Chapter 4. Agricultural subsidy reform in Switzerland

This chapter analyses the reform of agricultural subsidies in the Swiss Agricultural Policy 2014-17. From a political economy perspective, it examines how the direct payments system for farmers was reformed to better target policy objectives, including for biodiversity. The case study draws lessons learned for overcoming barriers to reform, including the importance of seizing windows of opportunity, building an alliance of economic and ecological interests, engaging a broad range of stakeholders and devising politically and socially acceptable compromises, including the use of transition payments to offset negative distributional impacts.

  

Introduction

Since the early 1990s, Switzerland has undertaken a series of major agricultural policy reforms, reducing market intervention and introducing the system of direct payments, which included both general direct payments and ecological payments. However, by 2009, many of the ecological targets had not been achieved and more fundamental questions were being raised about the effectiveness and efficiency of the direct payments system. This led to the reform of the direct payments system to better target policy objectives, including for biodiversity.

This case study1 examines the political economy aspects of the reform of the direct payments system adopted under the Agricultural Policy 2014-17. It demonstrates how an alliance of market-oriented and ecological interests can help to spur reform and how windows of opportunity can create conditions conducive to reform. Broad stakeholder engagement allowed for the inclusion of smaller groups, which could better express the diverse interests of the agricultural sector, including those who stood to benefit from the reform. The case also illustrates how devising politically and socially acceptable compromises, including the use of transition payments to offset negative distributional impacts, can help overcome barriers to reform.

4.1. The impact of agriculture on biodiversity in Switzerland

From an economic perspective, agriculture plays a relatively minor and declining role in Switzerland. Its share of gross domestic product (GDP) is less than 0.7% (Jarrett and Moeser 2013) and the share of employment is around 4%. A decline in agricultural area (i.e. 5.4% between 1985 and 20092) has been mainly due to increased urbanisation and to land abandonment, as well as to increased forest coverage (FOAG, 2015). Agriculture is nevertheless the largest user of land in Switzerland (Environment Switzerland, 2015), with more than one third of overall area used for this purpose (23.4% agricultural areas and 12.4% alpine agricultural areas [FOAG, ed., 2015])3 and therefore plays a crucial role for biodiversity.

Switzerland is characterised by a high diversity of natural habitats. This is due in part to the topographic and climatic variability and the diversity of bedrock and soil properties. It is also due to human activity, particularly in mountainous regions where traditional extensive agricultural practices have created a variety of microstructures (e.g. dry stone walls) and biotopes4 (e.g. hay meadows) that provide habitats for many species (FOAG, 2015). In general, diverse agricultural practices and ecosystems contribute to more diverse agro-ecosystems.

According to Switzerland’s 5th National Report under the Convention on Biological Diversity however, biodiversity is in an unsatisfactory state (FOEN, 2014). Given the various pressures, almost half (47%) of all 160 types of habitats are threatened according to the Red List (predominantly water-bodies, wetlands, and uncultivated open land of agro-ecosystems and settlements). A further 16% of the habitats are classified as near threatened. Moreover, 36% of known species in Switzerland are categorised as threatened (Figure 4.1).

Figure 4.1. Threatened species according to the Red List
picture

Note: Up until 2012, 10 350 species (a quarter of the 45 890 known species) had been evaluated. Of those evaluated, there were 3 109 animal species, 3 572 plant species and 3 669 lichen and fungi (FOEN, 2014).

Source: Data from FOEN, 2014.

The main drivers of biodiversity loss are changes in land and water use and management and pollution.5 Most habitats are under intense pressure. They are also disappearing, particularly in agricultural areas, where areas used for settlement (e.g. construction for housing) and transport are spreading and land use is becoming more and more intensive6 (FOEN, 2014). Settlement areas and infrastructure facilities fragment the landscape, isolating stocks of species. The improper use of fertilisers and pesticides and unsuitable management methods can have an extensive environmental impact (Environment Switzerland, 2015). The external costs of pesticides have been estimated at CHF 100 million (Zandonella et al., 2014). Moreover, nitrogen levels in 95% of forest area exceed the critical load limits as well as 100% of the raised bogs, 84% of the lowland moors and 42% of species-rich dry meadows. This is due to ammonia from agriculture and combustion gases from motorised transport (Environment Switzerland, 2015). Invasive alien species and climate change pose an additional threat to many native species and ecosystems (FOEN, 2014).

Over the past decades, the environmental performance of Swiss agriculture has generally improved. Reforms in the 1990s reduced nutrient surpluses and greenhouse gas emissions, but later reforms reversed these trends due to a policy-induced expansion of the livestock sector.7 Environmental cross-compliance8 has had a positive effect on farmland biodiversity, while contributing to the reduced nitrate leaching and phosphorus pollution of surface water (Figure 4.2). Despite improvements, environmental challenges, such as surface and groundwater pollution from pesticides and nutrients, remain (OECD, 2015a).

Figure 4.2. Development of key agri-environmental indicators in Switzerland, 1990-2010
Index 1990 = 100
picture

Source: OECD (2013), OECD Compendium of Agri-environmental Indicators.

Ecosystems provide a number of services, many of which are also essential for agriculture.9 These include pollination, biological pest control and the formation and conservation of fertile soils. For example, Besser (2010) estimated that on average, Swiss bee colonies provided a yearly agricultural production worth about CHF 256 million (USD 213 million) due to pollination services, over the period 1997 to 2006. Biodiversity in the soil ensures fertile soils, in which organic waste materials are transformed into simpler inorganic components which are then supplied to plants as food. The genetic diversity in livestock breeds and crops, as well as in the wild species related to them, offer the possibility of adapting future agricultural production to different market, production and environmental conditions (Environment Switzerland, 2015). Recent studies have found positive effects of certain Swiss agri-environmental schemes, such as wildflower strips, on natural pest control and crop yield (Tschumi et al., 2016; Tschumi et al., 2015).

