Economic Impact of Agricultural Liberalisation Policies on Organic Farming in Switzerland

Summary

The poor international competitiveness of Swiss agriculture and the high level of border protection in place have given rise to an ongoing public debate in Switzerland about whether agricultural markets should be comprehensively liberalised. More specifically, three different partial revisions of Swiss legislation on agriculture are currently under discussion (AP 2011 reform, WTO liberalisation agreement, EU agricultural free trade agreement), all of which aim to improve the competitiveness of the agri-food industry. Against this background, the overall aim of this thesis is to analyse the potential impact of these policies on land use, livestock husbandry and the financial performance of organic and non-organic farms. An additional aim of the thesis is to explore the implications of agricultural liberalisation for the relative profitability of organic farming. The research makes use of the sector-consistent farm group model CH-FARMIS, which enables an assessment of the impact of policy measures on different farm types, regions and organic and non-organic farming.
According to the model results, land use and the number of farm animals change in line with projected commodity prices. Due to considerable cost disadvantages, agricultural liberalisation affects arable and pig production in particular. At the same time the amount of grassland as a proportion of total farmland is expected to increase. Furthermore, the model results suggest that organic farms would respond to liberalisation policies in a similar way to non-organic farms. However, changes in land use and livestock husbandry are expected to be somewhat more pronounced on non-organic farms than on organic farms.
Due to falling commodity prices, it is expected that revenues from agricultural production will decrease and cause a significant reduction in agricultural incomes. It is anticipated that organic and non-organic farms are only partially able to compensate for lower commodity prices by lower production costs, higher direct payments or changes in farm management. In line with anticipated producer prices, the highest income losses are expected for farms located in the valley region with large arable or pig production. The lowest income losses are expected for grassland farms in the mountain region. In addition, the results of this research indicate that, on average, organic farms are less severely affected by liberalisation policies than non-organic farms. Accordingly, the relative profitability of organic farms is likely to improve with increased liberalisation.
Differences in prices, yields, production costs, direct payments and non-agricultural outputs are identified as the main determinants of the relative profitability of organic farms. Since revenues from agricultural production are expected to fall, price premiums and lower yields become somewhat less important for the relative economic success of organic farms. The opposite is true for direct payments and revenues from on-farm non-agricultural activities. An increase in direct payment rates, however, does not improve per se the relative profitability of organic farms. A positive impact can be expected especially if contributions for (extensive) grassland and animal welfare are increased, while an increase in arable area or dairy cow payments would be more beneficial for non-organic farms.
In view of the prospect that organic farms are likely to be less severely affected financially by liberalisation policies, it can be assumed that the number of organic farms will increase. Furthermore, the results of this thesis suggest that the number of organic / non-organic part-time farms as a proportion of total organic / non-organic agricultural holdings in Switzerland will also rise.