Agriculture’s Importance for the Viability of Rural Norway



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Agriculture’s Importance for the Viability of Rural Norway

Arild Blekesaune




Centre for Rural Research

Norwegian University of Science and Technology

7491 Trondheim

Norway

Preface

In the summer 1998 the Norwegian Ministry of Agriculture started several research projects organised under a program on the multifunctionality of agriculture. Centre for Rural Research at the Norwegian University of Science and Technology has been involved in three of these projects. This report shows the results from one of them, focusing on the importance of agriculture for the viability of rural areas. The aim has been to analyse two approaches formulated by the Ministry of Agriculture. These approaches were:




  1. To what extent are rural districts important to the Norwegian society, and to what extent is agriculture important to rural development?

  2. To what extent is budgetary support necessary to maintain rural settlement pattern, employment, and sustainable development in rural areas, and is it necessary to link this support to levels of production?

In the organisation of this work, I have chosen to break down these approaches into four targets, by splitting each of the original approaches. I emphasise that these targets cannot be regarded as independent, but should rather be read as an analytical division of an extensive subject. My hope is that this analytical structure will make it easy to draw up logical, stringent and analytically consistent relations between the targets in this project. The targets I will touch in this report are:




  1. to analyse to what extent rural districts represent an important part of the Norwegian society.

  2. to analyse the degree to which agriculture is of importance in maintaining rural settlement pattern, employment, and sustainable development in rural areas.

and if agriculture is of importance:




  1. to analyse the extent to which budgetary support is a necessary condition for maintaining rural settlement, employment, and sustainable development in rural areas.

  2. and to assess to what extent budgetary support has to be linked to quantity of production.

The analysis of target 1 is mainly based on studies of relevant literature about Norwegian policy and Norwegian culture. The analysis of the other three targets also draws on empirical analysis of census and survey data. During the project period I have also had the pleasure to present various aspects from this report through speeches in several meetings and through participation in different groups examining connections between international negotiations on reductions in national support and protection of agriculture and a national policy for rural development. The information obtained through these activities also constitutes an important input in my analysis of these topics.




Index

1 Conclusions 50


Tables

Introduction
During the last decade, national and international pressure has brought Norwegian agriculture to the centre of the national political agenda. The income policy and the market regulation policy are probably shifting ground as agricultural policy responds to both international pressure for greater freedom of trade (i.e., World Trade Organisation), domestic concerns about the environmental effects of modern intensive farming systems, and the consumers' increased focus on lower food prices and reduction in production costs and subsidies. The farmers’ optimism from the 70’s has disappeared and political support for agriculture has been weakened. The new agricultural policy has not developed into a coherent system yet, although new structural tendencies have emerged.
Norwegian agriculture has for a long time been supported through administered prices, market regulations, supply control measures, and import restrictions. However, these market price supports are supplemented even more by different forms of direct payments. In recent years, the decrease in direct payments with strong links to production has been compensated by payments with weaker links to production, like direct payments to farmers on the basis of number of animals, amount of arable land, or size and location of farms. The main purpose of this shift has been to reduce over-production, and simultaneously support farm income, maintaining farming and settlement, providing incentives for reducing pollution and soil erosion, and maintaining food production capacity and the cultural landscape. During the last decade, the OECD’s PSE1 index, which measures the amount of national support to agriculture, has hardly changed, while the CSE2 index, which measures the long-term decline in share of support provided via market support mechanisms, shows a sharp decline steep (OECD 1998). This indicates that Norwegian agriculture has maintained the level of total support, but the sector’s channel of support has changed from production dependent to more production independent transfers.
This report aims to show how agriculture and agricultural policy exert influences on rural settlement and rural economy, and to analyse to what extent our national agricultural policy has been an essential condition for the viability of rural areas in Norway. The report will mainly focus on agriculture’s multifunctional roles from a micro-sociological view, but in such an analysis it is always necessary to emphasise the structural changes that will influence individual agency within the agriculture sector. Therefore, the report starts with a historical presentation of changes in the Norwegian agrarian structure and the agricultural policy during the post-war period. The intention with this presentation is to show that multifunctionality is not a new objective within the Norwegian agricultural policy. In chapter three, I will contribute to an ongoing discussion about the position of rural districts and rural culture in the Norwegian society, and try to clarify whether the high level of public support to Norwegian agriculture is based on peculiar cultural factors within the Norwegian society. In chapter four, I discuss whether the amount of public subsidies in Norwegian agriculture is a result of lobbying and political pressure from organised groups within farming, or whether these subsidies are based on distinctive sympathy on the part of the public. Chapter five is used to clarify some methodological problems connected to analyses of rural areas. In this chapter, I introduce a method for classification of municipalities which is based on the rural characteristics of different geographical areas. In chapter six, I have used survey and census data to analyse the degree to which farming is important to maintain rural settlement, rural employment, and to ensure a sustainable development in rural areas. The next three chapters analyse the necessity of budgetary support to sustain agriculture in rural areas. Chapter seven focuses on income inequalities between farmers in different areas. Chapter eight analyses the budgetary support more generally, while chapter nine looks more specifically on the needs for production dependent support. Chapter ten draws some conclusions from this report, and launches some topics for further research on agriculture’s multifunctional roles in rural areas.

