21. Norway
In Norway, reforms of agricultural policies have been modest and support is among the highest within the OECD. Norway uses an array of policy measures to regulate the market and support agricultural producers, including a complex system of payments and several tax concessions. The main agricultural sectors remain insulated from the world market and subject to production-distorting support.
The level of support to producers relative to gross farm receipts (%PSE) declined gradually since the mid-1980s. In 2018-20, support was around 56% of gross farm receipts, which implies that, on average, the value of support is higher than that of agricultural production valued at world market prices. Moreover, at 56%, Norway’s %PSE is the second highest across all OECD, and emerging and developing countries for which it is calculated, at more than three times the OECD average.
The share of potentially most-distorting support decreased, but is still more than half of farmers’ support. Market price support is the main component. The level of support in 2020 declined mainly due to the increase in border prices, which more than offset the increase in producer prices and budgetary payments. Effective prices received by farmers were on average 1.8 times world prices in 2018-20. Single commodity transfers (SCT) accounted for 57.5% of the total producer support estimate (PSE). The share of SCTs is over 30% of commodity gross receipts for all commodities. Expenditures on general services (GSSE) for the sector as a whole are relatively small at around 5% of the total support estimate (TSE) and 1.9% of agricultural value-added, and declined significantly relative to the size of the sector. Support to general services mostly finances the agricultural knowledge and innovation system. Total support to agriculture as a share of GDP declined significantly over time. About 93% of the total support goes to individual farmers.
An agreement concerning target prices and the budgetary framework for payments to farmers was reached between the government and the two farmers’ organisations involved in agricultural negotiations. The main changes in the agreement were: an increase in target prices and budgetary support; a transfer of NOK 93.4 million (USD 9.8 million) from the 2020 budget to the 2021 budget; strengthening of small and medium-sized farms; increased support for areas with poor conditions for agricultural production; and increased support for investments in vegetable production and sectors with potential for increased market share of domestic production.
Norway eliminated its last export subsidies on cheese and processed agricultural products as of the end of 2020.
In response to the COVID-19 pandemic, Norway implemented a number of measures relevant to the agricultural sector, including support to farmers who were unable to harvest in 2020 due to lack of seasonal works, temporary lifting of maximum ceilings within the scheme for investment aid for rural development purposes, and elevated vigilance for personnel working at border stations or with meat control at slaughterhouses to avoid infections.
There is scope to accelerate the pace of reforms, to achieve stated goals at lower cost to taxpayers and consumers. A change in agricultural policy towards long-term productivity growth and environmental sustainability could help.1 Specifically, further policy actions should reduce potentially most-distorting support in order to increase exposure to market signals and eliminate output-related measures.
The efficiency of agricultural support measures in achieving stated policy objectives such as food security, sustaining rural economies and landscape amenities at lower costs, would improve if the intended beneficiaries of such measures were identified and policy measures targeted to specific outcomes.
Norway should gradually reduce border protection and commodity-specific support in a predictable way to let markets play their role in allocating production resources.
Phasing out export subsidies is a positive step and should reduce market distortions associated with these measures.
Re-orienting support towards general services – especially for the agricultural knowledge and innovation system – could increase productivity growth while maintaining environmental protection and sustainable natural resource management. Norway should strengthen efforts to provide farmers with tailored advice about sustainable technologies and practices by paying attention to supporting activities, such as technology monitoring, training advisors, and the production, collection and distribution of technical knowledge.
Climate change and agriculture rank high in the national agricultural policy debate, but commodities that generate the highest greenhouse gas (GHG) emissions are currently those most heavily supported. Moreover, farmers are exempt from GHG emission taxes and the cap-and-trade system. Norway faces a sizeable emission-reduction challenge, and reducing GHG emissions from agriculture will be difficult without significant policy reform. Norway should restructure support and treat agriculture similarly to other sectors in the economy to intensify GHG reduction. Recent legislation restricting cultivation on peatlands – if applied with enough ambition – could significantly reduce GHG emissions from agriculture and should be carefully monitored.
Norway’s co-operative approach to develop policies for controlling GHGs and food waste in the agro-food sector has merit. The climate change agreement between the government and farmer organisations facilitates buy-in to reform proposals by stakeholders. However, agreed climate measures should be consistent with the mitigation actions stated in the 2016-27 White Paper and should not lead to increased subsidies to agriculture.
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
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.
Overall, 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, 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 as of the end of 2020. But high levels of protection remain against imports of the most important and sensitive agricultural products, such as meat, dairy, eggs and grains, and about 61% of production still has some form of administered price. 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 positive externalities of agricultural commodity production, and implementation costs of alternative policies are high. 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.
The share of potentially most-distorting support (support based on commodity output and payments based on variable inputs without constraints) declined significantly. But such measures still account for over half of support to farmers, due to continued reliance on market price support.
Market price support, mainly due to border protection and domestic market regulation, remains the main component of support to producers and its 39% share of PSE remains unchanged since 1995 (Figure 21.4). Payments based on output are now around one-third of 1986-88 levels, whereas payments based on current production factors increased. Agriculture in Norway remains among the most highly protected in the OECD.
