Agricultural Policy Monitoring and Evaluation 2019

Chapter 20. 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, and its share in total support to farms (PSE) has been reduced by only 1 percentage point between 1986-88 and 2016-18. While the share of potentially most production and trade distorting support has declined, it still represented most of the support in recent years.

The Total Support Estimate to agriculture (TSE) was slightly less than 1% of GDP in recent years. Support to producers (PSE) accounts for 61% of gross farm receipts, which is more than three times higher than the OECD average. Expenditures on general services for the sector as a whole (General Service Support Estimate - GSSE) are relatively small – around 4.5% of TSE – and mostly finance 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 competiveness 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.

Several measures were launched to help farmers with the consequences of drought during the spring and summer of 2018. The National Environmental Programme was revised and updated. Under the European Economic Area (EEA), tariff rate quotas increased on several products, including meat, cheese, vegetables and certain products used in the food industry for producing processed agricultural products.

Assessment and recommendations

• Agricultural support remains overly concentrated on maintaining the status quo and progress towards reform has been very modest. Despite lower price distortions, Norway’s agricultural sector remains among the most highly protected. There is considerable scope for accelerating the pace of reforms in order to achieve stated goals at lower cost to taxpayers and consumers.

• Further progress is needed to reduce the potentially most distorting support in order to increase exposure to market signals and eliminate measures impeding structural shifts towards a more productive and environmentally-sustainable agricultural sector.

• The new political platform for the government postulates limited reforms — such as increasing emphasis on research and development (R&D) 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.

• An assessment of whether the current format of annual negotiation between government and farmer representatives is well-suited to promoting reform would also be beneficial.

• The national cross-sectoral bio-economy strategy provides an opportunity to increase the sustainability of the agro-food sector through the increase in the efficiency of the use of natural resources, help the agricultural sector to adapt to climate change and foster policy coherence.

• In 2018, Norway experienced the driest and warmest summer for the last seventy 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.

• Environmental taxation is a core pillar of Norway’s efforts to reduce greenhouse gas (GHG) emissions not covered by the European Trading System (ETS), and in tackling other environmental issues. This tool should be considered for agriculture, along with other market-based and regulatory climate mitigation measures.

• 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 to be further explored.

Figure 20.1. Norway: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) has declined gradually over the long term. In 2016-18, support has been around 60% 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 20.1). Market price support is the main component of the most distorting support. The level of support in 2018 has increased mainly due to the large increase of Crop Insurance Compensation payments (Figure 20.2). Effective prices received by farmers, on average, were 1.8 times higher than world prices in 2016-18. 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 20.3). 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).

Figure 20.2. Norway: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 20.3. Norway: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 20.1. Norway: Estimates of support to agriculture

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.

The sector produces a rather narrow range of commodities. In addition to sheep farming, the primary activity has traditionally been cows (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.

Table 20.2. Norway: Contextual indicators

	Norway		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	106	328	0.4%	0.3%
Population (million)	4	5	0.1%	0.1%
Land area (thousand km2)	365	365	0.5%	0.5%
Agricultural area (AA) (thousand ha)	1 127	984	0.04%	0.03%
			All countries1
Population density (inhabitants/km2)	14	17	48	60
GDP per capita (USD in PPPs)	24 322	61 475	7 642	21 231
Trade as % of GDP	24	23	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	3.0	2.2	3.3	3.5
Agriculture share in employment (%)	5.2	2.1	-	-
Agro-food exports (% of total exports)	1.3	1.0	8.1	7.5
Agro-food imports (% of total imports)	6.2	9.0	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	27	29	-	-
Livestock in total agricultural production (%)	73	71	-	-
Share of arable land in AA (%)	88	82	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

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 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 10% 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.

Figure 20.4. Norway: Main economic indicators, 1995 to 2018

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 20.5. Norway: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Over the 2006-15 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, pressure from agriculture on the environment has decreased, as is 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 the risk of environmental pressures on soil, water and air. This reflects both improvements in nutrient use efficiency by farmers and slow growth of agricultural production.

Figure 20.6. Norway: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 20.3. Norway: Productivity and environmental indicators

	Norway		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	0.4%	1.7%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha	108.1	106.3	33.2	30.0
Phosphorus balance, kg/ha	13.2	10.6	3.7	2.3
Agriculture share of total energy use (%)	3.6	1.4	1.9	2.0
Agriculture share of GHG emissions (%)	9.2	8.5	8.5	8.9
Share of irrigated land in AA (%)	..	3.3	-	-
Share of agriculture in water abstractions (%)	30.2	..	45.4	42.5
Water stress indicator	0.7	..	9.7	9.7

Note: * or closest available year.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

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 agricultural 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, 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, including area and headage payments as well as payments based on product quantities (meat) continue to be provided. 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, such as the Acreage Cultural Landscape Support, payments to extensive grazing, payments for grazing animals, organic agriculture, Regional Environmental Programmes (REP) and special environmental measures in agriculture. Examples of programmes include payments to reduce water pollution from agricultural fields, environmentally-friendly spreading of manure, mowing small (abandoned) fields with high or special biodiversity in the forest and mountains areas, grazing on islands, maintenance around heritage sites in the agricultural landscape, etc.

