Chapter 22. Switzerland
Support to agriculture
Switzerland has progressively reduced its support to agriculture but the change in the level of support is relatively moderate, while the changes in the structure of support are more pronounced. Support to farms (PSE) remains high in terms of its share on gross farm receipts and is three times above the OECD average. Total support to agriculture (TSE) was around 1% of GDP in 2015-17 and is dominated by direct support to farms (PSE). Support based on output (including market price support) is the most important element of the support although its share in the total support to farms has been reduced over time in favour of area payments and other, less coupled forms of support. The main element of the General Services Support Estimate (GSSE) is to finance the agricultural knowledge and innovation system, which represents almost half of the GSSE expenditures.
One of the main components of support provided to Swiss farming is market price support (MPS) resulting from important trade barriers applied at the border. Over the analysed period, the MPS has been reduced from 80% to around 50% of total support to farmers. Also the level of price distortions has been significantly reduced, although domestic prices were on average 60% above world prices in 2015-17. Switzerland also provides significant direct payments to farms (all subject to environmental cross-compliance) which were introduced to partly compensate the reduction of the MPS. The role of the direct payments has been increasing over time and while it represented around 20% of support to farmers in the 1980s, it has increased to around 50% in current years. Most of these payments are currently in the form of payments per area to secure food supplies, payments to maintain farming in less favoured conditions, and payments to farmers who voluntarily apply stricter farming practices related to environmental and animal welfare societal demand.
Main policy changes
The policy framework adopted for the period 2014-2017 was extended, by a decision of the Parliament, without any particular changes for the period 2018-21 (Politique agricole 2018-2021 – PA 2018-21). Overall, the spending budgeted for 2018-21 was reduced by 1.7% compared to 2014-17. The main change was a 30% reduction for the financial envelope Improving the production base and social measures, mainly by cutting support to farm investments. There were no further reforms to the border measures and the protection remains relatively high.
From 2017 on, the Ordinance on Swissness (HasLV) came into force. It defines the conditions that have to be fulfilled in order to use the Label “Swiss” and the use of the label of the Swiss cross. It is designed to better inform the consumers on the origin of the products.
Assessment and recommendations
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Security of food supply should be sought through a more competitive agriculture rather than by direct payments. The removal of milk price controls and milk quotas had a potential to increase competitiveness and better allocate resources. However, the fact, that the initially private contracts setting A,B,C prices and related quantities of delivered milk are made compulsory for all producers from 2013 and will be maintained up to 2021 (with a potential to be further extended), means that the abolished production quota system was de facto replaced by a another production control mechanism.
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Continued reductions of import barriers and the elimination of the export subsidies to processed products are the next steps to further reduce the burden to consumers and interference with markets.
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Much, but not all, of Swiss farming occurs in difficult natural conditions and support policies maintain production where it would not otherwise occur. A better distinction could be made, though, between policies that address market failures (the provision of positive externalities and public goods as well as the avoidance of negative externalities), and those that address income problems. For the latter a use of economy wide measures, as opposed to specific agricultural ones, could be sought.
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Switzerland has made some progress in reducing environmental pressures from agriculture. However, it failed to meet some other environmental objectives and nutrient surpluses (particularly Nitrogen) remain comparatively high. For some objectives such as sustainable use of resources and animal welfare the existing regulations could be made more stringent by incorporating the current cross compliance requirements (or some of their elements) into mandatory regulation.
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Switzerland has decided to maintain the system of direct payments applied in 2013-17 also for the period 2018-21. As far as payments to farmers are concerned, for developing the post 2021 policies, focus should be put on further developing a set of better targeted direct payments to meet the various societal concerns and in parallel to further reduce border protection in order to meet the declared (and sometimes conflicting) objectives at the lowest costs to consumers and taxpayers. Further development of the consumer information system related to issues such as environment and animal welfare should also contribute to address some market failures.
