Factors affecting farmland prices in Finland

The purpose of the study was to analyse factors affecting the differences in land prices between regions. The key issue was to find out the policy effects on farmland prices. In addition to comprehensive literature review, a theoretical analysis as well as modern panel and spatial econometric techniques were utilized. The study clearly pointed out the importance of taking into account the possible spatial dependence. The data were exceptionally large, comprising more than 6 000 observations. Thus, it allowed a thorough econometric estimation including the possibility to take into account the spatial nature of the data. This study supports the view that there are many other factors that affect farmland prices besides pure agricultural returns. It was also found that the support clearly affects land prices. However, rather than assuming the discount rates for support and market returns to be similar, the rough analysis refers to the discount rate for support being a little lower. If this were true it would indicate that farmers rely more on support income than market returns. The results support the view presented in literature that land values are more responsive to government payments when these payments are perceived to be permanent. An important result of this study is that the structural differences between regions and the structural change in agriculture seemed to have a considerable role in affecting land prices. Firstly, the present structure affects the competition in the land market: the more dense farms are in the region the more there are potential buyers, and the land price increases. Secondly, the change in farm structure (especially in animal husbandry) connected to the policy changes that increase area-based support affects land prices. The effect comes from two sources. Growing farms need more land for the manure, and the proportion of retiring farmers may be lower. The introduction of the manure density variable proved to be an efficient way to aggregate the otherwise very difficult task of taking into account the environmental pressure caused by structural change in animal husbandry. Finally, infrastructure also has a very important role in determining the price level of agricultural land. If other industries are prospering in the surrounding area, agricultural viability also seems to improve. The non-farm opportunities offered to farm families make continuing and developing farming more tempting.

Ode to a Skylark: Agricultural intensification and farmland birds in the Baltic region

Intensification of agricultural land-use has been was shown to be the key reason behind declines in wildlife species associated with farmland. Accession to the European Union is regarded as a potential threat to the farmland biota of its new member states. In my thesis I looked at scenarios of agricultural development across the Baltic states of Estonia, Latvia and Lithuania, and the ways they are seen to affect farmed environments as a habitat of farmland bird species. I looked at the effects of major farmed habitats across the region, and assessed the role of spatial organisation of farmed habitats. I also evaluated the direction and magnitude of changes in bird communities following progression of farmland land-use from a relatively less intensive to the most intensive type within each country. Different aspects of the structural complexity of farmland were critical for supporting farmland birds. There was a clear indication that the more intensively farmed areas across the region provided habitat for fewer bird species and individuals, and intensification of field management was reflected in a tangible decrease in farmland bird abundance. The second part of the thesis, based on interviews in Estonia and Finland, is devoted to farmers interest in and knowledge of farmland wildlife, their understanding of the concept of biodiversity, and awareness of causes behind species declines. I examined the relationship between farmers interest and their willingness to undertake practices favouring farmland wildlife. Many farmers viewed biodiversity from a narrow perspective. In Finland farmers expressed higher concern about the decline in common farmland species than in Estonia. In both countries farmers rated intensification of agriculture as the major driving force behind declines. The expressed interest in wildlife positively correlated with willingness to undertake wildlife-friendly measures. Only farmers with agri-environment contracts targeted specifically at biodiversity were more knowledgeable about practical on-farm activities favouring wildlife, and were more willing to employ them that the rest. The results suggest that, by contributing to simplification of the farmland structure, homogenisation of crops, and increase in intensity of field use, EU agricultural policies will have a detrimental effect on farmland bird populations in Eastern Europe. Farmers are on the whole positive to the idea of supporting wildlife on their farms, and are concerned about declines, but they require payments to offset their income loss and extra work. I propose ways of further improving and better targeting of the agri-environment schemes in the region. I argue that with a foreseen tripling of cereal yields across the region, the EU Council s target of halting biodiversity decline in the EU by 2010 may not be realistic unless considerable improvements are made in conservation safeguards within the EU agricultural policy for the region.

