The possible effects of Swiss agricultural policy on developing trading...

The Swiss Development Cooperation Agency Sustainability Impact Assessment Study

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The possible effects of Swiss agricultural policy on developing trading partners

World Trade Institute – University of Bern - Switzerland Name of the coordinating person: Dr Baris Karapinar Tel: +41 31 631 36 27 [email protected] List of participants:

Participant name Participant organisation

1. Dr Baris Karapinar World Trade Institute (WTI)

2. Dr Philipp Aerni WTI/ ETH Zurich

3. Dr Christian Häberli World Trade Institute (WTI)

4. Ms Monica Meister ETH Zurich

5. Ms Susan Newman School of Oriental and African

Studies (SOAS), UK


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LIST of CONTENTS 1. PHASE I ............................................................................................................................. 5

1.1. General State of Swiss Agriculture ............................................................................. 5 1.1.1. Subsidies............................................................................................................. 9 1.1.2. Government support for R&D.......................................................................... 11 1.1.3. Regional distribution of subsidies .................................................................... 11

1.2. The Swiss approach to sustainable agriculture.......................................................... 13 1.2.1. Swiss agriculture and climate change .............................................................. 15

1.3. Swiss Trade Policies in Agriculture .......................................................................... 16 1.3.1. Cereals.............................................................................................................. 21 1.3.2. Sugar................................................................................................................. 23 1.3.3. Milk and milk products .................................................................................... 25 1.3.4. Meat and meat products ................................................................................... 27 1.3.5. Vegetables and fruits ........................................................................................ 29 1.3.6. Oilseed.............................................................................................................. 31 1.3.7. Processed food products................................................................................... 32

1.4. Summary of Ugandan Coffee Chains Case study ..................................................... 34 1.4.1. Structure of the International coffee market .................................................... 34 1.4.2. Structure of coffee production and distribution in Uganda.............................. 35

1.5. Impact of WTO-induced agricultural trade liberalisation in Switzerland on developing countries: an educated guess at possible scenarios............................................ 38

1.5.1. Present parameters and prospects for trade liberalisation ................................ 38 1.5.2. What is on the DDA table for agriculture? ...................................................... 39 1.5.3. Prognosis for Swiss agriculture........................................................................ 41 1.5.4. Impact on trade and production........................................................................ 41 1.5.5. Impact on trade with developing countries ...................................................... 42

1.6. LDC Market Access Conditions in Switzerland........................................................ 44 1.6.1. Tariffs ............................................................................................................... 44 1.6.2. Non-Tariff Measures ........................................................................................ 47

1.7. Recent Performance of LDC Exports ........................................................................ 49 1.7.1. Trade Data ........................................................................................................ 49 1.7.2. Analysis............................................................................................................ 53

1.8. Potential for increased LDC Exports to Switzerland................................................. 54 1.8.1. The hole in the tariff wall ................................................................................. 55 1.8.2. The SPS barrage ............................................................................................... 55 1.8.3. The potential additional LDC market access ................................................... 56


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LIST of TABLES Table 1 Value of agricultural production in Switzerland, in 1000 Fr. (current prices), 1990/92–2007 .. 6 Table 2 Gross value added of the agricultural sector in Switzerland (current prices), 2002–2005......... 6 Table 3 Farm labour force in Switzerland, 1990–2000–2006 ................................................................. 6 Table 4 Employment in upstream and downstream industries linked to the agricultural sector in Switzerland, 1998–2001–2005................................................................................................................ 6 Table 5 Distribution of farm holdings by farm size, 1990–2000–2006 .................................................. 7 Table 6 Distribution of farm land (ha) by farm size, 1990–2000–2006.................................................. 7 Table 7 Regional distribution of farm households in Switzerland, 1990–2000–2006 ............................ 8 Table 8 Development of government expenses for agriculture (in million CHF), 1990/92–2006........ 10 Table 9 Regional distribution of direct subsidies in Switzerland, 2006................................................ 11 Table 10 Cantonal distribution of direct subsidies in Switzerland, 2006.............................................. 12 Table 11 Trend in foreign trade in Switzerland (CHF billion), 2004–2006.......................................... 16 Table 12 Swiss Agricultural Trade by HS Chapters (1-24), 2006......................................................... 16 Table 13 Swiss Agricultural Exports to Selected Partners, by HS Chapters (1-24), 2006.................... 18 Table 14 Swiss Agricultural Imports From Selected Partnersss, by HS Chapters (1-24), 2006 ........... 19 Table 15 Tariffs and imports: summary and duty ranges...................................................................... 20 Table 16 Frequency distribution of tariffs............................................................................................. 20 Table 17 Tariffs and imports by product groups in Switzerland........................................................... 21 Table 18 Cereal production in Switzerland (tonnes), 2002–2006 ......................................................... 21 Table 19 Trade volumes in cereals in Switzerland (US$), 2002–2006 ................................................. 21 Table 20 Tariffs for wheat in Switzerland, January 2008 ..................................................................... 22 Table 21 Tariffs for maize in Switzerland, January 2008 ..................................................................... 22 Table 22 Price comparison in major cereals (CHF/100 kg), USA – EU – Switzerland, 2005.............. 22 Table 23 Value of wheat imports into Switzerland ($US), 2002–2006 ............................................... 23 Table 24 Value of maize imports into Switzerland ($US), 2002–2006 .............................................. 23 Table 25 Sugar production in Switzerland (tonnes), 2002–2006 .......................................................... 23 Table 26 Trade volumes in sugar in Switzerland (US$), 2002–2006 ................................................... 23 Table 27 Sugar Imports (refined and raw) in Switzerland ($US), 2002–2006...................................... 24 Table 28 Sugar exports from LDCs to Switzerland ($US), 2005–2006................................................ 25 Table 29Tariffs for raw sugar in Switzerland, January 2008 ................................................................ 25 Table 30 Milk production in Switzerland (tonnes), 2002–2006............................................................ 25 Table 31 Trade volumes in dairy products in Switzerland (US$), 2002–2006 ..................................... 25 Table 32 Milk and cream (HS 0401) imports into Switzerland ($US), 2002–2006............................ 26 Table 33 Milk and cream (HS 0402) imports in Switzerland ($US), 2002–2006 ............................... 26 Table 34 Tariffs for milk and cream, neither concentrated nor sweetened ........................................... 26 Table 35 Trade volumes in meat in Switzerland (US$), 2002–2006 .................................................... 27 Table 36 Meat of bovine animals, fresh or chilled (HS 0202) imports in Switzerland, 2002–2006 ... 27 Table 37 Tariffs for meat of bovine animals, fresh or chilled............................................................... 28 Table 38 Meat production in Switzerland (tonnes), 2002–2006 ........................................................... 28 Table 39 Tariffs for chicken (not cut) ................................................................................................... 28 Table 40 Meat, edible meat offal of domestic poultry (HS 0207) imports in Switzerland, 2002–2006 28 Table 41 Production of vegetables and fruits in Switzerland (tonnes), 2002–2006.............................. 29 Table 42 Tomatoes, fresh or chilled (HS 0702) imports into Switzerland, 2002–2006 ...................... 29 Table 43 Tariffs for tomatoes ................................................................................................................ 29 Table 44 Trade Volumes in Apples in Switzerland (US$), 2002–2006................................................ 30 Table 45 Apples, fresh or chilled (HS 080810) imports into Switzerland, 2002–2006 ...................... 30 Table 46 Trade volumes in potatoes in Switzerland (US$), 2002–2006............................................... 30 Table 47 Oilseed production in Switzerland (tonnes), 2002–2006 ....................................................... 31 Table 48 Trade volumes in oilseed products in Switzerland (US$), 2002–2006 .................................. 31 Table 49 Soya beans (HS 120100) imports into Switzerland, 2002–2006.......................................... 31 Table 50 Tariffs for soya beans ............................................................................................................. 32 Table 51 Soya-bean oil cake and other solid residues (HS 230400) imports into Switzerland, 2002–2006....................................................................................................................................................... 32 Table 52 Tariffs for soya-bean oil cake................................................................................................. 32


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Table 53 Trade volumes in miscellaneous edible preparations in Switzerland (US$), 2002–2006 ...... 32 Table 54 Trade volumes in vegetable, fruit, nut, food preparations in Switzerland (US$), 2002–200633 Table 55 Trade volumes in Cocoa and Cocoa Preparations in Switzerland (US$), 2002–2006 ........... 33 Table 56 Market shares of the 5 top trading companies for green coffee in 2006 ................................ 34 Table 57 Market shares of the 5 top coffee roasting and/or manufacturing groups in 2006................. 35 Table 58 Share of green coffee in total export value in selected coffee exporting LDCs in 2005........ 35 Table 59 Market shares of the top 10 coffee exporters in Uganda - Oct/Sept 2005/06 ........................ 36 LIST of FIGURES Figure 1 Change in distribution of holdings and farm land by farm size, 1990 vs. 2006 .......... 8 Figure 2 Trend in Federal expenditure on agriculture and food, 1996–2006 ............................ 9 Figure 3 Trend in greenhouse-gas emissions in Switzerland................................................... 15 Figure 4 Private coffee marketing chains in Uganda ............................................................... 37 Figure 5 Mild Arabica Prices along the coffee chain............................................................... 37


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1. PHASE I As part of the Swiss Development Cooperation Agency’s study assessing the sustainability impact of Swiss agricultural and trade policies on developing countries, this document summarises the research undertaken by the World Trade Institute – University of Bern. First, it describes the general state of Swiss agriculture, including value of agricultural production, the evaluation of farm labour force, regional distribution of farm households and cropping patterns. Then it analyses trade trends and tariff structures in major agricultural commodities and foodstuffs. This includes an assessment of market access, including tariff structures and preference systems for developing and least developed countries. It also includes a review of the existing literature on the impact of Swiss agricultural policy on developing countries. Then, based on the current stage of multilateral trade negotiations, it assesses the likelihood of various trade liberalisation scenarios. Next, based on a stakeholder attitude survey conducted in Switzerland, the report describes the Swiss approach to sustainable agriculture. This draft report aims at providing a basis for further research on the sustainability impact assessment of Swiss agriculture and trade policies in developing countries.

1.1. General State of Swiss Agriculture

The agricultural sector in Switzerland is known to be one of the most protected and subsidised in the world. Although its contribution to the Swiss economy and labour market has been declining, it still plays a significant role in the country’s socio-cultural and political life, the effects of which go beyond Switzerland. The process of labour transition out of the agricultural sector continues. Under the potential pressure of regional and multilateral trade liberalisation, it continues to receive substantial government support through border protection and subsidies, which affects the existing trade with developing countries. Relative to the area of its arable land, Swiss agriculture is a significant producer of dairy products, meat, cereals, vegetables and fruits. Its arable land area is around 410,000 ha, constituting slightly more than 10 per cent of the total land. Pastures cover 1.1 million ha, amounting to 27 per cent of the total. Rainfed agriculture is predominant across the country, while irrigated land represents only 6 per cent of the arable land (FAO, 2008). Less than half of the arable land is devoted to cereal production. The area under fruits and vineyards is about 22,000 ha (BLW, 2007a, p. A4). The agricultural sector in Switzerland composes of three main production activities: crop production, livestock production and agricultural services. After a period of gradual decline in the 1990s, the production value of the sector has been relatively stable over recent years. There was a slight fall in 2006 of around 4 per cent, however, the estimated figures show that the production value of the sector recovered in 2007 at around CHF 10.5 billion (at current prices). The value of livestock production accounts for more than 47 per cent of the total, whereas the share of arable production is 43 per cent (BLW, 2007a, p. A14). Milk, meat, horticulture and animal feed production are the major components of the total output in the sector.


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Table 1 Value of agricultural production in Switzerland, in CHF 1000 (current prices), 1990/92–2007 1990/92 2004 2005 2006 2007Crop production 6 049 831 4 765 911 4 465 689 4 132 704 4 490 566Livestock production 7 275 760 5 195 297 4 948 798 4 911 635 4 907 200Total (including agricultural services) 14 109 823 10 895 500 10 346 734 9 979 298 10 366 252Source: BLW (2007a, p. A14) The share of the agricultural sector in GDP has been decreasing – as it is not growing as fast as the rest of the economy. Currently, agriculture contributes to slightly less than 1 per cent of gross value added in Switzerland. Table 2 Gross value added of the agricultural sector in Switzerland (current prices), 2002–2005

2002 2003 2004 2005

Agriculture (in million CHF) 4 370 3 960 4 392 4 083Total of all sectors (in million CHF)

435 734 412 244 424 751 436 400

Share of agriculture in total (%) 1.00 0.96 1.03 0.94Source: BLW (2007a, p. 15), BLW (2006, p.13) The level of employment in the sector has been declining over recent years, too. Between 1990 and 2000, the size of farm labour force shrank from approximately 250 000 to 200 000. By 2006, it had further decreased to 175 000 (BWL, 2007a, p. A2). Around half of this labour force is part-time farmers. The pace of the decline in number seems to have been similar for both part-time and full-time farmers. On the other hand, upstream and downstream linkage industries have also experienced similar trends. Between 1998 and 2005, the number of workers in upstream sectors (including agricultural machinery, seed and fodder production etc.) decreased from 58 000 to 50 000. Similarly, the level of employment in downstream industries (including milk and meat processing, bread production, retail trade in foodstuff beverages and tobacco products etc.) went down from 233 000 to 212 000 in the same period. However, of the downstream industries, employment in the food and drinks sector has been relatively stable at around 62 000 (BWL, 2007a, p. A3). Table 3 Farm labour force in Switzerland, 1990–2000–2006

1990 2000 2006

Percentage change

1990–2006 Full-time employee 127 565 95 995 82 100 - 36 Part-time employee 125 996 107 798 94 600 - 25 Total 253 561 203 793 176 700 - 30 Source: BLW, 2007a, p. A2. Table 4 Employment in upstream and downstream industries linked to the agricultural sector in Switzerland, 1998–2001–2005

1998 2001 2005

Upstream industries 57 904 58 070 49 978 Downstream Industries 232 811 220 055 212 397 Food and drinks industry 63 175 62 013 62 374 Source: BLW, 2007a, p. A3. In parallel to the process of labour transition from the agricultural to the non-agricultural sectors, land ownership patterns have also been changing. As members of the labour force opt out of agriculture, there has been a trend towards land concentration. Between 1990 and 2006,


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the number of farm units decreased by almost a third, from 93 000 to 63 000. The number of relatively small farms has been declining, while middle- and large-scale holdings have been growing in number and size. For instance, the number of farms operating between 1 and 3 ha has decreased by 70 per cent. Similarly, the total amount of land in this category decreased from 24 000 ha in 1990 to 7 100 ha in 2006. By contrast, the number of farms units above 20 ha has seen a significant rise. For instance, farm units operating on 70–100 ha have increased by nearly 140 per cent in number, and the total land under this category has increased by 170 per cent. Consequently, between 1990 and 2006, the average farm size increased from 12 ha to 17 ha. In addition, there has been a process of livelihood diversification within the sector itself. The share of non-farm sources in farm households’ income basket has been increasing. Between 1990/92 and 2006, the share of non-farm income rose from 20 per cent to 30 per cent (Agroscope Reckenholz – Tanikon ART).1 Therefore, while the labour transition out of agriculture continues, farmers diversify their income sources. Table 5 Distribution of farm holdings by farm size, 1990–2000–2006

Farm size (ha) 1990 2000 2006 Percentage change

1990–20060–1 6 629 3 609 2 800 -581–3 13 190 4 762 3 900 -703–5 8 259 5 393 3 900 -53

5–10 18 833 13 149 10 700 -4310–15 18 920 13 812 1 1500 -3915–20 12 710 11 172 9 900 -2220–25 6 677 7 244 7 100 625–30 3 364 4 430 4 700 4030–40 2 674 4 168 4 800 8040–50 875 1 591 1 900 11750–70 507 921 1 200 13770–100 127 209 300 136>100 50 77 100 100

Total 92 815 70 537 62 800 -32Source: BLW, 2007a, p. A2. Table 6 Distribution of farm land (ha) by farm size, 1990–2000–2006

Farm size (ha) 1990 2000 2006 Percentage change

1990–20060–1 2 895 1 336 1 000 -651–3 23 828 8 861 7 100 -703–5 32 243 21 348 15 500 -52

5–10 141 403 99 056 80 900 -4310–15 233 888 171 817 143 900 -3815–20 218 771 193 856 172 000 -2120–25 147 772 161 311 157 200 625–30 91 271 121 005 128 400 4130–40 90 726 142 266 163 100 8040–50 38 672 70 501 84 200 11850–70 28 849 52 672 70 200 14370–100 10 371 17 021 28 300 173>100 7 802 11 444 13 400 72

Total 1 068 491 1 072 494 1 065 200 0Source: BLW, 2007a, p. A2.

1 Cited in BWL, 2007b, p. 9.


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Figure 1 Change in distribution of holdings and farm land by farm size (%, ha), 1990 vs. 2006

-100%

-50%

0%

50%

100%

150%

200%

0-1 1-3 3-5 5-10

10-15

15-20

20-25

25-30

30-40

40-50

50-70

70-10

0>10

0

Change in holdingsChange in land size

Source: Based on BLW, 2007a, p. A2. Swiss farms are categorised according to their location and the favourability of the agro-ecological zone in which they operate. Depending on certain measurements such as the altitude, the slope of plots and their distance to markets, farms are categorised in low land (valley), hilly areas, and four mountain groups. Of 63 000 farms, 28 000 – 45 per cent of the total – are located in favourable lowlands where the bulk of cereals and horticultural production takes place. Slightly more than 17 000 farms – 27 per cent of the total – are located in less favourable hilly areas. The remainder, around 18 000 farms, are located in four mountain regions with more difficult and expensive farming conditions. These farms are usually involved in small-scale livestock and dairy production. The categorisation of Swiss farms as such is not only of technical or agro-ecological relevance, it is also of political and administrative importance as it affects the way subsidy policies function. Table 7 Regional distribution of farm households in Switzerland, 1990–2000–2006 1990 2000 2006 Percentage

change 1990–2006

Lowland 41 590 31 612 28 100 -32 Hilly areas 24 541 18 957 17 100 -30 Mountain regions 26 684 19 968 17 600 -34 Total 92 815 70 537 62 800 -32 Source: BLW, 2007, p.11. The agricultural support policies are also relevant in relation to the ongoing labour transition from the agricultural to the non-agricultural sector. It is argued that rapid trade liberalisation and subsidy erosion measures may force the majority of farmers out of full- or part-time agriculture, which would also lead to further structural change through its impact on farm size and on cropping patterns. On the other hand, some argue that the existing protectionist


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policies are too rigid to allow for more efficient use of natural and human resources, preventing Swiss agriculture from achieving higher levels of efficiency and competitiveness.

