2. The agricultural policy environment in Norway
Norway provides the highest levels of support to agricultural producers among OECD countries. Reforms have been limited and the main agricultural sectors remain highly insulated from world markets. Market price support is provided though high border protection and regulated primary domestic markets, while a large share of budgetary support remains coupled to current production. These coupled support measures are not only potentially the most trade distorting, but are generally found to have a negative impact on productivity and technical efficiency, and to produce negative environmental outcomes. A key goal is to sustain agricultural activity in rural areas across the country. However, the share of support that is targeted to environmental objectives is low. It is possible to reform the support policy package with more targeted and decoupled measures that improve environmental outcomes, while maintaining production capacity across the country.
Agricultural policies in Norway pursue four main objectives: food security; agriculture throughout the country; increased value creation; and sustainable agriculture with lower emissions. These are implemented through four pillars: the annual agricultural agreements between farmers and the government; strong border protection; farmers’ responsibility for marketing balance through producer co-operatives; and a property policy to secure family-owned farms.
Norwegian farmers receive on average 59% of their revenue from agricultural support measures (PSE). This is the highest level across all OECD countries and more than three times higher than the OECD average. Market price support (MPS) –sustained by tariffs and market regulations – and coupled payments remain the main components of support. This type of support is not only potentially the most trade distorting, but generally found to have a negative impact on productivity and technical efficiency, and to produce negative environmental outcomes.
Sustaining agricultural activity in rural and remote areas is a stated policy objective. Agricultural policies attempt to reserve the scarce most favourable lands for arable crops, while ruminant livestock is channelled to regions with less favourable conditions. To achieve this regional pattern, agriculture is highly supported, with support prices and payments differing across regions. However, climate change ranks high in the current agricultural policy debate and it will be increasingly difficult to reduce greenhouse gas (GHG) emissions from agriculture without significant policy reform.
Norway needs to gradually reduce border protection and commodity-specific support in a predictable way to allow markets to play their role in allocating production resources. The current high levels of support are likely to become increasingly untenable over time.
Norway should address the conflicts between its agricultural and environmental policy goals. It is possible to achieve the objective of preserving production capacity and agricultural landscape across the country, while reducing the negative environmental impacts. The core objectives of production-channelling policies could be achieved more efficiently through decoupled support with payment rates that are adapted to each location, and subject to requirements for maintaining production capacity.
Direct payments to farmers should be made conditional on proper implementation of an environmental plan. The polluter-pays-principle should be applied more systematically to hold farmers accountable for all harmful environmental effects; for example, taxes on fertilisers and penalties can be imposed where these contribute to water pollution. Efforts should be increased to provide targeted advice to farmers on sustainable technologies and practices.
Consideration should be given to enhancing the role of farmers in managing their business risk by introducing voluntary risk-management programmes.
The strategic objectives of agricultural and food policies, as set out in the 2016-17 White Paper Change and Development – A Future-oriented Agricultural Production, are: food security; agriculture across the country; increased value creation; and sustainable agriculture with lower emissions of greenhouse gases (GHG) (Det Kongelige Landbruks - Og Matdepartementet, 2016[1]).
Consumers are to be provided with nutritious, high quality products, and the production process should be mindful of aspects related to the environment, public health, and animal welfare. Norway’s agricultural policy aims to safeguard agricultural resources, develop know-how, and contribute to the creation of employment and value added in farming and farm-based products across the country.
The political platform released by the coalition government, formed in January 2019, broadly follows the strategic orientations of the 2016-17 White Paper. The government aims, inter alia, to enhance the efficiency and competitiveness of the sector, while maintaining the overall system of market regulation. Agricultural policy will continue to build on four pillars: the system of annual agricultural negotiations and agreements; a strong border protection; farmers’ responsibility for marketing balance through producer co-operatives; and a property policy to secure family-owned farms.
Other key elements of the political platform include: continuation of the milk quota system; introduction of the Act on Good Business Conduct in 2020; following up on the soil protection strategy; encouraging organic farming; reinforcing the focus on animal welfare; strengthening R&D; and continuation of the policy for low antibiotic use and low prevalence of antibiotic resistance in animal husbandry.
The Ministry of Agriculture and Food has prime responsibility for policies relating to agricultural production, food and management of the entire food chain, acting together with the Ministry of Trade, Industry and Fisheries, and the Ministry of Health and Care Services. The Norwegian Agriculture Agency (Landbruksdirektoratet) is the implementing agency for the Ministry of Agriculture and Food, while it also undertakes studies and provides advice on policy issues.
The design of agricultural policy involves annual negotiations between the government and the two nationwide farmers’ organisations, the Norwegian Farmers’ Union (Norges Bondelag) and the Norwegian Farmers’ and Smallholders’ Union (Norsk Bonde ‒ og Småbrukarlag). These negotiations set key parameters such as target prices (prices the agricultural co-operatives purchase products from farmers), agricultural policy programmes, including direct support schemes and welfare support programmes for farmers, and market regulation systems (marketing levies paid by producers, milk quotas).1 Issues which are not negotiated include: tariffs and trade arrangements; tax and levies; and laws and regulations. The main consideration under the negotiations is the implications of support for net farm incomes so farming can be maintained.2 These annual negotiations (so-called Agricultural Agreement) have been in place since 1950. If no agreement is reached, the government may invite Parliament to set the essential parameters (e.g. overall changes in budget transfers and target prices) and let the negotiating parties work out the detailed allocation of parliament’s package. Such was the outcome in 2017.
The system of Basic Agricultural Agreements is underpinned by Norway’s border protection measures and domestic market regulations based on the Marketing Act (Omsetningsloven) of 1936. This Act regulates the domestic market for certain types of meats (beef, mutton, pork and poultry); milk, butter and cheese; cereals and oilseeds; potatoes, vegetables, fruit and berries; and fur skins. Its key objectives are to balance the domestic market and to stabilise prices in accordance with the target prices established in the Basic Agricultural Agreements. The Act is administered by the Sales and Marketing Council (Omsetningsrådet).3 Agricultural co-operatives, which are owned by farmers and are dominant in most sectors, are responsible for the market balance within their respective sectors (except horticulture) (Figure 2.1). The most important regulatory measures are production and demand forecasts, marketing and promotion, storage, and some exports. Subsidised exports are abolished as of 1 January 2021.
The mix of specific instruments employed to regulate markets may have varied over time, but the guiding principles for the system have remained largely unchanged. There are three general approaches to balance the market: target pricing; volume-based; and reference pricing (Table 2.1). Under the target pricing approach, the Basic Agricultural Agreements set target prices for a number of products (fresh milk, pork, grain, oilseeds, potatoes, apples and some vegetables).4 Under the volume-based approach, the market regulator is obliged to announce “planned average wholesale prices” for consecutive six-month periods. This is used for beef (since 2009) and for sheep meat, lamb and eggs (since 1 July 2013). The reference pricing approach entails the establishment of a reference price at the wholesale level in order to calculate the applied tariff. It applies to poultry, for which target prices were eliminated in 2007 and there is currently no market regulation. The target-price mechanisms vary in design.
In the 2016-17 White Paper, the government also made some proposals which, in its view, could make the system more flexible and efficient, and stimulate competition in the processing and distribution sectors. The principal recommendations included: i) the transfer of pork from the “target price” to the “volume” model; ii) fewer milk-producing regions to reduce observed geographical price differences in milk quota sales and leasing; iii) the purchase of goat milk quotas and termination of market balancing for goat milk; iv) the discontinuation of the current market regulation for eggs and grains, leaving the Norwegian Agricultural Authority in charge of future balancing measures; and v) the abolition of welfare schemes in favour of higher deficiency payments per animal. However, most of these proposals remain unimplemented as they have not found a majority in Parliament.
Agricultural producer co-operatives play a prominent role in the supply chain of some sectors, particularly dairy, and their establishment is common practice in Norway (Chapter 4). There are 16 nationwide co-operative organisations, which together form the Federation of Norwegian Agricultural Co-operatives (Norsk Landbrukssamvirke). They specialise in either sales, purchasing, or breeding. The three largest producer co-operatives are: Tine SA (dairy), Nortura (meat and eggs) and Norske Felleskjøp BA (grains) (Box 2.1). Tine and Nortura are sole regulators in their respective sectors, while Norske Felleskjøp may undertake market regulation with other grain traders (through tender).
The market power of co-operatives is formalised by the market regulation system that gives the co-operatives a special role in implementing market regulations to balance supply and demand. Potentially, co-operatives could distort efficiency and competition in the primary sector. Moreover, as the agricultural sector is exempt from competition policy, agricultural support policies may have side-effects in the food supply chain, impeding its productivity growth and competitiveness (Productivity Commission, 2015[3]) (Chapter 5).Market regulation is based on three obligations: i) the acceptance by the market regulator of all produce offered; ii) its obligation to supply all processors on non-discriminatory terms; and iii) the non-discriminatory provision of relevant market information to all parties concerned.
A fee (market balancing levy) from the remittances for farm deliveries is collected by buyers of agricultural products from farmers (e.g. dairies, slaughterhouses, grain buyers). The fees are established by the Ministry of Agriculture and Food on the recommendations of the Sales and Marketing Board, normally for each calendar year. Advisory and extension services, consumer information, and promotional activities are also financed by this fee.
The scope of the measures envisaged depends on the applicable market regulation approach and the nature of the product. For meat, the most common measures are temporary storage or early slaughter. The market for eggs (in shell), which experiences seasonal fluctuations in demand, may be balanced through processing for industrial uses or pre-scheduled slaughtering of hens. Food quality produce (e.g. grain, potatoes and apples) may be converted to animal feed or industrial usage. Export subsidies, which were used as a market balancing measure for cheese, butter, pork and processed agricultural products, ceased to be an option as of mid-2020.
Price rebates may be required when commodities are diverted to less profitable uses. Such rebates may be partly financed by the market balancing levy (e.g. for grains) or paid by the government as agreed in the Basic Agricultural Agreements. The latter option is applied to potatoes used in the manufacture of spirits and potato starch, grains, and other domestically produced raw materials used by the processing industry.
