The impact of difficulties in EU-Russia trade relations on the Finnish foodstuffs sector Jyrki Niemi Natural Resources Institute Finland www.luke.fi Perttu Pyykkönen Pellervo Economic Research www.ptt.fi
Background On August 7, Russia announced that it would impose a ban for • one year on imports of fruit, vegetables, meat, fish, milk and dairy products from the EU, US, Australia, Canada and Norway The impacts of the ban are not evenly distributed across countries • and different products Finland is one of the countries hardest hit by the ban – The most affected sector is the dairy industry –
Value of banned exports ( € ) to Russia in relation to output of agricultural production at producer prices in 2013 LITHUANIA LATVIA ESTONIA FINLAND POLAND DENMARK BELGIUM HUNGARY NETHERLANDS GREECE CYPRUS AUSTRIA GERMANY IRELAND SPAIN BULGARIA CZECH REPUBLIC SLOVAKIA FRANCE ITALY PORTUGAL SWEDEN SLOVENIA UNITED KINGDOM ROMANIA MALTA LUXEMBOURG 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Data source: Eurostat
Value of banned dairy exports ( € ) to Russia in relation to output of dairy production at producer prices in 2013 LITHUANIA FINLAND ESTONIA LATVIA NETHERLANDS DENMARK POLAND CZECH REPUBLIC BELGIUM GERMANY SLOVAKIA HUNGARY FRANCE AUSTRIA ITALY PORTUGAL SWEDEN IRELAND UNITED KINGDOM BULGARIA SLOVENIA CYPRUS SPAIN GREECE 0% 5% 10% 15% 20% 25% 30% 35% Data source: Eurostat
Background On August 7, Russia announced that it would impose a ban for • one year on imports of fruit, vegetables, meat, fish, milk and dairy products from the EU, US, Australia, Canada and Norway The impacts of the ban are not evenly distributed across countries • and different products Finland is one of the countries hardest hit by the ban – The most affected sector is the dairy industry – In the following, some figures concerning Finnish dairy sector • before and after the ban First, we analyze the changes in the Finnish dairy trade – Secondly, we look at the dairy industry and its turnover, – profitability and employment Thirdly, we take a producer view on the topic: producer price and – its effect on family farm income and profitability
Russia has been the major export destination for Finnish dairy products The share of Russia in Finland’s dairy exports in 2010 -2015 60% 50% 40% 30% Of value 20% Of volume 10% 0% Source: Finnish Customs, PTT
Impact of Russian food import ban on Finnish dairy industry A direct impact on Finland's milk markets has been that a • new destination had to be found for the products exported to Russia Finnish dairy exports to Russia has consisted mainly of • added-value products, for which substitutive export markets are difficult to find Therefore, a large part of the raw milk used for the products • exported to Russia are processed to other products – In practice, these products are mainly industrial butter and milk powder – Their profitability is considerably weaker than that of the range of products exported to Russia
Source: Finnish Customs, PTT been replaced by powder export Finnish cheese export to Russia has 0 1 2 3 4 5 6 Monthly export (dairy products from Finland in 2010-2015 201001 201003 201005 201007 201009 201011 201101 201103 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 201309 201311 201401 201403 201405 Cheese Powders 201407 201409 201411 201501 201503
Export volumes have recovered Index 1/2010 = 100 180 160 140 120 100 80 60 Source: Finnish Customs, PTT
Export volumes have recovered, but the value of exports is much lower Value and volume of Finnish dairy exports Index 1/2010 = 100 180 160 140 120 100 Value 80 Volume 60 Source: Finnish Customs, PTT
Impacts on dairy farms (1) • Over the years, the producer price of milk in Finland has been among the highest in the EU. • However, market losses due to the Russian embargo have had direct effect on producer price
Producer price of milk has been affected by the Russian sanctions Producer price of milk 2013-2015 53,00 Added by patronage refund 51,00 Producer price 49,00 47,00 45,00 43,00 -15% 41,00 39,00 37,00 35,00 I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII I II III IV 2013 2014 2015 Source: Luke
Impacts on dairy farms (1) • Over the years, the producer price of milk in Finland has been among the highest in the EU. • However, market losses due to the Russian embargo have had direct effect on producer price • Current producer price is 15% less than year before • As a result of this, farm income, i.e. the compensation for own labour and invested capital, is expected to decrease by 35-40% in an average-size dairy cattle farm of 33 cows
Impacts on dairy farms(2) Sanctions are not directly affecting dairy farms' • structural development, which has advanced with an annual speed of 7% on average during the past years In the short term, it is not expected, either, that the • decrease in the producer price would affect the produced amount of milk, because it takes time to adapt the production The prospects for the amounts of milk produced in • Finland in the long term depend on whether the farms continuing their milk production expand it Volatility of market prices, to the increase of which • the sanctions contribute for their part, creates uncertainty and increases the risk of investment failure
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