Finnish agriculture increasingly steered by market forces

Last year, an agreement was reached on the common EU agricultural policy until 2020. The recent report by MTT Agrifood Research Finland describes the outlook of Finnish agriculture in the following five years.

The market will take up the reins

The agricultural production volumes in Finland on average will remain at the current level until 2020. Even though subsidies in nominal terms will remain in place to maintain production volumes, their real value will decrease. In order to maintain the income level, a larger part of the agricultural revenue than before must be gained from the products sold in the market.

"The markets will increasingly influence what happens to the production, income and profitability in the agricultural sector. Prices will fluctuate wildly, which means that the market risks of agricultural enterprises increase both in the sale of products and the acquisition of production inputs," says Professor Jyrki Niemi, MTT Agrifood Research Finland.

For Finland, there will be no significant changes in the overall level of EU support to agriculture by 2020. "Since Finland's northern circumstances were taken into account in the level of production-based support, the definition of less-favoured areas and the greening practices, the reform will not cause any dramatic changes in the Finnish agricultural market or production," Niemi says.

Precautions must be taken against production risks

The role of the state in the compensation of crop damages will change. After a transition period, crop damages will no longer be compensated directly from state funds. Instead, the state will participate in covering crop damages by creating prerequisites for commercial crop damage insurance.

"The most important prerequisite for the creation of commercial insurance and insurance market is closing down the current system, which is completely funded by the state. The CAP reform requires that insurance systems will be implemented in co-operation with the state and the private actors as planned," says Professor Sami Myyrä, MTT Agrifood Research Finland.

He believes that the new system can be implemented so that it is both more equal and more transparent than the previous system. The new insurance systems also open up the possibility of using the same policy instruments in the Finnish agricultural politics that have been used for a long time in countries such as the United States.

Structural development continues to be rapid

By 2020, the number of agricultural enterprises will decrease from the current 57,000 to about 48,000 farms, a decrease of approx. 15 per cent. Only one fifth of farms would be livestock farms, approximately 10,000 farms. The number of pig and dairy farms will decrease by roughly 40 per cent, which leaves only 5,400 farms that produce milk. The decline is focused on the smallest farms, and the unit size of the remaining farms will increase.

"One half of the smallest Finnish agricultural enterprises produce only about five per cent of the Finnish agricultural production. The decrease in the number of farms does not mean a decrease in production amounts," clarifies Accounting Manager Arto Latukka, MTT Agrifood Research Finland.

One reason for giving up production is the level of profitability that continues to be poor despite strong structural development. The return on investment has been negative on average for the last 10 years. In 2011 in Finland, it was the third weakest in EU at -1.1 per cent.

The number of farms has decreased for years at almost a flat rate. The structural development forecasts are based on the assumption that the agricultural policy decisions will not change the long-term development trend in the future either, Latukka states. He is responsible for both the structural forecast system and the online service to be published on 13 February at the EconomyDoctor website of MTT Agrifood Research Finland (www.mtt.fi/taloustohtori), where the development of the number of farms can be monitored in more detail.

The report "EU's Common Agricultural Policy during 2014-2020 and Finnish agriculture" can be found online (in Finnish, with an abstract in English): http://www.mtt.fi/mttraportti/pdf/mttraportti130.pdf