1.1.1. Subsidies The level of agricultural support is relatively high in Switzerland, ranking as the third highest among OECD countries, by Producer Support Equivalent (PSE).2 The Swiss government spends an annual average of about CHF 4 billion (3.3 billion US$) on agriculture. Between 1996 and 2006, the annual federal spending ranged between CHF 4.2 billion (in 1997) and CHF 3.7 billion (in 2000). As such, the total amount of Federal government expenditure allocated to food and agriculture has been relatively stable. However, its share of total Federal spending has gradually declined from around 9 per cent in 1996 to 7.2 per cent in 2006 (BLW, 2007b, p. 6). Nevertheless, given that the number of farms shrank significantly, the subsidies per farm have actually increased during this period. There have also been significant changes in the form of agricultural subsidies and the relevant qualification requirements that farmers need to comply with. Figure 2 Trend in Federal expenditure on agriculture and food, 1996–2006

Source: Cited in BLW (2007a, p.19) Looking at OECD figures, although there has been a slight fall in the level of producer support equivalent (PSE), it is still double the OECD average. The Swiss PSE declined from 77 per cent in 1986–88 to 66 per cent in 2004–2006. This is more than twice as much as the OECD average of about 30 per cent. Swiss consumers and taxpayers share the bill for agricultural support through the combined effect of border protection and direct support. Although, it had been heavily biased against the consumer, there has been a trend towards

2 The Producer Support Estimate (PSE) is a measure used by OECD to evaluate the total value of transfers made to producers from consumers or taxpayers in a given year. The value of the PSE includes market price supports and non-market transfers (direct payments, input subsidies and other indirect supports). The percentage PSE is the total value of transfers as a percentage of the total domestic value of production.


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balancing the shares of transfer from consumers and taxpayers. In 2006, based on OECD figures, the amount of transfer from consumers (ca. CHF 4 billion) and taxpayers (ca. CHF 4 billion) to farmers were almost equal. On the other hand, the average farm gate price was still twice as much as world prices in 2004–2006, implying that there is an implicit tax on consumers (as a result of border protection) at a rate of 50 per cent. At the commodity level, the level of direct commodity transfer (single commodity transfers) ranged from 30 to 80 per cent of commodity gross farm receipt. Poultry, beef, eggs, sugar and rapeseed received the highest level of commodity support, more than 60 per cent each (OECD, 2007, p 214). The structure of the agricultural subsidies has changed, however, more than half of the support (which includes border protection) is still considered to be production and trade distorting (OECD, 2007, p 215). The share of trade distorting subsidies in the form of variable input and commodity output subsidies declined from 90 per cent in1986–1988 to around 60 per cent in 2004–2006. In the same period, the share of least distorting subsidies, in the form of de-coupled support, increased to 20 per cent (OECD, 2007, p 214). Swiss farmers can no longer rely on the government’s generous price and sales guarantees. Moreover, they are required to comply with increasingly stringent environmental standards and farming practices in order to qualify for government subsidies (OECD, 2007, P213). Some forms of support involve even more stringent qualification requirements in the form of animal welfare, bio-farming (organic), etc. (OECD, 2007, p. 218) The Federal government subsidies in the agricultural and food sector take the form of direct payments, subsidies on production and sales promotion, payments towards structural improvements and other expenses. Table 8 Development of government expenses for agriculture (in million CHF), 1990/92–2006 1990/92 2004 2005 2006Direct payments (general and ecological) 772 2 498 2 464 2 553Promotion of production and sales 1 685 731 677 606Payments towards structural improvements 186 202 178 201Other expenses 405 471 452 434Total 3 048 3 902 3 771 3 794Source: BLW (2007, p.20) The amount and the share of direct payments in government expenses for agriculture increased from CHF 770 million in 1990/92 to 2550 million in 2006. There are two forms of direct payments – general direct payments and ecological direct payments. In 2006, the government spent CHF 2000 million on general direct payments. This included, direct payment of around CHF 1300 million for agricultural area under cultivation, CHF 300 million for livestock units consuming roughage and CHF 280 million for livestock husbandry under difficult conditions. There were also some direct payments for farms and vineyards in highly sloping areas. On the other hand, ecological direct payments amounted to CHF 520 million in 2006. This included subsidies of around CHF 125 million in the form of ecological compensation and 200 million to promote animal welfare (BLW, 2007a, p.149). The Federal government also provides support for production and marketing of selected commodities. Although the total budgetary allocation for this type of subsidies has been declining, it is still significant on a product basis. For instance in 2006, market support for milk and various milk products (mainly cheese) amounted to CHF 440 million. Processing and utilization subsidies for sugar beet were approximately CHF 46 million. Similarly, oilseed


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producers received CHF 36 million based on their production area. The Swiss government also provided some significant support for sale promotion for selected commodities such as cheese, milk and meat. In 2006, the total support for trade promotion amounted to CHF 55 million. Cheese producers received the biggest share with CHF 20 million (BLW, 2007, pp. A27-29).

1.1.2. Government support for R&D On the other hand the amount of support to general services in agriculture – including R&D agricultural schools, inspection services and market promotion – has declined over the last 20 years. In the OECD’s General Services Support Estimate (GSSE), it has dropped from about CHF 700 million to slightly more than CHF 500 million (OECD, 2007, p. 215).

1.1.3. Regional distribution of subsidies There are regional variations in terms of the distribution of subsidies within Switzerland. According to the official categorisation of regions, based on lowland, hilly areas, and four mountainous areas ranged by the level of difficulty of farming, the distribution of subsidies can be analysed. Around 45 per cent of Swiss farms are located in lowland areas. The rest are divided between hilly areas (27 per cent) and four mountainous areas (28 per cent in total). This is reflected in the distribution of direct subsidies. Table 9 Regional distribution of direct subsidies in Switzerland, 2006

Direct payments

for area (%)

Direct payments

for animals (%)

Direct payments

for livestock in difficult

conditions (%)

Ecological compensation

(%)

Direct payments for Animal

welfare (%)

Lowland 50 30 2 58 46 Hilly areas 14 13 11 17 17 Mountainous I 11 13 17 8 13 Mountainous II 14 20 31 8 14 Mountainous III 8 16 24 5 7 Mountainous IV 4 8 15 4 3 Total 100 100 100 100 100 Total amount (million CHF)

1 319 301 281 127 203

Source: Based on BLW (2007) page A31-A34 Since lowland areas contain the majority of Swiss farms, they get the biggest share of direct subsidies. They get a higher share of area-based direct payments, relative to their number, whereas farms located in mountainous areas benefit from a higher share of animal-related subsidies. Accordingly, farms located in lowland areas get half of the total area-based direct payments, 30 per cent of direct payments for animals, 58 per cent of ecological compensation and 46 per cent of total payments for animal welfare. Farms located in hilly areas receive a share of 14 per cent of area-based direct payments, 11 per cent of payments for livestock in difficult conditions, and 17 per cent of ecological compensation and animal welfare. Mountainous areas generally benefit from a higher share of animal-related subsidies. For instance, farms in the mountainous area II receive 20 per cent of the total direct payments for animals and 30 per cent of payments for livestock in difficult conditions. Similarly, farms located in mountainous area IV have double the share in direct payments for animals as compared to their share in area-based direct payments.


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As for the distribution of agricultural support at the canton level, there are major variations. The Canton Bern (BE) receives by far the biggest share of direct support. In 2007, it received almost 20 per cent of direct payments based on area and animals respectively, and 25 per cent of payments for livestock in difficult conditions. The Canton Vaud (VD) was the second biggest beneficiary of area-based support, receiving 11 per cent of the total. The share of the Canton Graubünden (GR) (Grisons) was close to 15 per cent of the direct payments for livestock in difficult conditions. Similarly, Zurich (ZH), Lucerne (LU) and Fribourg (FR) were also major beneficiaries of direct income support. Table 10 Cantonal distribution of direct subsidies in Switzerland, 2006 Direct payments for area Direct payments for animals Direct payments for livestock

in difficult conditions Cantons

Million CHF

Share of Canton in total (%)

Average Farm Payment

Million CHF



Million CHF



ZH 94.8 7.2 26802 15.2 5.0 8384 3.9 1.4 4987BE 243.7 18.5 19902 57.3 19.0 7020 71.2 25.3 8205LU 97.3 7.4 19653 23.5 7.8 8012 20.9 7.4 6429UR 8 0.6 12539 4.5 1.5 7653 6.9 2.5 10935SZ 28.8 2.2 17658 12.3 4.1 8650 12.8 4.6 8725OW 9.4 0.7 13743 3.3 1.1 5690 5.8 2.1 8815NW 7.3 0.6 14990 2.2 0.7 5851 3.7 1.3 8061GL 8.6 0.7 21287 3.3 1.1 8549 4.2 1.5 11570ZG 13 1.0 23551 2.9 1.0 7796 2.8 1.0 7713FR 97.3 7.4 31347 16 5.3 8700 12.3 4.4 6985SO 41 3.1 29603 7.8 2.6 9059 3.7 1.3 6136BL 27 2.0 29095 5.4 1.8 8926 3 1.1 4380SH 19.6 1.5 34752 2.4 0.8 10345 0.3 0.1 2479AR 14.3 1.1 19403 4.2 1.4 7143 7 2.5 9563AI 8.7 0.7 16231 2.2 0.7 6111 5.6 2.0 10606SG 87 6.6 20606 25.7 8.5 8272 22 7.8 7511GR 62.9 4.8 24127 29.3 9.7 11829 37.5 13.3 14952AG 79.8 6.1 26371 13.6 4.5 9067 3.4 1.2 3122TG 65.5 5.0 25260 6.7 2.2 7428 0.9 0.3 5202TI 15.8 1.2 17873 5.4 1.8 7976 6.4 2.3 9877VD 144.1 10.9 37006 20.7 6.9 10958 9.3 3.3 7381VS 45.5 3.5 12562 14.4 4.8 6590 21 7.5 9598NE 38.3 2.9 42367 7.3 2.4 11388 8.8 3.1 11671GE 14 1.1 46053 1.2 0.4 12121 0.003 0.0 3000JU 47.1 3.6 44309 14.5 4.8 16440 7.7 2.7 10145Total 1318.8 100.0 23761 301.3 100.0 8493 281.103 100.0 8419Source: Based on BLW (2007), page A31-A32 There are also major inequalities across cantons in terms of average farm payments. In 2007, the average area-based direct support was CHF 23,750 per farm in Switzerland. However, at the canton level, it ranged from CHF 12,500 (Valais, VS) to CHF 37,000 (Vaud, VD). Similarly, the distribution of the direct payments for animals was uneven. The average direct payments for animals ranged from CHF 5700 (Obwalden, OW) to CHF 16,400 (Jura, JU). On the other hand, the average payment for livestock under difficult conditions was CHF 8400 per farm. Farms in the Canton Geneva (GE) received the lowest amount (CHF 3000) while an average farm in Graubünden (GR) received CHF 15,000 through this type of income support.


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1.2. The Swiss approach to sustainable agriculture

In Switzerland, article 104 of the Swiss Constitution states that the government must promote a market-based but sustainable agricultural sector that also ensures the conservation of natural resources and decentralized settlement. The legitimacy of promoting multifunctional agriculture in Switzerland is largely derived from this article. It is based on the assumption that farming (as defined in article 104) provides public services that are not remunerated by the market and therefore justify government intervention. Direct payments (aiming at ensuring a farm income that should not be below the national average) and eco-payments (giving additional support to farmers who apply certain agro-environmental measures3) were especially designed to compensate for these public services. Generally, Swiss agriculture has become less intensive than it was in 1990. The adoption of integrated management practices (IP) increased from 1990 to 2000 from 10% to almost 100% (among farmers who have not switched to organic production); and organic farming has increased its share from being practised on 2% to around 10% of all Swiss farms.4 In the same period, the extent of ecological restoration area (ökologische Ausgleichsflächen) increased from around 70 500 hectares in 1993 to over 140 000 hectares in 20055. In 2001, an additional executive order to promote ecological restoration areas of high quality by means of additional payments (ÖQV) was approved. In 2005, it constituted 27% of the total ecological restoration area or 3% of the total agricultural area. Mainly farmers in marginal areas were applying for such payments. Yet, over the past four years all the adoption curves have flattened, indicating that a ceiling may be reached in the willingness of Swiss farmers to adopt such practices.6 As for chemical input, significant reductions have been achieved in regard to the use of more effıcient means of plant protection and input of phosphorus fertilizer (Schweizerischer Bundesrat, 2006). With some minor revisions (largely in favour of the interests of certain producer organisations), the upper and lower house of the Swiss legislature have approved the government budget for agriculture for the period of 2008–2011. ‘Agricultural Policy 2011’, as the new government planning period is called, continues to be dedicated to the paradigm that structural change is inevitable but must be socially acceptable. Tariff trade barriers will be substantially reduced (albeit only by a third of what was suggested by the big players during the Doha Development Round), internal price support will be halved and export subsidies for unprocessed products will be abolished (by 2009 in Switzerland). At the same time, the expected loss of farm income due to lower prices will be compensated through more direct payments. Farm competitiveness should be further increased through an easing of the use of

3 Farmers must comply with ‘evidence of ecological performance’ (Ökologischer Leistungsnachweis or, to use its abbreviation, ÖLN). 4 Moreover, many livestock farmers have embraced the animal welfare practices that were introduced in the 1990s: one animal welfare programme rewards farmers who keep their cattle on pastures on a regular basis (RAUS) and the other gives even higher rewards for special animal-friendly treatment (BTS). Today around 60% of Swiss farmers have adopted RAUS and around 40% BTS. 5 See also the report of biodiversity monitoring: http://www.biodiversitymonitoring.ch/pdfs/dt/680%20334.10_Produkt_M4_V2.pdf Though the value of ecological restoration areas is generally acknowledged, there is not much tangible evidence that would confirm the assumption that biodiversity has significantly improved over the past ten years. http://www.biodiversitymonitoring.ch/deutsch/indikatoren/z3.php 6 Over the last decade, organic vegetable and fruit production has been growing substantially. The total revenue of the market for organic products had increased from CHF 570 million in 1998 to CHF 1.2 billion in 2006. The number of organic farms increased from 1600 in 1994 to 6300 in 2004. Since then, however, it has been decreasing slightly (Bio Suisse, 2007, pp.1-7).


14

agricultural land (e.g. encouraging more agro-tourism)7, easier access to cheaper input products from abroad (e.g. parallel imports), a strengthening of the system of geographical indication, sales promotion and investment support credits for local initiatives that are likely to add value to agriculture. Interestingly, there is hardly any mention of the role national agricultural research institutes (Agroscope) could play in enabling farmers to become more competitive and innovative. The budget for R&D in agriculture has been reduced significantly over the past decade and the research priorities shifted from production-related research to agro-ecological research (BLW, 2002). This shift was also accompanied by a stronger focus of the Agroscope Institutes on monitoring at the expense of their active participation in the development of agricultural goods in collaboration with the farmers.8 Even though Agricultural Policy 2011 contains many reforms that could lead to more market-orientation in agriculture, the problematic past experiences with the multifunctionality approach are not addressed. For example, direct payments, which continue to be the foundation of Agricultural Policy 2001, indirectly raise the prices of agricultural inputs and food and discourage farmers from focusing on innovation and entrepreneurship (Rentsch et al. 2006). Furthermore, the social planning approach that underlies the concept of multifunctional agriculture does not encourage farmers to assume responsibility for the sustainable use of natural resources, because of the principal-agent problem: farmers (agents) are asked by the principal (state) to fulfil certain production standards and carried out certain activities on the farm in return for different types of direct payments. As a result, farmers try to maximize their direct payments with the least amount of effort. They pass on only the favourable information to principal that allows them to capture the payment but they conceal information that might endanger it. Agricultural Policy 2011 looks at technological progress as the main force behind structural change but, at the same time, tends to reduce its role to productivity increases and neglects its potential to improve food quality, create new food products and improve environmental management. There is also no clear evidence that the current agricultural policy approach is really the best way to achieve the objectives of sustainable agriculture as defined by Article 104 in the Swiss Constitution because the assumed implicit counterfactual scenario (collapse of average farm income, significant loss of cultivated land, disappearance of small-scale farming, large-scale monoculture farming, etc.) does not take into account the innovativeness and resourcefulness of Swiss farmers.9 Although indicators of sustainable development have been developed to measure the economic, ecological and social sustainability of Swiss agriculture (BFS/BUWAL/ARE 2002), they tend to measure input rather than output performance of sustainable agriculture and it is often not clear whether environmental improvements have been achieved through ecological support measures or simply through technical progress.10 The input-based nature of the sustainable development indicators in

7 The amendment to the law of agricultural land (bäuerliches Bodenrecht) in October 2007 does still not allow farmers to combine farming with other non-farming activities on their agricultural land. Moreover, inefficient farmers that mostly rely on direct payments as their main income source have not interest in selling their agricultural land to a more efficient farmers. In order words, direct payments artificially increase the value of land and thus decrease the incentive of inefficient farmers to sell their land. 8 The same applies to the Swiss National Science Foundation Programme ‘landscapes and habits in the Swiss Alps’ (NFP 48) which looks at sustainable rural development mainly from a monitoring and social planning angle. NCCR ‘Plant Survival’ (another Swiss National Science Project) is mainly focused on the importance of guaranteeing the biodiversity in natural areas and a sustainable agriculture. 9 Austria, for example, was forced to liberalise domestic agriculture when in acceded to the EU in 1996. In 2006, its ecological and social sustainability had a better record than Swiss agriculture (Disch 2006, Hochreither 2006). 10 For example, the use of more effective means of plant protection and phosphorus applications has significantly reduced the amount of chemical input. In the case of phosphorus, a genetically-modified enzyme (Phytase) that


15

Switzerland can be illustrated by the indicator ‘biodiversity’ which is largely measured by the number of farmers who comply with agro-environmental measures (ÖLN). Yet, a survey by the Swiss Academy of Natural Sciences showed that the real impact of these measures on valuable biodiversity is minimal (Klaus 2005). The Swiss National Research Programme on Landscapes and Habitats of the Alps (NFP 48)11 supports this insight to some extent. There is a general agreement that biodiversity in the Swiss Alps decreased - in spite of more direct payments for ecological services. Yet, researchers in NFP 48 attribute this more to the lack of focus local economic activities. They recommend an increase of targeted payments for ecological services rather than the design of new institutions in agricultural and environmental policy that would effectively address the principal-agent problem inherent in all policies that rely on social planning approaches.

