CAP Reform Profile - Finland
There are two articles below. The first presents an overview of the Finnish government's position on the future reform of the CAP. The second, older, article reviews the position the government adopted during the CAP Health Check negotiations in 2008.
The Finnish Government’s Position on the Future Reform of the CAP
This review was originally published on this website on 19 February 2009.
The government, as yet, has not stated the course it will take in navigating Finnish political pressure around the prospect of more fundamental reform of the CAP. However, from reviewing the steps the government took during the Health Check and recent discussions in the national press, it is safe to conclude that the governmental position of Finland is likely to remain conservative. It has been stated on numerous occasions that continuous and adequate agricultural support is necessary for following one of the key principles of the Union: that agriculture can and should be practiced in all the Union's regions. Food security, both nationally and at the EU-level, is explicitly used as an argument. It is particularly clear that the future of Finnish beef and dairy husbandry will likely provide the most burning questions in the policy debate (a).
The only change to the status quo raised in government circles is the re-calculation of the current flat subsidy rates towards a fairer distribution of funds based on criteria other than pre-reform productivity. This is not surprising for a Nordic country with inherently low agricultural productivity.
Recent political steps taken by the government clearly support the above conclusions. These are summarised below.
The negotiations with the Commission in 2008 on the future of the so-called 141-support (after a respective article of the Act of Accession).
This special national support is aimed at producers in the South of the country and was permitted as a temporary measure to allow for the adjustment of Finnish agriculture to the open EU market. In Finland, it has been viewed as a form of support that should remain valid for as long as unfavourable conditions, climatic or structural, persist. The support makes up 30-60% of farm income, and was especially valuable for the pig sector and, therefore, the national food processing industry (1).
The latest agreement with the Commission, reached in autumn 2007, stipulated a progressive cutting of the support from 2009 by 2.7% annually to two-thirds of the present level by 2013. This compromise solution was received with dismay by the Central Union of Agricultural Producers and Forest Owners. In the words of some commentators, "without it, agriculture is not possible in the South"(2). The actual figures suggest, though, that the removal of the €94 m that make up this aid (of a total annual national support for agriculture of €1.5 bn) is unlikely to lead to the cessation of all production in the regions of the country that are most favourable for agriculture. Apart form a possible impact on the food processing industry, a further concentration of dairy and animal production in central Finland - where the permanent Nordic Aid scheme still operates - is likely to accelerate erosion, the pollution of water, and a decline in biodiversity dependent on pastures. The support does not carry environmental safeguards of any kind. The attachment of additional environmental conditions for the support would have provided a more valid basis for the continuation of this support. These conditions could include an obligation to pasture cattle, especially extensively, and to tighten farm-gate nutrient budgets.
To retain the current status and the support rate for the Less Favoured Area (LFA) scheme.
Finland has an exceptionally high proportion of funds allocated to Axis 2 of the Rural Development Programme (RDP) (about 80%), with about 45% of all public expenditure on the RDP dedicated to LFA payments. LFA support does not have environmental safeguards beyond those provided by cross-compliance, and Finland is likely to be strongly against modifying LFA support towards a more pro-environment subsidy tool (e.g. in order to support High Nature Value farming). This is because mainstream farming in Finland is intensive modern production, which, though structurally diverse, retains few nature values. Despite the fact that the agricultural area has been stable for decades in Finland, the declines of key taxa has continued, and traditional farming biotopes have recently been confirmed to be the most endangered nature types across the country (3).
The question of milk quotas.
The backbone of the Finnish position in the Health Check related to the future of milk quotas. It is likely to remain a prominent issue in coming years. The growing dairy sector in Estonia is seen as a threat to national production (2).
One possibility to support grassland based agricultural production, which has recently been explored, is a new national support for grasslands (nurmituki). The development of this specific support is set as one of the priorities for a working group on the development of the agri-environment scheme. There is legitimate environmental reasoning behind this measure: namely, the lack of grassland in rotation in the South creates considerable pollution of inland waters and the Baltic sea, and is devastating to biodiversity. However, in order to solve problems where they exist rather than being production oriented, such support would clearly need to be zonal.
Further decoupling of payments has been and will be opposed.
Because of the poor profitability and competitiveness of agriculture, decoupling takes away the stimulus to produce and leads to the fallowing of land. This is seen as a threat to the adequate supply of domestic foodstuff to the national agro-industry. An example is set by the debate on environmental set-aside - a new option under the national agri-environment scheme to replace mandatory CAP set-aside. Though the environmental value of set-aside has been acknowledged, the agriculture minister herself stepped into the process of approving the scheme by stipulating that the maximum allowed limit would be 15% of a farm’s agricultural area. The reason given was, “so that there is not too much fallow” (according to information given to the ministerial working group). One might wonder how it can be "too much" in the absence of any clear targets.
The retention of coupled payments.
Coupled payments will be defended, especially for animals. This explains the current use of Article 69 for providing a premium for suckler cows, heifers and young bulls, as well as for certain crops. Though the support is grounded on environmental considerations, such as preventing the concentration of production, no special environmental requirements are attached to it. The support thus does not distinguish between bulls raised in housed systems from those that are pastured, or those that are pastured extensively.
