25. Switzerland
In past decades, Switzerland made moderate reductions in support to agriculture, but levels stabilised in recent years. Support to producers expressed as a share of gross farm receipts remains high: around 50% on average in 2018-20, almost three times the OECD average. However, changes in the structure of support are pronounced, as direct payments partly replaced market price support (MPS).
MPS, mainly due to tariff rate quotas (TRQ) with high out-of-quota tariffs, remains the main component of support. Over the past 30 years, MPS fell from 80% to around 50% of total producer support. Nonetheless, average domestic prices were on average 46% above world prices in 2018-20. The biggest price gaps (Producer Nominal Protection Coefficient) and share of Single Commodity Transfer (SCT) in commodity gross farm receipts are for poultry, eggs, pig meat and rapeseed.
Switzerland provides significant direct payments to farms (almost all subject to environmental cross-compliance). These increased over time: while they represented around 20% of support to farmers in the 1980s, their share rose to almost 50% in recent years. Most are general area payments to all agricultural land, payments to maintain farming in less favoured conditions, and payments to farmers who voluntarily apply stricter farming practices related to environmental and animal welfare.
Expenditures for general services (GSSE) are high in Switzerland. GSSE relative to agricultural value-added rose from 11% in 2000-02 to 16% in 2018-20, and is among the highest of countries covered by this report. Almost half of GSSE expenditure finances the agricultural knowledge and innovation system. Total support to agriculture as a share of GDP fell from 2% in 2000-02 to 1% in 2018-20.
In February 2020, the Federal Council submitted to Parliament a message on the future development of the Agricultural Policy from 2022 (PA22 +) along with a draft federal decree on financial resources for agriculture for the years 2022 to 2025. However, in December 2020, the Council of States decided to suspend work on the PA22 + and maintain the 2022-2025 financial envelope at the same level as before. These decisions were confirmed by the National Council during its 2021 spring session in March. In parallel, the Federal Council is required by both chambers of Parliament to submit a report on the future direction of agricultural policy to Parliament by the end of 2022 at the latest.
In November 2020, the Federal Council approved a package of agricultural ordinances setting procedures for withdrawal of plant protection products, implementation of regional development projects and allocation of aid for structural improvements. New plant health legislation applies from 1 January 2020, with stricter rules for trade with plant materials and stronger measures to prevent the introduction and spread of pests.
On 27 January 2021, the Federal Council adopted the Long-Term Climate Strategy for Switzerland, which sets out climate policy guidelines up to 2050 in order to achieve a net-zero target. The objectives are to reduce greenhouse gas (GHG) emissions from domestic agricultural production to at least 40% below 1990 levels and avoid transfers of GHG emissions abroad. These are primarily to be achieved through legislative measures. The total revision of the CO2 Act was adopted by Parliament in autumn 2020 and will come into force if approved in a referendum by the population citizens on 13 June 2021. On 14 April 2021, the Federal Council opened the consultation procedure on the amendment of the CO2 Ordinance. The CO2 Ordinance specifies reduction targets for the building (-65%), transport (-25%), industry (-35%) and agriculture (-20%) sectors by 2030 compared to 1990.
On 1 April 2020, the Federal Council took action to stabilise agricultural markets and mitigate economic impact to the agricultural sector from the COVID-19 crisis. The aim was to ensure the supply of food for the population while preventing a fall in market prices that would affect the entire value chain. The agriculture and food sector also benefited from the general package of measures to mitigate the economic consequences of the pandemic (e.g. to avoid layoffs, safeguard jobs and guarantee wages).
In addition to short-term loans to provide liquidity for agricultural producers, the Swiss Government approved early direct payments to farms and allocated funds for long-term storage of beef, veal and goat meat, for which demand had declined. Responding to reduced demand for high quality wines following the closure of bars and restaurants and the ban on public events, it also approved exceptional financial assistance for AOC wines downgraded to table wine.
Measures envisaged in the Agricultural Policy 2022 could contribute to more efficient use of natural resources and enhance the environmental sustainability of agriculture. However, a better distinction can be made between policies that address market failures (providing positive externalities and public goods, and avoiding negative externalities) and those that address income problems. The latter might be better addressed via economy-wide measures as opposed to agricultural ones.
