1996-2000 report on the implementation of the long-term national aid scheme for agriculture in the northern regions of Finland pursuant to Commission Decision 95/196/EC presented by the Commission to the Council pursuant to Article 143(2) of the Act of Accession to the European Union of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden

TABLE OF CONTENTS

1. Introduction

1.1. In general

1.2. General principles of Nordic aid

1.2.1. Aid based on cultivated area

1.2.2. Aid for livestock production

1.2.3. Young farmers

1.2.4. Aid for reindeer husbandry

1.2.5. Vegetables, flowers and plants grown under permanent shelter

1.2.6. Aid for storage

1.3. Management of Nordic aid

2. IMPLEMENTATION OF NORDIC AID 1996-2000

2.1. Aid disbursed in 2000

2.2. Community aid

2.3. ANNEX II combination: Production and total aid by product

3. IMPACT OF NORDIC AID AND ITS SIGNIFICANCE 1995 - 2000

3.1. Basis of report

3.2. Disbursement of Nordic aid

3.3. Trends in prices of production input and products

3.4. Number of holdings

3.5. Development of production

3.6. Economic impact of aid

3.7. Impact on food chain

3.8. Impact on the state of the environment

3.9. Socio-economic impact

4. Conclusions

ANNEX

1. Introduction

1.1. In general

Pursuant to Article 142 of the Act of Accession to the European Union of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden, the Commission has authorised Finland to grant long-term national aid to ensure that agricultural activity is maintained in northern regions. Nordic aid is granted in particular to maintain traditional primary production and processing, to improve structures for the production, marketing and processing of agricultural products, to facilitate the disposal of such products and to ensure that the environment is protected and the countryside preserved.

This aid, which may vary by region and be related to physical production factors taking account of the ceilings imposed by the CMOs, must not be linked to future production or lead to an increase in production or the level of overall support recorded during a reference period prior to accession, to be determined by the Commission.

The Commission, pursuant to Decision 95/196/EC [1], as amended partly by Commission Decision 97/279/EC [2] issued on 4 April 1997, and Commission Decision 2000/405/EC [3], issued on 7 June 2000, has:

[1] OJ L 126, 9.6.1995, p. 35

[2] OJ L 112, 29.4.1997, p. 34

[3] OJ L 154, 27.6.2000, p. 23

- determined that the northern region of Finland comprise agricultural areas lying north of the 62nd parallel and some adjacent areas affected by comparable climatic conditions, rendering agricultural activity particularly difficult. When determining those areas, the Commission took special account of the low population density (maximum 10 persons/km2), the proportion of Utilised Agricultural Area (UAA) in relation to the overall area (less than 10 percent) and the proportion of the UAA given over to arable crops for human consumption. The northern region of Finland thus determined represents an area of 1 417 000 ha of UAA or 55.5% of Finland's total UAA.

- defined that the northern region comprises five sub-regions, i.e. C1, C2, C2 North [4] (including the archipelago of Area C), C3 and C4 (Figure 1). Sub-regions C3 and C4 are subdivided further into sub-areas P1, P2, P3 and P4 (Sub-region C3) and P4 and P5 (Sub-region C4) in order to allow for a variation in the aid for bovine animals, sheep and milk. This subdivision makes it possible to modulate support for agriculture by taking account of the special features of the regions' agricultural economy and the severity of the natural handicaps. To that end, the Nikula index (also used for classification of less favoured areas), a synthetic agro-economic index which enables each municipality to be classified in a sub-region or sub-area, was used first and foremost.

[4] The abbreviation C2N will be used henceforth to refer to the C2 North area and C-Area archipelagos.

- ratified the reference period used to establish that Nordic aid does not lead to an increase in agricultural production or in the total aid. Based on available national statistics with regard to quantities, the reference period for agricultural production and the total aid before accession is 1991-93. Exceptions are cow's milk and bovine animals for which 1992 is used to ratify the milk quota and reference herd of Finland, and horticultural production, for which 1993 was taken as the basis because of reliable statistics available for that year.

- defined maximum aid amount by product and sector. The proposed aid of all plant products (cereals and other arable crops, fruit and vegetables, potatoes for starch production and sugar beet) is calculated per hectare. For livestock production, aid is expressed per livestock unit (LU) for bovine animals (except heifers), equines, ewes, goats, swine and poultry, while for milk it is expressed per kilogram, and for reindeer and heifers per head of livestock. Aid is also granted for the storage of fruit and vegetables produced in the northern region, expressed in FIM/m3/year. For young farmers (under 40 years of age), provision is made for flat-rate aid per hectare used for growing grass crops and cereals. Aid is also granted for all UAA kept for pasture, left fallow or used to sow food potatoes. The same aid is allocated for other crops but accounting is separate for each crop type.

The level of aid included in the aid system was estimated in such a way that the total aid by product during the reference period was compared to the aid applied after Accession. In calculating total aid during the reference period, account was taken of the difference between prices in Finland in 1993 and those in the Community (indirect support) on the one hand and the direct aid financed from the national budget in the same year.