Tine SA, the market regulator for milk, is Norway’s largest producer, distributor and exporter of dairy products with 11 400 members (owners) and 9 000 farms. It purchases and processes milk and dairy products throughout Norway and has diversified into a range of other activities. As market regulator, Tine is obliged to purchase all milk offered to it by milk producers in the country, and to purchase surplus milk fat in the form of butter from entities outside Tine. In 2020, Tine SA moved the production of cheese (Jarlsberg cheese) to other countries (e.g. Ireland and the United States) to meet demand as the phasing out of export subsidies made exports of Jarlsberg cheese unprofitable.
Nortura BA, owned by more than 28 000 farmers, is the market regulator for meat and eggs. The co-operative employs about 6 500 workers at 37 production sites across the country. Its annual turnover is around NOK 17 billion (USD 2 billion).
Norske Felleskjøp is an umbrella organisation owned producers/suppliers of agricultural inputs such as animal feed, seeds, fertiliser, equipment, and machinery. As a market regulator, Norske Felleskjøp prepares forecasts for the production of domestically grown grain and estimated consumption; issues price projections, and fixes price quotations; proposes import quotas and producer levies; and implements measures to dispose of procured grains. Norske Felleskjøp decides on regulatory measures, but market regulation activities for grains may also be undertaken by other grain traders. In such cases, the allocation of grain purchases is managed through tenders.
AL Gartnerhallen is the co-operative of fruit, vegetables and berries producers. The co-operative ‒ which has approximately 1 400 growers and an annual turnover of around NOK 1.4 billion (USD 0.2 billion) ‒ sells its goods to industrial users, and wholesale and retail traders. It may occasionally participate with other producers of fruit and vegetables in supply management activities (such as storage) through the Green Growers Co-operative Market Council (GrøntProdusentenes Samarbeidsråd-GPS).
In addition to the four co-operatives mentioned above, HOFF SA (which unites some 500 potato growers in the industrial processing of potatoes) and Honningcentralen (owned by some 1 550 beekeepers and engaged in honey processing and marketing) have considerable trading activity.
Progress in reducing the level of support and in policy reform towards greater market orientation in Norway’s agricultural sector has been modest over the last few decades. Measured in Producer Support Estimate (PSE), support to producers (%PSE) has declined gradually since the mid-1980s.5 In 2017-19, support was around 59% of gross farm receipts, which implies that, on average, the value of support is higher than the value of agricultural production valued at world market prices. Moreover, at 59%, Norway’s %PSE is the highest across all OECD and emerging and developing countries for which it is calculated (OECD, 2020[4]), and more than three times higher than the OECD average (Figure 2.2).
Notes: The OECD total does not include the non-OECD EU Member States, nor Colombia which joined the OECD in April 2020.
1. Area (A), animal numbers (An), revenue (R), or income (I).
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Market price support, mainly due to border protection and domestic market regulation, is the main component of support to farmers and its share in PSE (44%) remained broadly unchanged between 1995-97 and 2017-19. Administered prices for eggs, poultry, beef, and sheep have been removed, but about 61% of production still has some form of administered price. Payments based on output are now around one-third of the 1986-88 level, although payments based on current production factors have increased. While the share of the potentially most distorting forms of support (support based on commodity output and payments based on variable inputs without constraints) has declined significantly, such measures still account for over half of support to farmers due to the continued reliance on market price support. This support is not only potentially the most trade distorting, but is generally found to have a negative impact on productivity and technical efficiency, and to produce negative environmental outcomes (OECD, 2013[6]; Henderson and Lankoski, 2019[7]). Although payments based on non-commodity criteria have increased somewhat over time, they remain trivial, accounting for 0.3% of PSE in 2017-19.
Average support per farm in Norway is substantial. Dividing the total value of producer support by the number of farm holdings suggests that, on average, each farm receives support of around NOK 683 684 (USD 77 700) per year (Table 2.2). Support based on commodity outputs, largely reflecting the customs tariffs, is about NOK 356 158 (USD 40 477) per farm, while among direct forms of financial support, the largest item are payments based on current area or animal numbers, is nearly NOK 207 819 (USD 23 618) per farm.
The cost of support to the population is also significant. On average, total support to the sector (TSE) costs (directly or indirectly) each Norwegian household around NOK 11 857 (USD 1 348) a year (Table 2.2). Support based on commodity outputs (largely due to border protection) costs about NOK 5 685 (USD 646) per household each year. On average, total support to agriculture costs to taxpayers NOK 7 219 (USD 820) per household and to consumers NOK 4 766 (USD 542) per household.
Total support to agriculture (TSE) as a share of GDP has declined significantly over time and was slightly less than 1% of GDP in recent years. About 93% of the total support to the sector is provided to individual farms (Figure 2.3). The expenditures for general services (GSSE) relative to total support to agriculture were about three times lower than the OECD average. GSSE relative to agriculture value added was 1.9% in 2017-19, less than the overall OECD average of 5.7%. These expenditures on general services contribute to improving the competitiveness of the sector and its capacity to increase productivity sustainably and resiliently adapt to new shocks and market conditions. They mostly finance the agricultural knowledge and innovation system. Norway’s share of GSSE expenditure for the agricultural knowledge and innovation system is particularly high compared to other OECD countries (Figure 2.4), reflecting relatively high expenditure allocated for research and innovation, extension and for agricultural knowledge transfer (e.g. public expenditure for agricultural research stations, public expenditure to support research projects at the Norwegian University of Life Sciences, see Chapter 4). However, it remains a smaller share of total support TSE than in other countries: 3% compared with 5.8% in the European Union and 4.2% in OECD (Figure 2.3).
Notes: GSSE: General Services Support Estimate.
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Notes: GSSE: General Services Support Estimate. The OECD total does not include the non-OECD EU Member States, nor Colombia which joined the OECD in April 2020.
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Looking at product-specific assistance, the Single Commodity Transfers (SCT) accounted for 59% of the total PSE during 2017-19 (Figure 2.5). The share of the SCT in commodity gross receipts is around or higher than 30% for all commodities. Overall, the gap between the prices received by Norwegian farmers and world market prices has narrowed significantly since the mid-1980s, but the current ratio is still close to 2:1. The price gap is largest for poultry, milk, and beef.
Notes: European Union refers to EU15 for 1995-2003, EU25 for 2004-06, EU27 for 2007-13 and EU28 from 2014 onwards. The OECD total does not include the non-OECD EU Member States, nor Colombia which joined the OECD in April 2020.
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
2.3.1. Import measures
Border protection through custom duties is one of the most important measures in Norwegian agricultural policy. The import regime for agricultural products is closely linked to domestic market regulations. The main purpose of tariff protection is to ensure that the target prices established in the annual Basic Agricultural Agreements are met but not exceeded. Temporary general tariff reductions are triggered automatically when domestic prices exceed threshold levels for two consecutive weeks. However, the Norwegian Agricultural Authority may reduce tariffs temporarily without waiting for the price limits to be exceeded so as to prevent market imbalances.
Norway’s import tariff profile reveals a distinct agricultural bias (Figure 2.6). The simple average applied MNF tariff on agricultural products (WTO definition) was 40% in 2019, compared to an average of 1% for non-agricultural products. Furthermore, the rates vary considerably.
Note: Simple average of the ad valorem MFN tariff or AVE HS six-digit duty averages.
Source: World Trade Organization (2020[8]), WTO Data Portal, https://data.wto.org/ (accessed September 2020).
The extensive and high tariffs on agricultural products increase the burden on consumers.6 In 2017-19, the average price paid by consumers (at farm gate) was 1.7 times higher than the world price (at farm gate) (Figure 2.7).
Notes: The OECD total does not include the non-OECD EU Member States, nor Colombia which joined the OECD in April 2020.
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
In 2013, Norway switched from specific to ad valorem duties on three agricultural products to strengthen the protection in order to support local food production.7 The products with the highest tariffs are those produced in Norway (mainly dairy products, meat, and grain), whereas those not suitable for cultivation in Norway are often duty-free (i.e. rice, cotton, bananas, citrus fruits and coffee) (Figure 2.8). Generally, tariffs on processed agricultural products are low. Although Norway’s agricultural tariffs are generally high, most high rates are nevertheless well below the bound levels8 (WTO, 2018[2]).9
Note: Includes AVEs for non-ad valorem rates. Sugar used for human consumption, tobacco and spirits have no tariffs.
Source: WTO (2018[2]), Trade Policy Review: Norway, https://www.wto.org/english/tratop_e/tpr_e/s373_e.pdf.
Imports are also regulated through tariff quotas, including preferential tariff-rate quotas (TRQs), at no or low rates of import duty. Most of the tariff quotas are auctioned. Many of the TRQs are not fully utilised as the applied tariff is lower or equal to the in-quota rate or, as in the case of poultry and eggs, self-sufficiency and sanitary concerns limit the scope for imports.10 Other factors may also be at play, for example certain quotas may be too small to be economically meaningful due to transportation and distribution costs, and dominant importers may have market power (Chapter 5).
Concerning non-tariff barriers to trade, such as sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT) measures, Norwegian food and veterinary legislation has been harmonised with the European Union. This includes food production and safety, animal and plant health, animal welfare, alien organisms, and gene technology. In general, import requirements are the same as in the European Union, and only products coming from the EU list of exporting countries, species, and establishments may be imported into Norway.
2.3.2. Export measures
Norway’s WTO commitments has allowed the use of export subsidies with the main objective to balance the domestic market for various commodities. Except for processed agricultural products, these subsidies are financed by producers. Producer levies are adjusted according to the expected domestic market situation: the higher the expected surplus, the higher the levy.
Export subsidies of processed products to the European Union and marketing activities for horticultural products are financed directly by the government. To compensate food processors for high domestic prices, payments are provided through the RÅK-scheme to food processors buying Norwegian agricultural products going into processed products covered by the EEA-agreement. In 2019, this scheme, which is managed by the Ministry of Food and Agriculture in the Agricultural Agreement, provided NOK 237 million (USD 27 million) (Chapter 5). In the dairy sector, the milk quota and other measures to control production have reduced the surpluses somewhat, and Norway’s actual expenditures on export subsidies have been well below the bound levels for most products.
