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Ten years of strong adjustment for Finnish agriculture

May 24, 2005

The accession to the European Union (EU) ten years ago was for the Finnish agriculture and food sector an unprecedented rapid shift from closed and regulated markets to open and more competitive ones. Finnish farmers faced a change in output prices, relative prices and direct support which were of exceptional magnitude compared to that of any other country which had ever joined the EU. Commitment to the Common Agricultural Policy (CAP) lowered the producer price level in Finland by 40-50% right at the beginning of 1995.

On market prices alone, the survival of Finnish agricultural production would have been very difficult. A comprehensive package of compensatory payments was therefore agreed to facilitate the adjustment. Various forms of support payments have played a central role during these first ten years in the EU in ensuring that Finnish agriculture succeeded in common EU markets. In 2004, support payments rose to EUR1.8 billion, which was 45% of the total return on agriculture and horticulture (EUR3.97 billion).

Despite the growth in direct payments, agricultural income has been falling in Finland. According to figures from MTT Agrifood Research Finland, agricultural income at fixed prices was almost 34% lower in 2004 than in 1994.

Rapid progress in structural development

Membership of the EU has not lead to any significant changes in the volume of Finnish agricultural production. However, the structural development of agriculture has been very rapid. The number of farms has fallen by more than 3% a year, and those engaged in livestock production even more. For example, the number of farms specialising in milk production has decreased by almost 7% a year.

There were over 100,000 farms in Finland in 1994. Now, ten years later, there are but about 71,000 farms left. "There are no indications that the structural change will be slowing down in the long term. On the contrary, trade liberalisation will continue to call for further concentration in the sector. By 2020, there will be less than 40,000 farms left" says Jyrki Niemi, an agricultural economist at MTT.

Even though the structure of Finnish agriculture has changed quite rapidly, the development of agricultural productivity has been relatively slow. In 2004, the same use of production inputs yielded about 12% more than in 1992, showing that productivity grew by a little under 1% a year. The new economic environment has not promoted agricultural productivity development as was expected.

Food prices have risen less than the other prices

The consumer price of food fell, on average, by 11% when Finland joined the EU in 1995. Between 1995 and 2004, food prices rose by 11% in nominal terms, while the general consumer price index rose by 13.4%, which means that food prices are below the level in 1995 in real terms.

Membership of the EU has clearly reinforced the position of the retail trade in the food chain relative to primary production and the food industry. The share of the retail sector in the consumer price of food has increased by a few percentage points in recent years.

MTT Agrifood Research Finland

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