Seminar “Seminar “Future Future of of Agriculture: views of the EU Agriculture: views of the EU

member states and member states and Australia”Australia”

Rando VärnikRando VärnikInstitute of Institute of Economics Economics and and Social Social

SciencesSciencesEstonian Estonian University of University of Life SciencesLife Sciences

Estonian experience and visions (1992 – 2014)

Outline of presentationOutline of presentation

• What have been the main What have been the main experiences since 1992?experiences since 1992?

• What are the What are the majormajor challenges in challenges in EEstonianstonian agriculture and food agriculture and food industryindustry in the future in the future??

• What are the What are the key key questionsquestions in the in the futurefuture ? ?

The beginning of activitiesThe beginning of activities• Most of the agricultural producers started their Most of the agricultural producers started their

activities after agricultural reform in 1992activities after agricultural reform in 1992

5,7%

30,9%

22,9%

16,0%

3,1% 3,1%

18,3%

0%

5%

10%

15%

20%

25%

30%

35%

Enne 1988.a. 1988 - 1989 a. 1990 - 1992 a. 1993 - 1995 a. 1996 - 1999 a. 2000 - 2003 a. 2004 - 2007 a.

% v

asta

nu

test

(N=

262)

Some results from farm survey carried out in 2007/2008

Economic environment in 1991-Economic environment in 1991-20002000• After regaining independece for Estonian After regaining independece for Estonian

enterprices the access to the world market enterprices the access to the world market characterised by oversupply, high tariffs characterised by oversupply, high tariffs and price distortions was opened.and price distortions was opened.

• Collapse of Eastern markets. In the Collapse of Eastern markets. In the beginning of nineties the production of beginning of nineties the production of foodstuffs almost twice exceeded the foodstuffs almost twice exceeded the amount what was needed to supply amount what was needed to supply Estonian own market. Estonian own market.

• Western markets remained unreachable for Western markets remained unreachable for most of the Estonina goods due to high most of the Estonina goods due to high tariff barriers and food safety requirements. tariff barriers and food safety requirements.

• Caused by abundant supply to domestic Caused by abundant supply to domestic market the prices for agri-food products market the prices for agri-food products falled below the world market level. falled below the world market level.

Some figures from the past Some figures from the past

The number of farms in 1993The number of farms in 1993

• Total Total 8 412 8 412

Size classes: Size classes:

- Up to 10 ha- Up to 10 ha 16991699

- 10,1-50 ha10,1-50 ha 58845884

- 50,1-100 ha50,1-100 ha 784784

- over 100 haover 100 ha 4545

The average size of a farm The average size of a farm 25,4 25,4 haha

Structural changes in Estonian Structural changes in Estonian agricultural sectoragricultural sector

Engaged in agriculture, personsEngaged in agriculture, persons

19921992 1996 1996 2000 2000 2006 2006

114 500 52 100114 500 52 100 31 500 31 500 23 20023 200

• 1991 year 1991 year 16,8%16,8% / / 54%54%

• 2006 year 2006 year 3,5%3,5% / / 13%13%

• Agriculture was a main employer in Agriculture was a main employer in countryside before agricultural reformscountryside before agricultural reforms

• In 1991-2003 the number of agricultural In 1991-2003 the number of agricultural producers has decreased 5 times. The total producers has decreased 5 times. The total agricultural production has fallen 2 timesagricultural production has fallen 2 times

What are the key elements for What are the key elements for agricultural producer in Estonia agricultural producer in Estonia in the future?in the future?• Prices of the agricultural goods Prices of the agricultural goods

• Prices of the inputs (trend to Prices of the inputs (trend to increase)increase)

• Changes in the demand of the food Changes in the demand of the food (trend to increase)(trend to increase)

• Increase of efficiency Increase of efficiency

The dynamics of cereals’ prices in The dynamics of cereals’ prices in the EU (EUR/t), 1991 - 2014the EU (EUR/t), 1991 - 2014

80

90

100

110

120

130

140

150

160

170

180

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EU

R/t

maize EU-15

maize HU

feed barley

soft wheat

rye

Changes in milk production, %Changes in milk production, %

97%

130%

117%

103%

60%

70%

80%

90%

100%

110%

120%

130%

140%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

E urope

Oceania

World

E s tonia

Generally there is an increasing demand for milk products

Before accession to EU

After accession to EU

Changes in the numbers of Changes in the numbers of livestock in Estonia, 1992 - livestock in Estonia, 1992 - 20062006

0

100

200

300

400

500

600

700

Year

tho

us.