Support after accession was understood to include not only Nordic aid and degressive national aids pursuant to Articles 138, 139 and 140 of the Act of Accession applied during a transitional period (1995-99), but also compensatory allowances, agri-environmental aid provided for by the Member State for farmers in the northern region and aid currently granted under the CMOs.

Any change in those amounts resulting in the level of support before Accession's being exceeded entails adjusting the permissible Nordic aid from the following calendar year.

The amounts are expressed in the national currency as on 1 January 1995 and may be adjusted each year. The Commission's Decision will have to be amended to reflect such adjustments.

Nordic aid, with the exception of that for cow's milk (for which there is a quota system), is not granted on the basis of quantities produced but on production factors within the regional limits shown in Annex 4 to Commission Decision No 95/196/EC.

In order to avoid an increase in production, a clause inserted in the Decision provides that, if the total production volume of a product is found to exceed that of the reference period, a proportional reduction in the aid for the product groups concerned will apply the following year. In the case of the production of arable crops, that clause is only applicable if production is 10% higher on average for two consecutive years.

In order to avoid penalising product groups or sub-regions (aid varies by sub-region) through the application across the board of a reduction in aid in the event of any excess production, the levels of production and support are presented by product and by sub-region.

Commission Decision No 95/196/EC was amended by Commission Decision No 97/279/EC, correcting factual errors, adding SLOM milk quantities, distinguishing between aid with regard to poultry meat and eggs and permitting the payment of aid for milk in accordance with Council Regulation (EEC) No 3950/1992, Article 2(1), and by Commission Decision No 2000/405/EC, in which the annual deadline was postponed from April to June, a joint review of aid for poultry was allowed again, SLOM milk quantities were increased and a move was made to scrutinise meat production in its entirety in the first hand in advance of scrutiny based on products. These changes did not have any impact on the amount of unit aid, total aid or production volumes.

>REFERENCE TO A GRAPHIC>

Figure 1. Agricultural aid areas (Sub-regions C1 to C4 are included in Nordic aid).

1.2. General principles of Nordic aid

Nordic aid has been disbursed to agricultural and horticultural producers in the form of aid for milk production, and as Nordic aid per hectare, general aid per hectare, Nordic aid to young farmers, Nordic aid for livestock units, Nordic aid for slaughtered heifers and male bovine animals, aid for reindeer owners, aid for the transport of milk and meat, aid for the storage of horticultural products, aid for plant production under permanent shelter and aid for the storage of wild berries and wild mushrooms.

Aid can be disbursed to farmers permanently resident in Finland, who are natural or legal persons singly or in a group, irrespective of the legal status of the group or its members. A community or trust domiciled in Finland is also considered to be resident in Finland.

Aid can be disbursed to a producer who (or whose spouse) is at least 18 years of age and not more than 65 years of age. For economic holdings in which several farmers are collectively engaged or those managed jointly, aid can be disbursed if at least one of the farmers, partners, members or shareholders engaged in agriculture or horticulture meets the age requirement.

Aid recipients must be in possession of at least three hectares of arable land, which is under cultivation during the growing season. Nordic aid per hectare for horticultural plants and products is disbursable if the area under horticultural cultivation is at least half a hectare.

Nordic aid is not disbursable if the aid amount per category is less than FIM 500.

1.2.1. Aid based on cultivated area

The basis for the aid is arable land in the possession of the producer on 1 June and used for the cultivation of farm crops and horticultural plants during the growing season for which the aid is disbursed. For crops whose marketing requires that producers be listed in a plant protection register or a quality control register, disbursement of aid will be conditional on such a listing.

The aid can be disbursed only for a production area cultivated at least in accordance with the method of cultivation customary in the locality and with joint CAP regulations applying to direct aid in compliance with the environmental requirements intended for crop production as issued in Council Regulation (EC) No 1259/1999, Article 3.

1.2.2. Aid for livestock production

The basis for determining Nordic aid for livestock production is the total number of livestock units possessed or owned by the producer. If the quantity of livestock at the time of counting differs significantly from the quantity already established, the aid can be disbursed in accordance with the quantity of livestock established, provided that production is continuous. Aid is granted for suckler cows and ewes only up to the limit of a holding's ratified quota.

Aid is granted up to 300 livestock units in Area C2N, 200 livestock units in Area C3 and 100 livestock units in Area C4. Aid for poultry in Areas C1, C2, and C2N is granted up to 260 livestock units per recipient.

Nordic aid for milk production (in FIM per kg) is granted for milk delivered to dairies and for milk sold directly from holdings up to the quota available to them.

1.2.3. Young farmers

Aid per hectare is disbursable to young farmers. A young farmer is a producer (or spouse) not more than 40 years of age.

