Chapter 24. 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 farms (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 2016-18 and is dominated by direct support to farms (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contrast, changes over time in the structure of support are more pronounced, as market price support (MPS) has partly been replaced by various types of direct payments.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 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 support to producers. Nonetheless, average domestic prices still have been 57% above world prices in 2016-18. 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 it represented around 20% of support to producers in the 1980s, it has increased to almost 50% in current years. Most of these payments are currently provided in the form of general 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, by a decision of the Parliament, without any particular changes for the period 2018-21 (Politique agricole 2018-21 – PA 2018-21). Overall, the spending budgeted for 2018-21 was reduced by 1.7% compared to 2014-17. The main change was a 30% reduction for the financial envelope for improving the production base and social measures, mainly by cutting support to farm investments. There were no further reforms to the border measures and the protection remains relatively high.
In 2018, the Federal Council decided to temporarily increase support for sugar because of low prices at the world market. The minimum customs protection for sugar has increased, and the area payments to sugar beet were raised by CHF 300 (USD 307) per ha. These changes took effect early in 2019.
The Swiss parliament adopted a legislation abolishing export subsidies for processed food products from 1 January 2019. The funds initially affected to finance these export subsidies are to be transferred to the agricultural budget to finance direct payments to milk and bread wheat to compensate the price reduction related to the elimination of these export subsidies.
Assessment and recommendations
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Security of food supply should be sought through a more competitive agriculture rather than by direct payments. Potentially competitive producers should optimise their production and respond to market signals. Policies facilitating structural change including investment support and exit strategies should facilitate such process. Continued reductions of import barriers and the scheduled elimination of the export subsidies to processed products are important steps to further reduce the burden to consumers and interference with markets.
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The removal of milk price controls and milk quotas had a potential to increase competitiveness and better allocate resources. However, the compulsory nature of private contracts on prices and quantities of delivered milk means that the abolished production quota system was de facto replaced by another production control mechanism but on a private base. As the production quota system, this may hinder the necessary structural changes towards a more competitive dairy sector. Policies enhancing and facilitating structural change may play a role in this context.
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In redesigning the direct payment schemes for the period after 2021, 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.
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Further development of the food consumer information system related to issues such as environment and animal welfare should also contribute to address some market failures.
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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 -tax combined with an Emission trading system (ETS). Up to now the Swiss agricultural sector is only partly affected by the current CO2 legislation as the levy is applied on fuels used to heat the glasshouses and heated barns for livestock. To reach the declared objectives for the agricultural sector a focus on more targeted policies is needed as well as extension of the CO2 tax to other parts of the farming sector to increase the incentives for further reduction of the emissions.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2019), “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. In the 2016-18 period support has been around 55% of gross farm receipts, three times higher than 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 24.1). The level of support has increased from 2017 to 2018 mainly due to the increased MPS, brought about by lower world prices. (Figure 24.2). Prices received by farmers were higher than world prices (by 57% 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 24.3). Overall, SCT represent 54% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and innovation, relative to agriculture value added record an upward trend and are among the highest across the countries covered by this report. Total support to agriculture as a share of GDP has declined significantly over time. Almost 90% of the total support is provided to individual farmers (PSE).
Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2019), “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 relatively 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 below 1%, while its share in employment is around 3.5%. These relatively low shares are mainly due to highly developed industrial and services sectors in the economy (Table 24.2 and Figure 24.4).
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.
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 around 3% (Table 24.2). Swiss agro-food exports consist mostly of processed products for final consumption (85% 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 24.5).
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, at 0.6% between 2006 and 2015, was well below the global average (Table 24.3). As the use of primary factors went down and intermediate inputs has barely changed, output growth was even lower.
