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Dairy sector adaptations to climate and global change in North-East Europe
Presentation prepared for FICCA final Symposium2 – 3rd December, 2014
HelsinkiHeikki Lehtonen, Xavier Irz, Helena Kahiluoto, Csaba Jansik, Pellervo Kässi, Hannu Känkänen, Olli
Niskanen, Karolíina Rimhanen, Hanna Mäkinen, Miia KuismaMTT Agrifood Research, Finland
Vladimir Surovtsev, Mikhail Ponomarev, Yulia Nikulina, Elena Chastikova, Evgeny SchedrinNorthwest Research Institute of Agricultural Economics and Organisation of the Russian Academy
of Agricultural Sciences, Pushkin, Russia
change in North-East Europe
Agenda
� Research objectives and aims� Climate change impacts on Northern European dairy farms� Global change impacts on dairy farms and dairy sector� Solutions to adaptation challenges and their implementation� Conclusion
© MTT Agrifood Research Finland
� Conclusion
We focus on dairy regions in Finland and Leningrad region in Russia
19
MAAKUNNAT 1 Uusimaa 2 Varsinais-Suomi 3 Itä-Uusimaa 4 Satakunta 5 Kanta-Häme 6 Pirkanmaa 7 Päijät-Häme 8 Kymenlaakso 9 Etelä-Karjala
Finland: province 10 (decreasing production),provinces 11,17 (increasing production)
Leningrad regionKey Industries Food and beverages, forestry, timber,pulp and paper, fuel, energy.
The oblast has an area of 84,500 km2, population of 1,716,868 (2010).
© MTT Agrifood Research Finland
14
13
12
11
10
9
8
76
1
23
4
5
1817
15
16
20
9 Etelä-Karjala10 Etelä-Savo11 Pohjois-Savo12 Pohjois-Karjala13 Keski-Suomi14 Etelä-Pohjanmaa15 Pohjanmaa16 Keski-Pohjanmaa17 Pohjois-Pohjanmaa18 Kainuu19 Lappi20 Ahvenanmaa
The crop production accounts for 16% the commodity composition of output, and the animal industry for 74%, milk production 27% , egg production 22%.Main crops: potatoes, vegetables, feed crops
Research objectives and aims
(1) Compare means for increasing sustainability and adaptive capacity of food production
• in Finnish case study regions • in a Russian case study region Leningrad Oblast,through enhancing the region-specific adaptive capacity
© MTT Agrifood Research Finland
through enhancing the region-specific adaptive capacityby analyzing how adopting new technologies and incentive
systems affect the socio-ecological development of these case regions
(2) Identify indicators for adaptive capacity, to predict and assess socio-economic impacts of climatic change, taking into account the changing production organisation and management at farms and other parts of the food chain
Development of milk production in differentprovinces in Finland, 2001/2002 = 1 Source: ww.mmmtike.fi
0,90
0,95
1,00
1,05
Uudenmaan
Varsinais-Suomen
Satakunnan
Hämeen
Pirkanmaan
Kaakkois-Suomen
14
13
12
11
10
9764
5
1817
15
19
16
MAAKUNNAT 1 Uusimaa 2 Varsinais-Suomi 3 Itä-Uusimaa 4 Satakunta 5 Kanta-Häme 6 Pirkanmaa 7 Päijät-Häme 8 Kymenlaakso 9 Etelä-Karjala10 Etelä-Savo11 Pohjois-Savo12 Pohjois-Karjala13 Keski-Suomi14 Etelä-Pohjanmaa15 Pohjanmaa16 Keski-Pohjanmaa17 Pohjois-Pohjanmaa18 Kainuu19 Lappi20 Ahvenanmaa
© MTT Agrifood Research Finland
0,70
0,75
0,80
0,85
0,90Etelä-Savon
Pohjois-Savon
Pohjois-Karjalan
Keski-Suomen
Etelä-Pohjanmaan
Pohjanmaan 1)
Pohjois-Pohjanmaan 1)
Kainuun
Lapin
Ahvenanmaa - Åland
Yhteensä koko maa
8
1
23
5
20
Development of dairy sector in Leningrad region –
significantly affected by droughts 2006, 2010, 2012, and implied high cereals prices
2005 2006 2007 2008 2009 2010 2011 2012 2013
Profitability of milk production 21,4 20,3 22,5 26,7 14,8 17,2 14 13,8 14,1
Profitability of beef production -33,8 -35,7 -41,6 -42 -41,3 -47,5 -33,3 -32,3 -43,7
Profitability of production of industry 5,3 4,6 3,7 7,2 -1,7 0,3 3,2 1,9 -1,1
Indicators Years
2006 2007 2008 2009 2010 2011 2012 2013
Total milk production, 1000 tons 567,9 544,3 555,4 557,3 547,2 559 569,7 554
Number of dairy cows, 1000 heads 86,6 85 84,4 84,7 83,7 83 80,3 76,6
Consumption per person, kg
Leningrad region 261 272 273 290 296 295 294 293
Saint-Petersburg 312 312 303 318 320 332 317 315
Milk production per person, kg/cap 91 89 90 90 83 84 85 82
Share of Leningrad region production, out of total consumption 29 29 30 28 26 26 27 26
© MTT Agrifood Research Finland
115 agricultural enterprises in Leningrad region, with developed dairy farming, accounted for 92% of total milk production (The Committee for Agro-industrial complex of Leningrad region, 2013)
Basic indicators of agro-industrial and fishery complex of the Leningrad region in 2006-2011. Source: Northwest Research Institute of Agricultural Economics and Organisation of the Russian Academy of Agricultural Sciences, Pushkin, Russia
Source: The Committee of agro-industrial and fishery complex of the Leningrad region. – SPb., 2007-2012. Basic indicators of agriculture in Russia in 2000-2010 / The Federal Service of state statistics. – M., 2000-2011.