Consistent with the Nairobi Package adopted at the WTO Ministerial Conference in December 2015, Norway has legislated for the elimination of agricultural export subsidies that will be abolished by 2021, at the latest. The government supports international initiatives to limit the use of export restrictions.
2.3.3. Regional Trade Agreements
The European Economic Area (EEA) Agreement, which entered into force in 1994 between the European Union and Norway, Iceland and Liechtenstein, is Norway’s most important and comprehensive economic and trade agreement. The EEA has created a single market with free movement of goods, services, persons, and capital, as well as non-discrimination and equal rules of competition. There is also co-operation in many other areas, such as research, energy, education, environment, and tourism. However, areas such as the EU common agriculture and fisheries policies, as well as the customs union, monetary union, and trade and foreign policies, remain outside the EEA remit.
Norway and the European Union have periodically negotiated their bilateral agreement on trade in agricultural products. An agreement was reached in April 2017 on improved market access through lower tariffs and improved tariff quotas. The EEA Agreement (Article 19) calls for the progressive liberalisation of agricultural trade between Norway and the European Union.11 As a result, around 40 tariff lines have become duty-free for both parties on goods such as live plants, feed maize, and certain alcoholic beverages.12 Norway has opened new or expanded quotas on several products, including bovine meat, cheese, vegetables, and meat products (sausages, ham, duck meat, etc.). About 75% of Norway’s cheese imports (8 400 tonnes) are currently imported at zero duty under the EU TRQ.
As part of the European Free Trade Association (EFTA), Norway has negotiated 29 Free Trade Agreements (FTAs) with 40 partner countries. Negotiations with MERCOSUR was finalised in August 2019.13 These FTAs and negotiations include processed agricultural products and a range of primary agricultural products.
Historically, agricultural policies are related to food security, farm incomes and regional distribution of production and employment objectives. Today, they also aim to address consumer concerns, including food safety and animal welfare, environmental issues, climate, cultural landscape, innovation, agro-tourism, and small-scale food industry.14 The principal policy instruments supporting agriculture include border measures, domestic market regulation based on the Marketing Act, and budgetary payments.
Several direct payments to farmers, including area and headage payments as well as payments based on product quantities, are provided. Many of these payments are differentiated by region and farm size in order to provide adequate income support across all types of farms and regions.
The core support mechanisms are augmented by a host of other programmes that, for example, help cover labour costs or compensate farmers in the event of natural disasters and losses due to predators.
Several programmes are designed to stimulate innovation, entrepreneurship in agriculture-based industry, and the creation of alternative businesses on farms and alternative employment in rural areas (e.g. agro-tourism, local food, green care, energy production). National guidelines and regional plans are the basis for financing local business and rural development projects. Funding is primarily provided through the Agricultural Development Fund. The total allocation of funds for rural development in 2019 (within the Agricultural Agreement) was NOK 1 134 million (USD 129 million).
2.4.1. Regional distribution of production
The regional distribution of agriculture has been a stated policy objective since the 1950s. The goal is to sustain agricultural activity in rural and remote areas where economic alternatives are few, and to sustain total agricultural production and self-sufficiency. Norway has little land that is suitable for arable crops, and an abundance of grass and pasture. Therefore, this policy attempts to reserve the most favourable lands to arable crops, 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 occurs in rural areas in the west and north, while the production of grains and vegetables takes place mainly in the southern parts of the country (Chapter 1). Support policies have succeeded in maintaining this regional pattern.
The main instruments of the “production channelling policy” to achieve this objective are: high grain prices; regionally and structurally differentiated payments (deficiency payments and transport subsidies); and, a quota system for milk production. 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 by the Agricultural Development Fund.
2.4.2. Direct payments
Direct payments are used to complement market regulations such as the target price, volume, and reference systems described earlier. Payments are mainly issued based on output, animals, and farmed land. In addition, there are significant investment programmes and tax allowances for income from agriculture. Payment rates are commonly based on actual rather than historic farm production, and are thus coupled to production decisions. These coupled payments represent a large share of agricultural income, considerably exceeding market-based gross margins in most farming activities despite very high border protection which drives domestic market prices well above world market levels.
Direct payments are provided for certain meats (beef, pig meat, sheep meat), milk, poultry, wool, fruit and vegetables, cereals, eggs, and certain processed products. Transport subsidies are allocated across various programmes to support transport costs of meat, eggs, grains and feed.
Direct payments include area- and headage-based support, and financial assistance with labour input. The most important area-based support include the Cultural Landscape Support Programme, which provides a lump-sum payment per hectare paid on all agricultural area, and the Acreage Support Programme, which provides payments per hectare differentiated between crops and regions. Headage payments for livestock are provided through various programmes for bovine animals, pigs, goats, sheep, horses, and rabbits; payment rates decrease with the number of animals. There is also a Support for Grazing Animals programme which provides per animal payments that are differentiated by animal and land use category.15
There are support schemes for dairy farms, such as a “structural payment” based on animal numbers, a fixed per farm payment for dairy farming on mountain areas, and a quota-limited price support (a base payment and a regional payment per litre of milk for a limited output). Budgetary support for labour includes reimbursements for hiring replacement labour during vacation or to cover for employee illness (Welfare Scheme).
2.4.3. Differentiation of support by farm size and region
Direct payments and transport subsidies are usually differentiated according to region and size of farms. Most payment rates are negatively related to farm size and are higher in remote areas (north) compared to central regions. For instance, the rates of total dairy payments per farm vary from 40% below the national average in Jæren (southwest) to 40% above the national average in the northern region (Figure 2.9). About half of the payments to producers are differentiated by farm size, and for around 70% of the payments, the rates are differentiated by a combination of farm size and/or region (Mittenzwei and Britz, 2018[9]).
Source: Mittenzwei and Britz (2018[9]) and data provided by NIBIO (2020[10]).
Mittenzwei and Britz (2018[9]) found that differentiation of payment rates by farm size has a larger impact on farm structural change than the regional differentiation of payment rates. In addition, milk quotas at the county level prevent regional specialisation of dairy production. In this respect, the current policy regime seems to support the policy objective of maintaining a variety of farms in all parts of Norway. However, agricultural policies for regional specialisation have had significant impacts on farmers’ behaviour, resulting in serious environment problems such as soil erosion and water quality in some parts of the country.
Dairy sector
Dairy production is controlled at the market level by the milk quota system. Milk quotas are farm-specific and tradable only at the regional level. There are 14 production regions for quota redistribution and the quota regime is an important tool to prevent concentration of dairy farming in a few more favourable regions. This impacts the majority of the farms given the importance of milk production in a country with limited arable land.
Milk production quotas to regulate the domestic supply of milk were introduced in 1983. The system was made more flexible in 1997 when buying and selling of milk quotas was introduced. Leasing of milk quotas has been allowed since March 2009. New entrants must lease available quotas or buy production quotas from existing farms or the Norwegian Agricultural Agency. Since 2017, farmers selling cow milk quotas have been allowed to sell up to 80% of their quota at a free price directly to other producers within a production region (mainly defined as the county), and a minimum of 20% had to be sold to the government at a fixed price. In the 2020 agricultural negotiations, it was agreed that from the quota year 2022 quotas must be sold at a 40% minimum to the government at NOK 4 per litre (USD 0.4 per litre). The rest can be sold privately at a free price. Each year, the quotas are multiplied by a factor to fix the amount of milk each producer can deliver to a dairy (i.e. actual production possibility).
The second major market balancing measure is a price equalisation scheme that guarantees the milk producer the same price irrespective of his/her location and the end use of the raw milk. In practice, liquid milk and liquid cream are taxed, while goods such as butter, mature cheeses, and milk powder are subsidised. The scheme, which is entirely financed through equalisation levies,16 is also used to support transportation costs from farm to dairy, the distribution of milk in northern Norway, and the delivery of milk to schools throughout Norway.
Export subsidies for hard cheeses, principally Jarlsberg, were also financed through this scheme. Although the exported volumes have been declining, cheese exports still absorb approximately 8% of the raw milk produced in Norway.
As a result of the abolition of export subsidies on cheese from 1 July 2020, milk production must be reduced by up to 100 million litres. The government and the Norwegian Farmers Union agreed on a scheme where quotas for up to 40 million litres of milk are removed from the market. The remaining overproduction is to be reduced by lower milk quotas on each farm. For 2020, the basic quotas were initially reduced by 4% in order to balance the market, but then increased twice in response to COVID-19 pandemic.
2.4.4. Investment and credit support
Support for investment expenses comes mainly through schemes run by a special fund (the Agricultural Development Fund). The Fund provides a wide-range support for various investment activities. For example, it provides interest-cost assistance and supports investment in areas such as “traditional” farming, business development connected to other farming activities (local food, agro-tourism and green-care), energy saving, and landscape development.
In general, farmers have sufficient access to credit and finance, although there are some differences especially in the northern parts of the country. To reduce investment risks on farms, the innovation agency, Innovation Norway, provides grants and loans to farmers. Grants are provided throughout the country, while loans are generally provided in regions where loans by the private banking sector are difficult to obtain by farmers.
Bankruptcy is not widespread among farmers. Banking services losses due to farmers unable to fulfil their repayment obligations are insignificant.
2.4.5. Programmes to support farm risk management
As part of the Basic Agricultural Agreement, Norway has a system to provide farmers with financial support for large crop losses due to climatic conditions in plant and honey production. It is a condition that farmers cannot be covered for losses through a publicly available insurance scheme or otherwise.
All or part of the compensation can be reduced if the farmer has acted unprofessionally or in a manner that would normally be expected to prevent losses, or has conducted their business in violation of the regulations governing agricultural activities.
The support scheme is triggered when the crop failure is greater than 30% of a normal year. Upon application and necessary documentation, the farmer can then obtain financial compensation for loss of income up to 70% of a normal year. Saved volume-dependent costs are deducted in the calculation of this compensation.
