1. Context and general policy environment driving the performance of the agro-food and forestry sector

Norway is a highly developed, democratic country with a strong role of the state in strategic areas of the economy. The sound management of natural resources, oil and gas, and favourable business dynamism combined with high quality institutions and economic and social policies promoting inclusiveness and equality (“Nordic model”) ensures Norway a place among the wealthiest and most happy nations of the world, ranking 10th in terms of GDP per capita (PPP) and 5th in the happiness ranking (World Bank, 2020[1]; Helliwell et al., 2020[2]).

According to the OECD (2020[3]) “How’s Life” report, Norway performs well on most of the dimensions of “current well-being”, such as income and wealth, housing, work and job quality, health, subjective well-being, and work-life balance; not only on average but also in terms of equality across the population. In terms of resources and assets that underpin “future well-being”, Norway is among the top performing countries on at least some indicators of economic, human and social capital. However, its performance is relatively low in terms of natural capital indicators, such as stocks of natural resources, land cover and species biodiversity, as well as ecosystems and their services.

Agriculture and forestry constitute a relatively small part of the Norwegian economy in terms of both employment and value creation. Due to the northern climate and difficult topography, only a small share of land is suitable for farming. Most produced value comes from livestock products, such as milk and meat, and most agricultural products are destined for the domestic market.

The number of agricultural holdings has declined over the last half century and the farmland in use has been consolidated, mainly through renting. Income from agricultural production accounts on average for only 30% of farmers’ revenues, the remaining coming from non-farming activities, including forestry. The production of grain, which requires the best growing conditions, is located in lowlands close to the main urban centres. Roughage-based livestock production is more profitable but relatively labour intensive, and located in areas with less favourable natural conditions and with less opportunity for off-farm employment (Knutsen, 2020[4]). Small farms dominate, but easy access to capital, tight labour supply, and innovation have led to some recent structural change.

The panoply of general policies that impacts the agro-food and forestry sector is wide. Based on the OECD Agro-Food Productivity-Sustainability-Resilience Policy Framework (OECD, 2020[5]), some general policy areas have been identified as particularly relevant in determining the policy environment in which innovation takes place as a driver of the sector performance in Norway (Figure 1.1)1: trade and investment, finance, entrepreneurship, taxation, labour and skills, infrastructure and ICT, and food safety and animal health. These policies, together with sectoral and specific policies on agriculture, natural resources, innovation system and value chains, create the incentives under which the main drivers on innovation, structural adjustment, and climate change interact. As a result of this interaction, the sector produces outcomes that can be used to assess its performance (Chapter 6).

The OECD Agro-food Productivity-Sustainability-Resilience (PSR) Policy Framework (OECD, 2020[5]) is the benchmark used for this review, implementing an evidence-based approach built on indicators. This publication refers to Norway’s agro-food and forestry sectors, except fish, unless otherwise stated. Following the framework, this chapter develops three important blocks of information in Figure 1.1, setting out the context of the agro-food and forestry sectors, the linkages between the main drivers of change, and the economy-wide policies that have an impact on the sector performance. The discussion focusses on: the agro-food and forestry sectoral context in terms of its share in the economy, food demand and trade (Section 1.1); some aspects of the three drivers identified in the PSR framework (Section 1.2): natural resources, structural adjustment and innovation; and the general policies defining environment in which agro-food and forestry sector operates (Section 1.3). This chapter provides the main elements of the context, drivers and economy-wide policies, but many aspects of this overview are analysed more in-depth in other chapters of the review.

Norway has one of the highest standards of living in the world, with GDP per capita of around USD 65 000 annually. This is partly due to the petroleum sector (covering both oil and natural gas), which experienced strong growth in the 1970s and 1980s, and between 2005 and 2013. Real GDP growth has recovered from the fall in global oil-prices in 2014 and remained robust until the COVID crisis in 2020. Norway has low unemployment rates and low inflation.

The broad agriculture, forestry and fishing sector represented 2.2% of total gross value added (GVA) in 2017, of which the greatest contribution is from fisheries and aquaculture (1.49% of total GVA). Forestry and logging is responsible for just 0.19% of GVA and this share is well below Canada (0.37%), Sweden (0.83%) and Finland (2.13%). Crop and animal production play a relatively minor role in the economy, at only 0.55% of GVA, compared with 0.77% in Sweden, 1.55% in France and 1.27% in the EU28.

The participation of the broad agricultural sector in the Norwegian workforce amounts to 2.1%, while the crop and animal production sector is responsible for 1.42%, equivalent to 37 000 people in 2016, similar to Iceland (1.41%), and between Sweden (1.10%) and France (2.29%). The ratio between the shares of GVA and employment (referred to hereafter as “implicit GVA per unit of labour”), is below the average of the whole economy, as is the case for most OECD countries. The contribution of the forestry sector to total employment in Norway is 0.16%, with an implicit GVA per unit of labour being above the average of the whole economy, even if not as high as for fisheries and aquaculture (Table 1.1).

The share of the crop and animal production sector in total GVA shrank between the 1970s and 2000s from 3.5% to less than 1% as the rest of the economy grew at a faster pace. Since 2000, crop and animal production have kept pace with the larger economy, growing by one-third in real terms. The decline in the agriculture share in total employment is one of the steepest among OECD and European countries, implying a structural adjustment dominated by high labour productivity growth (Chapter 6). Over the last two decades, the share of forestry in value added has remained stable, while it has more than doubled in fishing and aquaculture as salmon production has grown very rapidly.

Animal production contributed to 62% of the total value of Norwegian agricultural production in 2019. Milk with a share of 25%, shrinking from 31% in 2000, and beef (13%) are the main commodities. Forage plants and cereals, mainly used for animal feed, make up the majority of crop production and about a quarter of total output. The share of fresh vegetables grew from 3% in 2000 to 7% in 2019, following increasing domestic demand (Section 1.1.2). The contribution of oilseeds and protein crops remains low (below 0.2%). Most production is consumed domestically (agro-food exports account for only 1% of all exports). Imports fill remaining production gaps and Norway is a net importer of the agro-food products (agro-food imports represent 9% of total imports, Table 1.1).

The forest and forest product sectors employed nearly 21 500 people in 2017 in Norway (Table 1.2). The sales value of the forest-based industries was NOK 43.5 billion (USD 5.3 billion) in 2017, while the export value of round wood and forest industry products was NOK 12.9 billion (USD 1.6 billion). The major actors in the Norwegian forest-based industries are sawmills, pulp and paper producers, and a single advanced bio-refinery.

The manufacturing of food and beverages is the largest and one of the fastest growing Norwegian mainland manufacturing industries in the last decade. It generated NOK 46 billion (USD 5.6 billion) of value added and employed approximately 45 000 people in 2017. Contributions of this sector to the total GVA and employment, 1.56% and 1.69% respectively, are however relatively low (Table 1.1).

Around 2 500 enterprises operated in the food and beverages sector in Norway in 2017, which is 25% more than ten years earlier. Food and beverage companies with more than 250 employees constitute only 1% of all firms, but produce 46% of the sector’s turnover. The average turnover per food and beverage enterprise in Norway, EUR 10 million (USD 11 million), is more than twice as high as in the European Union (Table 1.3).

Given its orientation towards the domestic market, domestic demand for food shapes the potential for Norwegian agriculture. This can be affected by demographic trends, price trends of domestic and competing imported commodities, trade policies and agreements, the appearance of new products on the market as well as evolving food trends and consumer expectations (see Section 1.3 on the general policy environment, and Chapters 2 and 5). However, the potential for agricultural production is limited by Norway’s natural conditions (Section 1.2.1).

The Norwegian diet has changed over the last two decades. Following EU and OECD trends, the daily caloric intake has increased by roughly 3%, reaching an average of 3 488 kcal per person per day in 2018, a comparable level to the OECD and EU (3 471 kcal each) (OECD, 2020[11]). Cereals constitute the base of the Norwegian diet and provided 29% of the daily energy intake in 2018 (Figure 1.2). Its consumption grew up to the mid-2000s, but has slightly decreased in recent years.