1.2.4. Aid for reindeer husbandry

Aid for reindeer husbandry per household is disbursable to reindeer owners in Areas C3 and C4 for each reindeer husbandry year. The year begins on 1 June and ends on 31 May of the following year.

1.2.5. Vegetables, flowers and plants grown under permanent shelter

Aid is based on the production under permanent shelter of tomatoes, cucumber, lettuce, dill, parsley, cut flowers, cut greenery, multiple plants and ornamental plants for indoor cultivation in pots, and of gherkins, Chinese cabbage and red peppers.

Aid disbursement is conditional on the permanent shelter's being heated and not less than 300 sq. m. in area. Aid can be disbursed only for products that are cultivated at least on a par with the general level of cultivation in the locality.

1.2.6. Aid for storage

Aid for the storage of horticultural products is disbursable annually on the basis of space used for the storage of outdoor vegetables and apples that are in the producer's possession between 1 October and 31 December, based on the average volume of space in use from October to December. The producer applying for the aid must have produced the products stored, they must meet minimum quality standards for plants and the cultivated area must be not less than half a hectare in area. Aid for the storage of wild berries and wild mushrooms is disbursable to persons in possession of storage space for such.

1.3. Management of Nordic aid

Fifteen regional Employment and Economic Development Centres (hereafter EEDC) operate as regional organisations for the administration of agriculture. The EEDC rural departments manage, in addition to aid-related supervisory tasks, other implementation tasks such as the training of municipal rural development officials and farmers, processing applications other than those processed within the municipality, approving payments and monitoring the activities of rural development officials by means of municipal inspections.

The rural development officials of municipalities receive applications for aid to farmers and record the application data in the IACS system. Aid calculations are made centrally, after which the rural development officials make the decisions on aid and deliver them to farmers. The participation of the municipalities in agricultural and rural development administration tasks has ensured customer awareness in administration and familiarity with local conditions.

Rural development officials from the EEDC exercise control over the recipients of national aid as it is for EU aid. Each year 5% of all aid applications are inspected. EEDC inspectors also control the activities of the rural development officials of municipalities.

2. IMPLEMENTATION OF NORDIC AID 1996-2000

Because the aid system covers many products and the level of aid for certain products varies from year to year, detailed analysis by product will be presented in the Annex. This chapter will examine the development of the overall amount of aid and show the level of aid in 2000.

2.1. Aid disbursed in 2000

The following table shows a summary of Nordic aid applied in 2000 as an example of years (Note: 1 FIM equals 0.168 euro).

Table 1a. Summary of aid amounts in 2000

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Table 1b. Summary of aid amounts in 2000

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Note: At the total level, aid fell FIM 531.7 mill. (20%) short of the permissible level. The shortfall was FIM 371.6 mill. (18%) for livestock products and FIM 137.4 mill. (26%) for plant products.

2.2. Community aid

When calculating the level of Nordic aid, account was also taken of aid disbursed for products in accordance with the agricultural policy of common market organisations (CMOs), imputed compensatory allowances and the agri-environmental subsidy (with respect to the latter, the total amount of support paid was used).

>TABLE POSITION>

1) The aid shown in the table equals the total aid paid to farmers and not only the 20% incentive portion.

2) The figure differs from other years (See also Table 3).

Note: The reference amounts for aid do not take account of the impact of the Agenda 2000 reforms on Community aid. Any increase in CMO payments compared to the reference period is attributable to compensation for a further reduction in producer prices.

>TABLE POSITION>

1) The aid shown in the table is the total aid paid to farmers and not only the 20% incentive portion.

2) The figure differs from other years.

Note: The reference amounts for aid do not take account of the impact of the Agenda 2000 reforms on Community aid. Any increase in CMO payments compared to the reference period is attributable to compensation for a further reduction in producer prices.

Community aid for livestock and plant products applied to northern areas in 2000 (CMO payments, compensatory allowances and agri-environmental measures) amounted to FIM 3 216.4 mill.

2.3. ANNEX II combination: Production and total aid by product

When calculating the level of Nordic aid, account was also taken both of Community aid and Nordic aid itself and this was compared to the level of total aid (direct aid disbursed and producer price differences) in 1993 (Commission Decision, Annex II). In the following table, the comparison is shown for 2000.

>TABLE POSITION>

>TABLE POSITION>

Note: Total income subsidies disbursed in 2000 for northern areas amounted to FIM 5 457.9 mill. i.e. 18% below the 1993 reference level. 2000 figures include the higher amounts brought by the Agenda 2000 reforms on Community aid (i.e. compensation for further price decreases), whereas this further producer price difference is not taken into account as regards 1993 figures.

3. IMPACT OF NORDIC AID AND ITS SIGNIFICANCE 1995 - 2000

3.1. Basis of report

The Department of Agriculture and Forestry of the Research Centre for Agriculture and Foodstuffs has produced a comprehensive report [5] on the Impact and Significance of Nordic Aid 1995-2000, on which the conclusions of this chapter are based.