Overall, the agricultural sector is perceived as an important element in maintaining food security, and as a provider of positive externalities10 such as environmental benefits and maintenance of cultural landscapes, which are highly valued by Swiss society (OECD, 2015a). The Federal Constitution specifies that the Confederation shall ensure that agriculture makes a substantial contribution to secure provisioning of the population, to the conservation of natural resources and maintenance of the rural landscape as well as to the decentralisation of the country (see Section 4.2). The importance of sustainable natural resource use in the context of agriculture is also highlighted in the Swiss Biodiversity Strategy (Box 4.1).

Box 4.1. The Swiss Biodiversity Strategy and agriculture

The Swiss Biodiversity Strategy (FOEN, 2012) includes the following overarching goal, with specific reference to agriculture as indicated below.

1. By 2020, the use of natural resources and interventions involving them are sustainable so that the conservation of ecosystems and their services and of species and their genetic diversity is ensured.

Specific agricultural goal in the Swiss Biodiversity Strategy

“The fulfilment of the “Environmental Targets for Agriculture” (Umweltziele Landwirtschaft) is essential for the conservation of biodiversity. The environmental targets shall be implemented on a regionally quantified, qualified and co-ordinated basis in the area of biodiversity. The importance of ecosystem services for agriculture shall be recognised and their valorisation through the market and society shall be guaranteed in the different agricultural production processes. The incentives provided for services for the promotion of biodiversity shall be increased and the quality and interconnection of existing ecological compensation areas shall be improved; new biodiversity priority areas (ecological compensation areas) shall be created where necessary.”

The “Environmental Targets for Agriculture” were published by the Federal Office for the Environment (FOEN) and the Federal Office for Agriculture (FOAG) in 2008. They provide the basis for the definition of measures for the conservation and promotion of biodiversity in agricultural areas. Specific goals are set out related to thematic areas, including biodiversity and landscape; climate and air; water; and soil. An assessment of these targets was released in 2013 (Walter et al., 2013). The Federal Authorities are still developing the Biodiversity Action Pan, initially due by mid-2014.

Source: FOEN, 2012; BAFU and BLW, 2008.

4.2. The system of direct payments to agriculture in Switzerland

Key milestones in the evolution of agricultural policy in Switzerland related to environmental objectives

Since the early 1990s, Switzerland has undertaken a series of major agricultural policy reforms. Prior to this, agricultural policy guaranteed farmers fixed prices and markets, an approach that was reaching its limits. The cost to the public budget was rising and the adverse ecological impacts of this production-based approach were becoming more obvious (FOAG, 2004), resulting in negative publicity for the agricultural sector (FOAG, n.d.). At the same time, the General Agreement on Tariffs and Trade (GATT) Uruguay Round of negotiations was increasing pressure to reduce protectionist measures (FOAG, 2004). The reforms have gradually reduced overall levels of support and shifted from market price support11 to direct payments independent of production volume, that aim to compensate farmers for public and ecological services (Lanz, 2012; FOAG, 2004).12 Key milestones in the evolution of agriculture policy in Switzerland are summarised in Table 4.1.

Table 4.1. Milestones in the evolution of agricultural policy in Switzerland (1990-2016)

1993

Major agricultural policy reforms began, introducing the system of direct payments. Reforms prepared the way for implementing the consequences of the GATT Agreement in 1994.

1994

Conclusion of the GATT Uruguay Round

9 June 1996

Article 104 of the Federal Constitution approved by voters.

1 January 1999

New Agricultural Act, based on Article 104, came into force, replacing law from 1951

2001

Ordinance on Eco-Quality came into force, introducing financial incentives to improve the quality of certain ecological areas and linking them up to form a network.

2002

Agricultural trade agreement with EU came into force.

May 2009

Extensive review of the effectiveness and efficiency of the direct payments system to reach ecological targets set by the Federal Council.

March 2013

The National Council and Swiss Parliament approve the new Agricultural Policy 2014-17.

2014-present

New Agricultural Policy 2014-17 in force.

Source: Lanz, 2012; FOAG, 2004; FOAG, n.d.

Major agricultural policy reform began in 1993. Reforms reduced market intervention, and introduced the system of direct payments. They prepared the way for implementing the results of the GATT Agreement in 1994 (FOAG, 2004). The most important change related to the system of direct payments in 1993 was the introduction of two main categories of new payments: 1) general direct payments13 and 2) ecological direct payments (OECD, 2015a). Ecological direct payments were designed to provide incentives for more sustainable use of resources and to reduce pollution, as well as to provide additional compensation to farmers for delivering non-marketed goods and services, such as biodiversity, landscape, and animal welfare. Under the ecological direct payments, farmers could also receive payments for extensive crop production (no use of fungicides, insecticides or plant growth regulators, although fertilisers and herbicides were not restricted) or organic production, which in addition to requirements for extensive production, does not allow use of synthetic pesticides or fertilisers) (Finger and Lehmann, 2012). Participation in these programmes is voluntary (OECD, 2015a).