Structural changes within Norwegian agriculture in the post-war period


Norwegian agriculture is marginal in many respects, including climatic conditions, poor quality of land, hilly topography, and small farms. With an average farm size of 11 hectares, and average dairy herds of 12 cows, Norwegian agricultural policy is a deviant case with its goal set in 1975 of equal incomes for farmers and industrial workers. Even though this goal has never been achieved (Almås 1993), it has given Norwegian farmers substantial welfare gains.
In some ways Norwegian agrarian history is quite unique in an European context. Special importance has been attached to the fact that peasant ownership of land, ownership based on the old Norse allodial law, survived during the Middle Ages. Norwegian agriculture has never contributed the necessary surplus to support a large non-working rural class of landowners, which might be the main reason why Norway was under Danish and later Swedish colonial rules up to 1905. Another important factor to understand the agriculture’s position in Norway is that the rural population surplus from the first part of the 19th century, owing to a comparatively late industrialisation and urbanisation, resulted in there being many crofters. From the first part of this century, crofting was abolished, and many of these crofters became smallholders. These smallholders have constituted the majority of the agrarian population throughout this century.
The large share of small and marginal farms in the Norwegian agrarian structure has been maintained by an agricultural policy with an extended focus on agriculture’s contribution to the whole society. Agricultural policy has not only been prepared to control food production, but has also been an important tool to ensure rural development. During recent years environmental preservation has also been an integrate objective in agricultural policy. In that way, the objective of Norwegian agricultural policy has been multifunctional for several decades.
Since many rural districts are highly dependent on farming, the viability of rural areas has been an important part of Norwegian agricultural policy during recent decades. This accumulation of multifunctional elements is not an unique feature in agricultural policy. Multifunctional elements are an integral part of most policies. For instance, regional policies in Norway are both administrated in an independent sector (the “small” regional policy), and are integrated into most other sectoral policies (the “big” regional policy). In that way, Norwegian agricultural policy has also been ascribed particular importance for the viability of rural economies and the entire welfare of rural areas.
The focus on non-food aspects within agriculture policy is not unique for Norway. After the Second World War, all of the advanced industrialised countries in the western world kept social peace with the farmers through subsidy arrangements in order to prevent the market power from having a free hand to undermine agriculture so rapidly that it could lead to serious political unrest (Friedmann 1978). The political architects of post-war Europe wanted to avoid any repetition of the polarisation that took place during the period between the wars, when the agricultural population’s varied social strata had supported extreme solutions of both right and left in politics (Almås 1992). Simultaneously it became clear that agriculture in these countries had too much manpower.
In Norway, the Social Democracy started to rationalise the farm structure in order to transfer labour force and capital from the agricultural sector to meet the growing demand for labour in the industry. There was a political consensus to sustain those family farms which would be necessary to supply the population with food.