Liikennepolttoaineeksi tarkoitettu ohraetanoli, Suomen ohramarkkinat ja ilmastonmuutos

The aim of the thesis was to analyze the use of barley as an input for bioethanol production and the impacts the use has on the Finnish barley markets. Two main research questions were formulated. First, privately and socially optimal bioethanol production levels were examined. In the social optimum, the climate benefits of bioethanol production were considered. It was calculated that the production and use of bioethanol created smaller CO2 -emissions when compared with the production and use of gasoline. Second, the impacts of bioethanol production on farmland allocation and agricultural production were analyzed. In more detail, the second aim was to analyze the farmland allocation between wheat and barley cultivation and green set aside in the private and social optimum. An analytical model was produced to analyze the barley markets in Finland. To provide an empirical counterpart to this model, existing research data on bioethanol production and barley cultivation was used. The aim of the model was to analyze the supply and the demand as well as market equilibrium of barley. Furthermore, the model provided a framework for analyzing the differences between the private optimum and social optimum of bioethanol production in Finland. The demand for barley consists of animal feed demand and bioethanol demand. On the supply side, a heterogeneous model of farmland quality was used. With this framework, it is possible to analyze farmland allocation between barley and wheat cultivation and green set aside and how the climate benefits of bioethanol production affects the allocation. Moreover, the relative changes in barley price between the private and social optimum were analyzed. Based on the empirical analysis, the private optimum for barley based bioethanol production is 58 691 metric tons. However, the social optimum for barley based bioethanol production is 72 736 metric tons. The portion of farmland that is allocated to barley cultivation is increased if the climate benefits of bioethanol production are considered. In the private optimum, 1/19 of the total farmland is allocated to barley cultivation whereas in social optimum the share increases to 7/19. Furthermore, the increase in barley price between private and social optimum is rather modest. Total increase in price is only about 1,8 percent.

The Impact of Emissions Trading on the Price of Electricity in Nord Pool : Market Power and Price Determination in the Nordic Electricity Market

The objective of this thesis is to find out how dominant firms in a liberalised electricity market will react when they face an increase in the level of costs due to emissions trading, and how this will effect the price of electricity. The Nordic electricity market is chosen as the setting in which to examine the question, since recent studies on the subject suggest that interaction between electricity markets and emissions trading is very much dependent on conditions specific to each market area. There is reason to believe that imperfect competition prevails in the Nordic market, thus the issue is approached through the theory of oligopolistic competition. The generation capacity available at the market, marginal cost of electricity production and seasonal levels of demand form the data based on which the dominant firms are modelled using the Cournot model of competition. The calculations are made for two levels of demand, high and low, and with several values of demand elasticity. The producers are first modelled under no carbon costs and then by adding the cost of carbon dioxide at 20€/t to those technologies subject to carbon regulation. In all cases the situation under perfect competition is determined as a comparison point for the results of the Cournot game. The results imply that the potential for market power does exist on the Nordic market, but the possibility for exercising market power depends on the demand level. In season of high demand the dominant firms may raise the price significantly above competitive levels, and the situation is aggravated when the cost of carbon dioixide is accounted for. Under low demand leves there is no difference between perfect and imperfect competition. The results are highly dependent on the price elasticity of demand.

Informational efficiency of the European Union emission allowance market

This thesis studies the informational efficiency of the European Union emission allowance (EUA) market. In an efficient market, the market price is unpredictable and profits above average are impossible in the long run. The main research problem is does the EUA price follow a random walk. The method is an econometric analysis of the price series, which includes an autocorrelation coefficient test and a variance ratio test. The results reveal that the price series is autocorrelated and therefore a nonrandom walk. In order to find out the extent of predictability, the price series is modelled with an autoregressive model. The conclusion is that the EUA price is autocorrelated only to a small degree and that the predictability cannot be used to make extra profits. The EUA market is therefore considered informationally efficient, although the price series does not fulfill the requirements of a random walk. A market review supports the conclusion, but it is clear that the maturing of the market is still in process.

