Resolving the conflict between environmental damage and agricultural viability on less favoured areas

Production linked supports are paid for agriculture in less favoured areas (LFA) in Finland in order to maintain agricultural production and farms. The CAP reform increased the importance of LFA payments and other payments which are still partly coupled to production. We evaluate if any significant environmental damage can be avoided without risking maintenance agricultural production in less favoured areas. We also evaluate the relative effectiveness of alternative policy measures to decrease nutrient surplus, promote biodiversity, and maintain production and farm income. The policy options evaluated are full decoupling, fertiliser tax, both combined and explicit payments for reduced nutrient surpluses. The impacts of the options are compared to the baseline assuming milk quota abolition and continuation of production linked CAP beef premia. Sector model results suggest that decoupling of certain degree would improve the effectiveness of targeted agri-environmental support measures, and in some cases considerable reduction in nutrient surplus is possible with relatively minor reduction in agricultural production and farm income. Fertiliser tax appears to be efficient especially when combined to decoupling while explicit payments on nutrient surpluses as well as full decoupling have some negative side-effects.Agri-environmental policies, nutrient surplus, agricultural sector modelling, Environmental Economics and Policy,

Impacts of More Efficient Use of Manure Nutrients at Farm and Sector Level

Farm Management,

IMPACT OF PHASING OUT MILK QUOTAS ON STRUCTURE AND PRODUCTION OF FINNISH DAIRY SECTOR

We evaluate impacts of milk quota abolition in Finland where production costs and producer price of milk are among the highest in the EU. We analyse several price scenarios for dairy products corresponding to 10-30% reductions in raw milk prices in the EU following milk quota expansion of 2% per year. The sector model includes 18 dairy products and regions and other agricultural activities. Armington -assumption is used in modelling foreign trade. Trade of milk quotas and structural change are endogenous in the model. The results suggest that 10-15% reductions in the EU milk prices would result in less than 10% decrease in Finnish dairy production. Investments to large farm units would still increase. However, if the EU milk prices decreased by 15-20% production would fall by 10-22%. Overall it seems that milk quota abolition is not likely to result in any drastic downscaling of dairy sectors in Finland.Milk quotas, EU, milk production, dairy product processing, farm size, investments, Demand and Price Analysis, International Relations/Trade, Livestock Production/Industries,

Climate change impacts on crop risks and agricultural production in Finland

Climate Change is expected to improve crop production conditions significantly in northern Europe. In some studies a significant increase in agricultural production is expected in northern Europe while drought is becoming gradually more severe in Southern Europe and France due to climate change. Our analysis provides one of the first steps in evaluating the possible scale of changes in agricultural production and use of farm land in Finland, so far one of the least favoured agricultural areas in Europe. Drought in early summer and low temperature sum during growing period are currently the main growth limiting factors in Finland. Even though the early part of the growing period is likely to be dry also in the future, both mean and variance of crop yields are expected to increase in Finland. However the changes are likely to be very different for different crops. We use mean-variance analysis and a sector level, regionally disaggregated, optimisation-based economic model in evaluating the likely impacts increasing mean and variance of crop yields on agricultural production and land use in Finland. Our sector level analysis takes into account important supply-demand conditions, e.g. changes in feed crop use, limited domestic demand, and imperfect substitution. Sector models including risk are relatively few in recent literature of agricultural economics. In our first analysis we use mean-variance approach in including crop yield risk and risk aversion explicitly in our dynamic recursive sector model. Increasing mean and variability of crop yields change the relative profitability of crops. For example, increasing feed crop yields may drive up animal production, especially if export prices of meat remain strong. On the other hand, if the demand is relatively inelastic, land area of some less competitive crops may clearly decrease despite increasing yields. Consequently, climate change may trigger changes on the production structure of agriculture. Farm income is relatively little affected by higher crop yields, on the average, while income may increase significantly on some individual farms. Our preliminary analysis also shows that policy measures aimed at reducing crop risks may be relatively efficient in increasing or sustaining production of many crops. Even if policy measures for reducing risks are commonly perceived less production-linked compared to price and area based subsidies, we show that their impact on production volume will most likely increase in on-going climate change. However in further research we need to test alternative approaches for better representation and modelling of crop risks. Albeit simple, we consider optimisation and risk aversion necessary techniques and assumptions in producing consistent evaluations of economic behaviour in long-term economic adaptations and risks.Climate change, agriculture, risk aversion, mean-variance analysis, sector models, optimization, crop production, Finland, Crop Production/Industries, Environmental Economics and Policy, Risk and Uncertainty,

Technology diffusion, farm size structure and regional land competition in dynamic partial equilibrium

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Resolving the conflict between environmental damage and agricultural viability on less favoured areas

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Alternative agricultural policy scenarios, sector modelling and indicators - A sustainability assessment

In this article, we assess ecological, economic and social sustainability impacts of four alternative agricultural policy scenarios relevant to the European perspective. The analysed scenarios are: Prolonged Agenda 2000, On-going CAP reform, Integrated rural and environmental policy, and Liberalised Agricultural Trade

Evaluating the Impact of Alternative Policy Scenarios on Multifunctionality: A Case Study of Finland. CEPS ENARPRI Working Papers No. 13, 1 July 2005

This paper provides first results of the sector-model approach to analysing the effects of alternative policy scenarios on the multifunctional role of Finnish agriculture. In terms of environmental non-commodity outputs, this study focuses on nutrient runoffs, landscape diversity and biodiversity. As regards other non-commodity outputs, the paper considers rural socio-economic viability. The results suggest that, on the whole, reform of the common agricultural policy is not likely to result in any drastic decline of agricultural production in Finland. The amount of green fallow will increase considerably when agricultural support payments are decoupled from production, and as a result the remaining cultivated agricultural land will become biologically richer. The agricultural labour force is likely to decrease substantially irrespective of agricultural policy. The study concludes that the credibility of the production economics and biological relationships of the economic model determine the validity of the results of the many indicators examined. Further, the economic logic of microeconomic simulation models provides a consistent assessment of the many aspects of multifunctionality

Integrating Economic and Ecological Impact Modelling: Dynamic Processes in Regional Agriculture under Structural Change

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MODELLING THE DYNAMICS OF PRODUCTION ADJUSTMENT TO SHORT-TERM MARKET SHOCKS

Models of agricultural economics typically operate at an annual basis or in a static equilibrium framework where inputs, outputs and their prices may change considerably. Production dynamics, however, imply that models relying on spatial and temporal aggregation do not capture the effects of biological constraints in the short run. This paper examines short and long-term impacts of demand and production cost shocks in the pig sector. The analysis is carried out with a dynamic programming model which takes into account changes in export and domestic demand and market clearing price. It optimizes the supply of piglets on a monthly basis. Econometric techniques are used to estimate demand functions. Short-term negative market shocks can already have significant income effects to agricultural producers. We simulated effects of pig meat export bans of different degrees due to livestock epidemics. Full closure of export markets for six months cost pig sector €21 million.pig, demand, dynamic programming, export, livestock epidemics, price, supply, Demand and Price Analysis, Livestock Production/Industries, Production Economics, Risk and Uncertainty,