The possible effects of Swiss agricultural policy on developing trading partners

Transcription

1 The possible effects of Swiss agricultural policy on developing trading partners World Trade Institute University of Bern - Switzerland Name of the coordinating person: Dr Baris Karapinar Tel: baris.karapinar@wti.org List of participants: Participant name Participant organisation 1. Dr Baris Karapinar World Trade Institute (WTI) 2. Dr Philipp Aerni WTI/ ETH Zurich 3. Dr Christian Häberli World Trade Institute (WTI) 4. Ms Monica Meister ETH Zurich 5. Ms Susan Newman School of Oriental and African Studies (SOAS), UK 1

2 LIST of CONTENTS 1. PHASE I General State of Swiss Agriculture Subsidies Government support for R&D Regional distribution of subsidies The Swiss approach to sustainable agriculture Swiss agriculture and climate change Swiss Trade Policies in Agriculture Cereals Sugar Milk and milk products Meat and meat products Vegetables and fruits Oilseed Processed food products Summary of Ugandan Coffee Chains Case study Structure of the International coffee market Structure of coffee production and distribution in Uganda Impact of WTO-induced agricultural trade liberalisation in Switzerland on developing countries: an educated guess at possible scenarios Present parameters and prospects for trade liberalisation What is on the DDA table for agriculture? Prognosis for Swiss agriculture Impact on trade and production Impact on trade with developing countries LDC Market Access Conditions in Switzerland Tariffs Non-Tariff Measures Recent Performance of LDC Exports Trade Data Analysis Potential for increased LDC Exports to Switzerland The hole in the tariff wall The SPS barrage The potential additional LDC market access

3 LIST of TABLES Table 1 Value of agricultural production in Switzerland, in 1000 Fr. (current prices), 1990/ Table 2 Gross value added of the agricultural sector in Switzerland (current prices), Table 3 Farm labour force in Switzerland, Table 4 Employment in upstream and downstream industries linked to the agricultural sector in Switzerland, Table 5 Distribution of farm holdings by farm size, Table 6 Distribution of farm land (ha) by farm size, Table 7 Regional distribution of farm households in Switzerland, Table 8 Development of government expenses for agriculture (in million CHF), 1990/ Table 9 Regional distribution of direct subsidies in Switzerland, Table 10 Cantonal distribution of direct subsidies in Switzerland, Table 11 Trend in foreign trade in Switzerland (CHF billion), Table 12 Swiss Agricultural Trade by HS Chapters (1-24), Table 13 Swiss Agricultural Exports to Selected Partners, by HS Chapters (1-24), Table 14 Swiss Agricultural Imports From Selected Partnersss, by HS Chapters (1-24), Table 15 Tariffs and imports: summary and duty ranges Table 16 Frequency distribution of tariffs Table 17 Tariffs and imports by product groups in Switzerland Table 18 Cereal production in Switzerland (tonnes), Table 19 Trade volumes in cereals in Switzerland (US$), Table 20 Tariffs for wheat in Switzerland, January Table 21 Tariffs for maize in Switzerland, January Table 22 Price comparison in major cereals (CHF/100 kg), USA EU Switzerland, Table 23 Value of wheat imports into Switzerland ($US), Table 24 Value of maize imports into Switzerland ($US), Table 25 Sugar production in Switzerland (tonnes), Table 26 Trade volumes in sugar in Switzerland (US$), Table 27 Sugar Imports (refined and raw) in Switzerland ($US), Table 28 Sugar exports from LDCs to Switzerland ($US), Table 29Tariffs for raw sugar in Switzerland, January Table 30 Milk production in Switzerland (tonnes), Table 31 Trade volumes in dairy products in Switzerland (US$), Table 32 Milk and cream (HS 0401) imports into Switzerland ($US), Table 33 Milk and cream (HS 0402) imports in Switzerland ($US), Table 34 Tariffs for milk and cream, neither concentrated nor sweetened Table 35 Trade volumes in meat in Switzerland (US$), Table 36 Meat of bovine animals, fresh or chilled (HS 0202) imports in Switzerland, Table 37 Tariffs for meat of bovine animals, fresh or chilled Table 38 Meat production in Switzerland (tonnes), Table 39 Tariffs for chicken (not cut) Table 40 Meat, edible meat offal of domestic poultry (HS 0207) imports in Switzerland, Table 41 Production of vegetables and fruits in Switzerland (tonnes), Table 42 Tomatoes, fresh or chilled (HS 0702) imports into Switzerland, Table 43 Tariffs for tomatoes Table 44 Trade Volumes in Apples in Switzerland (US$), Table 45 Apples, fresh or chilled (HS ) imports into Switzerland, Table 46 Trade volumes in potatoes in Switzerland (US$), Table 47 Oilseed production in Switzerland (tonnes), Table 48 Trade volumes in oilseed products in Switzerland (US$), Table 49 Soya beans (HS ) imports into Switzerland, Table 50 Tariffs for soya beans Table 51 Soya-bean oil cake and other solid residues (HS ) imports into Switzerland, Table 52 Tariffs for soya-bean oil cake

