25. Switzerland
Support to agriculture
Over the past decades, Switzerland has seen some moderate reductions in its support to agriculture, but support levels tended to stabilise most recently. Support to producers (PSE) remains high in terms of its share on gross farm receipts and is almost three times above the OECD average. Total support to agriculture (TSE) was around 1% of GDP in 2017-19 and is dominated by support to individual producers (PSE). In contrast, changes over time in the structure of support are more pronounced, as market price support (MPS) has partly been replaced by various types of direct payments.
MPS, mainly due to tariff rate quotas (TRQs) with high out-of-quota tariffs, remains the main component of support. However, over the past 30 years, MPS has been reduced from 80% to around 50% of total producer support. Nonetheless, average domestic prices were 45% above world prices in 2017-19. Switzerland provides significant direct payments to farms (almost 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 these represented around 20% of support to farmers in the 1980s, their share has increased to almost 50% in current years. Most of these payments are currently provided in the form of payments per area, 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.
Expenditures for general services are high in Switzerland. 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.
Main policy changes
The policy framework implemented during the period 2014-17 was extended until the end of 2021 (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 is the gradual reduction of transitional payments, while the saved budgetary resources are shifted to finance other direct payments (mainly to support biodiversity, sustainable use of natural resources and animal welfare).
As from 1 January 2019, export subsidies for processed food products were abolished. To compensate for the price reduction related to the elimination of the export subsidies, the funds saved were transferred to the agricultural budget to finance direct payments to milk and grain.
On 12 February 2020, the Federal Council announced its plan on the future development of the Agricultural Policy from 2022 (PA22+). The draft PA22+ foresees the promotion of an even more sustainable and value-creating agriculture. Extra support measures for the promotion of wine began in December 2019 and are to continue throughout 2020.
Assessment and recommendations
The objective of ensuring security of food supply should be sought through a more competitive agriculture rather than by direct payments. Policies facilitating structural change including investment support and exit strategies should facilitate such a process.
Continued reductions of import barriers and elimination of the export subsidies to processed products are important steps to further reduce the burden to consumers and distortions to markets.
The introduction of output payments for milk and area payments to grain producers to compensate for the elimination of export subsidies could undermine efforts to reduce resource misallocation and could impede structural adjustment. Such compensatory measures should be temporary.
The use of funds from the reduction of transitional payments to finance biodiversity, sustainable use of natural resources and animal welfare could potentially contribute to address some market failures.
The range of measures envisaged in the Agricultural Policy 2022 are broadly supportive of a more sustainable agricultural sector. They could contribute to more efficient use of natural resources and enhance the environmental sustainability of agriculture. More regional targeting of direct payments is also foreseen, although a better distinction could be made 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.
The Swiss agricultural sector is only marginally affected by the current CO2 legislation. In order to achieve its climate change targets for the agricultural sector, Switzerland should contemplate the extension of the CO2 tax to other parts of the agricultural sector as well as to focus more on targeted policies.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
In addition to normal short-term loans available to bridge liquidity shortages of agricultural producers, the Swiss Government is considering the advanced payment of direct payments and payment for specific crops. No other compensation is being considered.1
Several existing web-based platforms allow farms searching for additional labour resources and interested workers to come together.
Agro-food supply chain policies
Flexibility has been introduced into the partial tariff quotas for foodstuff to stabilise market prices. So far this has been used for butter and eggs, but potentially can be used for a range of goods if needed.
The Swiss Government has allocated CHF 3 million for the freezing of beef and veal, and goat meat for which demand has reduced.
In the case of food shortages, tariff rate quotas as well as payment terms for agriculture imports can be temporarily extended.2
While markets have been closed, direct sale from farms to consumers, farm shops, and the online sale of seeds and other gardening products remains allowed. Serving food and drink to customers on site is forbidden.
