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Lithuania Feels Squeeze in Sanctions War With Moscow Lithuania Feels Squeeze in Sanctions War With Russia
(about 14 hours later)
ZIBENAI, Lithuania — In the sanctions war between Russia and the West, Kasia Jankun’s 80 dairy cows seem to be losing.ZIBENAI, Lithuania — In the sanctions war between Russia and the West, Kasia Jankun’s 80 dairy cows seem to be losing.
The sanctions, which are taking a toll on Russia’s economy, cut both ways. And Ms. Jankun and other small farmers in this Baltic nation of three million people are bearing an overwhelming share of the pain from a Russian ban on European dairy products.The sanctions, which are taking a toll on Russia’s economy, cut both ways. And Ms. Jankun and other small farmers in this Baltic nation of three million people are bearing an overwhelming share of the pain from a Russian ban on European dairy products.
Former Soviet bloc countries that, like Lithuania, are part of the European Union and the NATO military alliance might seem safe from the Russian strong-arming that made Ukraine so vulnerable. But in economic standoffs, it is often the most vulnerable that suffer most.Former Soviet bloc countries that, like Lithuania, are part of the European Union and the NATO military alliance might seem safe from the Russian strong-arming that made Ukraine so vulnerable. But in economic standoffs, it is often the most vulnerable that suffer most.
The loss of the Russian market created an oversupply of milk, which pushed prices in Europe well below the break-even point for farmers like Ms. Jankun, whose 250-acre farm in eastern Lithuania lies at the end of a dirt road in rolling country dappled by groves of pine and alder.The loss of the Russian market created an oversupply of milk, which pushed prices in Europe well below the break-even point for farmers like Ms. Jankun, whose 250-acre farm in eastern Lithuania lies at the end of a dirt road in rolling country dappled by groves of pine and alder.
“If nothing changes by spring, at these prices, it’s bankruptcy, " Ms. Jankun, 50, said recently, as she served visitors thick slices of homemade cheese that she sells at outdoor markets to make up for lost income.“If nothing changes by spring, at these prices, it’s bankruptcy, " Ms. Jankun, 50, said recently, as she served visitors thick slices of homemade cheese that she sells at outdoor markets to make up for lost income.
If the sanctions battle were not underway — and if the eurozone economy were not still so listless — Lithuania might seem to be heading in a positive direction. At the beginning of next year, it is set to become the 19th member of the euro currency union, joining its Baltic neighbors Latvia and Estonia in that inner circle of countries that the European Union ostensibly considers among the most economically worthy.If the sanctions battle were not underway — and if the eurozone economy were not still so listless — Lithuania might seem to be heading in a positive direction. At the beginning of next year, it is set to become the 19th member of the euro currency union, joining its Baltic neighbors Latvia and Estonia in that inner circle of countries that the European Union ostensibly considers among the most economically worthy.
Mario Draghi, the president of the European Central Bank, was scheduled to speak in Lithuania’s capital, Vilnius, on Thursday, symbolically putting his imprimatur on the country’s eurozone membership.Mario Draghi, the president of the European Central Bank, was scheduled to speak in Lithuania’s capital, Vilnius, on Thursday, symbolically putting his imprimatur on the country’s eurozone membership.
And yet, a quarter-century after Lithuania, Latvia and Estonia won independence from the Soviet Union, their economies remain deeply intertwined with Russia’s. Farming is a major industry in the Baltics, and Russia was the largest and most profitable market for Lithuanian products like cheese and yogurt. Unlike big industrial agricultural producers, Lithuania’s small farmers — the most vulnerable segment of the country’s dairy industry — cannot easily redirect their products to other markets.And yet, a quarter-century after Lithuania, Latvia and Estonia won independence from the Soviet Union, their economies remain deeply intertwined with Russia’s. Farming is a major industry in the Baltics, and Russia was the largest and most profitable market for Lithuanian products like cheese and yogurt. Unlike big industrial agricultural producers, Lithuania’s small farmers — the most vulnerable segment of the country’s dairy industry — cannot easily redirect their products to other markets.
Nor can they hope to replicate elsewhere the premiums on Baltic dairy goods — so meager are most Russian alternatives — that merchants in cities like Moscow and St. Petersburg have been willing to pay.Nor can they hope to replicate elsewhere the premiums on Baltic dairy goods — so meager are most Russian alternatives — that merchants in cities like Moscow and St. Petersburg have been willing to pay.
Without doubt, tensions stemming from the Ukrainian conflict are having a broader effect on world trade, especially in countries like Germany, where many auto and machinery companies until recently saw Russia as a promising and fast-growing market. General Motors’ Opel unit said last week that it was cutting production and jobs at its car plant in St. Petersburg, mostly because of the sagging Russian economy and the sinking value of the ruble.Without doubt, tensions stemming from the Ukrainian conflict are having a broader effect on world trade, especially in countries like Germany, where many auto and machinery companies until recently saw Russia as a promising and fast-growing market. General Motors’ Opel unit said last week that it was cutting production and jobs at its car plant in St. Petersburg, mostly because of the sagging Russian economy and the sinking value of the ruble.