The first focus on negative effects of the rationalisation of farm structure arose from the mid-50s. The reports from “The Agricultural Committee” of 1956 and “The Agricultural Appropriation Committee” of 1956 both discussed the negative consequences of an unconditional rationalisation of the farm structure. The subsequent Report to Storting No. 64 (1963-64), which was based on these committee reports, recommended strong protection of the Norwegian food market in order to maintain the welfare of the farm population, and introduced operating subsidies to avoid unintended consequences of structural rationalisation.
Ten years later, a report from the Øknes committee (NOU 1974: 26) concluded that the post-war policy, which aimed at increasing agricultural efficiency through phasing out small holdings, had been effective, but the report admitted that this policy had led to large income inequalities between different regions and among different types of holdings. In this period it was obvious that the negative effects of the structure-rationalisation policy had brought the mutual dependence between agriculture and rural areas to the centre of the national political agenda.
In 1975, the Norwegian Storting (Parliament) voted to equalise incomes between farmers and industrial workers by 1982. At that time, the professional debate over problems with a policy that supported large farm units had already been raging for more than a decade (Almås 1989). This debate was raised by the social scientist Ottar Brox (1966) who defended the smallholders justification and argued that pluri-active fisherman-farmer households in Northern Norway often experienced higher living standards than urban families, even though their cash incomes were lower. Instead of viewing the traditional way of life as irrational, Brox focused on the rationality within the tradition. He described the economical rationality in the small-scale coastal fishery combined with farming. This small-scale fisherman and peasant became the symbol for the North Norwegian identity and life form3.
In the short run, the effect of the 1975 resolution was strong optimism in the agricultural sector (Blekesaune & Almås 1992). Prices and subsidies increased relatively fast after 1975 (Vatn 1991). In current terms, average farm income more than doubled from 1975 to 1982 (Almås 1985). In real terms, the increase was 28 per cent. One might expect these rising incomes to lead to increased production, and gradually to an overproduction problem. However, Vatn’s analysis indicates that it is difficult to show any greater increase in production after 1975 than before, in spite of the much increased income possibilities. He asserts that the overproduction problems actually started because of reduced demand, due to cuts in consumer subsidies in the early 1980’s (Vatn 1991). On the other hand, Almås (1990) and Brox (1988) have argued that it was only farmers with excess production capacity in the middle of the 70’s who profited from the more expansive agricultural policy. Farmers who increased their production capacity after 1980, when the State reduced its subsidies and made other interventions in order to cut production, became the ‘losers’.
These two perspectives represent different views about farmers’ production behaviour. Vatn’s analysis indicates that improvements in income possibilities have a minor influence on the development of production, while Almås and Brox assert an increasingly competitive climate after 1975. This does not mean that Vatn ignores rational behaviour among farmers. He rather upholds farmers' expectations of price development as more important than past and current prices to explain adjustments in their behaviour (Vatn 1991). In my opinion, it is still possible to combine these two explanations of production behaviour in one model. Vatn’s analysis indicates that expectations about future policy are more important within agriculture than in many other sectors because of particular characteristics of family farming compared with other production systems. These characteristics are for instance that all comprehensive production changes involve long-term planning and relatively limited production flexibility after investment in one particular line of production. The need for long-term planning follows from the fact that the investment cycle follows the generation cycle to a great extent (Vatn 1991).