0
100
200
300
400
500
1985
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sca
ndin
avia
Fra
nce
Ger
man
yB
altic
cou
ntrie
sB
elar
us
Kg
pe
r c
ap
ita
a y
ea
r
Milk consumption in Russia
Profitability of production of industry 5,3 4,6 3,7 7,2 -1,7 0,3 3,2 1,9 -1,1
Net profit,
million rub.
annually
Number
of
companies
Avera
ge
herd
size,
head
Produ
ction
of
cows,
kg
Net
incom
e per
cow,
thousa
nd rub
Share in
the total
number
of cows
The rate
of growth
/ decrease
the
number
of
cows,%
Share in
the gross
production
of milk,%
The rate of
growth /
decline in
gross
production
of milk,%
The ratio
of
subsidies
to the
state of
emergen
cy, times
Losses 17 288 6025 -147 7,5 -32,4 6,2 -24,4 -0,09
from 0 to 10
Mrub 28 483 6433 6 20,6 -1,5 18,2 2,3 4,55
from 10 to 30
Mrub 29 1279 7407 24 35,1 1,6 35,7 -0,1 1,57
from 30 and
higher Mrub 24 1006 7882 68 36,8 2,2 39,9 3,3 0,71
Grouping of dairy specialization in net profit in the Leningrad region in 2013.
“Independent agricultural organizations outside the largevertically integrated holdings, adapt production processes
2
Denmark, conventional
Large farms (common in Denmark,Netherlands, France, Germany, Russia)Produce high milk output per hourof labor but are vulnerable to feedand milk prices (below, droppingprofitability at 2009 milk crisis. Source:FADN)
Is big beautiful in dairyproduction?
© MTT Agrifood Research Finland
vertically integrated holdings, adapt production processesto weather and climatic anomalies much faster, whichsignificantly reduces the loss in output, while maintainingfinancial and economic performance at an acceptable levelfor the reproduction process.” (Surovtsev VN, Payurova EN, Nikulin Yu, MA Ponomarev. 2014. Adaptation of agriculturalproduction in the North - West of Russia to climate change. SPb., GNU SZNIESKH, 2014. - 176 p. ISBN 978-5-902769-13-2)
-1
-0,5
0
0,5
1
1,5 Germany, conventional
France, conventional
Italy, conventional
Netherlands, conventional
Finland, conventional
Sweden, conventional
Great Britain, conventional
EU average, conventional
RISK MANAGEMENT!-Production risks, due to price volatility, adverse weather-Financial risks, debt /assetsratio, liquidity- The role of purchased feed
Projected climate change in Finland up to2100, reference period 1971-2000Sources: Jylhä et al 2009, Ruosteenoja 2013, results and stakeholder dialogue in ADIOSO
• Annual average temperature +2 - + 6 °C• In winter +3-+9 °C• In summer +1-+5 °°°°C
• Annual precipitation + 12 - 22%• In winter +10 - 40%• In summer + 0 - 20%
• Increased evapotranspiration during the growing period –
threat of worsening early summer drough, for crops sown in late spring
• Growing season length +30–45 days until 2100• Temperature sum during growing period:
• Middle Finland 1100 -> 1600 degree days;
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• Middle Finland 1100 -> 1600 degree days; • Southern Finland 1300 -> 1900; • Northern Finland 900 -> 1200 degree days
• Increasing frequency:• rainy days, heavy rainfalls, dry spells, increased cloudiness
• Decreased length of thermal winter
• Reduced snow cover and permafrost – impacts on overwintering of
Grasslands. Photos: upper (Asko Hannukkala, MTT), lower (Perttu Virkajärvi,
MTT)
CONSIDERABLE UNCERTAINTY ON FUTURE CROP YIELDS AND OTHER PRODUCTION CONDITIONS- Increasing yields? – Only if some problems are solved and solutions implementedMore frequent wet harvesting conditions? Increased costs due to overwintering?INDIRECT. GLOBAL EFFECTS: Highly volatile prices of agricultural commodities?
