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Chapter 8: Competition Policy Chapter 11 - Agriculture & Rural Development Iceland AGRICULTURE AND RURAL DEVELOPMENT I. HORIZONTAL 2 II. MARKET MEASURES 41 III. DIRECT PAYMENTS TO FARMERS 73 IV. RURAL DEVELOPMENT POLICY 79 V. QUALITY POLICY 116 VI. ORGANIC FARMING 118 VII. STATISTICS 120 ANNEX 11:8 A CUSTOMS TARIFFS FOR AGRICULTURAL PRODUCTS ANNEX 11:8 B ICELANDIC IMPORT REGIME FOR PAP’S ACCORDING TO PROTOCOL 3 TO THE EEA AGREEMENT ANNEX 11:22 IMPORTS & EXPORTS OF AGRICULTURAL PRODUCTS IN 2004-2008 1/ 141 Chapter 11 - Agriculture & Rural Development Iceland I. HORIZONTAL Explanatory note on references to laws and monetary values Icelandic laws, regulations (and other secondary legislation) and treaties are published in the Government Gazette (Stjórnartíðindi)1. A consolidated version of laws in force is available at the website of Althingi (The Parliament of Iceland).2 A consolidated version of regulations in force is available at the Government website.3 Monetary values are listed in Icelandic krona (ISK). The rounded average Central Bank of Iceland exchange rate was EUR 1 = ISK 180 on 2 September 2009. However it should be kept in mind that the value of the krona has fluctuated in the last few years from below ISK 70 to over ISK 180 per euro at the official exchange rate (more if rates of EU banks are used). The euro value may therefore not give an accurate view, depending on the time of transactions. 1. Please provide, with an indication of recent and expected future developments, a general description of: - the national and regional farm income policy, production and structural policy (in particular rural development policy) - the budget earmarked and used for this general agricultural policy framework - the administrative structure in place at the national and/or regional level (e.g. Ministry of Agriculture, Intervention/Paying Agencies, Advisory Boards, etc.) involved in agricultural policy formulation, execution, monitoring, and control, and a) Is there a paying agency in charge of the management of your agricultural policy? If yes, please submit information on the way it operates. If no, please provide information on the institution in charge of the management of your agricultural policy (Ministry of Agriculture, regional offices, marketing boards, etc.)? In both cases, information on the structures of the organisation(s) involved should also be provided. b) When receiving applications for aids, how are they processed, controlled, authorized and paid? Please provide flowcharts describing the main processes and procedures with regard to the management and internal control system (if existing) together with a description of any system used for the administration and control of support schemes. - farmers’ organisations and their role in the agricultural and rural development policy formulation, implementation and monitoring as well as regarding their advisory role for farmers, - farm advisory services and farmer's register, - the method and frequency of information transmission to beneficiaries/general public (on applications and on other general agricultural and rural development issues). 1 www.stjornartidindi.is 2 www.althingi.is 3 http://www.reglugerd.is/interpro/dkm/WebGuard.nsf/key2/forsida 2/ 141 Chapter 11 - Agriculture & Rural Development Iceland 1. Introduction Conditions for agriculture in Iceland are limited by the country‟s geographical location and geological formation, being located between 63.3 and 66.7° north (Arctic Circle) on the Atlantic Ridge. The total area is 103,000 square kilometres. The climate is dominated by the surrounding ocean with average temperature of approximately 10°C in July and around -1°C in January. Annual precipitation ranges from approximately 400 to over 3,000 mm. The growing season is short, around four months. The island is young on the geological calendar, consisting almost exclusively of volcanic rocks, lava and sediment and has still many active volcanoes. Thus, there are large areas in the country which are very vulnerable to wind and water erosion. Figure 1.1: The surface of Iceland Source: The Icelandic Institute of Natural History 1998. Potentially arable land below 200 m altitude (i.e. land that can be cultivated), partly vegetated and partly barren, amounts to some 15% of the total surface, 18% of the area lies between 200 and 400 m and 58% above 400 m altitude. These conditions constrict agricultural production in Iceland. Because of the cool climate very few farms lie above 300 meters altitude and over 90% of the farms below 200 meters. In certain areas there is limited land for cultivation, which restricts the possibility of farms to grow and increase production. Traditional agriculture is primarily based on grass, by natural pasturage and making fodder in the form of hay or silage from cultivated grass fields. Total