21. Norway
Support to agriculture
Norway’s progress in reducing support levels has been modest; its farming sector continues to receive one of the highest levels of support in the OECD area. Market price support (MPS), mainly due to border protection, still remains the main component of support to producers. Area and headage payments are also important. While the share of support coming from the potentially most production and trade distorting measures has declined, such instruments still account for most of the support provided in recent years. Support to farmers (PSE) accounts for 59% of gross farm receipts, which is more than three times higher than the OECD average.
The Total Support Estimate to agriculture (TSE) was slightly less than 1% of GDP in recent years. Expenditures on general services for the sector as a whole (General Service Support Estimate – GSSE) are relatively small – around 4.7% of TSE – and have significantly declined relative to the size of the sector. Support to general services mostly finances the agricultural knowledge and innovation system.
Main policy changes
The political platform released by the coalition government, which was formed in January 2019, broadly follows the strategic orientations of the White Paper, released in December 2016. The government, inter alia, aims to enhance the efficiency and competitiveness of the sector, while maintaining the overall system of market regulation. An agreement was reached between the government and the two farmers’ organisations involved in the agricultural negotiations concerning setting target prices and the budgetary framework for payments to farmers.
An Action Plan was developed for the implementation of the national bio-economy strategy and work on developing a strategy on circular economy is in progress. The government reported to the parliament according to provisions of the Climate Change Act and a climate agreement for agriculture with farmers’ organisations was negotiated. All export subsidies are to be phased out by the end of 2020, at the latest. Negotiations between EFTA and MERCOSUR were concluded in 2019.
As a result of the abolition of export subsidies on cheese, 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 this might be revised during the year, depending on market conditions.
Assessment and recommendations
Agricultural support remains concentrated on maintaining the status quo in terms of farming structures and has seen little reform compared with policies in other OECD countries. Moreover, changes to the policy support system have often been through external pressure, rather than domestically driven.
There is considerable scope for accelerating the pace of reforms in order to achieve stated goals at lower cost to taxpayers and consumers. Specifically, further policy actions should, inter alia, reduce the potentially most distorting support in order to increase exposure to market signals and eliminate output-related measures impeding structural shifts towards a more productive and environmentally-sustainable agricultural sector.
Although climate change and agriculture rank high in the national agricultural policy debate, commodities that generate the highest greenhouse gas (GHG) emissions are those that are currently the most heavily supported. Current high levels of support are likely to become increasingly untenable over time. Norway’s international commitments to decrease its import tariffs on agricultural imports are unlikely to attenuate, while domestically, the increasing policy orientation towards a more low-carbon sustainable economy, including its ambitions climate policy targets will put the agricultural support system under increasing scrutiny.
The planned phasing out of export subsidies by the end of 2020 is a positive step and it should reduce market distortions.
Although agri-environmental measures have become more targeted over time, payments based on non-commodity criteria account for only account for meagre 0.3% of producer support. Norway should advocate the implementation of performance-based policies that reflect the diversity of its agri-environment. Performance-based evaluation of policies and implementation of measurable indicators of performance should be encouraged. The new political platform for the government postulates limited reforms — such as increasing emphasis on R&D development and on measures for environmentally sustainable food production — that are steps towards enhancing the efficiency and reducing policy-related transaction costs and should be accelerated and deepened.
Raising productivity growth while maintaining environmental protection and sustainable natural resource management could be pursued by re-orienting support towards general services, especially for the agricultural knowledge and innovation system.
Policy responses in relation to the COVID-19 outbreak
Agricultural Policies
Workers from the European Economic Area (EEA) in “critical sectors”, which includes agricultural workers, are allowed to enter Norway subject to a 14-day quarantine period. Borders remain closed for seasonal workers from third countries. Foreign workers already in Norway can get their residency permits extended beyond 6 months.
A temporary scheme provides incentives for laid off Norwegians to take up jobs in agriculture. The scheme allows workers to report only half the hours worked to the employment authorities, despite being paid by the farmer for all hours. This responds to the disincentive arising from the fact that unemployment benefits per hour are often higher than hourly wages in agriculture.
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 legal basis to exceed existing ceilings for support for investment and business development in agriculture. Innovation Norway was also given increased flexibility in using the Development Programme for agricultural and reindeer husbandry-based growth and value creation, to meet the industry's short-term challenges notably for local food, tourism and green care businesses, where sales have dropped significantly.