In conclusion, the position of the Finnish government may almost be characterised as national protectionism. This position should be considered in relation to two issues: i) the natural handicap, such as climatic and topological conditions, and low population density, characteristic of almost all of the country, meaning almost all production is non-competitive; and ii) the long standing tradition of a strong Central Partly (mainly representing land-owners) in the Government.
(a) Both the beef and dairy sectors are regarded as the most important for rural viability and the maintenance of the national agro-industry. Grassland-based agriculture is practically the only economically viable activity in boreal conditions, apart from forestry, because of poor cereal yields on the one hand and an abundance of grass on the other. The meat/dairy processing industry further employs about 300,000 people (which is a fair number by Finnish standards).
Mielonen, M. Permanent or temporary support? Helsingin Sanomat, 23.10.2007 - available here (in Finnish).
Background papers for hearing in the Finnish Parliament Environment Committee, prepared by the Ministry of Agriculture and Forestry, 02.10.2008. [in Finnish]
Raunio, A., Schulman, A. & Kontula, T. (eds.). 2008. Endagered biotopes in Finland. Finnish Environment Institute, Helsinki. Finnish Environment 8/2008. [in Finnish with English summary].
Finland's Position on the 2008 CAP Health Check
This review was originally published on this website on 2 December 2008.
The general attitude of the Finnish government towards the Commission’s May 2008 CAP Health Check proposals was clearly negative, a view supported by the Central Union of Agricultural Producers and Forest Owners (MTK). The latter puts it simply: "the Health Check proposals endanger Finnish agriculture".
In general, CAP reform is perceived in Finland as being driven by the larger Member States which account for the majority of agricultural production in the EU. The perception is that this results in the needs of smaller Member States with less competitive agricultural sectors being disregarded.
...retention of existing levels of support (including coupled payments where these have been retained) is implicit in the Finnish position.
Furthermore, the principle of reducing agricultural support mechanisms (as set out in the Health Check proposals) at times of global food crises is seen as poorly timed, and thus retention of existing levels of support (including coupled payments where these have been retained) is implicit in the Finnish position. The proposed 8% increase in the rate of modulation by 2013 was seen as being too high, although no alternative lower rates were proposed by the Finnish government in the public debate.
1 Contextual Factors Affecting Finnish Agriculture
Although Finnish agriculture, together with forestry and fishing, comprises just 2.6 per cent of the GNP (2006), it is seen as the key activity in sustaining rural livelihoods and employment. Its role is regarded as particularly critical in socio-economic terms since modern forestry practices are highly mechanised and support relatively few jobs.
Finland is subject to a degree of climatic disadvantage linked principally to the country’s northern latitude and the whole country is classified as a Less Favoured Area (LFA). A consequence of this is that the Finnish agricultural sector is considered to be vulnerable to open competition from countries with more productive agricultural sectors unhindered by natural disadvantage. As a result, there has traditionally been opposition in Finland to measures which have moved the CAP in the direction of the free market.
...the maintenance of sustainable domestic food production is a clear political objective.
Under current arrangements, Finland receives a relatively low rate of direct support per hectare of UAA under Pillar 1 of the CAP compared to other EU-15 Member States (a). This variation in payments is commonly thought to exacerbate the competitive disadvantage experienced by much of the Finnish agricultural sector due to natural handicap. It is commonly thought that disparities in rates of CAP support between Member States have contributed to the cessation of agriculture in more marginal regions of Europe, including parts of Finland, with subsequent concentration of production in other parts of Europe where CAP payments are higher. Such movements have been linked to financial allocations made under the CAP and have been described by some commentators as a violation of the conditions for Finland’s accession into the EU. As a result of such concerns the maintenance of sustainable domestic food production is a clear political objective.
It is also worth noting that in addition to CAP payments, Finland is authorised to make national payments under Articles 141 & 142 of the Act of Accession of Finland, Sweden and Austria into the European Union. Such payments are commonly referred to as Nordic Aid and compensate for natural disadvantage on agricultural land situated to the north of the 62nd parallel as well as some areas south of this line according to climatic conditions.
2 Finnish Position on the Health Check
CAP Health Check proposals which promote an increasingly free market approach for the agricultural sector have been met with concern and opposition in Finland. The phasing out of milk quotas and further decoupling of the support from production (e.g. beef premia) are the key stumbling blocks in the Health Check for the Finnish government. Dairy production in Finland relies largely on relatively small family units and is dependent on high energy inputs (b) making the sector particularly vulnerable to energy cost increases. An observed rise in the share of imported milk in the national market, is thought likely to be exacerbated by the removal of milk quotas, and is seen as a serious threat to the sector’s viability in Finland. The main Finnish farmer association (MTK) has called for quota to be replaced by a higher rate of direct support for dairy cows, although no specific source of funding has been suggested.
The phasing out of milk quotas and further decoupling of support from production (e.g. beef premia) are the key stumbling blocks in the Health Check for the Finnish government.
