Roasters look to ex-Soviet Baltic States for future growth.

Just 50 miles across the Gulf of Finland from Helsinki sits Tallinn, the beautifully preserved medieval capital of the former Soviet republic - and now independent nation - of Estonia.

Popular with Finnish day tourists who come over on the ferry for duty-free liquor and cigarettes, Tallinn

has more than its share of culture. On the main square, known as Raekoja Plats, fast-food restaurants, bars, and other attractions all compete for attention with venerable Orthodox churches, museums, and art galleries. Along with St. Petersburg to the east, Tallinn is one of the best-preserved medieval cities of the former Soviet Union.

For Finnish coffee exporters, Estonia (population 1.6 million) is important not only because of its proximity, but because it and the two other Baltic states - Latvia and Lithuania - enjoy a higher standard of living than any of the 12 other former Soviet republics.

"We estimate the Estonian coffee market to be 4,000 tons," says Bertel Paulig, managing director of the Paulig Group in Helsinki. "We have 25% of that market. Another 50% is shared by my Finnish competitors and some Swedish producers. The other 25% is comprised of illegal imports that don't pay taxes."

Paulig - whose company logo is emblazoned on outdoor umbrellas at the Millennium Cafe and other establishments around the Raekoja Plats - owns a roastery in the town of Saue, about 15 miles south of Tallinn. From there, the company supplies all of Estonia, as well as Latvia and Lithuania.

"All three countries are very different," Paulig says. "The Estonian market used to be, and will become again, like the Finnish market. In 1942, two years after the Soviet invasion of Estonia, my grandfather closed our factory in Tallinn."

Today, per-capita income hovers around $3,900. While that's only a fraction of Finland's per-capita GDP of $16,000, it's still considerably higher than that of Russia, the Ukraine, Belarus, and the Caucasus republics.

"Coffee is the national drink in Estonia, especially now that the standard of living has risen rapidly," says Paulig. "In practice, we're the only Western roaster in the Baltic states. There are a couple of small, formerly state-owned roasters, producing a product with a proportion of grain added to it. The borders are leaky, so a lot of coffee is being imported illegally from Germany, Denmark, and Poland."

Local entrepreneurs have started up a new roastery, Procoffee, in Tarto, about 200 km. southeast of Tallinn, but it's much smaller than Paulig's roastery.

Timo Sairanen, roasting plant manager at Meira Oy in Helsinki, says over 150 brands of coffee can be found today in Estonian grocery stores and markets - most of them from Finland, Sweden, Germany, and various Central European countries.

"But Finnish brands have an advantage in Estonia because the Estonians have been watching Finnish television advertising for years," says Sairanen, who estimates his country's exports to Estonia at FIM20 million (US$3.8 million) a year.

"When Estonians got their independence in 1991 and the border opened, they already knew they could buy Kulta Katrina and other brands. I believe the Estonian market is growing," Sairanen says. "They started from zero a few years ago, and it's now over two kilos per head; smaller brands are dying, and only the biggest ones will survive."

Observes Robert Paulig of Robert's Coffee in Helsinki: "Everybody wants to fight for that market in order to do something new. Competition is very tough, but I'm going after Sweden. If I can make it there, I can make it in the Baltics."

Bertel Paulig says his company ships Finnish-roasted coffee in containers to Tallinn on a just-in-time basis, though the blend is slightly different. "Estonian coffee is the same but roasted darker because of the characteristics of the water. Here in Finland, natural water is very soft, but in Estonia, the water is a lot harder," he says. "Therefore, we need to roast darker. The traditional light Finnish roast doesn't give enough flavor."

Lithuania, just to the south of Estonia, also attracts Paulig because its per-capita income is the same as that of Estonia, with twice the population. "Latvia is much less of a coffee-drinking nation," he says. "The Russian influence of drinking tea is very strong, so coffee is of less interest." Nevertheless, because of free-trade arrangements among the three former Soviet republics, Paulig and others can produce in one country and sell in the other two without paying duties or import tariffs.

Paulig predicts that Estonian coffee consumption will eventually reach 10 kg. per-capita, about the same level as that of Finland. That's not surprising, given that until the Soviets invaded Estonia in 1940, the two countries had similar customs, religions, and histories. Even their languages are similar; Finns who visit Estonia have little trouble communicating with the locals, and vice-versa.

"Their economy is booming," says Paulig. "After 50 years of Russian influence, there's a very strong feeling of entrepreneurship. They're now free from Socialist control, and people can make their own money for the first time.

"A lot of brains and money are now flowing back into Estonia. It's still a poor country, but it's developing rapidly. In Finland, coffee consumption isn't growing. With a market share of 45%, we need to look elsewhere, and we see the Baltic states as interesting prospects."