National report Finland

EUROPEAN COMMISSION DIRECTORATE-GENERAL JRC JOINT RESEARCH CENTRE Institute for Prospective Technological Studies (Seville) Sustainability in Agriculture, Food and Health National report Finland - Quick scan of the food supply chain dynamics, labelling and certification schemes and policies, rules and regulations in the selected EU country (DG JRC/IPTS) vember 2005

Research Team: Prof. M. Aragrande (Coordinator) Prof. A. Segré Dr. E. Gentile Prof. G. Malorgio Dr. E. Giraud Heraud Prof. R. Robles Robles Prof. E. Halicka Dr. A. Loi Dr. M. Bruni Dipartimento di Economia ed Ingegneria Agrarie (DEIAgra) Alma Mater Studiorum Università di Bologna (Italy) DEIAgra Bologna (Italy) DEIAgra Bologna (Italy) DEIAgra Bologna (Italy) INRA Paris (France) Departamento de Ingenierìa Agraria - Universita de Leon Leon (Espana) Warsaw Agricultural University Warsaw (Poland) Areté s.r.l. Bologna (Italy) Areté s.r.l. Bologna (Italy)

Table of contents Task 2.A... 3 Section 2.A.1: structure of food supply chain levels and of their components.... 3 Section 2.A.2: horizontal and vertical relations and adjustment mechanisms within the food supply chains... 21 Task 2.B... 24 2.B.1: Private agreements within the selected food supply chains: regulatory and policy environment and institutional setting... 24 2.B.2. Quality assurance and labelling systems: Policy Environment... 28 2.B.3 Institutions presiding over quality assurance and labelling systems... 38 2.B.4 National and regional regulations on quality and labelling systems... 44 Task 2.C... 48 Section 2.C.1: food supply chain dynamics.... 48 Section 2.C.2: drivers of change in food supply chain dynamics... 51 Task 2.D... 53 2

Section 2.A Task 2.A This document reports the results of a research about the general configuration of food supply chains in Finland, with special attention to the following ones: cereal products; meat; fish. The research is focused on the aspects that are closely connected with quality assurance and labelling systems. The structure of the Finnish agricultural and food system is analysed in a simplified way by identifying some food supply chains on the basis of a horizontal segmentation of the system itself, which does not show any great breakdown. Therefore, the vertically linked subsectors forming the food supply chains in question are aggregate macro entities, which are not perfectly homogeneous from the economic and technical point of view. Given this limit, the concentration data and the information about the situations of dominance described in this document are to be considered just as useful indications within the study to be carried out, which has no antitrust objectives. A scientifically rigorous analysis of the concentration and competition would require a very accurate horizontal segmentation of the agricultural and food system in order to identify the product and geographical markets. However, such an analysis would be incompatible with the conciseness required in this research. Section 2.A.1: structure of food supply chain levels and of their components. Food consumption structure. In 2004, the total Finnish population amounted to about 5.2 million people (table 1), 46.4% of which between 15 and 49 years old. People over 65 accounted for 15.5% of the total population. 3

Section 2.A Table 1- Finnish population and its distribution by age classes (2004) Age Classes % Share of total population Proportion of population aged 0-14 years 17,6 Proportion of population aged 15-24 years 12,5 Proportion of population aged 25-49 years 33,9 Proportion of population aged 50-64 years 20,4 Proportion of population aged 65-79 years 11,8 Proportion of population aged 80 years and more 3,7 Total population (thousands) 5.220 Source: Eurostat/ U.S. Bureau of the Census The estimated 2005 per capita GDP of Finland is significantly higher than the average value in the EU-25 (table 2). 4

Section 2.A Table 2 - Gross Domestic Product (GDP*) per capita in Purchasing Power Standards (PPS**), (2005) Country GDP*** EU (25 countries) 100,0 EU (15 countries) 108,6 Euro-zone 105,9 Euro-zone (12 countries) 105,9 Finland 115,9 Source: Eurostat *GDP is the value of all goods and services produced less the value of any goods or services used in their creation **The volume index of GDP in PPS is expressed in relation to theeu-25 average set to equal 100. ***Forecast In 2003, food expenses (excluding those relating to spirits) accounted for 12.8% of the total household expenditure against an average of 13.1% in the EU-25 (table 3). Table 3 - Expenditure for food and non-alcoholic beverages (2003) Country % Share of total household consumption expenditure EU (25 countries) 13,1 EU (15 countries) 12,8 Euro-zone 13,7 Euro-zone (12 countries) 13,7 Finland 12,8 Source: Eurostat In 2001, 89% of the Finnish population between 25 and 29 years of age had completed secondary education (compared to 75% in the EU-15). At the same time, 56% of the Finnish population between 50 and 64 years of age had a secondary education level (table 4), slightly above the average value in the EU-15 (52%). 5

Section 2.A Table 4 - Percentage of total population that has completed secondary education, by age classes (2001) Country % Share of population Aged 25-29 Aged 50-64 EU (15 countries) 75,0 52,0 Finland 89,0 56,0 Source: Eurostat - European Union Labour Force Survey According to Statistics Finland data (reported in Finfood Agrifacts, 2003) the average Finnish consumer spent 22% of the money spent on food in 2002 on meat and meat products and 18% in dairy products and eggs. 18% was spent on bread and cereal products, and 17% on fruits and vegetables. Food distribution structure 1. In Finland, agro-food products are sold in stores of different size controlled by the main large-scale retailing chains (Kesko with different brand names; SOK with different brand names; Valintatalo of the Tradeka group; Spar; Sesto of the Wihuri group; Lidl). 94% of the food sector s turnover is produced by outlets supplied by the country s main purchase centres (Kesko, Inex Partners e Tuko Logistics). The remaining 6% of the market is controlled by stores and importers specialized in niche products, which are directly supplied by foreign producers. Retail outlets are either owned directly by the chain/purchase centre or owned by the shopdealers. In both cases, however, the outlet relies on the chain s support for logistics, advertising, merchandising, etc. Retailing of spirits containing more than 4.7 per cent of alcohol by volume is subject to monopoly. This means that wine and spirits in general can only be sold in State shops. The Finnish food distribution sector shows a very high concentration level. According to Grievink (2003), in 2003 the Finnish CR-3 index for food distribution was equal to 80% (table 5). 1 The sources for the drawing up of this paragraph are Grievink (2003) and ICE Helsinki (2003). 6