4 Table 53 Trade volumes in miscellaneous edible preparations in Switzerland (US$), Table 54 Trade volumes in vegetable, fruit, nut, food preparations in Switzerland (US$), Table 55 Trade volumes in Cocoa and Cocoa Preparations in Switzerland (US$), Table 56 Market shares of the 5 top trading companies for green coffee in Table 57 Market shares of the 5 top coffee roasting and/or manufacturing groups in Table 58 Share of green coffee in total export value in selected coffee exporting LDCs in Table 59 Market shares of the top 10 coffee exporters in Uganda - Oct/Sept 2005/ LIST of FIGURES Figure 1 Change in distribution of holdings and farm land by farm size, 1990 vs Figure 2 Trend in Federal expenditure on agriculture and food, Figure 3 Trend in greenhouse-gas emissions in Switzerland Figure 4 Private coffee marketing chains in Uganda Figure 5 Mild Arabica Prices along the coffee chain

5 1. PHASE I As part of the Swiss Development Cooperation Agency s study assessing the sustainability impact of Swiss agricultural and trade policies on developing countries, this document summarises the research undertaken by the World Trade Institute University of Bern. First, it describes the general state of Swiss agriculture, including value of agricultural production, the evaluation of farm labour force, regional distribution of farm households and cropping patterns. Then it analyses trade trends and tariff structures in major agricultural commodities and foodstuffs. This includes an assessment of market access, including tariff structures and preference systems for developing and least developed countries. It also includes a review of the existing literature on the impact of Swiss agricultural policy on developing countries. Then, based on the current stage of multilateral trade negotiations, it assesses the likelihood of various trade liberalisation scenarios. Next, based on a stakeholder attitude survey conducted in Switzerland, the report describes the Swiss approach to sustainable agriculture. This draft report aims at providing a basis for further research on the sustainability impact assessment of Swiss agriculture and trade policies in developing countries General State of Swiss Agriculture The agricultural sector in Switzerland is known to be one of the most protected and subsidised in the world. Although its contribution to the Swiss economy and labour market has been declining, it still plays a significant role in the country s socio-cultural and political life, the effects of which go beyond Switzerland. The process of labour transition out of the agricultural sector continues. Under the potential pressure of regional and multilateral trade liberalisation, it continues to receive substantial government support through border protection and subsidies, which affects the existing trade with developing countries. Relative to the area of its arable land, Swiss agriculture is a significant producer of dairy products, meat, cereals, vegetables and fruits. Its arable land area is around 410,000 ha, constituting slightly more than 10 per cent of the total land. Pastures cover 1.1 million ha, amounting to 27 per cent of the total. Rainfed agriculture is predominant across the country, while irrigated land represents only 6 per cent of the arable land (FAO, 2008). Less than half of the arable land is devoted to cereal production. The area under fruits and vineyards is about 22,000 ha (BLW, 2007a, p. A4). The agricultural sector in Switzerland composes of three main production activities: crop production, livestock production and agricultural services. After a period of gradual decline in the 1990s, the production value of the sector has been relatively stable over recent years. There was a slight fall in 2006 of around 4 per cent, however, the estimated figures show that the production value of the sector recovered in 2007 at around CHF 10.5 billion (at current prices). The value of livestock production accounts for more than 47 per cent of the total, whereas the share of arable production is 43 per cent (BLW, 2007a, p. A14). Milk, meat, horticulture and animal feed production are the major components of the total output in the sector. 5

6 Table 1 Value of agricultural production in Switzerland, in CHF 1000 (current prices), 1990/ / Crop production Livestock production Total (including agricultural services) Source: BLW (2007a, p. A14) The share of the agricultural sector in GDP has been decreasing as it is not growing as fast as the rest of the economy. Currently, agriculture contributes to slightly less than 1 per cent of gross value added in Switzerland. Table 2 Gross value added of the agricultural sector in Switzerland (current prices), Agriculture (in million CHF) Total of all sectors (in million CHF) Share of agriculture in total (%) Source: BLW (2007a, p. 15), BLW (2006, p.13) The level of employment in the sector has been declining over recent years, too. Between 1990 and 2000, the size of farm labour force shrank from approximately to By 2006, it had further decreased to (BWL, 2007a, p. A2). Around half of this labour force is part-time farmers. The pace of the decline in number seems to have been similar for both part-time and full-time farmers. On the other hand, upstream and downstream linkage industries have also experienced similar trends. Between 1998 and 2005, the number of workers in upstream sectors (including agricultural machinery, seed and fodder production etc.) decreased from to Similarly, the level of employment in downstream industries (including milk and meat processing, bread production, retail trade in foodstuff beverages and tobacco products etc.) went down from to in the same period. However, of the downstream industries, employment in the food and drinks sector has been relatively stable at around (BWL, 2007a, p. A3). Table 3 Farm labour force in Switzerland, Percentage change Full-time employee Part-time employee Total Source: BLW, 2007a, p. A2. Table 4 Employment in upstream and downstream industries linked to the agricultural sector in Switzerland, Upstream industries Downstream Industries Food and drinks industry Source: BLW, 2007a, p. A3. In parallel to the process of labour transition from the agricultural to the non-agricultural sectors, land ownership patterns have also been changing. As members of the labour force opt out of agriculture, there has been a trend towards land concentration. Between 1990 and 2006, 6

