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The outlook on both grain and milk market is good in the short run. Furthermore, agricultural production will increase if compared to last year when the drought kept the harvest relatively low. However, raise in especially input prices will increase the production costs even more than the income will increase. Therefore, Pellervo Economic Research Institute PTT estimates that entrepreneurial income from agriculture will slightly this year and by 6 % next year.
The world market for milk products is in exceptional stage. The EU butter stock is emptying rapidly and the price for butter is on a high level. In addition, milk powder prices are also on a high level. Butter price may continue its rise as a consequence of strong demand in the coming autumn. Hence, also the producer price for milk will remain stable in the EU.
The good market situation has had effects also in Finland. Milk producer price increased in the beginning of this year. Nevertheless, the producer price is estimated to decrease at least to some extent due to tightening domestic competition. The PTT forecasts that milk producer prices will fall by little over 1 % both this year and next year.
The world market prices for grains have increased briskly since last autumn. Drought has troubled many of the most important grain production areas in the world and, therefore, the graint stocks have decreased.
Diminution of the supply is, however, not the only reason for the price lift. Two additional, and more permanent, factors have also had and effect on the prices. Firstly, feed grain usage in increasing due to growth in meat consumption in the developing countries. Secondly, the global bulge in bioenergy production increases the grain prices. Increasing amount of maize is used for bioenergy production, which diminishes soybean production respectively. Therefore, also the soybean price increases. As a consequence of the two latter aspects, world market prices for grain products will remain above 2005 prices even though the prices will fall from the current level no later than in the coming autumn.
Grain prices have increased also in Finland. However, the prices have increased substantially more elsewhere in the EU. Therefore, it is presumed that grain producer prices will not decrease as much in Finland as in EU countries and the difference in prices will narrow.
Despite the good market situation agricultural entrepreneurial income will not increase this year, even though the decrease of the entrepreneurial income was last year greater than 10 %. The outlook for next year is no more optimistic as the PTT forecasts that the entrepreneurial income will decline by 6 %. Last year the decrease in entrepreneurial income was mainly due to below average harvest as a consequence of drought. In addition, rise in oil and electricity prices exhausted the entrepreneurial income.
Agricultural income will increase by almost 3 % in 2007 due to agricultural production growth. Nevertheless, entrepreneurial income of the farmers will not increase because production costs will increase significantly due to e.g. rise in agricultural input prices. The outlook of profitability of Finnish agriculture is not positive even though structural change has increased productivity especially in livestock production.
Value, million €
1 PTT’s forecast
For further information please contact:
Research director Perttu Pyykkönen
tel. +358 9 34 888405