Farming as it should be in Switzerland

The Farmers Journal has looked at farming in countries that have a close trading relationship with the European Union (EU) but are not members. Last week, we examined farming in Norway and found that its role in food provision and countryside maintenance was truly valued by government. Now, in the first of a two-part series on Switzerland, we look at the direct and indirect support for farming and its importance despite its relatively small contribution to GDP at 0.75%.

The Swiss governing system may appear cumbersome from the outside, with 26 cantons that have considerable administrative autonomy (think county councils with enhanced powers). However, the system works for farming. The relationship is based on the Swiss constitution, which specifies that farmers have a “mandate to make an essential contribution to ensuring a secure supply of food for the general population through their production”.

The huge challenge to farming in Switzerland is that its picturesque, mountainous landscape and cold winters mean it has a high-cost production system. Less than 20% of the land can be classified as arable or quality grassland, with a further 12% classified as alpine pasture and the remainder either forest or non-productive. The Swiss GDP is about £487bn, and only 0.73% of this is generated by agriculture.

While the contribution of agriculture to the Swiss economy is small using traditional GDP measures, it is recognised as valuable, not just for food security contribution, but from a tourism perspective as well. Therefore, the sector attracts government support to the level of 10% of the national budget, with a strong focus on countryside maintenance.

Swiss government support for agriculture is twofold. There is a direct farm payment in return for farmers agreeing to focus on the environment and welfare-friendly production, not unfamiliar to EU farmers. Additionally, there is a robust market protection system through the use of import tariffs to prevent the market being oversupplied with cheaper produced imports, which would undermine the high-cost local production.

From a Scottish farmer’s perspective, Swiss prices look like they have been set by the genie and his magic lamp. Milk is considered a disaster in Switzerland at present, yet it is priced at the equivalent of 50p/l. Prime beef is in the order of the equivalent of £7.16/kg, while cow beef is an honourable £6.59/kg equivalent. Lamb is making the equivalent of £9.72/kg, though only a third of national consumption is produced internally.

The Swiss supply chain in meat is remarkably integrated, with the Coop and Migros supermarkets, which have 70% of the retail market between them, having dedicated processor suppliers. The high price paid for beef is reflected in the high retail price, with entrecote steak selling at up to £88/kg. Mince with 15% fat content retails at over £16.30/kg in the Coop. Milk, on the other hand, isn’t as expensive relatively, with a standard one-litre carton on sale at the equivalent of £1.23.

Unlike dairy, where there is an excess of production over consumption of around 20%, beef, like lamb, is in deficit, with Switzerland producing 84% of what it consumes. This guarantees a competitive domestic market, with the remaining 16% that is imported being closely controlled.

A government-appointed commodity board determines what additional requirement there is for imported product and a licence to import this is issued. This is then bid for by importers, who buy the entitlement to import the specified quantity at an extremely low tariff.

The value of the import licence at auction will be determined by the importer’s judgement of the external supply available and its price compared with the strength of the Swiss market. If external suppliers are cheap, the value of the licence will be high, but if the outside market is strong then the value of the import licence will be correspondingly low.

Beef product coming in under licence attracts a tariff the equivalent of 50p/kg, whereas if it is coming in without licence it would attract a tariff of £6.24/kg equivalent.

Direct support

Switzerland is a country of small family farms with 566,000 dairy cows and 121,000 suckler cows. The average farm size is 22 cows on 23ha and the average direct farm support payment is the equivalent of £49,000.

This, along with generous market returns by EU standards, means farmers earn a reasonable income in return for their work, though it is still below the average industrial wage. The difficult production environment along with strict strings attached to the direct payments imposes additional production cost, though inputs are not much higher than the EU average.

Support is weighted towards smaller alpine holdings. For example, a lowland 30ha farm with 30 milking cows, 15ha in arable and half a hectare of a vineyard will attract a payment of £65,000 equivalent. However, a small 15ha organic farm in a mountain region that is milking 15 cows will attract a payment the equivalent of almost £45,000, which is disproportionately higher.

Much to be learned from Swiss model

There is little doubt to paraphrase the famous beer ad that if they did farming, it would be something like this. Agricultural production is inextricably linked with a much more valuable tourist industry and farmers are charged with being custodians of the landscape. In return their value is recognised by government through direct payments for public goods and market protection through tariffs.

This model works in a country that has a deficit of production relative to supply and is not dependent on exports. It also requires a relatively wealthy economy to afford the payment and a continual and effective farm lobby to ensure that the political will doesn’t weaken with the passage of time. It isn’t directly transferrable to the UK or EU model yet historically this is what the CAP was. Production method was dictated by Brussels in return for a reasonable direct payment and access to the EU market from external low-cost production systems.

As the UK develops its own farming policy it needs to consider other models. Whilst the high level of support may be unachievable in a UK context lessons can be learned from the public goods offered. If we can get that thinking realigned, we can learn much from the Swiss as we did from the Norwegians previously.