7 the number of farm units decreased by almost a third, from to The number of relatively small farms has been declining, while middle- and large-scale holdings have been growing in number and size. For instance, the number of farms operating between 1 and 3 ha has decreased by 70 per cent. Similarly, the total amount of land in this category decreased from ha in 1990 to ha in By contrast, the number of farms units above 20 ha has seen a significant rise. For instance, farm units operating on ha have increased by nearly 140 per cent in number, and the total land under this category has increased by 170 per cent. Consequently, between 1990 and 2006, the average farm size increased from 12 ha to 17 ha. In addition, there has been a process of livelihood diversification within the sector itself. The share of non-farm sources in farm households income basket has been increasing. Between 1990/92 and 2006, the share of non-farm income rose from 20 per cent to 30 per cent (Agroscope Reckenholz Tanikon ART). 1 Therefore, while the labour transition out of agriculture continues, farmers diversify their income sources. Table 5 Distribution of farm holdings by farm size, Farm size (ha) Percentage change > Total Source: BLW, 2007a, p. A2. Table 6 Distribution of farm land (ha) by farm size, Farm size (ha) Percentage change > Total Source: BLW, 2007a, p. A2. 1 Cited in BWL, 2007b, p. 9. 7

8 Figure 1 Change in distribution of holdings and farm land by farm size (%, ha), 1990 vs % 150% 100% 50% Change in holdings Change in land size 0% -50% > % Source: Based on BLW, 2007a, p. A2. Swiss farms are categorised according to their location and the favourability of the agroecological zone in which they operate. Depending on certain measurements such as the altitude, the slope of plots and their distance to markets, farms are categorised in low land (valley), hilly areas, and four mountain groups. Of farms, per cent of the total are located in favourable lowlands where the bulk of cereals and horticultural production takes place. Slightly more than farms 27 per cent of the total are located in less favourable hilly areas. The remainder, around farms, are located in four mountain regions with more difficult and expensive farming conditions. These farms are usually involved in small-scale livestock and dairy production. The categorisation of Swiss farms as such is not only of technical or agro-ecological relevance, it is also of political and administrative importance as it affects the way subsidy policies function. Table 7 Regional distribution of farm households in Switzerland, Percentage change Lowland Hilly areas Mountain regions Total Source: BLW, 2007, p.11. The agricultural support policies are also relevant in relation to the ongoing labour transition from the agricultural to the non-agricultural sector. It is argued that rapid trade liberalisation and subsidy erosion measures may force the majority of farmers out of full- or part-time agriculture, which would also lead to further structural change through its impact on farm size and on cropping patterns. On the other hand, some argue that the existing protectionist 8

9 policies are too rigid to allow for more efficient use of natural and human resources, preventing Swiss agriculture from achieving higher levels of efficiency and competitiveness Subsidies The level of agricultural support is relatively high in Switzerland, ranking as the third highest among OECD countries, by Producer Support Equivalent (PSE). 2 The Swiss government spends an annual average of about CHF 4 billion (3.3 billion US$) on agriculture. Between 1996 and 2006, the annual federal spending ranged between CHF 4.2 billion (in 1997) and CHF 3.7 billion (in 2000). As such, the total amount of Federal government expenditure allocated to food and agriculture has been relatively stable. However, its share of total Federal spending has gradually declined from around 9 per cent in 1996 to 7.2 per cent in 2006 (BLW, 2007b, p. 6). Nevertheless, given that the number of farms shrank significantly, the subsidies per farm have actually increased during this period. There have also been significant changes in the form of agricultural subsidies and the relevant qualification requirements that farmers need to comply with. Figure 2 Trend in Federal expenditure on agriculture and food, Source: Cited in BLW (2007a, p.19) Looking at OECD figures, although there has been a slight fall in the level of producer support equivalent (PSE), it is still double the OECD average. The Swiss PSE declined from 77 per cent in to 66 per cent in This is more than twice as much as the OECD average of about 30 per cent. Swiss consumers and taxpayers share the bill for agricultural support through the combined effect of border protection and direct support. Although, it had been heavily biased against the consumer, there has been a trend towards 2 The Producer Support Estimate (PSE) is a measure used by OECD to evaluate the total value of transfers made to producers from consumers or taxpayers in a given year. The value of the PSE includes market price supports and non-market transfers (direct payments, input subsidies and other indirect supports). The percentage PSE is the total value of transfers as a percentage of the total domestic value of production. 9