On June 9, 1996, over 75% of voters approved Article 104 on agriculture to be added to the Federal Constitution (FOAG, 2004). Article 104 enshrined the basic principle of the multi-functionality of agriculture, defining four main tasks of Swiss agriculture: ensure food supplies; production methods should ensure future generations will have fertile soil and clean drinking water (ecological); take care of the landscape; and maintain rural areas (FOAG, 2004). This provided the basis for further agricultural policy reforms.

The new Agricultural Act, which came into force 1 January 1999, replaced the previous 1951 law. Based on Article 104, it introduced major changes, including abolishing or phasing out price and market guarantees which had formed the cornerstone of Swiss agricultural policy since World War II (FOAG, n.d.). The Act also made direct payments conditional on “proof of ecological performance” (Box 4.2), which had previously been voluntary (FOAG, n.d.).

Box 4.2. Proof of ecological performance in Switzerland

Since 1999, direct payments are conditional on good environmental practices required by “proof of ecological performance” (PEP) and the provision of public goods. Similar to cross-compliance under the EU Common Agricultural Policy (CAP), Swiss direct payments are, however, subject to stricter conditionality than in many other OECD countries (Jarrett and Moeser, 2013; Aviron et al., 2008). Nearly all Swiss farms currently fulfil PEP requirements.

PEP is based on the approach of “integrated production principles”. They include:

  • Balanced nutrient use: maximum 10% surplus of nitrogen and phosphorus as shown by farm’s nutrient balance (based on crop requirements)

  • Strict crop rotation: to reduce the vulnerability of crops to disease and consequently, the need for pesticides.

  • Soil protection: land must be planted the whole year round whenever possible to reduce the risk of erosion.

  • Minimum share (at least 7%) of farm’s utilised agricultural area must be allocated as ecological compensation areas (ECAs). ECAs protect and restore ecosystems close to their natural state. The use of artificial fertilisers and pesticides is very restricted.

  • Animal welfare: farm animals have to be kept according to legal requirements (including compliance with the animal protection ordinance).

  • Selected and targeted application of pesticides: restrictions on the timing and use of certain pesticides, consideration of early warning systems and pest forecasts, frequent tests of sprayers.

Ecological cross compliance has been shown to promote biodiversity on grassland and arable land in Switzerland, with measurable benefits for flora, butterflies, ground beetles and spiders (Aviron et al., 2008). However, cross compliance is not sufficient to protect uncommon or endangered species (Aviron et al., 2008; Loser, 2010).

Although there has been a considerable increase in the proportion of land reserved as ECAs, ensuring that their quality and location are sufficient to achieve the desired benefits for biodiversity has been a persistent challenge. In 2001, the Ordinance on Eco-Quality was enacted with the aim to address this issue by introduced financial incentives aimed at improving the quality of certain ecological areas and linking them up to form a network (FOAG, 2004).

Source: FOEN, 2016; OECD, 2015a; Jarrett and Moeser, 2013; FOAG, n.d.; Loser, 2010; Aviron et al., 2008.

By 2009, however, many of the ecological targets set by the Federal Council14 on the basis of Article 104 had not been achieved. At the same time, more fundamental questions were being raised, by both farmers and economists, about the effectiveness and efficiency of the direct payments system. This led Parliament to adopt a motion to mandate the Federal Council to review the direct payments system, which culminated in an influential report released on 6 May 2009 entitled Weiterentwicklung des Direktzahlungssystems [Further Development of the Direct Payments System], (referred to as WDZ 2009). This review lead to recommendations to better target the direct payments system in the 2014-17 Agricultural Policy (AP 2014-17) (further discussed in Section 3).

The evolution of agricultural support prior to the AP 2014-17

The OECD estimates the total level of support to agriculture in OECD countries by applying the methodology of Producer Support Estimate (PSE). Figure 4.3 shows the trend in total PSE in Switzerland over the past three decades. It illustrates the decline in market price support along with a rise and subsequent stabilisation of direct payments since reforms began in the 1990s. Figure 4.4 illustrates the shifting composition of direct payments over time, with a notable increase in ecological direct payments.

Figure 4.3. Declining market support and increasing direct payments in the total Producer Support Estimate, 1986-2015
picture

Source: Updated from OECD (2015), Agricultural Policy Review: Switzerland (based on data from OECD Agriculture statistics database).

Figure 4.4. Structure of direct payments, 1986-2013
picture

Source: Updated from OECD (2015), Agricultural Policy Review: Switzerland (based on data from OECD Agriculture statistics database).

As of 2013, 20% of direct payments were dedicated to achieving environmental protection and animal welfare, with the rest as “general” direct payments (Jarrett and Moeser, 2013). Total ecological direct payments amounted to CHF 645 million, with the largest share (CHF 166 million) going to the category “regularly keeping animals outdoors” (OECD, 2015a).15

Over the past two decades, the total hectares designated as ecological compensation areas has steadily increased. According to FOAG data, by 2014, over 150 000 hectares were eligible for subsidies, accounting for 14.6% of the utilised agricultural area (Figure 4.5)

Figure 4.5. Increase in ecological compensation areas, 1996-2014
picture

Source: Based on data from FOAG.

Although agricultural support has been reduced since reform began in 1993, levels remain high compared to other OECD countries (Jarrett and Moeser, 2013) (Figure 4.6). As of 2015, direct payments still represented nearly two-thirds of the agricultural contribution (0.7%) to the Swiss GDP (CHF 648 billion), leaving just one third from valued-added (OECD, 2015b). Producer support accounted for more than half of gross farm receipts in 2012 (57%; compared to 18% on average in OECD and less than 4% for Australia, Chile and New Zealand) (Jarrett and Moeser, 2013). For the period 2014-17, a total of CHF 13.83 billion was earmarked for agricultural policy measures, which corresponds to a slightly higher level of annual funding of previous years (Jarrett and Moeser, 2013).