But the economic impact of the sanctions may be most acute in Lithuania, which is also a major processing center for milk produced by the other Baltic countries and, via ports on the Baltic Sea, a transportation hub for Russia-bound goods.But the economic impact of the sanctions may be most acute in Lithuania, which is also a major processing center for milk produced by the other Baltic countries and, via ports on the Baltic Sea, a transportation hub for Russia-bound goods.
Food exports to Russia account for 2.7 percent of Lithuania’s gross domestic product, according to the European Bank for Reconstruction and Development, a far greater share of the economy than in any other European Union country. More than a third of the companies on Lithuania’s benchmark stock index are in agriculture or related industries.Food exports to Russia account for 2.7 percent of Lithuania’s gross domestic product, according to the European Bank for Reconstruction and Development, a far greater share of the economy than in any other European Union country. More than a third of the companies on Lithuania’s benchmark stock index are in agriculture or related industries.
The economic disruption is not likely to derail plans for Lithuania to join the eurozone on Jan. 1. On the contrary, many Lithuanians see euro membership as a milestone in the country’s tighter integration with Europe, and validation of its recovery from a severe downturn in 2009, when gross domestic product plunged 15 percent.The economic disruption is not likely to derail plans for Lithuania to join the eurozone on Jan. 1. On the contrary, many Lithuanians see euro membership as a milestone in the country’s tighter integration with Europe, and validation of its recovery from a severe downturn in 2009, when gross domestic product plunged 15 percent.
But this month, the country’s central bank reduced its growth forecasts because of slowing trade with Russia. This year, the Lithuanian economy will grow 2.9 percent instead of the 3.3 percent that was forecast earlier, the bank said. Next year, growth is expected to be 3.3 percent instead of 3.6 percent.But this month, the country’s central bank reduced its growth forecasts because of slowing trade with Russia. This year, the Lithuanian economy will grow 2.9 percent instead of the 3.3 percent that was forecast earlier, the bank said. Next year, growth is expected to be 3.3 percent instead of 3.6 percent.
That would still be among the fastest growth rates in the European Union. “Our expectation is that it will influence our G.D.P. figures, but not so very significantly,” said Vitas Vasiliauskas, chairman of Lithuania’s central bank. He noted, though, that even before the sanctions, Lithuanian exports were squeezed by sputtering growth in Russia.That would still be among the fastest growth rates in the European Union. “Our expectation is that it will influence our G.D.P. figures, but not so very significantly,” said Vitas Vasiliauskas, chairman of Lithuania’s central bank. He noted, though, that even before the sanctions, Lithuanian exports were squeezed by sputtering growth in Russia.
For most Lithuanian farmers, there is not much room for reduction. More than 70 percent of Lithuanian farms are smaller than 25 acres, earning an annual average profit of only 5,849 litas, or $2,176, per farmworker, according to the Lithuanian Institute of Agrarian Economics.For most Lithuanian farmers, there is not much room for reduction. More than 70 percent of Lithuanian farms are smaller than 25 acres, earning an annual average profit of only 5,849 litas, or $2,176, per farmworker, according to the Lithuanian Institute of Agrarian Economics.
Lithuania’s large agricultural conglomerates are feeling the effect of sanctions, too, but are in a better position to find new markets.Lithuania’s large agricultural conglomerates are feeling the effect of sanctions, too, but are in a better position to find new markets.
“We are not in a desperate situation,” said Andrius Pranckevicius, deputy managing director of Linas Agro, a Lithuanian company that trades grain and other agricultural commodities and is also a major milk and poultry producer.“We are not in a desperate situation,” said Andrius Pranckevicius, deputy managing director of Linas Agro, a Lithuanian company that trades grain and other agricultural commodities and is also a major milk and poultry producer.
But he added, “The situation for smaller farmers is very serious right now. They are absolutely below break-even.”But he added, “The situation for smaller farmers is very serious right now. They are absolutely below break-even.”
Rightly or not, Lithuanians say they believe that President Vladimir V. Putin of Russia feels special resentment toward the Baltic countries because they were the first Soviet states to demand independence in the late 1980s. Last fall, well before Russia imposed formal sanctions, customs officials were blocking imports of Lithuanian farm products, ostensibly on health grounds.Rightly or not, Lithuanians say they believe that President Vladimir V. Putin of Russia feels special resentment toward the Baltic countries because they were the first Soviet states to demand independence in the late 1980s. Last fall, well before Russia imposed formal sanctions, customs officials were blocking imports of Lithuanian farm products, ostensibly on health grounds.