Livelihood, land use and environment interactions in the highlands of East Africa

This study aims at improving understanding of the interactions of livelihoods and the environment focusing on both socio-economic and biodiversity implications of land use change in the context of population pressure, global and local markets, climate change, cultural and regional historical factors in the highlands of East Africa. The study is based on three components (1) two extensive livelihood surveys, one on Mt. Kilimanjaro in Tanzania and the other in the Taita Hills of Kenya, (2) a land use change study of the southern slopes of Mt. Kilimanjaro focusing on land use trends between 1960s and 1980s and 1980s and 2000 and (3) a bird diversity study focusing on the potential impacts of the future land use change on birds in the main land use types on the slopes and the adjacent plains of Mt. Kilimanjaro. In addition, information on the highlands in Embu and the adjacent lowlands in Mbeere of Kenya are added to the discussion. Some general patterns of livelihood, land use and environment interactions can be found in the three sites. However, the linkages are very complex. Various external factors at different times in history have influenced most of the major turning points. Farmers continually make small adaptations to their farming practices, but the locally conceived alternatives are too few. Farmers lack specific information and knowledge on the most suitable crops, market opportunities and the quality requirements for growing the crops for markets. Population growth emerges as the most forceful driver of land use and environmental change. The higher altitudes have become extremely crowded with population densities in some areas higher than typical urban population densities. Natural vegetation has almost totally been replaced by farmland. Decreasing farm size due to population pressure is currently threatening the viability of whole farming systems. In addition, capital-poor intensification has lead to soil fertility depletion. Agricultural expansion to the agriculturally marginal lowlands has created a new and distinct group of farmers struggling constantly with climate variability causing frequent crop failures. Extensification to the fragile drylands is the major cause of fragmentation and loss of wildlife habitat. The linkages between livelihoods, land use and the environment generally point to degradation of the environment leading to reduced environmental services and ecosystem functions. There is no indication that the system is self-regulating in this respect. Positive interventions will be needed to maintain ecosystem integrity.

Studies on Wage Differentials and Labour Market Transitions

This thesis consists of four studies. The first study examines wage differentials between women and men in the Finnish manufacturing sector. A matched employer-employee data set is used to decompose the overall gender wage gap into the contributions of sex differences in human capital, labour market segregation, and residual within-job wage differentials. The topic of the second study is the relationship between the extended unemployment benefits and labour market transitions of older workers. The analysis exploits a quasi-experimental setting caused by a change in the law that raised the eligibility age of workers benefiting from extended benefits. Roughly half of the unemployed workers with extended benefits are estimated to be effectively withdrawn from labour market search. The risk of unemployment declined and the re-employment probability increased among the age groups directly affected by the reform. The third study provides an empirical analysis of a structural equilibrium search model. Estimation results from various model specifications are compared and discussed. The last study is a methodological study where the difficulties of interpreting the results of competing risks hazard models are discussed and a solution for a particular class of models is proposed. It is argued that a common practice of reporting the results of qualitative response models in terms of marginal effects is also useful in the context of competing risks duration models.

Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Tibetan Market Participation in China

Since the Chinese government began implementing economic reforms in the late 1970s, China has experienced profound economic change and growth. Like other parts of China, Tibetan areas of China have also experienced wide-ranging economic change with growth even higher than the China-wide average in certain years. Though China s strategic policy of developing the West provided many opportunities for economic and business activities, Tibetans have proven poorly equipped to respond to and take advantage of these opportunities. This study is about people, about market participation and specifically about why Tibetans do not effectively participate in the market in the context of China s economic development process. Many political, social, cultural and environmental factors explain the difficulties met by Tibetan communities. However, this study focuses on three factors: the social and culture context, government policy and education. The Buddhistic nature of Tibetan communities, particularly the political and economic system in traditional Tibetan society, explains this, especially after implementation of new national economic policies. An inclusive economic development policy that promotes local people s participation in the market demands serious consideration of local conditions. Unfortunately, such considerations often ignore local Tibetan realities. The economic development policy in Tibetan areas in China is nearly always an attempt to replicate the inland model and open up markets, even though economic and sociopolitical conditions in Tibet are markedly unlike much of China. A consequence of these policies is increasing numbers of non-Tibetan migrants flowing into Tibetan areas with the ensuing marginalization of Tibetans in the marketplace. Poor quality education is another factor contributing to Tibetan inability to effectively participate in the market. Vocational and business education targeting Tibetans is of very low quality and reflective of government failing to consider local circumstances when implementing education policy. The relatively few Tibetans who do receive education are nearly always unable to compete with non-Tibetan migrants in commercial activity. Encouraging and promoting Tibetan participation in business development and access to quality education are crucial for a sustainable and prosperous society in the long term. Particularly, a localized development policy that considers local environmental conditions and production as well as local culture is crucial. Tibet s economic development should be based on local environmental and production conditions, while utilizing Tibetan culture for the benefit of creating a sustainable economy. Such a localized approach best promotes Tibetan market participation. Keywords: Tibet cultural policy education market participation