Agriculture in rural areas


Predictions from Statistics Norway shows that all of Norway's counties except for the county of Hedmark will increase in population over the next 10 years. The strongest growth will be expected to take place in the urban counties of Akershus, Oslo and Rogaland. In these counties the number of inhabitants will grow by nearly one percent per year. This is double the expected growth rate of the country as a whole.
Even if there is an increase in population in nearly all counties, there will be large variations at the municipality level4. The population of rural municipalities is expected to decline, while it will increase in urban municipalities. Predictions from Statistics Norway indicate that 230 of Norway’s 435 municipalities will see their population decline over the next decade5. This expected out-migration from rural areas can be a serious threat in many rural municipalities. Each municipality requires a minimum population level to maintain service institutions and their social capital. The result of the population decline in the most rural municipalities will probably be a demographic thinning out of the periphery. Aasbrenn (1989) argues that such processes threaten the existence of local and public services institutions, voluntary organisations, cultural activities, informal social networks and so forth. In other words, we can assume that the expected population decline will threaten the level of welfare of inhabitants in many rural areas.
As mentioned above, agricultural policy is an important part of the entire regional policy in Norway. Even the last parliamentary bill (St.prp. no 8, 1992-93), which removed the income goal from agricultural policy, emphasises that agricultural policy should contribute to a more comprehensive regional policy. This shows that the preservation of the settlement pattern in rural areas is still a goal in agriculture policy, even if the income policy and the market regulation policy are weakened as response to both international pressure from the World Trade Organisation for greater freedom of trade, and the consumers' increased sensitivity to food prices and subsidies going to large farms in central parts of the country.
During the 1980s, increasing differences in income among farmers were observed, in spite of the fact that a large part of the subsidies and other income payments were supposed to provide special support for smallholders in marginal areas. Brox (1988) argues that a relatively big share of these transfers went to agricultural households in central parts of the country, where we find the largest farms. The arrangements made to implement the policy of special support for marginal farming areas were not substantial enough to counterbalance the impact of the subsidies and transfers that vary with the volume of productive activity at the individual farm level.
From the mid-1990s, the GATT agreement from the Uruguay Round negotiation provides a framework for the long-term reform of agricultural trade and domestic agriculture policies for many years. The agricultural agreement makes a decisive move towards the objective of increased market orientation in agricultural trade, but it also includes some provisions that encourage the use of less trade-distorting domestic support policies to maintain the rural economies in the member countries.

Norwegian agriculture and international negotiations
The World Trade Organisation (WTO) is an inter-governmental organisation, which is the only international agency overseeing the rules of international trade. The previous General Agreement on Tariffs and Trade (GATT) has since 1947 been an ad hoc organisation, without a solid legal foundation, and it only dealt with trade in goods. The Uruguay Round (1986-94) expanded the scope of the international trade rules to cover goods, services and intellectual property, and the WTO was created to be an international organisation with a firmer legal basis that could cover the full range of trade issues.
Agriculture, which had since 1947 remained outside the scope of the GATT, was included in 1986 in the Uruguay Round of Multilateral Trade Negotiations. The Blair House Agreement, which was a compromise settlement between the USA and the EC in 1993 to prevent the possible collapse of the Uruguay Round, led to an agreement which was considerably less dramatic than the Norwegian negotiators could have expected during the first part of the Uruguay Round. In the end this agreement had the following consequences for Norwegian agricultural policy:


  • conversion of non-tariff import restrictions to fixed tariffs;

  • reduction of tariffs by an average of 36 percent, and minimum 15 percent for each commodity;

  • reduction of export subsidies by 36 percent;

  • reduction of national support measures for farmers by 20 percent.

These points should have had enormous consequences for farming and rural life in Norway, had there been no exceptions. Especially the last point on this list has been subject to many adjustment. Domestic forms of support that have a minimal impact on trade, i. e so-called “green box” policies which include general government services like research, disease control, infrastructure and food security, are not subject to the GATT provisions on reducing domestic support. The Norwegian negotiators hoped to attain an agreement that this exception also should include direct payments to producers, and the Blair House Agreement allowed for certain forms of income support which were "decoupled" from production. The introduction of “blue box” policies, which were intended to support smaller economies or for environmental protection, made it possible for Norway to put the General Area and Cultural Landscape Payments within this box. These payments, which are given for all arable land, sown grassland and fertilised pasture, depend only on some very general conditions which most farmers are meeting (Rønningen 1998).


