22. Norway
Support to agriculture in Norway is among the highest in OECD countries, and consists mainly of forms considered most-distorting of market incentives. Transfers to producers made up the largest share of gross farm receipts in 2019-21 (52%). While high relative to the OECD average, this is down from 69% in 2000-02. Market price support (MPS), mainly through border protection and domestic market regulation, has long been the main component of support to agriculture and affects most major commodities except sheep meat and wool. As a result, producer prices are on average 57% above those at the border – again below historical levels but much higher than the OECD average.
General services support (GSSE) is 4.4% relative to the value of agricultural production. The largest part is for the Norwegian Food Safety Authority and the Norwegian University of Life Sciences. Other areas receiving general support are research, innovation, extension services and infrastructure.
Total support as a share of GDP declined from around 3.5% in the 1980s to less than 1% currently. This reflects the shrinking importance of agriculture as a share of economic activity. Nominal levels of total support are remarkably steady, increasing by an average 1% since 1986-88 (less than inflation).
The recently elected government’s Hurdal Platform identifies closing the income gap between the agricultural sector and other groups in society as a priority.1 Specifically, the platform proposes reforming to the milk quota system, a cap on production subsidies, new targets for food self-sufficiency, and reducing the conversion of cultivated land to other uses to a maximum of 200 hectares annually (about 0.02% of cultivated area).
The usual annual negotiations between the government and the two farmers’ organisations did not take place. Instead, the government proposed policy settings for agriculture for 2021. The proposal included an increase in target prices, additional budgetary support and more generous agricultural tax deductions. The proposed budget for programmes with positive climate and environmental impact or for rural development is higher. Research is proposed to understand the farm income situation with respect to other sectors.
Norway’s emissions reduction objectives are ambitious. The country intends to become a low-carbon economy by 2050, reducing greenhouse gas (GHG) emissions by 80–95% from their 1990 level.2 However, current policies for agricultural emissions reductions make it unlikely the sector will keep pace with others. As other sectors decarbonise, agriculture can be expected to contribute a larger share of total GHG emissions over time. The sector is relatively specialised in ruminant livestock meat and dairy, the most GHG-intensive agricultural commodities.
The voluntary climate agreement between the agriculture sector and the government has modest objectives relative to other sectors. If implemented as planned, it will reduce emissions about 10% by 2030 relative to 1990 levels. While this is less ambitious than other sectors, a quantified emissions reduction commitment in agriculture is an important first step. The government should aim to make this agreement more ambitious provided that options for mitigating GHG emissions from agriculture are cost-effective compared to other sectors. The recent prohibition on cultivating peat bogs is an important step and consideration should be given to advancing this further, such as by rewetting drained areas.
As a net importer of food, Norway should consider the global carbon footprint of its food consumption together with domestic emissions. Reducing the share of ruminant meat and dairy products in consumers’ diets is one of the most effective ways to reduce GHG emissions related to food.
The framework of negotiations between farmers’ associations and the government provides stability and a platform for regular evaluation and gradual adjustment. However, negotiations focus on annual farm incomes to the exclusion of other societal concerns. This can be a barrier to needed reforms, such as responsiveness to markets and focus on agri-environmental outcomes and the provision of ecosystem services.
The total amount of agricultural land that may be converted to other uses each year is restricted, and the new government intends to tighten these restrictions. While effective at preventing land conversion, this broad-brush approach could be made more targeted and flexible. A better approach would consider the overall contribution of agricultural land as part of local planning and development processes, and integrated with national landscape and biodiversity objectives. This would allow, for example, the consequences for housing costs in those communities experiencing rapidly increasing prices to be evaluated and balanced solutions found.3
Overview of policy trends
Historically, Norway’s agricultural policies relate to food security, farm incomes, and regional distribution of production and employment objectives. Today, they also address consumer and societal concerns, including food safety and animal welfare, environmental issues, climate, cultural landscape, innovation, agro-tourism, and small-scale food industry. These are implemented through four pillars: i) border protection; ii) legal frameworks to secure family-owned farms; iii) annual negotiations between the state and farmers’ organisations to determine producer prices, budget transfers and allocation of funds; and iv) domestic regulations to balance the market through producer co-operatives. Agricultural support is a component of Norway’s regional and rural policies.
