Mikko Kiesiläinen column: Agricultural subsidies are too damn high

The price of fields in Finland is so much more expensive in Sweden, where they've given up on domestic subsidies.

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File picture of cows on arable farm land / Credit: iStock

Generally in economics, the price of factors of production is determined by their productivity. With this logic, it makes sense that more productive workers are paid more than less productive workers, and more capital is needed to buy more efficient factories than would be needed for a less efficient factory.

The same logic can also be used in agriculture, when determining the price of arable land. The fertility of the land and the duration of the growing season influence how much you should pay for a field.

This means that the most expensive fields in Finland are on the south coast of Finland, where the growing season is the longest and the land is fertile. In this area a hectare of arable land will cost you around €10,000. In comparison, you can get a hectare of arable land in Lapland for under €2000.

Sweden has a longer growing season and cheaper fields

In Sweden, agriculture is focused in the southern part of the country so strongly that 81% of all its fields are located south of the most southern point of Finland. Since Swedish fields are located primarily in an area where the growing season is longer than in Finland, one could assume that the field prices are significantly higher than in Finland.

However, when you compare the average land prices of the entire country, the price of Finnish fields is €9121 euros per hectare, which is 15% higher than in Sweden. The price of fields is therefore influenced by other factors than their productivity. The reason is agricultural subsidies. The more you subsidize a field, the more it makes sense to pay for that field.

Sweden has practically given up on national agricultural subsidies altogether, making local farmers rely solely on agricultural subsidies from the European Union. In Finland, however, the Finnish government gives €1.4 billion to farmers, on top of the €1.3 billion they receive in subsidies from the EU.

Finnish agricultural subsidies are too damn high

The reasoning for the high level of agricultural subsidies in Finland revolves around the fact that the country is located in the north, which causes a more difficult climate, making subsidies necessary. Otherwise, Finnish agriculture would cease to exist. This, however, is not true, since Finnish agricultural subsidies clearly overcompensate for the poor growing conditions. The subsidies are too high.

There is absolutely no reason the Finnish government should be subsidising agriculture to the extent that the price of fields is raised beyond the price in countries where agriculture is more productive, like in Sweden. The high subsidies are capitalized in the prices of fields. Furthermore, since over a third of all fields in the country are rented, a significant proportion of these subsidies flow elsewhere than the producer. Taxpayers suffer from the current policy and the benefits miss their intended targets.