Other
There are no sectoral restrictions on the fiscal stimulus package provided by the federal government. Consequently, food producers are eligible for a range of programmes designed to protect the incomes and address liquidity bottlenecks. The Federal Council has announced supportive fiscal measures amounting to over CHF 62 billion (nearly 9% of 2019 GDP), including for partial unemployment compensation, financial aid for particularly affected firms, loan guarantees for SMEs, loss cancellation for cancelled events, temporary and interest-free deferral of social-security contribution payments by affected companies, extended payment periods for taxes and payables to federal suppliers without having to incur interest on arrears, extension of short-time work allowance and simplification of the application process, and compensation for loss of earnings for self-employed people and for some employees affected by official measures to combat the coronavirus (e.g. parents who need to take care of children following the closing of schools).3
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE) has declined gradually over the long term but remains high. In the 2017-19 period support has been around 49% of gross farm receipts, almost three times the OECD average. The share of potentially most distorting transfers has decreased over time due to a decline in market price support (MPS), but still stands at about half of the support (Figure 25.1). The level of support has increased from 2018 to 2019 mainly due to the increase in budgetary payments. MPS has declined as higher world prices more than offset the increase in producer prices (Figure 25.2). Prices received by farmers were higher than world prices (by 45% on average); price support, the main component of Single Commodity Transfers (SCT), varies between commodities. The highest price gaps and hence the highest share of SCT in commodity gross farm receipts are observed for poultry and eggs (Figure 25.3). Overall, SCT represent 48% of the total PSE. The expenditures for general services, mainly on knowledge and innovation, relative to agricultural 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 (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Switzerland is a small economy with one of the highest GDP per capita and low inflation and unemployment. It is a densely populated country especially in the valley areas. The relative importance of agriculture in the Swiss economy is low with its share in the GDP at 0.7%, while its share in employment is around 3%. These relatively low shares are mainly due to highly developed industrial and services sectors in the economy (Table 25.2 and Figure 25.4).
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 is located in valleys. The agricultural area is mostly grassland with arable land representing 26% of the total. Over the longer-term, crop production has shifted away from traditional arable crops (grains, oilseeds) towards an increasing production of fruits and vegetables and since the early 2000s the value of crop products has roughly equalled that of the livestock production.
Switzerland has consistently been a net agro-food importer; its current share of agro-food imports in total imports is 4.5%, while the share of agro-food exports in total exports is 3.2% (Table 25.2). 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 (Figure 25.5).
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Total factor productivity (TFP) growth has slowed significantly and, between 2007 and 2016, is estimated to have been negative (Table 25.3). This was partially compensated by a small growth in the use of intermediary inputs (0.3%) and primary factor growth (0.1%). Still, overall output has declined during that decade.
Swiss agriculture is largely rain-fed. Swiss farmers irrigate only 2% of their agricultural land and the share of agriculture in the country’s water abstraction is less than one-fifth of the OECD average. Also the water stress indicator is well below the OECD average. Nutrient surpluses have declined substantially in the 1990s, notably for phosphorus, but have been stagnant for many years. The surplus of nitrogen is still more than twice the OECD average. The share in greenhouse gas (GHG) emissions slightly increased and is higher than the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
In a 2017 referendum, the Swiss electorate adopted 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 are to be guaranteed by exploiting both domestic production and imported foodstuffs. The article in the constitution defines the broad objectives of agricultural policy which is then developed in a 4-year framework of specific agricultural policy measures.
In March 2017, the Swiss Parliament voted a budgetary envelope to finance agricultural policies for the years 2018-21 (PA 2018-21). Broadly speaking, this policy framework is a continuation of agricultural policies applied in 2014-17. Overall, the spending was reduced by 1.7% in nominal terms compared to the 2014-17 global budget envelope.
Many agro-food imports to Switzerland are regulated by tariff rate quotas (TRQs) 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 used to allocate most of the TRQs to traders. A notable exception to the quota system is cereals, including feed grains, which are subject to single tariffs. These are adjusted according to the situation of the market, to ensure that the level of protection does not increase feed prices.
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 (LDCs), all agricultural imports from LDCs (according to the official UN definition) are duty and quota free since September 2009.
All export subsidies for primary agricultural products were eliminated by 1 January 2010. The remaining export subsidies applied to some processed products were abolished as of 1 January 2019. Subsequently, additional payments to producers for commercial milk (Agriculture Act Art. 40) and grain (Agriculture Act Art. 55) have been introduced.
Following the abolition of the milk quotas in May 2009, the inter-branch organisation for milk (l’Interprofession du Lait – IP Lait) developed and implemented standard milk delivery contracts for its members (setting three levels of prices and corresponding volumes for contingents A, B and C). A decision of the Federal Council, made these standard milk delivery contracts compulsory to all milk producers (i.e. also to those outside the IP Lait) from 1 July 2013 until end of 2021 (with a potential to be further extended). The fact that these contracts are made compulsory for all producers continuously from 2013 up to 2021 (with a potential to be further extended) means that the abolished production quota system was de facto replaced by another production control mechanism on a private basis.