Section 2.A Table 5 - Retail Top 3 position in Finland (2003) Country Top Retailers C3* Finland Kesko SOK Suomen Spar 80,0 Source: Grievink J.W., "The changing face of the global food industry", Presentation at the OECD Conference, The Hague, 6th February 2003. *C3 is the concentration ratio (relative to 100%), of the top 3 firms in the food distribution sector. Food industry structure. The following paragraphs illustrate the main structural characteristics of the food industry subsectors in question for each of the three supply chains under study. Cereal products 2. In 2003, the value of the sales to the retail market and to the foodservice market (HoReCa sector) accounted for, respectively, 94.1% and 5.9% of the whole Finnish market for all flour & bakery products (table 6). Table 6 - Demand in the all flour and bakery products* market (2003) Volume Value.000 tons % Share Euro Millions % Share Retail Market** 481,7 94,8 1.636,5 94,1 Foodservice Market** 26,3 5,2 103,30 5,9 Total Market 508,0 100,0 1.739,8 100,0 Source: Food For Thought (FFT) * All flour and bakery products: products in ready - to - eat form **Data based on estimated percent split of total market In 2005, manufacturers branded products (table 7) account for most of the sales of all flour & bakery products (80.4%). Distributors own label products hold a market share of 16.3%. Artisanal production accounts for just 3.3%. 2 The source for the drawing up of this paragraph is Food For Thought (2005a). 7

Section 2.A Table 7 - Branded products Vs Own label (2005) % Share of total Manufacturers' branded products 80,4 Unbranded goods 0,0 Distributors' own label* 16,3 Artisanal production** 3,3 Total 100,0 Source: Food For Thought (FFT) *Retail distributor brands **Artisanal: craft sales Flour & Bakery Products: Branded Vs Own Label 0,0% 16,3% 3,3% Manufacturers' branded products Unbranded goods Distributors' own label 80,4% Artisanal production In 2005, the Finnish market for all flour & bakery products (table 8) shows a high concentration level, with a CR-3 index equal to 55.1%. In addition to the top 9 leading companies there are other 17 industrial enterprises and a certain number of artisanal enterprises operating in this market, which hold a market share of, respectively, 14.1% and 3.3%. 8

Section 2.A Table 8- Concentration in the all flour and bakery products* market (2005) Holding % Share Cumulative % Share Investor/EQT 28,5 Cloetta Fazer 13,4 Danone 13,2 TOP 3 55,1 Laihian Mallas 10,5 Orkla 5,4 Barilla 3,4 Raisio 2,9 Suomen Leipuriliitto 2,9 Perhelipurit 2,4 TOP 9 82,6 17 Other companies 14,1 Artisanal** 3,3 100,0 Source: Food For Thought (FFT) * All flour and bakery products: products in ready - to - eat form **Artisanal: Craft sales Multinational firms have significant importance in this subsector. Danone holds a market share of 13.2%, while Barilla holds a market share of 3.4%. Meat 3. In 2003, the value of the sales to the retail market and to the foodservice market (HoReCa sector) accounted for, respectively, 95.2% and 4.8% of the whole Finnish market for all fresh & processed meat (table 9). 3 The source for the drawing up of this paragraph is Food For Thought (2005b). 9

Section 2.A Table 9 - Demand in the all fresh & processed meat* market (2003) Volume Value.000 tons % Share Euro Millions % Share Retail Market** 574,7 94,0 3.998,7 95,2 Foodservice Market** 36,8 6,0 203,60 4,8 Total Market 611,5 100,0 4.202,3 100,0 Source: Food For Thought (FFT) * All fresh & processed meat: products in ready - to - eat form **Data based on estimated percent split of total market In 2005 (table 10) the share of the total sales of all fresh & processed meat held by manufacturers branded products (43.6%) is equal to that held by unbranded goods (43.1%). Distributors own label products hold a 13.2% share of the market. Table 10 - Branded products Vs Own label (2005) % Share of total Manufacturers' branded products 43,6 Unbranded goods 43,1 Distributors' own label* 13,2 Artisanal production** 0,0 Total 100,0 Source: Food For Thought (FFT) *Retail distributor brands **Artisanal: craft sales 10

Section 2.A Meat Products: Branded Vs Own Label 43,1% 13,2% 0,0% 43,6% Manufacturers' branded products Unbranded goods Distributors' own label Artisanal production In 2005, the Finnish market for all fresh & processed meat shows a high concentration level (table 11) with a CR-3 index equal to 53.3%. In addition to the top 10 leading companies, there are other 9 industrial enterprises operating in this market, which hold a total market share of 8.0%. 11