Dairy products are the second most important food group for Norwegians. Its percentage in daily energy intake has remained relatively stable over time, at around 20%, thanks to an increasing demand for cheese compensating for the negative trend in liquid milk consumption per capita (Knutsen, 2020[4]). There has also been a shift towards milk products with lower fat content (Norwegian Directorate of Health, 2019[12]), strongly encouraged by the Dietary Guidelines of the Norwegian Directorate of Health (Norwegian Ministries, 2017[13]).

Meat production and consumption has gradually increased over the last two decades, only to note a minor decline in 2018. This growth was mostly driven by an increase in poultry meat, of which the annual consumption per capita reached a level comparable to beef in 2018 (around 19 kg), but still below pork (around 26 kg) (Knutsen, 2020[4]). The share of meat in daily caloric intake is comparable both to EU and OECD levels (OECD, 2020[11]). Conversely, despite the recommendations of the Norwegian Directorate of Health, less than 40% of the population eats the advised amount of fish (Norwegian Ministries, 2017[13]). This has not improved over the last two decades, however it still exceeds EU and OECD levels (OECD, 2020[11]).

The consumption of sugar decreased from 43 kg to 24 kg per capita per year between 2000 and 2018, although one in five adults continues to consume more sugar than recommended (Norwegian Directorate of Health, 2019[12]; Norwegian Ministries, 2017[13]). The consumption of vegetables increased from 59 kg to 76 kg per capita per year, and that of fruits and berries from 69 kg to 89 kg in the period 2000-17 (Statistics Norway, 2019[14]).

The Norwegian government encourages efforts towards a healthy and varied diet for the entire population. The Minister of Health and Care Services has reached out to the major actors in the food industry and plans to work with them to reduce added sugar, saturated fat and salt content in food, as well as promoting an increased consumption of fruits, berries, vegetables, whole grain food, and fish (Norwegian Ministries, 2017[13]).

Norway is an open economy for all products with the exception of agriculture (Section 1.3.2); trade represents 35% of GDP and there was a positive merchandise trade balance of NOK 285 billion (USD 35 billion) in 2018 (World Trade Organization, 2020[15]). Fuel and mining products represent 62.4% of its exports. However, with respect to agro-food products (excluding fish), Norway is a net importer. Since 2000, imports of agriculture and food products have been increasing more rapidly than exports (with average annual growth of 8% and 5%, respectively), amounting to NOK 63.5 billion (USD 7.8 billion) and NOK 9.8 billion (USD 1.2 billion) in 2018 (Figure 1.3, Panel A). Agro-food products represent 1.0% of total Norwegian exports (10.7% if fish products are included) and 9.0% of imports (Table 1.1 and Table 1.4). Both Norwegian imports and exports of agro-food products are dominated by processed goods, accounting for 65% and 89% of total imports and exports respectively. Norwegian households’ final consumption absorbs 64% of agriculture and food imports, of which two-thirds are processed goods. Forty-nine per cent of Norwegian agro-food exports are intended for direct consumption and almost all are processed (Figure 1.3, Panel B.).

The Norwegian agricultural sector is integrated into longer and global value chains. Twenty-four per cent of the value of agricultural production comes from the service sector (compared with 21% in Sweden), and 20% are inputs that originate from abroad (compared with 30% in Sweden, see Figure 1.4). The final destination of agricultural value added is mostly other sectors that transform it in combination with other sources of value. Direct domestic consumption concerns only 9% of the value, compared to 30% in Japan, and most of the value added that goes into exports is directly consumed rather than transformed abroad, implying there is a large food processing industry in Norway.

Norway is a net importer of agro-food products. However, including fish and fish products, the cumulated trade balance of agriculture and food products is positive. In 2018, fish was the only food group with a trade surplus, with exports reaching NOK 95.2 billion (USD 11.7 billion) compared to NOK 3.3 billion (USD 0.4 billion) of imports, and a positive balance that almost doubles the negative balance of the rest of agro-food products. Fish, and in particular Atlantic salmon, is by far the most exported Norwegian agro-food product (90% of all agro-food exports).

Norway’s imports of animal or vegetable fats and oils, residues from food industries (including animal feed preparations), beverages and fruits each account for around 10% of the total agricultural and food import value. Exports of fruits and vegetables are almost zero, contributing to Norway’s negative trade balance with NOK 10.6 billion (USD 1.3 billion) of imports. Norway is a net importer of dairy, cereals and meat, with these product groups representing only 3% of the value of agro-food trade (including fish; Table 1.4).

The European Union is Norway’s main trading partner. In 2018, it was the source of 66% of Norwegian agro-food imports, and the export destination for 65% of Norwegian agro-food products. Within the European Union, the closest neighbouring countries – Sweden and Denmark – are key partners, together accounting for one-third of Norwegian agro-food exports. The main agro-food exports to these countries are: products resulting from the extraction of soya-bean oil to Sweden; and raw mink fur-skins and crude soya-bean oil to Denmark. However, Norway’s imports from the European Union are more evenly distributed across member countries, with Sweden (e.g. tobacco products and its substitutes), Denmark (e.g. animal feed, refined sugar), the Netherlands (e.g. live plants, animal feed), Germany (e.g. bakers wares, wheat), France (e.g. wine, wheat gluten), Spain (e.g. mandarins and oranges, wine), Italy (e.g. wine, apples) and the United Kingdom (e.g. animal feed, wheat gluten) being the origin of between 4% and 9% each. Outside the European Union, Brazil (7%, with food preparations and soya beans being the main agro-food imports) and the Russian Federation (4%, with crude canola, rape, colza or mustard oil) are the main origins of Norwegian agriculture and food imports, while the United States is the first destination for exports (10%, with cheese products and residues from starch manufacture) (Figure 1.5).

There is free trade of both timber and other raw materials from the forests, as well as products and services form the forest industries. Norway is a net exporter of wood pulp and other fibrous cellulosic material that are then processed abroad. It imports paper, wood and wood articles, and furniture. After the collapse of the Norwegian pulp and paper industry, domestic demand decreased and more wood is now exported.

Trade in forest products is highly developed with large shares of all products being exported. Norway’s trade in forest and wood primary and secondary products is mostly bilateral with Sweden, which is able to absorb the excess Norwegian round wood production (Figure 1.6). The value chain is integrated across borders, with most exports of round wood products subject to additional processing in the destination country. Pulp and paper make up 60% of exports (Norwegian Ministry of Agriculture and Food, 2020[17]).

The performance of the agro-food and forestry sector is driven by the dynamic interaction between three sets of constraints and dynamic forces. Following the OECD Productivity-Sustainability-Resilience Policy Framework (OECD, 2020[5]) this section discusses three drivers: natural resources and climate change (also analysed in Chapters 3 and 6); structural adjustment (also discussed in Chapters 3, 5 and 6); and innovation (also discussed in Chapter 4). This section provides a general introduction into the main structural and contextual aspects, while the specific chapters focus on a more in-depth analysis.

Norway is a North European country located on the northern and western parts of the Scandinavian peninsula. It is one of the world’s northernmost countries, with the mainland reaching beyond the Arctic Circle. Its long and narrow territory is surrounded by waters: the Barents Sea to the north, the North Atlantic Ocean to the west, the North Sea to the southwest, and the Skagerrak strait to the south. To the east, Norway shares land borders with Sweden, Finland, and the Russian Federation.

A mountain range divides the country into an oceanic western and a continental eastern part (Figure 1.7, Panel A). The climate varies from temperate along the south coast to subarctic in the mountains and in the north. Most of the production is located in the eastern and central lowlands, although the warm Gulf Stream makes agriculture also possible further north. Dairying is localised along the coast for a considerable distance to the north.

Due to the climate, certain varieties of plants cannot be grown in Norway, e.g. sugar crops. What is more, Norwegian grain yields per hectare are among the lowest in Europe (Knutsen, 2020[4]). Norwegian yields for barley (3 861 kg/ha) and wheat (4 010 kg/ha) are respectively 17% and 25% lower than the European Union average in 2016-18. Over a longer time span such as the last half-century, there has been a positive trend in yields for grains (FAO, 2020[20]). There are, however, significant annual variations affecting farms growing cereals in monoculture in particular.