Spatial and temporal determinants of Finnish farmland bird populations

During the past decades agricultural intensification has caused dramatic population declines in a wide range of taxa related to farmland habitats, including farmland birds. In this thesis, I studied how boreal farmland landscape characteristics and agricultural land use affect the abundance and diversity of farmland birds using extensive field data collected by territory mapping of breeding farmland birds in various parts of Finland. My results show that the area and openness of agricultural areas are key determinants of farmland bird abundance and distribution. A landscape composition with enough open farmland combined with key habitats such as farmyards and wetland is likely to provide essential prerequisites for the occurrence of a rich farmland avifauna. In Finland, the majority of large areas suitable for open habitat specialists are located in southern and western parts of the country. However, the diversity of the species with an unfavourable conservation status in Europe (SPECs) had notable hotspot areas in northern and north-western agricultural areas. I found that in boreal agroecosystems farmland birds favour fields with springtime vegetative cover, especially agricultural grasslands and set-asides. Hence, in the spring cereal dominated Finnish agroecosystems it is the absence of field vegetation that may limit populations of many farmland bird species. It is likely that the decrease of crops providing vegetative cover in the spring, such as permanent grasslands, cultivated grass, and autumn-sown cereals, has greatly contributed to the declines of Finnish farmland birds. Grass crops have persistently declined in Finland as a consequence of specialization in crop production and the large-scale decline in livestock husbandry. Small-scale non-crop habitats, especially ditches and ditch margins, are also important for many bird species in the Finnish agroecosystems, but have dramatically declined during the last decades. A major problem for farmland bird conservation in Finland is the conflict between landscape structure and agricultural management. Areas with mixed and cattle farming are virtually absent from the large agricultural plains of southern and south-western Finland, where the landscape structure is more likely to be favourable for rich farmland bird assemblages. On the other hand, mixed and cattle farming is still rather frequent in northern and central parts of the country, where the landscape structure is not suitable for many farmland specialist birds requiring open landscapes. My results provide useful guidelines for farmland bird conservation, and imply that considerable attention needs to be paid to landscape factors when selecting areas for various conservational management actions, such as agri-environment schemes. Actions promoting the abundance of set-asides, grass crops, and ditches would markedly benefit Finnish farmland bird populations. Organic farming may benefit farmland birds, but it is not clear how general its beneficial effect is in boreal agroecosystems. The most urgent action aiming to preserve farmland biodiversity would be to support re-introducing and sustaining cattle farming by environmental subsidies. This would be especially beneficial in the southern parts of Finland, where the landscape characteristics and abundance of agricultural areas are most suitable for farmland birds and where cattle farming is currently rare.