Adaptation solutions, grass
• Three cuts per year• Earlier cuts
• New grassland species and cultivars• More resistant to heat stress and drought• Better nutritive value• Sufficient winter hardiness
• Adjusted fertilisation levels• Proper timing, according to developmental phases
“The development of innovative technologies in the production of roughage and grain forage significantly increases the stability of farms to weather and climaticanomalies of both local and global scale, minimizing the dependence of financial and economic results of their consequences, including the volatility in grain prices inthe global market.” (Surovtsev VN, Payurova EN, Nikulin Yu, MA Ponomarev. 2014. Adaptation of agricultural production in the North -West of Russia to climate change. SPb., GNU SZNIESKH, 2014. - 176 p. ISBN 978-5-902769-13-2)
© MTT Agrifood Research Finland
• Proper timing, according to developmental phases• According to yield potential of different crops and cultivars
• Improved weed control needed• Considerably increased need for weed control since 2000, according to farmers’
experiences (spontaneous comments from farmers, Nov 2014)• Prevention of soil compaction
• Drainage!• Development of machinery/use of machinery• More frequent wet conditions, weakening soil trafficability – EXTRA COSTS!
• However, severe droughts were considered more threatful than floods• This view was expressed in a stakeholder seminar in North Savo region, Nov 2014
Yield gaps and their drivers
POTENTIAL ATTAINABLE ACTUAL
Gap I (20%) – e.g. waterlimitations due to soil structure, poor drainage – need for farminvestments
Gap II (10%) -e.g. inadequate liming
Gaps
I+II+III
© MTT Agrifood Research Finland
Actual yield Water- and/ or nutrient- limited yield
Yield Potential
Gap III (20%) –e.g. inadequatecrop protection, fertilisation due to discouragingpolicies, marketsand risks
I+II+III
= 50%
Grass yield variation – mainly due to drought- is a core farm management issue
• Cattle’s feeding is based on grass silage in Northern Europe• grass growth is highly dependent on weather conditions
• Grass area of a cattle farm is usually determined by the yield variation• To be adequate in every situation, the lowest expected yield level
determines the cultivated area• To manage the grass yield risk: Increase grass area and silage storage
© MTT Agrifood Research Finland
• To manage the grass yield risk: Increase grass area and silage storage capacity over annual consumption, concentrate feeding
• Variation of grass yield in climate data from years 1961-1990 was compared with 15 different climate scenario models simulating years 2046-2065 in climate scenario A1B
• A farm model was developed for evaluating the risk of silage inadequacy in terms of cultivated area and storing capacity
• Both imply extra costs!• Grass silage is difficult to be compensated entirely with other feeds, but some silage
deficit can be compensated with concentrates
15.12.2014 11
Harvested yield determines the cost of drought risk –Cost of drought risk is slightly decreasing in A1B -scenario
Average
harvested
Yield
Average standard
deviation of
harvested yield
Harvest
cost € / tn
dm
Cost of
Risk € / tn
dm
years of
silage
deficit
(%)
Kuopio Baseline 8,11 0,88 -49,17 -53,15 6,00
GCM:s 8,10 0,62 -49,08 -51,65 4,00
Jokioinen Baseline 7,04 1,02 -51,76 -60,13 20,00
GCM:s 7,11 0,80 -51,42 -56,59 10,20
St Petersburg Baseline 8,35 1,06 -48,75 -53,68 14,00
© MTT Agrifood Research Finland
St Petersburg Baseline 8,35 1,06 -48,75 -53,68 14,00
GCM:s 8,36 0,60 -48,60 -51,04 3,93
Source: Kässi P., Höglind, M., Känkänen H., Niskanen, O. & Lehtonen H. 2014 (submitted). Farm level approach to manage grass yield variation in changing climate in Kuopio, Jokioinen and St. Petersburg
These results are from the case where a farm cultivates grass silage at 20%larger area than needed in average yield years, buffer storage for 4 months
This kind of “down to earth” modeling is useful when discussing the results with farmers and their close regional stakeholders.