The total area of Norway is 324 000 km2 and is largely dominated by mountains, which stretch along the entire country from the northeast to the southwest. Forest is the natural vegetation of the lowest elevation levels, occupying 37% of the country area. Above the tree line, dwarf trees turn into tundra formed among others by grasslands. The highest levels of mountains consist of bare rocks, as well as permanent snow and glaciers (respectively 7% and 1% of the total area). Mountain valleys are rich in wetlands, including peatlands, and ribbon lakes. The area suitable for farming is scarce, with agricultural land accounting for only 3% of the country’s surface, 88% of which is in use (Figure 1.7, Panel A and Figure 1.8, Panel A). This share is one of the smallest in the world and well below the OECD average of 34% (Table 1.1).

Over the last 60 years, total agricultural area in use has been stable, oscillating between 0.90 million hectares (its lowest level in 1976) and 1.05 million hectares (its highest level in 2001) and amounted to 0.99 million hectares in 2018 (Statistics Norway, 2020[10]). The decline over the last two decades can be mainly attributed to the expansion of transport infrastructure and the housing sector, as well as to the abandonment of land that is too difficult to cultivate (Statistics Norway, 2018[18]).

The Norwegian landform and climate conditions combined with national support policies determine allocation of agricultural activities across the country. The agricultural areas with the best growing conditions are dedicated to grain cultivation, while those with less favourable ones are used for animal husbandry. In 2018, roughly one-third of the agricultural area in use was used to grow crops (327 000 ha, including 500 ha of fallow land) and this share has declined by 5 percentage points over the last 20 years (Statistics Norway, 2020[21]). The remaining agricultural area in use was attributed to pastures, meadows and other permanent grasslands typically used for grazing-pastures or harvesting of grass (Figure 1.8, Panel B).

Forest and other wooded land cover approximately 43% of Norway’s land area. About 58% of this is considered productive forest, capable of producing 1 m3 or more of wood per acre each year. The most important commercial wood species are Norway spruce (47%), Scots pine (33%) and birch (18%) (Norwegian Ministry of Agriculture and Food, 2020[17]).

Based on their common geographic characteristics, five major regions can be distinguished in Norway (Figure 1.7, Panel B and Table 1.5). The first, Eastern Lowlands, is located around Oslo in the southeast of the country and benefits from favourable soil and weather conditions allowing for cereal, potatoes and field vegetable production. It contributes to 68% of the agricultural area used for growing cereals in the country and roughly one-third of the national production value of poultry and pork.

Jæren is the second and smallest region in terms of agricultural area. It is located at the southwestern edge of the Scandinavian peninsula and enjoys favourable natural conditions. Agricultural activity focuses mainly on intensive livestock production. It covers 7% of the country’s fodder area and concentrates 10% of Norwegian cows, mainly dairy, and achieves the highest milk deliveries per dairy cow (7 065 litres). The area dedicated to cereals is limited, but the yields are the highest in the country (4.5 t/ha). In this region, greenhouse vegetables are also grown.

The Central Lowlands are located around Trondheim and have favourable climatic conditions for growing grain. Contrary to the Eastern Lowlands and Jæren, which specialise in crops and livestock respectively, farming in this region involves both crops and animal husbandry. Production, however, remains relatively modest compared to the other two regions.

A fourth zone, Southern Valleys and Mountains, combines valleys in eastern and central Norway with western and southern Norway, excluding Jæren. This region specialises in extensive livestock production. It concentrates around 60% of the fodder area and Norwegian cows and contributes to a similar share of milk and beef production. Sheep farming accounts for nearly 70% of the national production.

Finally, the North region spreads beyond the Arctic Circle and its natural conditions are very harsh for agriculture. The agricultural production generated in this region is the lowest among the five regions (5% of the country’s total). Most of agricultural production value created in the North comes from the dairy and beef sectors. The area used for cereal growing amounts to only 200 ha and produces 0.1% of Norwegian cereal production.

According to the Norwegian White Paper on Climate Adaptation (Norwegian Ministry of Climate and Environment, 2013[23]), the government wants to take a precautionary approach with respect to climate change adaptation in agricultural production, and focuses the risk assessment on the most extreme climate change projection. A report for the Norwegian Environment Agency (I. Hanssen-Bauer, E.J. Førland, I. Haddeland, H. Hisdal, S. Mayer, A. Nesje, J.E.Ø. Nilsen and A.B. Sandø, 2017[24]) estimates significant impacts of the IPCC scenario RCP8.5 by the end of the century. The median value of the annual temperature and precipitation will increase by about 4.5ºC (interval: 3.3ºC to 6.4ºC) and 18% (interval: 7% to 23%) respectively. Extreme events will be more intense and frequent, in particular heavy rainfall but also droughts. Floods induced by rainfall will increase in magnitude and occur more frequently, while reduced snowfall means that snowmelt floods will decrease in magnitude and frequency. In lowland areas, the winter snow cover will often be negligible or non-existent, while snow volumes may increase in some areas in the high mountains. The number of glaciers will be reduced and mean sea level will increase by 15-55 cm depending on the location along the Norwegian coast.

The effect on yields per hectare varies for different locations and crops, but a positive yield response to temperature increases is expected in most parts of Norway, with the exception of Eastern Norway (Sengar, Sengar and Eds., 2014[25]; Torvanger, Twena and Romstad, 2014[26]). Climate change effects are likely to be stronger moving from the south to the north of the country. Increasing exposure to diseases and the introduction of new animal diseases may also be expected. Examples of diseases that may spread north include bluetongue, several tick-borne diseases (e.g. Borreliosis, Babesiosis and Erlichiosis), West Nile fever, Leishmaniasis, and African horse sickness. Likewise, climate change will provide more favourable conditions for weeds, pests, and crop diseases (e.g. barley yellow dwarf virus, rust fungi and powdery mildew) (Åby et al., 2014[27]). Migration of some animal species further north, facilitated by climate change, might also be a challenge for farmers, with the most recent example being wild boars.

This implies that even in the most extreme scenario, future climatic changes are expected to be on average positive for agriculture in Norway. Still, the consequences depend on the interaction between different weather and biological elements, as well as political, economic and social conditions (Kvalvik et al., 2011[28]). In northern Norway in particular, these changes will imply increasing temperatures and precipitation as well as increased frequency of certain types of extreme weather events. Despite challenges such as unstable winters, increased autumn precipitation and possibly more weeds and diseases, a prolongation of the current short growth season (April–September) together with higher growth temperatures can give new opportunities for agriculture in the north. The impacts are expected to differ both within and between municipalities and will require tailored adaptive strategies that may not pose major difficulty to implement (Uleberg et al., 2014[29]). Forestry is likely to experience less favourable conditions due to climate change, particularly related to pests, pathogens and fire.

Increases in Norwegian agricultural production observed over the last decade are combined with decreases in the use of some inputs: the area of farming land, direct on-farm energy consumption and phosphorus fertiliser use (Figure 1.9). Chapter 6 analyses how this has translated into limited progress in terms of nutrients balances, as well as into still missing reductions in greenhouse gas (GHG) and ammonia emissions, and improvements in biodiversity.

The agricultural land used for farming was reduced on average by 0.5% per year between 2006 and 2016.2 Unlike the OECD average, the decrease affected only crop land (-0.7% per annum), while the area of permanent pasture was marginally expanded (0.3% per annum, Figure 1.9, Panel A). Agricultural area under organic certification expanded quickly from 1995 until 2012, reaching a maximum of 50 000 hectares. Since then it slowly declined to 4.7% of the total farm land in use in 2018, below the average for the European Union (EU27, 8%) (Eurostat, 2020[30]).

Internal fresh water resources available in Norway amount to 382 billion m3, being in terms of volume per capita one of the highest among OECD countries, next to Iceland and Canada. Precipitation in Norway (1 412 mm) is high, 50% above the OECD average. The share of irrigation in agricultural water abstraction is relatively low: only 11% of the cultivated area is equipped for irrigation, of which 21% is actually irrigated, mainly in vegetable growing areas. Agriculture was responsible for 28% of total water withdrawal in 2003-07 (FAO, 2020[31]; Statistics Norway, 2020[21]).

The Norwegian agricultural sector consumed 1.5% of the country’s total final energy consumption in 2017. The consumption per hectare of agricultural land was reduced on average by 1.3% a year between 2004-06 and 2014-16, a comparable change to the OECD median (Figure 1.9, Panel B). Agricultural energy mix consists mostly of electricity (52%) and oil products (43%), in particular diesel used for agricultural machinery (IEA, 2020[32]). Approximately one-quarter of the electricity is consumed by greenhouses, mostly for growing lighting and boilers (Statistics Norway, 2020[21]).