In a normal year, payments under these schemes are slightly more than NOK 40 million (USD 4.5 million) per year. There is a large annual variation in payments, hot weather and drought in large parts of the country in 2018 triggered the largest pay-outs in the history of the programme. Since its inception, this scheme has disbursed close to NOK 2 000 million (USD 227 million).
Another programme compensates producers for losses and the coverage of certain expenses in connection with imposed measures against diseases, infectious agents, and harmful organisms in animals and plants. Grants under this programme also cover losses in connection with measures implemented as a result of swine fever antibiotic-resistant bacteria (MRSA), measures to reduce the level of radioactivity in cattle and sheep and includes some other compensations to facilitate compliance with food laws and duties.
Programmes are in place to compensate for predator losses and to provide animal owners with compensation when the Norwegian Food Safety Authority, as a result of the danger of predator attacks, has made a decision on grazing restrictions on cattle and sheep in accordance with the Animal Welfare Act.
OECD work has concluded that effective risk management requires an integrated approach that addresses all risk exposure and incentives, distinguishes between normal, marketable and catastrophic risk layers, and articulates the respective roles of public authorities and economic actors, involving them in the development of risk management strategies based on sound economic analysis of the three risk layers. A holistic approach to risk management instruments extends beyond the traditional boundaries of agricultural policy, emphasising policy coherence.17 Furthermore, proactive risk preparedness by the farmer could potentially increase resilience significantly; this merits consideration as an alternative to ex post disaster payments (OECD, 2020[11]).
For instance, the government could also provide voluntary risk management programmes to help producers manage risks arising from normal variations in production, prices, and weather, while providing protection from more extreme market-related shocks. An example is the voluntary savings account scheme matched with government transfer (Box 2.2). The government and advisory services could also invest in information, skills, and awareness on production and environmental risks.
The Farm Risk Account is a voluntary savings account which draws on the experience of other OECD countries to manage risk, such as Canada’s AgriInvest programme, a government matched producer savings account for moderate income declines or for making investments in farming operations to mitigate risk. A part of a farmer’s direct payments could be deposited in the special account, to be drawn on in the case of income losses from operational risks (such as market volatility or unexpected weather conditions). To provide an incentive for farmers to save, deposits of direct payments could be deducted from farmers’ taxable income, and do not have to be taxed when disbursed (in the case of losses) or at the closure of the account when used to supplement pension payments. Use of the Farm Risk Account would be mandatory in the event of a temporary shortfall in income from operational risks. Pay-out rules could limit access to the account to losses that lead to an income level below a certain percentage, for example 80%, of the reference income, with losses up to that level to be treated as a normal individual business risk.
Source: OECD (2016[12]).
2.4.6. Tax incentives
Income taxation
Norwegian farmers, most of whom are self-employed, are eligible for tax concessions that are not granted to other self-employed persons (OECD, 2020[13]). For income from agriculture of up to NOK 334 000 (USD 38 000), farmers can deduct 50% from their taxable income, resulting in a maximum tax saving of NOK 36 600 (USD 4 323) per farm. Beyond the NOK 334 000 (USD 39 449) threshold, the share of income that can be deducted is gradually reduced. There are no special tax rules for agro-food companies.
An exemption from general income tax rules is the depreciating tax treatment of direct financial support to farmers for investments in the construction or renewal of farm buildings in less-favoured areas. Subsidies for the renewal of farm buildings in these regions can be up to 33% of the total cost. This tax exemption is used as a way to maintain agricultural activity across the country.
Sales of farms within the immediate family are exempt from capital gains taxes when properties have been in the family for at least ten years. Gains from sales of farms outside the immediate family are subject only to the 22% capital tax. Gains on the sale of machinery and equipment and livestock are subject to general tax rules and are not included in this exception. There is no regional differentiation to these rules.
For many years, there has been a relatively small turnover of agricultural property outside the family. Many who exit farming choose to rent out their land instead of selling the property. There are several reasons for this, with tax rules considered as an explanation. For instance, over the period 2006 to 2016, gains on the sale of agricultural properties outside the immediate family were taxed both as ordinary income and as personal income under the progressive tax, with higher rates applying on high incomes. As a result, taxes on such sales could be up to about 50% of the gain. Since 2016, gains from the sale of agricultural properties is taxed only as capital income. It is unclear at present whether this has had an effect on the turnover of agricultural properties.
Property taxation
Agricultural properties of self-employed farmers (excluding housing and agricultural buildings that are used for other activities, such as processing activities, tourism, or warehouses) are exempt from municipal taxes on the value of the property. “Industrialised” agricultural activity is not exempt.
Tax on goods and services
The value added tax (VAT) regime incorporates several concessions related to agro-food activities. While the standard VAT rate is set at 25%, a reduced rate of 15% applies to food and drinks. For inputs and sales of products from farms, the VAT is set at the standard rate. Small companies with annual sales of less than NOK 1 million (USD 0.1 million) and VAT registered persons within the agriculture, forestry and fisheries sectors can return VAT on a yearly basis, as opposed to the general rule of a monthly basis.
Included in the prices of most agricultural products is a general sales tax on primary products. This tax is set by the Ministry of Agriculture and Food based on recommendations by the Sales and Marketing Council and collected by the producer organisations. It is used for promotional activities and to finance market balancing (i.e. paying for temporary storage or product transformation to prevent excess supply on the domestic market that would reduce producer prices).
Tax incentives for R&D and innovation
A general tax deduction scheme for R&D called “SkatteFUNN” has been in place since 2002 (Chapter 4). All Norwegian companies undertaking research and development can claim tax deductions for R&D project costs subject to the approval of the Research Council. Small- and medium-sized enterprises can claim 20% of project costs and large companies are able to claim 18%.
Agricultural research levy
The purpose of the levy is to secure research funds for agricultural products used in commercial food production or feed for animals (Chapter 4). This tax is levied on imported or domestically-manufactured food and feed products (excluding fish). For domestic products, the tax is levied on 0.35% of the taxable base which is the gross invoice amount not including VAT; this rate is subject to annual changes based on changes in value. Whereas for imported agricultural commodities, it is levied on 0.35% of the taxable base which is the customs value. For semi-processed and processed food, the levy is 0.25% of the taxable base. The funds collected go into the Research Fund for Agricultural FFL (Chapter 4).
2.4.7. Agriculture and food policy responses in relation to the COVID-19 outbreak
Norway has implemented several measures in response to the COVID-19 pandemic, many of which are relevant to the agricultural sector.
A temporary scheme provides incentives for Norwegians who have been laid-off to take up jobs in agriculture. It allows workers to report only half the hours worked to employment authorities, yet paid by the farmer for all hours worked. This responds to the disincentive that arises from the fact that unemployment benefits per hour are often higher than hourly wages in the agricultural sector.
Farmers who are unable to harvest in 2020 due to lack of seasonal workers will be eligible for payment under the crop insurance compensation scheme.
Innovation Norway offers the opportunity to delay payment of loan instalments for one year, subject to application. As a result of the COVID-19 pandemic and falling NOK exchange rates, Innovation Norway was given the legal authority to exceed the existing ceilings for support for investment and business development in agriculture. It was also given increased flexibility to use the Development Programme for agricultural and reindeer husbandry-based growth and value creation, and to meet the industry’s short-term challenges, most notably for local food, tourism and green care businesses, where sales have dropped significantly.
Environmentally sustainable agriculture with lower emissions of greenhouse gases (GHG) is one of the four policy goals for agriculture in Norway. More specifically, Norwegian agri-environmental policy has three main objectives: to safeguard the varied and diverse cultural landscape by preserving biodiversity and cultural heritage; to reduce pollution (soil erosion, nutrient losses, water, pesticides and air); and to reduce emissions from GHGs, increase sequestration and support successful adaptation to climate change.
Norwegian agricultural policies are underpinned by the premise that several environmental public goods are positive externalities of agricultural commodity production and that implementation costs of alternative policies are large. The premise is that the existence of these socially valued but non-remunerated joint products of agricultural production activity justifies supporting production of agricultural outputs. To reduce this support would – by precipitating a decline in agricultural commodity production – reduce the provision of the valued public goods. Conversely, if society wished to have more of these positive externalities, the rate of support to commodity production should be increased.
OECD work on “multifunctionality” and other research have demonstrated that this view is valid only if the public good externalities are joint and non-separable outputs (Box 2.3) (Hodge, 2008[14]; OECD, 2003[15]; Gray et al., 2017[16]). There is evidence that some agricultural commodities are technically related as joint products with non-commodity outputs, as well as grounds for believing that there are economies of scope between agricultural commodity and non-commodity production. At the extensive margin of production, if resources are used too little, there is a risk of abandonment. In such cases, continuation of extensive farming practices, such as grazing, would contribute to production and landscape maintenance, without transaction costs in policy design and implementation. However, at the intensive margin of production, as resources are over-used, there are competing relationships between commodity outputs with environmental outputs. In this case, agricultural production policy objectives could be at odds with environmental considerations. Moreover, even at the extensive margin there may be a conflict between agricultural policy objectives and some environmental objectives, such as reducing GHG emissions.
Several studies have demonstrated that it is unlikely that any particular level of commodity price or a flat rate livestock headage or area payment will deliver the desired levels of environmental outputs (Hodge, 2008[14]). Broad-based policies can encourage intensive agricultural production methods that cause commodity outputs to compete with environmental outputs (Henderson and Lankoski, 2019[7]; OECD, 2013[6]). In doing so, broad-based policies may economise on transaction costs, but fail to achieve their objectives. In Norway, the current support system includes some flat rate payments, combined with payments which are differentiated by region and farm size.
Jointness has several policy implications.
If jointness is weak, public policies should be targeted as a non-commodity output (NCO) and not linked to agricultural commodity production.
If jointness is strong, then it should be ascertained whether there is also a market failure in determining if policy action is required.
If there is both jointness and market failure, policies should be conditional on delivery of the NCO, and monitoring measures should be in place to ensure that the desired outcomes are being achieved.