Since the mid-1980s there was modest policy reform towards market orientation, and modest reduction in the level of support. Farmers in Norway are heavily supported through border measures, domestic market regulations, budgetary payments and tax breaks.
Prompted by the WTO Uruguay Agreement on Agriculture, in force since 1995, a number of changes were introduced to agricultural policies, to improve cost efficiency and market orientation, including increased flexibility in milk quotas, removal of administered prices for eggs, poultry, beef and sheep, and phasing out of export subsidies. But high levels of protection remain against imports of the most important and sensitive agricultural products, such as meat, dairy, eggs and grains. Moreover, the primary agricultural sector is exempt from standard competition law.
Norwegian agricultural policies are underpinned by the premise that certain environmental public goods are most cost-effectively provided through positive externalities of agricultural commodity production. Environmental cross-compliance was introduced in 1991 and the Acreage and Cultural Landscape Programme grants payments on the condition that farmers meet cultural landscape requirements.
Agriculture in Norway remains among the most highly protected in the OECD. Market price support, mainly due to border protection and domestic market regulation, is the main component of support to producers (Figure 22.4). The share of MPS in the PSE has been slowly declining over time, but still represents about 36% of support. Payments based on output are now around one-third of 1986-88 levels, whereas payments based on current production factors increased.
Most of Norway’s tariff rate quotas (TRQs) were eliminated in 2000 when the WTO bound tariff rates became equal to the in-tariff quota rates. Tariffs for some products, particularly livestock products are set between 100% and 400% though there is a system of “open periods” for imports at reduced tariff rates when domestic prices rise above threshold levels. Since 1 January 2015, Norway unilaterally eliminated import duties on 114 agricultural tariff lines. While these duties were low (and not important for protecting Norwegian agricultural production), their elimination resulted in reduced customs procedures and administrative costs. Export subsidies were abolished at the end of 2020.
Main policy instruments
The strategic objectives of agricultural and food policies, as set out in White Paper No. 11 (2016-17), “Change and development – A future-oriented agricultural production”, are: food security; agriculture throughout the country; creating more added value; and sustainable agriculture. Norway also has an objective that Norwegian agriculture has world-leading animal welfare.
The principal policy instruments supporting agriculture include border measures, budgetary payments that are differentiated by commodity and region and domestic market regulation, based on the Marketing Act. The Marketing Act covers certain types of meat (beef, mutton, pork and poultry); milk, butter and cheese; eggs; cereals and oilseeds; potatoes, vegetables, fruit and berries; and fur skins.
Target prices are provided for milk, pork, grains and some fruits and vegetables. The government and farmers’ organisations annually negotiate target prices and the budgetary framework for payments to farmers. Marketing fees collected from producers finance marketing activities dealing with surpluses (until 2020 also including export subsidies for livestock products).
A system for buying and selling milk production quotas was put into force in 1997. The milk quota system serves to regulate the milk production in proportion to the market situation, and the quotas are each year multiplied by a factor to fix the amount of milk each producer can deliver to a dairy.
Various direct payments are provided to farmers, including area and headage payments as well as payments based on product quantities (meat). Many of these are differentiated by region and farm size in order to equalise incomes across all types of farms and regions. This is designed to maintain the geographic distribution of farms and production in the country.
Since 2004, agri-environmental measures are implemented as part of the National Environmental Programme (Nasjonalt miljøprogram), which aims to contribute to sustainable agriculture production with reduced greenhouse gas (GHG) emissions, as well as fulfilling Norway’s international commitments on environment and climate in the agricultural sector. The most important agri-environmental measures are the Acreage Cultural Landscape Support (Areal- og kulturlandskapstilskudd), with an annual budget of NOK 3 647 million (USD 424.5 million), and payments for grazing livestock (beitetilskudd), NOK 1 078 million (USD 125.5 million). Other measures include those for organic agriculture, regional environmental programmes for specific agri-environmental measures, schemes for supporting cultural and natural values and reducing pollution in the agricultural landscape, Special Environmental Measures In Agriculture (Spesielle Miljøtiltak I jordbruket) and organised grazing measures (Tiltak I beiteområder). Environmental levies are applied on agricultural pesticides.