1.2.1. Swiss agriculture and climate change

The agricultural sector is the fourth biggest contributor of greenhouse gases in Switzerland, amounting to approximately 10 per cent of the total. Within the agricultural sector, livestock is the largest emitter with a share of 43 per cent. It is followed by agricultural land and manure management, contributing 17 per cent and 39 per cent, respectively (BLW, 2007b, pp. 12-13). The Federal Office for Agriculture claims that the sector’s methane and nitrous oxide emissions have been declining – as a result of the decline in the number of cattle and in the amount of mineral nitrogen fertilisers used in agriculture as compared to 1990 figures (BLW, 2007b, p. 13). Based on data from the Federal Office for the Environment and the Swiss Farmers’ Union, it is argued that the current emission levels are more than 8 per cent below 1990 levels, meeting the Kyoto target (BLW, 2007b, p. 13). Yet, another study by Binswanger and Jochen (2005) indicates that the share of greenhouse gas emissions produced by agriculture has increased compared to emissions by private households and industry in Switzerland. This is plausible in view of the fact that the number of Swiss farms and cattle may have decreased but the total area of agricultural land has not. The farms may therefore have increased in size, but not much in terms of economic and environmental efficiency. Figure 3 Trend in greenhouse-gas emissions in Switzerland

Source. Cited in BLW, 2007b, p. 12. allows pigs to absorb phosphorus better is widely used in Swiss pig farming. This enzyme has reduced phosphorus effluence in pig farming all over Europe (Veum et al. 2006). 11 http://www.nfp48.ch/publikationen/schlussprodukt.html


16

1.3. Swiss Trade Policies in Agriculture

The share of agriculture in foreign trade is relatively small, although the volume of agricultural trade has significantly risen. The value of agricultural imports increased from approximately CHF 9 billion in 2004 to CHF 10 billion in 2006, representing a share of 6 per cent of the country’s total imports. On the other hand, in the same period, the volume of agricultural exports has increased by 33 per cent. However, its share in total exports receipts is only 3% (BLW, 2007a, p.15). The EU is the biggest trade partner for agricultural goods, in terms of both imports and exports. Almost 80 per cent of all agricultural imports originate from the EU, while 70 per cent of Swiss agricultural exports go to the EU. Table 11 Trend in foreign trade in Switzerland (CHF billion), 2004–2006

2004 2005 2006

Percentage change

2004–2006 Total imports 138.8 157.6 177.1 28 Agricultural imports 8.9 9.4 10.1 13 Agricultural imports from EU 6.9 7.1 7.8 13 Share of EU in ag. exports 78% 76% 77%

Total exports 147.4 166 185.2 26 Agricultural exports 4 4.4 5.3 33 Agricultural exports to EU 2.8 3.1 3.7 32 Share of EU in ag. exports 70% 70% 70% Source. Based on BLW, 2007a, p15 Meat, fish, and dairy products, coffee, tea, tobacco, beverages and edible preparations are major product groups in the Swiss agricultural trade portfolio. In 2006, based on the Harmonized Commodity Description and Coding System (HS) in which chapters 1-24 categorise agricultural products, the biggest volume of trade took place in beverages, spirits and vinegar (HS Chapter 22) – as the country imported a total of US$ 1300 million, and exported US$ 600 million. The second biggest volume was in miscellaneous edible preparations (HS Chapter 21) in which Switzerland is a net exporter, with a volume of around US$ 800 million (in 2006). In cocoa and cocoa preparations (HS Chapter 18), the country imported around US$ 350 million and exported US$ 550 million. Dairy products, eggs, honey, edible animal products (HS Chapter 4) were also traded in relatively large volumes. In 2006, exports under this chapter amounted to US $480 million, while imports amounted to US$ 370 million. Table 12 Swiss Agricultural Trade by HS Chapters (1-24)*, 2006 HS HS Category Exports ($) Imports ($) 1

Live animals 16,267,733 47,252,881

2

Meat and edible meat offal 26,707,124 487,818,891

3 Fish, crustaceans, molluscs, aquatic invertebrates nes

3,809,158 367,756,397

4 Dairy products, eggs, honey, edible animal product nes

482,223,908 370,255,603

5

Products of animal origin 16,825,919 51,406,608

6 Live trees, plants, bulbs, roots, cut flowers etc

2,762,488 474,767,630

7 Edible vegetables and certain roots and tubers

3,393,767 508,174,164

8 Edible fruit, nuts, peel of citrus fruit, 9,808,059 804,884,669


17

melons 9

Coffee, tea, mate and spices 174,345,140 300,600,536

10

Cereals 1,170,713 161,217,318

11 Milling products, malt, starches, inulin, wheat gluten

3,594,512 50,526,746

12 Oil seed, oleagic fruits, grain, seed, fruit, etc, nes

9,078,454 171,318,515

13 Lac, gums, resins, vegetable saps and extracts nes

84,013,996 66,941,228

14 Vegetable plaiting materials, vegetable products nes

330,575 4,826,365

15 Animal,vegetable fats and oils, cleavage products, etc

42,540,092 236,055,223

16 Meat, fish and seafood food preparations nes

3,637,520 230,059,494

17

Sugars and sugar confectionery 99,696,827 245,249,815

18

Cocoa and cocoa preparations 546,861,574 344,515,130

19 Cereal, flour, starch, milk preparations and products

433,298,621 430,617,297

20 Vegetable, fruit, nut, etc food preparations

201,745,372 375,531,912

21

Miscellaneous edible preparations 801,575,825 528,248,887

22

Beverages, spirits and vinegar 627,864,747 1,289,341,736

23 Residues, wastes of food industry, animal fodder

195,929,146 289,226,065

24 Tobacco and manufactured tobacco substitutes

418,207,535 231,852,284

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS) Looking at the trade volumes in agricultural goods between Switzerland and its major trade partners in developing countries - such as Brazil, India, South Africa, Thailand and Vietnam – the country is a net importer. In 2006, the total of its agricultural exports (HS Chapters 1-24) to these six countries amounted to less than US$ 40 million. It exported mainly cocoa and cocoa preparations (HS Chapter 18) and miscellaneous edible preparations (HS Chapter 21). On the other hand, the total volume of its imports from these six partners was around US$ 550 million. Brazil was by far the most significant partner among the six, with a trade volume of approximately US$ 300 million. Swiss exports to Brazil amounted to only US$ 11 million. On the other hand, the volume of its imports was approximately US$ 290 million. Meat (HS Chapter 2) products were the most significant commodity in this volume, followed by coffee and tea (HS Chapter 9), vegetable, fruit, and nut preparations (HS Chapter 20), and tobacco (HS Chapter 24). South Africa, Thailand, Vietnam and India followed Brazil in term of the volume of their agricultural trade with Switzerland. In 2006, the volume of Thai agricultural exports to Switzerland amounted to US$ 77 million, mainly in the form of cereals, fish and fish products and edible vegetables. South Africa exported a total of US$ 67 million of agricultural products in which fruits, vegetables preparations, meat, fish and beverages constituted the bulk. Vietnam exported mainly fish, fish products and coffee. The major agricultural goods that India exported were coffee and tee products, cereals, fish products, animal fats and fruits.


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Table 13 Swiss Agricultural Exports to Selected Partners ($), by HS Chapters (1-24)*, 2006

HS HS Category Brazil India South Africa

Thailand Vietnam

1

Live animals 4'287 32'910 18'603

2

Meat and edible meat offal


8'307 24 4'890


618'425 68'204 784'432 1'148'279 111'516

5

Products of animal origin 337'165 1'598 2


3'180 14'128


1

8 Edible fruit, nuts, peel of citrus fruit, melons

13'652

9

Coffee, tea, mate and spices 65'495 3'610 218'077 2'177 20'409

10

Cereals 12 12 12 24


995 84'892


11'409 16'117 35'957 10'652


485'323 66'036 501'563 195'055 1'755


168 2'384 10'342 20'425


16'909 36'413 21'326 683'046 62'186


6'144 3'096

17

Sugars and sugar confectionery

281'131 89'400 264'776 597'692 12'427

18

Cocoa and cocoa preparations

4'394'512 1'029'183 2'876'803 1'748'829 189'313


180'869 388'237 203'627 1'625'414 14'238


231'943 467'596 255'606 618'453 33'285

21

Miscellaneous edible preparations

4'225'340 414'108 5'283'655 3'848'069 1'433'299

22

Beverages, spirits and vinegar

46'330 16'919 286'281 81'737 470'772


366'126 21'720 54'980 17'762


151'753 809'593 50'120 76'249 1'421

Total 11'413'905 3'422'005 10'853'375 10'839'396 2'382'511

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS)


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Table 14 Swiss Agricultural Imports from Selected Partners ($), by HS Chapters (1-24)*, 2006

HS HS Category Brazil India South Africa

Thailand Vietnam

1

Live animals 2'753 6'055 302

2

Meat and edible meat offal 93'685'597 12'497'045


372'590 5'572'111 3'880'179 4'881'719 36'169'521


203'928 9'027 29'470

5

Products of animal origin 765'149 980'258 231'582 6'366


386'011 803'195 1'609'547 422'372 425


2'189 3'659'955 2'254'939 9'694'057 418'175

8 Edible fruit, nuts, peel of citrus fruit, melons

6'451'633 2'703'793 20'767'831 3'950'367 1'567'128

9

Coffee, tea, mate and spices 48'472'258 12'947'012 984'830 177'205 9'826'859

10

Cereals 12'126'563 6'768'737 13'676 7'535'760 449


27'309 107'485 112'860 4'861


8'866'173 1'403'076 408'297 132'207 7'005


238'707 3'457'175 7'849 187'976


52'856 16'112 8'378 1'725


853'697 4'395'702 86'922 144'543


3'574'839 467'594 3'648 26'756'870 6'103'790

17

Sugars and sugar confectionery

799'986 63'844 120'875 215'406 17'671

18

Cocoa and cocoa preparations

195'076 317 55'470


153'052 504'727 63'314 1'723'053 699'168


41'129'543 1'379'931 13'793'803 9'703'270 882'887

21

Miscellaneous edible preparations

889'232 519'137 687'982 8'163'859 40'970

22

Beverages, spirits and vinegar

6'168'409 16'413 9'675'622 1'306'608 29'203


42'372'407 829'595 35'073 1'460'755


20'542'913 1'749'137 7'584 80'311

Total 288'076'086 48'585'978 67'209'413 76'513'587 55'957'813

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS)


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As mentioned earlier, the Swiss agricultural trade policies are considered to be among the most protectionists in the world. The simple average of final bound duties is 57.2 per cent in agriculture as compared to only 2.6 per cent in non-agricultural products. The average of MFN applied rates in agriculture in 2006 was 43.8 per cent (expressed as a combination of in- and out-of-quota rates). In addition, tariff quotas play a considerable role as trade barriers. Almost 25 per cent of all HS six-digit subheadings in the schedule of agricultural concession are covered by tariff quotas and 57 per cent of subheadings include at least one tariff line eligible for Special Agricultural Safeguards (SSG), although it is hardly used. The distribution of MFN applied tariff lines in agricultural products affects the pattern of imports. Accordingly, 27 per cent of tariff lines enjoyed duty-free access in 2006 and around 20 per cent of all agricultural imports (by value) entered the country facing no tariffs in 2005. Applied MFN rate is less that 10 per cent for around 35 per cent of the tariff lines. Accordingly in 2005, around half of the total agricultural imports faced an applied rate of less than 10 per cent. Duties between 50–100 per cent applied to 8.2 per cent of the tariff lines, which covered only 4 per cent of imports. At the other extreme, duties that are more than 100 per cent cover 13 per cent of the tariff lines and around 5 per cent of all agricultural imports were subjected to a duty of more than 100 per cent. This pattern of duties reflects the distribution of the volume of total imports. Table 15 Tariffs and imports: summary and duty ranges Total Agricultural Non-agricultural Simple average final bound 9.8 57.2 2.6 Simple average MFN applied 2006 7.6 43.8 2.1 Trade weighted average 2005 2.6 27.1 1.2 Imports in billion US$ 2004 119.9 6.1 113.9 Source: WTO, 2008. Table 16 Frequency distribution of tariffs Duty

free 0 ≤ 5 5 ≤ 10 10 ≤ 15 15 ≤ 25 25 ≤ 50 50 ≤ 100 >100

Agricultural products

Tariff lines and import values (in %)

Final bound 22.6 19.2 8.4 5.4 5.9 7.6 12.6 17.8MFN applied

2006 27 25.8 9 5.4 5.5 6.4 8.2 12.7

Imports 2005 19.6 33.7 15.7 8.5 7.6 6.5 3.9 4.5Source: WTO, 2008. Animal products are the most protected group under agricultural goods, with a simple average of final bound duties of 167.5 per cent and an MFN applied average of 141.6 per cent. The highest applied ad valorem duties in animal products exceed 1000 per cent. Similarly, the average MFN applied duties for dairy is 158.2 per cent, the highest rate under this group reaching 645 per cent. The average MFN rate for fruits, vegetables and plants is relatively lower, at 21.5 per cent. Switzerland provides free access to 27.2 per cent of subheadings under this product group, mainly for products not produced in Switzerland. Similarly 35 per cent of coffee and tea products face no tariffs. The applied MFN rate for cereals and preparations is 35.2 per cent. For oilseeds, fats and oils it is 38.3 per cent. Fish and fish products face no tariffs when entering Switzerland. The average applied rate is only 0.4 per cent, and the highest rate is 20 per cent.


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Table 17 Tariffs and imports by product groups in Switzerland Final bound duties MFN applied duties Imports AVG Duty

free in %

Max Binding in %

AVG Duty free in

%

Max Duty free in %

Animal products 167.5 4.6 >1000 100 141.6 11.3 >1000 7.6Dairy products 151.2 0 569 100 158.2 0 645 0Coffee, tea 12.2 26.4 569 100 7 34.7 198 49.4Cereals and prep. 56.7 5.5 809 100 35.2 8.5 349 4.6Fruit, vegetables, plants

35.7 24 879 100 21.5 27.2 879 17.3

Oilseeds, fats, oils 79.7 11 287 100 38.3 21.8 252 6.1Beverages and tobacco

34.5 8.8 605 100 43.6 10.9 562 21.1

Sugars and confectionary

48.9 3.1 405 100 39.4 8.6 405 3.5

Cotton 0 100 0 100 0 100 0 100Other agricultural products

17.1 51.7 917 100 9.7 57.4 385 41.2

Fish and fish products

1.8 70.6 177 100 0.4 79.3 20 70.2

Source: WTO, 2008

1.3.1. Cereals In 2006, the area of land under cereal production was around 165 000 ha, covering a surface of almost 40 per cent of the total arable land, which was almost equally divided between cereals for human consumption and for animal feed. Annual production of cereal for human consumption was around 520 000 tonnes. Barley production amounted to 230 000 tonnes. There was also significant maize production of approximately 150 000 tonnes. Switzerland is a net importer of cereals. In 2006, it imported approximately US$ 120 million of cereals, while the export volume was only US $ 1.5 million (UN Comtrade, 2008). Table 18 Cereal production in Switzerland (tonnes), 2002–2006

2002 2003 2004 2005 2006

Wheat (bread) 508 500 428 300 528 300 521 400 530 200Barley 247 200 217 900 257 400 231 200 229 400Oats 21 500 21 500 15 700 15 300 12 000Maize (corn) 189 000 90 700 180 900 198 900 151 100Source: BLW (2007a, p.A5), BLW (2006, p.A5), BLW (2005, p.A5) Table 19 Trade volumes in cereals in Switzerland (US$)*, 2002–2006 Exports Imports

2002 1,493,605 117,450,0202003 1,128,220 152,002,9922004 1,881,905 160,617,8012005 1,933,549 129,385,8072006 1,170,713 161,217,318

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 10. The level of border protection for cereals for human consumption has been considerable, which is not the case for cereals for feed use. Since April 2007, LDC countries have enjoyed tariff-free and quota-free access. For the rest, there was a quota for wheat for human consumption (HS 100190), and in-quota MFN applied tariff was CHF 23.3 per 100 kg. The over-quota rate was 76 CHF/100 kg. Wheat for feed use enters the country based on a flexible


22

tariff, adjusted quarterly, in order to stabilise the domestic price at CHF 42 per 100 kg (target price). In January 2008, it was 0 – as the world price approximated the target price. For maize (HS 100590), there was quota for 70 000 tonnes, and in-quota rate was CHF 0.25 per 100 kg while the over-quota tariff was CHF 51 per 100 kg. As a result of high levels of border protection, the farm gate price of cereals for human consumption has been substantially higher in Switzerland than those in the main cereal exporters among the developed countries. According to the BLW (2006, pp.A59-61) the average farm gate price for wheat in 2005 was 240 per cent higher than the USA and 250 per cent higher than in four EU countries (Germany, France, Italy and Austria). Similarly, barley and maize prices were more than three times higher than in the USA, and almost twice as much as the prices in the EU. This difference has recently decreased as a result of the surge in world cereals prices. Table 20 Tariffs for wheat in Switzerland, January 2008

Tariffs: January 2008 MFN

applied LDC

Wheat for human consumption (Q-Nr.27) 23.3 0 Fr./100 kg Quota Nr. 27: 70 000 tonnes

Wheat for human consumption, out of quota 76 0 Fr./100 kg Wheat for feed use

0 0 Fr./100 kg flexible tariff, target price: 42 Fr./100 kg. 2007

Source: T@res, 7.1.2008, EVD (2007a, p.19), EVD (2007b, p.3) Table 21 Tariffs for maize in Switzerland, January 2008


applied EU LDC

Maize for human consumption (Q-Nr.28) 0.25 0.25 0 Fr./100kg Quota Nr. 28: 70 000 tonnes*

Maize for human consumption, out of quota 51 51 0 Fr./100kg

Maize for feed use 1 0.5 0 Fr./100kg target price: 42 Fr./100 kg.2007

Source: T@res, 7.1.2008, 7.1.2008, EVD (2007a, p.20), EVD (2007b, p.3) * Includes all coarse grains for human consumption. Table 22 Price comparison in major cereals (CHF/100 kg), USA – EU – Switzerland, 2005 USA EU* Switzerland (CH) CH vs.