10 balancing the shares of transfer from consumers and taxpayers. In 2006, based on OECD figures, the amount of transfer from consumers (ca. CHF 4 billion) and taxpayers (ca. CHF 4 billion) to farmers were almost equal. On the other hand, the average farm gate price was still twice as much as world prices in , implying that there is an implicit tax on consumers (as a result of border protection) at a rate of 50 per cent. At the commodity level, the level of direct commodity transfer (single commodity transfers) ranged from 30 to 80 per cent of commodity gross farm receipt. Poultry, beef, eggs, sugar and rapeseed received the highest level of commodity support, more than 60 per cent each (OECD, 2007, p 214). The structure of the agricultural subsidies has changed, however, more than half of the support (which includes border protection) is still considered to be production and trade distorting (OECD, 2007, p 215). The share of trade distorting subsidies in the form of variable input and commodity output subsidies declined from 90 per cent in to around 60 per cent in In the same period, the share of least distorting subsidies, in the form of de-coupled support, increased to 20 per cent (OECD, 2007, p 214). Swiss farmers can no longer rely on the government s generous price and sales guarantees. Moreover, they are required to comply with increasingly stringent environmental standards and farming practices in order to qualify for government subsidies (OECD, 2007, P213). Some forms of support involve even more stringent qualification requirements in the form of animal welfare, bio-farming (organic), etc. (OECD, 2007, p. 218) The Federal government subsidies in the agricultural and food sector take the form of direct payments, subsidies on production and sales promotion, payments towards structural improvements and other expenses. Table 8 Development of government expenses for agriculture (in million CHF), 1990/ / Direct payments (general and ecological) Promotion of production and sales Payments towards structural improvements Other expenses Total Source: BLW (2007, p.20) The amount and the share of direct payments in government expenses for agriculture increased from CHF 770 million in 1990/92 to 2550 million in There are two forms of direct payments general direct payments and ecological direct payments. In 2006, the government spent CHF 2000 million on general direct payments. This included, direct payment of around CHF 1300 million for agricultural area under cultivation, CHF 300 million for livestock units consuming roughage and CHF 280 million for livestock husbandry under difficult conditions. There were also some direct payments for farms and vineyards in highly sloping areas. On the other hand, ecological direct payments amounted to CHF 520 million in This included subsidies of around CHF 125 million in the form of ecological compensation and 200 million to promote animal welfare (BLW, 2007a, p.149). The Federal government also provides support for production and marketing of selected commodities. Although the total budgetary allocation for this type of subsidies has been declining, it is still significant on a product basis. For instance in 2006, market support for milk and various milk products (mainly cheese) amounted to CHF 440 million. Processing and utilization subsidies for sugar beet were approximately CHF 46 million. Similarly, oilseed 10

11 producers received CHF 36 million based on their production area. The Swiss government also provided some significant support for sale promotion for selected commodities such as cheese, milk and meat. In 2006, the total support for trade promotion amounted to CHF 55 million. Cheese producers received the biggest share with CHF 20 million (BLW, 2007, pp. A27-29) Government support for R&D On the other hand the amount of support to general services in agriculture including R&D agricultural schools, inspection services and market promotion has declined over the last 20 years. In the OECD s General Services Support Estimate (GSSE), it has dropped from about CHF 700 million to slightly more than CHF 500 million (OECD, 2007, p. 215) Regional distribution of subsidies There are regional variations in terms of the distribution of subsidies within Switzerland. According to the official categorisation of regions, based on lowland, hilly areas, and four mountainous areas ranged by the level of difficulty of farming, the distribution of subsidies can be analysed. Around 45 per cent of Swiss farms are located in lowland areas. The rest are divided between hilly areas (27 per cent) and four mountainous areas (28 per cent in total). This is reflected in the distribution of direct subsidies. Table 9 Regional distribution of direct subsidies in Switzerland, 2006 Direct payments Direct payments for area (%) Direct payments for animals (%) for livestock in difficult conditions (%) Ecological compensation (%) Direct payments for Animal welfare (%) Lowland Hilly areas Mountainous I Mountainous II Mountainous III Mountainous IV Total Total amount (million CHF) Source: Based on BLW (2007) page A31-A34 Since lowland areas contain the majority of Swiss farms, they get the biggest share of direct subsidies. They get a higher share of area-based direct payments, relative to their number, whereas farms located in mountainous areas benefit from a higher share of animal-related subsidies. Accordingly, farms located in lowland areas get half of the total area-based direct payments, 30 per cent of direct payments for animals, 58 per cent of ecological compensation and 46 per cent of total payments for animal welfare. Farms located in hilly areas receive a share of 14 per cent of area-based direct payments, 11 per cent of payments for livestock in difficult conditions, and 17 per cent of ecological compensation and animal welfare. Mountainous areas generally benefit from a higher share of animal-related subsidies. For instance, farms in the mountainous area II receive 20 per cent of the total direct payments for animals and 30 per cent of payments for livestock in difficult conditions. Similarly, farms located in mountainous area IV have double the share in direct payments for animals as compared to their share in area-based direct payments. 11

