CAP Reform Profile - Sweden

1 Background Information

2 Economics and Politics Shaping the Swedish Position Towards CAP Reform

2.1 Attitudes Towards the CAP - Past and Present

2.2 Views on the Health Check

2.3 The Current Swedish Position on a More Fundamental Reform

2.4 Views on Risk

2.5 Views on the EU Budget

2.6 Position on the Environment and Climate Change

2.7 Position on Food Security

2.8 Views on Transboundary Issues

Sources

The Swedish position on the reform of the CAP, especially on the more fundamental long term changes, is very radical, emphasising deregulation, phasing out single farm payments and rewarding the provision of public goods. The reasons for this position, both in terms of the Health Check and longer term reform, are set out below.

1 Background Information

Sweden is a small open economy with a GDP per capita of 28 200 Euros (2006), slightly above the EU average. Agriculture is economically insignificant as it contributes to only half a percent of GDP and about two percent of employment.

There are about 73 000 farms in Sweden of which 75 percent can be considered as commercial farms. Farms are predominantly pluriactive, with approximately 30 percent of farm household income originating from off-farm sources. Due to pluriactivity, farms of different sizes have approximately the same income.

Compared to other Member States, agricultural land constitutes only a small proportion of total land use in Sweden, around 8 percent. More than 60 percent of the arable land is found on the fertile plains of southern and central Sweden. Marginal land is found in northern Sweden where forestry completely dominates land use.

The conditions for crop production display great differences between the north and south of Sweden. The length of the growing season also varies because of the geography of the country. Crop production is strongly dominated by cereals and leys, the former mainly being wheat. Livestock production is dominated by milk. With the exception of grains, Sweden is a net importer of agricultural products.

As a result of the accession negotiations prior to Sweden joining the EU in 1995, Sweden was granted permission to pay a fully nationally financed support, Nordic Aid, to agriculture north of the 62nd parallel. The negotiations also resulted in a relative generous allocation of funds to rural development and, in particular, the agri-environment measure. The lion’s share of the funds for rural development (70-75%) over the current financing period (2007-2013) has been allocated to the present Axis 2, which focuses on the provision of public goods such as an attractive landscape and a living countryside.

Sweden is a substantial net contributor to the EU budget (in relative terms) due to the small size of its agricultural sector, a reasonably high GDP and a lack of serious regional imbalances.

2 Economics and Politics Shaping the Swedish Position Towards CAP Reform

The Swedish position on the reform of the CAP, especially on the more fundamental long term changes, is very radical, emphasising deregulation, phasing out single farm payments and rewarding the provision of public goods, and differs substantially from positions taken by most of the other Member States. The roots of those radical views can be found in past policies and are described below.

2.1 Attitudes Towards the CAP - Past and Present

Sweden has a long tradition of attaching importance to considerations other than narrow farm interests. A unique feature of the Swedish system in the past was the participation in agricultural policy matters of the Consumer Delegation, a government appointed body representing consumers’ interests. A radical reform of agricultural policy took place in 1967 aimed at accelerating structural change. Similar ideas were expressed in the famous memorandum of Mansholt but were rejected by the European Community. Prior to accession, in 1990, yet another decision to radically reform agricultural policy was taken by the Swedish government. The reform aimed at removing internal market regulations and export subsidies. The idea that high market price support could be justified on the grounds of so called non-market objectives was rejected. Rather, the provision of public goods was to be encouraged through direct payments. The removal of market regulation and especially export subsidies was expected to result in falling agricultural prices, in particular in the case of grains. Farmers were offered arable land payments as compensation. However, the payments were supposed to be only temporary.

The reform was never fully implemented due to the accession of Sweden to the European Union in 1995. However, the political legacy of the reform is still present and has affected the Swedish attitude towards the reform of the CAP ever since.

The CAP enjoys very little popularity with Swedish citizens. The policy is perceived as costly and bureaucratic with benefits accruing only to a tiny section of the population. It is not uncommon for the CAP to be blamed even for unrelated, negative incidents. In general, the attitude of the Swedish citizens towards the European Union is sceptical. Over 60 percent voted “no” in the referendum on adopting the euro in 2003. The fact that the country is a considerable net contributor to the budget (in per capita terms) is probably an important explanation of the sceptical attitude. The CAP contributes substantially to the EU-critical attitude due to the design of the policy and the budgetary costs it incurs. Accordingly, there is a strong domestic constituency for reforming the CAP. All political parties in the parliament are in favour of further reforms of the CAP.