Section 2.A Table 11 - Concentration in the all fresh & processed meat* market (2005) Holding % Share Cumulative % Share HK Ruokatalo 32,1 Atria 12,2 Snellman 9,0 TOP 3 53,3 Saarioinen 8,0 Pouttu 7,7 Itikka 6,3 Karjaportti 5,9 Huittisten 5,3 Satahämeen 3,1 Lihayhtyma 2,4 TOP 10 92,0 9 Other companies 8,0 100,0 Source: Food For Thought (FFT) * All fresh & processed meat: products in ready - to - eat form Multinational firms do not play a very important role in this subsector. Fish 4. In 2003, the value of the sales to the retail market and to the foodservice market (HoReCa sector) accounted for, respectively, 92.2% and 7.8% of the whole Finnish market for all fresh & processed fish (table 12). 4 The source for the drawing up of this paragraph is Food For Thought (2005c). 12

Section 2.A Table 12 - Demand in the all fresh & processed fish* market (2003) Volume Value.000 tons % Share Euro Millions % Share Retail Market** 59,7 89,4 555,4 92,2 Foodservice Market** 7,0 10,6 47,0 7,8 Total Market 66,7 100,0 602,4 100,0 Source: Food For Thought (FFT) * All fresh & processed fish: products in ready - to - eat form **Data based on estimated percent split of total market In 2005, manufacturers branded products (table 13) account for most of the sales of all fresh & processed fish (67.1%). Distributors own label products and unbranded goods hold a much smaller share, accounting for, respectively, 17.3% and 15.6% of total sales. Table 13 - Branded products Vs Own label (2005) % Share of total Manufacturers' branded products 67,1 Unbranded goods 15,6 Distributors' own label 17,3 Artisanal production 0,0 Total 100,0 Source: Food For Thought (FFT) *Retail distributor brands **Artisanal: craft sales 13

Section 2.A Fish Products: Branded Vs Own Label 17,3% 0,0% Manufacturers' branded products Unbranded goods 15,6% 67,1% Distributors' own label Artisanal production In 2005, the Finnish market for all fresh & processed fish shows a significant concentration level (table 14) with a CR-3 index equal to 35.3%. In addition to the top 10 leading companies, there are 46 other industrial enterprises operating in this market, which hold, on the whole, a market share of 43.8%. 14

Section 2.A Table 14 - Concentration in the all fresh & processed fish* market (2005) Holding % Share Cumulative % Share Orkla 14,0 Lännen Tehtaat 11,2 Kesäpöytä 10,1 TOP 3 35,3 Unilever 8,2 Findim 4,6 Myrskylän Savustammo 2,7 Investor/EQT 2,3 Saaristomeren Kala 2,1 Scanfish 0,7 rdmar 0,3 TOP 10 56,2 46 Other companies 43,8 100,0 Source: Food For Thought (FFT) * All fresh & processed fish: products in ready - to - eat form The multinational firm Unilever holds a market share of 8.2%. Agricultural sector structure. According to a farm structure survey carried out in all EU Member States in 2003 (Eurostat, 2004), in Finland about 74,200 agricultural holdings had an economic size of at least 1 ESU (European Size Unit = 1,200 Euros). These holdings made use of 2.2 million ha of agricultural area, which is on average 30.2 ha per holding. The 1,400 holdings with an economic size higher than 100 ESU accounted for just 1.9% of total holdings, and controlled an agricultural area of 276,000 ha, equal to just 4.2% of the total (tables 15 and 16). The most important size groups of farms in Finland, in terms of both number and agricultural area, are the two ones with an economic size between 16 ESU and 40 ESU and between 40 ESU and 100 ESU. 15

Section 2.A Table 15 - Agricultural sector structure: number of holdings ('000) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 All the groups Number of holdings 0,8 5,3 9,8 12,9 13,6 20,4 10,9 1,4 75,1 (1000) % Share 1,1 7,1 13,0 17,2 18,1 27,2 14,5 1,9 100,0 Source: Eurostat *ESU: index that measures the economic size of the holdings Number of holdings by area groups 14,5% 1,9% 1,1% 7,1% 13,0% ESU< 1 ESU = 1-2 ESU = 2-4 ESU = 4-8 27,2% 18,1% 17,2% ESU = 8-16 ESU = 16-40 ESU = 40-100 ESU >100 16

Section 2.A Table 16- Agricultural sector structure: total area of agricultural holdings (2003) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 All the groups Total area (1000 25,9 214,3 466,4 816,4 1.086,5 2.214,6 1.494,2 276,0 6.594,3 ha) % Share 0,4 3,2 7,1 12,4 16,5 33,6 22,7 4,2 100,0 Source: Eurostat *ESU: index that measures the economic size of the holdings Total area of agricultural holdings by area groups 22,7% 4,2% 0,4% 3,2% 7,1% 12,4% ESU< 1 ESU = 1-2 ESU = 2-4 ESU = 4-8 33,6% 16,5% ESU = 8-16 ESU = 16-40 ESU = 40-100 ESU >100 As to the structure of farms raising animals, those with an economic size higher than 100 ESU raised nearly 214,000 head of livestock, that is, 18.1% of the total (table 17). Out of these 214,000 head of livestock, grazing livestock accounted for just 26.4%, while in the farms with a lower economic size the share of grazing livestock was much higher (60-95%%). In the farms with an economic size higher than 100 ESU, the average number of farmed livestock was equal to 218 head (table 18). Most of the Finnish livestock is raised in farms with an economic size beteween 16 ESU and 100 ESU. 17

