Food prices start to decrease at the end of the year

According to the recent agri-food sector outlook of the Natural Resources Institute Finland (Luke), food price increases are expected to slow significantly and start to decrease at the end of this year in Finland. This can be explained by the decreasing prices of the production inputs required in the food chain, including energy and fertilisers. Producer prices for cereals and oilseed crops have already fallen from the previous year’s peak both globally and in Finland. The consumption and production of meat and dairy products decreased in 2022 and are expected to decrease further in 2023.

In 2022, there were unusual pressures to increase food prices, as the prices of the production inputs in the food chain increased significantly. Fresh fish (31.9%), eggs (25.0%), coffee (37.5%) and flour (28.7%) witnessed the most significant price increases in 2022. Food prices increased by an average of 10.5% from 2021 to 2022. The prices continued to increase steeply at the beginning of 2023. However, Luke expects the prices to start to decrease during the second half of this year.

“Still, average prices in 2023 will be 7–8% higher than in the previous year as a result of the price increases at the beginning of the year,” says Hanna Karikallio, Senior Scientist at Luke.

Oilseed and protein crop production increased

The high yields of 2022 calmed and stabilised the cereals market in Finland. The 2023 cereal harvest is expected to be slightly smaller than in the previous year at roughly 3.2 million tonnes, in the light of preliminary cultivation area data and forecasts. However, growth conditions may cause the actual volume to differ by even more than 10% in either direction.

In 2022, the production volumes of oilseed and protein crops grew driven by increased surface areas and high average yields.

“Self-sufficiency in complementary proteins increased significantly from the previous years’ level to almost 27% in Finland. However, yields in 2023 will fall short of the previous year’s level if the weather conditions remain normal which would again reduce the self-sufficiency rate this year,” says Csaba Jansik, Senior Scientist at Luke.

Economic situation in milk production experiencing ups and downs

The dairy sector experienced a highly exceptional year in economic terms in 2022. Measured by the market margin (producer price over main variable costs), income in milk production continued to decline at beginning of the year due to the cost crisis that started in 2021. The steep increase in producer prices as well as the stabilisation of feed costs enabled the market margin of milk production to return to the average level of the previous years at the end of 2022.

“However, milk producer prices have already started to fall from their peak levels in Europe, and Finland will also see a return close to the recent years’ situation in 2023,” says Olli Niskanen, Senior Scientist at Luke.

Last year, 2% less milk was produced in Finland than the year before, and production is expected to continue to fall this year. Operations were discontinued to a significant extent for the second year in succession, with almost 8%, or nearly 400 farms, discontinuing milk production last year. At the end of 2022, there were 4,572 milk producers.

Meat consumption and production decreasing

Higher costs and the resulting increases in producer and consumer prices have caused significant changes in the Finnish meat markets. The consumption and production of meat fell in 2022, and both are expected to decrease further in 2023. Consumption is shifting to more affordable product groups due to higher prices. Beef experienced the most significant decrease in meat consumption and pork in meat production in 2022.

The increase in poultry meat consumption estimated for 2022 at the expense of pork consumption did not materialize, as the consumption of both types of meat remained at the previous year’s level. Pork is expected to maintain its position as the most popular type of meat also in 2023. In contrast, beef consumption, which has for long remained stable, was in steep decline last year due to the price increases and the decrease in consumers’ purchasing power.

The average economic situation has improved on meat producing farms from last year, while differences between farms have increased. During the first half of 2022, the market margins obtained by meat farms from the market were very low, even negative, but started to increase around the middle of the year as a result of rising producer prices.

Values of food exports and imports increased

In 2022, the value of foodstuffs and their raw materials exported from Finland totalled more than EUR 1.8 billion, up by as much as 18% from the previous year, even though the export volume decreased. The change in the value can be explained by the steep increase in global food prices. The value of foodstuffs and their raw materials imported into Finland was more than EUR 5.5 billion. This means that the trade deficit in foodstuffs increased to EUR 3.7 billion.

The share of the neighbouring countries – Sweden, Estonia, Russia and Norway – combined was slightly more than 39% of the export of Finnish foodstuffs in 2022. China accounted for 9% and Germany for 7%. The largest volumes of foodstuffs and their raw materials were imported from Germany, followed by Sweden. Germany and Sweden combined account for more than a quarter of Finland’s total imports of foodstuffs.

Decline in farm numbers continues, while farm size increases

The number of farms is decreasing, and the average farm size continues to increase in Finland. In 2022, the total number of farms was 43,611, and the average farm size was 52 hectares. Despite the poor economic situation, the farm discontinuation rate did not accelerate in 2022, as the number of farms has decreased fairly steadily throughout the 2000s, being almost 3% a year.

According to Jyrki Niemi, Research Professor at Luke, the structural change in agriculture comes in many forms.

“Some farmers are responding to changing markets by increasing the farm size, some seek better priced national and international markets through specialisation, while others expand to new business activities and production lines, including machine contracting, farm tourism and bioenergy.” (Read more on Luke’s blog).