[5] Impact and Significance of Nordic Aid 1995-2000, The Research Centre for Agriculture and Foodstuffs.

The objectives set for the aid system and the socio-economic status of primary production and the aid region in the introductory phase of the aid system were considered as the starting point for an analysis of the development occurring in agriculture as a livelihood and in the northern economy in a broader sense. Indicators for the assessment of development and change were used which were available from general statistical sources and administrative registers (The Information Centre of the Ministry of Agriculture and Forestry and Statistics Finland). The central data sources were combined with the Integrated Administration and Control System (IACS) and the General Aid Management System (GAMS). An assessment of the impact at farm level was based on the results of the Farm Accountancy Data Network survey (FADN). The locally resident population, enterprises situated in the area, including holdings, and the development of the environment situation served as the criteria for preserving the countryside.

The Nordic aid system forms part of the management of agricultural policy as a whole. It is difficult to make a distinction between this whole and the effect of any particular measure with respect to agricultural production, the processing of agricultural products, the distribution and trading of products and production input and their effect in turn on the environmental situation and the preservation of the countryside.

3.2. Disbursement of Nordic aid

Roughly 78% of the payment authorisations available for Nordic aid in 1995 - 2000 were put to use (Table 5). The shortfall compared to the total available was attributable to several factors. The production volumes of products and sectors remained lower to some extent than during the reference period. The limitations on Nordic aid for certain products prevented the disbursement of aid in the full amount. Due to thrift measures implemented in the national economy, the unit amount of aid could not be disbursed for every product in conformity with the payment authorisations in the decisions of the Commission. In addition, on account of joint aid policy, it was considered desirable to keep the difference in the level of aid between the southern and northern regions of Finland to a reasonable level because, based on the Act of Accession, Article 141, the livestock aid payment authorisation in southern Finland has been at a decidedly lower level than in the Nordic aid area.

>TABLE POSITION>

1) Aid provided targeted at the production year.

2) Total aid financed or partially financed by the EU and national aid.

3.3. Trends in prices of production input and products

Measuring the national aid package ensuing from membership of the EU was based on both the expected price level of products and production input in membership.

In accordance with membership conditions, producer prices were adapted to the price level of the Community without a transition period, which entailed a considerable drop in market prices and sales income at the start of 1995. During 1995 - 2000, producer prices remained considerably weaker in certain respects than expected when fitting the national aid package (Table 6). Price expectations have remained unfulfilled for given products. The price of beef remained at 26% below the expected level. Prices for feed grains, eggs and sheep meat also remained below anticipated levels. Against that, prices for poultry meat and bread grains exceeded expectations and the price of milk was almost in line with estimates.

>TABLE POSITION>

1) Source: Ministry of Agriculture and Forestry (MAF).

2) Source: MAF Information Centre (For comparison purposes, the price of beef was taken to be minus the warm carcass weight reduction and grain prices minus the estimated transport costs).

3) Beef, without cow's meat.

4) Male bovine animals, slaughtered weight over 130 kg.

The second element in fitting the national aid package was the expectation that the prices of production input in agriculture would fall as a result of membership. The fall in prices was due to reduced prices for agricultural goods (seeds, forage and bought-in livestock) and the elimination of different taxes and payments (production-input value-added tax and fertilisers). The expectations about price changes for essential production inputs were as follows: bought-in forage -40%, bought-in seeds -36%, bought-in livestock -33% and fertilisers -27%.

From 1994 to 1995, the prices for the above production input changed as follows: bought-in forage -29%, bought-in seeds -35%, bought-in livestock -30% and fertilisers -17%. On average, the prices of essential production input in agriculture fell by roughly one fifth during the first year of membership compared to the year before. The aggregate index of production input rose by a good 7% between 1995 and 2000. The steepest price rise was in 2000 when input prices increased almost 6% compared to the previous year.

The starting point in fitting the national aid package for agriculture was the loss of income that was expected to occur as a result of the reduction in market prices. In estimating the need for aid, account was also taken of estimates for a drop in production costs. The income losses with respect to some products consequent on accession were due to the fact that the prices of these products remained lower than their expected levels and those of production input fell less. The yield and cost structure of holdings had a bearing on the impact of price deviations on different types of farming from one holding to the next.

3.4. Number of holdings

There are now fewer holdings in the Nordic aid area but no significant changes have occurred in products by and large with respect to production volumes or share of production in proportion to the country as a whole. The significance of Nordic aid for the income formation of holdings rose during the assessment period as it partially compensated for the reduction in other aid during the transitional period. The number of holdings obtaining Nordic aid (Tables 7, 8) was reduced by 5 600 or 13% from 1997, when such aid was extended to swine and poultry in Areas C1 and C2, to 2000. In 2000, about half of the 77 900 holdings obtaining income support (either CAP or national) also received Nordic aid.