Section 2.A Table 17 - Agricultural sector structure: number of livestock (2003) Total livestock (1000) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 All the groups 0,3 1,5 6,0 16,2 53,8 352,4 539,4 213,8 1.183,4 % Share 0,0 0,1 0,5 1,4 4,5 29,8 45,6 18,1 100,0 Grazing livestock 95,7 97,5 97,5 94,2 88,7 79,0 61,3 26,4 - (%) Source: Eurostat *ESU: index that measures the economic size of the holdings **LSU: Livestock unit Table 18 - Agricultural sector structure: total livestock per holding(2003) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 Livestock (LSU**/holding) 2,9 2,0 3,4 6,1 11,6 25,8 60,5 218,4 Grazing livestock 3,2 2,1 3,5 6,4 12,5 29,2 74,9 383,9 (LSU/holding) Source: Eurostat *ESU: index that measures the economic size of the holdings **LSU: Livestock unit While in the farms with a smaller economic size (less than 16 ESU) the share of managers over 55 was 35-45%, in the farms with an economic size higher than 100 ESU nearly 83% of the managers were under 55 years of age (tables 19 and 20). 18

Section 2.A Table 19 - Number of holders (2003) Holders (1000) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 All the groups 0,5 5,0 9,6 12,4 14,2 20,3 10,8 1,2 74,0 % Share 0,7 6,8 13,0 16,8 19,2 27,4 14,6 1,6 100,0 Source: Eurostat *ESU: index that measures the economic size of the holdings Table 20 - Distribution of holders by age groups (2003) Economic size unit (ESU)* < 1 1-2 2-4 4-8 8-16 16-40 40-100 >100 < 35 years 4,6 10,3 8,0 7,5 8,7 10,9 13,8 12,7 35-44 years 21,8 14,4 19,2 21,8 23,6 27,4 36,5 37,7 45-54 years 26,1 32,3 32,1 33,3 33,5 34,3 33,2 32,5 55-64 years 28,7 30,1 30,1 28,1 27,2 23,8 15,1 15,4 > 65 years 18,8 12,9 12,9 9,3 7,0 3,7 1,4 1,6 Source: Eurostat *ESU: index that measures the economic size of the holdings On the whole, the Finnish agricultural sector has not a particularly polarized structure as to the distribution of agricultural land and livestock among the farms of different economic dimension. Farms with an economic size of less than 4 ESU and farms with an economic size of more than 100 ESU hold quite a limited share of both agricultural land and livestock. The average Finnish farmer is substantially younger than the average EU farmer. The main structural characteristics of the fish and aquaculture subsectors are shown in the tables 21a, 21b, 22a and 22b. The contribution of the aquaculture subsector to the total Finnish fresh fish production is much higher than the average in the EU-15. 19

Section 2.A Table 21a- Fishery in Finland: features of the fishing fleet (2002) Features 2002 Number of vessels 3.571 Total tonnage (tons) 19.883 Average tonnage per vessel (tons) 6 Total power (KW) 188.800 Average power per vessel (KW) 53 Source: Eurostat, "Fisheries, Yearbook 2003". Table 21b - Total catches in all regions (2003) Country Catches ( tons) EU (15 countries) 5.291.255 EU (25 countries) 5.839.858 Finland 121.960 Source: Eurostat Table 22a - Total aquaculture production (2003) Country Production (tons) EU (15 countries) 1.300.604 EU (25 countries) 1.374.971 Finland 13.335 Source: Eurostat Table 22b - Aquaculture vs total fisheries production: economic importance (2001) Country % Share EU (15 countries) 33,1 Finland 80,0 Source: Eurostat 20

Section 2.A Section 2.A.2: horizontal and vertical relations and adjustment mechanisms within the food supply chains. Horizontal relations. This paragraph illustrates some qualitative indications: on the type of relations between firms within the same food supply chain level (i.e. competition / cooperation among firms); on the presence / absence of firms (or groups of firms) in a dominating position within a particular sector or subsector. Horizontal relations within the food distribution sector 5. The Finnish distribution sector is dominated by a very limited number of large-scale retailers. Two of the major groups (SOK e Tradeka) are organized as cooperatives. In addition to the food distribution sector, both these groups also operate in the HoReCa sector, where they control and run hotels, restaurants and coffee-houses. Horizontal relations within the main food industry subsectors. According to the concentration data illustrated in the above section 2.A.1, both in the cereal products subsector and in the meat subsector, the market share of the leading company is quite big (about 30%) and it is much bigger than that of its competitors. The leading companies may therefore be able to influence the dynamics of these subsectors. In the fish subsector, on the other hand, there is a limited difference between the market share of the leading company and that of its main competitors and, therefore, the powers within the subsector are more balanced. Horizontal relations within the main agricultural subsectors. Horizontal relations in the agricultural sector are not so common. Less than 1% of farms are owned by cooperatives (Niemi and Ahlstedt, 2005). 5 The source for the drawing up of this paragraph is ICE Helsinki (2003). 21