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 climate gas 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. Given Norway’s experience in environmental taxation, the government proposes several regulatory improvements to create a level playing field for bio-based products, for example taxes or quotas for fossil-based products to account for negative environmental and climate effects. In addition, a revision of fertiliser regulations and an increase in the use of organic fertilisers/sludge, including regulations for deposing, storage and spreading, are on the agenda.

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 were low (and not of significant importance for the protection of Norwegian agricultural production), their elimination resulted in reduction of customs procedures and administrative costs.

Domestic policy developments in 2018-19

The new 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 competiveness of the sector, while maintaining the overall system of market regulation and border protection. Key elements of the government’s new political platform for agriculture include: continuation of the system of annual agricultural negotiations; balanced agricultural production across the country; continuation of the milk quota system; introduction of the Act on Good Business Conduct during 2020; following up the soil protection strategy; stimulate organic farming; reinforcing the focus on animal welfare; strengthen R&D; and continuation of the policy for low antibiotic use and low prevalence of antibiotic resistance in animal husbandry.

In May 2018, an agreement was reached between the government and the two farmers’ organisations involved in the agricultural negotiations. The main changes in the agreement were: 1) an increase in target prices with a total budgetary effect of NOK 198 million (USD 24 million) from 1 July 2018; 2) an increase in budgetary support of NOK 770 million (USD 95 million) from 2018 to 2019; 3) transfer of NOK 70 million (USD 9 million) from the 2017 budget and an increase in the tax relief on NOK 62 million (USD 8 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 agricultural technology; and as from 2019 a new subsidy for small- and medium-sized dairy farms.

Several measures were launched to help farmers with the consequences of drought during the spring and summer of 2018: 1) the farmers' associations and the state have agreed on a crisis package of NOR 525 million (USD 65 million) to be financed by the Agricultural Development Fund to the amount of NOK 225 million (USD 28 million), and a grant of NOK 300 million (USD 37 million) fresh funds; 2) a dispensation from the requirement to gather feed from pastures (this will allow for additional feeding on pasture while the farmer still receives feed support); 3) an exemption for harvesting area with catch crops (fast-growing crops that are grown between successive plantings of a main crop), while maintaining subsidies for such crops under the Regional Environment Program; 4) an exemption to retain grants for organically fertilised areas even if the pasture is used for feed or grazing instead of crops; 5) the advance compensation payment for crop damage increased from 50% to 70% of the total; 6) and the removal of import duties on hay. In addition, Crop Insurance Compensation support increased from NOR 33 million (USD 4.1 million) to NOR 1 667 million (USD 206 million).

Since 2015, 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 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 drought during the spring and summer of 2018, and a concern of not producing enough milk, the actual production possibilities were first adjusted in June from a factor of 0.98 to 0.99, and then again in August to 1.04. For the quota year 1 January to 31 December 2019, the quotas are set to be multiplied by a factor of 0.98.

In 2018, a new strategy on organic production was passed by Parliament. The strategy highlights three focus areas to achieve the goal of stimulating to organic production: knowledge and skills; area payments to support organic production; and developing an effective value chain.

The budget for the Regional Environmental Programmes (REP) was increased by 14% to NOK 493.2 million (USD 61 million) for 2019. In 2018, the National Environmental Programme was revised and updated. Higher priority is accorded to climate change challenges, while work continues on simplification and enhancement of goal-orientation of programmes.

Although carbon pricing is extensive in Norway, emissions from agriculture are neither subject to a carbon-dioxide tax nor included in the ETS. Norway’s commitment to the Paris Agreement is to reduce GHG emissions by at least 40% by 2030 compared with the 1990 level. Norway also decided to enter into a dialogue with the European Union on a joint fulfilment of the 2030 climate commitment. GHG emissions from agriculture include methane associated with animal husbandry and N₂O associated with nitrogen fertilisation. Norway has implemented other measures – both statutory and financial as well as measures related to information – affecting the emissions from agriculture. In 2018, the government and farmers’ unions started negotiations on how to limit emissions over 2021-30.

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. The proposal of the total allocation of funds for rural development (on the Agricultural Agreement) was NOR 1 124 million (USD 136 million) for 2018 and NOR 1 134 million (USD 140 million) for 2019.

Trade policy developments in 2018-19

Article 19 of the European Economic Area (EEA) agreement provides that contracting parties will periodically carry out reviews of the conditions of their trade in agricultural products. The round of these reviews agreed in 2013 and finalised in April 2017, and changes agreed entered into force in October 2018. Tariff rate quotas increased on several products, including meat, cheese, vegetables and certain products used in the food industry for producing processed agricultural products.

As part of the European Free Trade Association (EFTA), Norway has negotiated 29 Free Trade Agreements (FTAs) with 40 partner countries. In 2018, agreements were concluded with India, Viet Nam, Malaysia and MERCOSUR. EFTA has also started re-negotiations of free trade agreements with Mexico, 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 2018, Norway and the People’s Republic of China held further meetings on a bilateral agreement.

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 swine meat until the end of 2020. In 2018, Norway notified the WTO that all export subsidies for agricultural products will be phased out by the end of 2020. Export subsidies of processed products to the European Union and marketing activities for horticultural products are financed directly by the government.