Lithuania: Trade Hub of the Baltics

U.S. exporters eyeing future market opportunities should take a closer look at the economic progress made by Lithuania. In terms of potential, the country is a standout not only due to its domestic market but because of its strategic position as trade gateway to Russia. Although the food market has not ripened for U.S. consumer-oriented items, it’s time for exporters to lay the groundwork for future business.

Lithuanians know a thing or two about belt-tightening. Following the dissolution of the Soviet Union and the country’s declaration of independence in 1990, the economy experienced a devastating disconnection from its long dependence on Russian financial and monetary systems and trade. As a result, the gross domestic product (GDP) fell 42 percent.

But hardy Lithuanians didn’t let this get in the way of their long-term goals.

But these reforms only began a process that’s still underway. In 1992 and 1993, Lithuania introduced its own convertible national currency and created a capital market infrastructure and a private banking sector. Reforms in local government and taxation are continuing.

Regarded as one of the freer economies in Central Europe, Lithuania has worked to establish the legal, institutional and regulatory framework of an independent, democratic state and has shown a solid commitment to market economics and privatization.

Lithuania’s five largest cities each support a university, which helps explain how Lithuania’s 4 million population came to be one of the highest educated in Central and Eastern Europe. This academic discipline may have helped the population retain its long-term commitment to stringent economic reforms in the face of adversity.

Although economic conditions are improving, wages remain low and significantly limit the demand for consumer-ready food. As recently as 1997, average salaries were about $200 a month. While this amount isn’t high, it represents a 25-percent increase over 1996.

Some U.S. investors are already looking to the future with long-term investments in the country: Coca-Cola has recently spent $15.9 million; Kraft Jacobs International, $15 million; Masterfoods, $8.85; and McDonald’s, $6 million.

There is a small market for consumer-oriented food items, and Lithuanian consumers equate U.S. products with high quality. Market research suggests that the affluent are willing to buy based on origin only. But for now, items not produced in northern climes present the best U.S. trade opportunities: soybean meal, grapefruit, prunes, cotton, tobacco, rice, and nuts. Potential also exists for pet food, mackerel and deboned poultry meat.

Table 1 Key Economic Indicators Tell the Success Story*

Year	1995	1996	1997	1998*

Consumer Price Index growth	35.7%	13.1%	8.4%	6.0%
Per capita income	$1,622	$2,128	$2,587	$2,720
Real GDP growth	3.3%	4.7%	5.7%	6.8%

Source: Lithuanian Department of Statistics. *Estimates.

Due to its strategic gateway position, trading with Lithuania means more than meeting Lithuania’s own import needs. Trade with Russia, Belarus and other Baltic countries must be factored in.

Lithuania imports many of its food products from the European Union (EU); Germany’s the favored trade partner. Imports include fruits, vegetables, tobacco and its products, soft and alcoholic beverages, coffee, tea, spices, fish products and margarine.

Russia buys a third of Lithuania’s exports. Since Lithuania’s milk and meat processing industries drive the country’s agricultural machine with half of its production, it’s not surprising that chief exports include butter, cheese and beef. Canned fish, grain and confectionery products are also big sellers.

The country has some hefty tariffs on agricultural products from countries outside the purview of its trade agreements–ranging up to 87 percent (see inset Who’s Who in Trade Agreements).

Tariffs can be ad valorem (percentage of price) or specific (by weight or volume), or a combination of the two.

A value-added tax of 18 percent matches those in Latvia and Estonia. "Luxury" consumer items such as alcohol, tobacco, coffee and chocolate are subject to excise taxes as high as 70 percent.

Meat imports must pass through border inspection controls for sanitary concerns. All imported food products must have conformity certificates to guarantee quality and wholesomeness of food products.

Lithuania possesses an enviable infrastructure: a European-standard road network, four international airports, the only ice-free port on the Eastern Baltic Sea and the first satellite-based telecommunications system in the region.

Lithuania’s long been established as a regional transport hub, so it comes as no surprise that the EU’s transportation commission has designated two routes running through Lithuania as among the 10 priority transport routes in Europe. North-south road and rail routes connect Scandinavia with Central Europe and east-west routes link with big Former Soviet Union markets. The Port of Klaipeda located on the dart board

Baltic Sea at the western border of Lithuania, north of the Kaliningrad District of Russia, has been designated as the EU’s regional priority port.

Despite the country’s first-rate transportation facilities, the wholesale and retail operations that handle imports are not yet developed. At this time, there are no laws that regulate the relationship between a foreign company and its distributors or agents in Lithuania–contractual agreements prevail.

Agricultural and food products are still sold to the public mainly at farmers’ markets located in the biggest cities. There is, however, a growing network of grocery and produce stores recently joined by the first fledgling supermarkets. And the variety of products, including imports, is improving as purchasing power increases.

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The author is agricultural attaché at the FAS Office of Agricultural Affairs in Warsaw, Poland. Tel.: (4822) 621-3926; Fax: (4822) 628-1172; E-mail: agwarsaw@it.com.pl