SWISS AGRICULTURE AT THE CROSSROADS

UNCLAS BERN 000015 E.O. 12958: N/A TAGS: EAGR ECON SZ SUBJECT: SWISS AGRICULTURE AT THE CROSSROADS -------------- Summary -------------- ¶1. (U) During a January 20 roundtable luncheon on Swiss agriculture hosted by the Ambassador, representatives of the Swiss Government, parliament, and the agricultural media laid out their views on the challenges facing Swiss farmers and the prospects for an EU-Swiss agricultural free trade agreement, which is the Swiss Government's top trade priority for 2010. All agreed that an FTA with the EU, even if it provided balanced benefits with regard to market opening, would be heavily opposed by many Swiss farmers as well as large elements of the Swiss public. Switzerland's agricultural lobby is well-organized and effective. Furthermore, it would take at least a year to conclude negotiations with Brussels, delaying a parliamentary review of any text until at least early 2011, an election year. It is thus debatable whether an FTA could make it through the Swiss parliament before 2012. Even then, it would still likely have to survive a challenge from a popular referendum, which is an established right under Switzerland's constitution and routine on controversial questions. Given the above constraints, no participant in the luncheon rated the chances for actual enactment of an FTA with the EU at greater than 50 Percent. ¶2. (U) Markus Rediger, the director of the Information Service for the Agricultural Sector, said that the lack of progress of the WTO Doha round had lessened pressure for Swiss agriculture to make concessions on market opening. However, Swiss farmers would face much stronger demands to liberalize if the round started showing signs of progress on agriculture. Swiss farmers know that they face huge competitive problems vis a vis their EU counterparts. Land and labor costs are far higher in Switzerland than in the EU, and productive farmland is scarcer. As a result, participants see the best hope for Swiss agriculture in high quality production and increased cultivation of a "Swiss brand." Strong protection for geographic indicators is thus a 'sine quod non' for any trade agreement which would significantly open Switzerland's market. -------------- -------------- Switzerland's high cost, high quality farm sector -------------- -------------- ¶3. (U) On January 20, the Ambassador hosted a roundtable luncheon for representatives of Switzerland's agricultural industry. Participants included National Councilor Laurent Fauvre, a member of the parliamentary Committee on Environment Landscape and Energy; Jacques Chavaz, the Vice Director of Switzerland's Office of Agriculture; Ruedi Hagman, editor of Switzerland's largest agricultural newspaper (Bauern Zeitung); Simon Marti, editor of Swiss Farmer magazine, and Markus Rediger, Director of the Information Service for Swiss Agriculture, an industry promotion group. ¶4. (U) Agricultural Office vice Director Chavas provided an overview of Switzerland's farm sector. Chavas said that Swiss agriculture is still dealing with the impact of partial liberalizations from the past decade. The agricultural market has evolved from one in which the state pays farmers to grow crops to one where income support is now de-coupled from production. Furthermore, the market for processed agricultural products and cheese is now open, greatly increasing competition from EU farmers. Since May 2009, there are no longer any domestic production quotas for milk, and more efficient operations are allowed to compete directly with those less so. The result of these changes has been increased consolidation in the Swiss farming sector, with about 1.4% of Swiss farms now disappearing each year. ¶5. (U) Chavas said that there are about 61,000 farms in Switzerland. The typical Swiss farm is between 10 and 30 hectares (25-75 acres) in area, though about one-third of operations do not even achieve this scale. The farms are almost all family run operations, with only larger commercial farms typically employing outside labor. While entry into farming is unrestricted, the high cost of Swiss land and the requirement for individuals to have an agricultural education in order to take over farmland entitled to government support payments, serve as major entry barriers. Despite the small scale of its farming, Switzerland is 60 percent self-sufficient in food production. The self-sufficiency percentage is about 90 percent for meat and 100 percent for milk products (Switzerland is well endowed with dairy farms and alpine pasturage),but falls to roughly 45 percent for vegetable products. National Councilor Fauvre said that an overall 60 percent self-sufficiency rate is regarded as the minimum necessary for the nation's food security, and the ratio enjoys strong parliamentary backing. Market opening which leads to a significant drop in this figure would be unacceptable. -------------- -------------- Swiss consumers accept higher prices for Swiss products -------------- -------------- ¶6. (U) Agricultural Information Service director Rediger said that Swiss consumers are willing to pay somewhat more for Swiss farm products because they appreciate the quality and the contribution farms make to keeping the Swiss countryside looking beautiful. At present, the Swiss government estimates that Swiss consumers pay about 50 percent more than those in the EU for food products. However, when far higher Swiss incomes are taken into account, the typical Swiss household pays out only about 8 percent of its disposable income for food, or somewhat less than the EU average. Furthermore, the fact that most of Switzerland's population lives within and hour of the border (and EU supermarkets) serves to limit the gap. -------------- The Prospects for Market Liberalization -------------- 7.(U) With regard to negotiation of an agricultural free trade agreement with the EU, the Economics Department's top trade priority for 2010, all participants expressed skepticism regarding the prospects for early enactment. All agreed that an FTA with the EU, even if it provided balanced benefits to Swiss agriculture, would be heavily opposed by many Swiss farmers as well as large elements of the Swiss public, which appreciate Switzerland's garden-like rural landscape. Fauvre said that Switzerland's agricultural lobby is well-organized and effective, and has much influence in parliament. Furthermore, it will take at least a year to conclude any FTA negotiations with Brussels, delaying Swiss parliamentary review of a text until at least 2011, an election year. It is thus debatable whether an FTA could make it through the Swiss legislature before 2012. Even then, it would still have to survive a challenge from a popular referendum, which is an established right under Switzerland's constitution and almost certain on such a controversial question. Given the above constraints, none of the Swiss luncheon participants rated the chances of actual enactment of an EU-Switzerland FTA in agriculture as higher than 50 Percent. ¶8. (U) Nonetheless, the media representatives agreed that market liberalization would eventually be forced upon Switzerland if real progress is made on agriculture in the WTO Doha round. Swiss farmers need to prepare themselves for this more competitive future. Both Marti and Rediger expressed optimism that Switzerland's product strategy of innovation and high quality, which it successfully applies in other economic sectors, would also be the appropriate strategy for agriculture. Chavas noted that cheese trade with the EU had been liberalized and that Swiss farmers were competing very successfully, based on perceived higher quality. The key here was the ability to brand a Swiss product with a geographic origin, such as Gruyere cheese from the Fribourg region. This had allowed the Swiss to generate a trade surplus in cheese with the EU despite having far higher production costs. Fauvre said that Switzerland would take a far tougher line on geographical indicators than US agricultural negotiators. The protection of the Swiss brand is essential to the competitiveness of Swiss farmers, who will never be able to compete on price. Furthermore, the need to reduce the world's carbon footprint means that it will be more and more important for food to be grown near where it is consumed, thus saving energy consumed in transport. -------------- GMO's -------------- ¶9. (U) The participants agreed that the Swiss public is still highly skeptical of the benefits of GMO's in food production. The firms marketing GMO's had stressed the benefits that their products provided farmers. However, it was less clear how use of these seeds benefited consumers. The Swiss public is more relaxed about GMO's in products, such as cotton, that are used as industrial raw materials. However, the participants did not think that the public resistance to introduction of GMO food varieties was losing strength, despite the benefits they could bring in cutting consumption of fertilizers and pesticides. CARTER