The agreement from the Uruguay Round negotiations has been operative from 1995. The next WTO round on substantial reductions in support and protection of agriculture, that will start by the end of 1999, is mandated by Article 20 of the Agreement on Agriculture.

Article 20

Continuation of the Reform Process
Recognising that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period, taking into account:
a. the experience to that date from implementing the reduction commitments;

b. the effects of the reduction commitments on world trade in agriculture;

c. non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and

d. what further commitments are necessary to achieve the above mentioned long-term objectives.




Through Article 20, all WTO members are committed to initiating negotiations for continuing the reform process that began in Punta del Este in 1986. However, point c in Article 20 emphasises the importance of non-trade concerns and their implications for the multilateral trade system and national agricultural policy. The objectives and concerns mentioned in the preamble to this agreement are food security and the protection of the environment. Additionally, this exception will probably also include regional policies and other social aspects connected to non-trade concerns. Here we have to bear in mind that Norway stated, when the long-term objective and the non-trade concerns were discussed at the meeting of the Trade Negotiations Committee on 8 April 1989, that:


With regard to the long-term part we must on the Norwegian side stress again the importance which we attach to the non-trade concerns or the non-economic factors. These are central elements in our agricultural policies and extend not only to food security, but comprise also elements such as environment, regional policies and social aspects. Within a broader context they are vital to us”.
This interpretation was later repeated by the March 1998 Communiqué of the OECD, when the Agriculture Ministers recommended that the long-term objective of substantial reductions should be in conformity with payments for non-trade concerns.
This implies that the Agriculture Ministers in OECD have adopted a broad set of shared goals and policy principles covering all aspects of agricultural policy reform, and thereby allowing agriculture to manifest its multifunctional character in a transparent, targeted and efficient manner. The challenge in pursuing the shared goals is to find a range of well-targeted policy measures and approaches which can ensure that the growing concerns regarding food safety, food security, environmental protection and the viability of rural areas are met.
The situation for Norwegian agriculture is also different from the prevailing situation when the Uruguay Round started. At the end of 1980s we had still large food surpluses and ambiguous and partly incompatible goals for national agriculture policy. Today the state subsidies have to a large extent shifted from support entirely dependent on output towards production-neutral support. While support linked to amount produced made up 31 percent of the agricultural budget in 1986, this was reduced to 18 percent ten years later (St.prp. 72 1995-96). An important factor behind this change is the introduction of the General Area and Cultural Landscape Payments in 1989.

Even if agricultural policy has gone through comprehensive changes, it is most doubtful that an extended focus on agriculture’s multifunctional roles will protect us against further extensive re-adjustments. It is important to notice that multifunctionality is a newfangled concept which attempts to include quite a few aspects and spin-offs from agriculture. Therefore, different countries ascribe different meanings to this concept, and these meanings are closely connected with previous institutionalised targets in their respective national agricultural policies.


In Norway, agricultural policies have to a large extent been legitimated through agriculture’s contribution to more general regional policies. Norwegian regional policy has two main goals: (1) to maintain the residential pattern and develop sustainable regions in all parts of the country (St.meld. 31, 1996-97), and (2) to guarantee a minimum welfare standard to everybody, wherever they live (Aasbenn 1989). Therefore, regional development has been one important aim within agricultural policy during the last four decades, and that is the main reason behind Norway’s emphasising of viability of rural areas within the concept of multifunctionality. By that very fact that all political regimes in Norway during the last three decades have continued this political practice, and the lack of real opposition against this policy, implies that sympathy for the rural is a deep-rooted part of the Norwegian identity.

In the next two chapters I will discuss whether the amount of state subsidies to agriculture reflects Norwegian society's overall preferences for maintaining the viability of rural districts, or if the amount of public subsidies is a result of lobbying and political pressure from minority groups.