The network of Swiss trade agreements consists of the European Free Trade Association (EFTA) Convention, 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 the People’s Republic of China, Japan and the Faroe Islands.
The budgetary spending supporting agriculture consists of three broad financial envelopes. Direct payments: direct payments to farmers for meeting societal demand such as food security, environmental services (landscape, biodiversity, sustainable use of resources) and animal welfare. The environmental cross-compliance conditions continue to be applied within the new system of payments. Production and marketing: expenditures are mainly to support dairy producers in the form of three types of payments: (i) for milk delivered for cheese processing; (ii) to milk production without silage feed; and (iii) payments for commercial milk (introduced in 2019). Area payments are paid for oilseeds, protein crops, grain (introduced in 2019) and sugar beet. Some expenditures under this heading finance also general services to the sector such as marketing and product promotion. Improving the production base and social measures: spending in this envelope includes direct support to farm investments, but also general services to the sector through infrastructure improvement, social aid to farmers, and advice services. These payments were provided within the PA 2014-17 policy framework.
In the framework of the Paris Agreement on Climate Change, a key tool for achieving the statutory climate change targets used by Switzerland is the CO2 levy. It is an incentive tax that has been imposed since 2008 on fossil fuels such as oil or natural gas. This tool is combined with an Emission Trading System (ETS) and facilitates the reduction of emissions where the costs of such reductions are low. Switzerland wants to link its ETS to the EU scheme so that Swiss companies can participate in the larger and more fluid EU emissions market and benefit from the same competition conditions as EU companies. To this end, an agreement was signed with the European Union on 23 November 2017. The Swiss parliament approved this agreement on 22 March 2019 and accepted the necessary changes to the current CO2 Act. Up to now, the Swiss agricultural sector is only marginally affected by the current CO2 legislation as the levy is applied on fuels used to heat the glasshouses and heated barns for livestock, but not on other emissions from agricultural production.
Domestic policy developments in 2019-20
The system of the Direct payments remains the same as the PA 2014-17 framework. The main change is the gradual reduction of transitional payments (to be eliminated by 2021), while the saved budgetary resources are shifted to finance other direct payments (mainly biodiversity, sustainable use of natural resources and animal welfare).
To compensate for the elimination of export subsidies for some processed products, two payment schemes were introduced in 2019: i) a payment to producers for commercial milk of 4.5 cents per kg of milk sold for processing (Agriculture Act Art. 40), and ii) a payment to producers for grain of CHF 128 per hectare (Agriculture Act Art. 55).
On 12 February 2020, the Federal Council announced its plan on the future development of the Agricultural Policy from 2022 (PA22+). The draft PA22+ foresees the promotion of an even more sustainable and value-creating agriculture. Swiss agriculture should be given the means to increase its added value on the market. The efficiency of operations should be enhanced. The environmental impact and consumption of non-renewable resources should be further reduced.
Main modifications
The draft PA22+ contains a range of measures corresponding to the federal popular initiative “For clean drinking water and a healthy diet - No subsidies for the use of pesticides and the prophylactic use of antibiotics” (initiative for a clean drinking water). The draft Agricultural Law includes a binding “reduction trajectory” for nitrogen and phosphorus losses (-20% by 2030). If these objectives were not achieved, the Federal Council would be obliged to take corrective measures. The volumes of fertiliser elements delivered to agricultural holdings would need to be published in a regular and transparent manner. The government also plans to reduce the maximum amount of fertiliser applied on farms through the Water Protection Act. In the area of ecological services required (Proof of ecological performance), which is conditional for direct payments, additional measures to reduce drift and runoff of phytosanitary products are foreseen and it would no longer be possible to apply phytosanitary products presenting an increased risk to the environment. In addition, the nutrient balance is focused to limit nutrient losses by deletion of the current 10% tolerance. If, in spite of all these measures, there were too high entries of these substances in the rivers of the regions, the Confederation and the cantons would be able to require specific measures through regional agricultural strategies, and to tighten the regulations in a targeted manner on a regional level.