Security of the food supply should be sought through a more competitive agriculture sector rather than direct payments. Policies facilitating structural change, including investment support and exit strategies, can accelerate progress.
Reduction of import barriers and elimination of export subsidies for processed products are important to reducing the burden on consumers and market distortions.
The introduction of output payments for milk and area payments to grain producers to compensate for the elimination of export subsidies for processed products could undermine efforts to reduce resource misallocation, and could impede structural adjustment. Such compensatory measures should be temporary.
The Swiss agricultural sector is only marginally affected by current CO2 legislation, as the levy applies to fuels for heating greenhouses and barns for livestock, but not to other CO2 emissions from agricultural production. In order to achieve its climate change targets for the agricultural sector, Switzerland should consider extending the CO2 Act to other parts of the agricultural sector and focus more on targeted policies.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Overview of policy trends
Until the early 1990s, high trade barriers and strong domestic market regulations isolated Swiss agriculture from world markets. Substantial reforms of agricultural policy were implemented in the mid-1990s and early 2000s. These were prompted by commitments made under the GATT and later the WTO. There were no systematic policy reforms since 2013.
The reforms implemented between 1993 and 2003 had three main elements:
1. Reduced and more transparent import protection, the gradual removal of price guarantees and other market regulations while maintaining production quotas for milk and introducing (in 1998) new market regulations for sugar.
2. New direct payments less coupled to production, and voluntary ecological direct payments linked to ecological services.
3. Cross-compliance requirements connecting almost all direct payments to proof of ecological performance as of 1999.
Between 2004 and 2013, policy reforms were comparatively modest and focussed on deregulation of agricultural markets. In 2013, Switzerland adopted a new policy framework for 2014-17, subsequently extended to 2021. This framework amended the direct payment scheme to improve its efficiency and effectiveness, and set up a system of direct payments linked to specific production practices.
Support to farmers declined from close to 80% of gross farm receipts in the late 1980s to slightly less than 50% in 2020. Potentially most production- and trade-distorting support (mainly market price support) also declined from around 80% to less than 50% of producer support between 1986 and 2020, while payments considered less distorting grew.
Note: A/An/R/I:Area planted/Animal numbers/Receipts/Income.
Payments not requiring production include Payments based on non-current A/An/R/I (production not required) and Payment based on non-commodity criteria. Other payments include Payments based on non-current A/An/R/I (production required) and Miscellaneous payments.
Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Main policy instruments
In a 2017 referendum, the Swiss electorate adopted a new article on food security in the Swiss Constitution. It states that in order to guarantee the supply of food to the population, the Confederation shall create conditions for:
safeguarding the basis for agricultural production, and agricultural land in particular
food production adapted to local conditions and using natural resources efficiently
an agriculture and food sector that responds to market requirements
cross-border trade relations that contribute to the sustainable development of the agriculture and food sector
The new article in the Federal Constitution calls to guarantee sufficient food supplies to the Swiss population in the long term based on both domestic production and imports, considering the entire value chain. Together with the constitution article on agriculture, the article on food security defines broad objectives for agricultural policy. Four-year frameworks then detail specific measures.
The most recent of these covers 2018-21 (PA 2018-21). Broadly speaking, this policy framework continues agricultural policies applied in 2014-17, though overall spending shrank by 1.7% in nominal terms.
Many agro-food imports to Switzerland are regulated by tariff rate quotas with relatively low in-quota tariffs and high out-of-quota tariffs. In particular, TRQs cover meat, milk products, potatoes, fruits, vegetables, bread cereals and wine. Since 1999, an auctioning system allocates some of the TRQs to traders. A notable exception to the quota system is feed grains, which are subject to single tariffs. These are adjusted according to the market to ensure that protection does not increase feed prices.
Preferential tariff rates apply unilaterally to imports from developing countries under the general system of preferences. In the context of the Swiss Government granting zero tariffs to all products from Least Developed Countries (LDCs), agricultural imports from LDCs (according to the official UN definition) are duty- and quota-free since September 2009.
Export subsidies for primary agricultural products were eliminated by 1 January 2010. The remaining export subsidies for 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) were introduced.