12 As for the distribution of agricultural support at the canton level, there are major variations. The Canton Bern (BE) receives by far the biggest share of direct support. In 2007, it received almost 20 per cent of direct payments based on area and animals respectively, and 25 per cent of payments for livestock in difficult conditions. The Canton Vaud (VD) was the second biggest beneficiary of area-based support, receiving 11 per cent of the total. The share of the Canton Graubünden (GR) (Grisons) was close to 15 per cent of the direct payments for livestock in difficult conditions. Similarly, Zurich (ZH), Lucerne (LU) and Fribourg (FR) were also major beneficiaries of direct income support. Table 10 Cantonal distribution of direct subsidies in Switzerland, 2006 Direct payments for area Direct payments for animals Direct payments for livestock in difficult conditions Cantons Million CHF Share of Canton in total (%) Average Farm Payment Million CHF Share of Canton in total (%) Average Farm Payment Million CHF Share of Canton in total (%) Average Farm Payment ZH BE LU UR SZ OW NW GL ZG FR SO BL SH AR AI SG GR AG TG TI VD VS NE GE JU Total Source: Based on BLW (2007), page A31-A32 There are also major inequalities across cantons in terms of average farm payments. In 2007, the average area-based direct support was CHF 23,750 per farm in Switzerland. However, at the canton level, it ranged from CHF 12,500 (Valais, VS) to CHF 37,000 (Vaud, VD). Similarly, the distribution of the direct payments for animals was uneven. The average direct payments for animals ranged from CHF 5700 (Obwalden, OW) to CHF 16,400 (Jura, JU). On the other hand, the average payment for livestock under difficult conditions was CHF 8400 per farm. Farms in the Canton Geneva (GE) received the lowest amount (CHF 3000) while an average farm in Graubünden (GR) received CHF 15,000 through this type of income support. 12

13 1.2. The Swiss approach to sustainable agriculture In Switzerland, article 104 of the Swiss Constitution states that the government must promote a market-based but sustainable agricultural sector that also ensures the conservation of natural resources and decentralized settlement. The legitimacy of promoting multifunctional agriculture in Switzerland is largely derived from this article. It is based on the assumption that farming (as defined in article 104) provides public services that are not remunerated by the market and therefore justify government intervention. Direct payments (aiming at ensuring a farm income that should not be below the national average) and eco-payments (giving additional support to farmers who apply certain agro-environmental measures 3 ) were especially designed to compensate for these public services. Generally, Swiss agriculture has become less intensive than it was in The adoption of integrated management practices (IP) increased from 1990 to 2000 from 10% to almost 100% (among farmers who have not switched to organic production); and organic farming has increased its share from being practised on 2% to around 10% of all Swiss farms. 4 In the same period, the extent of ecological restoration area (ökologische Ausgleichsflächen) increased from around hectares in 1993 to over hectares in In 2001, an additional executive order to promote ecological restoration areas of high quality by means of additional payments (ÖQV) was approved. In 2005, it constituted 27% of the total ecological restoration area or 3% of the total agricultural area. Mainly farmers in marginal areas were applying for such payments. Yet, over the past four years all the adoption curves have flattened, indicating that a ceiling may be reached in the willingness of Swiss farmers to adopt such practices. 6 As for chemical input, significant reductions have been achieved in regard to the use of more effıcient means of plant protection and input of phosphorus fertilizer (Schweizerischer Bundesrat, 2006). With some minor revisions (largely in favour of the interests of certain producer organisations), the upper and lower house of the Swiss legislature have approved the government budget for agriculture for the period of Agricultural Policy 2011, as the new government planning period is called, continues to be dedicated to the paradigm that structural change is inevitable but must be socially acceptable. Tariff trade barriers will be substantially reduced (albeit only by a third of what was suggested by the big players during the Doha Development Round), internal price support will be halved and export subsidies for unprocessed products will be abolished (by 2009 in Switzerland). At the same time, the expected loss of farm income due to lower prices will be compensated through more direct payments. Farm competitiveness should be further increased through an easing of the use of 3 Farmers must comply with evidence of ecological performance (Ökologischer Leistungsnachweis or, to use its abbreviation, ÖLN). 4 Moreover, many livestock farmers have embraced the animal welfare practices that were introduced in the 1990s: one animal welfare programme rewards farmers who keep their cattle on pastures on a regular basis (RAUS) and the other gives even higher rewards for special animal-friendly treatment (BTS). Today around 60% of Swiss farmers have adopted RAUS and around 40% BTS. 5 See also the report of biodiversity monitoring: Though the value of ecological restoration areas is generally acknowledged, there is not much tangible evidence that would confirm the assumption that biodiversity has significantly improved over the past ten years. 6 Over the last decade, organic vegetable and fruit production has been growing substantially. The total revenue of the market for organic products had increased from CHF 570 million in 1998 to CHF 1.2 billion in The number of organic farms increased from 1600 in 1994 to 6300 in Since then, however, it has been decreasing slightly (Bio Suisse, 2007, pp.1-7). 13