The state and the farmers unions are in an informal dialogue about how the agricultural negotiations can be handled as they cannot be conducted in the traditional way due to the extraordinary situation in 2020. This process is underway. But the ratio of available quota for cow's milk has already been raised from 0.96 to 1.01 for the quota year 2020. This will increase the production of milk.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE) has declined gradually since mid-1980s. In 2017-19, support has been around 59% of gross farm receipts, which is more than three times higher than the OECD average. The share of the potentially most distorting support has decreased, but it is still more than half of farmers support (Figure 21.1). Market price support is the main component of the most distorting support. The level of support in 2019 has declined mainly due to the decrease in budgetary payments from high levels due to significant drought relief measures provided in 2018 (Figure 21.2). The price gap also narrowed as average border prices increased. Effective prices received by farmers, on average, were 1.9 times higher than world prices in 2017-19. Single Commodity Transfers (SCT) accounted for 61% of the total PSE. The share of the SCT in the commodity gross receipts is around or higher than 30% for all commodities (Figure 21.3). The expenditures for general services (GSSE) relative to total support to agriculture were almost three times lower than the OECD average. Total support to agriculture as a share of GDP has declined significantly over time. About 93% of the total support is provided to individual farmers (PSE).
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Agriculture constitutes a relatively small share of the economy. Land most suitable for farming, around 3% of the territory, tends to be located in the most populous and rapidly growing regions. While the contribution of agriculture to GDP and employment is small, Norway has consistently stressed the importance of the sector for policy priorities such as achieving food security and maintaining population in rural areas.
Due to unfavourable climatic conditions, the agricultural sector produces a rather narrow range of commodities. In addition to sheep farming, the primary activity has traditionally been cattle (for milk and meat) and cereals (mainly used as animal feed). The farm structure is dominated by relatively small family farms, many of which are in remote locations.
Sound management of natural resources and business dynamism has helped to boost Norway’s per capita GDP, which is now one of the highest in the world. Combined with its “Nordic model” ensuring inclusiveness and low inequality, Norway exhibits impressive levels of well-being in many dimensions. Sustaining Norway’s inclusive society will require successful economic diversification away from oil-related activities and continue seizing of opportunities from globalisation and digitalisation. Employment growth remains strong and the unemployment rate declined, and inflation remains low.
Norway is a net importer of agricultural products: agro-food imports represent around 9% of total imports, while agro-food exports represent 1% of total exports. The vast majority of Norway’s agricultural production is consumed domestically. Imports of products mostly take place where domestic production does not meet demand. Most of the agro-food trade is for final consumption.
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Over the 2007-16 period, agricultural output is estimated to have increased at a slow annual pace. Variable inputs and fixed factors of production have declined, while total factor productivity is estimated to have increased – at a rate that is slightly higher than the world average. Overall, pressures from agriculture on the environment have decreased, as shown by the decrease in nutrient surpluses per hectare, in air emissions and energy use from agriculture. The lowering of nutrient surpluses, though still high, has reduced environmental pressures on soil, water and air. This reflects both improvements in nutrient use efficiency by farmers and slow growth of agricultural production.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
The strategic objectives of agricultural and food policies, as set out in the White Paper No. 11 (2016–17) “Change and development - A future-oriented agricultural production” are: food security; agriculture throughout the country; creating more added-value; and sustainable agriculture. The agricultural policy aims at the sustainable use of natural resources, developing know-how and contributing to the creation of employment and value added in farming and farm-based products throughout the country. Agricultural support policy is a component of Norway’s regional and rural policies.
The principal policy instruments supporting agriculture include border measures, domestic market regulation, based on the Marketing Act, and budgetary payments. The Marketing Act covers certain types of meat (beef, mutton, pork and poultry); milk, butter and cheese; eggs; cereals and oilseeds; potatoes, vegetables, fruit and berries; and fur skins.
Target prices are provided for milk, pork, grains and some fruits and vegetables. Target prices and the budgetary framework for payments to farmers are negotiated annually between the government and farmers’ organisations. Marketing fees are collected from producers to finance marketing activities dealing with surpluses (until 2020 also including export subsidies for livestock products). Milk production quotas were introduced in 1983 and a system of buying and selling quotas was introduced in 1997.
Various direct payments to farmers are provided, including area and headage payments as well as payments based on product quantities (meat). Many of these payments are differentiated by region and farm size in order to provide adequate income support across all type of farms and regions. Environmental levies on agricultural pesticides are applied.