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To meet its engagements in the Paris Agreement on Climate Change, Switzerland is developing a policy which sets also specific targets for agriculture. In December 2017, the Swiss Federal Council adopted a message to revise its climate policy for 2021-2030 to reduce its emissions in 2030 by 50% compared to the 1990 level. Reductions of agricultural emissions as currently being discussed and including both agricultural production and consumption would be an important contribution to achieving the overall abatement commitments.
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Support to farmers (%PSE) has declined gradually over the long term. In the 2015-17 period support has been around 55% of gross farm receipts, three times higher than the OECD average. The share of potentially most distorting support has decreased over time due to a decline in market price support (MPS) and border protection, but still stands at around half of the support (Figure 22.1). The level of support has declined from 2016 to 2017 mainly due to the reduction of MPS. The decrease in MPS results from a lower price gap as domestic prices remained stable and world prices declined mainly due to a reduction of USD border prices (Figure 22.2). Prices received by farmers were higher than world prices (by 60% on average); price support varies between commodities with the highest price gaps for poultry and eggs. MPS is the main component of Single Commodity Transfers (SCT): poultry and eggs also had the highest share of SCT in commodity gross farm receipts (Figure 22.3). Overall, SCT represent 55% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and innovation, relative to agriculture value added record an upward trend and are among the highest across the countries covered by this report. Total support to agriculture as a share of GDP has declined significantly over time. Almost 90% of the total support is provided to individual farmers (PSE).
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Contextual information
Switzerland is a small open economy with a high GDP per capita and relatively low inflation and unemployment (Figure 22.4.). It is a densely populated country especially in the plain areas. The relative importance of agriculture in the Swiss economy is low with its share in the GDP below 1%, while its share in employment is around 3%. This is mainly due to highly developed industrial and services sectors in the economy.
The farm structure is dominated by relatively small family farms. Hills and mountain farming areas (including the alpine summer pastures) are used for extensive milk and meat production, while more concentrated pork and poultry production, but also arable farming, milk, fruit and vegetables, vineyards are located in plains. Arable land represents 26% of total agricultural area. The long-term trend is a reduction of traditional arable crops (grains, oilseeds) production and an increase of fruit and vegetable production.
Switzerland has consistently been a net agro-food importer; its current share of agro-food imports in total imports is around 4%, while the share of agro-food exports in total exports is around 3% (Table 22.2). Swiss agro-food exports consist mostly of processed products for final consumption (84% of total agro-food exports). This category is also the most important, although less dominant, in the agro-food imports (49%), and imports for further processing in the food industry represent almost one-third of the imports.
Source: OECD statistical databases.
Total factor productivity (TFP) growth in agriculture has substantially slowed and, at 0.7% between 2005 and 2014, was less than half of the global average. As the use of primary factors and intermediate inputs has barely changed, output growth was modest as well.
Swiss agriculture is largely rain-fed. Only 2% of the arable area is irrigated and agricultural water abstraction water is around one-fifth of the OECD average. Nutrient surpluses have declined substantially notably for phosphorus, while the reduction in GHG emissions was only marginal. Agriculture’s share in energy use has declined and is one-third of the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.
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Switzerland |
International comparison |
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|---|---|---|---|---|
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1991-2000 |
2005-2014 |
1991-2000 |
2005-2014 |
|
|
|
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World |
|
|
TFP annual growth rate (%) |
1.69% |
0.66% |
1.60% |
1.63% |
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|
|
OECD average |
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Environmental indicators |
1995 |
2016* |
1995 |
2016* |
|
Nitrogen balance, kg/ha |
73 |
61 |
33 |
30 |
|
Phosphorus balance, kg/ha |
7.0 |
3.0 |
3.7 |
2.4 |
|
Agriculture share of total energy use (%) |
1.3 |
0.6 |
1.8 |
1.9 |
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Agriculture share of GHG emissions (%) |
12 |
13 |
8.5 |
8.5 |
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Share of irrigated land in AA (%) |
.. |
2.2 |
- |
- |
|
Share of agriculture in water abstractions (%) |
.. |
8 |
45 |
43 |
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Water stress indicator |
4.9 |
3.8 |
10 |
10 |
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Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data. |
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Description of policy developments
Main policy instruments
Most agro-food imports to Switzerland are regulated either by single tariffs or, for a number of products, by Tariff Rate Quotas (TRQ) with relatively low in-quota tariffs and high out-of-quota tariffs. TRQs in particular cover meat, milk products, potatoes, fruits, vegetables, bread cereals and wine. Since 1999, an auctioning system is partially used to allocate the TRQs to traders.