Norwegian agricultural farming supplies nutrients essential to plant growth through manure application and fertiliser use. Thirty-four per cent of all nitrogen (N) and 58% of all phosphorus (P), measured by nutrient content, come from manure (Snellingen Bye et al., 2019[35]). Agriculture phosphorous fertiliser use fell by 2.7% between 2004-06 and 2014-16, slightly beyond the OECD median of 2.3%, while the use of nitrogen fertiliser remained almost constant (Figure 1.9, Panel B). The sales of fertilisers increased very rapidly in the 1960s and 1970s. Since then, sales of nitrogen have remained stable, while phosphorous and potassium sales fell significantly between 1980 and 2009 but have since remained stable (Norwegian Food Safety Authority, 2020[36]).

Use of pesticides in Norway, estimated as the amount of active substance applied on arable crops in agriculture, varies from year to year in response to weather and pest conditions and changes in plants treatment. Between 2001 and 2014, it fluctuated between 354 tonnes (its highest level in 2003) and 282 tonnes (its lowest level in 2008), with the shares of herbicides and fungicides being roughly two-thirds and one-fourth of the total respectively (Statistics Norway, 2020[21]). Sales of pesticides decreased significantly from 1967 to 1997, due mainly to the switch from high-dose to low-dose preparations for weeds in grain cultivation, but have stabilised in the 2000s (Chapter 3).

Historically, the agricultural sector in Norway has been characterised by a large number of small farms. This picture has largely evolved over the last 60 years. In 1959, there were approximately 210 000 agricultural properties,3 defined based on the ownership, and their farm land was operated by 198 000 farm holdings with 5.2 hectares of agricultural area in use on average. Since then, the total number of farm holdings has declined to roughly 40 000 in 2018, while the number of agricultural properties has remained relatively stable (Figure 1.10, Panel A), indicating a growing number of agriculture property owners who are not actively farming their land but renting it out to others.

Farms have consolidated, especially in the early 2000s. There have been legal changes that have facilitated a shift from owner occupation to renting (Chapter 3), and the share of agricultural area in use that is leased increased from 15% in 1969 to 45% in 2017 (Figure 1.10, Panel C). The proportion of wholly owned farm holdings was reduced from 87% in 1959 to 35% in 2010 and 30% in 2017. At the same time, the shares of partially rented farms increased from 6% to almost 60% in 2010 (Forbord, Bjørkhaug and Burton, 2014[37]).

Even if only 3% of all land is suitable for agricultural use, agricultural properties are spread over close to 77% of the Norwegian territory (approximately 25 million ha in 2015), (Statistics Norway, 2020[21]). Agricultural land and productive forest occupy just about one-third of these agricultural properties, while two-thirds are covered by non-productive areas such as mountains, swamps and water (Figure 1.10, Panel B). However, an abundance of unimproved pasture in mountains and hillsides offers Norway a relatively unique opportunity for extensive ruminant livestock.

Most of the 182 300 agricultural properties in Norway in 2018 combined agricultural and forest activities: 89% of all agricultural properties contain at least 0.5 ha of agricultural area and 71% of them at least 2.5 ha of productive forest area (Statistics Norway, 2020[21]). Seven per cent of the Norwegian population, i.e. 369 500 people, lived on agricultural properties. However, this is 148 000 less than in 2000 (Statistics Norway, 2020[21]; Norwegian Ministry of Agriculture and Food, 2020[17]).

Over the last two decades, the structure of farm holdings has changed both in terms of size and specialisation. The average utilised agriculture area per farm holding has increased from 15.2 ha in 2000 to 24.9 ha in 2018 (Statistics Norway, 2020[21]), lower than in other Nordic countries – Finland 44.9 ha, Sweden 47.9 ha and Denmark 76.6 ha – or France with 60.9 ha in 2016 (Eurostat, 2020[38]; Statistics Norway, 2020[21]). The most common size for a Norwegian farm is between 10 ha and 20 ha, which is the case for 26% of all farm holdings. Consolidation has led to higher participation of larger farms of 50 ha and more, with the number of such farms increasing from less than 2 000 in 2000 to almost 5 000 in 2018, representing 12% of all farm holdings, and to a higher average number of animals per farm, with figures for beef cows, hens and pigs more than doubling since 2000 (Statistics Norway, 2020[21]). This long-term structural change has been accompanied by reductions in agricultural employment and a rapid productivity growth over the last two decades (Chapter 6).

In Norway, there is a large diversity of agricultural holdings in terms of size and specialisation, from hobby-like small producers to holdings with a turnover of more than NOK 1 million, leading to a considerable variation in entrepreneurial income from agriculture. In 2018, only 29% of farmers’ annual gross income came from agricultural entrepreneurial activities. The rest consisted mostly of wages and salaries (42% of total), and to a lesser extent of incomes from other entrepreneurial activities, including forestry (12%) and from pensions, capital income, etc. (17%; Figure 1.11, Panel A). In the same year, income from farming accounted for more than 90% of the revenue for only 12% of agricultural holdings, while it contributed to less than half of gross income for nearly three-quarters of holdings. Furthermore, the share of farm holdings without any positive income from agricultural activities increased over time, from 24% in 2002 to 32% in 2018 (Figure 1.11, Panel B).

The share of farm households deriving 50% or more of their income from agriculture is highest for the largest farms (60% of holdings with 50 ha or more of the agricultural area in use), for holdings specialised in mixed cattle and dairying cattle (respectively 75% and 72% of farms of these specialisations), and for those in more remote areas, such as the northern part of the country with reduced access to off-farm employment (nearly 40% in Nordland, Troms and Finnmark). Conversely, relatively small holdings, with between 0.5 ha and 10 ha of agricultural area in use, and holdings specialised in cereals and oil seeds, and sheep, seldom reach 50% of income from agriculture, with respectively 7%, 6% and 12% (Statistics Norway, 2020[21]).

The debt of farm holdings in 2018 corresponded on average to NOK 2.1 million (USD 0.3 million) per farmer, ranging from NOK 1.2 million (USD 0.1 million) for farmers specialised in sheep to just over NOK 5.0 million (USD 0.6 million) on average for those with mixed livestock and specialised in pigs or poultry. About 20% of farm holders had less than NOK 0.1 million (USD 0.01 million) in debt, while 16% had more than NOK 4 million (USD 0.5 million) in debt (Statistics Norway, 2020[21]).

A third main driver of the achievements in terms of productivity-sustainability-resilience outcomes is the performance of the agricultural innovation system. Norway has a sophisticated agricultural innovation system highly supported by the public sector. Its strengths and weaknesses, and related policy issues are analysed in Chapter 4. This section focuses on some indicators of farm level innovation following recent work by the OECD Network for Farm Level Analysis (Sauer and Moreddu, 2020[39]) that used a sample of farms to group crop, dairy and cattle farms in technology classes to analyse their productivity and technical change.

The technology classes4 are grouped accounting for similarities across farms with respect to characteristics such as farm structure, location, sustainability of production practices, innovation and technology adoption. The analysis for Norway finds three classes of crop farms, three classes of dairy farms and two classes of cattle and studies the relationship between performance and selected indicators (Sauer and Moreddu, 2020[39]) and (Table 1.6).

Classes 1 (C1) are the most productive farms, with very large differences with respect to the least productive classes, which are 53 percentage points less productive for dairy farms, 39 percentage points for crop farms, and 12 percentage points for cattle farms. These differences in farm performance are bigger than in France, but smaller than in Sweden where the least productive class of crop farms has a productivity level that is 76 percentage points lower than the best performing. Low productivity classes of Norwegian crop and dairy farms are slower in introducing technical changes, which implies an increasing size in the productivity gap among farms. This is not the case for cattle farms and in many other countries. For instance, the less productive dairy farms in Denmark, France and Sweden experience higher levels of technical change contributing to the decrease in the productivity gap.