In Lithuania, dismay about the economic impact of the sanctions is amplified by the fear that Mr. Putin intends to restore the old borders of the Soviet Union, using military force if necessary. Unlike Ukraine, of course, Lithuania is a member of NATO, whose members have pledged to defend one another. Still, Lithuanians feel exposed.In Lithuania, dismay about the economic impact of the sanctions is amplified by the fear that Mr. Putin intends to restore the old borders of the Soviet Union, using military force if necessary. Unlike Ukraine, of course, Lithuania is a member of NATO, whose members have pledged to defend one another. Still, Lithuanians feel exposed.
Vilnius, the picturesque capital, is only about 20 miles from the border of Belarus, which many Lithuanians regard as a state that Russia could use as a jumping-off point for a military incursion. Lithuania also shares a 136-mile border with Kaliningrad, the Russian enclave on the Baltic Sea.Vilnius, the picturesque capital, is only about 20 miles from the border of Belarus, which many Lithuanians regard as a state that Russia could use as a jumping-off point for a military incursion. Lithuania also shares a 136-mile border with Kaliningrad, the Russian enclave on the Baltic Sea.
As a result, despite the economic pain that sanctions have caused, many Lithuanians advocate a hard line in dealing with Russia.As a result, despite the economic pain that sanctions have caused, many Lithuanians advocate a hard line in dealing with Russia.
“Everyone feels strong solidarity with Ukraine,” said Linas Linkevicius, the Lithuanian foreign minister. He has pushed the NATO countries to establish a more demonstrative presence in the Baltics, for example, by staging maneuvers and stationing equipment in the region.“Everyone feels strong solidarity with Ukraine,” said Linas Linkevicius, the Lithuanian foreign minister. He has pushed the NATO countries to establish a more demonstrative presence in the Baltics, for example, by staging maneuvers and stationing equipment in the region.
“We need some physical presence, a tangible something,” said Mr. Linkevicius, a former defense minister.“We need some physical presence, a tangible something,” said Mr. Linkevicius, a former defense minister.
Mr. Linkevicius has convened groups of business people to talk about ways to develop other markets for Lithuanian goods. But fully replacing Russian sales will be difficult. Lithuanian dairy products have a reputation for quality in cities like St. Petersburg and Moscow and command higher prices than in other markets.Mr. Linkevicius has convened groups of business people to talk about ways to develop other markets for Lithuanian goods. But fully replacing Russian sales will be difficult. Lithuanian dairy products have a reputation for quality in cities like St. Petersburg and Moscow and command higher prices than in other markets.
Despite historical resentments, Russia’s size and proximity make it the most logical market for Baltic goods. Although English has become the second language of choice for younger Lithuanians, after their native tongue, many people speak Russian.Despite historical resentments, Russia’s size and proximity make it the most logical market for Baltic goods. Although English has become the second language of choice for younger Lithuanians, after their native tongue, many people speak Russian.
“A lot of people feel more comfortable working with Russians in Russian than other cultures,” said Kasparas Jurgelionis, deputy chairman of Koncernas Achemos Grupe, a Lithuanian fertilizer producer that is also involved in handling cargo passing through Baltic ports. “There is a lot of sacrifice in terms of lost opportunities.”“A lot of people feel more comfortable working with Russians in Russian than other cultures,” said Kasparas Jurgelionis, deputy chairman of Koncernas Achemos Grupe, a Lithuanian fertilizer producer that is also involved in handling cargo passing through Baltic ports. “There is a lot of sacrifice in terms of lost opportunities.”
Ms. Jankun, the farmer, said she was uncertain what the policy toward Russia should be. “I am in favor of Russian people buying my cheese,” she said in her large but unfinished home next to the fields where she grows hay and potatoes and lets her cows graze. “I don’t care about politics.”Ms. Jankun, the farmer, said she was uncertain what the policy toward Russia should be. “I am in favor of Russian people buying my cheese,” she said in her large but unfinished home next to the fields where she grows hay and potatoes and lets her cows graze. “I don’t care about politics.”
Dressed in a red sweater and battered rubber clogs, Ms. Jankun said she worried that her two grown children would despair and decide to emigrate, following tens of thousands of other Lithuanians who left during the economic turmoil in 2009.Dressed in a red sweater and battered rubber clogs, Ms. Jankun said she worried that her two grown children would despair and decide to emigrate, following tens of thousands of other Lithuanians who left during the economic turmoil in 2009.
Then no one will be able to take over the farm, which belonged to Ms. Jankun’s family before the Soviet Union annexed Lithuania in 1940 and was returned after the collapse of communism.Then no one will be able to take over the farm, which belonged to Ms. Jankun’s family before the Soviet Union annexed Lithuania in 1940 and was returned after the collapse of communism.
Given that tortured history, Ms. Jankun was uncertain how to deal with Mr. Putin. “If we have a nervous and unpredictable neighbor, we avoid him,” she said. “But,” she added, “when he starts breaking your windows, you have to do something.”Given that tortured history, Ms. Jankun was uncertain how to deal with Mr. Putin. “If we have a nervous and unpredictable neighbor, we avoid him,” she said. “But,” she added, “when he starts breaking your windows, you have to do something.”