Section 2.A Vertical relations and adjustment mechanisms 6. This paragraph illustrates some qualitative indications: on the type of relations between firms of different food supply chain levels (i.e. competition / cooperation among firms); on the presence / absence of vertical dominance phenomena within the food supply chains (i.e. firms - or groups of firms - that are in a dominating position over firms - or groups of firms - operating in the upper or lower level of the supply chain); on the inter-industry agreements within the food supply chains and on the related institutions. on the supply contracts within the food supply chains. In general, in the food supply chains in question, large-scale retailers have some market power over the operators of the upstream sectors as today large-scale retail is the most important commercial channel for food products in Finland. However in both the cereal products and the meat supply chains the leading company at the food processing level holds quite a substantial market share: this may partly counterbalance the market power of large-scale retailers in some related markets. Contract production has a long tradition in Finland and can be described as a first step towards more coordinated food chains (Rytsä, 2001). In contract production the farmer and the cereal buyer agree the quantity and variety of the cereal to be produced. In some cases ( forward contracts ) price is also decided in advance. Cereal production in Finland has some special characteristics compared to many other EU countries: production costs are higher in Finland, while average yield level is lower. A small average farm size, combined with the distance and size of cereal producing areas poses great challenges for logistic and information systems in the Finnish cereal supply chain. About 80% of the cereals entering the Finnish market are produced under contractual arrangements. The Finnish cereal market is small and concentrated, as there are only a few big cereal traders and industrial firms buying cereals. Farmers possibilities to choose among different buyers are scarce. On the Finnish cereal market there are typically two business orientations: logistic alliances organised by cereal traders, and partnerships between farmers and the cereal processing firms. Traders share for cereal purchases lies between 70% and 90%, depending on the cereal variety. The processing industry buys yearly 10-30% of the total Finnish yield. Farmers contract directly with the processors mainly for malt barley and bakery cereals. 6 The sources for the drawing up of this paragraph are Niemi and Ahlstedt (2005) and Rytsä (2001). 22

Section 2.A Bibliographic references. Eurostat (2004), Structure of agricultural holdings Finland, Statistics in Focus Agriculture and Fisheries series, n. 33-2004. Finfood Agrifacts (2003), Food expenditure, ( http://www.finfood.fi/ ) Finnish National Public Health Institute / Nutrition Unit (1999), Food consumption and dietary changes ( http://www.ktl.fi/nutrition/food_consumption_and_dietary_changes.html ). Food For Thought (2005a), All Flour & Bakery Market Profile - Finland, Food For Thought (FFT) Strategic Information Services ( www.fft.com ). Food For Thought (2005b), All Fresh & Processed Meat Market Profile - Finland, Food For Thought (FFT) Strategic Information Services ( www.fft.com ). Food For Thought (2005c), All Fresh & Processed Fish Market Profile - Finland, Food For Thought (FFT) Strategic Information Services ( www.fft.com ). Grievink J.W. (2003), The changing face of the global food industry, Presentation at the OECD Conference, The Hague, 6th February 2003. ICE Helsinki (2003), Finlandia La grande distribuzione, ICE - Istituto Nazionale per il Commercio Estero, Helsinki. Niemi J. and Ahlstedt J. (eds.) (2005), Finnish Agriculture and Rural Industries 2005, MTT Economic Research, Agrifood Research Finland, Helsinki. Rytsä T. (2001), Contract production on the Finnish cereal market, working paper. 23

Section 2.B Task 2.B 2.B.1: Private agreements within the selected food supply chains: regulatory and policy environment and institutional setting 2.B.1.1: Introduction The purpose of the report is to highlight food quality assurance schemes in Finland for meat, fish and cereals. Furthermore, the report identifies the most important regulations on food safety, food hygiene and traceability in the supply chains for the included products. The report analyses quality assurance schemes and labelling systems, which are initiated by any organisation along the agro-food chain. Retailers private labels and organic certification systems are not included. 2.B.1.2: Introduction to the Finnish agro-food supply chains The food industry is the fourth largest industry and achieved a turnover of EUR 8.8 billion in 2003. The meat industry is the most important segment accounting for 25% of the food industry s turnover. Hereafter follow the dairy, drinks and bakery industries. Approx. 2,100 firms were registered in the food and beverage industry, and most of these are small entities with less than 4 employees. Such firms account for 65% of the food plants. Only 70 plants were registered as having more than 100 employees. This indicates that the Finnish agro-food industry is very fragmented. The majority of food plants are located in the south of the country. Due to the large size of the country and the numerous small food production entities the Finnish food industry has maintained a regional structure. Vertical integration can be considered an important basis for developing quality assurance schemes. The structure of the Finnish agro-food supply chains has not promoted vertical integration. The most important reasons for this situation are the long distances in the country, the regional nature of the food processing industry, and the structure of raw material supply. Most raw materials for the meat processing industry are purchased as contracted supplies. 24

Section 2.B In addition, the industrial associations do not seem to have a strong influence on the policy environment and on promoting food exports. The latter task is performed by Finfood, a government financed organisation. Domestically produced goods account for 85% of the raw material base used in the agro-food industry, and domestically produced food products has the lion s share of the food market, as they make up 85% of the food consumed. Exports of food products reached EUR 0.9 billion in 2002 equalling 10% of the food industry s production. This clearly shows that the Finnish food industry and food market is highly oriented towards the domestic market. Furthermore, consumers tend to favour domestically produced food. The large share Finnish products have of the domestic market is largely maintained by certificates and quality assurance schemes stressing the benefits and characteristics of Finnish food. Examples of this kind of quality assurance scheme are The Blue Swan Good from Finland and Uniquely Finnish. The average farm size in Finnish agriculture is 10-20 hectares. In comparison with other European countries this size is rather small. More than 20% of the farmers in Finland have other activities attached to their farming operations, and the most important activity is food processing. This means that a large number of farms process their own raw materials, e.g. milk, berries, meat or cereals, into processed food. The consumers recognize this kind of products as being of a high quality. Furthermore, this production pattern supports the regional and domestically oriented structure of the Finnish agrofood supply chains. The quality assurance scheme Uniquely Finnish is used to certify Finnish produced food products, and a large number of operations certified under this scheme are farms with food processing activities. The Finnish retail market is dominated by 4 retail chains, table 1. Table 1: The Finnish retail market, 2004 Retail chain Market share, % Kesko K-Group 36 S-Group 32 Tradeka-Elanto 13 Spar Group 8 Other retailers 11 Source: USDA, 2003 Table 1 shows that the Finnish food retail market is highly concentrated, as two groups account for almost 70% of the turnover. Research has proven that retailers not least Kesko - are very keen on the quality of the products they select for private labels. This means that retailers pose strong demands for the quality on their suppliers rather than 25