Table 7. Number of holdings obtaining Nordic aid and % change 1996-20001).

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1) The change in the number of holdings is calculated from 1997 to 2000 because aid per livestock unit was not extended to swine and poultry until 1997, when swine and poultry holdings in Areas C1 and C2 came under the scope of Nordic aid in a more comprehensive way.

Table 8. Number of holdings obtaining Nordic aid by production trend1) 1996-20002).

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* Total for piglet production, pig meat production and other swine husbandry.

1) Production trend of holding determined by farmer's declaration.

2) The change in the number of holdings is calculated from 1997 to 2000 because aid per livestock unit was not extended to swine and poultry until 1997, when swine and poultry holdings in Areas C1 and C2 came under the scope of Nordic aid in a more comprehensive way.

The average area of holdings increased during the assessment period in all the main types of farming. In 2000, the biggest holdings were engaged in pig meat production, averaging more than 35 hectares in area. The area of holdings producing milk averaged 30 hectares and other cattle holdings a little over 25 hectares. Holdings engaged in cereal cultivation averaged about 23 hectares in area and the average for other types of farming was about 14 hectares. Holdings engaged in the production of pig meat increased most from 1996 to 2000, the average increase in area being 6.7 hectares. The total area of holdings producing milk increased by 3.8 hectares on average and holdings for other cattle by 4.7 hectares on average. The average area of holdings specialising in cereal production increased by less than three hectares.

3.5. Development of production

The Nordic aid area's share of livestock production in proportion to the country as a whole has remained fairly stable for the majority of products during the assessment period (Table 9). About three-quarters of the milk and beef is produced within the aid area. The proportionate share of milk production has increased by 3%. The share of beef fluctuated between 72-76%. A little more than half of the sheep meat is still produced within the area but its share fell between 1995 and 2000. About 40% of pork is produced within the aid area and its share has remained almost unchanged between 1995 and 2000. A good third of poultry meat is produced within the aid area. Most of the poultry production is concentrated outside the Nordic aid area. About a quarter of the eggs are produced within the area. However, egg production tends to concentrate mainly outside the Nordic aid area.

Table 9. Nordic aid area's percentage share of key livestock products compared to the country as a whole 1995-2000.

>TABLE POSITION>

Since the number of units obtaining Nordic aid for livestock production, with the exception of poultry intended for meat production, declined each year from 1997 onwards, any growth is attributable to increased productivity.

The extent of plant cultivation in the Nordic aid area from 1995-2000 is shown in Table 10. The cultivation of bread cereals (especially wheat cultivation) is mainly centred outside the aid area. It is the source of about a fifth of the rye produced. The quality of the rye is heavily dependent on autumn weather conditions. Nearly all malting barley and sugar beet production lies outside the Nordic aid area. Against that, the cultivation of pasture is proportionately more common in the Nordic aid area due to the area's heavy concentration on milk and beef production. Over half of all feed grains is produced in the aid area. The proportion of feed grains cultivated has also risen. Most of the potatoes intended for starch production are cultivated in Areas C1 and C2 (being 60% of the total area under such cultivation).

Table 10. Percentages of Nordic aid areas under key crop cultivation, left fallow or under horticultural cultivation compared to the rest of the country, 1995-2000

>TABLE POSITION>

Cereal crop harvest levels and annual fluctuations have an impact on the production volumes of cereal crops and indirectly on livestock production and profitability. Naturally, the impact is higher on holdings specialising in crop cultivation than those engaged in livestock farming.

The annual fluctuation in weather conditions is the most critical reason for crop variations. In 1995 - 2000, annual changes in harvest yields per hectare in the Nordic aid area varied from 1 900 - 3 400 kg for barley, 2 100 - 3 200 kg for oats, 2 200 - 3 600 kg for spring wheat and 1 300 - 2 100 kg for rye. Dry hay hectare yields varied from 3 200 - 4 100 kg and silage hectare yields from 17 400 - 20 000 kg.

3.6. Economic impact of aid

The share of Nordic aid in the income formation of holdings increased during the 1995 - 2000 assessment period. Correspondingly, transitional aid gradually decreased and was terminated at the start of 2000. The significance of Nordic aid was greater for holdings with livestock than for those engaged in crop cultivation. In 2000, when Nordic aid reached its long-term level, its proportion to the net agricultural income of farming families was, based on calculations, 50 - 90% for dairy farming, about 50% for pig farming and 10 - 20% for crop farming, depending on the area.

Based on bookkeeping results available up to 1998, the profitability of milk, pig meat and cereal holdings generally tended to decline compared to the average situation in the three years prior to accession . None of the objectives for farming family pay or capital interest was achieved in post-1994 production trends examined, in other words the profitability coefficient was less than one. Pig farming and cereal farming appeared to be the most profitable and dairy farming the least profitable among holding groups. However, the proportionate difference in profitability between dairy and pig farming remained fairly stable throughout the period, so that the introduction of new income subsidy systems in 1995 would not appear to have altered the central role of these two key production trends in 1995.