Effects of management and landscape structure on biodiversity in boreal agricultural farmland

Intensified agricultural practises introduced after the Second World War are identified as a major cause of global biodiversity declines. In several European countries agri-environment support schemes have been introduced to counteract the ongoing biodiversity declines. Farmers participating in agri-environment schemes are financially compensated for decreasing the intensity of farming practises leading to smaller yields and lower income. The Finnish agri-environment support scheme is composed of a set of measures, such as widened field margins along main ditches (obligatory measure), management of features increasing landscape diversity, management of semi-natural grasslands, and organic farming (special agreement measures). The magnitude of the benefits for biodiversity depends on landscape context and the properties of individual schemes. In this thesis I studied whether one agri-environment scheme, organic farming, is beneficial for species diversity and abundance of diurnal lepidopterans, bumblebees, carabid beetles and arable weeds. I found that organic farming did not enhance species richness of selected insect taxa, although bumblebee species richness tended to be higher in organic farms. Abundance of lepidopterans and bumblebees was not enhanced by organic farming, but carabid beetle abundance was higher in mixed farms with both cereal crop production and animal husbandry. Both species richness and abundance of arable weeds were higher in organic farms. My second objective was to study how landscape structure shapes farmland butterfly communities. I found that the percentage of habitat specialists and species with poor dispersal abilities in butterfly assemblages decreased with increasing arable field cover, leading to a dramatic decrease in butterfly beta diversity. In field boundaries local species richness of butterflies was linearly related to landscape species richness in geographic regions with high arable field cover, indicating that butterfly species richness in field boundaries is more limited by landscape factors than local habitat factors. In study landscapes containing semi-natural grasslands the relationship decelerated at high landscape species richness, suggesting that local species richness of butterflies in field boundaries is limited by habitat factors (demanding habitat specialists that occurred in semi-natural grasslands were absent in field margins). My results suggest that management options in field margins will affect mainly generalists, and species with good dispersal abilities, in landscapes with high arable field cover. Habitat specialists and species with poor dispersal abilities may benefit of management options if these are applied in the vicinity of source populations.

Farmland birds and habitat heterogeneity in intensively cultivated boreal agricultural landscapes

The biodiversity of farmland ecosystems has decreased remarkably during the latter half of the 20th century, and this development is due to intensive farming with its various environmental effects. In the countries of the EU the Common Agricultural Policy (CAP) is the main determinant affecting farmland biodiversity, since the agricultural policy defines guidelines of agricultural practices. In addition to policies promoting intensive farming, CAP also includes national agri-environment schemes (AES), in which a part of subsidies paid to farmers is directed to acts that are presumed to promote environmental protection and biodiversity. In order to shape AES into relevant and powerful tools for biodiversity protection, detailed studies on the effects of agriculture on species and species assemblages are needed. In my thesis I investigated the importance of habitat heterogeneity and effects of different habitat and landscape characteristics on farmland bird abundance and diversity in typical cereal cultivation-dominated southern Finnish agricultural environments. The extensive data used were collected by territory mapping. My two main study species were the drastically declined ortolan bunting (Emberiza hortulana) and the phenomenally increased tree sparrow (Passer montanus); in addition I studied assemblages of 20 species breeding in open arable and edge/bush habitats. In light of my results I discuss whether the Finnish AES take into account the habitat needs of farmland birds, and I provide suggestions for improvement of the future AES. My results show that heterogeneity of both uncultivated and cultivated habitats increases abundance and species richness among farmland birds, but in this respect the amount and diversity of uncultivated habitats are essential. Ditches in particular are a keystone structure for farmland birds in boreal landscapes. Ditches lined by trees or bushes increased ortolan bunting abundance. Loss of that kind of ditches (and clearance of forest and bush patches), reduced breeding ortolan buntings, mainly by decreasing availability of song-posts that are important for the breeding groups of the species. Heterogeneity of uncultivated habitats, most importantly open ditches and the habitat patch richness, increased densities and species richnesses of species assemblages of open arable and edge/bush habitats. Human impact (winter-feeding, nest-boxes) affected favourably the tree sparrow s rapid range expansion in southern Finland, but any habitat types had no significant effects. At the moment the Finnish agri-environmental policy does not conserve farmland ditches as a habitat type. Instead, sub-surface drainage is financially promoted. This is a fatal mistake as far as farmland biodiversity is concerned. In addition to the maintenance of ditches, at least the following aspects should be included more than is done previously in the measures of the future AES: 1) promotion of diverse crop rotation (especially by promoting animal husbandry), 2) maintenance of tree and bush vegetation in islets and along ditches, 3) promotion of organic farming.