USA (%) CH vs. EU (%)

Wheat 15.4 15.1 52.4 241 247 Barley 10.1 14.9 42.2 318 184 Maize 9.6 17.4 42.2 338 143

Source: BLW (2006, p.A59-61) * Based on four EU countries: Germany, France, Italy and Austria. The share of developing countries in imports of cereals to Switzerland is not significant. In 2006, the country imported US$ 35 million worth of wheat. The main exporters were the EU and the USA. Only two developing countries, namely Argentina and Costa Rica, exported wheat to Switzerland in that year, amounting to only US$ 0.4 million and US$ 0.02 million respectively. However, with the surge in global food prices, this situation may change as developing countries become relatively more price-competitive. As for maize, for instance, Brazil has exported relatively significant quantities in the recent past (US$ 6 million in 2004, 35 per cent of the total Swiss maize imports). In 2006, the value of maize imported from Argentina was slightly less than US$ 1 million. Countries like China, Thailand, Egypt and Tanzania have exported cereals to Switzerland occasionally, but only in tiny amounts. Similarly, the share of developing countries in imports of barley to Switzerland has not been significant. On the other hand, the volume of Swiss exports to developing courtiers is very


23

small. In 2006, the biggest volume of cereal exports was supplied to Philippines, amounting to only US$ 21.000. As such, developing countries play only a minor role in cereals trade in Switzerland. Table 23 Value of wheat (except durum wheat and meslin) imports into Switzerland ($US), 2002–2006

Brazil Argentina China Costa Rica Total 2002 708 494 32 364 904 2003 651 643 26 020 43 951 349 2004 4 580 878 499 8 311 45 184 190 2005 545 010 27 727 366 2006 375 801 15 565 34 933 670

Source: UNcomtrade, 2008 Table 24 Value of maize imports into Switzerland ($US), 2002–2006

Brazil Thailand Argentina Egypt Tanzania Total 2002 10 748 944 333 4 782 6 218 104 2003 3 132 264 6 961 1 650 423 20 387 769 2004 5 988 710 6 231 618 567 16 922 031 2005 11 735 878 925 24 773 14 247 066 2006 946 132 759 11 119 148

Source: UNcomtrade, 2008

1.3.2. Sugar There is a significant volume of sugar production in Switzerland, reaching almost 1.6 million tonnes in 2007. Although the area of land under sugar beet has been stable at around 18 500 ha in recent years (BLW, 2007, p. A4), the level of production has grown due to increasing yields. Refined sugar production amounted to 250 000 metric tonnes in 2007. Domestic sugar production receives substantial government support through crop-specific subsidies, high levels of custom duties, subsidies paid to the processors, and compulsory storage fees imposed on importers (Richard and Roland, 2002, p. 1).12 The origins of this high level of protection date back to the late 19th and early 20th century when self sufficiency in sugar production was seen as a symbol of economic and political independence and national food security. Strong producer and processor lobbies, established against this background, have managed to maintain protection even decades after such concerns over national security and independence have ceased to exist (Richard and Roland, 2002, p. 2). Table 25 Sugar production in Switzerland (tonnes), 2002–2006 2002 2003 2004 2005 2006 2007 Sugar beet 1 407 910 1 257 300 1 455 800 1 409 400 1 242 728 1 590 000 Sugar refined 221 865 185 372 216 434 221 434 184 960 248 000

Source: Zuckerfabriken Aarberg and Frauenfeld, 2007abc Table 26 Trade volumes in sugar in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $71,814,614 $140,955,1962003 $83,663,291 $162,978,4312004 $93,374,373 $193,209,3252005 $96,052,152 $201,151,1302006 $99,696,827 $245,249,815

Source: UNcomtrade, 2008


24

*Harmonized Commodity Description and Coding System (HS), Chapter 17. There is a quota on domestic production at 1 660 000 tonnes of sugar beet and 232 000 tonnes of refined sugar for 2008 (Zuckerfabriken Aarberg and Frauenfeld, 2008). These quotas are negotiated every year between sugar beet producers and the company owning the country’s only two refineries. The company has also been receiving direct payment from the government. These payments – amounting to CHF 45 million in 2004 and CHF 30 million in 2006 – will be phased out by 2009. On the other hand, sugar is a major commodity in the country’s trade profile. The volume of its sugar imports increased from US$ 140 million in 2002 to approximately US$ 250 million in 2006. Its exports reached the level of US$ 100 million in 2006. In addition to the quota on domestic supply, trade protection allows domestic producers to charge higher prices. MFN applied tariff for raw sugar cane (HS 170111) is CHF 40 per 100 kg. GSP countries pay CHF 18 per 100 kg and LDCs CHF 10 per 100 kg. There is also a symbolic duty free quota for GSP countries and LDCs, for 7 000 tonnes of raw sugar and 10,000 tonnes of refined sugar. As such, sugar is a “special” product excluded from bilateral trade agreements, including the recent Swiss “Everything but Arms” initiative for LDCs. This is also partly because the Swiss sugar policy is strongly linked the EU’s sugar policies. In the Free Trade Agreement between Switzerland the EU, trade in processed sugar is regulated by the so called the “double-zero” solution. This aims at maintaining the same price for sugar in processed products in Switzerland and in the EU, which is considered to be critical for the competitiveness of the Swiss food industry, which consumes 80 per cent of sugar in Switzerland (Federal Department of Economic Affairs, 2008). The EU and Switzerland are expected to liberalise the sugar market simultaneously from the autumn of 2009.

Swiss sugar imports have increased substantially over recent years, more than doubling in volume between 2002 and 2006. The vast majority of imports come from the EU, due to its geographical proximity, price advantages (arising from subsidies and supply surplus), and high quality (Richard and Roland, 2002, p. 12). On the other hand, the share of developing countries in sugar imports to Switzerland is around 5 per cent. Mauritius, Paraguay and Brazil are the biggest exporters amongst developing countries. In 2006, the value of sugar imported from Mauritius, mainly in the form of raw sugar cane, was approximately US$ 2 million. The value of Paraguay’s exports, in the form of raw and refined sugar combined, amounted to US$ 1.2 million in the same year. There are also LDCs, such as Malawi, Ethiopia and Mozambique, exporting sugar to Switzerland, but only in tiny quantities. Therefore, as in the cereals markets, developing countries do not play a major role in the Swiss sugar market.

Table 27 Sugar Imports (refined and raw) in Switzerland ($US), 2002–2006

Brazil India South Africa Thailand

Vietnam Mauritius Paraguay

Philippines Total

2002 620 983 6 155 2 103 1 258 657 646 928 178 438 56 020 038

2003 1 040554 4 170 12 261 1 398 1 276 718 760 653 187 389 68 698 747

2004 1 078 166 5 351 12 122 5 766 100 1 204 942 899 439 231 467 82 331 480

2005 864 355 11 648 12 578 4 857 1 494 169 1 433 006 238 771 89 162 353

2006 594 721 4 768 81 602 1 562 1 884 854 1 209 882 272 097 121 933 704Source: UNcomtrade, 2008


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Table 28 Sugar exports from LDCs to Switzerland ($US), 2005–2006

Malawi Ethiopia Mozambique Uganda Cape Verde Sudan

2005 11 746 48 2006 316 577 20 028 277 374 11 972 11 254

Source: UNcomtrade, 2008 Table 29Tariffs for raw sugar in Switzerland*, January 2008


applied GSP LDC

Raw sugar, cane 40 18 10 Fr./100 kg Within preferential import quota 40 0 0 Fr./100 kg Quota: 7 000 tonnes for

GSP/LDC countries Source: T@res, 7.1.2008

* There is also a storage fee imposed on importers of raw and refined sugar of 16 Fr. per 100 kg.

1.3.3. Milk and milk products Switzerland is an important producer of milk and milk products in Europe. The volume of milk production is stable at around 320 000 tonnes per year. Almost 15 per cent of this milk is produced for direct consumption while the rest is used as processed milk for dairy products, mainly cheese. Since the 1970s, there has been a quota system in place for domestic producers, stabilising domestic prices. In 2005 and 2006, a gradual phase-out was commenced through a government initiative encouraging partners in the milk chain to organise the supply together. By 2006, more than half of the producers and two-thirds of the total milk production had already left the quota system (OECD,2007, p. 214). In 2009, the milk quota will be removed entirely and the supply market will not be regulated by the government but by producer organisations. Since the production costs are high and there is not much room for economies of scale, milk production is not price competitive by international standards. On the other hand, approximately 50 per cent of the total milk is processed, mainly in the form of cheese, and exported. Since 2007, Swiss cheese has enjoyed duty free access to the EU market. With the help of government support for market promotion, and thanks to its high quality and brand value, it is highly competitive in international markets. Dairy products are one the most important commodities in Swiss agricultural trade, with a total trade volume approaching to US$ 1 billion (HS Chapter 04). The country is a net exporter and the volume of its exports increased from US$ 360 million in 2002 to about US$ 480 million in 2006. Its imports also increased from US$ 270 million in 2002 to US$ 370 million in 2006. Table 30 Milk production in Switzerland (tonnes), 2002–2006

2002 2003 2004 2005 2006

Direct milk consumption 456 000 454 000 456 000 448 000 450 000Processed milk 2 735 000 2 699 000 2 732 000 2 755 000 2 728 000Total sold 3 191 000 3 152 000 3 187 000 3 203 000 3 179 000Source: BLW (2007, p.A6), BLW (2006, p.A6), BLW (2005, p.A6) Table 31 Trade volumes in dairy products in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $363,912,100 $266,724,4032003 $426,212,839 $342,009,2152004 $479,864,537 $354,415,5822005 $468,804,542 $354,822,7922006 $482,223,908 $370,255,603


26

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 4. The Swiss milk market is highly protected. Out of quota MFN rates range between CHF 18 per 100 kg for low fat milk to CHF 765 per 100 kg for high fat milk. It is included in the “Everything but Arms” initiative, so LDCs could potentially export on a duty-free quota-free basis. However, neither LDCs nor other developing countries play a significant role in milk trade in Switzerland. In recent years, only a couple of developing countries have exported milk to the country, even in small volumes. In 2002, Sri Lanka exported some unsweetened milk and cream powder at a value of US$ 40 000. Recently Chile exported some category of milk in small volumes. Given the levels of border protection and domestic support, developing countries do not have much opportunity in the Swiss milk markets. Table 32 Milk and cream (HS 0401)* imports into Switzerland ($US), 2002–2006

India Philippines Total 2002 12 470 0812003 14 275 9902004 89 14 652 5562005 41 14 943 3952006 19 757 982

Source: UNcomtrade, 2008 *Neither concentrated nor sweetened. Table 33 Milk and cream (HS 0402)* imports in Switzerland ($US), 2002–2006

Thailand Sri Lanka Jordan Chile Total 2002 5 40 484 26 299 12 196 081 2003 23 864 18 588 921 2004 159 13 924 265 2005 16 791 13 977 779 2006 17 981 8 313 877

Source: UNcomtrade, 2008 *Concentrates or sweetened. Table 34 Tariffs for milk and cream, neither concentrated nor sweetened January 2008

MFN

applied GSP LDC Milk not concentrated or sweetened < 1% fat Within Q.-Nr. 7* 18 18 0 Fr./100kg Out of quota 40 40 0 Fr./100kg Milk not concentrated or sweetened 1–6% fat Within Q.-Nr. 7 18 18 0 Fr./100kg Out of quota 76 76 0 Fr./100kg Milk not concentrated or sweetened > 6% fat Milk 765 765 0 Fr./100kg Cream 1 340 1 340 0 Fr./100kg Source: T@res, 7.1.2008, EVD (2007a, annex) * Quota Nr. 7: for milk and milk products, total 527 000 tonnes (calculated in milk equivalents) 22 500 tonnes fresh milk that can be imported only from the free trade zones around Geneva and for the supply of Geneva. 1000 tonnes of other milk products than milk powder, butter or cheese.


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1.3.4. Meat and meat products Switzerland is a significant producer and importer of meat, meat products and poultry. The volume of bovine meat production has been following a relatively stable trend at around 135 000 tonnes per year over recent years. In 2006, production levels amounted to approximately 240 000 tonnes and 30 000 tonnes for pork and poultry, respectively. Switzerland is a net importer of meat. The volume of its imports increased from US$ 350 million in 2002 to about US$ 490 million in 2006. On the other hand, the volume of its exports was around US$ 27 million in 2006. Only a tiny proportion of this was exported to developing countries.13 After live animals, meat and meat products are subject to one of the highest levels of trade protection in Switzerland. The level of tariffs goes up to CHF 2 200 per 100 kg bovine cuts and boneless. The in quota rate for bovine carcasses is CHF 69 per 100 kg (MFN). GSP countries get a further reduction of CHF 9 per 100 kg while LDCs have free access. The out of quota tariff is CHF 758 per 100 kg for both MFN and GSP. Despite high levels of protection, Switzerland has been importing increasing volumes of meat and meat products. Between, 2002 and 2006 the value of bovine meat imported to Switzerland increased from US$ 28 million to US$ 79 million. Imports from developing countries account for the majority of this growth. Brazil has increased its meat exports to Switzerland more than three-fold, reaching a share of 45 per cent in 2006.14 Amongst developing countries, South Africa is the second biggest exporter of meat to the Swiss market. Namibia has been exporting meat too, but in relatively small volumes ranging in value from US$ 40 000 to US$ 116 000. Table 35 Trade volumes in meat in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $20,845,900 $348,682,8292003 $16,813,526 $416,246,7832004 $22,930,947 $470,805,0762005 $23,449,406 $472,309,5722006 $26,707,124 $487,818,891

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 02. Table 36 Meat of bovine animals, fresh or chilled (HS 0202) imports in Switzerland ($), 2002–2006

Brazil South Africa Argentina Namibia Uruguay Total

2002 10 276 114 3 344 513 275 543 275 784 28 439 27 778 4382003 13 530 777 4 927 953 1 512 830 148 115 50 630 33 411 5932004 18 720 236 6 527 896 2 284 548 40 813 41 971 4912005 28 333 865 5 896 099 3 163 796 196 111 163 988 57 800 4412006 35 531 294 5 766 178 2 221 714 115 990 521 223 78 971 795

Source: UNComtrade, 2008

13 For instance in 2006, the biggest volume of meat exports to developing countries was supplied to Côte d'Ivoire, amounting to US$ 450,000. 14 This is now changing due to a meat embargo in 2008 of the EU against Brazil that Switzerland has to join.


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Table 37 Tariffs for meat of bovine animals, fresh or chilled MFN GSP LDC Bovine carcasses or half carcasses Within Q.-Nr. 5* 69 60 0 Fr./100kg Out of quota 758 758 0 Fr./100kg Bovine cuts, bone in Within Q.-Nr. 5 159 150 0 Fr./100kg

Out of quota 1 368 1 368 0 Fr./100kg Bovine cuts, boneless Within Q.-Nr. 5 159 150 0 Fr./100kg Out of quota 2 212 2 212 0 Fr./100kg

Source: T@res, 7.1.2008, EVD (2007a, annex) * Quota Nr. 5: for meat produced like beef, meat of horses, sheep or goats, total 22 500 tonnes. In 2006, Switzerland imported about 12 000 tonnes of beef (including veal).

Table 38 Meat production in Switzerland (tonnes), 2002–2006

2002 2003 2004 2005 2006

Beef (slaughter weight) 104 808 102 789 100 308 100 024 104 217Veal (slaughter weight) 34 951 34 127 33 679 32 289 31 588

Bovine meat total 139 759 136 916 133 987 132 313 135 805Pork (slaughter weight) 266 260 229 658 227 085 236 165 243 321Poultry (sale weight) 20 733 32 358 34 341 33 361 29 781Source: BLW (2007, p.A5), BLW (2006, p.A5), BLW (2005, p.A5)

As for poultry, the level of tariffs goes up to CHF 566 per 100 kg on frozen chicken. The in quota rate for fresh or chilled chicken is CHF 30 per 100 kg (MFN). GSP countries get a further reduction of CHF 6 per 100 kg. MFN and GSP out of quota tariffs are CHF 312 per 100 kg for fresh and chilled chicken. In 2006, the value of Switzerland’s poultry imports was around US$ 130 million. Less than one-third of this originated from developing countries. Brazil has become the biggest supplier amongst developing countries. Its poultry exports to Switzerland increased eightfold, from US$ 4 million in 2002 to US$ 32 million in 2006. Argentina and Chile are also exporting poultry to Switzerland, but only in relatively small volumes. Table 39 Tariffs for chicken (not cut)

January 2008 MFN GSP LDC Fresh or chilled Within Q.-Nr. 6* 30 24 0 Fr./100 kg Out of quota 312 312 0 Fr./100 kg Frozen Within Q.-Nr. 6 30 15 0 Fr./100 kg Out of quota 566 566 0 Fr./100 kg

Source: T@res, 7.1.2008, EVD (2007a, annex) *Quota Nr. 6: for pork and poultry, total 54 500 tonnes, thereof 42 200 tonnes for poultry and the rest for pork. Table 40 Meat, edible meat offal of domestic poultry (HS 0207) imports in Switzerland (US$), 2002–2006

Brazil Thailand China Argentina Chile Total

2002 4 378 925 1 039 858 6 882 771 278 646 121 858 935

2003 11 801 656 8 312 501 1 373 442 62 179 154 331 071

2004 19 147 159 1 998 617 90 011 172 871 73 237 158 248 591

2005 25 871 486 161 1 480 2 719 827 309 233 146 269 932

2006 32 212 647 1 742 353 82 769 130 975 394Source: UNcomtrade, 2008


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1.3.5. Vegetables and fruits Vegetables and fruits cover approximately 8 000 ha and 7 000 ha, respectively (BLW, 2007, p A4). Commodities such as tomatoes, potatoes and apples are produced in significant quantities. In 2006, 400 000 tonnes of potatoes, 32 000 tonnes of tomatoes, and 100 000 tonnes of apples were produced. As for trade barriers, fruits and vegetables face relatively low ones. Tropical commodities usually enjoy low or no-duty access. For non-tropical commodities, applied duties vary seasonally depending on the level of domestic production. However, these seasonal tariffs vary substantively, with in-quota-tariff quantities allocated sometimes on a weekly basis. For far-away producers such frequent regime changes represent virtual import prohibitions, especially when the corresponding out-of-quota tariff is prohibitively high. For LDC, these access barriers do not apply – but if Switzerland has a Free Trade Agreement (FTA) with non-LDC countries where the removal of seasonal tariff differences is agreed, this could lead to some preference erosion for LDCs. Hence, seasonal tariffs can damage export strategies even for LDCs. Developing countries also suffer from information asymmetries in accessing the Swiss market, as the developed country suppliers in neighbouring countries have well established networks in Switzerland. Table 41 Production of vegetables and fruits in Switzerland (tonnes), 2002–2006