14 agricultural land (e.g. encouraging more agro-tourism) 7, easier access to cheaper input products from abroad (e.g. parallel imports), a strengthening of the system of geographical indication, sales promotion and investment support credits for local initiatives that are likely to add value to agriculture. Interestingly, there is hardly any mention of the role national agricultural research institutes (Agroscope) could play in enabling farmers to become more competitive and innovative. The budget for R&D in agriculture has been reduced significantly over the past decade and the research priorities shifted from production-related research to agro-ecological research (BLW, 2002). This shift was also accompanied by a stronger focus of the Agroscope Institutes on monitoring at the expense of their active participation in the development of agricultural goods in collaboration with the farmers. 8 Even though Agricultural Policy 2011 contains many reforms that could lead to more marketorientation in agriculture, the problematic past experiences with the multifunctionality approach are not addressed. For example, direct payments, which continue to be the foundation of Agricultural Policy 2001, indirectly raise the prices of agricultural inputs and food and discourage farmers from focusing on innovation and entrepreneurship (Rentsch et al. 2006). Furthermore, the social planning approach that underlies the concept of multifunctional agriculture does not encourage farmers to assume responsibility for the sustainable use of natural resources, because of the principal-agent problem: farmers (agents) are asked by the principal (state) to fulfil certain production standards and carried out certain activities on the farm in return for different types of direct payments. As a result, farmers try to maximize their direct payments with the least amount of effort. They pass on only the favourable information to principal that allows them to capture the payment but they conceal information that might endanger it. Agricultural Policy 2011 looks at technological progress as the main force behind structural change but, at the same time, tends to reduce its role to productivity increases and neglects its potential to improve food quality, create new food products and improve environmental management. There is also no clear evidence that the current agricultural policy approach is really the best way to achieve the objectives of sustainable agriculture as defined by Article 104 in the Swiss Constitution because the assumed implicit counterfactual scenario (collapse of average farm income, significant loss of cultivated land, disappearance of small-scale farming, large-scale monoculture farming, etc.) does not take into account the innovativeness and resourcefulness of Swiss farmers. 9 Although indicators of sustainable development have been developed to measure the economic, ecological and social sustainability of Swiss agriculture (BFS/BUWAL/ARE 2002), they tend to measure input rather than output performance of sustainable agriculture and it is often not clear whether environmental improvements have been achieved through ecological support measures or simply through technical progress. 10 The input-based nature of the sustainable development indicators in 7 The amendment to the law of agricultural land (bäuerliches Bodenrecht) in October 2007 does still not allow farmers to combine farming with other non-farming activities on their agricultural land. Moreover, inefficient farmers that mostly rely on direct payments as their main income source have not interest in selling their agricultural land to a more efficient farmers. In order words, direct payments artificially increase the value of land and thus decrease the incentive of inefficient farmers to sell their land. 8 The same applies to the Swiss National Science Foundation Programme landscapes and habits in the Swiss Alps (NFP 48) which looks at sustainable rural development mainly from a monitoring and social planning angle. NCCR Plant Survival (another Swiss National Science Project) is mainly focused on the importance of guaranteeing the biodiversity in natural areas and a sustainable agriculture. 9 Austria, for example, was forced to liberalise domestic agriculture when in acceded to the EU in In 2006, its ecological and social sustainability had a better record than Swiss agriculture (Disch 2006, Hochreither 2006). 10 For example, the use of more effective means of plant protection and phosphorus applications has significantly reduced the amount of chemical input. In the case of phosphorus, a genetically-modified enzyme (Phytase) that 14

15 Switzerland can be illustrated by the indicator biodiversity which is largely measured by the number of farmers who comply with agro-environmental measures (ÖLN). Yet, a survey by the Swiss Academy of Natural Sciences showed that the real impact of these measures on valuable biodiversity is minimal (Klaus 2005). The Swiss National Research Programme on Landscapes and Habitats of the Alps (NFP 48) 11 supports this insight to some extent. There is a general agreement that biodiversity in the Swiss Alps decreased - in spite of more direct payments for ecological services. Yet, researchers in NFP 48 attribute this more to the lack of focus local economic activities. They recommend an increase of targeted payments for ecological services rather than the design of new institutions in agricultural and environmental policy that would effectively address the principal-agent problem inherent in all policies that rely on social planning approaches Swiss agriculture and climate change The agricultural sector is the fourth biggest contributor of greenhouse gases in Switzerland, amounting to approximately 10 per cent of the total. Within the agricultural sector, livestock is the largest emitter with a share of 43 per cent. It is followed by agricultural land and manure management, contributing 17 per cent and 39 per cent, respectively (BLW, 2007b, pp ). The Federal Office for Agriculture claims that the sector s methane and nitrous oxide emissions have been declining as a result of the decline in the number of cattle and in the amount of mineral nitrogen fertilisers used in agriculture as compared to 1990 figures (BLW, 2007b, p. 13). Based on data from the Federal Office for the Environment and the Swiss Farmers Union, it is argued that the current emission levels are more than 8 per cent below 1990 levels, meeting the Kyoto target (BLW, 2007b, p. 13). Yet, another study by Binswanger and Jochen (2005) indicates that the share of greenhouse gas emissions produced by agriculture has increased compared to emissions by private households and industry in Switzerland. This is plausible in view of the fact that the number of Swiss farms and cattle may have decreased but the total area of agricultural land has not. The farms may therefore have increased in size, but not much in terms of economic and environmental efficiency. Figure 3 Trend in greenhouse-gas emissions in Switzerland Source. Cited in BLW, 2007b, p. 12. allows pigs to absorb phosphorus better is widely used in Swiss pig farming. This enzyme has reduced phosphorus effluence in pig farming all over Europe (Veum et al. 2006)

