By Philip Hemmings, Head of Norway Desk,
OECD Economics Department
Norway puts a high priority on maintaining high levels of well-being in rural communities, many of which are in remote and challenging environments. While it is broadly successful in achieving this goal, it comes at a high price, most notably in the form of substantial support to farmers. Is there a better way?
Each agricultural holding in Norway receives, on average, support worth nearly € 62 000 each year, according to OECD calculations, making the country’s agricultural sector among the most heavily subsidised in the OECD area. Overall, subsidies to farms represent around 60% of gross farm income (see chart). Farmers are not only supported by government-funded subsidies but also benefit from special tax breaks and from custom’s tariffs on food imports, the latter contributing to Norway’s comparatively high retail food prices. Furthermore, the status quo in farming is supported by concessions and special rules in legislation, which for instance limit corporate ownership of farms and provide advantageous inheritance laws for farming families.
Norway’s support to agricultural producers is high
Note: Calculations based on policy settings as of 2014. The OECD’s approach to estimating support for the agricultural sector takes into account not only direct payments to farmers from support schemes, but also forms of indirect support, such as customs tariffs and general support (e.g. publically funded agricultural research). This figure shows the producer support estimates, which measures the ratio of transfers from consumers and taxpayers to individual agricultural producers to gross farm receipts (including support, which means, for instance that a 50% PSE means that support equals that of net farm receipts, valued at world market prices).
Source: OECD (2015), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database).
Reform of Norway’s traditional fishing industry and the country’s hugely successful aquaculture industry demonstrates that the country’s rural communities have capacity for change and an ability to seize opportunity. Subsidies to fishing communities have fallen substantially, thanks to measures encouraging more economically competitive fleets. In aquaculture the lifting of price-setting and investment regulations in the early 1990s were key to the industry’s expansion. Furthermore, there remains considerable potential for Norway to develop rural tourism given its many dramatic and unusual landscapes (such as the fjords and arctic landscapes).
Norwegian agricultural support also now needs substantial reform. Though the current government has taken some welcome steps, a lot more should be done. Import-tariffs should be reduced, which would pare back the implicit subsidy that households pay through food prices. Also direct payments for producing should be lowered and linkages between subsidies and cultural and environmental goals strengthened. The agricultural reform should be central to a wider rural paradigm that is less focused on preservation of the status quo through subsidy and more channeled towards encouraging change that helps rural communities thrive in the long run.
References:
OECD, Economic Survey of Norway, January 2016, OECD Publishing.
Hemmings, P, (2016), “Policy Challenges for Agriculture and Rural Areas in Norway”, OECD Economics Department Working Papers, No. 1286, April 2016.
Just as I thought. I climbed past very small farms high in the hills of Norway and commented on the well maintained homes and late model vehicles on those farms. I said there must be Government subsidies. Tiny little farms that are grossly inefficient cannot possibly be efficient. I knew there were subsidies and part of me felt jealous for my country, New Zealand, where subsidies from the NZ Government were abolished in 1984 after the incoming Government discovered there was no money left in the pot to meet interest payments on overseas borrowings. The abolition of subsidies was one of the many drastic steps taken by the Labour Government to become fiscally stable. Was it good for the country? the farming communities? maybe not. There are a lot of unhappy and disillusioned people in NZ. I think many people are angry and feel helpless because it’s hard to make ends meet. At the same time if you are kidding yourself by accepting handouts from a Government while believing you are doing good for the community – well, you are disillusioned and really how could you consider yourself to have rewarding work? It’s a difficult philosophical question. Which is right? NZ where there is poverty, racial disharmony and overall dissatifisfaction or Norway where farmers become financially successful because other tax payers pay huge amounts to support their inefficiencies in farming. Maybe the Norwegian way is right but my gut feeling is that it is wrong.
Hi, thanks for your post. Your reflections on the thorny issue of agricultural subsidies certainly echo those in policy debates, not only in Norway and New Zealand but in many other countries
Subsidies just help farmers to remain blind to reality. It’s painful to remove them. All change is unsettling and frightening to those who’ve been paid for doing little but think of the change during the industrial revolution. Women no longer spin their own wool (well not the majority). Change is about progress and subsidies hold back progress which you can’t actually fight over the longer term. I don’t believe there”s much debate in NZ about subsidies. They arae history. NZ farms are operated based on efficient farm practices.