cultivated grassland amounts to 120,000 hectares. Crop production is currently small scale, almost exclusively barley for feed 3/ 141 Chapter 11 - Agriculture & Rural Development Iceland for use on the farms and not for sale. This cultivation, however, has been increasing rapidly in the last few years and barley is now grown on over 4,000 hectares yielding 15,000-16,000 tons and provides 10-12% of all grain used for livestock feed. Private ownership of farm holdings is the most common ownership in Iceland as shown in Table 1.1 and family farming is the most typical form. Table 1.1: Ownership of agricultural holdings in 2008 (No of farms*) Farmers and associates 3,223 State owned 239 Municipalities 114 Others 714 Total 4,290 *) Not all with agricultural production 2. Agriculture and the National Economy As in other western countries, Icelandic society has undergone extensive structural changes in the past decades resulting in emigration from the rural to the urban areas. The source of employment has shifted from agriculture and fisheries to industries and services. At present, 6.5% of the population live in the rural areas and less than 3% of the total workforce is employed in agriculture, which in 2007 provided 1.4% of the gross domestic production (GDP). In 2006 there were 3,045 farms in Iceland, i.e. operational units paying the levy on agricultural production applied according to Act No 84/1997 which is obligatory for all farms with agricultural income in excess of ISK 500,000 a year. Table 1.2: Key figures Rural population 2009 6.5% No of operational farms 2006 3,045 Proportion of manpower in agriculture 2008 2.5% Proportion of GDP from agriculture 2007 1.4% Gross farm income, incl. support payments 2008 (estim.) 27,588 (mISK)4 Producer support estimate (PSE) 2008 51% Despite these relatively low figures on the national scale, agriculture remains an important sector outside the densely populated south-west corner of the country. In fact agriculture is the backbone for livelihood and employment in the more remote rural areas and provides the basis on which various services and new initiatives are built. It can be argued that the public and political willingness to support agriculture to the current level is to the larger extent, based on two pillars; food security and the vital role that agriculture plays in rural society. A. Agriculture by Sectors Livestock production provides 87% of farm income from agricultural production, the remainder deriving from horticulture and potato growing (figure 3). 4 mISK = million Icelandic Krona 4/ 141 Chapter 11 - Agriculture & Rural Development Iceland Table 1.3: Annual turnover on agricultural production Annual turnover on agricultural production Calendar Calendar Calendar Calendar Year 2005 Year 2006 Year Year 2008e 2007e5 1. Bovine products (incl. sales of live 10,495,749 11,258,185 12,102,549 12,955,778 animals and direct payments) 2. Sheep/goat products (incl. sales of live 4,921,460 5,295,831 5,693,019 6,094,376 animals and direct payments) 3. Horse products (incl. sales of live 625,189 776,923 831,696 890,330 animals) 4. Pig products (incl. sales of live animals) 1,159,822 1,420,673 1,520,830 1,628,049 5. Poultry products (incl. sales of live birds; 995,341 1,248,294 1,336,299 1,430,508 excluding eggs) 6. Eggs 650,013 444,703 476,055 509,617 7. Potatoes 349,392 643,528 688,897 737,464 8. Swede (yellow turnips) 45,287 60,629 64,903 69,478 9. Other vegetables and flowers 2,096,685 1,962,820 2,101,199 2,249,333 10. Pelts from mink and foxes (including 296,426 506,015 541,689 579,878 sales of live animals) 11. Eiderdown 172,492 174,632 186,944 200,123 12. Forestry products (incl. sales of forestry 119,681 42,624 45,629 48,846 plants) 13. Sales of hay and various other 144,872 169,321 181,258 194,037 agricultural products Total 22,072,408 24,004,177 25,770,964 27,587,817 Agricultural production at farmgate in years 2005 and 2006 with estimates for years 2007 and 2008; in ISK 000s (value incl. direct payments) Source: (1) The State Financial Management Authority (years 2005 and 2006); (2) Agricultural Economics Institute (years 2007e, 2008e). Traditionally, agricultural production in Iceland rested on sheep and cattle with horses for work and transport. While this has changed greatly over the last decades, dairy and sheep farming are still the dominating sectors in terms of both employment and production as well as in supporting rural habitation. There are at present 738 dairy farms and 1,955 sheep farms with support entitlements (see later). A typical dairy farmer keeps 30-40 cows and a sheep farmer 300-600 sheep, while the variation is considerable and the development is towards larger farm size. During the past decade consumption patterns have changed considerably, with consumption switching from sheep meat to pork and poultry.
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