All export subsidies for primary agricultural products were eliminated by 1 January 2010. Export subsidies for some processed agricultural products are permitted to be maintained within a transitional period until 2020 to compensate for high prices of domestically produced agricultural inputs. However, a legislation abolishing these export subsidies from 1 January 2019 was adopted by Swiss parliament in December 2017.
The network of Swiss trade agreements consists of the European Free Trade Agreement (EFTA), the Free Trade Agreement with the European Union and another 30 agreements concluded with 41 countries. All these agreements were negotiated and signed within EFTA with the exception of agreements with China, Japan and the Faroe Islands.
The budgetary spending supporting agriculture consists of three broad financial envelopes. Direct payments (CHF 2 747 million in 2017): Direct payments to farms for meeting societal demand such as food security, environment (landscape, biodiversity, sustainable use of resources) and animal welfare. Production and marketing (CHF 434 million in 2017): Expenditures are mainly to support dairy producers in the form of direct payments for milk delivered for cheese processing and to milk production without silage feed. Area payments are paid for oilseeds and protein crops and, since 2008, an area payment for sugar beet replaced the system of subsidies to processors and related system of guaranteed prices to sugar beet growers (discontinued in 2008). Other expenditures finance general services to the sector as marketing promotion. Improving the production base and social measures (CHF 153 million in 2017): spending includes direct support to farm investments, but also general services to the sector through infrastructure improvement and social measures.
Switzerland has implemented a policy framework for the period 2014-2017 (Politique Agricole 2014-17). The main change to the previous system of direct payments was the replacement of general headage payments to ruminants by an area payment to pastures with a requirement for a minimal stocking density. Another important shift in the structure of payments was the suppression of general area payments and reallocation of payments more closely related to specific policy objectives complemented by transition payments to make the reform socially acceptable. Most of the animal welfare and agri-environmental payments from the previous period continue to be applied under the various main categories of the 2014-17 frameworks. The environmental cross-compliance conditions continue to be applied within the new system of payments. For the period 2014-17, the overall budgeted annual amount of these payments remained stable for the whole period around CHF 2.8 billion (USD 3.1 billion).1
In the framework of the Paris Agreement on Climate Change, Switzerland is developing a policy which sets also specific targets for agriculture. In December 2017, the Swiss Federal Council adopted a message to revise its climate policy for 2021-2030 to reduce its emissions in 2030 by 50% compared to the 1990 level. In the current plan, strategies, targets and measures to reduce emissions were developed and set for transport, construction and industry. In the new proposal agricultural specific targets and the agro-food (both production and consumption side) would be also included.
Based on the Swiss climate strategy for agriculture, the proposed target is to reduce the emissions by one-third by 2050 in agriculture, this effort should contribute to a two-thirds reduction of emissions in the whole agro-food chain (this commitment includes reductions of emissions both at the production and consumption side). The main activities contributing to this reduction are in the reduction of emissions from livestock production, application and management of fertilisers, soil preparation, reduction of the use of fossil energies and production of renewable energies by the sector. In the whole agro-food chain the reduction of emissions is related to input industries, processing, but also in final consumption where change of diets and reduction of food waste are the main drivers.
Domestic policy developments in 2017-18
Since the abolition of the milk quotas in May 2009, all dairy farmers are obliged to conclude milk delivery contracts with their milk purchasers. The inter-branch organisation for milk (l’Interprofession du Lait – IP Lait) took responsibility for standard milk delivery contracts (setting three levels of prices and corresponding volumes for contingents A, B and C) for its members.