Sauer and Moreddu (2020[39]) also analyse farm level indices of innovation and technology built on information and proxies available at farm level.5 An innovation index considers investment in new technologies and engagement in new activities such as agritourism or biofuel production, while a technology index is based on indicators of capital, labour and material intensity per hectare, per cow or per worker, depending on the farm type. The evidence from the countries covered in this study shows that innovative farms tend to be more productive. However, in Norway, this relationship is weak for crop farming and almost flat for other farm types; according to these statistical indicators, there do not seem to be strong links between productivity and technical change performance on the one hand, and innovation and technological indices on the other (Figure 1.12).

A recent study (Alem et al., 2019[40]) confirms that there is a scope to improve farm efficiency beyond the current observed structural change. Using farm level data for the period 1991-2014 and a flexible technology approach, OECD estimates farming costs in different types of farms (crops, dairy and mixed) across regions. This study finds that all three types of farms experience significant economies of scale; that is, there are opportunities to enhance farm productivity by increasing the size of farms in Norway, which are currently constrained by several land regulations (Chapter 3). It also finds the possibility for economies of scope; that is, there are opportunities to reduce total production costs by up to 28% by moving towards more diversified mixed farms, e.g. producing both crops and dairy outputs. However, dairy quotas and payments linked to specific productions are likely to be constraining factors (Chapter 2). There is also evidence that dairy farms have improved technology, shifting their production frontier in all Norwegian regions, while keeping a similar average level of technology efficiency across all regions (Alem et al., 2019[41]). This study found that farm size and the experience of farm managers have a positive impact on technical efficiency across all regions, while government support did not help in this respect.

Sauer and Moreddu (2020[39]) define a sustainability index based on low intensity of chemicals, fuel use and stock density, and the use of sustainable practices. They find a systematic trade-off between productivity and these indices of local sustainability across covered countries and farm types. In the case of Norway, crop and dairy farm classes exhibit a negative correlation between productivity and sustainability, implying that most productive farm classes are less sustainable. However, cattle farms present a relatively strong positive relationship between productivity and sustainability; that is, most productive cattle farms are more sustainable.

The social and macroeconomic environment is a key determinant of the performance of the agro-food and forestry sector. Together with the broad macroeconomic background, many government policies that are not specific to the sector also have a direct or an indirect impact, i.e. by either promoting or impeding the potential for innovation, including policies in the areas of trade and investment, finance, entrepreneurship, taxation, labour and skills, infrastructure and ICT, and food safety and animal health.

Stable and sound macroeconomic policies accompanied by good governance systems and high-quality institutions play an important role in creating a favourable environment for investment. High economic growth and low and stable inflation combined with government being accountable, transparent and predictable can lead to higher investor confidence and encourage public and private investment in the economy leading to potential benefits for investors and the host country. Farms and agri-food businesses profit from such favourable conditions to undertake research and development, introduce new products, and to adopt new production methods or introduce organisational changes (OECD, 2020[5]).

Norway is a highly developed democratic country with a stable economy. Up to 2020 and the COVID crisis, economic growth remained robust driving declines in unemployment and keeping it at one of the lowest levels among the OECD countries, while inflation oscillated around the target of 2%. Monetary and fiscal policy stances were appropriately adapted to economic conditions and the government budget aimed for a neutral stance (OECD, 2019[42]).

On the World Economic Forum’s (WEF) aggregate Global Competitiveness Index (GCI), Norway is consistently ranked 11th amongst close to 140 countries and has been a leader on the macroeconomic environment pillar. In the 2017/18 edition, Norway scored very high in most areas (Figure 1.13, Panel A), demonstrating that the country has strong institutions, high-performing education and health systems, and a well-developed financial market (ranking among the top 10 in the world). Given its high levels of information and communication technology (ICT) use and dynamic business sector, Norway is in good position to benefit from the new opportunities related to the digital transformation (Section 1.3.8).

The Norwegian economy profits from the high quality of its public institutions (scoring highly in the WEF GCI 2017/18; Figure 1.13, Panel B). It scored above the OECD average in all sub-categories of the WEF public institutions index. Norway enjoys the reputation of a country secure for businesses, reflecting a very low level of organised crimes and a high reliability of police services. It is highly valued for its ethics, with few illegal diversions of public funds and a juridical system that is independent from influences of government, individuals or companies. Property rights, including financial assets and intellectual property rights, are well protected. Government efficiency, in particular the burden of government regulations, was the weakest component of the quality of public institutions index, but Norway nevertheless remained above the OECD average.

The recent outbreak of COVID-19 and the associated shutdown have had an impact on the economy. According to OECD projections, the mainland GDP is expected to fall by between 7% and 8.7% in 2020 (“single-hit” and “double-hit” scenarios). The registered unemployment rate soared after the introduction of confinement measures as did applications for benefits by temporarily laid off employees. Although the lifting of restrictions began on 20 April, both GDP growth and unemployment rates are not likely to return to the pre-crisis levels by the end of 2021. Norway’s monetary and fiscal policy response to the crisis has been prompt and the country’s economy model, based on a large public sector and a comprehensive welfare system, contributed to a substantial stabilisation. However, a rapid deterioration of the fiscal balance in 2020 will imply a substantial drawdown from the wealth fund. A partial recovery in 2021 is expected to be driven by a rebound in tax revenues and the termination of temporary support measures. At the same time, weak demand will continue to depress the consumer price inflation (OECD, 2020[43]).

According to the OECD Economic Survey (2019[42]), the Norwegian economy is facing several risks. The global slowdown in trade and investment combined with weakening business and consumer confidence in the euro area is a risk to Norwegian trade capacity. At the domestic level, the increasing household debt to disposable income ratio signals a potential cutback in consumption, and the ageing population will result in declining labour participation as well as in rising health care and pension costs. The high rates of absence due to sickness among workers and the large spectrum of disability benefits have not been fully addressed. Efforts are needed to better integrate immigrants in a labour market with limited demand for low-skilled workers. The recent sharp fall in global oil prices and demand has caused an additional economic shock, confirming the need to move further towards a green, more diversified economy (OECD, 2020[43]) (Chapter 3).

Trade and investment openness is beneficial to innovation as it enlarges markets for innovators, strengthens competition, facilitates access to new ideas, technologies and processes, as well as promotes international collaboration. The entire food supply chain (Chapter 5), from input suppliers to food service and retail firms, can profit from being integrated into global systems as knowledge transfer accompanied by exposure to international competition can contribute to the development of market mechanisms that favour productivity growth and environmentally sustainable production (OECD, 2020[5]).

Norway is highly dependent on trade to maintain its high standard of living (Section 1.1.3). As a small country, it relies on trade agreements to secure access of Norwegian businesses to international markets and to facilitate trade with its partners. Over the last decade, Norway’s openness to trade, defined as the value of merchandise trade (exports plus imports) relative to the gross domestic product (GDP), has remained relatively stable (48% in 2018) and is between the OECD and Nordic countries’ averages (43% and 56% respectively). It was, however, below the averages for the EU27 (70%) and countries with comparable GDP per capita (87%6).

Norway, together with Iceland, Liechtenstein and Switzerland, negotiates free trade agreements through the European Free Trade Association (EFTA). Since 1994, it has been a member of the European Economic Area (EEA) which has led to important liberalisation measures and to the country’s integration into Europe. The EU Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) are not part of the EEA Agreement and therefore the free movement of goods within this framework does not apply to all products (Chapter 2).

The barriers to trade and investment in Norway are comparable to other OECD countries (Figure 1.14). According to the 2018 edition of the “OECD Product Market Regulation (PMR) Indicators”, regulatory restrictions to trade and investment in Norway were minor (aggregated score of 0.63 on the scale from 0 to 6). They were slightly less restrictive than in the OECD (average of 0.67), but more than in Nordic countries (0.54) or the EU27 (0.48). Norway’s scores for all indicators ‒ tariffs, differential treatment of foreign suppliers, barriers to foreign direct investment (FDI) and to trade facilitation ‒ were closely aligned with the OECD averages. However, compared to other Nordic countries, Norway has scope for improvement in terms of equal treatment of foreign suppliers compared to domestic ones.

According to the OECD Trade Facilitation Indicators evaluating different types of border procedures, Norway scores high, above the OECD average, for most indicators (OECD, 2018[45]). The highest scores concern governance and impartiality related to customs structures and functions, accountability and ethics policy (2.0, being the maximal score), information availability (1.95) and co-operation of border agency with neighbouring and third countries (1.91). Compared to 2015, Norway made significant progress in terms of reducing formalities; however, it has slightly higher barriers related to providing advance rulings on customs matters, which is below the averages for the OECD and Nordic countries (OECD, 2017[46]).