Following the abolition of milk quotas in May 2009, the inter-branch organisation for milk, l’Interprofession du Lait (IP Lait), implemented standard milk delivery contracts for its members. These set different prices and volumes for milk delivery (contingents A, B and C). A decision of the Federal Council made these contracts compulsory for all milk producers including those outside IP Lait from 1 July 2013 to the end of 2021 (with potential to be extended). This means that the previous production quota system was de facto replaced by another production control mechanism on a private basis.
Switzerland’s network of trade agreements consists of the European Free Trade Association (EFTA) Convention, the Free Trade Agreement with the European Union and some 32 agreements concluded with 42 countries. All were signed within EFTA, with the exception of agreements with the People’s Republic of China, Japan and the Faroe Islands.
Spending to support agriculture consists of three broad financial envelopes. These are direct payments, production and marketing, and improving the production base combined with social measures.
Direct payments to farmers meet societal demands for such things as food security, environmental services (landscape, biodiversity, sustainable use of resources) and animal welfare. These payments link to environmental cross-compliance conditions.
Production and marketing expenditures mainly support dairy producers via three types of payments: (1) for milk delivered for cheese processing; (2) for milk production without silage feed; and (3) for commercial milk (introduced in 2019). In addition, area payments apply to oilseeds, protein crops, grain (introduced in 2019) and sugar beet. Some expenditures under this heading also provide funds for general services to the sector, including marketing and product promotion.
Policies to improve the production base and social measures include direct support to farm investments as well as general support for infrastructure improvement, social aid to farmers, and advisory services. These payments were provided within the PA 2014-17 policy framework, extended to 2021.
In the context of the UN Framework Convention on Climate Change, a key tool to achieve targets is the CO2 levy. This incentive tax is in place since 2008 for fossil fuels such as oil or natural gas. An Emission Trading System (ETS) facilitates emissions reduction where the costs of such reductions are low. Future ambitions are to link this ETS to the EU trading system so that Swiss companies can participate in the larger and more liquid EU emissions market, and benefit from the same competition conditions as EU companies. To this end, an agreement was signed with the EU on 23 November 2017. The Swiss parliament approved this agreement on 22 March 2019 and accepted the necessary changes to the current CO2 act. Current CO2 legislation only marginally affects the Swiss agricultural sector as the levy applies to fuels to heat greenhouses and barns for livestock. The current CO2 legislation does not address other climate-damaging emissions and in particular other emissions from agricultural production.
Domestic policy developments in 2020-21
The Federal Council approved a package of agricultural ordinances on 11 November 2020. These relate to the procedure for the withdrawal of plant protection products, implementation of regional development projects and the allocation of aid for structural improvements. In the area of plant protection products, the re-evaluation procedure for active substances that have been withdrawn in the European Union is simplified. The aim is to avoid a lag between the date of withdrawal of a substance in the European Union and in Switzerland.
Regarding structural improvements, the process of implementing regional development projects (RDPs) has been made more flexible and effective. In order to reach environmental objectives for agriculture, new measures are implemented such as the support of installation of air scrubbers to reduce ammonia emissions. Support for the integration of agricultural buildings into the landscape is provided to meet objectives for building and landscape culture.
Discussions concerning future development of the Agricultural Policy from 2022 (PA 22+) continued. In February 2020, the Federal Council submitted to Parliament a message on the future development of the Agricultural Policy from 2022 along with a draft federal decree on financial resources for agriculture for the years 2022 to 2025. However, in December 2020, the Council of States decided to suspend work on the Agricultural Policy from 2022 (PA22 +) and to maintain the financial envelope for the years 2022-25 on the same level as the previous period. These decisions were confirmed by the National Council during its 2021 spring session on 16 March 2021. In parallel, the Federal Council is required by both chambers of Parliament to submit a report on the future direction of agricultural policy to Parliament by 2022 at the latest.
Several popular initiatives related to the agriculture and food sector have been filed in previous years and are expected to be submitted to balloting. Among these, an initiative “for clean drinking water” (January 2018) and an initiative “for a Switzerland free of synthetic pesticides” (May 2018). The vote on these two popular initiatives is scheduled to take place on 13 June 2021. In this context, a parliamentary initiative “Reducing the risk of the use of pesticides” has been tabled (August 2019). This initiative aims to enshrine a reduction trajectory in legislation with target values for the risks arising from the use of pesticides and suggests adaptations to improve groundwater quality in relation to the degradation of products from pesticides. It would also commit the government to establish a path to reduce nutrient losses by 2030. Furthermore, the government has proposed on 12 August 2020 a counter-proposal to the popular initiative against mass animal husbandry, which was launched on 17 September 2019. The counter-proposal was adopted by the Federal Council on 19 May 2021.