Section 2.B demands on the supplier for implementing certain schemes on production methods. Private label products account for 25% of the food market. This supports the fact that retailers are much more interested in this kind of quality assurance than in implementing their own quality schemes in the supply chains. Furthermore, the unstructured nature of the Finnish food industry with very few large companies does not support the implementation of quality schemes into the supply chains. 2.B.1.3: Private agreements in the agro-food supply chains Private agreements in the supply chains are developed from the structure of the food industry, the supply of raw materials and consumers preferences. A general characteristic of the private agreements in the agro-food supply chains in Finland is, that the agreements tend to focus on origin, consumer health or requirement for production of raw materials particularly pork. Research has not revealed any private agreement involving retailers. This is coherent with retailers stronger interest in developing their private labels (section 2.B.2.1). The following private agreement have been identified. The Heart label At the beginning of 2000, the Finnish Heart Association and the Finnish Diabetes Association launched the heart symbol system. The right to use the symbol is granted on application for a packaged product that fulfils the granting principles for the product group in fat quantity and quality, salt and cholesterol. For bread and cereal products, fibre content is also taken into account. The addition of sugar content to the granting principles is under consideration By September 2004, the right to use the symbol had been granted to 187 products from 26 companies. According to a May 2004 consumer survey, 71% of the Finns (83% of women) over 15 years of age know the Heart symbol by sight. It is particularly encouraging that 34% of the consumers (42% of women) claimed to have made their food choices often or occasionally especially because of the symbol 7. HK Roukatalo quality programme HK Roukatalo is one of the biggest meat and poultry companies in Finland and the Baltic countries. The quality of the products is ensured by HK Roukatalo through high 7 The Finnish Heart Association, 2005 26

Section 2.B hygienic standards and an implemented quality program targeting primary production. The quality program contains the following 8 : medication during finishing period use of hormones More space for rearing livestock Salmonella-free environment Feed free from salmonella and exceptionally low presence of heavy metals and pesticides The well-being of livestock constantly monitored during rearing and transportation Lantgårdens Bästa Lantgårdens Bästa is a quality assurance program developed by the meat company Snellman AB. The program covers the interaction between the pig and cattle farmers and Snellman and is targeted primary production. If the farmers live up to certain requirements they become certified as Lantgårdens Bästa. The program includes the following issues: Health issues in the herds Veterinary control of the environment of stables Feed Environmental impact on production Animal transportation Meat development All the farmers supplying pigs to Snellman and about 78-80% of the suppliers of cattle are certified according to the quality program. Documentation is based on self-control systems and Snellman is responsible for the control of the program. Finnish Fresh Fish Oy Kalamesta The Finnish fish company Finnish Fresh Fish Oy Kalamesta purchases fish from suppliers around the world. In order to maintain a standard quality in the products made, Finnish Fresh Fish Oy Kalamesta has developed its own quality assurance program. The program has standards for the following issues: 8 HK Roukatalo, 2005 27

Section 2.B Product freshness Deliveries Packing Transportation The company pays careful attention to processing and transportation of fish. This includes correct processing methods, sanitary production chains and monitoring temperatures during transportation. On a regular basis, the company carries out inspections of both products and producers. 2.B.2. Quality assurance and labelling systems: Policy Environment 2.B.2.1: Policy Environment and Institutional Setting Legislation prescribes the general requirements and nature of food control as well as the powers of the relevant authorities. Food legislation has been intensely developed in recent years. EU regulations have been incorporated in Finnish law and key national food legislation has been reformed. The Finnish administrative model has four levels and comprises ministries, central administration, the provincial governments and the municipalities. The Ministry of Trade and Industry, The Ministry of Social Affairs and Health and the Ministry of Agriculture and Forestry are responsible for developing legislation regulating food production and food control, figure 1. 28

Section 2.B Figure 1: Policy environment and institutions, 2005 Source: National Food Agency, 2005 The ministries keep the development of the quality of food products at the forefront of all decision- making and create favourable conditions for the development of the quality of food, progress of quality work and competitiveness. The authorities channel resources into research, training, control, communication and agricultural quality work. The Finnish government is strongly committed to the development of quality work, which encompasses the entire food supply chain. The task of ministries is to develop legislation. Different ministries' tasks in the field of food control are for the most part in line with the division of labour between the European Commission's Directorates-General. The Ministry of Trade and Industry directs areas within the scope of DG III as well as market control including labelling. The Ministry of Agriculture and Forestry mostly handles tasks covered by the Directorate-General for Agriculture (DG VI). Thus it controls primary production and processing. The Ministry of Agriculture and Forestry coordinates the food control, from field to table, in collaboration with the National Food Agency (NFA), National Veterinary and Food Research Institute and the Plant Production Inspection Centre. 29

