Financial Analysis and Accounting Development of Grain-Growing Farms’ Profitability over the Next Few Years in Finland

Abstract

Before joining the EU the Finnish pricing policy for the agricultural sector followed the so-called high-price system, where product prices were largely determined by the domestic cost level. Following EU membership the so-called average-price rule was adopted, resulting in a sharp fall in prices with farmers’ loss of earnings being compensated for with direct subsidies. The aim of this study is to examine the development of the profitability of grain growing farms and the restructuring of their income base, based on an analysis of their financial statements. In addition, the simulation model devised in the study will be used to assess the situation in 2003. The average turnover of a grain farm was € 64,000 in 1997–1998, some 49% of which was formed by subsidies. The projected turnover for 2003 will fall to € 62,000, the share of subsidies rising to 54%. The coefficient of profitability was 0.5 for grain growing farms in 1997–1998 and will be 0.4 in 2003. This means that in 2003 grain growing farms will only receive compensation amounting to some 40% of the goals set for them (wage claim and interest claim). Profitability can be viewed as the most central economic prerequisite for continuing a business. The results indicate that average sized grain growing farms’ profitability is weak and it would appear that it will continue to weaken. The profitability of production at these farms is highly dependent on various subsidies, which indicates that their income structure is distorted. Harsh natural conditions cause a disadvantage to Finnish grain growing farms competing with farms in Central Europe, where the climate is more favourable; direct subsidies have been used to compensate for this. However, a growth in direct subsidies and drop in product prices gives rise to many undesirable effects, such as farming becoming more extensive and the capitalisation of direct subsidies into rents and the price of land.

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Cite this paper

@inproceedings{Hegrenes2002FinancialAA, title={Financial Analysis and Accounting Development of Grain-Growing Farms’ Profitability over the Next Few Years in Finland}, author={Agnar Hegrenes and Ulf Torben Larsen and Leif Forsell and Matti Yl{\"a}talo and Timo Karhula}, year={2002} }