2002 2003 2004 2005 2006

Tomatoes 29 657 30 050 34 931 32 035 31 798Potatoes 526 200 467 900 526 700 485 000 392 000Onions 26 810 27 939 32 357 32 844 26 766Apples 105 640 93 864 100 755 102 900 102 881Pears 15 083 16 529 17 207 16 251 14 238Apples and pears for juice production

127 910 120 083 155 096 90 361 125 276

Source: BLW (2007, p.A5-7), BLW (2006, p.A5-7), BLW (2005, p.A5-7) For example, the off-season MFN tariff is CHF 5 per 100 kg for cherry tomatoes, which is applied until May. Then, it goes up to CHF 730 per 100kg in the season, which is prohibitively high for any developing country to supply in large quantities. In 2006, the value of Swiss tomato imports amounted to US$ 50 million. Approximately 20 per cent of this originated from Morocco. Turkey also supplied tomatoes, but a relatively smaller volume. The vast majority of imports originated from EU countries. Table 42 Tomatoes, fresh or chilled (HS 0702) imports into Switzerland, 2002–2006

Brazil India South Africa Thailand Morocco Turkey Palestine Total

2002 994 7 498 373 116 220 65 992 5382003 28 5 935 147 143 826 21 002 65 682 9432004 6 201 6 973 683 118 541 37 702 56 609 2052005 73 9 687 604 258 631 56 837 8682006 6 799 3 9 869 186 168 637 49 334 363

Source: UNcomtrade, 2008 Table 43 Tariffs for tomatoes


applied GSP LDC Cherry tomatoes (21.10. until 30.4) 5 0 0 Fr./100 kg Cherry tomatoes (1.5 until 20.10) (within Q.-Nr.15*) 5 5 0 Fr./100 kg Cherry tomatoes (1.5 until 20.10), out of quota 600–731 150–264 0 Fr./100 kg Other tomatoes (21.10 until 30.4) 5 0 0 Fr./100 kg Other tomatoes (1.5 until 20.10) (within Q.-Nr.15) 5 5 0 Fr./100 kg Other tomatoes (1.5 until 20.10), out of quota 150–264 150–264 0 Fr./100 kg Source: T@res, 7.1.2008, EVD (2007a, annex)


30

* Quota Nr. 15: for fresh vegetables, total 166 000 tonnes; in 2006 Switzerland imported 4 350 tonnes of tomatoes within the quota. Table 44 Trade Volumes in Apples in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $806,501 $16,940,0052003 $1,850,757 $17,816,5712004 $434,721 $31,595,1922005 $991,630 $21,108,5292006 $991,153 $20,768,084

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 0808. Table 45 Apples, fresh or chilled (HS 080810) imports into Switzerland, 2002–2006

Brazil India South Africa Chile Argentina

Costa Rica Total

2002 34'158 1'274'707 9'973 2'563 8'921'917 2003 53'354 1'687'904 709'676 10'070 8'925'014 2004 190'146 1'782'858 1'524'602 15'860 24'117'969 2005 158'116 2'066'329 784'155 7'462 11'337'395 2006 145'322 2'870 852'022 525'717 21'294 11'365'995

Source: UNcomtrade, 2008 Switzerland imports significant quantities of apples, mainly from EC countries. South Africa and Chile are major developing country suppliers. MFN tariffs vary between CHF 2 per 100kg to CHF 153 per 100kg. LDCs enjoy free access. Tariffs: January 2008 MFN GSP LDC Apples, fresh, for juice or alcohol Whitin Q.-Nr. 20 2 0 0 Fr. / 100kg Out of Quota 21 21 0 Fr. / 100kg Apples, fresh, in open package Whitin Q.-Nr. 17 2 0 0 Fr. / 100kg Out of Quota 140-153 140-153 0 Fr. / 100kg Apples, fresh, in closed package Whitin Q.-Nr. 17 5 2.5 0 Fr. / 100kg Out of Quota 140-153 140-153 0 Fr. / 100kg Source: T@res, 7.1.2008 Switzerland also imports increasing amounts of potatoes. The import volume increased from US$ 10 million in 2002 to almost US$ 30 million in 2006. The bulk of imports originate from EC countries and Israel. In 2006, the only developing county having an export volume of more than US$ 1 million was Morocco. In quota MFN tariff is CHF 1.4 per 100kg, LDCs and GSP enjoy free access. Out of quota rate is CHF 44 per 100kg and only LDCs and Lesotho enjoy duty-free access. Table 46 Trade volumes in potatoes in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $548,940 $10,382,1152003 $426,960 $13,846,2042004 $424,659 $18,184,9162005 $235,705 $9,784,9412006 $643,471 $29,232,349

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 0701.


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1.3.6. Oilseed Oilseed production covers only 24 000 ha, amounting to 6 per cent of the total arable area in Switzerland. Rapeseed is the most important oilseed product with a production volume of 53 000 tonnes in 2006. It was followed by sunflower (14 000 tonnes) and soya (3 000 tonnes). Consumption levels are much higher than domestic production. Hence, Switzerland imports a substantial amount of oilseed products. Between 2002-2006, the volume of its imports increased from US$ 106 million to US$ 171 million. It also exported some small quantities, amounting to US$ 10 million in 2006. Developing countries, mainly Brazil, and to a lesser extent Argentina and China are the major trading partners in oilseed commodities. There is a flexible tariff for soya beans for feed use, aiming at stabilising the price at around CHF 56–57 per 100 kg. Given the surge in world prices, it is currently imported freely. Soy beans for edible oil production face duty rates ranging between CHF 19 and CHF 25 per 100 kg. In 2006, more than half of Switzerland’s soya bean imports came from Brazil. India, China and Argentina also exported small quantities of soya beans to Switzerland. As for soya bean oil cake (HS 230400), Brazilian exports amounted to two-thirds of the import market with a volume of US$ 60 million in 2006. There is also a flexible tariff for soya bean oil cake at CHF 47 per 100 kg, but it is currently imported on a duty free basis. Table 47 Oilseed production in Switzerland (tonnes), 2002–2006 2002 2003 2004 2005 2006 Sunflower no data 17 330 13 496 15 000 13 600 Rape 48 870 45 300 55 300 56 200 53 300 Soya no data 5 900 7 100 4 000 3 000 Source: BLW (2007, p.A5), BLW (2006, p.A5), BLW (2005, p.A5), Swiss Granum (2008) Table 48 Trade volumes in oilseed products in Switzerland (US$), 2002–2006 Exports Imports

2002 $6,356,527 $106,216,2662003 $7,668,463 $140,880,9342004 $8,925,865 $164,610,2612005 $10,135,649 $149,895,8712006 $9,078,454 $171,318,515

Source: UNcomtrade, 2008 Table 49 Soya beans (HS 120100) imports into Switzerland, 2002–2006

Brazil India Thai land Vietnam China Argentina Paraguay Total

2002 7 730 814 454 990 183 535 272 510 11 562 867

2003 10 746 367 74 172 194 543 579 794 47 737 13 562 739

2004 13 553 447 209 641 1 224 605 785 195 719 18 255 759

2005 12 481 054 321 584 538 1 063 157 62 587 16 673 925

2006 8 616 118 17 025 399 656 518 94 603 15 574 286Source: UNcomtrade, 2008


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Table 50 Tariffs for soya beans Tariffs: January 2008 MFN LDC Soya beans for feed use 0 0 Fr./100 kg

Flexible tariff, target price: 56–57 Fr./100kg (2007)

Soya beans for production of edible oil Extraction 24.7 0 Fr./100 kg Pressing 18.9 0 Fr./100 kg

Source: T@res, 7.1.2008 Table 51 Soya-bean oil cake and other solid residues (HS 230400) imports into Switzerland, 2002–2006

Brazil India Argentina Total 2002 18 097 871 48 954 8462003 25 957 433 1 041 5 507 55 135 3242004 41 266 310 63 971 5492005 26 287 463 50 852 4602006 41 027 429 59 993 790Source: UNcomtrade, 2008 Table 52 Tariffs for soya-bean oil cake

Tariffs: January 2008 MFN LDC

Soya-bean oil cake 0 0 Fr./100 kg Flexible tariff, target price: 47 Fr./100 kg (2007)

Source: T@res, 7.1.2008

1.3.7. Processed food products Processed food products play a major role in Swiss agricultural trade. In particular, cocoa and cocoa preparations (HS Chapter 18), miscellaneous edible preparations (HS Chapter 21) and vegetable, fruit, nut preparations (HS Chapter 20) constitute a major part of Swiss exports. One of the largest volumes of exports takes place in the chapter of miscellaneous edible preparations. Under HS Chapter 21, this includes food preparations, extracts, essences, concentrates of tea, coffee and mate. In 2006 the export volume was around US$ 800 million. Within this chapter, exports in food preparations (including protein concentrates) amounted to US$ 500 million. The main export market for Swiss miscellaneous edible preparations was developed countries and Russian Federation. In 2006, Mexico was the most significant developing country partner, importing US$ 11 million (only the 14th biggest volume in total). Poland, Check Republic and Turkey followed Mexico as major developing country partners, each importing around US$ 10 million. Table 53 Trade volumes in miscellaneous edible preparations in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $468,697,068 $322,836,4612003 $590,230,730 $405,102,2392004 $694,076,175 $439,812,9672005 $730,716,589 $470,139,6092006 $801,575,825 $528,248,887

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 21. Processed vegetable, fruit, nut, and preparations (HS Chapter 20) is also one of the important commodity groups in Swiss agricultural trade. In 2006, the export volume was around US$ 200 million, while the import volume was US$ 375 million. Under this chapter, fruit and


33

vegetable juices constitute the biggest volume of exports, around US$ 120 million in 2006. The main export market is developed countries. In 2006, Poland, Algeria and China-Hong Kong were the biggest developing country partners, each importing around US$ 2 million of edible preparations. Table 54 Trade volumes in vegetable, fruit, nut, etc food preparations in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $101,096,977 $244,095,5472003 $120,395,040 $285,173,0452004 $161,972,268 $326,628,1512005 $184,814,251 $332,581,1662006 $201,745,372 $375,531,912

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 20. Exports of cocoa and cocoa preparations (HS Chapter 18), increased from roughly US$ 300 million in 2002 to US$ 550 million in 2006. The country mainly imports cocoa beans and cocoa butter from developing countries and imports higher-value chocolate products to developed countries. In 2006, it imported US$ 76 million of cocoa beans and US$ 113 million of cocoa butter respectively. It exported US$ 534 million of chocolate and other foods containing cocoa (HS 1806), which constituted the bulk of its export volume in this chapter. The main export markets are developed countries. In 2006, the three biggest developing country markets were Philippines (US$ 10 million), United Arab Emirates (US$ 8 million) and China-Hong Kong (US$ 6 million). There is a case for tariff escalation in cocoa and cocoa preparations. Cocoa beans enter the country duty free, while cocoa butter faces either low or no tariffs (MFN: CHF 2 per 100kg; GSP, LDC: Duty free).However, MFN tariff for chocolate products (1806.1010) is CHF 55.60 per 100kg (GSP rate: CHF 45.60 per 100kg). Hence, such tariff escalation makes it difficult for developing country exporters to diversify their export profiles from primary commodities to higher-valued added food products. Table 55 Trade volumes in Cocoa and Cocoa Preparations in Switzerland (US$)*, 2002–2006 Exports Imports

2002 $296,782,941 $189,379,507 2003 $329,336,020 $256,018,178 2004 $409,402,417 $277,477,988 2005 $495,159,108 $307,163,965 2006 $546,861,574 $344,515,130

Source: UNcomtrade, 2008 *Harmonized Commodity Description and Coding System (HS), Chapter 18.


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1.4. Summary of Ugandan Coffee Chains Case study15

Swiss trading companies have historically played a significant role in the international coffee trading system. The second largest trader of green coffee in the world, Volcafe, founded by the Volkart Brothers in 1851 in Winterthur. Volcafe was acquired by ED&F Man in 2004 and operates as their coffee trading division from their offices in Winterthur. Other large trading companies in Switzerland include Bernhard Rothfos Intercafé AG and InterAmerican Coffee in Zug, which are members of the Neumann Gruppe (the largest coffee trader in the world). Another company in Zug are Decotrade , who supply Sara Lee, the worlds third largest roasting/ manufacturing company in the world.

1.4.1. Structure of the International coffee market Owing to the risky nature of international trade in coffee (and commodities in general) resulting from international price volatility, international traders have undergone considerable restructuring in the past two decades (Daviron and Ponte 2006). Prior to the 1970s, the size structure of the international coffee trading sector consisted of a larger number of small and medium sized coffee only trading companies, together with a few larger diversified commodity trading companies. The trend has been towards the concentration of a few large coffee traders, many of which have merged with other commodity traders to become very large multinational commodity trading companies.16 In 1998, the two largest coffee traders (Neumann Kaffee Gruppe (NKG) and Volcafé) controlled 29% of total market share, and the top six companies 50% (Daviron and Ponte 2006). In 2006, Volcafe (now part of ED&F Man) and the NKG have maintained their dominant positions in the market, and control over 30% of world trade in green coffee. Concentration of the top 5 companies has also increased since 1998, and now accounts for a market share of over 55%. Table 56 Market shares of the top five trading companies for green coffee in 2006 Trading Company

millions of 60 kg bags traded

estimated share of the world market

cumulative share of world market

Volcafe (ED&F Man)

15.6 17.83% 17.83%

Neumann

12 13.72% 31.55%

Esteve (Ecom)

9.5 10.86% 42.40%

Olam

5.5 6.29% 48.69%

Noble

5 5.71% 54.41%

Source: ED&F Man Coffee Division, 2007 and ICO, 2006

15 These findings are drawn from desk research as well as interviews conducted by Newman during fieldwork in Tanzania, Uganda, Switzerland and the UK between January and August 2007. A fuller account of results can be found in Newman (2007). 16 Volcafe, the leading coffee export company in the late 1990s, was purchased by the diversified commodity trading company ED & F Man. Esteve, currently the third largest coffee trader in the world, was purchased by Cargill to form ECOM, in 2000.


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Table 57 Market shares of the 5 top coffee roasting and/or manufacturing groups in 2006 Coffee Roaster/ Manufacturer

millions of 60 kg bags traded

estimated share of the world market

cumulative share of world market

Nestle 12.8 14.63% 14.63%

Kraft 11.8 13.49% 28.12%

Sara Lee 8 9.14% 37.26%

Folger 4.8 5.49% 42.75%

Tchibo 3.1 3.54% 46.29%

Source: ED&F Man Coffee Division, 2007 and ICO, 2006 Contemporary LDCs have a long history of exporting primary commodities, originating from colonial times when natural resources were exploited by sovereign powers. Since independence, the export structures of these former colonies (with the exception of the East Asian NICs) have continued to be dominated by primary commodities, in particular tropical agro-commodities, and minerals (Maizels 1992). Out of 141 developing countries, 95 are more than 50% dependent on commodity exports and in sub-Saharan Africa the figure is 80% (UNCTAD 2006). Moreover, for many commodity dependent economies, export earnings tend to be dominated by a single commodity (e.g. coffee, cocoa, cotton) (Kaplinsky and Kimmis 2006). For instance in 2005, the share of coffee in the total export earnings was about 70 per cent in Burundi, 20 per cent in Ethiopia and 15 per cent in Uganda. Table 58 Share of green coffee in total export value in selected coffee exporting LDCs in 2005 Green coffee exports as a percentage of total

exports in 2005 Burundi 69.4% Ethiopia 17.6% Rwanda 17.5% Tanzania 3.7% Uganda 15.0% Vietnam 1.9% Zambia 1.1% Sources: FAOSTAT and WDI via ESDS, 2008

1.4.2. Structure of coffee production and distribution in Uganda

Uganda is predominantly a producer of robusta coffee. Coffee production in Uganda is dominated by small holder production. This is geographically dispersed across several regions. The pre-liberalisation marketing system in Uganda was centralised in the sense that all coffee exports went through a single channel, the Coffee Marketing Board in Uganda. Uganda operated a dual local marketing system with both private and cooperative marketing channels in operation. The coffee market was liberalised in 1990/1. The liberalisation process was rapid and Uganda remains the most fully liberalised coffee market in East Africa (Ponte 2001). The cooperative marketing channel for coffee has virtually disappeared and the vast majority of coffee is now marketed through private local traders. The coffee marketing board in Uganda became the


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Ugandan Coffee Development Authority in 1991 with a statutory mandate to “promote and oversee the development of the coffee industry through research, quality assurance and improved marketing” (UCDA, 2007). The initial period following liberalisation saw a growth in the number of coffee export companies registered in Uganda, from 34 in 1992/3 to 117 at its peak in 1994/95. Since 1995 the number of registered export companies has been falling, year on year, and numbered 25 in the 2005/6 marketing season. The export sector is highly concentrated, with the top 5 companies making up over 70% of the market share, compared with 52.2% in 1996/7 (Ponte 2001). Moreover, the top 5 companies are all subsidiaries of large MNC trading houses compared with just 2 in 1996/7 (Ponte 2001). Local exporters have gradually been displaced from the top 10 exporting firms, and the sector in general. In 1996/7, 70 of the top 10 exporters were local, compared with 4 in 1998/99 and just 3 in 2005/6. Table 59 Market shares of the top 10 coffee exporters in Uganda - Oct/Sept 2005/06

% Market Share EXPORTER Individual Cumulative

Type of company

GRAND TOTAL 100.0 2,002,324 1 Kyagalanyi Coffee Ltd. 17.50 17.50 Subsidiary of Volcafe, ED & F Man.

2 Kawacom (U) Ltd. 14.83 32.33 Subsidiary of ECOM trading

3 Pan Afric Impex Ltd. 14.77 47.09 Ugandan office of a Sudanese, regional coffee trading and transportation company, supplying the Sudanese market in the main.