By a decision of the Federal Council those standard milk delivery contracts were made compulsory also to producers outside the IP Lait from 1 July 2013 to 30 June 2015. In December 2015, the Federal Council decided to apply this obligation of milk delivery contracts also for 2016 and 2017, and extended it for another four years, i.e. 2018-21. The fact, that these contracts are made compulsory for all producers from 2013 and will be maintained up to 2021 (with a potential to be further extended), means that the abolished production quota system was de facto replaced by a another production control mechanism. The effective price paid to milk producers remains on average 54% above the world market prices (producer NPC) in 2015-17.
Since the introduction of area payments for sugar beet, these payments have been gradually reduced until 2015. However, due to a reduction of sugar prices on EU markets (reflecting the reform of EU sugar policies) these payments were increased to CHF 1 800 (USD 1 827) in 2016. Since 2016, this payments scheme remains unchanged.
In March 2017, the Swiss Parliament voted a budgetary envelope to finance agricultural policies for 2018-21 (AP 18-21). Overall, the spending was reduced by 1.7% compared to 2014-17. The budget was reduced by 30% for the financial envelope Improving the production base and social measures, mainly by cutting support to farm investments. The budgetary envelopes were almost unchanged for Production and marketing (+0.5%) and Direct payments (-0.1%). The system of the Direct payments remains the same as in 2014-17.
From 2017 on, the Ordinance on Swissness (HasLV) came into force. It defines the criteria which have to be fulfilled in order to use the Label “Swiss” and the use of the label of the Swiss cross. For food and beverages two requirements have to be met: i) 80% of the raw material or ingredients (by value) have to originate from Switzerland (100% for milk and milk products); ii) the processing of the products has to take place in Switzerland (e.g. milk processing into cheese).
On 24 September 2017, the Swiss electorate adopted in a referendum a new article on food security in the Swiss Constitution. In order to guarantee the supply of food to the population, the Confederation shall create the required conditions for: a) safeguarding the basis for agricultural production, and agricultural land in particular; b) food production that is adapted to local conditions and which uses natural resources efficiently; c) an agriculture and food sector that responds to market requirements; d) cross-border trade relations that contribute to the sustainable development of the agriculture and food sector; and e) using food in a way that conserves natural resources. The new article in the Constitution supports the general thrust of current agricultural policy. It sets out how to guarantee proper food supplies to the Swiss population in the long term. In doing so, it takes account of the entire process from farmers to consumers. Food supplies should be guaranteed by exploiting both domestic production and imported foodstuffs.
Trade policy developments in 2017-18
As a member of the European Free Trade Association (EFTA), Switzerland participates in ongoing free trade negotiations between the EFTA and, respectively, Ecuador, India, Indonesia, Malaysia and Viet Nam. Negotiations with Algeria, Thailand, and the Customs union of the Russian Federation, Belarus and Kazakhstan are on hold for the moment. Negotiations with Georgia and the Philippines have been concluded and signed in 2016. Free Trade Agreements with Chile, Mexico and SACU are currently facing a renegotiation. These Free Trade Agreements and the ongoing negotiations also cover agriculture including processed agricultural products and a range of basic agricultural products.
Preferential tariff rates are unilaterally applied to imports from developing countries under the general system of preferences. In the context of the initiative of the Swiss government to grant zero tariffs on all products originating in Least Developed Countries (LDC), since September 2009 all agricultural imports from LDC countries are duty and quota free.
Due to a low harvest in 2016 wheat tariff quotas were increased from 70 000 tonnes to 100 000 tonnes for 2017.
In 2016, export subsidies for processed products amounted to CHF 94.6 million (CHF 81.6 million spent on dairy products and CHF 13 million on grain based products). The same level of export subsidies was maintained in 2017.
References
OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
OECD (2015), OECD Review of Agricultural Policies: Switzerland 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264168039-en.
Note
← 1. The OECD Review of Agricultural Policies: Switzerland provides more detailed information on the programmes providing payments in the main categories of the PA 14-17 and discusses expected economic and environmental effects (OECD, 2015).