Section 2.B The National Food Agency directs food control in the whole of Finland. Every year NFA prepares an annual food control program. The program instructs officials how to arrange food control in Finland. It covers control practices under the Act on Hygiene of Foodstuffs of Animal Origin, the Health Protection Act and the Food Act. It provides guidelines for contaminants in foodstuffs of animal origin, the pesticide residue control program and the dioxin control program. The tasks of NFA include supervising and monitoring regional and local authorities, taking part in EU and other international projects as an expert body, producing and publishing research reports and serving industry, commerce and consumers. It is also responsible for directing the control of production, processing and import of foodstuffs obtained from animals and for controlling production facilities using animal products. Together with the municipal health inspectors, the NFA monitors that food and beverage products meet the requirements laid down in the Product Safety Act and do not present a risk to consumers' health. In 2004 there were 24 approved slaughterhouses in Finland. The food safety standards of these plants were monitored and controlled by 41 inspection veterinarians employed by the National Food Agency. In 2005, the work of these inspectors will stress battling BSE, control of the beef marking system and beef traceability as well as control activities regarding animal by-products. Furthermore, the inspectors will emphasize the control of in-house control schemes in plants based on HACCP principles. Regional administration consists of six provincial governments that are responsible for planning and directing food control at the regional level. Food control takes place as part of the environmental health work in close cooperation with veterinary medicine and health protection. One important task is to support the municipalities by counselling, training, developing work methods and by monitoring, evaluating and reporting on various projects carried out in different municipalities. Provincial officers also take part in the activities of the National Food Agency and other government agencies by serving as experts in working groups and by specializing in particular control tasks. The major task of the Municipal Food Control Authorities is to tend to the practicalities of food control. The work includes performing inspections, advising business enterprises and approving plans regarding in-house control. Food samples are tested at municipal food research institutes. Food control at the municipal level is part of the environmental health work; officials tend to other tasks related to environmental health, and most are involved only part-time in food control. The municipalities enjoy an extensive degree of self-administration and are free to decide for themselves how they wish to arrange food control in their own area. 30

Section 2.B Spot checks are made for this purpose by municipal inspectors who conduct inspections in shops a and at other points of sale, in warehouses, plants and production facilities. Customs monitor the safety of consumer goods that are imported from outside the EU. The Plant Production Inspection Centre (KTTK) is the authority controlling and monitoring safety and quality in seed and feed, and it carries out inspection in feed plants 1-3 times per year. All inspectors are authorised by KTTK. The control includes the company s self-audit procedures, feed safety and hygiene measures, and inspection of transport vehicles. The authority also assists the Ministry of Agriculture and Forestry in implementing legislation. 2.B.2.2: National Inquiries on food safety, quality and traceability Food safety, the origin of the food products and the quality are of much concern to consumers in Finland. This is closely connected with the pattern found in agriculture, where a large proportion of farms have on-farm processing facilities for their produce. In the light of the on-going work in Europe on improving food safety and the quality of food, the Finnish Government has revised its strategy on Finnish quality food. In 2004, the National Quality Strategy for the Food Sector (NQSF) drawn up in 1999 was revised. The aim of the national quality work is to improve the quality of products and operations through joint measures in administration, research, training, consultation as well as the food chain itself, and to ensure that the high level of quality is maintained while improving the competitiveness and profitability of companies. The NQSF includes the following objectives: Reinforcing social responsibility in the practices of the Finnish food sector Reinforcing the competitive advantage of the Finnish food chain Reinforcing the competitiveness of the Finnish food chain Consumer awareness of the quality work in the Finnish food chain Different parties in the food chain have cooperated to devise the NQSF. The strategy is organised and executed by a Quality Management Board involving the following 20 different organisations: Agrifood Research Finland Central Union of Agricultural Producers and Forest Owners Fertiliser and Plant Protection Agent Industry Finfood LUOMU 31

Section 2.B Finfood Finnish Food Information Service Finnish Food and Drink Industries' Federation Finnish Food Marketing Association Finnish Food Workers Union Finnish Consumers Association Finnish Horticultural Products Society Horticulture Association Ministry of Agriculture and Forestry Ministry of the Environment Ministry of Trade and Industry National Food Administration National Veterinary and Food Research Institute Union for Organic Farming Association of Rural Advisory Centres Svenska Lantbruksproducenternas Centralförbund (Central Association of Swedish Agricultural Producers) University of Helsinki, Faculty of Agriculture and Forestry The strategy covers food safety in all parts of the food chain. The origin and quality of the raw material is verified and ethical principles are complied with. The skills, welfare and job satisfaction of the people working in the food chain are also included in the strategy. As a result of the National Quality Strategy, by 2006 systematic quality work, including certifiable systems, quality assurance schemes and legal quality, will cover all farms, agricultural input production, as well as the food industry, trade and transportation in Finland. It has not yet been decided whether a food quality or food safety label will be developed and introduced as a result of the National Quality Strategy. The need for a label will be analysed and taken into account when the National Quality Strategy is evaluated. Within the last few years, consumer demand for food quality safety and traceability has increased. To an increasing extent, consumers focus on where the products come from, how they have been produced, who has been involved in the various phases of the production chain, ethical aspects of food production, environmental consequences of food production and taste as well as appearance and health aspects. All the major Finnish food companies have an environmental program that aims at reducing the environmental impact of food production. An example is Atria Oy that has an environmental policy with the goal of reducing landfill waste, air emissions, improving the efficacy in energy use and recovering heat 9. 9 Atria Oy, 2005 32