4 Ugacof Ltd. . 13.10 60.19 Foreign owned coffee trading company

5 Great Lakes 9.86 70.05 Foreign owned coffee trading company

6 Olam (U) Ltd 8.89 78.94 Ugandan office of vertically integrated diversified commodity trading MNC

7 Ibero (U) Ltd. 5.55 84.50 Subsidiary of the Neumann Kaffee Gruppe

8 Job Coffee 3.03 87.53 Local export company

9 Lake Land Holding Ltd. 1.85 89.38 Local export company

10 Nakana Coffee Factory 1.80 91.17 Local export company

Source: Adapted from UCDA annual report, 2005/6 Coffee export companies are all based in Kampala and rely upon local traders to bring the coffee from farm-gate to factory gate. Local traders purchase dry cherry (kiboko) from farmers and mill it into what is known as fair and average quality (FAQ) coffee, this is green coffee that has not been sorted according to the size and shape of the bean. Exporters purchase FAQ coffee which is cleaned and graded, according to bean size and the number of defects, before it is ready for export. However, as a result of the concentration of export companies in


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the sector, the gap between the retail price of coffee in developed countries and the farm gate prices that farmers in Uganda receive has been widening (See figure 5 below). Figure 4 Private coffee marketing chains in Uganda

Figure 5 Mild Arabica Prices along the coffee chain in nominal prices per lb of green bean or equivalent

0

100

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1977

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cen

ts/lb

Retail Price inSwitzerland(US cents/lb)

Retail Price inthe USA (UScents/lb)

World Pricefor MildArabicas(ICO indicatorprice UScents/lb)Price paid toproducers inUganda (UScents/lb)

Price paid toproducersinTanzania(US cents/lb)

Source: ICO 2007

Producers Local Middlemen

International Exporters (at origin)

International Exporters


Local Exporters

International Exporters


Local Exporter

International Exporter (at origin)

International Exporter


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1.5. Impact of WTO-induced agricultural trade liberalisation in Switzerland on developing countries: an educated guess at possible scenarios

During the Doha Development Round, Switzerland has been a leading member of the G10, a group of the most protectionist and defensive countries in agricultural negotiations at the WTO (Japan, Korea, Taiwan, Israel, Norway, Iceland, Liechtenstein, Mauritius and Switzerland). Based on the principles of multifunctionality, the G10 argues that “non-trade concerns” should be taken into account in negotiating concessions in market access. In particular, Switzerland is sensitive about protecting geographical indicators, food safety, maintaining farming in difficult agro-ecological conditions, landscape quality and animal welfare. Since some of its bound and applied tariffs are even above 1000 per cent, it faces challenges in negotiating proposals on upper limits and on bigger reductions in the highest duties (ironically called the Swiss formula). Switzerland has been slowly but surely reducing it market distorting trade policies and it agreed in Hong Kong in 2005 that it will abolish export subsidies by 2013 (SECO, 2008).

1.5.1. Present parameters and prospects for trade liberalisation Not only the cynics, but also by realists, have predicted that unless a miracle happens later in 2008, the Doha Development Agenda (DDA) will remain frozen. Indeed, what looks like a protracted cooling of global trade policy is not only due to the coming Presidential elections in the USA. It would thus take an optimistic free trader to forecast substantial trade liberalisation. Yet, agricultural and agro-food trade is likely to continue to expand for a number of reasons including:

• demographics and increasing appetite for meat and dairy products in net food-importing developing countries;

• climate change changing the present producer landscape in Asia and Australia and within Europe;

• biofuels – as long as the present production subsidy patterns in rich countries continue, without a “second-generation” source like cellulose becoming viable;

• agro-food industry developments: delocalisation following new production trends; • biotech feed production affecting competitiveness in countries without access to GMO

technologies; • economic slowdowns affecting governmental support for farmers.

No matter what governments do, agro-food trade will increase. Right now, however, the trade negotiation agenda ticks otherwise. In the absence of a final deal in Doha, policy changes will happen, but these will take place unilaterally, or through regional trade agreements. However, even free-trade agreements will not open the most sensitive markets and products. Nor can they solve the trade distortion problems arising from export subsidies and price support programmes in rich countries. Under these circumstances, any DDA trade impact study will be highly speculative. For a study on Swiss agricultural trade with developing countries after Doha there is an additional and highly complicating factor that cannot be neglected: domestic agricultural policies and even more crucially, the question of how to shape overall relations with the European Union, have led the Government to contemplate an agri-food free trade agreement with the EU.


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Negotiations are likely to start in 2008. But whether a possible agreement will be accepted in the inevitable referendum is not certain. This section of this report first contemplates the likely outcome of the Doha negotiations. It then estimates the chances for finalising what is presently on the table – including the form some market access decisions are likely to take. Based on these estimates, present impact forecasts by the Swiss Government are used for a proposal on how to calculate the impact on developing country trade with Switzerland. It is at this point that the possibility of a Swiss–EU free-trade agreement has to be pencilled in. Consequently, the two proposed baseline scenarios for an impact study are (a) “DDA only” and (b) “DDA plus FTA”.

1.5.2. What is on the DDA table for agriculture? Two categories of results will shape the final outcome of the DDA in the field of agriculture: the “two magic numbers”, and “the rest”. The latter is by no means unimportant, but it is even more difficult to foresee the result of these negotiations, let alone estimate the impact on agri-food trade.

Two magic numbers Quite clearly, two figures stand out as prime candidates for the decisions to be taken during the famous “last night”, and they concern the world’s two largest agricultural traders, the US and the EC.17 In this respect, Chairman Falconer’s “Revised Draft Modalities for Agriculture” are as follows:18

1. Domestic support reduction, in particular the Final Bound Total AMS of the US is to be reduced by 60%. 2. EC tariffs above 75% are to be reduced by 66–73%.

“The rest” A great many additional new rules and disciplines, as well as reduction figures for other countries and ceilings, are a necessary part of the final outcome. The most important of these belong to one of the so-called “three pillars”.

1. Export competition The abolition of export subsidies by the end of 2013 has in principle been decided already at the Hong Kong Ministerial, in 2005. However, this most important claim by the Cairns Group will only become WTO law in conjunction with parallel disciplines on similar practices; in particular, export credits/export guarantees and insurance programmes, agricultural export state trading enterprises, and food aid. For the latter, the so-called “monetization” and “safe box” remain the biggest single unsolved problems.

2. Domestic support Besides the reductions in the aggregate measure of support (AMS), the overall trade-distorting domestic support (OTDS) must also be reduced by rates yet to be agreed; proposals range from 50 to 85%.19 The same goes for so-called de minimis support which is defined as a cap either on product-specific support or on the non-specific support

17 For the record, these are the two agricultural numbers of the so-called “Lamy triangle” to which the WTO DG added industrial tariff reductions by advanced developing countries. 18 Cf. document TN/AG/W/4/Rev.1 dated 8 February 2008. 19 OTDS is composed of AMS + a percentage of the average total value of production + old and new Blue Box


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provided to total production. Finally, there will be limitations on “old” and “new” as well as on overall and product-specific Blue Box subsidies.

3. Market access This classic and most difficult part of the puzzle has many features that need to be reflected in a final deal. Obviously, for the reduction rates applying to other duty levels and Members other than the EC, similar tiered and bracketed proposals are under discussion.

Sensitive products “Sensitive products” are an as yet to be clearly defined category of products with lower reduction rates for 4–8% of their tariff lines, partly offset by increased tariff-rate-quota (TRQ) volumes. The proposed principle of “lesser reductions against higher quota expansions” for sensitive products also applies to Members wishing to retain more than 5% of their tariff lines above a cap of 100% ad valorem. However, quota expansion will be limited where import market shares exceed 10–30% of domestic consumption.

Special products “Special products” are available for developing country Members only. They may designate at least 6–9% of their tariff lines for products which they deem to be essential for food security, livelihood security and rural development. Such products will benefit from much lower tariff reductions; possibly no minimum cut at all will apply to a small number of “super-special” products. Also, for special products, there will be no mandatory TRQ increases.

Special safeguard mechanism (SSM) For developing country Members, a “special safeguard mechanism” (SSM) will be introduced which allows them to temporarily increase tariffs in the case of significant import surges.

Special agricultural safeguard (SSG) A special agricultural safeguard (SSG) is a (much-criticised) part of the present Agreement. Whether and how the SSG will continue to be available is an open question.

Other issues At least five more subjects represent more or less important unsolved issues: 1. tariff escalation 2. tariff simplification (including transformation of all specific into ad valorem duties) 3. tariff erosion 4. TRQ administration methods 5. tropical products (including, not at all a negligible issue, bananas!) Moreover, there are some additional problems in these negotiations including: 1. “Special and differential treatment” (S&D) for developing countries as a whole. This is a horizontal feature appearing in all the draft texts. The actual impact of such provisions is difficult to assess. 2. Certain groups of countries demand – and will obtain – lesser disciplines: a. Recently-acceded Members (RAM) b. Small and vulnerable economies (SVE) c. Least-developed developing countries (LDC) – perhaps even more.


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3. And the “Cotton Four” consisting of four Western African least-developed cotton-producing countries will want “more than formula” liberalisation mainly from the USA, both in terms of export competition disciplines, domestic support and market access.

4. The TRIPS issue of the appropriate protection of geographical indications remains on the agricultural agenda, at the increasing insistence of the EU and of Switzerland.

5. Export restrictions (e.g. after a poor harvest) can affect food security or processing capacity in importing countries. Animal breeders in such countries rightly demand the prohibition of export restrictions for feedstuff in exchange for more market access.

1.5.3. Prognosis for Swiss agriculture It is impossible, at the moment, to say whether and when the Doha Round negotiations will be concluded. However, most impact forecasts consider it highly probable that this will eventually be so. Furthermore, a “Doha-light” result is generally ruled out – most countries seem to prefer no result at all to a “painless” solution. This is less surprising than one might think when looking at the history of GATT where none of the seven “Rounds” ever actually brought about minimum tariff reductions for sensitive sectors of more than 50%. Indeed, agricultural trade and world market prices are booming. In addition, a number of (especially) domestic support issues appear to be solvable based on the present Agreement. On the other hand, it is becoming increasingly clear that there will be no “one-size-fits-all” result, and no magic formula solution. Particular problems will need appropriate solutions – even with general provisions for sensitive and special products, safeguards and the like. Apart from certain domestic support and export competition problems faced by individual countries, there are at least three products likely to give negotiators a particularly hard time in the final stages of the market access pillar: (EC) bananas, (US) cotton, (mainly Japanese and Korean) rice, and (everybody’s) beef. It is argued that the Doha Round will not be concluded without a special arrangement for each of these particularly difficult issues.

1.5.4. Impact on trade and production For trade impact studies in Switzerland, the above-mentioned problems will not be particularly relevant. Also, two out of the three “pillars” contain no major problems:

• For export competition, Switzerland will unilaterally phase out all remaining commodity export subsidies by 2009; thereafter only processed agricultural products will benefit from export subsidies in the form of compensation of price differentials between the domestic and world market for basic commodities.

• Domestic support reduction commitments are unlikely to affect actual agricultural policies, because since the inception of WTO most such support has been re-instrumented and today is being classified under the Green Box. Disciplines in this category of non trade-distorting support, to all intents and purposes, are not going to be modified in substance under the DDA. A possible exception to this general statement is a product-specific support cap which could apply to certain programmes, for instance in the dairy sector.

On the other hand, the major issue is clearly market access. In particular, the biggest single challenge for the farmers benefiting from the world’s highest tariffs will be the reduction rate in the highest band (i.e. tariffs above 75%). On 24 January 2008, an official estimate by the Federal Office for Agriculture20 assumed that in the eventuality of a

20 Cf. http://www.blw.admin.ch/themen/00009/index.html?lang=de


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successful conclusion of the DDA in the next couple of years, Swiss tariffs would have to undergo the following: 1. the above-mentioned tariff reduction range of 66–73% for all tariffs above 75%; 2. 4–6% sensitive products with 4–6% TRQ expansion; 3. additional TRQ expansion for products un-capped at 100%; 4. in-quota tariff abolition. There are no official, quantitative forecasts based on these more recent parameters. However, in May 2006 some impact estimates calculated the expected losses in Swiss agricultural production, added value and consumption based on various G20 proposals.21 In addition, these web-published estimates calculate the “optimal” number and treatment of sensitive products and show a number of examples such as potatoes and pork fillet.

1.5.5. Impact on trade with developing countries

The question at issue here is how “Doha-induced” liberalisation of Swiss trade will affect agricultural imports from and exports to developing countries. Baseline scenarios allowing for impact calculations should be straightforward and simple, even with a large number of parameters – and even when the importance of many of these parameters is still unknown. In other words, it is necessary to eliminate a number of factors from the baseline scenario, and to make probabilistic assumptions on some others. Before doing so, an additional development deserves attention here. This is the already-mentioned perspective of concluding an agri-food free trade agreement between Switzerland and the European Union. Looking at the importance of Swiss–EU agro-trade it is obvious that such an agreement could play an even greater role in trade liberalisation than Doha. It should be emphasized that the impact of such an agreement will be felt not only by Swiss farmers but also by third-country suppliers without free access to the Swiss market (i.e. everybody except the least-developed countries).22 To take just one example, if French beef becomes duty-free – and without SPS measures applying to EU origins – it would be virtually impossible for Brazilian beef to compete at the present price levels. Now, an agricultural Swiss–EC free-trade agreement appears politically almost impossible in the absence of a “first big cut” in border protection likely to result from the Doha Round. The question in practice would then be on how Brazilian beef would fare on the Swiss market after a MFN tariff reduction of, say, 70%. Given these circumstances, a calculation of future Swiss agricultural imports would need to take both eventualities into account, i.e. “Doha” with and without a Swiss–EC agri-free trade agreement. Additional parameters might also be considered, such as new tariff preferences (GSP)23 or free-trade agreements with developing countries containing significant new concessions. What follows are two, realistic baseline scenarios, based on the presently available parameters and probabilities.

21 Same web site as above, doc dated 17 May, 2007. 22 LDCs have already been enjoying duty-free, quota-free treatment since 1 April 2007. 23 An improvement of GSP treatment for other developing countries in the wake of either the Doha Round or a Swiss–EC agricultural FTA is for “interest equilibrium reasons” a definite possibility.


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Baseline scenario I: “Doha only” 1. all tariffs above 75% are reduced by 70% 2. tariffs < 75% and > 50%: -65% 3. tariffs < 50% and > 20%: -60% 4. tariffs < 20% and > 0%: -50% 5. for 3% of tariff lines designated as “sensitive products”, there will be a TRQ

expansion of 5% of domestic consumption 6. no (permanent) safeguard 7. no additional constraint such as export subsidy removal or domestic support cut

beyond the present levels; no restrictions on Swiss Green Box measures 8. no SPS measures additional to those of the EC.24

Baseline scenario II: “Doha + free trade with EC” 1. above figures plus 2. zero tariffs and zero quotas for all agricultural products with an EC origin.

Timeframe The timeframe matters for both scenarios, considerably, but it is not certain. What appears clear is that there will be few unilateral trade liberalisation measures without either of these two international developments. Even significant productivity gains are unlikely in the absence of new and important price pressure from abroad. Under these circumstances, an implementation period of 5 years starting in 2010 would appear to be a reasonable timeframe.

It is a fact that actual import increases and production losses are very much a question of productivity gains outpacing reductions for out-of-quota tariffs. Only increases in TRQ volume are likely to increase imports. However, even then, it is an open question whether developing country suppliers will be among the beneficiaries of these market openings. Under scenario 2 all third-country suppliers will lose out. Moreover, LDC suppliers will lose market shares under both scenarios, because their tariff preference advantage will erode. Interestingly, these developments have not yet attracted the attention of the academic community or the policy-makers, and there is hardly any literature on the implications for Switzerland’s development policy. There is only one recent PhD thesis analysing the efficiency and value of preferences of the Swiss special and differential framework for the beneficiary developing countries (Khorana, 2007)25:

It aims to evaluate the present pattern of preference utilisation, the total value of preferences for all the beneficiary countries and products as well as assesses the overall efficiency of preferences as a trade policy instrument to enhance market access for the beneficiary countries. The main findings suggest that the benefits from preferences are concentrated selectively in a few beneficiary countries and product groups; as a result, preferences have not enhanced market access for all the beneficiary developing countries and nearly one-third of imports potentially covered under preferences come under MFN tariffs. The main factors that influence the extent of market access for the beneficiary countries are both, tariffs and non-tariffs.

24 The Swiss–EC Agreement on Agriculture, in force since 2002, mutatis mutandis establishes an “internal market” with regard to EC–Swiss agri-trade, and adjusts Swiss–third country regulations to those applied by the EC. 25 This dissertation is available upon request.


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1.6. LDC Market Access Conditions in Switzerland

1.6.1. Tariffs For the Swiss scheme within the Generalized System of Preferences (GSP), LDCs are those determined by the UN General Assembly. However, country graduation usually follows EC schedules (e.g. Cape Verde by 2010). Since 1 April 2007, all but two products originating in LDCs enjoy duty-free and quota-free market access in Switzerland. Following two earlier, intermediate steps, this market opening is particularly important in view of the highly protected Swiss market for agricultural goods. For three reasons, the Swiss EBA could therefore be very important for the beneficiary countries:

1. MFN tariffs in all other countries are lower for most such goods. In other words, the tariff gap between MFN rates and duty-free access for LDCs is probably the highest in the world.

2. Likewise, the Swiss free-trade agreements (FTA) contain very few significant agricultural market access benefits.

3. Switzerland’s General System of Preferences (GSP) has not brought about major market access improvements for developing countries (Sangeeta 2007).

In the following Sub-Sections we present two limitations to this opening, the Swiss GSP, and the market access in some FTA. We can then determine the effective tariff advantage for LDC exports to Switzerland.

Tariffs for LDCs For all products originating in LDCs, duty-free and quota-free access is granted since 1 April 2007. This is an autonomous measure, in other words it is not based on bilateral or multilateral agreements with beneficiary countries.26 In addition, Switzerland extends LDC treatment also to some heavily indebted countries (HIPC),27 as long as those countries participate in the World Bank-led debt relief programme.28 The WTO Hong Kong Ministerial in November 2007 adopted a decision under which developed WTO Members undertook to grant such treatment for 97% of all LDC products by 2008.29 Switzerland, in following the EC’s EBA, had already taken steps to implement this 26 LDC treatment is also temporarily granted to highly indebted developing countries cf. Annex 1 of the Ordinance (Zollpräferenzenverordnung RS 632.911). The two non-LDC countries concerned are the Republic of Congo and Côte d’Ivoire. 27 Cf. art.6 para 2 of the Ordinance (« Pays qui ont adhéré à une initiative internationale de désendettement et qui ne sont pas encore désendettés »). At present, the two only countries in that category are Congo Republic and Côte d’Ivoire. 28 Debt Relief Initiative for Heavily Indebted Poor Countries (HIPC), created in 1996, and the Multilateral Debt Relief Initiative (MDRI), created in 2006 (see under ‘topics: economy and debt” at http://www.worldbank.org/) 29 Decision on Measures in Favour of Least-Developed Countries (in WT/MIN(05)/DEC, Annex F, para 36, emphasis added): ‘We agree that developed-country Members shall, and developing-country Members declaring themselves in a position to do so should: (a) (i) Provide duty-free and quota-free market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability.