Impacts of CC on clover grass yields
• Based on a relatively large survey of literature and MTT research results on the clover grasses in climate change, onecan conclude that clover grasses…• Benefit more on warmer springs than hay grasses• Benefits more on increased CO2 concentration than hay grasses• Are more tolerant to drought than hay grasses
© MTT Agrifood Research Finland
• Are more tolerant to drought than hay grasses• Produce lower dry matter yields than hay grasses (-10-20%)• Produce higher protein content than hay grasses (+10-15%)
15.12.2014 13
Feasible cultivation area of clover-grass for silage?
• N fertilisation level for clover grasses, max 50 kg soluble N/ha• If higher soluble N/ha, then no higher crude protein content is realised
• Maximum 20 kg P/ha in Finland 2007-2014 - restricts the land availablefor clover grasses
• Average livestock density at Finnish dairy farms is appr. 0.85
• Increasing livestock density leaves little room for clover grasses!• ALL LAND is needed for manure spreading => too high soluble N/ha
80 %
© MTT Agrifood Research Finland
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
0,85 0,86 0,87 0,88 0,89 0,90 0,91 0,92 0,92 0,94 0,95Livestock units/ha
If all manure P is accounted for
Agri-environmental scheme 2007-2013
Summary of adaptation challenges and opportunities -
Case study region of Northern Savo, Finland
• Increasing grass growth benefits dairy and beef
• Inter-annual volatility of grass yield may increase
• Cost of drought risk decreases in A1B but may increase
in high warming scenarios!
• winter damages, feed quality losses, soil compaction, wet
conditions more frequent
• Increase in yield potential of cereals and oilseeds is
© MTT Agrifood Research Finland
• Increase in yield potential of cereals and oilseeds is
uncertain, more frequent droughts on sandy soils
• Positive market development + more flexible and
encouraging policies needed for adaptation
• adaptations require medium/long-term investments –
drainage, soil structure, cultivars
• winners know all this, are adapting already…
EU dairy product prices have become better integrated with world market prices. Source: H. Versteijlen, 2013 http://ec.europa.eu/agriculture/events/dairy-conference-2013_en.htm
© MTT Agrifood Research Finland
Dairy product demand may expand in Russia, but startgradually declining in high-income EU member states
Socio-Economic challenges for CC mitigation
SSP3 Fragmentation”regional protectionism”
SSP5 Conventional development”progress with oil and gas, free trade”
© MTT Agrifood Research Finland
Socio-Economic challenges for adaptation
SSP1 Sustainability”free trade, regulated by ecologic principles”
SSP4 Inequality“free trade among rich countries”
SSP2 Middle of the road” business as usual”, some trade liberalisation
Sector level analysis: Key market and policy issuesidentified- on the basis of shared MagPie (global model at PIK Potsdam) results on global
prices and food diets from SSP1,2,3 - transferred to MTT Dremfia sector model
• Prices are the main drivers:• Milk and meat prices with respect to feed prices• Other input prices
• Energy and fertiliser taxes affect agriculture• Labour, machinery, construction, affected by public regulations
• Production linked national payments important for milk production
© MTT Agrifood Research Finland
• Production linked national payments important for milk production• 20-30% less milk production if no national payments in Finland• Area based subsidies and entitlement conditions maintain land prices
• Changes may imply significant changes on land markets
• Fertilisation limits, nutrient leaching /GHG abatement policies• From restrictive / passive policies to productivity encouraging schemes?• Total production is not easily increasing despite increasing productivity• => less farmland needed => possibilities for leaching/emission reduction
Conclusions
• Dairy production will most likely continue concentrating on most competitive regions• Significant environmental problems possible in areas of intensive production• Possibilities for reduced leaching/ emissions where production decreases!
• Large price fluctuations, no increase in real prices of milk• Strong demand will maintain prices in the long run, despite decreasing prices
in the short run
• High fluctuations of gross margins on large and intensive farms
© MTT Agrifood Research Finland
• High fluctuations of gross margins on large and intensive farms• Gradually increasing grass growth, if no significant increase in yield
volatility, may realise in reduced costs and increased production• Investments in soil improvements and drainage needed
• Inhibited by the existing capital needs of structural change, and price volatility
• Russian markets with increasing demand are important both in Finland and Leningrad region
Kiitos!Thank you!
© MTT Agrifood Research Finland
http://macsur.eu/index.php/regional-case-studies/http://www.mtt.fi/modags/modags_KuopioSeminar.html