Impact of de-coupling agricultural support on dairy investment and milk production volume in Finland

Abstract

This study analyses the impacts of de-coupling of agricultural support from production in Finland. A dynamic agricultural sector model, which includes 17 production regions and endogenous investments and technical change, is used in the analysis. Investment in different production techniques is dependent on the relative profitability and the spread of each technique in the population of heterogeneous farms. There are relatively few large farms which use efficient production techniques in Finland. De-coupling weakens the incentive for investment in dairy production and causes a temporary but significant slow down in dairy investments and technical change. Consequently, de-coupling is likely to result in a significant drop in milk and beef production in the next 10–20 year period if no corrective measures are taken in agricultural policy in less-favoured areas such as Finland. However, a slow recovery of investment and output levels are expected in the long run.