New plant health legislation applies as from 1 January 2020 – with stricter rules for trade with plant materials and stronger preventive measures as it aims to protect plants from the introduction and spread of particularly harmful pests. From 2020 onwards, importation of plant material, including through passenger travel, will be subject to stricter rules. Additional 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. A plant passport is required for all plants for planting for trade within Switzerland and with Member States of the European Union. The new plant health legislation also introduces new contingency planning instruments.
From 1 January 2021, hemp will no longer be subject to agricultural seed legislation. This makes it possible to produce and market seeds and plants for the production of CBD hemp.
On 27 January 2021, the Federal Council adopted the “Long-Term Climate Strategy for Switzerland”, which sets out climate policy guidelines up to 2050 in order to achieve the net-zero target. The strategy establishes strategic targets for key sectors building on the measures and targets of the revised CO2 Act (adopted by Parliament in autumn 2020 and coming into force upon approval by population on 13 June 2021). For the agriculture and food sector, the 2050 objective is to bring the GHG footprint of the food sector in line with the net-zero target and to avoid any further transfers of GHG emissions abroad. To achieve this, favourable framework conditions for sustainable food systems are to be developed. By 2050, GHG emissions from domestic agricultural production are to be at least 40% below 1990 levels and Swiss agriculture should contribute at least 50% to the country’s food supply. The message on the complete revision of the CO2 Act for the post-2020 period includes a sectoral target of emissions reduction in agriculture of 20% to 25% by 2030 compared to 1990. The target is primarily to be achieved through legislative measures. On 14 April 2021, the Federal Council opened the consultation procedure on the amendment of the CO2 Ordinance. The CO2 Ordinance specifies reduction targets for the building (-65%), transport (-25%), industry (-35%) and agriculture (-20%) sectors by 2030 compared to 1990.
Switzerland increased its contribution to the Green Climate Fund to CHF 145 million (USD 150 million) for the years 2020-2023. The Green Climate Fund helps developing countries to implement the United Nations Framework Convention on Climate Change. It finances measures taken by countries to limit GHG emissions and adapt to climate change.
The aim of Switzerland’s Soil Strategy, adopted by the Federal Council on 8 May 2020, is to preserve the fertility of the soil and to enable it to continue to perform its other services for society and the economy. The Strategy and a series of measures pursue the objective to halt any net loss of soil in Switzerland by 2050.
The Federal Council opened the consultation process for its Draft 2030 Sustainable Development Strategy which sets out how Switzerland intends to implement the 2030 Agenda for Sustainable Development over the next ten years. The strategy, which defines three priority issues in which there is a particular need for action and co-ordination between policy areas, is a first step towards a more systematic approach. The Federal Council highlights the need for a food systems transformation through its priority area “sustainable consumption and production” which contains three objectives (related to consumption modes, sustainable agricultural production and food loss and waste) as well as a system-wide indicator on the GHG footprint of food.
Domestic policy responses to the COVID-19 pandemic
On 1 April 2020, the Federal Council took measures to stabilise the agricultural markets and to mitigate the economic impact in the agricultural sector in the current crisis. The aim was to ensure the supply of food to the population while at the same time preventing a fall in market prices that would have repercussions on the entire value-added chain.
In addition to short-term loans already available to provide liquidity for agricultural producers, the Swiss Government has approved the advanced payment of direct payments. The agriculture and food sector could also benefit from the comprehensive general package of measures to mitigate the economic consequences of the COVID-19 pandemic (e.g. to avoid layoffs, safeguard jobs and guarantee wages).
The government granted exceptional permits for work-related travel during the closed period to allow the entry of seasonal workers and for the management of agricultural land near the border, and exemption from quarantine rules for border regions in order to guarantee work-related travel. Several existing web-based platforms help farms to find additional labour resources and to connect employers and workers.
Temporarily, the official agricultural and feed controls were adapted (where necessary) to follow the hygienic recommendations.