While holdings on average have almost succeeded in preserving their previous income level, inter alia by increasing their size, the aid system has not been able to ensure the retention of profitability at the level prevalent before accession to EU membership. Without Nordic aid, the profitability of holdings would have fallen sharply.

3.7. Impact on food chain

The wholesale and retail trade, processing and marketing situation of products belonging to the Nordic aid system remained fairly stable in the particular area. Among food industry enterprises, the number of dairies and slaughterhouses purchasing raw materials from agriculture has fallen during the assessment period in the Nordic aid area. The northernmost areas can be somewhat problematic from the standpoint of processing enterprises operating nation-wide: raw material volumes obtainable from the area are low compared to the overall volumes of such enterprises, transport costs are high and the markets are at a great distance.

Transport aid for milk and meat within the Nordic aid system is indispensable because it helps maintain production in the most peripheral regions. It is true that a number of small slaughterhouses (so-called holding slaughterhouses) have been established in the aid area and other small enterprises whose processing is mainly based on own raw material or for the purpose of local demand. However, in the sparsely populated, extensive peripheral regions, economically viable production cannot be based solely on local consumption.

3.8. Impact on the state of the environment

One aim of the Nordic aid system was that it should positively influence the implementation of environmental protection and preservation by tying the disbursement of aid to conditions such as the use of arable land (good farming practices) and livestock quantities (maximum livestock density). Because several different operational programmes have an impact on the environment, the influence of any individual programme cannot be separated from the whole. While changes in the environment occur relatively slowly, research into such changes demonstrates the direction of environmental change. The use of fertilisers and pesticides has fallen appreciably. The incidence of nitrate-related denudation has diminished by 4 - 15% in several areas and phosphorus erosion by 5 - 13%. Soluble phosphorus levels have persisted or have risen slightly. The impact of different measures has been apparent in a positive sense in the landscape of the countryside and the extent of natural diversity.

3.9. Socio-economic impact

The Nordic aid system is part of measures taken by which an effort is being made to retain the population in the northern and eastern regions. The greatest threat to preserving the rural way of life over wide stretches of the area is the ongoing outward migration. Except for a few growth centres in the region, migration has been mainly in the direction of the south of Finland. Since the people migrating are young and educated, the result is a reduction in the average educational level of the labour force in the areas from which migration occurs and a demographic bias in the age structure of the population. The decline in population produces a multiplier effect: maintaining the infrastructure is made difficult and services become dearer. The negative consequences of dwindling populations on the local economy of the areas are considerable in the long run. Without Nordic aid, farming activities would no longer be profitable and many holdings would probably be forced to cease production, which in turn would add to the loss of population in rural areas.

4. Conclusions

Pursuant to Article 142 of the Act of Accession, the Commission, by Decision No 95/196/EC of 4 May 1995, authorised Finland to grant long-term national aid in agricultural areas lying north of the 62nd parallel and certain adjacent areas affected by comparable climatic conditions, rendering agricultural activity particularly difficult.

This report gives an account of the authorisations granted and the results achieved. It was compiled on the basis of data supplied by the Finnish authorities in compliance with Article 143 (2) of the Act of Accession and is intended to be presented to the Council. Based on the report, main features are as follows:

(1) Regarding most of the sectors receiving Nordic aid, permissible production levels or aid limits were not exceeded in the assessment period. However, the production level was exceeded in the following occasions:

- in 1996/97 sheep meat production levels were exceeded; the aid was reduced by a corresponding amount the following years;

- in 1997 production levels of pork were exceeded; the aid was reduced by a corresponding amount the following year;

- in 1996/97 poultry meat production levels were exceeded; the aid was reduced by a corresponding amount the following years;

- in 1998-2000 milk production levels were exceeded; the aid was reduced by a corresponding amount the following years.

(2) Community aid by product (market aid, compensatory allowances and agri-environment measures) were below the levels taken into account when agreed aid levels were ratified. For this reason, their application did not lead to the level of aid agreed before Accession being exceeded.

(3) The controls carried out by the Member State demonstrate that the aid was applied properly.

(4) The aid granted was important from the standpoint of environmental protection and the preservation of the countryside. Therefore, they comply with Article 142(3) of the Act of Accession.

On the basis of the information provided by the Finnish authorities, the Commission considers that in general the Finnish authorities have applied Commission Decision No 95/196/EC on aid to northern regions properly. On the rare occasions when the maximum production volumes were exceeded, the aid has been or is to be deducted in accordance with the said decision.

ANNEX

Development of aid and production by product 1996-2000

In the following section, the development of aid and production will be examined by product. In this context, it should be noticed that the level of aid for some products gradually rises until 2000. This unit increase partially compensates for the progressive reduction in aid during the transition period in compliance with Articles 138-140.