The Federation of Swedish Farmers (LFR) is more market oriented than many of the other farm organisations in the Union. Swedish farmers accepted, albeit reluctantly, that agricultural policy needed to be reformed in 1990 (rather than taking to the streets in protest). To a large extent, LRF shares the views of the government on the long term future of the CAP but is of course much less radical. With respect to the Health Check, LRF is in favour of retaining coupling of the special male bovine premium and a lower rate of modulation than that proposed by the Commission.

The environment ... is a fundamental driving force of domestic policy considerations, in agriculture and elsewhere. The preservation of biodiversity and an open landscape are considered to be especially important objectives.

Because farms of different sizes have approximately similar household incomes, indicating that farmers are able to secure adequate earnings in agriculture and elsewhere, farm income is not much of an issue in the political debate. The environment, on the other hand, is a fundamental driving force of domestic policy considerations, in agriculture and elsewhere. The preservation of biodiversity and an open landscape are considered to be especially important objectives. Because agricultural land constitutes such a small share of total land use, land abandonment, especially of grazing land, would be detrimental to the achievement of these objectives.

2.2 Views on the Health Check

The Swedish position with respect to the Health Check should be seen in view of the long term objectives for the CAP reform, which are discussed above. The overriding priority for the Health Check is to reach outcomes which would facilitate the long term development of the CAP in the desired direction and avoid any outcomes which may prevent this from happening.

The Swedish position with respect to the Health Check can be summarised as follows. Sweden is in favour of full decoupling of single farm payments and the removal of remaining market instruments and supply management measures. More specifically, set aside, milk quotas and sugar quotas should be abolished. Milk quotas should be phased out. Total EU spending on agriculture should be reduced and the remaining funds should focus on rural development measures.

Sweden also believes that the system of payment entitlements should be simplified. It was suggested that the minimum payment amount is revised upwards. As regards trade issues it was suggested that the Health Check should include proposals to end all intervention, disposal schemes and export refunds with an emphasis on dairy and cereals. This should be done regardless of the outcome of the Doha round.

The Swedish position with respect to the Health Check proposals can be explained by both politics and economics. Sweden is a small open economy, highly dependent on trade and has therefore traditionally been free-trade oriented. The endorsement of a further liberalisation of agricultural trade follows from this orientation.

Sweden, has voiced concerns that extension of Article 68 could result in a situation where measures applied under this Article are not longer in compliance with the green box requirements of the WTO and that such a development could hamper future WTO negotiations. In particular, the national implementation should not result in re-coupling of support nor in the introduction of risk instruments into the CAP. Sweden is in favour of the simplification of the rules of cross compliance.

2.3 The Current Swedish Position on More Fundamental Reform

Deregulated and market-oriented agriculture is a long term objective of the government. Accordingly the government is in favour of full decoupling, the abolishment of compulsory set aside, and a harmonisation of the national payment systems, endorsing a transfer from a historical to a regional model. Such changes are also seen as desirable in order to avoid a distortion of competition.

Deregulated and market-oriented agriculture is a long term objective of the government.

The Swedish position also stresses the need for further trade liberalisation. As a small open economy, Sweden is strongly dependent on trade and has traditionally been free trade oriented. Export subsidies should be abolished in the long-run and free trade should be encouraged within the WTO. Transitional reforms could focus on issues such as animal welfare, food safety and sustainable production methods. Supporting public goods, such as biodiversity, open landscapes, wetlands and stone fences, should remain an important objective of the EU. Regional considerations should be taken into account.

Sweden is in favour of modulation because this follows the general policy direction that the country embarked on when reforming agricultural policy prior to accession. The reduction of spending in Pillar One is in accordance with the long term ambition to phase out untargeted subsidies. It should be recalled that the direct payments included in the Swedish reform in the early 1990s were supposed to be temporary.

By the same token, increased spending on Pillar Two follows the logic of rewarding societal services from farming. Sweden is, however, a net contributor to the EU budget and hence very sensitive to any worsening of its net position. Therefore a different instrument to the one presently suggested by the Commission is sought. Because spending on Pillar Two is already relatively high in Sweden, the country does not want increased modulation to be co-financed.

The Swedish government has stressed that the instrument of modulation should be improved as it is currently believed to be blunt and non-transparent. The distribution criteria should be improved to include the whole rural population and not only the agricultural sector. The guaranteed national allocation should be kept at 80 percent.