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
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. The agricultural policy aims at sustainable use of natural resources, developing know-how and contributing to the creation of employment and value-added in farming and farm-based products throughout the country.
The principal policy instruments supporting agriculture include border measures, domestic market regulation, based on the Marketing Act, and budgetary payments. 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). Milk production quotas were introduced in 1983 and a system of buying and selling quotas was introduced in 1997.
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. Environmental levies are applied on agricultural pesticides.
The National Agri-Environmental Programme (NAP) structures agri-environmental measures and provides a central framework and national goals. It contains the main agri-environmental measures, such as the Acreage Cultural Landscape Support, payments to extensive grazing, payments for grazing animals and payments for organic agriculture. Agri-environmental measures are organised at national, regional and local levels. Measures included in the NAP are not targeted to specific environmental activity of the farmers as such, but are generally conditioned on the adoption by farmers of good agricultural practices. More targeted support schemes are the Regional Environmental Programmes (REP) and special environmental measures in agriculture, organised on the regional and local level, and targeted at issues not addressed in national schemes. For example, the programmes include 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.
The 2017 Climate Change Act establishes Norway’s targets to reduce emissions by 2030 and to 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 at least 50% and up to 55% of 1990 levels. Carbon dioxide emissions from fossil fuel use in agriculture are subject to a carbon dioxide tax similar to that in place 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, a combination of regulatory, financial and advisory measures reduce GHG emissions from agriculture.
In October 2019, the European Union, Iceland and Norway formally agreed to extend their climate co-operation for 2021-30 by including the Effort Sharing Regulation and the regulation on greenhouse gas emissions and removals from land use, land use change and forestry (the LULUCF-Regulation), into the European Economic Area (EEA) Agreement. According to the agreement, Norway will fulfil its respective GHG reduction target for 1 January 2021 to 31 December 2030 in accordance with the Emissions Trading System Directive, LULUCF-Regulation and the Effort Sharing Regulation.
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.
Most of Norway’s tariff-rate-quotas 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.
Article 19 of the 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, tariff rate quotas (TRQ) expanded on several products, including meat, cheese, vegetables and certain products used in the food industry for making processed agricultural goods.
Domestic policy developments in 2020-21
The coalition government formed in January 2019 broadly supports the strategic orientations of the White paper No. 11 (2016-17). The government aims to enhance the efficiency and competitiveness of the sector, while maintaining the overall system of market regulation and border protection. Agricultural policy is to continue to build on four pillars: i) the system of annual agricultural negotiations and agreements; ii) a well-functioning border protection; iii) farmers’ responsibility for balancing supply and demand on the domestic market through producer co-operatives; and iv) continuation of the property regulations in agriculture to protect the family-based ownership of farms. Other key elements of the political platform include: continuation of the milk quota system; introduction of the Act on Good Business Conduct during 2020; following up the soil protection strategy; stimulating organic farming; reinforcing the focus on animal welfare; strengthen R&D; and continuing the policy for low antibiotic use and low prevalence of antibiotic resistance in animal husbandry.
In May 2020, an agreement was reached between the government and the two farmers’ organisations involved in the agricultural negotiations. The main changes in the agreement were:
an increase in target prices with a total budgetary effect by NOK 300 million (USD 32 million) from 1 July 2020
an increase in budgetary support by NOK 350 million (USD 37 million) from 2020 to 2021
a transfer of NOK 93.4 million (USD 9.8 million) from the 2020 budget to the 2021 budget
increased support for areas with poor conditions for agricultural production
increased support for investments in vegetable production and in sectors with potential for increased market share of domestic production.
A system for buying and selling milk quotas was put into place in 1997. The milk quota system serves to regulate milk production in proportion to the market situation. Each year the basic quota volumes are multiplied by a factor to fix the amount of milk each producer can deliver to a dairy (i.e. actual production possibility). For 2021, the quota volumes were multiplied by a factor of 1.07 in order to balance the market. The milk production prognosis is 1 537 million litres.
Due to an agreement between the government and one of the farmers’ organisations, the government bought about 35 million litres of milk quotas from the market in 2020. According to the agreement, the quota scheme will be reintroduced in the market from 2022. Farmers selling cow milk quota will then be allowed to sell 60% of their quota directly to other producers within a production region (mainly defined as the county), but a minimum of 40% has to be sold to the government at a fixed price. There are 14 production regions within which redistribution can take place. The purpose of these regions is to ensure good geographical distribution and equal development opportunities for producers in all regions.
Following the 2018 strategy on organic production, a programme was prepared to prioritise measures for organic production over the long-term. A forum was established where representatives from the whole value chain as well as researchers, organisations and the agricultural extension service can discuss relevant challenges and solutions for the development of organic production. In 2020, NOK 116 million (USD 12 million) was provided for measures to support organic production and NOK 34 million (USD 0.4 million) to different projects on information and demonstration projects.
The budget for the Regional Environmental Programmes (REP) has increased to NOK 528 million (USD 56 million) for 2020. Payments under these programmes finance measures such as the reduction of run-off from agricultural fields, environmentally friendly spreading of manure, maintenance of fields with high or special biodiversity in the forest and mountains areas, grazing on islands, and maintenance around heritage sites in the agricultural landscape.