Norway, in general, does not impose severe restrictions on Foreign Direct Investment (FDI) that could impede the creation of stable and long-lasting links with other economies. The OECD FDI Restrictiveness Index ‒ which evaluates rules related to foreign equity, screening or approval mechanisms, and key foreign personnel and operational decisions ‒ indicates that the restrictiveness of the Norwegian economy as a whole is relatively low (0.085 on the 0 to 1 scale), although above the OECD total level (0.065). For the economy as a whole, in 2018 the inflow of FDI (0.05% of GDP) was one of the lowest of OECD countries, while the outflows were much higher (2.6% of GDP). However, the agriculture, food and forestry sector attracts only a small share of the total FDI (OECD, 2020[47]).

Efficient financial markets that are accessible for all sectors of the economy and across the country are an enabler of balanced economic development. The agro-food sector can profit from policies that facilitate the functioning of financial markets through easier access to credit, which allows productivity and sustainability investment to be improved, in addition to boosting the innovation capacity of firms with high growth potential (OECD, 2020[5]).

According to the OECD Economic Surveys (2019[42]), Norway’s financial system is in good shape overall and should be able to resist tensions and shocks should these occur. This is confirmed by the results of the WEF Global Competitiveness Index (Figure 1.15). Norway’s score on the financial market development index (5.2) remains above the OECD (4.6) and Nordic countries (5.0) averages; however, it has decreased by 0.4 points over the last decade. The analysis of the index components indicates the efficiency and the trustworthiness of the financial sector. Only the legal rights index, measuring the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending, has been ranked below the OECD average (3.5 vs. 4.1) in recent years.

In general, Norwegian farmers have no problem accessing credit (Chapter 2). Loans granted to the agriculture and forestry sectors in 2019 amounted to NOK 744 billion (USD 85 billion) and NOK 58 billion (USD 7 billion), corresponding to 3.6% and 0.3% of the total loans value to all sectors. These loans were mostly financed by banks (83% and 70%, respectively). Finance companies were responsible for 6% of the loans value for agriculture and 23% for forestry, while state lending institutions (7% and 4%) and mortgage companies (2% and 5%) played a much smaller role (Statistics Norway, 2020[21]).

The overall regulatory environment sets the framework within which firms operate and make investment decisions. Competitive conditions in domestic markets, created largely due to low entry and exit barriers, can promote structural adjustment and encourage innovation and productivity growth all along the agro-food value chain. Regulations may also directly enable or impede knowledge and technology transfer, including sustainability-enhancing ones (OECD, 2020[5]).

Acknowledging the need for structural adjustments resulting from an ageing society and climate and environmental challenges, in 2016 the Norwegian Government launched a plan that sought to boost entrepreneurship. It focused on three areas: enabling better access to capital at an early stage; increasing access to relevant skills and competences; and making Norway more attractive to national and foreign entrepreneurs and investors (Norwegian Ministry of Trade, 2016[49]).

According to the Global Entrepreneurship Monitor (GEM) (2020[50]), Norway enjoys a favourable environment for entrepreneurship that improved between 2015 and 2019. On most of the entrepreneurial framework conditions identified by the GEM,7 Norway’s scores exceeded averages for Europe and the North American region and for high income economies. Although on average Norwegians believe more than do their European and North American peers that successful entrepreneurs enjoy a high status (93% vs. 67%) and that it is a good career choice (67% vs. 60%), they have fewer nascent entrepreneurs and new business owners (8% vs. 10%). Entrepreneurial attitudes in Norway show a strong belief in the opportunities available and a low fear of failure, but there is a lower belief in their capabilities to start a business.

With regard to the business environment for entrepreneurship, Norway ranked 9th out of 190 countries in the World Bank’s Doing Business 2020 project8 with an overall score that was above the OECD aggregate. While Norway led in “Enforcing Contracts” and “Resolving Insolvency”, confirming its secure environment to conduct business, there is scope for further improvement in the strengthening of its credit reporting systems and the effectiveness of its collateral and bankruptcy laws in facilitating lending that would allow for effective access to finance (World Bank, 2020[51]).

Generally, regulatory barriers to competition in Norway are among the lowest in the OECD (Figure 1.16, Panel A).The administrative burden imposed on new firms is low, regulations in the services sectors are competition-friendly, and barriers that could limit the access to domestic markets of foreign firms and foreign investors are few. Regulatory procedures are simple and there are rules in place to ensure transparency in the interaction between interest groups and policy makers. However, the presence of state-owned enterprises is stronger than in most other OECD countries. There is also scope for a better alignment of regulations in network sectors with the international best practices (Figure 1.16, Panel B) (OECD, 2017[52]).

Competition laws in Norway aim to achieve well-functioning markets for the benefit of consumers and businesses in various national markets. As a consequence of the agreement with the European Economic Area (EEA), the Norwegian Competition Act generally mirrors EU rules related to unlawful co-operation, abuse of a dominant position, and control of mergers and acquisitions. The agriculture and fisheries sectors are exempted from competition law through a specific regulation (Chapter 5). This exemption allows farmers’ co-operatives to reduce produced quantities or to fix market prices without breaching the Competition Act. The only requirement is that such actions are in accordance with other laws and regulations and/or agreement between the government and farmers’ organisations (Norwegian Ministry of Agriculture and Food, 2020[17]).

Tax policy affects innovation, productivity sustainability and resilience in many ways: it affects the decision of firms and households to save or invest in physical and human capital, and thus the adoption of innovation; it raises government revenues, which can then finance public services; it can provide direct incentives to investments in private R&D. Tax policy influences the conduct, structure and behaviour of farmers, input suppliers and food companies, in particular in response to taxes on income, property and land and capital transfer, and to differential tax rates on specific activities (polluting or environmental friendly), resources, or input use, which may affect sustainability (OECD, 2020[5]).

The tax system in Norway is composed of direct taxes, which includes personal income tax, corporate income tax and taxation of assets, and indirect taxes such as value added tax, excise duties, custom duties, and fees and sectoral taxes. In 2019, income tax for individuals was charged at a flat rate of 22% on “ordinary income”, but for “personal income” a progressive tax was applied. Income earned on shares and self-employment was taxed, but special concessions were applied to farmers (see Chapter 2 and OECD (2020[53]) for all tax incentives applied to farming). In order to create incentives for employment in remote areas, employer rates for social security contributions differed depending on location, with zero rates in the northern region compared with 14.1% in the Oslo area. This benefitted agricultural employment in many rural areas.

Norway’s tax burden is among the highest in OECD countries; in 2015, it was around 45% of GDP (excluding petroleum-related revenues). The OECD has recommended lowering the tax burden and shifting the tax mix from direct to indirect sources as this would encourage business enterprise and productivity growth (OECD, 2017[54]). However, R&D tax incentives are among the most effective in increasing employment, turnover, and value added for newly established firms (see Chapter 4 and OECD (2019[55])).

Labour market, education and skills policies influence employment composition and labour mobility. They can facilitate (or impede) labour adaptation to new circumstances and ensure (or hamper) a better match of labour supply with the demand. In agriculture, labour policy can also promote structural adjustment, including farm consolidation. All along the food chain, education and skills policies can facilitate the acceptance of innovation, promote their development and adoption, including productivity, resilience and sustainability enhancing practices and technologies (OECD, 2020[5]).

Norway’s population is currently close to 5.3 million and, according to the projections of the Statistics Norway, will exceed 6 million by 2040. Norwegians live longer (life expectancy at birth increased from 78.8 in 2000 to 82.5 in 2016, exceeding the OECD average of 80.1) (OECD, 2019[42]) and spend more years in good health than before (Statistics Norway, 2019[14]).

The country’s population is getting older, with the share of seniors growing rapidly since 2007. In 2018, people aged 65 and over accounted for 17.1% of the Norwegian population, 2 percentage points more than a decade earlier, which is comparable to the OECD average of 17.2%. The share of the working age population (15-64 years old) is expected to decline at a slower pace than in many other European countries, mainly due to the relatively higher fertility rate (1.6 compared to 1.5 in the European Union) and the high net immigration of young people (OECD, 2020[56]; Statistics Norway, 2019[14]). Aging is expected to be an important issue in Norwegian rural areas, where the elderly dependency ratio (population aged 65 and above per 100 population aged 15-64) largely exceeds the national average (30.6 vs 25.9 in 2018) (OECD, 2020[57]). This is likely to create challenges to welfare in rural areas (Ministry of Local Government and Modernisation, 2019[58]).

