News Agriculture, Economy, Environment

Tripartite negotiations over the EU Common Agricultural Policy (CAP), having a significant impact on the operating conditions of the agri-food sector, are expected to be completed in early 2021. The reform will not bring any dramatic changes in Finland’s agricultural market and production. Member states will be able to implement more ambitious climate and environmental policies, while the lack of straightforward requirements and assessment criteria may lower objectives.

This is indicated in the recent research report “The Common Agricultural Policy after 2020 – alternative paths and Finnish agriculture (CAPMAP)” of the Natural Resources Institute Finland (Luke) and Pellervo Economic Research (PTT). The report examines the EU CAP for the upcoming funding period (2021–2027) and its impact on Finland’s agri-food sector.

According to Heli Huuskonen, research scientist at Luke, the reform will not bring any significant changes in the EU CAP. The basic structure of the policy will remain unchanged. However, the reform will raise the level of ambition in terms of the climate and environment. What is more, the new execution model provides the member states with more powers and responsibilities to decide on the practical implementation of CAP and requires them to prepare national strategic plans to implement the policy.

However, strategic plans involve the risk that the member states do not set clear and ambitious goals for the reduction of greenhouse gas emissions or for the promotion of biodiversity. The achievement of these goals will also be difficult to measure by the means listed in the legislative proposal.

“In the best-case scenario, the reformed CAP will give the member states an opportunity to implement ambitious climate policies, while the lack of straightforward requirements and assessment criteria allows them to not carry out any significant climate and environmental actions”, Huuskonen says.

Finland’s agriculture to receive more funding from the EU

In the EU budget negotiations for the period of 2021–2027, securing funding for agriculture was one of Finland’s political priorities. According to the budget agreement drafted in July 2020, funding received by Finland’s agriculture will increase by 2.5 per cent during the 2021–2017 period from the 2014–2020 period, calculated at rated prices. If the Next Generation EU recovery fund is also included, funding received by Finland’s agriculture from the EU will increase by six per cent in total.

According to Tapani Yrjölä, senior agricultural economist at PTT, a successful result in agricultural funding is directly linked to Finland’s net contribution position, because agriculture accounts for more than 60 per cent of total EU expenditure in Finland.

“This increase in funding is quite unusual and significant. During the 2000s, EU funding received by Finland has decreased gradually, and this trend was expected to continue during the next period, as well”, Yrjölä says.

In 2020, subsidies paid for farmers in Finland total nearly EUR 1.8 billion, comprising almost one third of total agricultural income. Subsidies funded fully or partly by the EU form the basis of the Finnish agricultural subsidy system. In recent years, they have accounted for around 80 per cent of total agricultural subsidies.

Production volumes to remain unchanged in agriculture

According to Jyrki Niemi, research professor at Luke, subsidies have a much higher significance on the generation of agricultural income and the maintenance of production volumes in Finland than in other EU member states, as our production costs are much higher than market prices due to natural conditions.

“Because direct subsidies paid by the EU and subsidies linked with production will remain practically unchanged after the reform and because prices of agricultural products are expected to develop at least in line with prices of production inputs in the near future, the level of agricultural production will remain close to the current level in Finland during the funding period of 2021–2027”, Niemi says.

“At this point, not all details of the reform are known accurately, such as the impact of changes in the proposed green architecture on subsidy conditions at a farm-specific level. Stricter conditional requirements, calling for commitment to actions that reduce climate and environmental loads and cause additional costs, for receiving subsidies will affect the financial situation of farms and will probably increase administrative tasks for farmers.”

The Development Fund for Agriculture and Forestry (Makera) has funded the “The Common Agricultural Policy after 2020 – alternative paths and Finnish agriculture (CAPMAP)” joint research project of Luke and PTT.

Discuss on Twitter: @LukeFinland @PTTfi #CAPMAP