The Swiss National Economic Supply Agency issued non-legally binding letters confirming towards companies their relevance for the supply system. Food is given priority at border crossing (“green lanes”) and the ban on transporting overnight and on public holidays has temporarily been lifted for essential goods.
The Swiss Government has allocated CHF 3 million (USD 3.1 million) for long-term storage of beef, veal and goat meat for which demand has declined. The Swiss Government has approved the Ordinance on exceptional financial assistance of CHF 10 million (USD 10.3 million) for the downgrading of AOC wines to table wine. It is based on two pillars: the downgrading of AOC wine to table wine with the granting of a contribution of a maximum of CHF 2 (USD 2.07) per litre; and the reduction of maximum yields by the cantons for the 2020 harvest.
While retail markets were closed, direct sale from farms to consumers, farm shops, shops with food and goods of daily use, self-serving machines and the online sale (e.g. food, seeds and other gardening products) remained allowed. Serving food and drink to customers on site at restaurants is forbidden, whereas take away is allowed.
In order to guarantee the availability of products and to avoid food waste, the Federal Council has adopted an amendment to the Ordinance on Foodstuffs and Commodities. The amendment allows certain deviations from the regulation to be temporarily tolerated. However, the foodstuffs concerned must be marked with a red sticker. These temporary exceptions should not endanger the health of consumers.
Trade policy developments in 2020-21
As an EFTA member, Switzerland participates in ongoing free trade negotiations with India, Malaysia and Viet Nam. Trade negotiations with Indonesia and Mercosur have been completed, with signatures pending.1 The FTA with Ecuador has been in force since 1 November 2020.
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 cover trade of all processed agricultural products as well as a range of basic agricultural products.
Switzerland and its EFTA partners revised their chapter on trade and sustainable development, which now includes an article on trade and sustainable agriculture and food systems.
Switzerland and Japan agreed on mutual recognition of organic standards for animals and animal products. In 2013, the two countries had already mutually recognised the equivalence of organic standards with respect to plant products. In July 2020, Japan and Switzerland confirmed that organic products of animal origin and products containing components of animal origin will henceforth be recognised as equivalent.
Following the end of the Brexit transition period, Switzerland’s relations with the United Kingdom are governed by seven new bilateral agreements as of 1 January 2021. Through these agreements, Switzerland and the United Kingdom largely continue their trade relationship with the same rules as prior to Brexit. One of these agreements, the Trade Agreement, transfers the Agricultural Agreement with the European Union previously in place into the Swiss-UK relationship. Some of the replicated provisions do not apply from 1 January 2021, however, as they depend on an equivalent arrangement between the United Kingdom and the European Union.
Trade policy responses to the COVID-19 pandemic
Flexibility has been introduced into the partial tariff rate quotas for foodstuff to stabilise market prices. This has been used for butter and eggs, but potentially can be used for a range of other goods as well. In case of food shortages, tariff rate quotas as well as payment terms for agriculture imports can be temporarily extended.
Switzerland is a small economy with one of the highest GDP per capita, low and periodically negative inflation and unemployment rates around 4%. GDP growth has been stable at around 2% in recent years, but GDP dropped by almost 5% in 2020, mainly due to the consequences of the COVID-19 pandemic.
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%. The farm structure is dominated by relatively small family farms. Hills and mountain farming areas (including 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. Crop production has shifted away over time from traditional arable crops (grains, oilseeds) towards an increasing production of fruits and vegetables.
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 3.1%. Swiss agro-food exports consist mostly of processed products for final consumption (85% of total agro-food exports). This category also represents half of the agro-food imports (Figure 25.6).
Sources: OECD statistical databases; World Bank, WDI; and ILO estimates and projections.
Total factor productivity (TFP) growth in agriculture has slowed significantly and is estimated to have been negative between 2007 and 2016. 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 2.2% of their agricultural land and the share of agriculture in the country’s water abstraction is less than one-fifth of the OECD average. In addition, the water stress indicator is well below the OECD average. Nutrient surpluses have declined moderately, but the surplus of nitrogen is still more than twice the OECD average. The share of agriculture in greenhouse gas emissions has slightly increased and is higher than the OECD average. Agriculture’s share in energy use went down, and is less than one-third of the OECD average.
Note
← 1. The FTA with Indonesia was approved by the Parliament and is subject to a referendum on 7 March 2021.