News Agriculture, Economy, Statistic

According to estimates of the Natural Resources Institute Finland (Luke), the profitability of agriculture in 2019 will be lower than in the previous year. The entrepreneurial income will remain at EUR 13,000 per enterprise, falling 33% short of the target level. The targeted entrepreneurial income is the sum of the targeted salary earned by the entrepreneur family from agricultural work (EUR 16.3 per hour) and the targeted net interest income from equity (2.95%).

This year’s average total profit of agricultural enterprises will be EUR 159,000. Subsidies make up 32% of the total profit. Production costs will increase by roughly 5% from the previous year to EUR 199,000. After production costs are deducted, the average loss of agricultural and horticultural enterprises will be EUR 28,000.

The profitability factor, an indicator of relative profitability, can be calculated by dividing the entrepreneurial income by the sum of the entrepreneur family’s salary from labour and the net interest income from equity.

Photo: Eetu Ahanen

“In 2019, the profitability factor will remain at 0.33. This means that an agricultural entrepreneur’s hourly salary will be EUR 5.4 and the net interest income from equity will be 0.98%. The decrease in the total return on equity from -1.3% to -2.7% is also an indicator of decreasing profitability,” says Jukka Tauriainen, research scientist at Luke.

Higher yields at the expense of higher costs

According to Luke’s preliminary data of crop production statistics, the 2019 cereal harvest will increase by more than a quarter from the previous year. As a result of lower cereal producer prices, the turnover of cereal farms will, however, decrease from 2018.

The profitability of cereal farms will decrease from the previous year, with the profitability factor falling to 0.30. In addition, the profitability of other crop production farms will decrease.

The profitability factors of dairy farms and other cattle farms will decrease to 0.34. Growing costs and the slightly decreasing milk producer price reduce the profitability of cattle farms. The profitability factor of pig farms will decrease to 0.69.

Due to a small sample size, the profitability estimate of poultry farms cannot be considered to be as reliable as the estimate of other production sectors. On poultry farms, the entrepreneurial income is low in relation to high production volumes. This decreases the accuracy of the estimate, as minor changes in the prices of products or production inputs are reflected many times over in the entrepreneurial income and profitability.

“According to the estimate, the profitability of poultry farms will be negative this year. Considering the reliability of the estimate, this means that profitability will be low, and it will not increase from the previous year, at least not notably,” Tauriainen says.

Forecasts in EconomyDoctor

Of the 2018 profitability results, 49% are based on completed financial statements and the rest on forecasts calculated on the basis of results from 2017. The 2019 results are based on enterprise-specific forecasts that cover approximately 790 farms liable to carry out accounting and that take into account any changes in inputs, producer prices and subsidies, as well as any regional crop-specific changes in average yields. The enterprise-specific forecasts are based on the assumption that the size of farms remains unchanged and they produce the same products with the same production inputs as in previous years.

The enterprise-specific results have been weighted to represent the average results of the 35,200 largest agricultural and horticultural enterprises. The weighting addresses any changes in the structure of agricultural farms by means of Luke’s structural development forecasts.

The forecast results are available in the online agriculture and horticulture service of Luke’s EconomyDoctor.