16 1.3. Swiss Trade Policies in Agriculture The share of agriculture in foreign trade is relatively small, although the volume of agricultural trade has significantly risen. The value of agricultural imports increased from approximately CHF 9 billion in 2004 to CHF 10 billion in 2006, representing a share of 6 per cent of the country s total imports. On the other hand, in the same period, the volume of agricultural exports has increased by 33 per cent. However, its share in total exports receipts is only 3% (BLW, 2007a, p.15). The EU is the biggest trade partner for agricultural goods, in terms of both imports and exports. Almost 80 per cent of all agricultural imports originate from the EU, while 70 per cent of Swiss agricultural exports go to the EU. Table 11 Trend in foreign trade in Switzerland (CHF billion), Percentage change Total imports Agricultural imports Agricultural imports from EU Share of EU in ag. exports 78% 76% 77% Total exports Agricultural exports Agricultural exports to EU Share of EU in ag. exports 70% 70% 70% Source. Based on BLW, 2007a, p15 Meat, fish, and dairy products, coffee, tea, tobacco, beverages and edible preparations are major product groups in the Swiss agricultural trade portfolio. In 2006, based on the Harmonized Commodity Description and Coding System (HS) in which chapters 1-24 categorise agricultural products, the biggest volume of trade took place in beverages, spirits and vinegar (HS Chapter 22) as the country imported a total of US$ 1300 million, and exported US$ 600 million. The second biggest volume was in miscellaneous edible preparations (HS Chapter 21) in which Switzerland is a net exporter, with a volume of around US$ 800 million (in 2006). In cocoa and cocoa preparations (HS Chapter 18), the country imported around US$ 350 million and exported US$ 550 million. Dairy products, eggs, honey, edible animal products (HS Chapter 4) were also traded in relatively large volumes. In 2006, exports under this chapter amounted to US $480 million, while imports amounted to US$ 370 million. Table 12 Swiss Agricultural Trade by HS Chapters (1-24)*, 2006 HS HS Category Exports ($) Imports ($) 1 Live animals 16,267,733 47,252,881 2 Meat and edible meat offal 26,707, ,818,891 3 Fish, crustaceans, molluscs, 3,809, ,756,397 aquatic invertebrates nes 4 Dairy products, eggs, honey, edible 482,223, ,255,603 animal product nes 5 Products of animal origin 16,825,919 51,406,608 6 Live trees, plants, bulbs, roots, cut 2,762, ,767,630 flowers etc 7 Edible vegetables and certain roots 3,393, ,174,164 and tubers 8 Edible fruit, nuts, peel of citrus fruit, 9,808, ,884,669 16

17 melons 9 Coffee, tea, mate and spices 174,345, ,600, Cereals 1,170, ,217, Milling products, malt, starches, 3,594,512 50,526,746 inulin, wheat gluten 12 Oil seed, oleagic fruits, grain, seed, 9,078, ,318,515 fruit, etc, nes 13 Lac, gums, resins, vegetable saps 84,013,996 66,941,228 and extracts nes 14 Vegetable plaiting materials, 330,575 4,826,365 vegetable products nes 15 Animal,vegetable fats and oils, 42,540, ,055,223 cleavage products, etc 16 Meat, fish and seafood food 3,637, ,059,494 preparations nes 17 Sugars and sugar confectionery 99,696, ,249, Cocoa and cocoa preparations 546,861, ,515, Cereal, flour, starch, milk 433,298, ,617,297 preparations and products 20 Vegetable, fruit, nut, etc food 201,745, ,531,912 preparations 21 Miscellaneous edible preparations 801,575, ,248, Beverages, spirits and vinegar 627,864,747 1,289,341, Residues, wastes of food industry, animal fodder 24 Tobacco and manufactured tobacco substitutes Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS) ,929, ,226, ,207, ,852,284 Looking at the trade volumes in agricultural goods between Switzerland and its major trade partners in developing countries - such as Brazil, India, South Africa, Thailand and Vietnam the country is a net importer. In 2006, the total of its agricultural exports (HS Chapters 1-24) to these six countries amounted to less than US$ 40 million. It exported mainly cocoa and cocoa preparations (HS Chapter 18) and miscellaneous edible preparations (HS Chapter 21). On the other hand, the total volume of its imports from these six partners was around US$ 550 million. Brazil was by far the most significant partner among the six, with a trade volume of approximately US$ 300 million. Swiss exports to Brazil amounted to only US$ 11 million. On the other hand, the volume of its imports was approximately US$ 290 million. Meat (HS Chapter 2) products were the most significant commodity in this volume, followed by coffee and tea (HS Chapter 9), vegetable, fruit, and nut preparations (HS Chapter 20), and tobacco (HS Chapter 24). South Africa, Thailand, Vietnam and India followed Brazil in term of the volume of their agricultural trade with Switzerland. In 2006, the volume of Thai agricultural exports to Switzerland amounted to US$ 77 million, mainly in the form of cereals, fish and fish products and edible vegetables. South Africa exported a total of US$ 67 million of agricultural products in which fruits, vegetables preparations, meat, fish and beverages constituted the bulk. Vietnam exported mainly fish, fish products and coffee. The major agricultural goods that India exported were coffee and tee products, cereals, fish products, animal fats and fruits.