Cattel

Cows

Pigs

Sheep

Average milk yield per cow in 2007, 6363 kg

Milk qoata 659295 t

Changes in production of Changes in production of cereals in 1996-2006,%cereals in 1996-2006,%

107.2%

47.0%

98.4%

40%

50%

60%

70%

80%

90%

100%

110%

120%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

World

E urope

Oceania

E s tonia

Changes in the average yields Changes in the average yields of cereals in Estonia, 1992-of cereals in Estonia, 1992-20062006

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

Yie

ld k

g/h

a

Rye

Winter wheat

Spring wheat

Barley

Oats

Mixed grains

Rape oil

Cereals resources and use in Cereals resources and use in Estonia, 2000- 2007Estonia, 2000- 2007

401 604

696 585

558 442524 652505 726

608 148

760 073

619 292

280 260

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1. july 1999 -30. june 2000

1. july 2000 -30. june 2001

1. july 2001 -30. june 2002

1. july 2002 -30. june 2003

1. july 2003 -30. june 2004

1. july 2004 -30. june 2005

1. july 2005 -30. june 2006

1. july 2006 -30. june 2007

Sown area, ha Production in tons Import, tons

Export, tons Domestic use in tons

The structure of agricultural The structure of agricultural holdingsholdings Total numbers:Total numbers:

2001 -2001 - 54 728 54 728 2005 -2005 - 27 68827 688

In Estonia 6724 agricultural In Estonia 6724 agricultural holdings exceeded the threshold holdings exceeded the threshold of the economic size of 2 ESUof the economic size of 2 ESU

1 ESU = 1 ESU = 1200 EUR1200 EUR

<2 ESU<2 ESU 2-<16 2-<16 ESU, ESU,

>16 ESU>16 ESU

20012001 46 59146 591 73287328 809809

20052005 21 02221 022 5 6165 616 1 1081 108

Distribution of agricultural Distribution of agricultural holdings by economic size in holdings by economic size in

2005 2005 12.7

6.6

6.5 6.7 1

0.6 13.5 1

9.1 2

4.5

75.7

11.6

5.7

2.9

2.1

1.0

0.6

0.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

< 2 2 - <4 4-<8 8-<16 16 - <40 40 - <100 100 -<250

>= 250

Economic size, European Size Unit (ESU)

%

Economic size, ESU

Number of agricultural holdings

Appox. 4% from the ag. holdings gives 2/3 from standard gross margin

1 ESU = 1200 EUR

Comparison of Estonian and Finnish Comparison of Estonian and Finnish agricultural holdings by the economic agricultural holdings by the economic

sizesize

Major challenges in Major challenges in EstonianEstonian agri-food industryagri-food industry

• CompetitivenessCompetitiveness

• Health and food safetyHealth and food safety

• TradeTrade

• Energy supplyEnergy supply

• Rural developmentRural development

CompetitivenessCompetitiveness

• More globalised More globalised competitioncompetition

• Differentiated Differentiated productsproducts

• Vertical integrated Vertical integrated supply chainssupply chains

• Pressure to Pressure to increase increase productivityproductivity

• The economics of The economics of innovationinnovation

• Willingness-to-payWillingness-to-pay

From farm survey:From farm survey:Age groups of agricultural producersAge groups of agricultural producers• Average age 56 yearsAverage age 56 years

• Over 50 years old – 73% of small scale enterpreneuers, Over 50 years old – 73% of small scale enterpreneuers, 71% of middle size ja 42% of big producers71% of middle size ja 42% of big producers

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

kuni 30.a. 31 - 40.a. 41 - 50.a. 51 - 60.a. 61 - 70.a. üle 70 a.

2-8 ESU (N=174) 8-16 ESU (N=49) >16 ESU (N=55)

EnergyEnergy supplysupply

• Current trend: Global oil use will double by Current trend: Global oil use will double by 2030 2030

• Bioenergy as part of a new energy portfolioBioenergy as part of a new energy portfolio• Potential benefits:Potential benefits:

– Reduced GHGReduced GHG– Land improvementsLand improvements– Increased energy securityIncreased energy security– Enhanced rural activityEnhanced rural activity

• Potential disadvantages:Potential disadvantages:- higher food priceshigher food prices- Increasing technology gaIncreasing technology gappss

Concluding remarksConcluding remarks

• Rethinking the economic role of Rethinking the economic role of EEstonianstonian aagriculturegriculture

• What we have do know about the What we have do know about the future?future?

Rethinking the economic role Rethinking the economic role of Eof Estonianstonian aagriculturegriculture

There is a need to There is a need to • RRedefine the role of agriculture in a edefine the role of agriculture in a

knowledge-based economyknowledge-based economy• Adopt Adopt holisticholistic approach in approach in thinkthinkinging and and

actactinging about the 4 Fs (Food, Feed, Fuel about the 4 Fs (Food, Feed, Fuel and Fibre)and Fibre)

• IIdentify the opportunities and threats of dentify the opportunities and threats of EEstonianstonian agriculture in an increasingly agriculture in an increasingly competitive worldcompetitive world

• DDeal with high uncertainties eal with high uncertainties

What we have do know about What we have do know about future?future?

• General changes in the economy will General changes in the economy will efect agricultureefect agriculture

• On the opinion of analysts the price level On the opinion of analysts the price level of agricultural production can change. of agricultural production can change. Should price level on agri-food markets Should price level on agri-food markets decrease the according measures for decrease the according measures for increasing competitiveness have to be increasing competitiveness have to be implementedimplemented

• Support and different payments should Support and different payments should be considered as be considered as temporary meanstemporary means

• Thank for your attention!Thank for your attention!

Rando Värnik, PhD, Assoc. Professor

Director of the institute Economics and Social Science