Finnish agri-food sector outlook 2022

Economic development uncertain The Finnish economy is expected to grow by 0.5–3% this year. The unusually broad range indicates that it is difficult at this stage to estimate the impact of the uncertainty caused by the war in Ukraine and any difficulties in foreign trade on the economy. In any case, the steep increase in oil and raw material prices will accelerate inflation and reduce consumers’ purchasing power. Food prices to increase by up to 10% There are unusual pressures to increase food prices, as the prices of production inputs and various costs in the food chain have increased significantly. Food prices are expected to increase by as much as 10% in 2022. Food costs account for 12.5% of total consumption, and the percentage will increase this year when the increase in food prices exceeds the general inflation rate. The price increase may accelerate demand for the most affordable products. Foreign trade of agricultural and food products increasing The value of agricultural products and foodstuffs exported from Finland increased very moderately in 2021 compared with previous years. The value of exports reached EUR 1,787 million, up by 2.7% from the year before. In 2021, the value of agricultural products and foodstuffs imported into Finland was EUR 5,525 million, roughly 4% more than in 2020. CAP reform proceeding A consensus was reached on the reform of the EU Common Agricultural Policy (CAP) in June 2021. The aim of the reform is to allocate more agricultural subsidies to environmental and climate activities. The reform also requires the member states to prepare their national strategy plans to implement the policy. Finland’s proposal for the national strategy was submitted to the European Commission in December 2021. In April 2022, the Commission made more than 200 observations regarding Finland’s plan. Most of this feedback was related to needs of development in environmental and climate activities. The new rules and regulations of the CAP will be adopted by the member states at the beginning of 2023. Steep price increases in the cereals market The outlook for the cereals market is determined both by the steep increases in input prices and the changes in the price ratios between crops. The stocks of nearly all crops are lower than in many years due to the poor harvest year of 2021. This means the 2022 cereal harvest plays an unusually significant role not only for Finland’s food supply, but also for the moderate development of food prices. More oil and protein crop areas needed Demand for oilseed and protein crops is higher than supply in Finland. In particular, protein feed supplements depend significantly on imports. In 2021, more than a third of total soybean-, rapeseed- and sunflower meal came from Russia. The suspended deliveries from Russia stopped at the beginning of March 2022. The production of turnip rape and rapeseed, pea and broad bean play a central role in replacing imports with domestic alternatives. Although the reliability of turnip rape, rapeseed and broad bean farming continues to decelerate the increase in production, the price situation in the spring motivated farmers to increase the area sown with oil crops and pea. Poultry meat to leave pork behind in consumption The structural development between different types of meat continues in Finnish meat production and consumption. Beef and pork production and consumption are decreasing, while the consumption of poultry meat is increasing. This year, poultry meat consumption will exceed pork consumption for the first time. Total meat production and consumption are expected to remain at the previous year’s level. Production is facing a serious cost crisis due to the price level of production inputs. The profitability crisis, combined with the rising consumer prices of meat products towards the end of the year, may slightly reduce the level of both production and consumption from the current estimates. Producer price increases are a requirement for safeguarding the continuity of the production. The cost crisis is affecting meat production across Europe, and producer prices are rising in all EU member states. Milk producer prices increased slightly The situation was challenging in the Finnish dairy sector in 2021. The yield of the first grass silage cut of the summer of 2021 was quantitatively high, while digestibility remained low due to heat. The drought during the end of the summer had a negative impact on the following cuts subsequent harvesting of grass silage fodder and reduced the yield of cereals harvest to a historically low level. Milk production was down by 4% from the previous year, while the protein and fat content of the milk produced increased slightly. The percentage of imports from domestic consumption decreased slightly. The global market prices of dairy products increased to record-high levels towards the end of 2021 compared with the previous year. In Finland, the average producer price of milk was increased only slightly. The dramatic increase in the prices of purchased feed and other production inputs in late 2021 and early 2022 will continue to shake the dairy sector in 2022. Egg markets in balance Egg consumption and production are well balanced. A historic turn took place at the end of 2021, when the production of eggs in barn henhouses passed enriched battery cages, accounting for 47% of total production at the end of the year, while the number of eggs produced in enriched battery cages decreased to 42%. The number of eggs produced in free-range henhouses and organic henhouses accounted for 3% and 7 % of all eggs, respectively. Of the retail value of eggs, organic eggs already account for more than 20%. The production volume and the number of chickens in 2022 are difficult to estimate due to the cost crisis and the declining demand for eggs produced in enriched battery cages. Increases in electricity prices test greenhouse production The growing season is short in Finland, which is why stock vegetables play an important role in maintaining domestic supply. The cold storage of produce is also important for the maintenance of the security of supply in horticultural products. In addition, the storage of produce increases costs on horticultural farms through the construction of cold storage facilities and energy costs. In contrast, greenhouses produce yields round the year. The recent increase in electricity prices tests the profitability of greenhouse enterprises, as energy costs account for roughly 25% of their production costs. The significance of hired labour increasing In 2020, there were 45,600 agricultural and horticultural enterprises in total in Finland. The number of agricultural and horticultural farms and the workload have decreased. The workload of farmers and their family members has decreased, while that of employees has increased. At the same time, the significance of the foreign workforce has increased, particularly in horticultural production. Cost pressures reflected in the low profitability of livestock farming Low harvest levels and increased costs reduced the profitability of farms in 2021. According to estimates, profitability in agriculture in 2022 is expected to be as low as in the previous year. Farm expenses are fairly high relative to income, and their finances react strongly to changes in costs. If expenses continue to rise, and producer prices do not increase, the liquidity of farms and their ability to repay their loans will be at risk. Dependence on imported energy increases costs in agriculture According to Statistics Finland, purchase prices of agricultural production equipment were roughly 22% higher in January 2022 than in the previous year. The cost of agricultural production equipment and services was up to 29% and that of investments 8% higher than in the year before. The Russian invasion of Ukraine caused the input markets to be reorganised in the spring of 2022. The key short-term impact involves the significant increase in agricultural production input prices and problems associated with the availability of certain inputs. The tightening situations in international production input and cereal markets are interlinked, which will be materialised in a significant increase in the prices of crops produced in fields. Organic production increasing, still room for improvement in livestock production The goal of Finland’s national organic production programme is to increase the market share of organic foodstuffs to 5% by 2030. The market share of organic production is still quite low, especially in livestock production: only 0.4% of all pork and an even lower proportion of all chicken meat produced in Finland is organic. The PPILOW project identified several financial and legislative factors that prevented measures aimed to improve animal welfare being carried out. Based on a rough estimate, as the production cost of organic meat and eggs is at least two or three times higher than in regular production, consumers must be prepared to pay more for organic products. Cellular agriculture challenges regular livestock production The general interest in cellular agriculture is based on ethical, environmental and economic reasons which reflect the viewpoints of actors in the food system on the acceptability of food production methods, global sufficiency of food, the nutritional value of food, and the profitability of production. Applications of cellular agriculture help replace regular animal products, including meat, fish, milk and eggs, so that the composition of the nutrients contained by new products corresponds to animal-based products. In cellular agriculture, production is controlled in a closed system, allowing the environmental and climate impact of production to be monitored more closely and reduced more easily