Norway has a well-functioning labour market. Its employment rate is one of the highest among OECD countries (74.8% of the Norwegian working age population in 2018 compared to 68.3% in the OECD), wages are comparatively high, while labour market insecurity and job strain are low. Norway’s socioeconomic model ensures there is a low level of income inequality, mainly by compressing wage distribution through co-ordinated wage bargaining and the imposition of taxes and transfers (Sila and Hemmings, 2020[59]).

The labour market is also relatively resilient. The co-ordinated wage negotiation system ensures that real wages are responsive to macro-economic conditions and helps to limit the impact of a potential economic shock. Most of the Norwegian economy participates in a two-tier bargaining system. At the country level, a target wage increase is negotiated for the manufacturing sector, which is highly exposed to international competition. The result provides a framework for wage increases in other sectors of the economy, including agriculture income (Sila and Hemmings, 2020[59]) (see also information on the “Basic Agricultural Agreements” in Chapter 2). However, this leads to high labour costs (NOK 479.5 or USD 59 per hour in 2018, compared to the EU27 average of USD 32) (Eurostat, 2020[38]).

Labour migration is another shock absorber as it responds dynamically to economic cycles (Figure 1.17). Since 2004, the Norwegian labour market has been open to migration inflows from the European Economic Area (EEA). Initially, most of the immigration was primarily work-related. However, in recent years, family reunification and refuge have become more frequent reasons for migration, with the highest inflow of refugees, mostly from outside the EEA, occurring during 2015-16 (Statistics Norway, 2019[14]). The growing proportion of foreign-born residents (15.4% in 2018 compared to 6.6% in 2000) (OECD, 2020[56]) is changing the demographic composition of society and requires policies that focus on the complex issue of integrating immigrants into the labour market (Sila and Hemmings, 2020[59]).

Agriculture and forestry are examples of sectors relying on labour immigrants. According to the estimates by the Institute for Rural Regional Research (Ruralis) (Norwegian Ministry of Agriculture and Food, 2020[17]), well over 20 000 immigrants worked on Norwegian farms in 2011, which corresponds roughly to 13% of the total agricultural labour effort. After a temporary slowdown in the use of foreign-born labour around 2009-10, it has accelerated. The duration of the involvement of labour immigrants in agriculture has also been steadily increasing. As Norway is part of the common European labour market through the EEA Agreement and the EFTA Convention, immigrants with EU/EEA/EFTA citizenship do not need special work permits. Such permits are necessary for seasonal workers from outside this area (Norwegian Ministry of Agriculture and Food, 2020[17]).

Norway gives high national priority to education. The country’s overall expenditure on education, from elementary to tertiary, is one of the highest among OECD countries. In particular, spending on higher education is high (USD 21 993 or NOK 184 746 per student), and growing rapidly (20% increase between 2010 and 2016, compared to 5% for the OECD). Up to 6.5% of GDP is spent on higher education (OECD, 2019[60]).

In this context, Norwegian educational attainment levels appear to be relatively weak. Norway’s PISA (OECD Programme for International Student Assessment) scores have remained stable across cycles at a level close to or slightly above the OECD average. Nevertheless, OECD analysis indicates there are persistent performance gaps between immigrant and non-immigrant students, as well as between boys and girls that will need to be addressed by policy makers (OECD, 2020[61]). Moreover, although the tertiary education in Norway is above the OECD average (44% of the population aged 25-64, compared to the OECD average of 39%) (OECD, 2019[60]), the completion rate of upper secondary education in some age groups have been deteriorating slightly (OECD, 2020[61]). There are also interregional differences in this respect, with some municipalities in eastern and northern parts of Norway having over 35% of the population aged 25-64 with only a basic education (compared to the national average of 20%) (Ministry of Local Government and Modernisation, 2019[58]).

With respect to agro-food or forestry specific education, there are three universities that offer bachelor and master level programmes: Norwegian University of Life Sciences (Campus Ås); Inland Norway University of Applied Science (Campus Blæstad: agriculture and Campus Evenstad: forestry); and Nord University (Campus Steinkjer). The number of university students in fields related to agro-food and forestry is relatively low and has been declining over the last decades (Chapter 4). In 2019, of a total of 293 000 students in Norway, approximately 2 000 pursued agro-food and forestry studies, and only one in four studied “core” agriculture or forestry. To address this issue, the Norwegian Institute for Bioeconomy Research (NIBIO) recently launched a research project for a better alignment of university courses with the skills and competences required in the sector (Norwegian Ministry of Agriculture and Food, 2020[17]).

Investments in physical and knowledge infrastructure, including Information and Communication Technology (ICT), (Section 1.3.8), are essential to overall growth and development as they facilitate the delivery of and access to important services. In the agro-food sector, they play a critical role in linking farmers and related businesses to markets. They also boost agriculture productivity and encourage investment in innovative techniques and products. Broader rural development policies increase opportunities of off-farm income and employment, mitigate the income risks of farm households, facilitate on-farm investment, and enable a wider range of choices for farm production. Good quality rural services, from banking to education and health, are essential to ensure the connectivity and attractiveness of these areas for customers, suppliers, and collaborators. Moreover, favourable rural policy can attract innovative upstream and downstream industries, with possible spill-over effects locally (OECD, 2020[5]).

The 2018 White Paper on Rural and Regional Policy sets the framework for Norwegian regional policies (OECD, 2019[62]). The government promotes policies aimed at preserving rural and remote communities and underlines the necessity of minimising differences between regions in Norway and levelling living conditions and access to basic services across the country. Support to rural and remote areas encompasses a wide range of policies, including subsidies for transport and ICT infrastructure, health and cultural facilities, and economic activities, notably support to agriculture (Chapter 2) (OECD, 2017[63]). As a result, the population living in predominantly rural remote regions is stable and its share in the national population (23%) is fourth highest among OECD countries, after Iceland (28%), Greece (28%) and Ireland (24%) (OECD, 2020[57]). However, this apparent stability hides relatively low birth rates and interregional domestic migration to urban centres, balanced by immigration (Ministry of Local Government and Modernisation, 2019[58]).

In view of Norway’s low population density (17 persons per km2), high concentration in the main urban centres or intermediate areas (74% of the Norwegian population) (OECD, 2020[57]), and the large geographical distances, the provision of infrastructure and services throughout the country presents specific challenges. Every four years, the Norwegian Government publishes “National expectations to regional and municipal planning”. The most recent edition covers the period 2019-23; the government emphasises the need for the regional transport network to contribute to resource efficiency, industrial development, settlement, and social sustainability in various parts of the country. The current National Transport Plan for 2018-2029 aims at better mobility for people and goods throughout the country, decreased transport costs, improved safety conditions, and reduced emissions. To meet these broad goals, the government increased the related budget considerably, from NOK 42 billion (USD 7 billion) in 2013 to NOK 73 billion (USD 8 billion) in 2019 (Norwegian Ministry of Agriculture and Food[17]). However, given the large number of planned projects to improve the low quality of roads and railroad infrastructure (as evaluated by the WEF Global Competitiveness Index, Figure 1.18), OECD (2019[64]) advises strengthening the project selection process based on robust cost-benefit analysis.

In 1990, an “Action zone” was established in Finnmark and Nord-Troms to increase access to skilled labour. The instruments applied included: reduction in personal taxes, exemption from employer’s social contributions, depreciation of study loans, and exemption from electricity tax on consumption (Ministry of Local Government and Modernisation, 2019[58]; Norwegian Ministry of Local Government and Modernisation, 2019[65]). The mountainous areas of southern Norway impose other challenges with respect to development and are covered by the special rural policy programmes aimed at developing expertise and networks, entrepreneurship and innovation in business and industry (Norwegian Ministry of Local Government and Regional Development, 2013[66]).