Figure 4.6. Level of composition of agricultural producer support, OECD countries, 1995-2011
picture

Notes: Producer Support Estimate (PSE): the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the arising farm gate level, from policy measures that support agriculture, regardless of their nature, objectives or impacts on farm production or income.

The level of support is presented by the percentage PSE. The composition of support is presented by the share in gross farm receipts of the most production and trade distorting support, including Market Price Support, Payments based on output and Payments based on non-constrained variable input use.

1. For Mexico, the change is measured between 1996-98 and 2009-11.

2. EU15 for 1995-2003; EU25 for 2004-06 and EU27 from 2007.

3. For Chile, change is measured between 1997-99 and 2009-11.

4. For Israel, change is measured between 1997-99 and 2009-11. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Source: OECD (2015), OECD Compendium of Agri-environmental Indicators (based on data from OECD Agriculture statistics database).

4.3. Reform of direct payments to agriculture in the AP 2014-17

As noted above, Parliamentary debate in 2009 regarding the agricultural policy was fuelled by doubts among both farmers and economists about the effectiveness and efficiency of the existing direct payments system. Simonetta Sommaruga, member of Parliament at the time, called for the motion which was adopted by Parliament to mandate the Federal Council to undertake an extensive review of the system. The Federal Council therefore requested that FOAG undertake a detailed review of the direct payments system with the aim to shape the next series of reforms.

The resulting report, referred to as WDZ 2009, was submitted to Parliament on 6 May 2009. It found that many targets set out by the Federal Council on the basis of Article 104 of the Federal Constitution had not been achieved. Further, the report analysed the relevant internal and external political conditions and developments and defined criteria for an effective and efficient system of direct payments. A central aspect of the report was the description of each of the public services that agriculture should provide and the elaboration of specific targets for each of these services. As a result of this report and subsequent debate, the Parliament’s Committee for Economic Affairs and Taxation approved a motion16 on 16 October 2009 mandating the Federal Council to produce a concrete bill for a revised direct payments system before the end of 2011 (FOAG, 2009).

Ex-ante impact assessment and stakeholder consultations of the AP 2014-17 proposal

A draft proposal of the new policy was prepared and submitted to a broad consultation process involving a wide range of stakeholders, which took place in the spring of 2011. Key players included the Farmers’ Union; economics-oriented institutions, such as economiesuisse, in addition to a number of environmental NGOs, such as Agrarallianz,17 WWF, ProNatura and Birdlife International. These various interests expressed divergent views on the relative importance of objectives relating to security of food supply, trade liberalisation, environmental performance, and landscape cultivation. A Working Group focused on the AP 2014-17 and involving all stakeholders was also established by the Federal Council. Led by FOAG, inter-ministerial consultations also took place in the course of the preparation of the proposed reform.

The draft proposal for the new policy also underwent two rounds of ex-ante impact assessment to examine the impacts of the proposed policy changes. The modelling analysis examined the environmental and biodiversity implications of AP 2014-17, as well as those on production and income (Zimmermann et al., 2011 and 2012; FOAG, 2012b) (Box 4.3).

Box 4.3. Findings from the modelling analysis of the proposed AP 2014-17

To assess the impact of the AP 2014-17 on agriculture, the government requested Agroscope Reckenholz-Tänikon to undertaken modelling analysis.

In a first assessment (Zimmerman et al., 2011), two scenarios were modelled:

  • the reference scenario (business as usual)

  • the implementation of the Federal Council proposals as part of the message on the AP 2014-17 scenario (dotted line labelled “AP 2014-17” in Figure 4.7).

Results showed that under the AP 2014-17, farm incomes would increase by about 13% above current levels (about 6 percentage points higher than under the reference scenario). Ecological compensation areas would also increase by 13% compared to the current situation and livestock numbers would fall by close to 10%, lowering excess nitrates and phosphates and greenhouse gases as well as improving the impact on biodiversity.

In a subsequent study (Zimmermann, 2012), two additional scenarios were modelled:

  • Production scenario: Adaptation of the AP 2014-17 scenario in the direction of farmers’ demands, such as an increase in contributions to secure supply (i.e., the Versorgungssicherheitsbeiträge – VSB) by one-third, and a simultaneous increase in ecologically-oriented instruments/ biodiversity contributions, production system contributions and resource efficiency contributions.

  • Ecology scenario: Adaptation of the AP 2014-17 scenario in the direction of demands from conservation groups and the retail trade: i.e., reduction in contributions to secure supply by one-third with equivalent increase in contributions to ecologically orientated instruments, production system contributions and resource efficiency contributions.

The results showed that the AP 2014-17 scenario was better than the business as usual scenario across nearly all indicators. Also, for most indicators, results for the AP 2014-17 fell between those for either the “production” or the “ecology” scenarios (Zimmermann, 2012).

Figure 4.7. Modelling results of the impact of AP 2014-17 proposals
picture

Source: Zimmermann, 2012.

Source: Zimmermann, et al., 2011; Zimmermann, 2012.