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decision. Pending the outcome of the Doha Development Round, however, the WTO Decision can not be considered as legally binding on its Members. The words ‘on a lasting basis” also indicate that this commitment is not of the same quality as a scheduled tariff binding. In strictly legal terms, but subject to the provisions in the “Enabling Clause”, all preference-giving Members are therefore free to implement the Hong Kong Decision regarding LDC preferences – unless the decision is included, in mandatory terms, in the Single Undertaking at the end of the Doha Round. They could probably even rescind their own version of EBA, for instance if other major countries do not follow. Of course, a certain political or peer-pressure applies to all developed WTO Members, regardless of the status of the Hong Kong Decision. In concrete terms, this difference between an autonomous measure and a tariff binding listed in a country’s WTO tariff schedule, has two implications:

• A safeguard measure, i.e. a temporary suspension of a tariff preference, can probably not be challenged under WTO rules.

• Exceptions are possible, not in geographical coverage but in products for which no or only a reduced tariff reduction – or a quota – is offered.

Switzerland has foreseen both a safeguard clause, and two temporary exceptions to its version of the EBA.

A. Safeguards According to the implementing Ordinance, safeguard measures consisting in the suspension or withdrawal of the tariff preference can be taken at any time by the competent Ministry, i.e. the Federal Department of Economic Affairs. The conditions for such a suspension are as follows: There is an obvious potential conflict of interest between national agricultural interests and the trade development objective. Nevertheless, there are also certain limitations on the discretionary power of the competent Minister. A safeguard measure can only be taken in the eventuality of ‘unusual import surges’ combined with an increase in domestic production and/or stagnating consumption likely to lead to a ‘domestic price collapse’. In addition, a safeguard decision by the Minister must be confirmed by the Parliament, which in Switzerland has the final authority for all tariff decisions. Like all such decisions by the legislative, safeguard measures are also subject to a facultative referendum. However, such endorsements (or refusals, in extremely rare situations, not related to safeguards) are taking place only once a year – and are likely to intervene only at a time when the safeguard measure in question has already lapsed, or when it has lost its protectionist function.

B. Two temporary exceptions: Sugar and broken rice

Like in the EC, there are two, although temporary, exceptions to the full tariff-free treatment. Sugar, and rice for feeding purposes are still subject to reduced duties; they will become duty-free during the year 2009.30 This is because the EC’s EBA foresees the same exceptions until 2009; given the respective market sizes, a different treatment in Switzerland could indeed lead to considerable market distortions and spillovers.

…”

30 1 July 2009 for sugar (tariff number 1701.1100/9999), and 1 September 2009 for broken rice (tariff number 1006.4020), cf. Annex 3 to the Ordinance (Zollpräferenzenverordnung, Ordonnance fixant les droits de douane préférentiels en faveur des pays en développement RS 632.911)


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Sugar in Switzerland

In Switzerland, the sensitivity reflected in terms of border protection is at least as high as in the EC, and even higher when it comes to domestic support measures, including stockholding for food security purposes. This explains why LDC sugar will have to pay stockholding fees even after it will be duty-free, in September 2009! On the other hand, Switzerland does not have any particular, historic links to developing country suppliers, and can therefore limit government intervention to the protection and promotion of domestic sugar production and processing. Unlike in the EU, Swiss sugar imports from LDCs do not benefit from guaranteed prices. This means that such imports are very unlikely to rise before the end of EC price support to LDC sugar in September 2012.31 Furthermore, even though non-LDC developing countries benefit from a preferential quota of 20’000t and a tariff reduction of 7 francs for over-quota supplies, this opening is limited. Indeed, under its ‘Protocol 2” Agreement with the EC for processed agricultural products, Switzerland has agreed to maintain market prices that are substantially equal to those in the EU.32 In other words, import preferences making domestic sugar prices cheaper than in the EC are not allowed.

Tariffs for other Developing Countries (GSP) Switzerland, like all developed and some developing countries, grants autonomous tariff preferences to all developing and transition countries. For agricultural products, there are less than 500 tariff lines (out of around 2’500) covered by such preferences.33 In addition, many of these preferences are purely symbolic, such as for in-quota-tariffs, which in Switzerland are already very low.34 In comparison with MFN suppliers, some such preferences may still afford developing countries an advantage over competitors from developed countries (outside FTA). At the same time, GSP preferences for other developing countries quite simply reduce the market access advantage resulting from the duty-free treatment for LDCs (the ‘extra tariff mile”).

Tariffs in Free Trade Agreements (FTA) Swiss Free Trade Agreements with non-EC countries are mostly concluded within the ambit of the European Free Trade Association (EFTA), established in 1960 and of which Iceland, Liechtenstein and Norway are also Member States.35 Presently there are 15 FTA in force, namely with Chile, Croatia, Egypt, Israel, Republic of Korea, Jordan, Republic of Korea, Lebanon, Macedonia, Mexico, Morocco, Palestinian Authority, Southern African Customs Union (SACU consisting of Botswana, Lesotho, Namibia, South Africa and Swaziland), Singapore, and Tunisia.36 31 After that date, only a price information system based upon the current system would provide for market transparency. 32 This obligation towards the EU even led to a suspension of GSP treatment for sugar (10’000t at a rate of MFN minus CHF22). On 7 December 2007, this quota was reintroduced for 2008. Both measures drew loud protests from Swiss development NGO (cf. http://www.alliancesud.ch/francais/pagesnav/H.htm) 33 For a complete list of preferences, see Verordnung über die Präferenz-Zollansätze zugunsten der Entwicklungsländer (Annex 2: Liste der Präferenzen für Waren aus Entwicklungsländern), SR 632.911 34 As an example, in-quota-tariffs for most vegetables are only 7 CHF/100kg. 35 For the Agreement, and general information on EFTA cf. www.efta.int

36 All agreements are retrievable under http://secretariat.efta.int/Web/legaldocuments/, ibidem for the French, German and Italian versions of the bilateral agreements with Switzerland.


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Such agreements typically cover trade in industrial goods, including fish, and processed agricultural goods. For these, duties are eliminated on the industrial part of the product, but maintained on the value of the raw materials. Other rules, disciplines and concessions concern competition, intellectual property, services, investment, and public procurement. Since the EFTA states do not have a common agricultural policy, concessions on basic agricultural products are negotiated bilaterally with each FTA partner, or group of partners. In no case, the tariff reductions or tariff-free quotas agreed in those bilateral agreements reflect real inroads in the Swiss tariff wall. In fact, governmental policy continues to be defensive insofar as there are no concessions which could put the Swiss agricultural policy objectives at risk. For instance, when the Government submitted the FTA with the SACU for ratification to the Parliament, it argued that because all new concessions were granted in the form of tariff-rate quotas within the WTO-enshrined quantities, there was no impact on Swiss agriculture and on domestic production.37 In other words, Swiss FTAs in the field of agriculture, in the view of the government, are intended to be instruments of trade diversion, not of trade creation. For the trading partners, the interest in such agreements lies in the tariff advantage they can expect in regard of non-FTA suppliers. From a Swiss producers’ viewpoint, this strategy has so far been rather successful. Of course, important MFN tariff reductions such as those likely to result from the implementation of the Doha Round, or from a bilateral agri-food FTA with the EC, would substantially change the situation and call for a revision of the Swiss border protection, including FTA and GSP treatment of third countries. Again, what really matters for LDC market access here is the question of whether the preferential tariff advantage granted by Switzerland to LDCs is being eroded by EFTA/Swiss FTA concessions to third countries. The answer to this question can be found with the empirical approach chosen for this study. The new market potential in Switzerland for LDC products is likely to be highest where competing non-LDC suppliers enjoy no or very limited FTA concessions.

The resulting effective tariff advantage for LDC products To sum up the discussion in this section, the tariff advantage which LDC agriculture exports today enjoy on the Swiss market for agricultural products can be easily determined. For all LDC products enjoying unlimited zero duties, their advantage equals the lowest rate applied to their next best-treated competitors, i.e. FTA, GSP or the ‘normal” tariff applied to that product. We will analyse the actual usefulness of these advantages below.

1.6.2. Non-Tariff Measures Before reaching definitive conclusions on the effectiveness of these new tariff advantages for LDCs, in terms of market access opportunities, it is necessary to examine the non-tariff barriers hindering or preventing agricultural imports to Switzerland. Most of the Swiss NTB are the same as those in the EU examined above.38 At least in theory, they apply to LDCs in the same way as they apply to other countries. This section will thus be very short. 37 Bericht zur Aussenwirtschaftspolitik 2006 vom 10. Januar 2007 (in BBl 2007 1012) 38 Cf. supra 2.2.


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On 6 December 1992, the Swiss people and cantons refused a proposal to join the European Economic Area Agreement (EEA)39. After the refusal, the Swiss Government decided to implement many of the ‘internal market” provisions contained in the Agreement. This implementation happened through both autonomous measures and mutual recognition agreements with the EC and with the other EFTA States. On 21 June 1999, Switzerland and the EC concluded a bilateral Agreement on Agriculture, which entered into force on June 1, 2002.40 It contains a number of tariff concessions between the Parties (Annexes 1-3). For a large number of technical trade barriers equivalency agreements based on the ‘acquis communautaire” are listed in the Annexes 4-11. ¨ All sanitary and phytosanitary provisions applying to agricultural goods are contained in the Annexes 4-6 and 11. They include phytosanitary products and seeds as well as both plant-based and animal-based feed, the latter being part of a large number of provisions applying to trade in life animals and animal products (Annex 11, the so-called Veterinary Agreement). The objective and effect of these (continuously evolving) agreements is to create internal market-like conditions for Swiss-EC agricultural trade. The general idea is one of mutual recognition of pertinent legislations on the basis of which a product produced or imported in one Party can be traded freely (i.e. without further border controls or certification) with the other Party. As an example, a plant with a ‘phytosanitary passport’ either obtained in the EC or in Switzerland can be transported across the territories of all EU Member states and of the Customs Union Switzerland-Liechtenstein.41 For animal-based products such as meat the EC applies the principle of producer and product certification; here again, Switzerland will allow products with such certificates free access. The Federal Veterinary Office as the competent body very simply quotes the relevant EC Regulation and Decisions in its circular letters or directives to importers.42 Based on these agreements and the implementing legislation and practice, an importer can today presume that any agricultural product with access to the EU also has access to Switzerland – and vice-versa. In other words, if a given product today is imported into the EU it will also have access to the Swiss market, at the same non-tariff conditions. For processed agricultural goods, a similar although less contractually regulated situation prevails. Swiss food law often closely emulates Community legislation and procedures for food processing, inspection, importing, handling, certification and marketing. It is true that there is so far no comprehensive bilateral agreement between Switzerland and the EC

39 Agreement on the European Economic Area (OJ No L1 – 3.1.1994, p.3): http://secretariat.efta.int/Web/EuropeanEconomicArea/EEAAgreement/EEA_Agreement.pdf

40 Accord entre la Confédération suisse et la Communauté européenne relatif aux échanges de produits agricoles (cf. http://www.admin.ch/ch/f/rs/0_916_026_81/index.html) 41 The Principality of Liechtenstein and Switzerland are joined in a Customs Union through an Agreement dating back to 1923 (Vertrag vom 29. März 1923 zwischen der Schweiz und Liechtenstein über den Anschluss des Fürstentums Liechtenstein an das schweizerische Zollgebiet, SR 0.631.112.514). As for the Agriculture Agreement between Switzerland and the EC, an agreement between the three Parties extends the provisions of the bilateral agreement to Liechtenstein, including any future additions and modifications (Zusatzabkommen vom 27. September 2007 zwischen der Schweizerischen Eidgenossenschaft, dem Fürstentum Liechtenstein und der Europäischen Gemeinschaft über die Einbeziehung des Fürstentums Liechtenstein in das Abkommen zwischen der Schweizerischen Eidgenossenschaft und der Europäischen Gemeinschaft über den Handel mit landwirtschaftlichen Erzeugnissen, SR 0.916.026.812). 42 For example (http://www.bvet.admin.ch/ein_ausfuhr/?lang=en)


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applying to foodstuffs and health. However, pending a successful negotiation of such an agreement, a number of sectoral agreements apply, and in many other instances, Swiss legislation and practice closely follow developments in the EU.

1.7. Recent Performance of LDC Exports

We now look at the recent LDC export performance on various markets, regardless of whether this would be at the expense of other suppliers or of domestic production, or because of increased domestic consumption or re-exports. In order to identify those products where LDCs could increase their exports to Switzerland we then analyse those trade statistics for the European Union and for Switzerland.

1.7.1. Trade Data In this section, we examine recent trade developments of LDC agricultural exports to Switzerland.43 Because of the small size of the Swiss market it is necessary, in order to analyse these figures, to compare them with LDC exports to the EC and to the world. However, this section contains trade data only. An initial product-by-product analysis of the LDC export potential benefiting from EBA will follow (Potential for increased LDC Exports to Switzerland).

LDC exports to Switzerland

A. Total exports LDC exports to Switzerland have always been very small. For all products taken together, LDC supplies in 2007 (CHF 458’719’826) represented only 0.25% of total imports (up from an average of 0.15% in the period 2002-2006).

B. Agricultural exports For agricultural products considered alone (HS Chapters 1-24), LDC market shares are still very low, but they are much higher in comparison with their total exports to Switzerland: agricultural imports from LDCs in 2007 were CHF 34’413’546, i.e. 0.7% (slightly down from an average of 0.8% in the period 2002-2006).44 LDC agricultural supplies over 1 million Swiss francs were limited to chapters

• 03 (fish and seafood, CHF 3.6m) • 06 (mainly roses, total imports CHF 8.7m) • 08 (mainly pineapples and bananas, CHF 2.4m) • 09 (coffee, CHF 18.3m) • 15 (fats and oils, CHF 16.5m) • 18 (cocoa, CHF 13.5m) • 24 (tobacco, CHF 12.8m)

The tariff lines for which EBA brought substantial tariff advantages for LDCs will be analysed below. However, it is very clear from the above ‘big picture’ that 2007 import patterns show no overall impact from EBA. 43 Main source: Swissimpex (Statistics published by the Federal Customs Administration). 44 This decrease is in line with the fact that 2007 witnessed an overall collapse of agricultural imports from all countries (CHF 4.8m vs. CHF 10.1m in 2006).


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A word of caution may be in order in the further analysis of these trade figures. Customs statistics are not always reliable indicators of the true origins, especially for commodities. For instance, almost 100 tons of raw coffee imports, i.e. more than 1%, are shown as being of EC origin – with Germany as the main supplier. For bananas, the Netherlands and Austria alone supplied 700 tons, more than twice the volume of all LDC bananas taken together. Some of the reasons for these ‘statistical blips’ are discussed below. However, it is obvious that quite a few more LDC exports than those recorded in customs statistics find their way to Swiss consumers, processors and food exporters. A comparison of 2007 imports with 2006 shows a mixed LDC performance. Significant increases (for products with imports of more than 100’000 CHF) were notable only for cut flowers, bananas, coffee, coconut oil, palm oil and unmanufactured tobacco. At the same time, imports of seafood, pineapple, tropical fruits, groundnut oil, sugar, cocoa and tobacco refuse decreased. A general trend – whether reflecting or not the introduction of the zero tariffs – cannot be ascertained. It is therefore necessary to look at each product or product group separately.

C. Individual products A more detailed look at LDC exports to Switzerland shows a rather uneven picture. There are indeed wide variances across the whole product range. However, it is quite apparent that many trade developments are unrelated to the new duty-free treatment, and this concerns both export increases and decreases. A few recent import increases could however be attributable to EBA.

Import increases unrelated to EBA A number of products had substantial import increases from LDCs in 2007 – but those increases were not directly attributable to the new duty-free treatment. The most prominent case for this was roses (see box).

Sweet LDC Roses

2007 imports of LDC roses (0603.1110-1130) increased by 44% to CHF 8.48m. The main origin of these roses was Tanzania45 (and to a small extent Ethiopia), and apparently a sizeable part was imported by the main Swiss retailer and under the ‘Max Havelaar” fair-trade label.46 LDC market shares for roses thus jumped to over 10% in 2007.

This example is remarkable in two respects:

1. For the concerned in-quota tariff line, the tariff advantage is only 12.50 CHF/100kg vis-à-vis the EC, and during the summer period; during the winter season and vis-à-vis GSP suppliers and from the EU, this tariff is even zero.

45 Tanzania ranked as the fourth supplier of roses to Switzerland, with 329 tons and more than 10% of the total imports of CHF 43,8m, behind the Netherlands, Kenya and Ecuador. 46 603.1110 and 603.1130 (2006 = 603.1041), i.e. all in-quota imports. Surprisingly – given the tariff advantage of 2’450 CHF/100kg – there were no out-of-quota exports.


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2. There were almost no imports under the tariff line applying to out-of-quota flowers47, even though LDCs now enjoy zero duties during the whole year.

This seems to indicate that these LDC producers are already competitive, in comparison with traditional developing countries, even without a tariff advantage. Moreover, importers appear to have overlooked the possibility of free LDC imports even when everybody else is prevented by the prohibitive out-of-quota duty of CHF2’450/100kg.

Two of the most important LDC exports to Switzerland enjoyed substantial increases in 2007. However, EBA again plays no role at all, simply because both of them are already exempt of duties from all origins:

• coffee (+24% to 18m CHF) • unmanufactured tobacco (+50% to 12.7m CHF)

For these products, EBA can not constitute a boost. It is not even necessary.