The Swedish position on capping and franchising (i.e. the minimum payment to be made) can be explained by the structural features of agriculture. The payment of small amounts to part-time or leisure farmers is costly and not meaningful if the recipients do not really need the money. Enhancing and endorsing structural change in agriculture has a long tradition in Swedish agricultural policy and the opposition to the capping of large payments, which is believed to be detrimental for structural development, should be seen in this perspective. Moreover, the long term objective of Sweden is to phase out payments rather than increase the palatability of the present system through marginal reforms.

2.4 Views on Risk

Agricultural insurance in Sweden is no longer subsidised in any way. The previous, heavily subsidised system was abolished in the late 1980s. The government has offered farmers little financial relief in case of major, nearly catastrophic, crop failures. For that reason, Sweden is against including risk instruments in the common policy.

The suggestion of a risk management scheme is therefore seen as a replacement for market regulation and a new form of indirect agricultural support. This is against the Swedish position, which as mentioned, advocates deregulation, market orientation and decreased budget spending.

2.5 Views on the EU Budget

The Swedish government believes that the EU budget should focus on competitiveness, environment and climate, justice and home affairs and external action. Within these areas measures that could provide added value at an EU level should be identified.

Accordingly, the EU budget should be reformed in order to substantially reduce expenditure within the CAP and Cohesion Policy. Future reforms of the CAP should further improve the coherence of the CAP in relation to development, trade and environmental policy.

Sweden stresses fair burden sharing as a guiding principle for the EU budget. An income system based on Member State wealth – expressed in terms of GNI (Gross National Income) - is regarded as suitable. But it is also pointed out that if this budget guiding principle results in disproportionate net contributions it will risk undermining the legitimacy of the EU. Also in this context, major reforms on the expenditure side are seen as necessary to prevent unequal budget sharing.

2.6 Position on Environment and Climate Change

The Swedish rural development programme for the period 2007-2013 is focused on environmental issues. Sustainable development, natural resource use and environmental objectives are priorities. Axis 2 measures will be used to improve the attractiveness of the landscape and reduce the negative environmental impacts of agriculture. Almost three quarters of the spending of the programme is within Axis 2.

Discussions on climate policy should be treated as an environmental issue. When the EU energy and climate package was put forward Ireland wanted to discuss the effects of this package on agricultural production and within the agriculture Council . The Swedish position was that the Irish issue was better handled by the environmental Council.

2.7 Position on Food Security

To improve market access of developing countries the Swedish government wants to decrease export subsidies, internal subsidies and trade barriers for agricultural products. Improved market access is believed to increase the stability of food supplies to poor countries.

As prices of food rose in 2007 the Swedish position was that short-term aid would be necessary for emergency relief but in the long-term the world’s poor would benefit from higher prices. The possibility of additional reform of the CAP was also hoped for so as to increase the coherence between the CAP and other policy areas, such as development policy.

2.8 Views on Transboundary Issues

There is no European added value in first pillar support of the CAP according to the Swedish government. An area that could provide European added value is spending targeted at competitiveness, for example spending on research and development at an EU level. Strategic investment in cross-border transport and energy infrastructure and education could also motivate common financing.

There is no European added value in first pillar support of the CAP according to the Swedish government.

Regional development should be a national or regional issue, except when it comes to the new member states. EU spending on economic and social cohesion should focus on new member states.

When there are cross-border public goods, targeted measures at an EU level could be justified. Rural development measures should be focused on genuine cross-border external effects.

The basic principle is that the polluter pays principle should apply. The EU budget should finance research to contribute to the development of technologies that could reduce greenhouse gas emissions. A common legislative framework is important, but Member States will have the financial responsibility for its implementation.

Last updated: 13 October 2008.

Sources

Swedish views on the Common Agricultural Policy and the health check review, non-paper may 2007, Jo2007/1816. Dated 15 of June 2008.

Reforming the Budget, Changing Europe – Sweden’s response to the Commission Communication, Prime Minister’s Office, Sweden.

Kommenterad dagordning 2008-03-10 (om det franska förslaget)

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PUBLICATION DATE

16 Oct 2008

AUTHOR

Ewa Rabinowicz and Cecilia Hammarlund, SLI

FURTHER INFORMATION

This article was written by Ewa Rabinowicz and Cecilia Hammarlund at the Swedish Institute for Food and Agricultural Economics (SLI).


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