18 Table 13 Swiss Agricultural Exports to Selected Partners ($), by HS Chapters (1-24)*, 2006 HS HS Category Brazil India South Thailand Vietnam Africa 1 Live animals 4'287 32'910 18'603 2 Meat and edible meat offal 3 Fish, crustaceans, molluscs, 8' '890 aquatic invertebrates nes 4 Dairy products, eggs, honey, edible animal product nes 5 Products of animal origin 337'165 1' '425 68' '432 1'148' '516 6 Live trees, plants, bulbs, 3'180 14'128 roots, cut flowers etc 7 Edible vegetables and certain 1 roots and tubers 8 Edible fruit, nuts, peel of 13'652 citrus fruit, melons 9 Coffee, tea, mate and spices 65'495 3' '077 2'177 20' Cereals Milling products, malt, '892 starches, inulin, wheat gluten 12 Oil seed, oleagic fruits, grain, 11'409 16'117 35'957 10'652 seed, fruit, etc, nes 13 Lac, gums, resins, vegetable 485'323 66' ' '055 1'755 saps and extracts nes 14 Vegetable plaiting materials, 168 2'384 10'342 20'425 vegetable products nes 15 Animal,vegetable fats and 16'909 36'413 21' '046 62'186 oils, cleavage products, etc 16 Meat, fish and seafood food 6'144 3'096 preparations nes 17 Sugars and sugar 281'131 89' ' '692 12'427 confectionery 18 Cocoa and cocoa 4'394'512 1'029'183 2'876'803 1'748' '313 preparations 19 Cereal, flour, starch, milk 180' ' '627 1'625'414 14'238 preparations and products 20 Vegetable, fruit, nut, etc food 231' ' ' '453 33'285 preparations 21 Miscellaneous edible 4'225' '108 5'283'655 3'848'069 1'433'299 preparations 22 Beverages, spirits and 46'330 16' '281 81' '772 vinegar 23 Residues, wastes of food 366'126 21'720 54'980 17'762 industry, animal fodder 24 Tobacco and manufactured 151' '593 50'120 76'249 1'421 tobacco substitutes Total 11'413'905 3'422'005 10'853'375 10'839'396 2'382'511 Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS) 18

19 Table 14 Swiss Agricultural Imports from Selected Partners ($), by HS Chapters (1-24)*, 2006 HS HS Category Brazil India South Thailand Vietnam Africa 1 Live animals 2'753 6' Meat and edible meat offal 93'685'597 12'497'045 3 Fish, crustaceans, molluscs, aquatic invertebrates nes 4 Dairy products, eggs, honey, 203'928 9'027 29'470 edible animal product nes 5 Products of animal origin 765' ' '582 6' '590 5'572'111 3'880'179 4'881'719 36'169'521 6 Live trees, plants, bulbs, 386' '195 1'609' ' roots, cut flowers etc 7 Edible vegetables and certain 2'189 3'659'955 2'254'939 9'694' '175 roots and tubers 8 Edible fruit, nuts, peel of 6'451'633 2'703'793 20'767'831 3'950'367 1'567'128 citrus fruit, melons 9 Coffee, tea, mate and spices 48'472'258 12'947' ' '205 9'826' Cereals 12'126'563 6'768'737 13'676 7'535' Milling products, malt, 27' ' '860 4'861 starches, inulin, wheat gluten 12 Oil seed, oleagic fruits, grain, 8'866'173 1'403' ' '207 7'005 seed, fruit, etc, nes 13 Lac, gums, resins, vegetable 238'707 3'457'175 7' '976 saps and extracts nes 14 Vegetable plaiting materials, 52'856 16'112 8'378 1'725 vegetable products nes 15 Animal,vegetable fats and 853'697 4'395'702 86' '543 oils, cleavage products, etc 16 Meat, fish and seafood food 3'574' '594 3'648 26'756'870 6'103'790 preparations nes 17 Sugars and sugar 799'986 63' ' '406 17'671 confectionery 18 Cocoa and cocoa 195' '470 preparations 19 Cereal, flour, starch, milk 153' '727 63'314 1'723' '168 preparations and products 20 Vegetable, fruit, nut, etc food 41'129'543 1'379'931 13'793'803 9'703' '887 preparations 21 Miscellaneous edible 889' ' '982 8'163'859 40'970 preparations 22 Beverages, spirits and 6'168'409 16'413 9'675'622 1'306'608 29'203 vinegar 23 Residues, wastes of food 42'372' '595 35'073 1'460'755 industry, animal fodder 24 Tobacco and manufactured 20'542'913 1'749'137 7'584 80'311 tobacco substitutes Total 288'076'086 48'585'978 67'209'413 76'513'587 55'957'813 Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS) 19