Abstract: The dairy sector represents the cornerstone of Finnish agriculture but faces new challenges linked to the decoupling of farm subsidies and abolition of milk production quotas. Because of its increasing exposure to market forces, the sector must anticipate future changes in demand and deliver precisely what Finnish consumers want. This paper contributes to that goal by analyzing retroactively the drivers of demand for dairy products over the period 1975–2010 using National Accounts Data. After presenting the evolution of consumption for dairy products, we estimate a complete system of demand for food and dairy products and use it to decompose demand growth into a substitution effect, income effect, and trend effect. The analysis points to the severity of the challenges that the sector is facing. Stagnant consumption is at least partially the result of continuous but adverse taste changes, and as Finnish consumers grow more prosperous, they allocate an increasingly smaller share of their food budget to the dairy group. The low own-price elasticity of demand for dairy products also limits the benefits to the sector of growth in milk production. Hence, business-as-usual will result in the dwindling importance of the dairy sector in the Finnish food chain. Innovation and product differentiation, perhaps emphasizing the attributes of livestock production processes, are clearly required to counter this evolution.

Abstract: This paper summarises the simulated effects on Finnish agrcultural production and trade of a 20% decrease in Finnish demand for red meat (beef, pork, lamb). According to our results, reduced red meat consumption would be offset by increased consumption of poultry meat, eggs, dairy products and fish, as well as small increases in consumption of fruits and vegetables, peas, nuts, cereal products and sweets. By including the derived demand changes in an agricultural sector model, we show that livestock production in Finland, incentivised by national production-linked payments for milk and bovine animals, would decrease by much less than 20% due to the complex nature of agricultural production and trade. Overall, assuming unchanged consumer preferences and agricultural policy, a 20% reduction in red meat consumption is not likely to lead to a substantial decrease in livestock production or changed land use, or greenhouse gas emissions, from Finnish agriculture.