Section 2.B With regard to trust in food safety Finnish consumers can be divided into two groups. Some Finns trust to a large degree; others trust partially. There is no consumer group in Finland that would trust food safety only very little or not at all. Trust appears to accumulate, and there seems to be a correlation between trust in the safety of foods produced in different ways and from different raw materials, trust in the quality of the food chain and trust in other people. Consumer trust in different actors and products varies, and trust also varies according to the situation. Consumers feel that food safety and healthiness have improved in recent decades. Still, they also see problems related to food and consider unhealthy food habits and allergies to be the most serious of these. Views on the safety of different kinds of foods are affected by factors such as raw materials, production method, processing, healthiness and familiarity. The importance of these factors varies for different foods. Of the foods given as example, consumers trust fresh fruit, vegetables and organic beef the most, and they distrust fast food, canned tomatoes and genetically modified tomatoes the most. Young Finns have a higher level of trust compared to older Finns, particularly in the above-mentioned foods that aroused most scepticism among all participants. Gender correlates with the level of trust even clearer than age. Women are more sceptical with respect to food safety than men and regard the problems related to food as more serious than men. Finns are relatively trusting compared with other European consumers 10. 2.B.2.3: National Regulations on food safety, food quality and traceability The Food Act ( 361/1995) is the central act on food. This act lays down the framework for detailed orders on handling, storing and processing food. A main point is that any business handling food must act in such a way that no harm is feared from the product. The act prescribes that any business handling food must have an approved system for own control. This paragraph is relevant for food processors, distributors, restaurants and any other business handling food. The act authorises the National Food Agency to control and monitor self-audit schemes in the food business, and lays down the framework for mandatory laboratory tests for food safety. The purpose of the Act on Health Protection ( 763/1994) is to maintain and promote the health of the Finnish population. The National Food Agency is the authority monitoring this act when it comes to issues regarding food. The act prescribes that the interior of businesses handling food must be designed in such a way that health risks are 10 National Consumer Research Centre, 2004 33

Section 2.B avoided, that these facilities are approved of by the authority before operations are commenced and that the business has implemented a self-audit scheme. Further, the act prescribes that dead animals and wastewater are handled, so that no consumer health risk is connected with it. Requirements for food labelling are found in Order 1084/2004, implementing EU Directive 2003/89, and it came into force as from January 1 2005. The order outlines demands for information on packaged food such as: producer, net weight, composition, expiry date, country of origin, and recommended storage conditions. All food labelling must be presented in Finnish and another Scandinavian language. The order includes detailed rules for labelling of meat and meat products. Meat, poultry and fish A number of acts constitute the framework for food safety in the Finnish supply chains for food of animal origin. Provisions on the health of personnel handling food of animal origin in plants, fishing vessels and production farms are laid down in the Act on Infectious Diseases (583/86) and the Act on Health Protection (763/94). Provisions on combating and preventing animal diseases are laid down in Act on Animal Diseases (55/80), and provisions on medication of animals in the Act on Medicating Animals (402/90). Imports of live animals, food and feed of animal origin must be inspected at the borders of Finland. This includes animals and products of animal origin for transit, as specified in Order 1370/2004 on the border veterinary control. The Border Veterinary Service is responsible for the hygienic control of imported feed of animal origin, live animals and food of animal origin. The competences and procedures that concern border control are outlined in Act 1192/1996, supplemented by Order 398/2004 and Order 785/21999. Food of animal origin from countries outside the European Union must be controlled before entering the Finnish market, as stated in Order 392/2004. The order lays down rules for salmonella control in imported food. Order 667/2004 has been implemented to ensure the hygienic quality of fish and processed seafood products imported from countries outside the EU. Act 1195/1996 on Food Hygiene of Foodstuffs of Animal Origin is the most important act that concerns the hygienic quality of food of animal origin (meat, poultry, fish, eggs and milk). Details and explanatory notes to the act are found in Decree on Food Hygiene of Foodstuffs of Animal Origin 1336/1996. The act applies to plants and fishing vessels, and includes rules on hygienic quality requirements, handling of food, and control and inspections before the meat or fish products enter the retail market. 34

Section 2.B Act 1195/1996 prescribes that any plant must be approved of by the National Food Agency before operations start. Otherwise, the municipal control authority carries out this task. Also fishing vessels must be registered and approved by the municipal control authority. In addition, the act lays down the rules for mandatory self-audit schemes in plants and fishing vessels. These schemes must be approved by the authorities. The act also lays down rules for keeping records in meat plants and fishing vessels. Such records must include details of the origin of the food of animal origin entering and leaving the plant or fishing vessel as well as details of control results from inspections by authorities. The rules on processing and trade in meat and meat products are outlined in Order 821/2002. Only meat from authorised plants in other EU countries may be traded in the Finnish market, and vice versa. Beef, pork, poultry and minced meat must comply with the standards for salmonella in the Finnish market before entering the country. The order prescribes that a certificate of health accompanies the meat. Order 1203/2001 is the central order concerning food safety and traceability in beef. The order implements EU Directive 1760/2000. The order states that a register for livestock must be established and that all livestock must be identity marked. It is mandatory to register place of birth, rearing and slaughtering for all livestock. Furthermore, all processors and retailers of beef are obliged to implement a system that provides documentation for the identity of the meat (the batch), the origin and the supplier. The order is supplemented by Order 786/2000 covering meat processors and retailers. This order outlines details on labelling requirements for beef, including information on the origin, batch number, production date and health conditions. The order further outlines details of self-audit schemes on the premises of processors and retailers. The National Food Agency is the controlling and monitoring authority. Measures for minimizing the risk of spreading BSE from farms to abattoirs, and in facilities for destruction of animal waste material are regulated through Order 1197/200. The order is supplemented by Order 1022/2000 regulating the procedures for collecting, transporting and processing high-risk animal waste materials, and Order 1374/2004 on destruction of animal waste material. Only accredited laboratories are allowed to carry out tests on food products of animal origin, as outlined in Order 957/2002. The tests must be performed according to the standards SFS EN ISO/IEC 17025. The composition of sausages is regulated in Order 987/2002, based on decision 139/1996. The order outlines quality standards for sausages, approved additives and compounds, meat content and labelling regulations. The order has been in force since 35