The impact of difficulties in EU-Russia trade relations on the - - PowerPoint PPT Presentation

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

• On August 7, Russia announced that it would impose a ban for
• ne 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

Background

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

LUXEMBOURG MALTA ROMANIA UNITED KINGDOM SLOVENIA SWEDEN PORTUGAL ITALY FRANCE SLOVAKIA CZECH REPUBLIC BULGARIA SPAIN IRELAND GERMANY AUSTRIA CYPRUS GREECE NETHERLANDS HUNGARY BELGIUM DENMARK POLAND FINLAND ESTONIA LATVIA LITHUANIA

Value of banned exports (€) to Russia in relation to output

• f agricultural production at producer prices in 2013

Data source: Eurostat

0% 5% 10% 15% 20% 25% 30% 35%

GREECE SPAIN CYPRUS SLOVENIA BULGARIA UNITED KINGDOM IRELAND SWEDEN PORTUGAL ITALY AUSTRIA FRANCE HUNGARY SLOVAKIA GERMANY BELGIUM CZECH REPUBLIC POLAND DENMARK NETHERLANDS LATVIA ESTONIA FINLAND LITHUANIA

Value of banned dairy exports (€) to Russia in relation to

• utput of dairy production at producer prices in 2013

Data source: Eurostat

• On August 7, Russia announced that it would impose a ban for
• ne 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

Background

Russia has been the major export destination for Finnish dairy products

0% 10% 20% 30% 40% 50% 60% Of value Of volume

Source: Finnish Customs, PTT

The share of Russia in Finland’s dairy exports in 2010-2015

• 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

Impact of Russian food import ban on Finnish dairy industry

Finnish cheese export to Russia has been replaced by powder export

1 2 3 4 5 6

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 201407 201409 201411 201501 201503

Powders Cheese

Monthly export (dairy products from Finland in 2010-2015

Source: Finnish Customs, PTT

Export volumes have recovered

60 80 100 120 140 160 180

Source: Finnish Customs, PTT Index 1/2010 = 100

Value and volume of Finnish dairy exports

60 80 100 120 140 160 180 Value Volume

Source: Finnish Customs, PTT Index 1/2010 = 100

Export volumes have recovered, but the value of exports is much lower

• 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

Impacts on dairy farms (1)

Producer price of milk has been affected by the Russian sanctions

Source: Luke

35,00 37,00 39,00 41,00 43,00 45,00 47,00 49,00 51,00 53,00 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

Added by patronage refund Producer price Producer price of milk 2013-2015

• 15%

• 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 (1)

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

Thank you!