Switzerland is known for its breathtaking vista framed by the Alps in the background, and the iconic Swiss brown dairy cows grazing in the open field. Unbeknownst to many, the Swiss dairy farmers, who are supported under generous state subsidies (especially compared to their European counterparts) play an essential role in keeping the countryside picturesque.
Yet, yearly about 800 dairy farmers (4% of the total) are forced to quit farming and their way of life due to economic hardships and low business viability (Swissmilk, 2019); while the Swiss Federal Office of Agriculture (FOAG, 2018) pays out 1 billion CHF every year to subsidize dairy farming. This is happening against the backdrop of falling farm-gate pricing (the price that the farmers receive) of milk.
As dairy farming has a long history in the identity of Swissness (think: Emmental and Swiss Milk chocolate), we are diving into the issue of the true cost of milk and unravel the controversy boiling behind the pristine Swiss landscape. As we will see, the reasons are varied and complex. The consequences, however, cannot be more concrete.
A brief history of milk subsidies in Switzerland.
Dairy farming in Switzerland has been a political issue since the beginning of the 20th century. During the Second World War, the Swiss dairy associations were tasked to ration milk and dairy products, effectively supplying food to the country and prevented starvation (The Swiss Parliament, 2018). After the war, there was a general sense of ‘giving back’ to the farmers who fed the people during times of crisis and thus consequently, a Federal Law was passed on October 3, 1951 to regulate the Swiss milk market and guarantee Swiss farmers a basic milk price. However, soon federal funds were reaching its limits and through a series of additional state tariffs and state funding approved in the 1950s through the 1970s, the Swiss government decided in 1977 to introduce a quota on dairy products to reduce overproduction in the face of stagnating demand, which has been made possible with more efficient production methods.
The quotas did not stop the rising federal expenditure and at the same time, the pressure to liberalize world trade (GATT agreement) means that protectionist measures i.e. quotas and price guarantee are no longer compatible. By 1993, the Swiss Federal Council started to move away from price guarantee, replaced by more decoupled direct payments. Starting from 2005, the Federal Council started to phase out the milk quota and completely abolished it by May 1, 2009, leading to a ‘milk crisis’ that lasted for more than a year before the farm-gate milk price picked up again (CLAL, 2019). However, the farm-gate milk price still remains much lower than pre-2009 times.
What is at stake for the different actors in the milk business?
We identified five groups of actors who are involved or impacted by the subsidies in the milk sector namely the farmers, the associations (milk industries, milk product industries, farmer association), the government (WTO and Swiss federal government), the consumers, and the dairy processors. The graph below highlights the stakes for each of these actors which will influence their stance on milk subsidies in Switzerland. Seven categories of stakes were highlighted: prosperity, peace and justice, environment, power, well-being and health, free-trade (more generally, political ideology) and the sense of Swiss identity. Evidently, these stakes are more or less important for the different actors, and their consideration in decision varies from an actor to another. We notice that prosperity is an important choice motivator for all of the actors. While it is most important for the processors, it influences immensely the purchasing decision of the consumer, or the attractiveness of farming.
What is the position of the different actors in this industry?
Even though dairy farming contributes less than 0.5% of Switzerland’s GDP (in 2016) and agriculture continues to decline in its value add to the economy (1.1% in 2000 compared to 2.2% in 1990), the importance of dairy farming (and overall agriculture) to Switzerland is not purely economic (Swiss Federal Council, 2017). The Federal Council has a mandate from the constitution to protect rural livelihood and provide food security. It is interesting to note that milk and dairy consumption in Switzerland has been steadily decreasing as consumers are more aware of the high negative externalities of dairy farming and taken up milk alternatives that create less environmental impact, such as soy or oat ‘milk’ (Poore & Nemecek,2018). Additionally, since around one third of the surface area of the country is used by the agricultural sector, the farmers are also responsible for protecting and cultivating the ‘Swiss landscape’, which in the eyes of the federal government, brings great added value to the tourism industry (Swiss Federal Council, 2017).
With the implementation of the agreements from the Uruguay Round in 1993, Switzerland’s move to remove quotas and price support for its dairy products is seen by WTO to be in the right direction towards removing barriers to international trade and enhancing competition (WTO, 1996). However, the effect was almost catastrophic to the dairy industry. Currently, the dairy farmers receive on average 55 cents/litre of milk, only half of the cost to produce it (Lettau, 2016; Bradley, 2009). The Federation of Swiss Milk Producer, the Swiss Farmers’ Union and several other organizations who represent milk farmers and producers, insist that a rise in milk price is needed (Uniterre.ch, 2018; Swissmilk.ch, n.d.; Goumaz, 2017).
To add to the already complicated dairy landscape, Switzerland is dominated by the “Big Four” main dairy processors (Emmi, Hochdorf, Cremo and Elsa/Migros) that has a lot of power in determining the farm-gate pricing of milk(Lettau, 2016), even though they are highly dependent on the quality and branding of ‘Swiss milk’. The asymmetrical power dynamic is further aggravated by the high number of milk producers, which make it hard for them to put into practice a regulation system under private law despite multiple attempts by different farmer associations (Haller, 2014) due to the different interest both within the value chain and among producers.
The Federal Office of Agriculture (FOAG), with the mandate given to them by Article 104 of the Federal Constitution, sees the direct payment system as a method of increasing farmer compliance with multiple regulations aim to protect the environment against detrimental effects of high-intensity farming methods. However, as pointed by the Swiss Farmers’ Union ( Swiss Farmers’ Union, n.d.) the environmental and animal welfare regulations in Switzerland are the strictest in the world. Consequently, in order to keep producing under the compliance standards, farmers have to take up huge loans and often end up in debt (Swiss Farmers’ Union, n.d.). Farmers have expressed direct payment being a big source of stress (Temps Present, Paysan en détresse, 2017). With constant monitoring, they no longer feel independent and increasingly isolated, as they mostly have to work the land alone since hiring help is no longer economically feasible for many of them. The increasing incidences of suicides in the farming community are alarming; however, farmers often expressed a deep-rooted attachment to the land, which is not something that can be easily given up (Temps Present, Paysan en détresse, 2017).
Milk subsidies, given out as direct payments in Switzerland to dairy farmers is one of the ways the government protects the country’s dairy industry, agriculture and food security. Falling farm-gate milk price, compulsory environmental compliance and maintaining product quality are some of the big challenges. Yet, the farmers carry the main weight in protecting the soil and bring added value to the Swiss ‘dairy brand’, and should, therefore, be remunerated correctly. Since returning to quotas and closed borders seem very unlikely in the era of globalized trade, it is clear that the state must continue to financially support Swiss agriculture.
The question has always been less about “do we help the farmers?” but more of a “how?”
There have been concerted efforts within the farming communities to create structures and cooperative for farmers to sell their products directly to consumers, in order to free themselves from large-scale distributors. Although this is a positive step for the farmers, the local economy and the societal tightness of a community, it is not the golden ticket of a solution. Dairy farming is at a crossroad- its survival will be dependant on state support, yet bigger structural changes are desperately needed to shift the power distribution and trajectory of this industry.
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