Policy action should be targeted at the activity or input into production that is most strongly related to the NCO and should avoid unnecessary increases in the intensity of agricultural production.
Policy action should be geographically targeted unless the NCO is associated with all or a large percentage of the production or agricultural land in a country.
The level of government at which policy decisions are taken should correspond as closely as possible to the geographical occurrence of the demand for NCOs.
Source: OECD (2003[15])
Brunstad, Gaasland and Vårdal (2005[17]) model multifunctional agriculture in Norway in terms of its provision of public goods, of food security, and landscape preservation. They found that the level of subsidy offered in Norway exceeds the level required to optimise output levels. The simulations show that at most 40% of the support level can be defended by the public good argument. Broad price- or production-based support policies are instruments too blunt to address environmental issues such as landscape and biodiversity preservation, which are often region-specific or even site-specific.There are many ways in which agricultural farming systems can be modified to increase the production of environmental outputs. These relate to the management of farmland, of boundaries around farms, and of land that is not in use for agricultural production. The specific modifications required to attain the highest environmental standards are typically spatially heterogeneous and involve detailed changes to farming systems.
There is generally a trade-off between the targeting of policy instruments and transactions costs. An appropriate balance needs to be found, but must take into account the gains and losses in environmental outputs that are associated with any policy intervention.
General measures (regulations and taxes) and agri-environmental payments could be used to control both intensive and extensive margins (OECD, 2010[18]). For example, at the intensive margin regulations can set mandatory upper limits of fertiliser, manure and pesticide application per hectare, or mandate the adoption and use of certain application methods (injection application of manure and not surface application), while at the extensive margin regulations can mandate the maintenance of land in good agricultural and environmental conditions. Norway currently has land tenure regulations to ensure that agricultural lands remain under agriculture. Further area payments and payments for grazing livestock support would ensure that lands are not abandoned.
Measures to prevent land abandonment, a key challenge at the extensive margin and a policy objective in Norway, could include: incentives for continued management, agri-environment schemes, cross-compliance, agro-forestry schemes and strengthening broader measures for viable rural areas (e.g. incentives for economic diversification, including tourism; improvements to rural services such as education, health, culture); and improvements to infrastructure (roads, broadband). Agri-environmental payments are the most appropriate way of paying for specific targeted habitat, species and landscape management on high nature value farmland. As the causes of abandonment may vary from place to place and over time, the means of keeping or bringing this land back into management will also vary and require a combination of agricultural, environmental and social policy tools.
2.5.1. Agri-environmental payments
The most important agri-environmental payments include acreage and cultural landscape payments, payments for grazing livestock, support for preserving rare livestock breeds, support for organic farming, regional agri-environmental programmes, payments for environmentally friendly spreading of manure, special environmental measures in agriculture, and payments for selected cultural landscapes (Table 2.3). About half of all farmers undertake measures that qualify for targeted agri-environmental support.
Agri-environmental measures are structured under the National Agri-environmental Programme (NAP), which provides a central framework and national goals and includes key grant schemes for the whole country. The measures are organised at the national, regional and local levels.
The NAP can best be understood as a “pyramid” and contains the main agri-environmental measures, such as the Acreage Cultural Landscape Support, payments to extensive grazing, and payments for grazing livestock. On the other hand, Regional Agri-environmental Programmes (REP) address specific challenges that are not met by country-wide schemes. Measures organised at the local level include more long-term support and commitments, including investment support schemes and support to selected cultural landscapes based on mutual commitments between authorities and groups of farmers.
Measures included in the NAP are not targeted to specific environmental activity of the farmer per se but are, in general, conditional on the adoption by farmers of “good agriculture practices”. For example, to receive the Acreage Cultural Landscape Support payment, farmers must not undertake practices that are harmful to the cultural landscape. They must establish a buffer vegetation zone around watercourses and develop a plan for the dosage of fertiliser to match crop needs.18 Any violation of these requirements is sanctioned by a deduction in production subsidies.
Regulations on individual farm environmental plans were repealed in 2015, but the agricultural sector maintains its own quality system (KSL). This includes checklists and audits to ensure that requirements are met. About 81% of farmers who have applied for production subsidies have completed a KSL self-audit. The highest share with KSL is found in high-intensity productions such as milk, chicken and vegetables (Norwegian Institute of Bioeconomy Research (NIBIO), 2016[19]). “Enjoy Norway” is an information label for Norwegian food and drink that makes it easy for consumers to choose Norwegian food products and guarantees that the farmer has strictly followed Norwegian rules (Chapter 5).
The Norwegian acreage and cultural landscape support requirements are in general compatible with the EU requirements for ecological focus areas. The main difference is that in Norway regulations do not require that 5% of the area be set aside for ecological focus areas.19 The NAP is revised every four years. In 2019, a new programme was launched, and will be in place to the end of 2022. In 2020, a total of NOK 5.5 billion (USD 0.5 billion) was granted for different agri-environmental measures.
In the Regional Agri-environmental Programmes (REP), the counties (regions) determine the necessary criteria for farmers to receive support. Each county uses measures taken from a national “menu” and that are adapted to the objectives of the region. Measures eligible for payment under these programmes include those to reduce nutrient runoff to water, management of cultural landscape, environmentally-friendly manure spreading, 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. The budget for the REP was increased by 7% to NOK 528.1 million (USD 60 million) for 2020. Most of this budget is allocated to measures that seek to reduce water pollution and emissions, and to promote cultural landscape.
Local strategies are tailored to address environmental issues at the local level. They form the platform for “Special agri-environmental measures” operated at the municipal level to support “one-off” measures with longer lasting effects than “REP” measures, which supports practices on an annual basis. Municipalities can prioritise what they value most – within certain limits – and measures are designed and implemented in co-operation with environmental authorities and farmer organisations.
Cross compliance requirements – linking respect of environmental conditions or regulations to the granting of agricultural support payments – have the potential to contribute to improving the environmental performance of agriculture compared to a situation where the same level and structure of payments are made with no conditions attached (OECD, 2010[20]). While cross-compliance conditions increase the coherence of direct payment programmes with environmental policy objectives, the experience in OECD countries shows that such conditionality would not be effective unless it was adapted to the diversity of local farming practices and conditions. In Norway, conditionality is adapted to some extent to local conditions. For instance, there is a requirement to protect waterways, insular elements, and stone hedgerows. There is, however, limited evidence concerning control, sanctions and monitoring of the environmental impacts of these cross-compliance requirements.
Payments to agricultural producers that are specifically targeted to environmental objectives (payments based on non-commodity criteria) cover only about 0.3% of support to producers. The share of the payments with voluntary agri-environmental constraints in producer support was 2% in 2017-19 in Norway, compared to 11% in the European Union and 12% in the United States. The share of payments with compulsory cross compliance is relatively low in Norway (15%) compared to more than 50% in the European Union and 29% in Switzerland (Figure 2.10). In Switzerland, almost all forms of agricultural support are subject to environmental requirements. These requirements go beyond compliance with the country’s existing environmental legislation concerning agriculture, as well as various structural, social and general criteria, as a lever to achieve economic and environmental sustainability (Box 2.4).
Note: This figure presents OECD countries having any payment with voluntary agri-environmental constraints or payment with mandatory input constraints.
Source: OECD (2020[5]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Cross-compliance requirements were introduced in 1999 as part of the Agricultural Policy Reform Programme for 1999-2003. Almost all forms of agricultural support are subject to environmental requirements. These go beyond compliance with the country’s existing environmental legislation concerning agriculture, as well as various structural, social and general criteria as a lever to achieve economic and environmental sustainability. Direct income payments subject to environmental cross compliance are available for all agricultural land, regardless of how it is used. There are, however, exclusion conditions in terms of size (hectares or number of animals) and other criteria relating to age, minimum labour use, and asset ceiling.
The Swiss cross-compliance approach entails respect for environmental legislation and animal welfare requirements, as well as compliance with several supplementary environmental requirements, such as:
at least 7% of farmland must be used as “ecological compensation areas” (e.g. extensive meadows, low intensity pastures, traditional orchards, hedgerows, wild flower strips, and low intensity cropping strips)
an appropriate nutrient balance must be maintained (i.e. maximum 10% surplus of nitrogen and phosphorus as shown by a farm’s nutrient balance, based on crop requirements)
crops must be regularly rotated and the soil protected (at least four different crops must be cultivated per year on farms where the arable land area exceeds 3 hectares and maximum shares of individual crops must be respected; field parcels harvested before 31 August must be sown with main or cover crops by 15 September so that periodical soil erosion is minimised)
targeted application of pesticides (i.e. restrictions on the use and timing of various herbicides and insecticides, consideration of early warning systems and pest forecasts, frequent tests of sprayers)
appropriate animal welfare measures must be adopted (i.e. farm animals must be kept according to legal requirements).
These environmental cross-compliance criteria aim to address several environmental objectives, including reduction of nitrogen and phosphorus runoff and leaching, soil erosion and sediment runoff, conservation and promotion of farmland biodiversity, reduction of pesticide runoff and residues, and improved animal welfare. Non-compliance by farmers with standards related to the environment and animal welfare may lead to reduction or withdrawal of their agricultural support.
Source: OECD (2010[20]); OECD (2015[21]).
2.5.2. Organic farming
In 2018, organic agriculture was practised on approximately 4% of the utilised agricultural area. Products from certified organic agriculture account for 2% of the value of the agricultural production.
Requirements for certification of organic agriculture and organic products are similar to those in the European Union. The “Special payments for ecological farming” scheme provides payments based on acreage and headage for the conversion period from conventional to organic farming. Following the 2018 strategy on organic production, a programme to help prioritise measures for organic production over the long-term was prepared, and a separate programme on soil health and soil quality is in process as of July 2020. Organic production is covered by a support scheme, with a budget of NOK 139.8 million (USD 16 million) in 2019. Support is also provided to different projects for research, advice and market promotion of organic farming, totalling NOK 33 million (USD 3.8 million) in 2019.
