Decline in Finnish farm profit continued last year

The profitability decline in agriculture and horticulture continued for the fourth consecutive year. Return on assets was negative last year, -4.3 percent on average. The data can be found at the Taloustohtori online service opened for public use by MTT Agrifood Research Finland's Economic Research.

– The profitability of agriculture is poor and the course of development is alarming, says Accounting Manager Arto Latukka from MTT Agrifood Research Finland, who is in charge of the profitability bookkeeping service.

Last year the total return of agricultural and horticultural enterprises grew by 1.4 percent to EUR 97,300. Market returns went down by three percent, but losses were compensated by subsidies, which grew by nearly five percent from last year to EUR 40,000 per farm.

Average farm costs increased by nearly three percent to EUR 78,600. Thus the compensation for the entrepreneurs' labour input and capital invested, i.e. agricultural income, averaged EUR 18,700 in 2005, indicating a decline of 5.5 percent over the previous year. Entrepreneurial profit is resulted when the sum of the wage claim based on annual working hours and an hourly wage of EUR 12.3, and the sum of the interest claim for capital invested based on an interest of 5 percent are deducted from agricultural income. The average profit was a negative EUR -23,600.

Hourly wage less than four euros

When agricultural income is divided by the sum of wage and interest claims we arrive at the profitability coefficient. The profitability coefficient declined to 0.44, which means that entrepreneurs on average reached 44 percent of the objective set for wages and interest. Entrepreneurs hourly wages was € 5.4 and interest on capital invested was 2.2%. If we calculate 5 percent of interest on capital invested, we arrive at hourly wages of average € 3.4. Approximately 10 percent of enterprises reached over five percent of interest on capital invested and over € 12.3 of compensation per working hour.

Latukka says that subsidies alone do not enable profitable production, but that all other factors must be utilised as well. Effort must be made to control costs and better prices need to be secured for products. Productivity also needs to be increased and economies of scale need to be utilised.

– However, agricultural entrepreneurs have limited opportunities to influence external cost pressures, and entrepreneurs cannot transfer rising costs to product prices, he points out.

Large enterprises were more profitable than small ones, and profitability improved from south to north. This is partly the result of differences in production lines. The profitability coefficient of pig farms improved to 0.74, whereas that of cereal farms declined to 0.26. The solvency of enterprises declined, but remained at a healthy level as own capital was 73 percent of total capital.

Cold hard facts from Taloustohtori

The data is based on the profitability bookkeeping records of MTT Agrifood Research Finland's Economic Research, which are now available via MTT's new Taloustohtori online service (www.mtt.fi/kannattavuuskirjanpito and www.mtt.fi/taloustohtori). Records are available from financial year 1998 onwards, and the data available through the service includes the average financial statements of farms of various sizes from different production branches. Users can freely choose the data categories. Records from individual farms are not available.

Calculated from the figures of about 900 enterprises, the results are weighted so that they can be generalised to represent the average results of the largest 44,000 Finnish agricultural and horticultural enterprises. The result calculation and the classification and weighting system have been developed to meet the latest accounting standards. In order to preserve comparability, the results for each year were calculated retroactively from 1998.