Swiss agriculture is largely rain-fed. Swiss farmers irrigate only 2% of their arable land and the share of agriculture in the country’s water abstraction is less than one-fifth of the OECD average. Nutrient surpluses have declined substantially notably for phosphorus, but the surplus of Nitrogen is still twice the OECD average. The share in greenhouse gas (GHG) emissions remains unchanged and higher than the OECD average. Agriculture’s share in energy use went down, and is less than one-third of 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: 1) safeguarding the basis for agricultural production, and agricultural land in particular; 2) food production that is adapted to local conditions and which uses natural resources efficiently; 3) an agriculture and food sector that responds to market requirements; 4) cross-border trade relations that contribute to the sustainable development of the agriculture and food sector; and 5) using food in a way that conserves natural resources. The new article in the Constitution supports the general thrust of current agricultural policy. It sets out how to guarantee proper food supplies to the Swiss population in the long term. In doing so, it takes account of the entire process from farmers to consumers. Food supplies should be guaranteed by exploiting both domestic production and imported foodstuffs.
Most agro-food imports to Switzerland are regulated by Tariff Rate Quotas (TRQ) with relatively low in-quota tariffs and high out-of-quota tariffs. TRQs in particular cover meat, milk products, potatoes, fruits, vegetables, bread cereals and wine. Since 1999, an auctioning system is used to allocate most of the TRQs to traders.
All export subsidies for primary agricultural products were eliminated by 1 January 2010. Export subsidies for some processed agricultural products are allowed within a transitional period until 2020 and compensate for high prices of domestically produced agricultural inputs.
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 for its members standard milk delivery contracts (setting three levels of prices and corresponding volumes for contingents A, B and C). A decision of the Federal Council, made those standard milk delivery contracts compulsory to all milk producers (i.e. also to those outside the IP Lait) from 1 July 2013 to end 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 a another production control mechanism but on a private base. The effective price paid to milk producers remains on average 51% above the world market prices (producer NPC) in 2016-18.
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 farms for meeting societal demand such as food security, environmental services (landscape, biodiversity, sustainable use of resources) and animal welfare. Production and marketing: expenditures are mainly for support dairy producers in the form of direct payments for milk delivered for cheese processing and to milk production without silage feed. Area payments are paid for oilseeds and protein crops and, since 2008, an area payment for sugar beet replaced the system of subsidies to processors and related system of guaranteed prices to sugar beet growers (discontinued in 2008). Export subsidies are still applied to processed dairy and wheat products. 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 includes direct support to farm investments, but also general services to the sector through infrastructure improvement and social measures.
In March 2017, the Swiss Parliament decided to extend, up to end 2021 and without any substantial changes (see domestic policy development part), the current framework, that had originally been implemented for the period 2014-17 (PA 2014-17). The main change in PA 2014-17, relative to the system of direct payments prior to 2014, was the replacement of general headage payments to ruminants by an area payment to pastures with a requirement for a minimal stocking density. Another important shift in the structure of payments was the suppression of general area payments and reallocation of payments more closely related to specific policy objectives complemented by transition payments to make the reform socially acceptable. Most of the animal welfare and agri-environmental payments from the previous period continue to be applied under the various main categories of the 2014-17 framework still in place. The environmental cross-compliance conditions continue to be applied within the new system of payments. Discussion on the policies to be applied from 2022 (PA 2022+) have already started among the Government and the stakeholders.
The Ordinance on Swissness (HasLV) came into force in 2017. It defines the criteria which have to be fulfilled in order to use the Label “Swiss” and the use of the label of the Swiss cross.
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 and has been imposed since 2008 on fossil fuels such as oil or natural gas. This tool is combined with an Emission Trading System (ETS) which enables to reduce emissions where the costs are low. Switzerland wants to link its ETS to the EU scheme 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 European Union on 23 November 2017. 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 partly affected by the current CO2 legislation as the levy is applied on fuels used to heat the glasshouses and heated barns for livestock.
