VILNIUS - Lithuania's cheese industry is booming, and the aroma has drifted well beyond the country's borders. Last year Vilkyskiu Pienine, the country's leading producer of hard cheese, made a shipment to Japan, and this year cheesemakers will vie for EU funds to modernize facilities and position themselves to compete with well-known European brands.
Indeed, the mood in the industry is upbeat.
"People will always eat dairy," says Laura Statharos, export manager of Rokiskio Suris, Lithuania's largest cheese exporter.
"[The industry] has always been export oriented," adds Linas Sasnauskas, operations officer of rival Pieno Zvaigzdes. "After independence, the market became tougher and companies had to redirect their exports to Western markets."
Although much of his company's production is still directed to the same markets as during the Soviet period, Sasnauskas reports that the situation is "definitely better now."
"We can sell to whoever we want," he says. "We choose the most profitable sales and the best long-term relationship. In Russia, we have a branded product and a firm market share."
Some of the industry's biggest changes came alongside accession to the European Union. Irma Pilepiene of Pieno Centras, a dairy association that advises Parliament and disseminates information to Lithuania's dairy processors, talks about the effects of EU accession.
"Lithuania operates under set EU quotas for milk production - 1.6 million tons can be produced and sold, with one quarter for direct local sales," she says. "As more producers move to selling to processors the balance within the quota shifts."
In 2005, 1.2 million tons were delivered to dairies, allowing "some space" for growth before the national quota is reached. But traditionally, Lithuanian dairies are small, unlike the rest of Europe.
"Everyone who comes from Europe is surprised to see farmers with only one or two cows," says Statharos. "In England, there are hardly any farms with fewer than 100."
Small producers mean high collection costs, both for transportation and testing. Each container of milk has to be tested individually for bacteria levels and other contaminants. But, says Statharos, "We need everything we can get."
As the quota is partly linked to cows, a farmer is free to purchase more cows to expand his business. But as more cows are bred, farmers may face penalties for overproduction.
"Government institutions try to create those rules and adapt them to Lithuania," says Pilepiene. "If people don't want to live with those rules, they have to find another solution." So quotas and black markets remain the reality. Currently, the National Payment Agency is responsible for administering the system.
Ownership of the industry is largely local. In 1999, the European Bank of Reconstruction and Development invested 40 million litas (11.6 million euros) into Rokiskio Surys, but later sold the shares back to local investors.
As for the future of small producers, Statharos says, "there's not a chance." In the long run, the industry will be run by large farms.
With the current limits on production, profit has become the key focus.
"The locally sold items are more profitable. We export everything we can't sell locally," Statharos says.
Selling the high profit, name-brand fresh products would involve the development of a distribution network and a growing reputation. And although the Rokiskio Surys export manager says Lithuania's not there yet, there's always hope.
"We're perceived as a strong agricultural country," she explains. "In 2002, we were fourth in the world exporting cheese to the United States."
But when the dollar fell in 2002, U.S. purchasers shifted to Argentinian suppliers, whose currency was pegged to the dollar. So Rokiskio started selling to Italy.
But most of the dairy producer's sales are bulk items and raw materials such as whey protein concentrate. High-profit specialty items, such as blue cheese, are not currently possible.
Problems include competition from established producers such as France and Germany, the lack of a local market, and the need for separate facilities to prevent cross-contamination. And Lithuanian is unlikely to develop its own unique specialties any time soon.
Even in the local and Russian markets, where consumers value the Lithuanian name, the semi-hard grating cheeses sell better than the more profitable hard-grating cheeses. It's partly what people are used to and partly a lack of purchasing power.
The growing Western demand for organic products, another potentially high-profit market, is still untapped by Lithuanian producers. "In the future we'll have to do this," says Statharos.