The Selected cultural landscapes in agriculture (Utvalgte kulturlandskap I jordbruket, UKL) initiative supports farmers who want to make an extra effort to care for the environmental values of cultural landscape in 46 selected areas with important or exceptional cultural landscapes. The investment is based on voluntary agreements between the state and the landowners. Co-ordination of these cultural landscapes nationally is the responsibility of the Norwegian Directorate of Agriculture, in collaboration with the Norwegian Environment Agency and the National Heritage Board. Each of the selected areas is co-managed by the municipality, landowners and agricultural enterprises, in collaboration with regional agricultural, natural and cultural heritage management. The initiative has a budget of NOK 38 million (USD 4.4 million) in 2022.
The Regional Environmental Programme includes payments to reduce water pollution from agricultural fields, environmentally-friendly spreading of manure, mowing small (abandoned) fields with high or special biodiversity in forest and mountain areas, grazing on islands, maintenance around heritage sites in the agricultural landscape, etc.
In 2016, the government published the national strategy on bio-economy. This was a broad cross-sectoral strategy developed by eight ministries, including the Norwegian Ministry of Agriculture and Food. The strategy has three overarching objectives ‒ increased value creation, reduced GHG emissions, and increased resource use efficiency and sustainability ‒ and four focus areas: i) co-operation across sectors, industries and thematic areas; ii) markets for renewable bio-based products; iii) efficient use and profitable processing of renewable biological resources; and iv) sustainable production and extraction of renewable biological resources.
Article 19 of the European Economic Area (EEA) Agreement concerning trade in basic agricultural products is reviewed periodically. The last round of these reviews was finalised in April 2017 and changes agreed entered into force in October 2018. Under the EEA, TRQs expanded on several products, including meat, cheese, vegetables and certain products used in the food industry for making processed agricultural goods. Through the European Free Trade Association (EFTA), Norway has negotiated 29 free trade agreements (FTAs) with 40 partner countries. All agreements include agricultural products. About 10% of all trade is covered by FTA, with average tariffs low outside the agriculture sector. For agricultural products, simple average MFN applied tariffs were 37.1% and bound tariffs were 143.1% in 2017.
Regarding measures related to animal welfare, there is a ban on routine prophylactic use of antibiotics and the use of antibiotics as growth promoters in animal feed. Veterinary services are provided in the whole country to ensure all animals have access to treatment. Investments to promote animal welfare are given priority in the ordinary investment programme for agriculture.
Climate change mitigation policies in agriculture
Agricultural emissions, mostly due to enteric fermentation by livestock, accounted for 8.8% (4.4 MtCO2eq) of total GHG emissions in 2019, up from 8.2% (4.5 MtCO2eq) in 2005. In addition, emissions from fossil fuel consumed by agriculture and forestry were 1% (0.534 MtCO2) and annual soil carbon losses from agricultural land were 5% (2.4 MtCO2).
The 2017 Climate Change Act establishes Norway’s targets to reduce emissions by 2030 and become a low-emission society by 2050. Norway signed and ratified the Paris Agreement and a bilateral agreement with the European Union under which it commits to reducing GHG emissions by 2030 by 50-55% of 1990 levels. There is no specific reduction commitment for agriculture, but the government has an agreement with the sector (see below). Carbon dioxide emissions from fossil fuel use in agriculture are subject to a carbon dioxide tax like for other sectors. Other GHG emissions from agriculture are not subject to such taxation nor are they included in the European Emission Trading System (ETS). Instead, regulatory, financial and advisory measures aim to reduce GHG emissions from agriculture.
