Guess Which Country's Wild Milk Tariff Is Holding Back Growth?

January 19, 2016 09:39 AM
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If Norway’s government can brace for a battle that may mean tractors rolling through its capital, there is one (albeit small) way to help re-jig the economy in the face of sub-$30 oil.

As western Europe’s biggest crude producer copes with collapsing oil prices, farmers need to sacrifice some of their vast government support and subsidies -- such as a 450% tariff on some milk imports, according to the Organization for Economic Cooperation and Development.

Subsidies for the agricultural sector are nearly three times the OECD average. Local farmers are protected by about 100 cash mechanisms including price support and tax breaks. They get an average 570,000 kroner ($64,000) a year, according to OECD data. That’s costing each household an average of 10,400 kroner each year (costs hit households via fiscal channels).

This kind of legislation has led to one company, Tine SA, to be the single cooperative that dominates dairy-product distribution in Norway, leaving little competition and high food prices.

“These levels of high support are likely to become increasingly untenable over time,” the OECD said in a report published Monday.

The report highlighted the nation’s need to find new growth motors for its oil-reliant economy. Norway has been pummeled as the price of Brent crude has plunged 75 percent to about $29 in the last 18 months.

Challenging farmers could be messy for lawmakers. About 45 percent of Norway’s 5.2 million people live in “predominantly rural” regions, compared to the OECD average of about 25 percent. This group came to life in 2014 when the government took them on over producer prices -- they came to Oslo ready to fight with tractors, cows, chickens, cowbells and megaphones.

And what will it mean for the world if Norway withdraws supports?

More expensive Jarlsberg cheese, perhaps. The government is currently looking at doing away with export subsidies for agriculture by 2020, including the 130 million kroner a year it provides to Jarlsberg producers.

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