Following the consultations and modelling analysis, the revised proposal was consolidated by the Federal Council and transmitted as a message (“Botschaft” or Message du Conseil Fédéral) on the AP 2014-17 on 1 February 2012. At the heart of the reform was the further development of the direct payments system by eliminating general payments18 and reallocating payments to better target specific objectives. The new policy sought to address conflicts with the World Trade Organisation’s (WTO) “Green Box” criteria.19

Overall, the proposed policy for AP 2014-17 as set out in the Federal Council message in 2012 aimed to balance various interests. The major compromise consisted of maintaining the overall level of agricultural support (to appease supporters seeking to maintain the high levels of agricultural support) while re-distributing that support across the new categories of payments (to address demands of those supporting increased trade liberalisation as well as improving the environmental impact of payments).

The bill was then sent to Parliament, where it was debated by both chambers: the Conseil des États (“Council of States” or “Senate”) and the Conseil national (“National Council” or “Chamber of Representatives”). The bill enjoyed broad support, but there were very divergent views on certain issues. The most contentious issue was the proposed removal of payments per head of cattle, which constituted an important fraction of overall payments, amounting to CHF 836 million in 2013, or 30% of total direct payments (Agrarbericht, 2014). Thus, the ultimate winners and losers of this element of reform were clearly identifiable. Animal husbandry payments were based on the number of cattle and were leading to intensification of livestock farm and thus increasing pressure on the environment. The payments were also not compliant with WTO Green Box rules. While the liberal, ecological and left-wing parties (FDP, Green Liberals and SP) supported the removal of these payments, the conservative-center and national-conservative parties (SVP and CVP), advocating for maintaining high levels of support to agriculture, were opposed, along with the Farmers’ Union. Another critique of the reform was that it would increase the administrative burden on farmers, Cantons and the federal government, to implement a more complex system of payments20 (Ritter, 2012).

The Parliament largely followed the proposal of the Federal Council, although the final total budgetary support agreed for the four-year period was CHF 160 million more than the CHF 13.83 billion set out in the message from the Federal Council (despite the fact that the number of farmers is decreasing) (NZZ, 2013). The additional CHF 160 million for the period was allocated to “basic improvements and social measures” (see Table 4.2). The budgeted amount of direct payments remained stable at around CHF 2.8 billion per year (the same level as 2012 and 2013) (OECD, 2015a).

Table 4.2. Payments budget for Agricultural Policy 2014-17 (CHF millions)

Measure

2014

2017

Total 2014-17

Basic improvements and social measures

199

200

798

 Secondary social measures

3

3

12

 Subsidies for structural improvements

99

99

396

 Investment loans

47

47

188

 Arable and cattle farming

38

38

153

Production and sales

442

447

1 776

 Promotion and quality of sales

60

70

262

 Dairy farming

296

296

1 184

 Cattle farming

13

13

52

 Arable farming

73

69

279

Direct payments

2 814

2 814

11 256

 Subsidies for ensuring food supplies

1 094

1 094

4 376

 Farmland subsidies

511

511

2 044

 Subsidies for biodiversity

295

338

1 264

 Subsidies for quality of landscape

20

90

210

 Subsidies for production systems

361

403

1 526

 Subsidies for efficient use of resources

52

73

256

 Transition subsidies

482

306

1 579

Total

3 455

3 461

13 830

Source: Jarrett and Moeser (2013) updated from Lanz (2012).

Parliament approved the new legislation in March 2013, despite opposition of the SVP (NZZ, 2013). The Council of States voted unanimously (40-0) to approve the reform while the National Council voted to approve with 141 votes to 41 (NZZ, 2013). An alliance between the FDP, SP and Green Liberals was able to bring together trade liberalisation and market-oriented concerns and ecological concerns to win support for the reform. It is questionable whether the AP 2014-17 would have been approved under the political composition of the Parliament in 2016. In April 2013, consultation on the comprehensive (300+ page) elaboration of the draft ordinance to specify the details of the implementation of the law took place, with farmers’ organisations, including the Swiss Farmers’ Union, closely engaged (NZZ, 2013).

Main aims of AP 2014-17 relating to biodiversity and the environment

Under the new AP 2014-17, direct payments to promote biodiversity were better aligned with policy goals promoting species and habitat diversity in agriculture (Box 4.4). In addition to continuing the specific category of biodiversity payments (which relates to improving the quality and networking of ECAs), biodiversity relevant aspects were also included in the new category of “landscape” payments. Payments for organic farming are paid out of the “production system” category. Environmental cross-compliance conditions are maintained in the new system of payments. Overall, the AP 2014-17 is seen as an important component of the Swiss biodiversity strategy21 (FOAG, 2015).

Box 4.4. The contribution of the new direct payments system under the AP 2014-17 to biodiversity

The new direct payments set out in AP 2014-17 promote biodiversity in a number of ways across the six new categories (in addition to transitional payments). These include:

Cultural landscape: Direct payments for the maintenance of cultural landscapes provide an incentive to prevent further overgrowing or forestation in order to conserve areas with high biodiversity quality in the alps and preserve their use for livestock in the summer.

Food supply: As part of the direct payments for sustaining food supply, there is an additional contribution for open agricultural cropland and permanent crops.

Biodiversity: Contributions for maintaining and promoting species and habitat diversity include payments for ecological compensation, biological quality and habitat linking. The quality of biodiversity is promoted through the differentiation of payments based on quality levels.

Landscape quality: Payments for landscape quality promote the conservation and evolution of diversity and quality of cultural landscapes.

Production system: Types of production which are in harmony with nature and are environmentally and animal friendly are promoted within the production systems contribution. This includes organic farming, extensive crop production (grains and rapeseed), animal-friendly housing and with opportunities for regular exercise as well as meat and milk production on grassland.

Resource efficiency: Payments are made to promote resource efficient techniques, such as pollution control procedures for slurry application, careful soil cultivation and precise procedures in pesticide application.