1. LIVESTOCK PRODUCTION

1.1. Beef

Roughly 72% of all beef production derives from the Nordic aid area.

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1) except for cow's meat, the production figures for which were 22 693 t in 2000 (26 300 t in the reference period).

Note: Beef production remained lower throughout the assessment period than it had been in the reference period.

1.1.1. Suckler cows

About 55% of all suckler cows are raised in the Nordic aid area.

>TABLE POSITION>

Note: The suckler cow LU total remained below the reference period level throughout the assessment period, with the exception of years 1996-97. The total aid disbursed likewise remained below the permissible level.

1.1.2. Male bovine animals

About 75% of all male bovine animals are raised in the Nordic aid area.

>TABLE POSITION>

1) The payment per livestock unit for slaughtered male bovines in subregion C3, subarea P1-P2 was FIM 780; in subarea P3-P4, FIM 1 080, and in subregion C4, in parts of subarea P4, FIM 1 080 and subarea P5 FIM 1 980.

Note: The male bovine animal LU total remained below the reference period level throughout the assessment period. The total aid disbursed likewise remained below the permissible level.

1.1.3. Heifers for slaughter

About 77% of all heifers for slaughter are raised in the Nordic aid area.

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Note: The total number of heifers remained below the reference period level throughout the assessment period. The total aid disbursed likewise remained below the permissible level.

1.2. Ewes and she-goats

The sheep meat production in northern regions corresponds 52% of the total production.

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Note: The total number of LU of ewes and she-goats remained below the reference period level throughout the assessment period. The total aid disbursed likewise remained below the permissible level Production of sheep meat exceeded permissible levels in 1996-97, due to which the aid was reduced in 1997 and 1998.

1.3. Swine

40-42% of all swine are raised in the Nordic aid area.

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1) Including sow meat (3 100 t).

Note: The total number of pigs (LU) exceeded the reference period level throughout the assessment period and pig meat production exceeded permissible level in 1997. Against that, the total aid for swine was lower than permissible levels throughout the assessment period. Unit aid was reduced in 1998 because the permissible production level was exceeded in 1997.

1.4. Poultry

1.4.1. Egg production

About 27% of all eggs are produced in the Nordic aid area.

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Note: The total number of poultry hens (LU) remained below the reference period level throughout the assessment period. The total aid disbursed and production totals likewise remained below the permissible level.

1.4.2. Poultry meat production

About one third of all poultry meat production occurs in the Nordic aid area.

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Note: The number of poultry hens (LU) exceeded the reference period level throughout the assessment period and poultry meat production exceeded the permissible level. Against that, the total aid remained below the permissible level throughout the period. Unit aid was reduced in 1997-1998 because production totals were exceeded during previous years.

1.4.3. Poultry, total

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Note: The total aid remained below the permissible level throughout the assessment period.

1.5. Horses

Roughly 61% of Finnish horses are raised in the Nordic aid area.

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1) Breeding mares, Finnish coldblood horses and other horses 1-3 years old.

Note: The total number of horses (LU) exceeded the reference period level throughout the assessment period. The total aid disbursed remained below the permissible amount during the period (Note: Nordic aid for horses was disbursed for 1999-2000 only).

1.6. Reindeer

Reindeers are raised only in the Nordic aid area.

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Note: The number of reindeer remained below the reference period level throughout the assessment period. Disbursed aid and reindeer meat production likewise remained below the permissible amounts.

1.7. Summary of meat production in the Nordic aid area

Pursuant to Commission Decision No 2000/405/EC meat production should first be scrutinised at the aggregate level. The following table presents a summary:

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Note: A check of meat production totals for Sub-region C (Nordic aid area) shows that they remained below the permissible level throughout the assessment period.

1.8. Milk

A total of 15 423 holdings produced milk in the Nordic aid area in 2000, amounting to 76% of all milk holdings in Finland. They produced roughly 75% of all milk.

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1) FIM per kg in Subregion C3; P1=0.79; P2=0.89; P3-P4=1.04; in Sub-region C4: P4=1.31; P5=1.84.

2) The aid applies only to cow's milk.

3) This figure may be increased where an increase is decided in the quantities of milk allocated in accordance with the Act of Accession, from the reserve decided on for the Finnish SLOM quota.

Note: Total milk production exceeded the permissible volume in 1998, 1999 and 2000. In this context, it must be taken into account that the reference quantities included the SLOM additions for quota periods 1997/98 and 1998/99, but not for quota periods 1999/2000 and 2000/01, corresponding in total 2 067 tonnes. The total aid disbursed remained below the permissible amount throughout the assessment period. Unit aid was reduced in 1999 and 2000 due to the production totals' being exceeded.

1.9. Aid for transport

Aid for milk transport is disbursable in Kainuu, the Province of Lapland and Koillismaa region. Aid for meat transport is disbursable in the Province of Lapland. Aid for transport is disbursed to compensate for transport costs between holdings and the first degree processing location. Such aid is declared in FIM per tonne (the average actual cost estimate being FIM 54.00/t for milk transport and FIM 0.50/kg for meat transport). The average amount delivered per farm to dairies, the average density of holdings in the dairy catchment area and the average distance between holdings and dairies are taken into account when calculating volumes.