Direct payments: The government proposes to reallocate the payments for ensuring food security and cultivated landscape (basic contribution, contribution to production in difficult conditions and contribution for keeping the landscape open) into a new zone contribution. The current resource efficiency contributions are to be integrated into the production system contributions. The latter are to be substantially increased in order to promote the targeted avoidance of pesticides, the reduction of ammonia emissions and the improvement of animal health. The draft PA22+ puts a focus on adapting agriculture more to local conditions through regional agricultural strategies. For this purpose, the payments to the quality of the landscape and to networking would be converted into a payment for agriculture adapted to local conditions. Payments to biodiversity would then be developed within the framework of five groups of measures. In addition, a minimum share of area promoting biodiversity within the arable land area of 3.5% would be mandatory in order to correct for identified biodiversity deficits.
Crop insurance: In order to protect agriculture against weather-related yield fluctuations due to large-scale risks (drought, frost), the government proposes to contribute financially to crop insurance premiums for a limited period of time.
Structural improvements: the proposed law would allow the Confederation to grant investment aid for the acquisition of agricultural buildings, for innovative technologies aimed at reducing environmental damage from agricultural production, for the subsidiary development of data transmission capacities (e.g. broadband wireless connection) and for animal health promotion. Such investment aid would be conditional on a positive assessment of the project’s economic viability. The Confederation would also financially support skills and innovation networks for plant and animal breeding and for the health of farm animals. Support to pilot and demonstration projects would complement the support provided through networking of research, training and extension with actors in the field in agriculture and the agri-food sector
Enhanced support for the promotion of wine: due to the high stock levels of Swiss wine and the decreasing domestic wine consumption, the Federal Department of Economics, Education and Research (EAER) agreed to grant additional support to the 2019 annual budget (CHF 3.2 million) planned for the promotion of Swiss wine. The support is exclusively limited to communication measures. The additional promotion measures aim to promote sales and to increase the market share of Swiss wine by improving its visibility in large retail stores, as well as in the hotel and restaurant sector (HORECA). This action plan implemented by Swiss Wine Promotion (SWP) began in December 2019 and will continue throughout 2020.
New plant health legislation from 1 January 2020 (nouvelle ordonnance sur la santé des végétaux du 31/10/2018; nouvelle ordonnance du DEFR et du DETEC du 14/11/2019): with stricter regulations and stronger preventive measures the new plant health regime aims to better protect plants from particularly harmful pests. The new plant health legislation has been modernised, but at the same time has become more complex. From 2020 onwards, a plant passport is mandatory for all plants for planting. Imports of plant material from third countries, including through passenger travel, will be subject to stricter rules from 2020. Import bans on plants and plant products with high plant health risks from countries outside the European Union may be applied on a temporary basis. The new plant health legislation also introduces new contingency planning instruments.
Long term plant breeding strategy: the Federal Office for Agriculture has developed, in collaboration with representatives of various interest groups, a plant breeding strategy with measures that are to be implemented within the framework of the Agricultural Policy 2022 (PA22+). The “Plant Breeding 2050” strategy recognises the importance of plant breeding for Switzerland in the decades to come and sets the foundation for the use and allocation of public funds. Two concrete measures are pursued: 1) the creation of a Swiss Centre for Plant Breeding as a competence and innovation network for the implementation of research results in Swiss breeding programmes; and 2) the promotion of existing and new breeding programmes in Switzerland.
Trade policy developments in 2019-20
As an EFTA member, Switzerland participates in ongoing free trade negotiations with India, Malaysia and Viet Nam. Negotiations with Algeria, Thailand, and the Customs Union of the Russian Federation, Belarus and Kazakhstan are on hold. Trade negotiations with Indonesia and Mercosur are completed, with signatures pending. Existing Free Trade Agreements with Chile and the South African Customs Union (SACU) are currently under renegotiation. These Free Trade Agreements and the ongoing negotiations also cover trade with all processed agricultural products and a range of basic agricultural products.
In 2018, export subsidies for processed products still amounted to CHF 94.6 million (USD 96.7 million) (CHF 81.9 million spent on dairy products and CHF 12.7 million on grain based products). In December 2017, the Swiss parliament adopted a legislation abolishing these export subsidies from 1 January 2019, following the WTO Ministerial Decision of December 2018. The funds initially allocated by the Finance Ministry to finance export subsidies were transferred to the agricultural budget to finance direct payments to milk and grain producers to compensate the price reduction related to the elimination of these export subsidies (see domestic policy development section).
Notes
← 1. https://www.blw.admin.ch/blw/fr/home/nachhaltige-produktion/produktionssicherheit/neuescoronavirus.html.
← 2. https://www.newsd.admin.ch/newsd/message/attachments/60796.pdf.
← 3. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#S.
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