Import decreases unrelated to EBA On the other side, in 2007 some import decreases took place for LDC products with usually large import volumes:

• pineapples (-25% to 1'064’774 CHF) • cocoa beans (-11% to 13’497’704 CHF)

These import decreases happened regardless of the tariff situation, simply because for these products there are no preferential advantages for LDCs. Nevertheless, a few import decreases did take place for products where certain tariff differentials apply:

• groundnut oil (1508.1090): -30% to 7’091’357 CHF • raw beat sugar (1701.1100): -38% to 473’828 CHF

For groundnut oil, the present import duties are very low.48 For sugar, there is no tariff difference between LDC and developing country sugar until mid-2009 when LDCs will start enjoying EBA benefits.49 Such import decreases may therefore indicate a lack of competitiveness, which can result in trade share losses. However, one-year changes and smallish trade volumes are poor indicators for such a hypothesis.

Import increases possibly due to EBA In order to assess the impact of the newly free access for LDCs in Switzerland, we have to focus on products with significant tariff differences.50 Here again, LDC product performance shows a mixed picture: 2007 import increases for products with significant tariff differentials are noteworthy for plant bulbs51, tropical vegetables52, bananas53, and mangoes54.

47 Actually, 382kg were imported from France and Ecuador – with a duty representing 76% of the import value. 48 cf. 5.3. infra 49 cf. 2.1.2.A supra 50 The ‘significance’ of a tariff duty, of course, will change from one product to another. In this study, we define ‘significant’ as above 5% of the average product value. 51 Tariff line 602.1000 +398% to almost 99’696 CHF; 602.9099 +4283% to 49’969 CHF


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For oils and fats, LDC supplies also increased – but their performance has been following the unfortunate fault line of changing aflatoxins contents, and limits. In 2007, imports of sunflower oil55, palm oil56, coconut oil57 have all increased – but they had been even higher in earlier decades. In future, trade patterns are likely to follow those in the EU, the more so because nowadays the same maximum residue limits for aflatoxins apply on both markets. In the same family and somewhat surprisingly, sesame seeds from LDCs may have found a new market in Switzerland: there are new imports for oil production for human consumption (1207.402458); for other human consumption purposes import surges were even higher (1207.4091) – but at a very low level and without any tariff advantage59. On the other side, some imports for feeding purposes have decreased since 2005 (1207.402160). Incidentally, the problem with imports for human consumption is the same as for sugar: under its ‘Protocol 2’ Agreement with the EC for processed agricultural products, Switzerland has agreed to maintain substantially equal market prices as those in the EU. In other words, import preferences making food production costs cheaper than in the EC are not allowed. The relatively high labour content in FOB prices may explain why especially low-wage LDCs enjoy increasing market shares for such commodities. Even there, low wages do not guarantee market shares. Year-to-year changes in LDC market shares may indicate a trend, especially when a new factor such as EBA plays an important role. However, they are not a sufficient proof for such a trend, even less so when the import market is as small as in Switzerland. In the following two sub-sections we therefore look at LDC performance on their main markets, i.e. the EC and the World.

LDC exports to the European Union Agricultural LDC Exports to the EC in 2007 totalled CHF 23’274m.61 By order of importance, they concerned chapters

• 18 (cocoa, CHF1'314.1m, major suppliers Côte d’Ivoire, Guinea, Togo) • 03 (fish and seafood, CHF969.1m, major suppliers Bangladesh, Senegal, Tanzania,

Mauritania and others) • 09 (coffee, CHF569.2m, major suppliers Ethiopia and Uganda) • 24 (tobacco, CHF373.3m, major suppliers Malawi, Mozambique, Tanzania) • 08 (fruits, CHF288.0m, major suppliers Côte d’Ivoire, Uganda, Bangladesh)

52 709.9099 +16% to 387’928 CHF 53 803.0000 +48% to 273’776 CHF. The LDC tariff advantage to all other suppliers is 14 CHF/100kg. 54 804.5000 +43% to 905'049 CHF. This import increase is hardly due to the tariff advantage of only 1 CHF/100kg. 55 1206.0024 56 1511.1090 +654% to 1'903’078 CHF 57 1513.1190 +79% to 7’334’271 CHF 58 (‚for the production of oil fit for human consumption, by pressing’): +705% to 233’219 CHF (LDC suppliers = Uganda with 169’677 CHF, and Mali with 63’542 CHF) 59 +2’610% (54’932 CHF with totals imports at 2’108’977 CHF), main LDC supplier = Uganda 60 (‚for the production of oil, for feeding purposes’): LDC supplies had actually started in 2005 (63’461 CHF) but they decreased to 28’316 CHF in 2007 (still from Uganda) when a new supplier emerged in India (73’358 CHF) 61 See Selected Trade Data in the Annex. The LDC list is that of Switzerland, i.e. Côte d’Ivoire is included as a HIPC.


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• 17 (sugar, CHF187.7m, major suppliers Tanzania and Mozambique) • 16 (mainly fish products, total CHF178.9m, major suppliers Côte d’Ivoire and

Madagascar) • 06 (cut flowers, CHF130.1m, major suppliers Uganda and Ethiopia) • 07 (vegetables, CHF100.8m, major suppliers Bangladesh, Ethiopia, Senegal and

others).

LDC exports to the world According to the UN Comtrade Database, 2006 world imports from LDCs totalled US$95’732m for all agricultural products. The largest trade, by order of importance, took place in chapters

• 03 (fish and seafood, $2’467m) – by far the biggest importer was the EU, followed by Thailand, Japan, USA, Côte d’Ivoire and Saudi Arabia

• 09 (coffee and tea, $1’269m) – the biggest importers were the EU, Japan, USA and Saudi Arabia

• 07 (vegetables and tubers, $787m) – with a wide spectrum of importers: by far the biggest importer was India ($528m), followed by the EU, Pakistan, Malaysia, and Saudi Arabia (each between $10m and $100m); Ethiopia, Japan, Thailand, and South Africa imported between $5m and $10m; Korea, Singapore, China, Qatar and Yemen had more than $2m; finally, the USA, Côte d’Ivoire, Ghana, Mauritius and Morocco had imports between $1m and $2m

• 24 (tobacco, $722m) – almost half of this trade went to the EU, with the other half going to Russia, USA, Singapore, Japan, Turkey, South Africa, Côte d’Ivoire, Australia and China (each >$10m); imports from other LDCs in Malawi ($50m) and Mozambique ($10m) were probably for further processing and re-export. Tobacco, in fact, is now the first South-South-traded agricultural commodity after coffee.

It is difficult to say how much further liberalization in importing developing countries would promote LDC trade. However, the full implementation of the Hong Kong Ministerial Decision on EBA would certainly help.

1.7.2. Analysis

European Union LDC treatment before EBA was already near to duty free: In the period 1999-2003 only 3% of LDC exports had not been duty-free in the EU, i.e. 72% were MFN duty free, and 25% were covered by either Cotonou or EBA preferences.62 During that period, their modest share in total EU imports grew from 1.2 to 1.3%. While LDC exports to the EU grew by 33%, more advanced developing countries increased theirs by 48%. Yet, the non-ACP LDCs had the highest growth rates of their exports to the EU, with more than 57%.63 Bangladesh had the highest growth rate of all developing countries in terms of preferential exports to the EU (170%).64 At the same time, 673 tariff lines became duty-free on an MFN basis, thereby annihilating the tariff advantage in comparison with all other preference (and FTA) regimes for those 62 Opening the Door p.17 63 Between 1999 and 2003, Afghanistan, Bangladesh, Cambodia, Laos, Myanmar, the Maldives and Nepal saw their combined exports increase from €2.8 to €4.3billion, accounting for 3.2% of total developing country imports into the EU. 64 Previously, Bangladesh had experienced serious difficulties in meeting the EC’s sanitary requirements for its supplies, especially for seafood, one of its main export items.


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products.65 Compared with non-LDC ACPs, the preference enjoyed by LDCs covered only 7% of the EC’s about 2’500 agricultural tariff lines at eight digit levels: 40% of those lines are not MFN duty free, but 33% enjoy Cotonou preferences with zero-duty quotas or seasonal restrictions, and only 5% are not covered by any Cotonou preferences.66 While preference levels for LDCs are the largest, their actual trade remains very small, and the highest preferential trade volumes are those of larger and richer developing countries. In summary, it is apparent that the introduction EBA did not bring about new trading opportunities for LDC supplies. [The one commodity where significant new imports took place is sugar with imports of 187.7m CHF.] This is not surprising. In fact, the EC had an already quite ‘open tariff door” beforehand, and that door was largely open even to non-LDC beneficiaries of its GSP. It remains to be seen, of course, whether the removal of all tariffs and quotas for the last two remaining products, i.e. sugar and rice, will change this situation. In case of drastic import surges, the EC could of course be tempted to apply its quotas, or its safeguard clause, and suspend preferential treatment. However, if an LDC was involved, the likelihood of a Commission or Council decision in that sense seems rather small, especially since these preferences are no longer autonomous – being enshrined in the EPA since 1 January 2008. By way of a ceterum censeo, all SPS measures still apply, also to LDCs, which, as shown above, are in an especially difficult position to cross these barrages.

Switzerland The absolute level of agricultural imports from LDCs into Switzerland is very small. Therefore, even small quantitative changes can be significant – percentage-wise. However, they hardly indicate reliable trends and opportunities for LDC trade. On the basis of the most recent trade statistics, it appears that the Swiss version of EBA has not so far changed the general pattern of agricultural imports from LDCs, neither in overall volumes nor for the main products concerned. The next chapter will therefore focus on a few products with preferential tariff differences. It is for these products, and their ‘neighbours”, that EBA could bring about real trade opportunities. At least for the time being. And as long as they are not subject to SPS prohibitions.

1.8. Potential for increased LDC Exports to Switzerland

Given adequate information and efficient distribution channels, an importer will normally choose a supplier in the country where products are offered, in comparable quality, at CIF prices below prices of competing products from other countries. Tariff differences will obviously play an important role (including tariffs for limited quantities, or tariffs with seasonal variations). Thanks to EBA, there now is a new hole in the tariff wall. Unfortunately, a large part of that hole is plastered with SPS measures. Nevertheless, a small opening remains.

65 Opening the Door p.14 66 Ibidem p.23


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1.8.1. The hole in the tariff wall As has become clear in the previous sections, there are only a few products with significant LDC market shares, and even less have seen increasing imports from LDCs in 2007. Moreover, quite a few of these increases cannot be attributed to the new hole in the tariff wall. Some imports even decreased despite being already duty-free. This latter development seems to indicate that the concerned supplying countries were no longer competitive. Of course, it is only over a number of years that a measure such as the Swiss EBA can have a tangible impact on LDC supplies (and only in the absence of Swiss safeguards measures). This is where trade promotion activities should come in. They should however focus on the most promising products and countries. Before identifying such products it is necessary to consider the ‘SPS barrage’ likely to prevent imports on a continuous basis.

1.8.2. The SPS barrage As this study shows, the biggest obstacle in Europe for increased imports, especially from LDCs, are the numerous sanitary and phytosanitary obstacles in place. The SPS barrier is actually so high that it is easier to identify those products which are not affected by such obstacles! But there is a small hole in the wall.

Sanitary obstacles As explained above, all animal-based products from so-called third countries require certification of producers and/or processors. Some large developed and developing country suppliers have managed to obtain such certificates based on mutual recognition agreements and/or directly at company-level. However, there are virtually no LDC processing facilities certified for export to the EU67, and thus to Switzerland! There are only two exceptions to this deplorable state of matters: For fish and fishery products, a number of companies have been certified in Bangladesh, Cap Verde, Gambia, Guinea, Côte d’Ivoire68, Madagascar, Maldives, Mauritania, Mozambique, Senegal, Tanzania, and Uganda.Four Bangladeshi companies are certified for certain animal casings.69 That is all. In other words, there is virtually no legal possibility for imports of live animals, meat, dairy products or honey, from any LDC, into any European country. Even products containing only traces of animal-based products, such as certain types of compound feed, fall under sanitary restrictions and are thus off-bound in the whole of Europe.

Phytosanitary obstacles The situation is somewhat better for plant-based products. As has been shown above (2.2.1.F) product certification, where needed, applies at country level. This means that producers and traders have to ascertain product conformity for each product and country (or even region), but not by way of certificates for each supplier like for animal-based products. Phytosanitary regulations for imports from third-countries in the EC (and in Switzerland) concern – inter alia – specific

• diseases (e.g. potato wart disease) • toxics (e.g. aflatoxins),

67 Cf. http://circa.europa.eu/irc/sanco/vets/info/data/listes/list_all.html (last visited on 10 March 2008) 68 Côte d’Ivoire today enjoys LDC treatment in Switzerland (Art.6 of the GSP Ordinance); cf. supra 3.1.1. 69 Cf. http://circa.europa.eu/irc/sanco/vets/info/data/listes/15bd.pdf


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• harmful organisms (e.g. the potato cyst eelworm), • undesirable substances (e.g. synthetic calcium aluminates), or • food and feed additives (e.g. salinomycin sodium)

As a result, plant-based products are much more traded than animal-based ones. Significant phytosanitary border measures in Europe apply mostly for living plants, seeds and some roots and tubers like potatoes. As noted previously, Switzerland applies the same phytosanitary import regulations as the EU. Regulations on feedstuffs, for instance, can easily be retrieved at the website of the competent authority, the Agroscope Liebefeld-Posieux Research Station ALP.70

1.8.3. The potential additional LDC market access Considering the formidable obstacles for LDC access to Europe, it appears that EBA could make only a small contribution to trade increases, both in the EU and in Switzerland. Recent trade performance confirms this view. This Section identifies a few products with further import potential on the Swiss market. Indeed, in 2007, there were some new imports from LDCs; for some of them, preferences may have plaid a role. A look at such products shows a diverse, albeit empirical if not speculative picture.

1. Cut flowers: LDC market shares for cut flowers are on the increase worldwide – even without the new tariff preferences. Traditionally, developing countries are less competitive for high-value flowers – even for tropical flowers such as orchids. In addition, LDCs compete with other developing countries. Nevertheless, if present trends continue, LDC producers can expect to make further inroads also in Switzerland – repeating Tanzania’s success with roses71 – and thanks to EBA they can do so the hole year round, unlike their competitors from all other countries.

2. For some live plants such as unrooted cuttings and slips (0602.1000), Ethiopia and Uganda together jumped over the CHF 100’000 limit in 2007. However, their tariff advantage is only CHF 6.20/100kg, and nil for EC and GSP suppliers.

3. Fresh vegetables: Seasonal tariffs vary in Switzerland even more than in the EU, with in-quota-tariff quantities allocated sometimes on a weekly basis. For far-away producers such frequent regime changes represent virtual import prohibitions, especially when the corresponding out-of-quota tariff is prohibitively high. LDC exporters enjoy a new competitive advantage in the sense that they can offer a continuous duty-free supply of those vegetables, which they can produce throughout the year.The only tariff line for fresh vegetables with sizeable (and increasing) LDC supplies were ‘other vegetables” (0709.9099). Even there, only Togo mustered yearly supplies over CHF 100’000 since 2003.

4. Fresh fruits: As previous studies have shown, the market for fresh produce is particularly difficult for newcomers.72 This means that the ‘open seasonal door’ for LDCs created by EBA will be a necessary but not sufficient argument for new trade.

• Fresh fruit subject to seasonal tariffs could develop into a LDC export. Like for vegetables, there would be no need for EBA advantages. Candidates for such new trade could be fresh table grapes (0806), apples and pears (0808), apricots, cherries, peaches and plums (0809), and berries, including of course out-of-quota strawberries (0810.1019).

70 http://www.alp.admin.ch/themen/00587/00626/index.html?lang=de 71 For roses cf. 4.1.1.C supra 72 Taverney (2006)


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• For pineapples (0804.3000), LDC producers had no tariff advantage against GSP suppliers, even before EBA. Perhaps for this reason they have faced declining market shares since 2003.

• There are few banana imports from LDCs (0803.0000). Only Uganda and Côte d’Ivoire supplied more than CHF 100’000 since 2003, with total LDC market shares remaining under 1%.73

5. There may be a new market potential, for similar reasons as for cut flowers, for semi-

or fully-processed fruits and vegetables: fruits for processing, including dried fruits and nuts (0811-0814) vegetables for processing, frozen (0710), provisionally preserved (0711) or dried (0712-0713) fruits (and vegetables) already processed, including as jams and juices (chapters 2005-2009). As of today, the only LDC supplies over 100’000 CHF are for some processed vegetables (2005.9941). This tariff line is perhaps a clue for further such trade, because it combines a definite tariff advantage with a relatively labour-intensive production.74

6. For coffee (0901.1100) and vanilla (0905.0000) LDCs traditionally enjoy market shares ranging from 5 to slightly over 10% - even without a tariff advantage, a fact which indicates the quality of their products especially in a market with increasing competition from new producers.

7. For oils and fats in general, most applied tariffs are presently very low, and therefore represent no advantage for LDC suppliers. One small exception is just one tariff line for sunflower oil (1206.0024 ‘sunflower seeds, whether or not broken, not hulled, for the production of oil fit for human consumption, by pressing’): for such seeds suppliers with MFN, FTA and GSP origins pay CHF 50.25/100kg – and it is the only sunflower tariff line with imports from LDCs.75The low applied tariffs for oils and fats – as well as for cereals – can of course easily change if the presently booming world market prices return to their previous low levels. Swiss MFN tariffs for these products exceed 300% ad valorem, including for feedingstuffs. They could be reintroduced easily in order to protect domestic production. This would re-open the EBA advantage for LDCs. However, such a scenario is highly unlikely, not only in view of present market trends (inter alia, biofuels) but also because MFN and FTA tariffs are unlikely to remain where they are today.

8. Whether sesame will remain a key for opening the Swiss door for LDCs remains an open question.76

9. Fish and seafood are a product group with significant LDC market shares (with Bangladesh, Mozambique, Tanzania and Senegal as main LDC suppliers), and with a few EC-certified exporters. However, since tariffs have been at zero since many years, these products are without EBA promises and are therefore not further discussed here.

10. Like in the EU, LDC sugar supplies to Switzerland stand between 5 and 10% of total imports.77 The crucial question here is whether EBA treatment starting in late 2009 will bring more LDC sugar to the Swiss market.78

73 Interestingly, but of course wrongly, banana imports with Dutch and Austrian origins (sic!) were much higher than total LDC quantities, according to Swiss import statistics for 2006 and 2007. 74 The MFN rate is 59.50/100kg, EC and FTA suppliers pay 24.50 – and there is no tariff reduction under the GSP. 75 Tanzania, with CHF 237’000, but this represents a market share of less than half a percent of total imports. 76 Cf. Supra 5.1.1.C 77 1701.1100: 2007 imports were 38% down to 473’828 CHF 78 Cf. Supra 3.1.1.B


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