In October 2019, the European Union, Iceland and Norway agreed to extend their climate co-operation for 2021-30 through the EEA Agreement by including the Effort Sharing Regulation and the regulation on GHG emissions and removals from land use, land use change and forestry (the LULUCF-Regulation). According to the agreement, Norway will fulfil the GHG reduction target in its Nationally Determined Contribution for 1 January 2021 to 31 December 2030 in accordance with the Emissions Trading System Directive (which does not include agriculture), LULUCF-Regulation (which calls for no net gains in emissions from LULUCF) and the Effort Sharing Regulation (which has to do with domestic reduction commitments).
The government and farmers’ organisations negotiated a climate agreement for agriculture in June 2019. The deal sets targets for abatement of GHG emissions and removals from agriculture over 2021-30. The parties undertake to reduce emissions and enhance removals by a total of 5 MtCO2eq in the ten-year period. The plan has eight focus areas:4
1. Deployment of a climate calculator and increased investment in climate advice. By the end of the plan, all farms should be using the climate calculator and have been offered climate advice.
2. Targeted efforts to improve roughage quality and use of feed additives, livestock breeding in cattle, sheep and pigs, and improved animal health.
3. Adoption of machinery that runs on electricity, biofuels, biogas or hydrogen.
5. Better use of fertilisers through more environmentally friendly spreading methods, better storage capacity and timing.
6. Increased use of livestock manure for biogas production to reduce GHG emissions in agriculture and other sectors.
7. Use of cover crops, biocarbon and grazing to remove carbon from the atmosphere and store it in plant biomass and soil.
8. Development and application of new technologies that reduce GHG emissions and increase carbon storage.
The climate agreement between the agricultural organisations and the government will be the basis for climate-related work in this sector in the years ahead. The most important role for agriculture in the context of climate change is to reduce emissions per unit produced, increase the uptake of CO2 and adapt to a changing climate.
GHG emissions from agriculture include methane associated with animal husbandry and nitrous oxide (N2O) associated with nitrogen fertilisation. Such emissions are difficult to measure, and not covered by the emissions trading system or subject to GHG taxation. The emissions also derive from many small sources, making it difficult to include them in an emission trading system. For this reason, efforts concentrate on the eight focus areas described above. Regulations for manure and fertiliser management are in place to control emissions from these sources. The cultivation of peat bogs was restricted to prevent additional emissions from such soils. As of 2025, agricultural buildings will be prohibited from using fossil fuels for heating (this ban is in effect for other building types as of 2020).
The Climate and Environmental Programme (Klima- og miljøprogrammet) produces reports and develops practical knowledge for farmers on environment- and climate-friendly practices in agriculture not addressed in national schemes.
Domestic policy developments in 2021-22
After the parliamentary elections held in September 2021, the new government has written “the Hurdal Platform” as the basis for their policies.5 The platform does not represent a radical shift from past policies, but identifies a number of new areas of emphasis. Among other things, the government states that it will:
Close the income gap between the agriculture sector and other groups in society.
Lower the quota for cow’s milk production to 500 000 litres, reduce quota costs and reduce the use of rented quota.
Set a target for food self-sufficiency, corrected for imports of raw materials for feed, of 50%.
Reduce the annual target for redevelopment of cultivated land to a maximum of 200 hectares annually.
The usual annual negotiations between the government and the two farmers’ organisations did not take place in 2020. As a consequence, the government proposed the following for 2021 to the Storting (parliament), which was adopted as the new agricultural agreement:
An increase in target prices with an effect on revenue of about NOK 400 million (USD 46.6 million) from 1 July 2021.
An increase in budgetary support of NOK 490 million (USD 57 million) from 2021 to 2022.
Transfer of budgetary support from the 2021 budget to the 2022 budget of NOK 32 million (USD 3.7 million).
Increased value of the agricultural deduction of taxable income of NOK 40 million (USD 4.7 million) from 2021 to 2022.
Stimulation of income opportunities in sectors with market potential such as cereals, fruits, vegetables and potatoes.
Further increase in subsidies for schemes that have a positive climate- and environmental impact by NOK 238 million (USD 27.7 million) from 2021 to 2022.
Allocate funds for rural development amounting to NOK 1 296 million (USD 150.8 million).
Establish a committee to discuss and clarify principles and methods, as well as opportunities and restrictions, for measuring income for agriculture as a sector and for farmers as self-employed, as well as the basis and assumptions for comparing business income with wages for workers.