2.5.3. Measures to reduce pollution
Norway is among the OECD countries with a high nitrogen (N) surplus, which indicates potential environmental problems through N losses to water and air from agricultural soils (Chapters 1 and 6).20 Although Norway has a very high N surplus, the agricultural area in Norway is small (2.5%).
Under the Gothenburg Protocol Norway’s maximum emission of ammonia - 93% of which comes from agriculture - is 23 000 tonnes. According to the amendments to the Protocol agreed to in 2012, Norway is committed to reducing its national emission of ammonia by 8% from the 2005 level to be achieved in 2020 and beyond. Policy measures to achieve this target include support for specific spreading methods provided through the Regional Environmental Programme (REP). However, despite these policy efforts Norway faces sizeable emission-reduction challenges as emissions of ammonia from agriculture have steadily increased since 2014 and remain above the country’s commitment (Figure 2.11).21
Note: Agriculture including hunting.
Source: Statistics Norway (2020[22]), Agriculture and the Environment – State and Development, Report 2020/3, https://www.ssb.no/en/natur-og-miljo/artikler-og-publikasjoner/agriculture-and-environment-2019-state-and-development.
Although the support system has been amended and adapted over the years to target high-risk areas of erosion and phosphorus losses, agri-environmental policies and regionally-based policies have focused mainly on mitigation measures for losses of phosphorus, with a side effect on nitrogen. For example, the regulation on manure management, the REP, and the incentives for environmental investments aim primarily to motivate farmers to implement measures to reduce P losses, such as management of manure, changed soil tillage, grass buffer zones along open waters, and sedimentation ponds.22 In contrast, there are no regulations regarding the amount of N fertiliser to be applied (except for 170 kg N ha-1 in the nitrate vulnerable zone). In general, measures for improved water quality in Norway target phosphorus and erosion in eastern Norway and manure in the western part of Norway.
Due to the lower policy priority accorded to nitrogen, nitrogen surpluses are higher per area of agricultural land in some Norwegian areas compared to other Nordic countries (Bechmann et al., 2014[23]).23 There is potential in some areas for more efficient use of nitrogen fertilisers (with lower nitrogen surplus) at a low cost that would result in a lower nitrogen surplus. Suggested measures include: i) improved nutrient management planning based on average yield instead of highest expected yield as a basis for nitrogen application; ii) split nitrogen application; iii) precision nitrogen application; and, iv) improved efficiency in the use of manure (Bechmann et al., 2016[24]). However, there are no legal regulations for these measures.
2.5.4. Measures addressing biodiversity and cultural landscapes
Norway’s biodiversity is very diverse, ranging from the southern deciduous forests to polar ecosystems. Agriculture, as well as fisheries and forestry represent important sources of ecosystem services for the country.
The agri-environmental measures in place aim to reduce the pressures and impacts associated with agriculture, such as land abandonment, and maintaining landscapes with particular historical or biological qualities linked to agriculture. Change in land use is potentially a major driver for biodiversity loss, and many rare and threatened species belong to the cultural landscape. Such species face challenges both at the intensive margin, related to monocultures, intensification and land conversion to other uses, as well as at the extensive margin, related to abandonment.
A considerable amount of the funding provided through these measures is allocated to cultural landscape projects. For example, funding for projects in a set of selected agricultural landscapes and for cultural landscapes that are World Heritage Sites is used to maintain farming activities and to improve co-ordination of the management and maintenance of some particularly valuable areas.
For agriculture, agreements are concluded with landowners who undertake to manage the land in a way that safeguards both the overall cultural landscape and the threatened species and habitats in the areas. In 2018, payments of NOK 261 million (USD 32.1 million) were given to environmental efforts in the agricultural landscape through the REP. In addition, NOK 64 million (USD 7.9 million) were given through the special measures system (SMIL funds).
Payments were introduced in 2019 for pollinator strips and payments are available to remove invasive species through the SMIL funds. The Norwegian Ministry of Environment also provides payments to farmers and other land owners for the maintenance of species-rich meadows, coastal health, veteran trees, and other threatened nature types to encourage favourable management of these areas. These payments may “top-up” the agri-environment scheme payments.
In 2004, the Norwegian Parliament defined the number of protected predators (wolf, bear, lynx, wolverine and golden eagle) (Strand et al., 2019[25]). The compensation scheme for loss of livestock to protected predators is funded by the Ministry of Climate and Environment (NOK 44 million ‒ USD 5 million ‒ in 2019). In addition, there is funding for mitigating actions to prevent livestock losses to protected predators such as fencing, shepherding and electronic tracking of livestock. Of the 6% of all sheep lost to predators or other causes, roughly 20% is attributed to protected predators. There is no systematic recording of losses to other causes than to protected predator species and there are no longer compensation measures for these losses.24
Concerning support to promote in situ conservation of genetic diversity, the Basic Agricultural Agreements include grant schemes for farm animal breeds of conservation value, including cattle, sheep, goats and horses. In addition, there is a special payment per dairy cow of particularly rare old national breeds. Norway also supports crop genetic resources.25
2.5.5. Measures to control GHG emissions from agriculture
Agriculture is estimated to account for about 8.5% of Norway’s GHG emissions. Ruminant animals (dairy cows, cattle and sheep), which are the backbone of farming in the country, account for an estimated 55% of the GHG emissions from agriculture and an additional 30% can be attributed to the cultivation of organic soil (drained peatland).
The dominant GHG emission sources include ruminants, peatlands and nitrous oxides from manure-fertilised soils. Each account for about a quarter of total agricultural emissions. Methane has a global warming potential which is 25 times stronger compared with carbon dioxide (CO2), although with a much shorter lifespan (IPCC, 2014[26]). Mitigation of methane can make a substantial difference to the feasibility of achieving the Paris climate targets. Agriculture accounts for 75% of the total emissions of nitrous oxide (N2O).
Emissions from agriculture have been reduced by approximately 5% since 1990 (Norwegian Ministry of Climate and Environment, 2020[27]). The main drivers behind the decreasing trend in GHG emissions include: i) the reduction of nitrogen content in the use of inorganic fertilisers; ii) use of more concentrated feed; and iii) reduction in the number of dairy cows.
Climate change and agriculture is addressed in the White Paper on agricultural policies 2016-17 Change and Development ‒ A Future-Oriented Agricultural Production (Det Kongelige Landbruks - Og Matdepartementet, 2016[1]). It states that 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 production to a changing climate. The 2016-17 White Paper on Climate policy also refers to the mitigation actions on agricultural policy (Box 2.5).
The 2016-17 White Paper on “Agricultural policies change and development ‒ A future-oriented agricultural production” includes the following mitigation actions for the agricultural sector:
In light of Norway’s 2030 commitment, work to reduce agricultural GHG emissions and gradually reform agricultural policy in a more climate-friendly direction.
Assign greater importance to climate considerations in the annual Agricultural Negotiations.
Following talks with farmer organisations, develop a plan of concrete measures and instruments to reduce climate emissions from agriculture, where the ambitions for emission reductions are quantified. The plan must respect the country’s climate commitments. This materialised in the June 2019 Climate Agreement for agriculture.
Facilitate increased production of biogas based on livestock manure and waste resources in agriculture.
Establish a committee for calculating GHG emissions from agriculture, which was established and submitted a report in July 2019.
Climate measures should not result in increased subsidies to agriculture.
The 2017 White Paper on Climate Policy referred to analyses showing it is possible to reduce cumulative emissions from agriculture in 2021-30 by approximately 5 million tonnes CO2 equivalents, that is on average half a million tonnes annually, at a low economic cost. More than half of this potential is related to combined changes in the composition of food consumption (including reduced food waste) and production. The estimate also includes the considered ban on cultivation of peatland mires, which are subject to restrictions since June 2020. The government intends to present a White Paper in 2020 on how it plans to meet the 2030 commitments.Emissions from agriculture are not subject to a carbon-dioxide tax nor are they included in the EU ETS as it is more difficult to estimate these emissions than for other emissions (e.g. because they are a result of biological processes, and that the emissions stem from many small units which are difficult to include in an emission trading system). However, Norway will participate in the EU’s Effort Sharing Regulation and the regulation on land use and forestry (LULUCF) for the period 2021-30 (Chapter 3).
Norway has in place several other measures affecting emissions from agriculture. These measures are both statutory and financial, in addition to measures related to information (Table 2.4). In particular, policies and practices to control GHG emissions in agriculture include a combination of regulatory, economic and information measures.
An agreement with the food industry to reduce food waste was completed and signed in 2017. The goal is a 50% reduction in food waste by 2030. In the follow-up to the 2014 biogas strategy, funding has been granted for pilot plants and research on biogas through Innovation Norway from 2015. Through the Value Added Programme for Renewable Energy in Agriculture funding is also granted for on-farm biogas projects, and support for the use of manure in the production of biogas is provided (EUR 7 per tonne of manure). The potential of biogas production from manure has been estimated at 25% of all manure in 2030, but currently only 1% goes into a biogas reactor.
Investment support is available from 2019 for manure storage facilities as such investment is not economically profitable under current conditions. A similar investment support is available for environmentally-friendly technologies to spread manure. Other measures include better timing, distribution and storage capacity of manure.
The June 2019 Climate Agreement for agriculture between the government and farmer organisations sets targets for abatement of GHG emissions and removal from agriculture over 2021-30. Improvement in on-farm livestock, manure and soil management is key to delivering the targets, alongside improvements in consumption and reduction in food losses and waste. In contrast to the 2016-17 White Paper, the 2019 agreement does not bind future policy measures or agricultural agreements, and cannot presuppose increased subsidies (Norwegian Ministry of Climate and Environment, 2020[27]).