Source: FOAG, 2015.

The aims of the AP 2014-17 are summarised in Table 4.3. The new system of payments is complex, with each category including several programmes. These programmes are a combination of new programmes and “old” programmes that already existed under the previous agricultural policy. For example, the animal related payments under the previous system have been largely shifted to the category of food security payments (FOAG, 2012). In the case of biodiversity payments, this category reflects this mix of new and old programmes, as follows (OECD, 2015a):

Table 4.3. Aims of the Swiss Agricultural Policy 2014-17

Field

Aspect

Situation in 2007/09

Aims for 2017

Economy

Productivity

+2.1% p.a.

+2.1% p.a.

Renewal of capital

30 years

30 years

Social

Incomes in the sector

-0.7% p.a.

Reduction in the drop in incomes to below 0.5% p.a.

Ensuring food supplies

Gross production

24 200 TJ

24 500 TJ

Net production

21 500 TJ

22 100 TJ

Farmed land in permanently settled areas

-1 900 ha p.a.

Reduction in loss of farmland to below 1 000 ha p.a.

Natural heritage, environment

N-efficiency

29%

33%

P-efficiency

59%

68%

NH3 emissions

48 600 t N

41 000 t N

Quantity of ESA∗

60 000 ha in lowland areas

65 000 ha in lowland areas

Quality of ESA

36% interconnected 27% high-quality

50% interconnected 40% high quality

Farmland

Farmed land in mountain areas

-1 400 ha p.a.

Reduction in advance of woodland by 20%

Animal welfare

Participation in ROEL programmes

72%

80%

Note: “ESA” = ecological set-aside areas = Ecological Compensation Areas (ECAs).

Source: Lanz (2012).

  • Contribution to environmental quality level I (pre-existing): regroups payments provided under ecological compensation in the former system

  • Contribution to environmental quality level II (pre-existing): corresponds to the payments provided under the Ecological Quality Directive in the former system

  • Contribution to environmental quality level III (new): these payments are intended to finance projects listed as objectives of national importance, but have not yet been introduced.

  • Payments for ecological compensation areas (pre-existing)

  • Payments for creating networks of highly valuable biodiversity areas (new)

Impact of AP 2014-17 reforms so far

While it is too early to measure the impact of the AP 2014-17 on biodiversity, progress towards ecological goals is positive and participation in voluntary programmes funded by the biodiversity direct payments has exceeded expectations. Two of the three main environmental targets set for 2017 had already been reached before the new system of direct payments took effect. The target to reach 65 000 ha of ECAs in the plain region had already been achieved by 2013, with the total area climbing to over 71 000 ha in 2014. As illustrated in Figure 4.8, the target to have over 50% of ECAs participating in a regional networking project had already been reached in 2012 and climbed to over 65% in 2014. The share of ECAs meeting “Quality II” criteria has steadily increased and was nearly 34% in 2014, still short of the goal of 40% by 2017, although the target is well within reach. However, long term agri‐environmental goals22 have not yet been achieved.

Figure 4.8. Increasing shares of Ecological Compensation Areas reaching Quality level II and included in Networking programmes, 2001-14
picture

Source: Based on data from FOAG.

In 2014, biodiversity payments amounted to just over CHF 364 million, with 49% (CHF 179 million) allocated to ECAs of quality level I, 29% (CHF 105 million) for ECAs of quality level II and 22% (CHF 80 million) for including ECAs in a network. An additional CHF 40.4 million was paid for organic production and close to CHF 32 million for extensive production. Transition payments in 2014 amounted to close to CHF 308 million. Nearly 40% of direct payments in 2014 went to food security (CHF 1 096 million) (Agrarbericht, 2016). The distribution of 2014 direct payments across categories is shown in Figure 4.9.

Figure 4.9. Distribution of direct payments by category, 2014
picture

Source: Based on data from Agrarbericht, 2016.

To better understand the impact on biodiversity of the reform, a comprehensive monitoring programme (ALL-EMA)23 is underway to assess the status and trends of species and habitats in agricultural areas. It will include a specific study of the current state and evolution of species in habitats in Ecological Compensation Areas. The first measurement cycle will end in 2019, with the publication of results expected in 2020 (Agroscope, 2016).

Recent developments: a push for food security and stabilising biodiversity payments

Soon after the AP 2014-17 was voted by Parliament, the SVP, which had opposed the reform, sought to call a referendum to overturn it (requiring the collection of 50 000 signatures). The attempt failed, as it did not have the support of the powerful Farmers’ Union. However, in 2014, the Farmers’ Union launched a successful call for a popular initiative (requiring the collection of 100 000 signatures) proposing a change to Article 104 of the Federal Constitution. The popular initiative seeks to place greater emphasis on goal of food security, as part of the multifunctional purpose of agriculture. Article 104 forms the foundation for Swiss Agricultural Policy and therefore, can have an important influence on how agricultural support under the direct payments system is allocated.

In response, the Federal Council adopted a message that, while recognising the importance of food security, rejected the initiative on the basis that food security is already very high in Switzerland and that the demands of the initiative are already largely addressed in the current Federal Constitution. Among the arguments put forth in the message, the Federal Council underlines that the government already support agricultural production with CHF 3.8 billion per year and that Swiss agriculture has reached, on average over the last three years, a record level in terms of production (FOAG, 2016). For the future, the Swiss government considers the following elements as crucial: 1) preserving the range and quality of farmland and reducing dependence on non-renewable resources; 2) ensuring the optimal exploitation of natural production; 3) improving the competitiveness of the Swiss food economy; 4) importing sufficient food and agricultural inputs ensuring access to international markets; and 5) conserving resources by reducing waste.