A widely held view, supported by economic scenario modelling, is that full decoupling of the special male bovine premium (as was proposed under the Health Check) will escalate a process of small farm abandonment around the country and concentration of the remaining beef herd in large industrialised units in Central Finland. This is expected to aggravate problems of nutrient leaching from excess manure being applied in regions where concentration of production occurs. An anticipated reduction in livestock production in the South of Finland is expected to lead to a loss of rotational grassland replaced by specialised arable cropping associated with problems related to soil structure, erosion, and phosphorus run-off. Indeed, the retention of coupled payment for bulls and heifers under a revised and more flexible Article 68 (previously known as Article 69) has been justified by the Finnish government as an environmental safeguard on this basis.
Finally, the removal of intervention market measures for all cereals except wheat is regarded as unfair for countries such as Finland, where barley and oats are the key cereal crops.
3 Set Aside and Water Pollution
The only proposal in the Health Check approved by the Finnish government without reservation was the abolition of compulsory set-aside. Whilst it was acknowledged that set-aside provided some environmental benefits, the Finnish government maintains that these can be attributed exclusively to voluntary set-aside measures included within agri-environment schemes. This particular issue has proved to be controversial with environmental NGOs, which oppose the outright abolition of compulsory set-aside in the absence of environmental compensatory measures. The Finnish Association for Nature Conservation also suggests that the Commission’s proposal to establish narrow buffer zones is inadequate as well as unfair to farmers who have retained ponds and ditches in comparison to those who have already drained them or replaced them with subsurface pipes.
... the process of increasing intensification of production in Poland is considered by some commentators in Finland as one of the main causes of this (pollution of the Baltic Sea) in recent times.
Of the environmental concerns raised by the Health Check, the state of the Baltic Sea is regarded as the most acute. Agriculture is one of the main sources of pollution of the Baltic Sea, linked mainly to nutrient runoff and leaching from agriculture. However, the process of increasing intensification of production in Poland is considered by some commentators in Finland as one of the main causes of this in recent times. In the Finnish context, well targeted and adequately financed measures under the agri-environment programme have been identified by the Finnish government as the main instrument for preventing and mitigating the effect of agricultural run-off. Environmental NGOs argue that without substantial transfer of funds to Axis 2 of Pillar 2 (e.g. agri-environment schemes) through modulation, there will be a shortfall in funding for the agri-environmental programme, especially for measures associated with significant environmental benefits but which are costly to deliver (e.g. creation of wetlands intended to reduce rates of sedimentation).
4 Proposed Changes to Cross Compliance
The Commission’s other proposals regarding environmental safeguards received a cautious reception. The acceptance of obligatory buffer zones within cross-compliance would be conditional on them not interfering with existing agri-environment obligations. Considering that 80% of Finnish farmers participate in the agri-environment programme, any widening of buffer strips from the current 60 cm required under Good Agricultural and Environmental (GAEC) will directly affect payment rates under the agri-environment programme and therefore be unacceptable to the Finnish government.
The suggested addition to GAEC of ditches and lines of tree to a list of valuable landscape elements is seen as acceptable as long as it is voluntary at Member State level, according to national circumstances. It is highly likely that, in Finland, ditches would not be accepted within cross compliance since their removal has been promoted and subsidised as part of the national programme of restructuring and enlarging of fields.
In addition cross compliance rules for permanent pasture are regarded as too complicated and demanding and as a result the Finnish government is in favour of a simplification of the rules.
(a) Finland’s relatively low rate of direct support compared to other EU-15 Member States is commonly cited as an ‘unfair’ cause of competitive disadvantage by both the Finnish government and the main farmers’ union. Whilst it is true that Pillar 1 payments in Finland are below average for the EU-15 in terms of payments per hectare of utilised agricultural area (UAA), they are by no means the lowest. Payments in Finland are higher per hectare of UAA than those in Portugal, Spain, Austria, Sweden and the UK, for example. Pillar 2 payments in Finland are on the other hand the fourth highest in the EU-15 per hectare of UAA (IEEP 2008).
(b) For example, input costs such as inorganic fertilisers related to fodder production, plus high energy costs for heating and drying due to the Finnish climate and transport costs due to the long distances.
Agricultural Health Check does not get approval of producers. Finfood Press-release, 21 May 2008 (in Finnish).
Agrifood Research Finland (MTT) and the Swedish Institute for Food and Agricultural Economics (SLI) (2008). An Evaluation on the impact of Nordic aid schemes in Northern Finland and Sweden. Report for DG Agriculture and Rural Development and DG Economic Analyses and Evaluation.
Background papers for hearing in the Finnish Parliament Environment Committee, prepared by the Ministry of Agriculture and Forestry, 2 October 2008 (in Finnish).
Lehtonen, H., 2004. Impacts of de-coupling agricultural support on dairy investments and milk production volume in Finland. Acta Agriculturae Scandinavica, Section C: Food Economics, Vol.1, Nr.1, p.46-62.
MTK: ‘Health Check proposal endangers Finnish agriculture’. Maaseudun Tulevaisuus, 22 October 2008 (in Finnish).
Statement on the CAP Health Check Proposal. Environment Committee of the Finnish Parliament, 12 June 2008 (in Finnish).