Achieving a significant reduction in GHG emissions in Norwegian agriculture is challenging. The effects are considered to be relatively minor compared with those in other sectors of the economy (UNFCC, 2018[28]). Blandford, Gaasland and Vårdal (2015[29]; 2018[30]) find there are viable options for doing so, while continuing to achieve the key national objective of food security. In particular, they find that a cut of around 30% in emissions from agriculture can be achieved without undermining the stated policy objective of ensuring a minimum supply of domestically‐produced calories, by taking drained peatland out of production and restoring it to wetland. Progressing beyond a 30% reduction would require a more fundamental restructuring of production away from emissions‐intensive ruminants and towards less emissions‐intensive crop and livestock products. GHG emissions can be reduced by 60% without compromising the country’s food security objective, although reductions of that magnitude would require significant changes in consumers’ diets. Emissions reductions of over 60% can be achieved with no reductions in national economic welfare, due to reductions in agricultural subsidies. Similar results are reported by Mittenzwei and Øygarden (2020[31]). Their model results indicate that the agricultural sector could deliver on both agricultural and environmental policy objectives if production shifts from grass-based animal production to crop production, inducing a shift towards a more plant-based diet.
The restoration of peatland (its removal from agricultural production and reconversion to wetland) could potentially make an important contribution to reducing agricultural emissions. Land conversion from peatland to cropland has been extensive historically, and approximately 60 000 hectares of croplands (7% of the total cropland area) in Norway are identified as drained organic soils. These soils are a significant source of N2O and CO2. Restrictions on the conversion of peatlands to cultivation were imposed in June 2020 (Chapter 3).
The current policy set with respect to livestock (beef and milk) and grains (wheat, barley and oats) as described in this chapter is largely coupled with production. MPS is the mainstay, along with payments based on animal numbers, output or land use. These policies by design encourage production to varying degrees, but can have other less desirable consequences.
One consequence is the impact on the environment. Payments based on animal numbers can encourage larger herd sizes, leading to higher nutrient surpluses and methane emissions. Higher output can mean more intense production, with greater use of fertiliser and chemicals and more animals per hectare of land. Such consequences of coupled policies have been documented by OECD analysis (OECD, 2005[32]; OECD, 2015[21]) and are relevant for the achievement of a sustainable agriculture with reduced GHG emissions.
It is not evident that the current policy set addresses income issues for farmers nor that it encourages innovation in production. Payments that are highly coupled to production tend to be less efficient in increasing incomes for producers, while constraining them to produce according to the incentives of the policies rather than according to what consumers want (OECD, 2003[33]). This tends to reinforce traditional outputs and discourage production of new commodities and innovation.
Decoupled payments do better at increasing farm incomes. They provide a steady stream of working capital for operations and give farmers more flexibility in their production planning. There are many options for the design of such payments. A common element is to base the payment on current landholdings and to require the recipient to maintain their land in agricultural activity, or at least in agricultural condition where the land could easily re-enter production. Compared to coupled support, this provides a stronger incentive to keep land in the sector and raises the returns from farmland relative to other land uses.
Rebalancing the current policy mix away from payments linked to production to decoupled ones can better tailor policies to the four objectives of the government. The result would be better environmental performance, including with respect to GHG emissions, and a stronger financial basis for the sector, and more market incentives in the value chain. Domestic production will decline, but this need not undermine the resource base for agricultural production, nor affect the amount and distribution of agricultural land. The competitiveness of the sector and of the value chain would improve, while incomes of farmers staying in agriculture would be sustained.
How bold should such a rebalancing be? A better understanding of the nature of the trade-offs between objectives can help policy makers answer this question. The Policy Evaluation Matrix (PEM) model has been used to undertake an analysis of these trade-offs (see Annex A and (OECD, 2005[32]; OECD, 2015[21]) for the details of the model). The model has been adapted to cover regional specificities following the regionalisation used in the Norwegian Farm Accountancy Register and to include indicators that respond to the four main objectives of agricultural policies.. A scenario using the PEM model examined the effect of moving 10% of the current policy mix to a new decoupled payment based on land, conditional on it remaining in agricultural condition.26 Aside from increasing returns to agriculture land use, such a payment has a small impact on agricultural input and output markets. This scenario considered impacts on distribution and production of agricultural commodities, environmental impact and income and productivity, reflecting the main goals of Norwegian policy.
The overall value of production in this scenario declines by about 7%, with relatively more adjustment in grains production (the milk quota system prevents big shifts in milk production and milk TFP increases). GHG emissions decline by 2.2%, nitrogen surpluses reduce by 1.2%, and farm income increases by NOK 386 million or USD 38.5 million (NOK 474 or USD 47 per hectare) (Table 2.5). The new payment valorises agricultural land and draws more land into the sector, though a greater share of land is used for crops beyond the main cereals.
The distribution of land and production across the entire country is little changed by the shift to decoupled payments. This is because the proportional reduction of distorting support, 10% in all regions, does not induce large adjustments across regions. Also, the decoupled payment strongly preserves land and the level of the payment replicates the existing regional pattern of production-channelling payments; the regional distribution of payments are unaffected and therefore reflect the current pattern of regionally differentiated incentives. This pattern could be improved with further adjustments on these decoupled payments rates, responding to the needs and values of each location. Payments based on land tend to be reflected in the price of land over time. In this scenario, agricultural land returns increase on average by 62%, with the largest increase in Jæren (121%) and the smallest in the eastern lowlands (25%). This means that, apart from the regulations on land use that tend to protect agricultural land in Norway, these policies strengthen the economic incentives to keep agricultural land in use.
The results show that the reform has a minor impact on the objective of agriculture all over the country. This is because payments based on land tend to attract and hold land; if there were more scope for land movement in the model the results would likely show even more conversion of land into agricultural use than they do currently.
The results of the analysis clarify the trade-offs that result from a transformation of a portion of support from a coupled to a decoupled basis, while keeping the production channelling purpose of policy. The larger the share of support moved to decoupled land payments, the larger will be the benefits to farmers and the environment, at the cost of some production due to lower production intensity, but with enhanced possibilities to produce more on available agricultural land whenever required.
The benefits to the environment could be further increased relative to the decline in production if the decoupled payments were to include some environmental conditionality. Such “cross-compliance” is a common feature of agricultural payments in the European Union and other countries and can motivate increased adoption of sustainable practices.
Norway provides the highest levels of support to agricultural producers among OECD countries, and reforms have been limited. In fact, changes to the policy support system have often been primarily through external pressure rather than domestically driven reform. The main agricultural sectors remain highly insulated from the world market and subject to extensive production-distorting support. Market price support, mainly due to border protection and domestic market regulation, still remains the main component of support to producers.
Border protection is mainly through high tariffs on the most important and sensitive agricultural products, such as meat, dairy, eggs and grains. In addition, there are TRQs for different sensitive products. Export subsidies were abolished in mid-2020.
Norway uses a panoply of policy measures to regulate the market and support agricultural producers, including a complex system of payments which account for a large share of farm income. Farmers also benefit from several tax concessions, such as income-tax deduction and exemption from GHG (methane and nitrous oxide) emission taxes.
Most of the payment rates are negatively related to farm size and are higher in remote areas compared to central regions. The goal is to sustain and channel specific agricultural activity to rural areas throughout the country, where production alternatives are few, and to sustain total agricultural production and self-sufficiency. Norway has a shortage of land suitable for arable crops, but an abundance of grass and pasture. Agricultural land accounts for only 3% of the country’s surface; therefore, the most favourable lands are mostly allocated to arable crops, 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.
The primary agricultural sector is exempt from standard competition law, and farmer-controlled processing and distribution co-operatives are an important part of the supply chain in some sectors, such as dairy.
Climate change ranks high in the current agricultural policy debate. However, agricultural activities that generate the highest GHG emissions are those that are currently the most heavily supported. Moreover, farmers are exempt from GHG emission taxes and the cap-and-trade system. It would be increasingly difficult to reduce GHG emissions from agriculture without significant policy reform.
2.7.1. Agricultural support
The removal of the administered price for eggs, poultry, beef, sheep, increased flexibility in milk-quota leasing, and the abolition of export subsidies are steps in the right direction towards reducing the economic distortions associated with these measures.
The limited reforms agreed by the parliament in 2017, such as the commitment for some simplification in support measures and the rule changes on milk quota, are steps towards enhancing efficiency and reducing policy-related transaction costs and should be accelerated.
Norway should consider to gradually reduce border protection and commodity-specific support, including welfare schemes, in a predictable way in order to allow markets to play their role in allocating production resources. The current high levels of support are likely to become increasingly untenable over time. External pressures and commitments for Norway to decrease its import tariffs on agricultural imports is unlikely to diminish as future multilateral and regional trade agreements may mean significant reductions in tariff protection. Domestically, with an increasing need for a more low-carbon sustainable economy the support system will come under increasing scrutiny. Agricultural policy needs to help prepare producers for change, guiding them towards more environmentally sustainable and competitive production.
Agricultural policy in Norway needs to re-orient its focus to develop a coherent agricultural policies leading to long-term productivity growth and environmental sustainability. Agricultural policy should better balance the economic and environmental costs of support (market price support, direct payments and tax concessions) against the claimed benefits of support, such as the arguments on food security and sustaining rural economies. These objectives can be pursued effectively without the use of market distorting measures. Norway is encouraged to consider whether forms of support that are currently closely linked to particular products and particular methods of production could be better linked to delivering general public good outcomes.
Reforms should centre on achieving goals, while reducing the cost to taxpayers and consumers. Specifically, further policy actions should, inter alia, reduce border protection, direct payments for output and inputs to increase exposure to market signals and reduce environmental pressures, and remove measures that impede structural adjustment towards more productive and sustainable units. The efficiency of agricultural support measures in achieving the various stated policy-objectives, such as food security, sustaining rural economies and landscape amenities at lower costs, would be improved if the intended beneficiaries of such measures are identified and policy measures targeted to specific outcomes.
An assessment of whether the current format of annual negotiations between government and farmer representatives is well suited to promoting reform would also be beneficial. Although the negotiations provide a platform for regular evaluation and adjustment of the system, they mainly focus on annual farm incomes, thereby paying insufficient attention to other societal concerns and long-term objectives.
The market power of co-operatives adds another dimension of support to farmers and agricultural support policy also distorts efficiency and competition in the agri-food supply chain as a whole (Chapter 5). An assessment of the coherence of agricultural support policies with other economy-wide policies, such as competition policy, would be beneficial.
