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DE RUEHHE #0238/01 1511037
ZNR UUUUU ZZH
R 301037Z MAY 08
FM AMEMBASSY HELSINKI
TO RUEHC/SECSTATE WASHDC 4343
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 HELSINKI 000238 
 
DEPARTMENT FOR EEB/TPP/ABT/ATP: JANET SPECK 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL FI
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES - 
FINLAND 
 
REF: STATE 39410 
 
¶1. The following is Embassy Helsinki's response to 
reftel regarding the impact of rising food/commodity 
prices in Finland.  Post has done no previous 
reporting on this subject. 
 
DEMAND 
 
¶2. The most important agricultural commodities 
consumed in Finland are milk, meat and grains, and the 
most significant agricultural products produced are 
milk, meat, eggs, cereals and potatoes. Finland is 
self-sufficient in milk and milk products, as well as 
in meat and eggs.  The degree of self-sufficiency in 
grain varies, depending on the harvest.  Price 
developments on the domestic market for these products 
have been consistent with international price 
developments.  Prices of wheat have increased by 70 
percent in the past 12 months, barley prices 63 
percent, rye and oatmeal 30 percent, milk prices 14 
percent, pork prices 11 percent and beef prices are 
about 6 percent higher. According to the Finnish Tax 
Payers' Association, food prices rose overall by an 
average of seven percent year-on-year in April 2008. 
 
¶3. In Finland peaks in food prices occur three times a 
year, as the food industry conducts price negotiations 
with retailers every four months, with the first 
agreement being made in early January and the next 
around first of May. While Finnish grains production 
benefits from the high price levels, economical 
benefits in meat and milk production are offset by 
high feed costs, caused by the high prices on grains. 
 
¶4. Higher prices on grains, meat and milk have led to 
higher food prices in Finland. Rising food prices are 
starting to affect the buying habits of Finns. 
According to a poll by Finnish regional daily 
Aamulehti, 25 percent of Finns have started to reduce 
the consumption of meat, pastries and sweets, whereas 
consumption of bread, fruit and vegetables have been 
largely unaffected by the rising prices. 
 
SUPPLY 
 
¶5. In 2007/2008, total grains area in Finland amounted 
to 1,130,000 hectares, a small decrease compared to 
the year before. In 2008/2009, an increase of about 5 
percent is expected due to favorable prices. 
 
¶6. Finland's largest milk processor Valio increased 
the producer price for milk by five cents per liter in 
May. This is the third successive increase within 12 
months, as last autumn the producers received an 
additional three cents per liter, and at the turn of 
the year another five cents. Price adjustment is 
needed to ensure that dairy farming remains viable in 
Finland, and Valio has pledged that the increase will 
be shifted directly to milk producers. 
 
¶7. Last year around one thousand dairy farms in the 
country ended operations. Not all closed down because 
of financial problems. They say that it is impossible 
to find enough people willing to work the long hard 
hours that dairy farming demands. 
 
POLITICAL IMPACT 
 
¶8. In August 2007, the Finnish meat industry took a 
positive stance on the use of GMOs (Genetically 
Modified Organisms) by abandoning its voluntary ban on 
Genetically Modified (GM) feed.  The decision was 
taken as a response to the rising prices of non-GM 
feed.  The decision was met with unexpectedly strong 
media reactions in Finland which caused the Finnish 
Minister of Agriculture, Sirkka-Liisa Anttila, to call 
for voluntary labeling of meat from animals fed with 
GM feed.  The major part of Finnish feed use is still 
GM free, but further rising feed prices might increase 
incentives for using cheaper GM feed. 
 
ECONOMIC IMPACT 
 
¶9. Finland's inflation rate has surged this spring due 
to the rise in global food prices and energy prices, 
but the  rate is expected to come down as economic 
activity weakens. In April, inflation slowed down to 
3.5 percent from the 3.9 percent observed in March 
2008 due to lower vegetable prices and more moderate 
price increases for liquid fuels, the National 
 
HELSINKI 00000238  002 OF 002 
 
 
Statistics Agency reported. On an annual basis higher 
housing and food costs fueled price rise pressure, 
while cheaper cars and computers curbed inflation. 
 
¶10. Finland, which has long aimed to smooth out 
significant class differences in its generous welfare 
state, has experienced growing income disparity in 
recent years, leaving the poor trailing ever further 
behind. Charities report that in the space of just one 
month, from March to April this year, the number of 
people queuing for food and other assistance had 
doubled to more than 1,000 people. Higher food prices 
bring longer breadlines as increasing numbers of 
people in the Helsinki region and other areas queue up 
for free food. About two tons of European Union food 
aid is distributeQo the poor in Finland each year. 
In addition to the EU, private helpers distribute food 
donated by shops and companies in different parts of 
the country. 
 
ENVIRONMENTAL IMPACT 
 
¶12. Rising food prices have so far had no 
environmental impact in Finland. However, higher food 
prices could hurt Baltic Sea water quality says Markku 
Ollikainen, University of Helsinki Environmental and 
Resource Economics Professor. Ollikainen fears the 
sharp rise in food prices in recent months could start 
a sequence of events in motion that might sharply 
increase the amount of nutrient emissions polluting 
the Baltic Sea. The rise in food prices is partly the 
result of increased demand, which leads to an increase 
in the amount of arable land, and growth in raising 
domestic animals, both of which directly increase 
nutrient emissions. Ollikainen estimates that Finnish 
fields emit an average of 11 kilos of nutrients per 
hectare into the Baltic Sea, but adds that the 
nutrients emanating from Finnish agriculture are 
nevertheless a fairly minor factor in the whole Baltic 
equation, with the exception of coastal areas. 
 
GOVERNMENT POLICY RESPONSE 
 
¶13. As a member of the European Union, Finland adheres 
to EU legislation on agriculture.  In order to balance 
the European grains market, the EU has removed the 
mandated set aside requirement of 10%.  Other measures 
include a temporary suspension of import duties on 
grains. 
 
¶14. Value Added Tax (VAT) on food is set to decrease 
from 17 percent to 12 percent in the autumn of 2009, 
as outlined by the government program. The Center 
Party has urged the government to accelerate plans to 
cut taxes on food and stated that this should be a 
higher priority than cutting income taxes, as 
inflation and the global food crisis have put a 
serious dent in consumer purchasing power. 
 
¶15. In March 2008 Finland responded to the World Food 
Program's (WFP) urgent appeal for additional donations 
to alleviate the world's food shortage, and in 
addition to the general cash allocation of 9.25 
million USD, announced an additional donation of 9.25 
million USD for humanitarian assistance through the 
WFP. 
 
IMPACT ON POST PROGRAMS 
 
¶16. Post has no outward-focused programs that would be 
affected. 
 
POLICY PROPOSALS 
¶17. None 
 
BARRETT