Agricultural Policy

Agricultural Policy

Finland's agricultural policy has long been inspired by more than purely economic considerations. The need to maintain secure food sources caused the Finns to subsidize uncompetitive grain production rather than to allow further specialization in dairy and meat operations. Social concerns drove policies designed to maintain family farms and to give farmers incomes and working conditions more equal to those of other workers. The desire to maintain settlements in the sparsely populated northern provinces led to heavy subsidies for farmers in those regions. Other goals included stabilizing retail food prices and increasing farm size and efficiency.

In the late 1980s, agricultural policy making involved tradeoffs among these partially contradictory objectives. For national security reasons, the government gave priority to ensuring selfsufficiency in basic foodstuffs. But self-sufficiency, like other farm-policy goals, resulted in costly agricultural surpluses that had to be dumped on international markets. Structural reforms, designed to increase farm size, could improve efficiency, strengthen family farms, and increase farm incomes, but they were difficult to implement.

By the early 1960s, the first goal--self-sufficiency--had been achieved. By the late 1970s, however, surplus production had become a pressing problem. According to government estimates made in the early 1980s, crop productivity would increase by about 1.5 percent per year, and productivity in animal husbandry would increase by about 0.5 percent per year. Because Finland's consumption of agricultural products was stagnant, crop and animal surpluses would therefore continue to grow--unless agricultural prices were reduced.

In the late 1970s, the government stepped up programs designed to encourage farmers to shift production from products in surplus, such as eggs, milk, and meat, to products that replaced imports, such as wheat, sugar, and vegetables. Starting in the mid-1980s, worldwide agricultural surpluses depressed prices and made agricultural exports especially expensive. In response, the government redoubled its efforts to control output and to encourage reforestation of surplus farmland. This policy had begun to make a significant impact by 1987.

Agricultural policy centered on target prices set by the Ministry of Agriculture and Forestry each spring and fall, after negotiations with the MTK. Administered under the periodic farm income acts, which defined general rules for setting farm prices, the negotiations included two phases. In the first phase, farmers received compensation for increases in input costs according to a formula laid out in the applicable Farm Income Act. In the second phase, the negotiations addressed how much farm labor would be paid. In general, farm pay settlements reflected nonagricultural wage agreements, and they were based on estimated hourly wages in agriculture. For example, in the spring of 1986 farmers received no compensation for input costs, which had been stable (largely as a result of falling world energy prices), but they did achieve a 6.1 percent increase in income, much higher than the 2.4 percent agreed to in the 1986 framework agreement for other workers. Observers considered the settlement to have been generous, but perhaps justified, because agriculture remained a low-wage sector.

Once the negotiation process had determined overall farm income, the Ministry of Agriculture and Forestry fixed target prices for individual crops. In response to overproduction problems, the ministry reduced prices for surplus products and required that farmers pay part of the costs of subsidizing exports. Programs to reduce surpluses by lowering target prices achieved only limited results, however, because increases in productivity often outweighed declines in target prices. The ministry established a dual-price system for milk and eggs, which made production beyond output quotas unprofitable, and implemented a number of voluntary production controls, including contracts to increase fallow land or to limit production of milk, beef, pork, and eggs. In the summer of 1987, the government prohibited clearing fields, introduced measures to encourage reforestation, and began considering heavier taxes on the agricultural earnings of part-time farmers as well as increased pensions for farmers who agreed to retire early.

Subsidies for agricultural consumption were partially effective in increasing demand for surplus products. Health concerns, however, apparently limited consumers' willingness to eat more dairy and meat products. Surplus-reduction measures were having some effect by the late 1980s, but in 1987 farm surpluses remained a serious problem.

Structural reforms also received considerable attention. To slow the growth of large, "industrial" farms, the government required licenses for farms that exceeded certain production levels, hoping that limiting the size of farms would both reduce surpluses and help maintain family farms. The Agricultural Development Fund provided low-interest loans and subsidies for investments in farm infrastructure; most of the loans from this fund went to farmers in northern Finland. Small farmers who wanted to enlarge their farms could also receive low-interest credits. In an effort to keep new farmers from falling into debt, the government also allowed farmers under the age of thirty-five to apply for state grants when they established a farm. Moreover, the state tried to make farming more attractive to young people by providing outside helpers to take over farm operations temporarily. This arrangement facilitated maternity leaves and even annual vacations.

Farmer training programs, crop research, and extension services helped farmers to improve agricultural practices. Local schools provided agricultural training for youths who could later attend specialized schools; university students could major in agriculture. The Ministry of Agriculture and Forestry and the universities undertook research projects that emphasized the development of frost-resistant crop varieties. The ministry also administered extension services that gave technical advice and communicated research findings to farmers. These training and research programs deserved much of the credit for the progress that farmers had achieved during the postwar period.

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