% to 6%. According to the government's estimates, the average family will save about 6,500 SEK (~590 euros) a year and a couple of pensioners about 4,400 SEK (~400 euros). The estimated budgetary impact of the measure is around 16 billion SEK (~1.4 billion euros) in 2026 and around 21 billion SEK (~1.9 billion euros) in 2027. A food commission will be set up to ensure that the impact reaches prices.
The Latvian government has reached a political agreement to cut the VAT on milk, bread, eggs and poultry meat to 12%. Latvia already has a VAT discount for fruit and vegetables.
The crises of recent years - the pandemic, the war in Ukraine and the energy crisis - have shown how vulnerable the food supply chain can be. Estonia must ensure that domestic production remains strong and viable. Cutting VAT helps secure the survival of food producers and processors and ensures that, in a crisis, Estonian people will have access to their own food. Food security is not just an economic issue; it is also part of the country's wider security.
In light of the above, we call on the government to take a decision to lower the VAT rate on food. The food sector stands united - from farmers and processors to retailers - and is awaiting decisive action from the government.
Kerli Ats
Chair of the Board, Estonian Chamber of Agriculture and Commerce
Nele Peil
CEO, Estonian Merchants' Association
The joint appeal of the Estonian Chamber of Agriculture and Commerce and the Estonian Merchants' Association can be found HERE: