Lithuania's farmers hit by sanctions over Ukraine

cows in a barn in Lithuania
Image caption Lithuania's economy is more closely linked to Russia than most other EU members

Lithuania's cows are possibly some of the more unlikely victims in the sanctions spat between the European Union and Russia. There's no longer a market for much of their milk.

While the country's membership of the European Union and Nato has provided a sense of security for Lithuanians, its economy still remains closely aligned with Russia's.

This is despite the fact that it is more than 25 years since Lithuania gained independence from the Soviet Union,

So, the economic impact of the current Western sanctions against Russia over Ukraine is also being felt in Lithuania.

The country is a major processing centre for milk produced by the other Baltic states, and via ports on the Baltic it is a transport hub for Russia-bound goods.

Indeed, food exports to Russia account for 2.7% of Lithuania's annual economic output, according to the European Bank for Reconstruction and Development,.

That's a far greater share of the economy than any other European Union country.

Farming is a key sector in the Baltics, and Russia is the largest market for Lithuanian products such as cheese and yogurt.

More than a third of the companies on Lithuania's benchmark stock index are in agriculture or related industries - and so the impact of the sanctions has hit hard.

Falling prices

Image caption Sanctions mean milk prices have dropped by a third, says Robertas

"If nothing changes soon we're going to have to think hard about what we're going to do, says Robertas.

He is one of the biggest dairy farmers in the country, with a herd of almost 800 cows near the country's second city, Kaunas.

"At the moment we are relying on cash reserves." he says.

The loss of the Russian market has created a surplus of milk, which has pushed prices in Europe well below a profitable margin for farmers.

"Prices have gone down 32% since the ban on imports," says Robertas.

"I'm losing 70-80,000 euros (£54-62,000) per month because of the ban."

Lithuania joins the eurozone

Image copyright Getty Images
  • Lithuania becomes the 19th member of the eurozone on 1 Jan 2015
  • Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain are all members
  • EU states, except for the UK and Denmark, have to join once they meet the eurozone's criteria
  • Sweden does not use the euro and is also outside the Exchange Rate Mechanism
  • Monaco, San Marino, the Vatican City and Andorra use the euro as their official currency
  • Kosovo and Montenegro unilaterally use the euro even though they are not EU members
  • The euro is Lithuania's fourth currency since 1991, after the rouble, the temporary talonas and the litas

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Image caption President Dalia Grybauskaite says she has not spoken to President Putin in five years

Strained relationship

Lithuania's President, Dalia Grybauskaite, although sympathetic with those businesses that are being hurt by the sanctions on Russia, feels that farmers need to diversify and sell to other markets - something that is essential for the Baltic country's future.

"I will only support clean, transparent markets. We will support farmers in our next budget, but they need to adjust and change," she says.

The president's relationship with Russia is somewhat strained. President Grybauskaite says she has not spoken to President Vladimir Putin since 2010 and has no intention to.

"He is an aggressor. How can we have dialogue with such country?"

From 1 January 2015, Lithuania has joined its neighbours, Latvia and Estonia in adopting the euro, and is now the 19th member of the eurozone

Its economic transformation of recent years has been remarkable. Adopting the euro is a significant milestone and large stamp of approval from the rest of Europe.

It is a testament also to the country's recovery from a severe downturn in 2009, when the economy shrank by 15%.

Bouncing back from this low point, its economic growth of 2.8% in 2014 puts it among the fastest growth rates in the European Union.

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Image caption Many Lithuanians are concerned about Russia's intentions towards its Baltic neighbours

Ukraine worries

Across the Baltics, many people say that they fear that the Kremlin will turn to them next. They are closely monitoring events in Ukraine, and are worried that President Putin may attempt reclaim their country as traditional Russian territory.

Kaliningrad, the Russian enclave on the Baltic Sea, borders Lithuania and the country's capital, Vilnius, is about 20 miles from the border of Belarus.

This is a point of contention, as many Lithuanians regard Belarus as a state that Russia could use as route for military invasion.

As a result, despite the economic pain that sanctions have caused, President Grybauskaite feels that a hard line in dealing with Russia is necessary.

However, farmers such as Robertas, do not feel that they should have to pay for political troubles. "The milk industry is very important - we can kill it very fast, but to re-build will take forever," he says.

You can hear more from Vishala Sri-Pathma in Lithuania on the 30 December 2014 edition of World Business Report , or you can download the programme podcast here.

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