The National Environmental Programme contains the main agri-environmental measures. The Acreage Cultural Landscape Support, payments to extensive grazing, payments for grazing animals, payments for organic agriculture, are country-wide schemes with wide objectives, contributing to an overall good environmental condition. Such schemes, inter alia, support continued use of resources that could otherwise be abandoned. Such support maintains the cultural landscape and disperses its benefits throughout the country. Regional Environmental Programmes (REP) and special environmental measures in agriculture are more targeted support schemes, organised on the regional and local level, and targeted at issues that cannot be adequately addressed in country-wide schemes. The programmes include, for example, payments to reduce water pollution from agricultural fields, environmentally-friendly spreading of manure, mowing small (abandoned) fields with high or special biodiversity in forest and mountain areas, grazing on islands, maintenance around heritage sites in the agricultural landscape, etc.
Norway has signed and ratified the Paris Agreement and a bilateral agreement with the European Union, under which it commits to reducing greenhouse gas (GHG) emissions by at least 40% by 2030 compared with the 1990 level. CO2-emissions from fossil fuel in agriculture are subject to a carbon-dioxide tax similar to other sectors. Other GHG emissions from agriculture are neither subject to such taxation nor included in the European Trading System (ETS). Instead, a combination of regulatory, financial and advisory measures are used to reduce GHG emissions from agriculture.
In 2016, the government published the national strategy on bio-economy. This was a broad cross-sectoral strategy, developed by eight ministries, including the Norwegian Ministry of Agriculture and Food. The strategy points out three overarching objectives ‒ increased value creation, reduction in GHG emissions, increased resource use efficiency and sustainability ‒ and four focus areas: co-operation across sectors, industries and thematic areas; markets for renewable bio-based products; efficient use and profitable processing of renewable biological resources; and sustainable production and extraction of renewable biological resources.
Most of Norway’s tariff-rate-quotas were eliminated in 2000 when the WTO-bound tariff rates became equal to the in-tariff quota rates. Tariffs for some products, particularly livestock products are set between 100-400% although there is a system of “open periods” for imports at reduced tariff rates when domestic prices rise above threshold levels.
As from 1 January 2015, Norway unilaterally eliminated import duties on 114 agricultural tariff lines. While these duties had been low (and not of significant importance for the protection of Norwegian agricultural production), their elimination resulted in reduction of customs procedures and administrative costs.
Article 19 of the European Economic Area (EEA) agreement concerning trade in basic agricultural products is reviewed periodically. The last round of these reviews was finalised in April 2017 and changes agreed entered into force in October 2018. Under the EEA, tariff rate quotas (TRQs) expanded on several products, including meat, cheese, vegetables and certain products used in the food industry for producing processed agricultural products.
Domestic policy developments in 2019-20
The coalition government formed in January 2019 broadly supports the strategic orientations of the White paper No. 11 (2016-17). The government aims to enhance the efficiency and competitiveness of the sector, while maintaining the overall system of market regulation and border protection. Agricultural policy is to continue to build on four pillars: i) the system of annual agricultural negotiations and agreements; ii) a well-functioning border protection; iii) farmers’ responsibility for balancing supply and demand on the domestic market through producer co-operatives; and iv) continuation of the property regulations in agriculture to protect the family-based ownership of farms. Other key elements of the political platform include: continuation of the milk quota system; introduction of the Act on Good Business Conduct during 2020; following up the soil protection strategy; stimulating organic farming; reinforcing the focus on animal welfare; strengthen R&D; and continuing the policy for low antibiotic use and low prevalence of antibiotic resistance in animal husbandry.
In May 2019, an agreement was reached between the government and the two farmers’ organisations involved in the agricultural negotiations. The main changes in the agreement were: i) an increase in target prices with a total budgetary effect of NOK 249 million (USD 28 million) from 1 July 2019; ii) an increase in budgetary support of NOK 720 million (USD 81 million) from 2019 to 2020; iii) transfer of NOK 49 million (USD 5.6 million) from the 2018 budget and an increase in the tax relief on NOK 122 million (USD 14 million); iv) increased support for investments and development programme; v) increased support for areas with poor conditions for agricultural production; increased focus on R&D in production of fruit, vegetables, berries and flowers and the establishment of an advisory committee to design a long-term plan to strengthen innovation; and stimulate investments in buildings and land in sectors with potential for increased market share of Norwegian production.
Since 2017, farmers selling cow milk quota were 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. There are 14 production regions for quota redistribution. Each year the basic quotas are multiplied by a factor to fix the amount of milk each producer can deliver to a dairy (i.e. actual production possibility). Due to a reduction in the consumption of milk, the actual production possibilities in 2019 were set to 98% of the basic quota.
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 up to 40 million litres of milk are purchased from the market. The government contributes NOK 200 million (USD 22.7 million), and the sales tax for milk covers the remaining expenditure for that purchase. The scheme was implemented on 1 January 2020. The remaining overproduction will 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 this might be revised during the year, depending on market conditions. The reduced factor is a direct consequence of the elimination of export subsidies. The milk production prognosis is said to be just above 1 450 million litres (i.e. almost equal to domestic use).