2.7.2. Environmental sustainability
Pursuing productivity growth while maintaining environmental protection and sustainable natural resource management should be a policy priority. In this context, re-orienting support towards general services, especially for the agricultural knowledge and innovation system, is an avenue that should be further explored.
Norway should address the conflicts between agricultural and environmental policy goals. The overall design of the agricultural support schemes results in most support being given to the type of production that results in the highest GHGs emissions per unit of production (i.e. production of red meat, mainly cattle and sheep farming).
Modelling results show that it is possible to achieve the objective of preserving production capacity and agricultural landscape across the country, while reducing the negative environmental impacts of intensive production and increasing the potential for value creation along the value chain. The core of the objectives of production-channelling policies could be achieved more efficiently through decoupled support with payment rates that are adapted to each location, and subject to the requirement of maintaining the agricultural production capacity of the land.
Although agri-environmental measures have become more targeted over time, there appears to be a pronounced focus on ensuring continued farming. Payments based on non-commodity criteria account for only 0.3% of producer support, while payments conditional on adopting a specific farming practice for environmental reasons account for 27% of total budgetary support to producers. This contrasts with the majority of payments in the European Union, Switzerland and the United States, which impose such a conditionality. However, experience in OECD countries shows that such conditionality is not effective unless it is adapted to the diversity of local farming practices and conditions. In Norway, some requirements are adapted to local conditions (e.g. requirement to protect waterways, insular elements and stone hedgerows).
Greening Norway’s agricultural sector should include a much greater shift towards less-distorting forms of support, such as payments based on non-commodity criteria (e.g. going beyond environmental regulation). For example, production-linked support without input constraints creates incentives to increase pesticide use, which runs counter to the objective of reducing pesticides and counteracts with the pesticide tax. In addition, tax concessions on road fuels and transport subsidies should be phased out or reduced, as they contribute to emissions of CO2 and air pollutants.
More direct payments to farmers should be made conditional on proper implementation of an environmental plan. This approach would also serve to target measures more effectively, based on local and county priorities to achieve the programme’s national goals. Such requirements have the potential to increase coherence between agricultural and environmental policies and to contribute to improving environmental performance of agriculture compared to a situation where the same level and structure of payments are made with no conditions attached. However, there is insufficient evidence concerning control, sanctions and monitoring the environmental impacts of these cross-compliance requirements. An inspection and enforcement system should be in place to monitor compliance of farmers and the environmental impact of cross compliance.
Norway should also re-assess the implementation of an environmental plan at the farm level, as required under the National Environmental Programme. A well-designed and implemented environmental plan would make farming more environmentally accountable, particularly if plans are regularly monitored and evaluated.
Apply the polluter-pays-principle more systematically to hold farmers accountable for all harmful environmental effects from crop and livestock pollution by considering, for example, taxes on fertilisers and penalties where these contribute to water pollution. Strengthen efforts to provide targeted and tailored advice to farmers on sustainable technologies and practices by paying more attention to supporting activities, such as technology monitoring, training advisors, and the production, collection and storage of technical knowledge.
The design of agri-environmental policy requires the definition of reference levels, and environmental targets play a crucial role in choosing policy instruments. The reference level is the minimum level of environmental quality that farmers are required to provide at their own expense, and environmental targets represent a higher desired level of environmental quality. To establish a solid framework of agri-environmental policies, Norway should clarify the reference environmental quality as well as environmental targets which are well adapted to local ecological conditions. Norway should advocate the implementation of performance-based agri-environmental policies that reflect the diversity of its agri-environment. Such payments, in addition to increased flexibility provided to farmers, achieve greater environmental benefits than practice-based measures. In this regard, payments to remunerate farmers for the provision of environmental outputs that the Norwegian society want ‒ yet go beyond what is expected of farmers to provide (reference levels) ‒ need to be made available, assessed in terms of costs and benefits, and transparent, within the constraints of overall budgetary provision.
Establish measurable indicators of performance to regularly monitor and evaluate the achievements of agricultural policies in meeting objectives, and to make course corrections when outcomes fail to meet the policy objectives.
2.7.3. Climate change
Meeting international commitments related to GHGs and ammonia emissions is challenging. Difficulties stem from the policy objective of separation of support for livestock production and arable crops (regionalisation of support), leading to reduced nutrient efficiency and higher ammonia emissions.
The co-operative approach used in Norway to develop policies for controlling GHGs and food waste in the agro-food sector is not without merit. The climate change agreement between the government and farmer organisations facilitates the embracement of reform proposals by stakeholders. However, climate measures agreed should be consistent with the mitigation actions stated in the 2016-27 White Paper and should not lead to increased subsidies to agriculture.
Norway faces a sizeable emission-reduction challenge and should intensify GHG reduction measures in agriculture. It would be feasible to significantly reduce GHG emissions from agriculture by restructuring support schemes and by not exempting agriculture from the cap-and-trade system or from GHG emission taxes. Recent legislation restricting cultivation on peatlands – if applied with enough ambition – can potentially reduce GHG emissions from agriculture in a significant manner and should be carefully monitored.
2.7.4. Risk management
In 2018, Norway experienced the driest and warmest summer in the last 70 years and several measures were launched to help farmers. In the likelihood of increased extreme weather conditions, it is advisable that drought support measures focus on encouraging drought preparedness and resilience of the sector, rather than on the provision of ad hoc financial aid.
Consideration should be given to enhancing the role of farmers in managing their business risk by introducing voluntary risk-management programmes such as mutual funds, or a programme that allows farmers to place savings in a special account that is excluded from income declaration and possibly matched by a government subsidy.
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Notes
← 1. The government may – subject to certain conditions – conclude an agreement with a single partner. Such was the case in 2015 and 2016.
← 2. The negotiations make extensive use of micro-simulations of farm finances. The micro-simulations model the finances of around 30 representative farms using inputs from actual farm accounts and are run by NIBIO. In the negotiations, proposals for parameter changes are programmed into the system and the impact on farm incomes is assessed.
← 3. The Chairman of the Council is a representative from the Ministry of Agriculture and Food, while the farmer-owned organisations are in majority on the Council.
← 4. Revised target prices normally apply from 1 July in the marketing year.
← 5. Definition of OECD indicators of agricultural support can be found in OECD (2020[4]).
← 6. Norwegians spend only 11% of their income on food, however.
← 7. Two tariff lines covering hard cheeses, two covering lamb carcasses and two covering beef meat (steaks and fillets).
← 8. The bound tariff is the maximum most favoured nations (MFN) tariff applied to a commodity line by individual WTO members. When countries join the WTO or negotiate tariff levels, the top level, bound tariff rates, are agreed rather than specific individual rates. In practice, bound tariffs are not necessarily applied by WTO members towards each other.
← 9. As of 1 January 2015, Norway unilaterally eliminated import duties on 114 agricultural tariff lines. While these duties were low (and of no significant importance for the protection of Norwegian agricultural production), their elimination resulted in a reduction of customs procedures and administrative costs.
← 10. TRQ fill rates are high for beef, deer and elk meat, pears, and fruit preserves; but are under utilised for eggs, chicken meat, red cabbage, and pork.
← 11. Article 19 of the EEA agreement concerning trade in basic agricultural products is reviewed periodically. The round of these reviews agreed in 2013 and finalised in April 2017, and changes agreed entered into force in October 2018.
← 12. In the 2011 agreement, a list of reciprocal tariff elimination covering around 185 tariff lines on HS8 was included.
← 13. There are ongoing free trade negotiations between EFTA and India, Viet Nam, and Malaysia. 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).
← 14. For a detailed discussion on the history of agricultural policies in Norway, see (Lundekvam, Romstad and Øygarden, 2003[34]).
← 15. There is one payment scheme for animals grazing during a minimum period (irrespective of land use category) and another for animals grazing on unimproved pasture.
← 16. The fees are established by the Norwegian Agricultural Authority.
← 17. For more information, see www.oecd.org/tad/agricultural-policies/risk-management-agriculture.htm
← 18. The specific compliance requirements are: maintain a two-metre buffer zone along waterways; protect natural historic elements, such as waterways, stone fences and trails; follow a fertiliser application plan; and maintain a journal on pesticide use.
← 19. The most important difference between the AK subsidy and the EU scheme with “Greening” is the European Union’s requirement that farms that employ lands above a certain threshold must cultivate a combination of crops, unless their production is organic or, alternatively, if they mostly have permanent grassland. There are no similar requirements in the Norwegian scheme.
← 20. The gross N balance (i.e. the potential surplus of N on agricultural land) is a means to assess nutrient management and efficiency in agriculture. A surplus indicates potential environmental problems, while a deficit may indicate a decline in soil nutrient status. It is estimated by calculating the balance between N inputs (fertilisers and manure, atmospheric deposition, biological fixation and seeds and planting material) and N outputs (fodder/grazing and crop harvest) from the agricultural system per hectare of agricultural land.
← 21. The 2020 commitment is not given in absolute levels, but proportionally to 2005 emission levels.
← 22. The webpage “Tiltaksveilederen” (www.nibio.no/tiltak) presents information on mitigation measures to reduce nutrient losses from agriculture.
← 23. For example, because of the bias on reducing P losses the estimated losses of N from agricultural areas to marine waters increased by 11% from 1990 to 2011 (Selvik, Tjomsland and Høgåsen, 2012[35]).
← 24. https://www.miljodirektoratet.no/aktuelt/nyheter/2020/januar-2020/tap-til-rovdyr-holder-seg-pa-lavere-niva-enn-for/.
← 25. See a recent government strategy: https://www.regjeringen.no/contentassets/3f5ee035363b44b6b57fe0a2f676ad15/strategi-forrad-av-gener--muligheter-og-beredskap.pdf
← 26. This is represented in the model as a payment paid proportionally to land value to all agricultural land uses (crops and livestock land and “other” arable land, but not other land types). Such a payment does not affect the relative price of land between uses, so does not induce land use change within the agriculture sector. These are the typical requirements of decoupled payments in other countries such as Switzerland, the European Union, and the United States.