The position of rural districts in the Norwegian society


Even if the countryside has come to play a central role in defining national identity in most countries, we can see that different countries emphasise different aspects of the rural in their construction of national identities. Two of the most prominent socio-political forces seeking to define the cultural significance of rurality have been the peasant movement in France and the preservation movement in Britain (Lowe & Buller 1990). We can see a similar distinction in these countries’ focus on the contemporary countryside crisis. In France, it is the perceived demise of rural society, through the decline of a traditional way of life associated with the peasantry, which attracts concern, while the British focus has been much more strongly expressed over the decline in the rural landscape. The countryside discourse in Norway has, in contrast to the France and British discourses, mainly focused on equalisation of living conditions between rural and urban areas as a part of the welfare state policy.
It is often claimed that rural districts constitute an important part of Norwegians society, also compared with other European countries. Almås (1995) asserts that Norwegian culture is less centralised, less elitist, and more egalitarian than other European countries. Hompland (1991) claims that the transition between rural and urban is less clear in Norway than in other related countries.
If rural culture plays a particularly important role in Norwegian society, it could be due to a number of aspects in Norwegian culture. The distinct strength of rural districts could be explained in several ways. First, Norway was relatively late to be urbanised. Due to our climate and topography, Norwegian agriculture could not contribute the necessary surplus to maintain a large urban population. The marginal conditions for agriculture and late industrialisation meant that the rural population surplus from the first part of the 19th century resulted in many crofters, and many of these crofters became smallholders during the first part of this century. The fact that about one third of Norwegian farms have less than 5 hectares of arable land shows that these smallholders still constitute an important part of the agrarian population.
Second, many political and socio-political movements have tried to build a bridge over the traditional differences between urban and rural areas. The rural population has been an important electorate for all political parties, and the smallholders and part-time farmers have had particular influence on the labour movement. The working class was too small to make a strong enough basis for the socialdemocratic movement, which means that the Labour Party was partly dependent on support from the small farmers (Rønningen 1998). In 1933 the Norwegian Labour Party had the slogan “Town and countryside hand in hand” (By og land hand i hand) in their 1933 May Day parade, and “Better living conditions in urban and rural districts” (Bedre kår i by og bygd) in 1936. This shows that the rural population was an important constituency at least for the dominant Labour Party. According to Almås (1993), this political bridge-building led to the peculiar Norwegian political compromise between urban radicals and rural centrists, between people in Northern and Southern Norway, between working class and self-employed people in the primary industries – those political compromises which partly explain why Norwegian people are so reluctant to join EU.
Third, the Norwegian nation-building, which started in the middle of the 19th century, always used rural areas as the main icon. Therefore, I will look further at research results which could weaken or strengthen these assumptions.
A number of surveys of living conditions among the Norwegian population indicate that the equalisation policy, which aimed to break down the social and economic contradictions between town and country, has been so successful that today we can scarcely talk about differences in living conditions between rural and urban areas. However, it is less certain that this equalisation policy has been legitimated through the countryside’s importance in Norwegian culture. In order to say something about the causal relations between Norwegian culture and policy, I have to take a closer look at relations between rural culture and the equalisation policy. Is it possible to characterise the Norwegian society as a society where rural culture has penetrated state policy?
The late urbanisation in Norway meant that the majority of urban citizens still have near relatives in the countryside. This could be one important cause behind the political support for rural areas. There could also be other, and less clear, causal links underlying the relation between late urbanisation and political support to rural areas. The concept of urbanisation is used to describe both (a) the statistical measure of the proportion of a county’s population living in cities or settlements of a size-defined criterion, and (b) the social processes which are both cause and consequence of the urban way of life. Late urbanisation could imply that urban values and attitudes are less dominant in Norway than in countries with an earlier urbanisation and a stronger degree of urbanisation.


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