For the quota year starting 1 January 2022 and ending 31 December 2022, milk quotas are multiplied by a factor of 0.99 to find the actual production possibilities. The milk production forecast in 2022 is 1 472 million litres.
The ordinary quota scheme for milk was reintroduced in the market as from 2022. Farmers selling cow milk quota are allowed to sell up to 60% directly to other producers within a production region (mainly defined as the county) without restrictions on price. At least 40% of the sale must be to the government at a fixed price. There are 14 production regions for cow milk. These regions are designed to ensure good geographical distribution, cost-effective food production and equal economic opportunities for producers in all regions.
In 2021, the work on organic production was aimed to follow up on the strategy on organic production that was passed in 2018. The government’s goal was that the production of organic products should be stimulated to meet the market demands. The strategy has three focus areas: knowledge and competences, support organic production and the development of an efficient value chain. A programme to set goals and help prioritise measures for organic production, was established in 2019, and is now being followed up. In 2021, NOK 36 million (USD 4.2 million) were used on development measures and NOK 120 million (USD 14 million) on measures to support organic production.
Domestic policy responses to the COVID-19 pandemic
A crop failure compensation scheme established in 2020 was temporarily expanded so that farmers experiencing harvest failures in both 2020 and 2021 due to a lack of seasonal labour, could apply for compensation. Farmers who have been unable to harvest due to lack of seasonal workers, are eligible for payment under the scheme. This measure applied to farmers of fruits, berries, vegetables or potatoes. Compensation up to NOK 2 million (USD 200 000) could be approved for significant crop failures of more than 30% compared to the average production over a five-year reference period.
In 2021, a temporary scheme was introduced for subsidies in the training of employees in seasonal work in the agricultural sector. The scheme is to help producers to recruit Norwegian labour to replace foreign labour that was unavailable because of entry restrictions.
To respond to changed market conditions, funds have been provided in 2021 to restructure companies involved with local food production and tourism (e.g. to website development and new marketing channels). These funds were provided through the development programme for agricultural growth and value creation.
Trade policy developments in 2021-22
The most recent new FTA agreement was with Indonesia, which entered into force on 1 November 2021. Further, an updated bilateral agreement on agriculture between Norway and Israel entered into force on 1 August 2021. There are ongoing free trade negotiations between EFTA and Moldova, Viet Nam, India and Malaysia. The negotiations with Mercosur were concluded in substance in 2019. EFTA has started renegotiations of free trade agreements with Chile, the Palestinian Authority and the South African Customs Union. The People’s Republic of China and Norway have had further progress in the bilateral negotiations on a trade agreement in 2021. Following the United Kingdom leaving the European Union, the EEA EFTA States negotiated a trade agreement with the United Kingdom in 2021, including bilateral concessions on agriculture. This agreement entered into force on 1 December 2021.
According to the WTO Ministerial Decision on agriculture in Nairobi in December 2015, Norway eliminated its remaining export subsidies on cheese and processed agricultural products as of the end of 2020. As of 1 January 2021, Norway applies no export subsidies.
Norway has a small and open economy with a substantial petroleum sector. At USD 63 237 per capita in 2021, Norway has one of the highest GDP per capita rates in the world (Table 22.3). While labour force participation has weakened somewhat over the past two decades, Norway’s employment rate is still above the OECD average. Norway has been more successful than many countries in limiting the spread and impact of COVID-19. The country has maintained good outcomes on many economic and social indicators. After Iceland, Norway has the second lowest population density in Europe.
Norway is a northern European country with a large coastline of nearly 29 000 km, including fjords and bays. Farmland accounts for only 3% of the mainland land mass. Climatic conditions allow for production of only a narrow range of commodities. In addition to sheep farming, the primary activity has traditionally been cattle (for milk and meat) and cereals (mainly used as animal feed). The farm structure is dominated by relatively small family farms, many of which are in remote locations.