Aid disbursed for milk and meat transport in peripheral regions of the Community can be regarded as aid facilitating the sale of products in accordance with Article 142 (3), in the third paragraph and therefore to be acceptable.

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Note: Aid for transport remained below the permissible level throughout the assessment period.

2. Plant production

2.1. Sugar beet

Eight percent of all sugar beet is cultivated in the Nordic aid area.

Besides the aid per hectare applying to general Nordic aid, a separate aid per hectare is disbursable for sugar beet.

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1) Includes general aid per hectare and aid per hectare for sugar beet.

Note: Both production totals and total aid disbursed remained below the permissible amount during the assessment period.

2.2. Potatoes for starch production

Sixty percent of all potatoes for starch production are grown in the Nordic aid area.

Besides the aid per hectare applying to general Nordic aid, a separate aid per hectare is disbursable for potatoes for starch production.

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1) Includes both general aid per hectare and aid per hectare for starch production.

Note: The area cultivated remained less than that of the reference period throughout the assessment period. Production totals and the total aid disbursed remained below permissible levels throughout the assessment period.

2.3. Cereals and other arable crops (Summary of Tables 2.3.1. and 2.3.2.)

Holdings in the northern aid region area account for about 42% of all cereal production.

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Note: The area cultivated remained less than that of the reference period throughout the assessment period. Production totals and the total aid disbursed remained below permissible levels throughout the assessment period.

2.3.1. Barley, oats and mixed grain

About 55% of all feed grain is cultivated in the Nordic aid area.

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Note: The area cultivated remained less than that of the reference period throughout the assessment period. Production totals and the total aid disbursed remained below permissible levels throughout the assessment period.

2.3.2. Other cereals and other arable crops

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1) Includes general aid per hectare and aid per hectare for individual crops.

2) In Sub-regions C2 and C2N, aid amounted to FIM160 per hectare and FIM 210-400 per hectare, depending on the individual crop.

Note: The total aid disbursed remained below the permissible amount throughout the assessment period. In 2000, the area cultivated exceeded that of the reference period and production totals exceeded the permissible level. It should be recalled that, for arable crops, exceeding production totals only results in a reduction of aid if the excess averages more than 10% in two consecutive years.

2.4. Vegetables, flowers and other plants grown under permanent shelter

About 45% of all plant production grown under permanent shelter is in the Nordic aid area.

Aid is granted mainly for the cultivation of tomatoes, cucumber, lettuce, dill, parsley, pickled gherkins, cabbage, red pepper, cut flowers and vegetables.

The situation by category of product will be seen from 2.4.1. and 2.4.2.

2.4.1. Vegetables

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Note: Production area exceeded the reference period level in 1997-2000. Production totals and the total aid disbursed remained below the permissible level throughout the assessment period.

2.4.2. Flowers and ornamental plants

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Note: Production area exceeded the reference period level in 1997-2000. Production totals and the total aid disbursed remained below the permissible level throughout the assessment period.

2.5. Field-scale vegetables

About 39% of all field-scale vegetable production occurs in the Nordic aid area.

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1) Includes general aid per hectare and aid per hectare for field-scale vegetables.

Note: Production area exceeded the reference period level in 1996 and 2000. Production totals and the total aid disbursed remained below the permissible level throughout the assessment period.

2.6. Apples

Only a small quantity of apples is cultivated in the Nordic aid area. The share of total production is 6% and there are 117 producers. This arable land is not linked to that used for other vegetable and fruit production, because the level of aid granted is different.

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1) Includes general aid per hectare and aid per hectare for apples.

Note: Production area exceeded the reference period level in 1998-2000. However, only 17.3 hectares received aid in 2000. The production totals remained below the permissible level throughout the assessment period. The total aid disbursed exceeded the permissible level in 2000 by about FIM 6,000 (1,000 euro).

2.7. Aid for storage of horticultural produce

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Note: The total aid remained below the permissible level throughout the assessment period.

2.8. Aid for storage of wild berries and wild mushrooms

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Note: The total aid remained below the permissible level throughout the assessment period.

2.9. Land for grazing, left fallow or used for food potatoes, etc.

About three-quarters of all pastureland lies in the Nordic aid area. A good 40% of all fallow land lies in the Nordic aid area.

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Note: The area cultivated remained below that of the reference period and the total aid disbursed remained below the permissible level throughout the assessment period.

3. Young farmers

About 55% of all young farmers live in the Nordic aid area.

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Note: The total aid disbursed remained below the permissible level throughout the assessment period.

4. Utilised agricultural area (UAA)

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Note: The utilised agricultural area remained less than that of the reference period throughout the assessment period.