Subsidies provided to farmers are adjusted by regions to partially compensate for the hardship resulting from natural conditions (Chapter 2). Nevertheless, the importance of the agricultural sector varies considerably across regions. In absolute terms, Rogaland County in southwestern Norway, and in particular Jæren, is the main farming region with respect to gross product and employment. However, agriculture’s role in the regional economy is highest in Nord-Trøndelag County, which is located mostly in the Central Lowlands (Knutsen, 2020[4]).

Basic Information and Communication Technologies (ICT) infrastructure and an appropriate regulatory framework strongly impact the adoption of innovation and the use of data (OECD, 2020[5]). In the agro-food sector, the development of a physical ICT infrastructure not only facilitates the flow of knowledge and access to information, but also provides an opportunity to improve productivity and sustainability at the farm level by applying new digital tools and data (OECD, 2019[67]). Good quality agricultural data (e.g. farm- or field-level data) are a prerequisite for evidence-based policies and for the development of new, tailored services for agricultural producers (OECD, 2020[5]).

In the Digital Agenda for Norway (Norwegian Ministry of Local Government and Regional Development, 2015[68]), the government acknowledged the importance of digitalisation and its underlying infrastructure which will contribute to achieving its ambitious objectives to modernise and simplify the public sector, and facilitate daily activities of business, industry, and private citizens.

Norway is well-positioned in terms of coverage and use of fixed and mobile broadband. Almost all Norwegian households have access to broadband Internet. The share of households with such access nearly doubled between 2005 and 2009 (from 40.2% to 77.8%), and continued to grow, albeit at a slower pace, to reach 97% of all Norwegian households in 2019. This is only 2.3 percentage points below the most advanced country, Korea (Figure 1.19, Panel A). Furthermore, the gap between urban and rural areas has been gradually closing: almost 20 percentage points in 2005, 15 in 2009, and only 4 in 2019.

The market penetration of fixed broadband is one of the highest among OECD countries (42 subscriptions per 100 inhabitants, only four less than the leader – Switzerland, Figure 1.19, Panel B). However, in 2019, only 42% of subscriptions were contracted for a speed exceeding 100 Mbits, which gives room for improvement compared to Korea (92%). Moreover, the offer of higher speed connections is not uniformly available across the country. In the coming years, coverage is expected to grow steadily as fibre networks expand due to private sector investment supported by government financial aid (Norwegian Ministry of Agriculture and Food, 2020[17]).

Norway is open to the adaptation of new technologies and in this regard it ranks very high (8 out of 137 countries) on the WEF Global Competitiveness Index, with a score above the Nordic countries and OECD averages. The availability of the latest technologies and their adaptation at the firm level are one of Norway’s strengths.

The agriculture and forestry sector also seeks to take advantage of digital technologies to improve policy design and implementation (Chapter 4). For instance, in 2020, NIBIO undertook a precision agriculture in practice project (PRESIS) aimed at developing an entire system that will provide Norwegian farmers with information services and counselling on the intersection of new technology and agronomy. There are also some initiatives to look into using digital maps to define subsidies, particularly for steep, small, and poorly shaped fields (Norwegian Ministry of Agriculture and Food[17]).

Regulations on products and processes aiming to protect human, animal and plant health can also impact natural resource use and boost innovation in response to societal demands. They can build consumer and societal trust in the safety and sustainability of new products or processes. However, unnecessary or disproportionate regulations can stifle innovation and technological developments (OECD, 2020[5]).

The Norwegian Food Safety Authority (NFSA) is a national government body in the food policy area. Its aim is to ensure that food and drinking water are safe for consumers and to contribute to a high level of plant, fish and animal health. The NFSA also contributes to the ethical keeping of animals and encourages environmentally-friendly production. NFSA drafts legislation and provides guidance on existing legislation, performs risk-based inspections, monitors food safety and health, and plans for emergencies.

The NFSA advises the Ministry of Agriculture and Food, the Ministry of Fisheries and Coastal Affairs and the Ministry of Health and Care Services (the Three “Food Ministries”). The Ministry of Agriculture and Food is responsible for the institutional management of the Norwegian Food Safety Authority, in close co-operation with the two others Ministries. The “Food Law” is the overarching law regulating food policy in Norway and it is under the responsibility of the Ministry of Health and Care Services, in co-operation with the two other “Food Ministries” (Norwegian Ministry of Agriculture and Food, 2020[17]). As a member of the EEA, Norway is bound by the adopted EU legislation in the food policy area, including animal health (with the implementation process of EU legislation in this area ongoing until 2021). Norway, as a WTO member, also follows the relevant WTO obligations in this policy area. 

The Norwegian Veterinary Institute (VI) (Chapter 4) is a biomedical research institute and the national leading centre of expertise in biosecurity in fish and land animals. Its goal is to become Norway’s centre of preparedness for One Health. It focuses on contingency planning and competence development to prevent threats to the health of fish, animals and human beings. Core activities include diagnostics, research, innovation, monitoring, risk assessment, consulting and communication, being a national and international reference laboratory involved in a wide range of international collaboration.

Animal health is good in Norway, which has a long-standing history of high awareness of antimicrobial resistance (AMR) (Box 1.1). The prevalence of contagious animal diseases is low in Norway for several reasons. These include: climate and geography, with the Scandinavian peninsula being at “the corner of Europe”; demography, with scattered and small-scale production; limited movement of animals both inland and cross border, with trade mainly being with ova and semen; close co-operation between the authorities, veterinarians, and a responsible and competent livestock industry. Norway has surveillance programmes in place to maintain the situation.

The 2010 Animal Welfare Act was a milestone legislation for animal welfare. The Act outlined the general rules for the protection of all animal species and was based on the European Convention for the Protection of Animals kept for Farming Purposes. The rules reflect the so-called “Five Freedoms”.


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← 1. For a precise definition of some of the concepts in Figure 1.1, and their corresponding indicators, see the OECD Agro-Food Productivity-Sustainability-Resilience Policy Framework (OECD, 2020[5]). As defined by the Oslo Manual (OECD/Eurostat, 2018[77]), innovation is interpreted as a broad concept, beyond research and development (R&D) and encompassing both the creation and adoption of innovation, which can be “new to the firm, new to the market or new to the world”. For productivity, the most comprehensive indicator of productivity – the Total Factor Productivity ‒ is used by default, while sustainability refers to the preservation of natural capita, i.e. environmental sustainability.

← 2. In the period 2005-13, a new digital map basis was introduced as a control basis when applying for a production subsidies. During this period, the registered area showed a decrease of 4.7%. Figures from the Norwegian Agriculture Agency show that the introduction of the new digital mapping system meant a reduction in the area of approximately 3.3%. It is not possible to say whether the decline is due to more accurate measurements or whether previous declines have not been captured before a new map was introduced. Area decrease outside the new map system was thus approximately 1.4% in the same period (NIBIO, 2020[76]).

← 3. Registered agricultural and/or forest proprieties include only properties with at least 0.5 ha of agricultural area and/or at least 2.5 ha of productive forest area.

← 4. “Technology classes (…) are defined statistically using a production function based latent-class estimation procedure linked to a principal component analysis. A number of multi-dimensional indices define the farms’ characteristics, on the basis of which the estimation procedure groups them into up to four distinct classes. The production technologies and productivity patterns are modelled and evaluated for the different kinds of farms using a flexible functional form, and measures of farm performance are derived.” (Sauer and Moreddu, 2020[39]).

← 5. Multidimensional indices are calculated using the principal components analysis (PCA) method (Sauer and Moreddu, 2020[39]).

← 6. Authors’ calculations based on data from the World Integrated Trade Solution (WITS, 2020[74]).

← 7. The Global Entrepreneurship Monitor (GEM) analyses the following entrepreneurial framework conditions: entrepreneurial finance, support and relevance of governmental policies, taxes and bureaucracy, government entrepreneurship programmes, entrepreneurial education at school stage and post school stage, R&D transfers, commercial and legal infrastructure, internal market dynamics, internal market burdens or entry regulations, physical infrastructure, and cultural and social norms. See more information at https://www.gemconsortium.org.

← 8. The World Bank’s Doing Business indicators compare business regulation environments across economies and over time. Based on standardised case scenarios, Doing Business measures aspects of business regulation affecting domestic small and medium-size firms located in the largest business city of each economy (World Bank (2020[75]). See more information at http://www.doingbusiness.org.

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