Norway has been recovering comparatively quickly from the economic impacts of the global pandemic. Mainland gross domestic product (GDP) annual growth increased by 4.1% in 2021. Norway continues to achieve good outcomes on many economic and social dimensions. GDP per capita remains among the highest in the OECD. Also, the country is broadly successful in its prioritisation of low inequality and the universal provision of core public services, including health and education. The gap between the highest and lowest incomes is among the smallest in the OECD area and rates of poverty are low (OECD, 2022[2]).
Strong headline consumer price inflation in recent quarters has been driven by large electricity price increases. Global supply bottlenecks in computer chips, lumber and shipping are also putting pressure on inflation (Figure 22.5). Housing in Norwegian cities has become still more expensive with a new surge in prices during the pandemic (OECD, 2022[2]).
Norway is a net importer of agricultural products (excluding fish). Agro-food imports represent around 9% of total imports, while agro-food exports represent 1.2% of total exports. The European Union is Norway’s main trading partner, accounting for about two-thirds of both imports and exports. Within the European Union, Sweden and Denmark together account for one-third of Norwegian agro-food exports, whereas imports are more broadly sourced. Outside the European Union, the United States and Japan are important export destinations and Brazil and the Russian Federation are together the source of 13% of imports. Agro-food trade has been growing steadily, if more slowly after 2013 (Figure 22.6). Most agro-food exports are in products for final consumption, while a small majority of imports are for further processing.
After a period of stagnant total production and total factor productivity (TFP) growth through the 1990s, Norwegian agriculture (including aquaculture) has experienced some of the highest annual TFP growth in the OECD, at an average annual rate of 2.44% in the 2010-19 period.6 This is on par with the G20 average and well above the Nordic and OECD averages (1.6% and 1.4%) (OECD, 2021[1]). Total agricultural output has increased while the use of labour and machinery inputs has declined (Figure 22.7).
Nitrogen and phosphorus balances in Norway are about three times the OECD average. 34% of all nitrogen (N) and 58% of all phosphorus (P), measured by nutrient content, come from manure (OECD, 2021[1]). Energy use in agriculture is about 1.5% of the total in Norway, below its share of GDP. Agriculture accounts for 8.8% of total GHG emissions, slightly below the OECD average. Agricultural emissions are mainly connected to animals, in particular from ruminant enteric fermentation and manure management. The size of dairy and beef herds, the way they are fed, manure management practices, and the amount of N fertiliser applied to fields are the main drivers of the volume of GHG emissions (OECD, 2021[1]).
References
[2] OECD (2022), OECD Economic Surveys: Norway 2022, OECD Publishing, Paris, https://doi.org/10.1787/df7b87ab-en.
[3] OECD (2022), OECD Environmental Performance Reviews: Norway 2022, OECD Publishing, Paris, https://doi.org/10.1787/59e71c13-en.
[1] OECD (2021), Policies for the Future of Farming and Food in Norway, OECD Agriculture and Food Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/20b14991-en.
Notes
← 1. https://www.regjeringen.no/no/dokumenter/hurdalsplattformen/id2877252/.
← 2. See https://unfccc.int/sites/default/files/resource/LTS1_Norway_Oct2020.pdf for more detail.
← 3. The recent OECD Economic Survey of Norway points to housing prices as a significant challenge for Norway. It suggests that “By limiting possibilities for greenfield housing development close to built-up areas, these [agricultural land conversion] restrictions contribute to inflexibility in housing supply. They also likely go beyond what is needed to achieve the aim of safeguarding land for farming, and might therefore be moderated.” (OECD, 2022[2]). The recent OECD Environmental Performance Review of Norway observes in its assessment and recommendations that “Managing the interactions between [forestry and agriculture], land use planning and biodiversity objectives requires particular attention” (OECD, 2022[3]).
← 4. See www.bondelaget.no/tema/landbruketsklimaplan/landbrukets-klimaplan.
← 5. https://www.regjeringen.no/no/dokumenter/hurdalsplattformen/id2877252/.
← 6. This TFP calculation includes aquaculture, which represents about 76% of the combined value of the aquaculture and agriculture sectors. Still, the number should be close for agriculture only—TFP calculated for 2011-16 for agriculture alone was estimated to be 2.7% (OECD, 2021[1]).