Following the 2018 strategy on organic production, a programme was prepared to help prioritisation of the measures for organic production over the long-term, while the preparation of a programme on soil health and soil quality is in progress. Support to organic production was NOK 139.8 million (USD 16 million) in 2019. Support was also given to different projects on organic production and information on organic production and consumption, totalling NOK 33 million (USD 3.8 million) in 2019.
The budget for the Regional Environmental Programmes (REP) was increased by 7% to NOK 528.1 million (USD 60 million) for 2020. Payments under these programmes finance measures such as the reduction of run-off from agricultural fields, environmentally friendly spreading of manure, maintenance of fields with high or special biodiversity in the forest and mountains areas, grazing on islands, and maintenance around heritage sites in the agricultural landscape.
On bio-economy, the Research Council of Norway, Innovation Norway and Industrial Development Corporation of Norway (Siva) have developed a common Action Plan for the implementation of the recommendations of the strategy, which was published in February 2020. Work on developing a strategy on circular economy is in progress, with nine ministries involved in the process, including the Ministry of Agriculture and Food.
In 2019, the government reported to the parliament according to provisions in the recent Climate Change Act. The Climate Change Act establishes by law Norway’s target of becoming a low-emission society by 2050. In October 2019, the European Union, Iceland and Norway formally agreed to extend, for the period 2021-30, the climate co-operation by including the Effort Sharing Regulation and the Regulation on greenhouse gas emissions and removals from land use, land use change and forestry (the LULUCF-regulation), into the EEA Agreement. According to the agreement, Norway is to fulfil its respective greenhouse gas emission reduction target for the period 1 January 2021 to 31 December 2030 in accordance with the ETS-Directive, LULUCF-Regulation and the Effort Sharing Regulation. In 2020, the government plans to present a White Paper on how to fulfil Norway’s commitments. As part of this work, a group of agencies and institutions delivered an assessment in February 2020 that explored possible policies and measures for further emission cuts and increased uptake in the Effort Sharing sector and LULUCF sector in Norway until 2030. The study assessed possible measures to reduce the climate emissions, by at least 50% in the Effort Sharing-sectors, in 2030.
In June 2019, the government and farmers’ organisations negotiated a climate agreement for agriculture. The agreement sets targets for the abatement of GHG emissions and uptake from agriculture over 2021-30. Improvement in on-farm livestock, manure and soil management will be key to reach these targets, alongside improvements in consumption and reduction in food losses and waste which will have an indirect effect on greenhouse gas emissions.
The rural development aspects of Norwegian agricultural policy include several programmes designed to stimulate innovation and the establishment of alternative businesses on farms and alternative employment in rural areas. Most of the funding is financed through the Agricultural Development Fund. For 2019, the total allocation of funds for rural development (within the Agricultural Agreement) was NOK 1 134 million (USD 129 million).
Trade policy developments in 2019-20
At the WTO Ministerial Meeting in Nairobi on 19 December 2015, the member states decided that if the developed countries (Norway, Canada and Switzerland) abolish export subsidies on products destined for the least developed countries, they would be permitted to provide export subsidies for processed products, dairy products and pig meat until the end of 2020. In 2018, Norway notified the WTO that all export subsidies for agricultural products would be phased out by the end of 2020.
As part of the European Free Trade Association (EFTA), Norway has negotiated 29 Free Trade Agreements (FTAs) with 40 partner countries. There are ongoing free trade negotiations between EFTA and India, Viet Nam and Malaysia. Negotiations with MERCOSUR were finalised in August 2019. The Agreement provides for tariff concessions on both basic and processed agricultural products. Among the EFTA states agricultural exports that will benefit from the Agreement, through the gradual elimination of duties, through tariff preferences or through tariff rate quotas (TRQs), are products such as cheese, coffee, chocolate, lamb meat, spirits, sweets, waters, energy drinks and wines. In return, EFTA states offer concessions for agricultural imports of high importance to Mercosur.
EFTA has also started re-negotiations of free trade agreements with Chile and the Southern African Customs Union (SACU) (Botswana, Lesotho, Namibia, South Africa and Swaziland). These Free Trade Agreements and negotiations include processed agricultural products and a range of primary agricultural products. In 2019, Norway and the People’s Republic of China continued bilateral negotiations on a trade agreement.
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.
https://doi.org/10.1787/928181a8-en
© OECD 2020
The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions.