In December 2017, the Swiss Federal Council revised its climate policy for 2021-30 for reducing Swiss emissions in 2030 by 50% compared to the 1990 level. Based on the Swiss climate strategy for agriculture, the proposed target is to reduce emissions in agriculture by one-third by 2050, this effort should contribute to a two-thirds reduction of emissions in the whole agro-food chain (this commitment includes reductions of emissions both at the production and consumption levels). The main activities contributing to this reduction are in the reduction of emissions from livestock production, application and management of fertilisers, soil preparation, reduction of the use of fossil energies and production of renewable energies by the sector. In the whole agro-food chain, the reduction of emissions is related to input industries, processing, but also to final consumption where change of diet and reduction of food waste may be the main drivers. Up to now, the remains unclear which policies will be applied to reach those objectives. In the farming sector, payments are provided supporting the use of technologies which are likely to contribute to the reduction of emissions.
Domestic policy developments in 2018-19
In March 2017, the Swiss Parliament voted a budgetary envelope to finance agricultural policies for 2018-21 (AP 18-21). Overall, the spending was reduced only marginally by 1.7% compared to the 2014-17 budget envelope. The budget reduction was more substantial (30%) for the financial envelope Improving the production base and social measures, mainly by cutting support to farm investments. The budgetary envelopes were almost unchanged for Production and marketing (+0.5%) and Direct payments (-0.1%).
The system of the Direct payments remains the same as in 2014-17. 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 (biodiversity, animal welfare).
In September 2017, the Federal Council approved the Phytosanitary Products Action Plan. It highlights how, using appropriate measures, the use of plant protection products and related risks to health and the environment can be reduced. The direct payment to the efficient use of resources is part of these measures. The following technologies will be also made eligible for those payments from 2018 to 2021: i) the biphasic feeding of pigs depleted in nitrogen; and ii) technologies reducing the use of plant protection products in fruit, viticulture, and sugar beet.
At its meeting of 30 November 2018, the Federal Council decided to temporarily increase support for sugar because of low prices. The minimum customs protection for sugar has been fixed at CHF 70 (USD 72) per tonne. The area payments to sugar beet will now be CHF 2 100 (USD 2 147) per hectare (an increase of CHF 300 per hectare). These changes will take effect early in 2019.
In January 2018, following a stakeholder consultation a charter on digitalisation in the Swiss agro-food sector was launched. This charter implements the federal strategy – which aims to support digital development; actively address structural change; and create networked transformation processes – specifically concerning handling data in agriculture. Those who sign the charter commit to contribute actively to the process of digitalising the Swiss agro-food sector.
Trade policy developments in 2018-19
As a member of the European Free Trade Association (EFTA), Switzerland signed an FTA with Ecuador in June 2018. This agreement also includes important concessions in agro-food trade. FTAs with Georgia and the Philippines were put into force in 2018.
In June 2018, EFTA countries have also signed a renegotiated FTA with Turkey. The initial FTA signed in 1992 (the oldest EFTA agreement) included unilateral agro-food trade concessions to Turkey. The renegotiated agreement includes concessions on agro-food trade on both sides. In December 2018, the EFTA countries signed a new comprehensive FTA with Indonesia, covering also concessions on agro-food products such as palm oil and comprehensive sustainability provisions.
As an EFTA member, Switzerland participates in ongoing free trade negotiations with India, Mercosur, Malaysia and Viet Nam. Negotiations with Algeria, Thailand, and the Customs union of the Russian Federation, Belarus and Kazakhstan are on hold for the moment. Free Trade Agreements with Chile, Mexico and SACU are currently facing a renegotiation. These Free Trade Agreements and the ongoing negotiations also cover trade with processed agricultural products and a range of primary agricultural products.
Preferential tariff rates are unilaterally applied to imports from developing countries under the general system of preferences. In the context of the initiative of the Swiss government to grant zero tariffs on all products originating in Least Developed Countries (LDC), all agricultural imports from LDCs are duty and quota free since September 2009.
In 2018, export subsidies for processed products 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). The same level and structure of export subsidies is expected to be provided in 2018. In December 2017, the Swiss parliament adopted a legislation abolishing these export subsidies from 1 January 2019. The funds initially allocated to finance export subsidies will be transferred to the agricultural budget to finance direct payments to milk and cereals to compensate the price reduction related to the elimination of these export subsidies.