In Parliament, the Council of States is currently considering whether it will give a favourable recommendation or not to the initiative (the National Council has already given a favourable recommendation) before it is put to a vote by the Swiss public. In the meantime, the Council of States has requested that FOAG develop a counter-proposal to the original initiative proposal, which can then also be considered by the Swiss public at the time of the popular vote.

At the same time, considering the surprisingly high levels of participation in the voluntary programmes for biodiversity (specifically, for the Quality II of ECAs and networks), capping the total amount that can be paid under this category at CHF 400 million per year (of the total CHF 2.8 billion of direct payments per year)24 is currently under discussion.25 Parliament is discussing the AP 2018-21, which will likely maintain the total level of budgetary support to agriculture. Preparations for the Agricultural Policy from 2022 onwards are at a very early stage.

The environmental objectives for agriculture are in the process of being updated. The Federal Council has been requested26 to submit a report to Parliament examining options to update objectives related ecosystem services and resource efficiency in agriculture to the before the end of 2016. The report will examine the extent to which the current environmental objectives for agriculture and the measures in place to achieve them could be improved (National Council, 2016).

4.4. Lessons learned

An alliance of market-oriented and ecological interests helped to spur reform

Arguably, the main impetus for the change in agricultural policy was support for market-oriented reforms to encourage free trade and bring the direct payments system more closely in alignment with WTO “Green Box” criteria. Concerns for biodiversity and ecosystems were important as well, but secondary, and helped to garner support for the reforms. Active lobbying by environmental NGOs as well as the leadership of the then Director of FOAG are also credited as reform drivers. Building a coalition among market-oriented interests promoting trade liberalisation and interests concerned with improving the environment were particularly crucial for advancing the reform.

Seizing a window of opportunity in a conducive political environment

The composition of the Parliament in 2013 provided a window of opportunity to adopt the reforms that had been in preparation over the preceding years. The Parliamentary elections in 2011 saw the Green Liberal Party successfully ride of wave of anti-nuclear sentiment in the aftermath of the disaster at Japan’s Fukushima plant in March of that year (The Guardian, 2011). The current Parliament is more conservative, with greater representation of the SVP party, which had opposed the reform. It is questionable whether the AP 2014-17 would have been approved under the political composition of the current Parliament.

Devising politically and socially acceptable compromises in the reform package

The AP 2014-17 reflected important compromises that facilitated its approval by Parliament. This consisted of maintaining the overall level of budgetary support for agricultural (in fact, the overall level increased slightly) while re-distributing that support across the new categories of payments. Through this major compromise, the agricultural sector as a whole receives slightly increased budgetary payments over the 2014-17 period, while various groups of farmers either increase or decrease the level of direct payments they receive. For example, alpine farmers in particular benefitted from more payments for moving slopes, for extensive production and biodiversity payments under the new system, while farmers with intensive cattle operations in the lowland region of the country no longer receive payments per head of cattle.

It is important to note that interests across the agricultural sector are not homogenous, which was a facilitating factor for the reforms. Although the powerful Farmers’ Union was against the reform, smaller lobby groups representing more specialised interests, such as organic farming or alpine farming, recognised that they were to be net beneficiaries of the changes and supported the reform. Environmental NGOs played a key role as part of their lobbying efforts to disseminate information about expected benefits of reforms to specialised agricultural groups, which encouraged their engagement.

Using transition payments to minimise negative impacts on farmers

The most contentious and hotly debated change in the reform package was the removal of payments per head of cattle. These payments constituted an important fraction of total payments for certain farmers and it was this element of the reform where the ultimate “losers” were clearly identifiable. To help offset expected income loses to farmers no longer receiving the payments per head of cattle, the reform package included transitional payments. In addition, the animal related payments under the previous system were largely shifted to the category of food security payments. At this stage, it is difficult to say how exactly these changes have affected farmers’ incomes, as many variables affect production and farmers’ incomes, or to what extent they may encourage structural change in the sector.

Influence of broad consultation and public participation

Switzerland has a unique political system, with elements of direct democracy such that political decision – making processes involve many stakeholders and extensive consultations. As a result, agreeing policy reforms and implementing them is a lengthy, but well-structured process (OECD, 2015a). In this case, broad stakeholder consultation helped to involve not only major lobbying groups including environmental NGOs, economics institutions, like economiesuisse, and the Farmers’ Union, but also engaged smaller agricultural groups, including organic farmers associations and farmers located in alpine areas, who were well-positioned to benefit from the reform. Overall, this greater representativeness allowed for the inclusion of smaller groups, which could better express the heterogeneous interests of the agricultural sector. At the same time, there is a strong public consensus about the multi-function purpose of agriculture in the adoption of Article 104, which was adopted by popular vote. The outcome of the pending popular initiative on food security is yet to be seen.

While the AP 2014-17 represents an important step forward, Swiss agricultural subsidies remain relatively high compared to other OECD countries. The direct payments system still consists of a number of subsidies that have unclear, or possibly contradictory, impacts on environmental objectives. To continue to pursue biodiversity objectives and put Swiss agriculture on a more sustainable footing, the system will need to continue to evolve with better targeted direct payments.