On bio-economy, the Research Council of Norway, Innovation Norway and Industrial Development Corporation of Norway (Siva) have developed a common Action Plan for the implementation of the recommendations of the strategy, which was published in February 2020. Work on developing a strategy on circular economy is in progress, with nine ministries involved in the process, including the Ministry of Agriculture and Food.
In June 2019, the government and farmers’ organisations negotiated a climate agreement for agriculture. The agreement sets targets for the abatement of GHG emissions and uptake from agriculture over 2021-30. Improvement in on-farm livestock, manure and soil management will be key to reach these targets, alongside improvements in consumption and reduction in food losses and waste.
The rural development aspects of Norwegian agricultural policy include several programmes designed to stimulate innovation and the establishment of alternative businesses on farms and alternative employment in rural areas. Most of the funding is financed through the Agricultural Development Fund. For 2020, the total allocation of funds for rural development (within the Agricultural Agreement) was NOK 1 251 million (USD 132 million).
Domestic policy responses to the COVID-19 pandemic
Norway has implemented several measures in response to the COVID-19 pandemic, many of which are relevant to the agricultural sector. Farmers who are unable to harvest in 2020 due to lack of seasonal workers were eligible for payment under the crop insurance compensation scheme. The temporary 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 in a five-year period. The application deadline was 31 October 2020.
Certain adjustments have also been made to the scheme for investment aid for rural development purposes. For a temporary period until 31 December 2020, investment aid could exceed the maximum ceilings of NOK 2 million (USD 200 000) and 35% of total cost estimates, if the project can document significantly higher costs or reduced liquidity as a consequence of the COVID-19 pandemic and falling exchange rate.
The Norwegian Food Safety Authority elevated vigilance for personnel working with meat control at slaughterhouses and control at border stations to avoid personnel being infected or quarantined. The Norwegian Food Safety Authority is continuously assessing measures to limit contamination to critical personnel.
Trade policy developments in 2020-21
Following 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.
Through the European Free Trade Association (EFTA), Norway has negotiated 29 Free Trade Agreements (FTAs) with 40 partner countries. Norway 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. The agreement with Ecuador, which was concluded in 2018, entered into force 1 November 2020. Ecuador accounts for about 0.03% of Norwegian agro-food exports and agro-food imports. There are ongoing free trade negotiations between EFTA and India, Viet Nam and Malaysia. Negotiations with MERCOSUR were concluded in August 2019. EFTA has also started re-negotiations of free trade agreements with Chile and the Southern African Customs Union (SACU) (Botswana, Lesotho, Namibia, South Africa and Swaziland). These Free Trade Agreements and negotiations include processed agricultural products and a range of primary agricultural products. In 2020, Norway and the People’s Republic of China made further progress in bilateral negotiations on a trade agreement.
Norway has a shortage of arable land, but an abundance of grass and pasture. Agricultural land accounts for only 3% of the country’s total area; therefore, the most favourable lands are mostly allocated to arable crops as a matter of policy design, while ruminant livestock is allocated to regions with less favourable conditions. As a result, production of cow and goat milk, and bovine and sheep meat takes place in rural areas, and production of grains, poultry and eggs mainly takes place in central parts of Norway.
Due to unfavourable climatic conditions, the agricultural sector produces a rather 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.
Natural resource wealth and a regulative framework conducive to business development have helped to boost Norway’s per capita GDP, which is now one of the highest in the world. Combined with its “Nordic model” ensuring inclusiveness and low inequality, Norway exhibits impressive levels of well-being in many dimensions. Sustaining Norway’s inclusive society will require diversification away from oil-related activities and finding new opportunities from globalisation and digitalisation. The recent outbreak of COVID-19 and the associated shutdown have had an impact on the economy. According to OECD projections, real GDP is estimated to have fallen by 1.2% in 2020.
Norway is a net importer of agricultural products: agro-food imports represent around 9% of total imports, while agro-food exports represent 1.2% of total exports. The vast majority of Norway’s agricultural production is consumed domestically. Most of the agro-food exports are in products for final consumption, while a small majority of imports are for further processing. The European Union is Norway’s main trading partner.
Sources: OECD statistical databases; World Bank, WDI; and ILO estimates and projections.
Over the 2007-16 period, agricultural output is estimated to have increased at a slow annual pace. Variable inputs and fixed factors of production have declined, while total factor productivity is estimated to have increased at a rate that is slightly higher than the world average. Overall, there are signs of improvements in some agri-environmental indicators, but sustainability performance is a concern in terms of emissions, biodiversity and nutrient balances. While policies towards land management and the cultural landscape have had some success, achieving reductions in nutrient balances and meeting both domestic policy goals and international commitments related to GHGs, ammonia emissions and water protection have proved challenging. Norway’s nutrient surpluses are among the highest in OECD and have not significantly declined in recent years.
Reference
[1] OECD (2021), Policies for the Future of Farming and Food in Norway, OECD Agriculture and Food Policy Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/20b14991-en.
Note
← 1. For more detailed assessment and recommendations see (OECD, 2021[1]).