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Notes

← 1. The case study was prepared based on a literature review and interviews with the Swiss Federal Office of the Environment: Hans Gujer and Gabriela Blatter; the Swiss Federal Office of Agriculture: Jérôme Frei and Judith Ladner Callipari; Kathrin Bertschy, Member of Parliament; Marcel Liner, ProNatura; Werner Müller, Birdlife International; and Christophe Dietler, Agrarallianz. Other organisations were contacted with a request for an interview, including the Swiss Farmers’ Union and economiesuisse, but did not respond.

← 2. Between 2009 and 2014, Utilised Agriculture Area (UAA) remained generally stable, with only a very slight decline.

← 3. Switzerland’s UAA is composed of permanent grasslands (47%), alpine pasture (32%), arable land (18%) lands under permanent crops (2%) and other cultures (1%) (2006 data). The agricultural sector is dominated by animal production with cattle accounting for almost half of the Swiss agricultural proceeds. Crop production is mainly wheat, barley and grain maize (FOAG, 2015).

← 4. “Biotope” refers to the region of a habitat that is associated with a specific ecological community.

← 5. According to Environment Switzerland (2015), “The main causes [of biodiversity loss] are intensive agriculture, the channelling and use of water bodies for generating electricity, soil sealing, landscape fragmentation, and the spread of invasive alien species.”

← 6. More specifically, due to intensive and no longer sustainable management practices, agricultural ecosystems,in particular, have suffered severe losses in terms of small structures such as hedges and dry-stone walls. This decline is also boosted by high levels of fertiliser and pesticide use, species-poor seeding practices and the use of mechanised management methods (FOEN, 2014).

← 7. For example, nitrogen surpluses decreased by 18% during the period from 1990-92 to 1997-99. Nitrogen surpluses subsequently increased by 4% from 2000-02 to 2006-08, largely explained by a rise in manure nitrogen inputs (OECD, 2015a).

← 8. Cross compliance links direct payments to compliance by farmers with basic standards related to the environment, food safety, animal and plant health and animal welfare. Standards also require maintain land in good agricultural and environmental condition (EC, 2016).

← 9. Ecosystem services are the benefits people obtain from ecosystems.

← 10. A positive externality is the benefit enjoyed by an unrelated third party as a result of an economic activity. This is in contrast to a negative externality, which is a cost borne by an unrelated third party as a result of an economic activity (e.g. pollution). Agricultural activity can generate both positive and negative externalities.

← 11. The OECD defines market price support as an indicator of the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers arising from policy measures creating a gap between domestic producer prices and reference prices of a specific agricultural commodity measured at the farm-gate level.

← 12. However, agricultural support also still includes untargeted and distorting measures such as market pricesupport, border protection, export subsidies and refunds, and input subsidies (Jarrett and Moeser, 2013).

← 13. From 1993-98, general direct payments consisted of non-commodity specific payments related to various criteria, including payments for general farm characteristics, payments for integrated production, and payments for farming in difficult conditions. These payments categories were adjusted in 1999, with the notable addition of a general payment for ruminants (OECD, 2015a).

← 14. The Federal Council is the seven-member executive council which constitutes the federal government of Switzerland and serves as the collective executive head of government and state of Switzerland. The current seven-member council are from the 4 leading political parties in Switzerland, namely the Swiss People’s Party (SVP), Christian Democratic People’s Party (CVP), Free Democratic Party of Switzerland (FDP) and the Social Democratic Party of Switzerland (SP).

← 15. Inconsistencies between policy instruments and objectives steering agricultural spending have created some distortions. For example, payments to maintain cattle production in geographically less favoured areas create incentives to increase stocking densities on grassland, which increases environmental pressures, conflicting with the environmental objectives supported by ecological direct payments (OECD, 2015a).

← 16. 09.3973 Motion CEAT-S: Revision of the direct payments system. A concrete concept, 16 October 2009.

← 17. Agrarallianz is an alliance bringing together 16 organisations working in the areas of consumer protection, environment and animal welfare, and economics.

← 18. This refers mainly to the general per hectare payment with no requirement other than cross-compliance, and which had served primarily as a measure of income support. The animal based payments for ruminants were also abandoned, causing a lot of criticism in a country whose agriculture is traditionally characterised by cattle and goats (Mann and Lanz, 2013).

← 19. WTO “Green Box” criteria include those payments that are allowed without limit. While the process of market-oriented reforms had generally been advancing in a positive direction, Swiss agricultural support remained almost three times the OECD average (WTO, 2013).

← 20. Markus Ritter, President of Swiss Farmers’ Union noted, “The implementation – and this is my criticism – will cause a significant amount of administrative work, as many of the new instruments, which are to be introduced, will require appropriate planning and controls prior to their implementation, right down to the cantonal and operational level. We are also concerned that the strong focus of direct payments on the surface will exacerbate the market with respect to the leased land with higher rents” (Ritter, 2012).

← 21. In addition to the programmes under the direct payments system, Swiss agricultural policy supports other environmental programmes, such as the NAP-PGREL programme and the resource programme.

← 22. As set out in Walter et al. (2013) Operationalisierung der Umweltziele Landwirtschaft [Operationalisation of Environmental Goals for Agriculture].

← 23. The monitoring programme is called Artenund Lebensräume Landwirtschaft – Espèces et milieux agricoles, and referred to as ALL-EMA.

← 24. Although these categories are not directly comparable, it is notable that ecological direct payments under the previous system amounted to CHF 641 million and CHF 667 million in 2012 and 2013 respectively Agrarbericht, 2016).

← 25. For comparison, payments for biodiversity programmes in 2013 amounted to CHF 237 million (Agrarbericht, 2014).

← 26. Motion 13.4282 “Postulate Bertschy”, adopted by the National Council.