Innovation meets tradition at Vogar, Mývatnssveit, North Iceland, a dairy and sheepfarm, guesthouse and cowshed café.
Published in the 2014 January-March issue of Iceland Review & Atlantica – IR 01.15. Words by Eygló Svala Arnardóttir, Photo by Páll Stefánsson.
Climate change could be a blessing for Icelandic agriculture, Prime Minister of Iceland Sigmundur Davíð Gunnlaugsson has indicated.
He reasons that the country will be better suited for more types of farming in the future, such as growing grain, resulting in increased export of agricultural products.
Land of Opportunity
“It’s our obligation to take advantage of the opportunities and increase food production, both for the domestic market—where we’re looking at a 20 percent increase in tourism every year—and for export,” says Minister of Fisheries and Agriculture Sigurður Ingi Jóhannsson.
His and Sigmundur’s party, the Progressive Party, was founded to protect the interests of farmers, and through the years farmers have remained loyal supporters.
Agriculture used to be as important to the national economy as the fishing industry, and the Progressive Party would like its importance to increase.
“By 2050, the world’s population will have grown from seven to nine billion with the middle class numbering three billion,” Sigurður says in reference to estimates of the expanding global market. “Demand for food will double.”
The government’s long-term goal is to double agricultural production in Iceland.
Chair of the Icelandic Farmers Association Sindri Sigurgeirsson points out this isn’t possible across the industry. “The production of lamb could increase by 20 to 30 percent in some areas, while the cultivation of certain greenhouse vegetables could increase to a greater extent, such as of leafy salads.”
Dean of the School of Social Sciences at the University of Iceland Daði Már Kristófersson, who is professor in environmental and resource economics, agrees that—given that state intervention will be modified—there are unused opportunities in Icelandic agriculture; in growing barley, pork production and especially in aquaculture.
There are around 4,200 registered farms in Iceland, of which 3,200 are active in agriculture. People employed in the industry number 4,800, which is 2.9 percent of the labor force. Overall, 11,000 jobs in Iceland are connected to farming in one way or another, such as in the dairy industry and service sectors.
Most farms either produce milk or lamb, or both, which together account for almost half the agricultural production. There are 2,000 sheep farms in the country with an annual yield of 9,000 tons of lamb—plus mutton, wool, pelts and offal, and 640 dairy farms, aiming to produce 140 million liters of milk in 2015.
“Production must increase by 20 percent to meet domestic demand, mainly in products high in fat,” explains Sindri. This is due to growth in tourism and a changed consumption pattern among Icelanders.
“In August 2013 the sale of butter and cream increased by 20 percent between months and it remains high,” elaborates Sigurður.
“Twenty to 30 years ago, saturated fat was considered to be unhealthy, but not anymore.”
Four farms at the foot of Raufarfell mountain with Eyjafjallajökull glacier to the left. The area is known for dairy farming.
Cash Cows and Black Sheep
There are two main pillars of agricultural support in Iceland: market price support, maintained by border control measures, and direct payments based on payment entitlements to cattle (mainly dairy) and sheep farmers, and on a smaller scale to certain greenhouse producers.
Market price support is provided for all livestock products and some horticultural products.
The OECD estimates that in 2013, overall support totaled ISK 19.2 billion (USD 155 million), of which direct state funding was ISK 12.1 billion.
This accounts for 41.3 percent of the income of farmers, down from 50.8 percent in 2008.
Still, agricultural support remains higher in Iceland than in most other OECD countries apart from Japan, South Korea, Norway and Switzerland.
Wholesale prices are managed for approximately half the dairy products, meaning that the producers obtain an 82 percent higher price for the milk than they would have without state intervention, the OECD concludes.
Every year, a government-chaired committee, representing the Farmers Association and labor unions, determines the guaranteed minimum prices for milk delivered within production quotas.
“The Competition Authority says that price management limits the retailers’ flexibility for premiums,” justifies MP for the Independence Party Haraldur Benediktsson, a dairy farmer and former chair of the Farmers Association.
“According to the price survey of the Icelandic Confederation of Labor, there is a 12 percent difference in the price of milk between stores but a 70 percent difference in some types of vegetables.”
Both quotas and entitlements for support payments are tradable between farmers.
“If our intention is to reward former dairy farmers, this system is excellent,” Daði says ironically, reasoning that it’s expensive for newcomers to start out as they have to buy quota and retired dairy farmers profit from selling theirs.
He’s not the only one critical of the system. “Controlled production was relevant at the time—we were looking at mountains of meat and butter—but it has become obsolete and a hindrance,” states Ástvaldur Lárusson, vice-chair of the Icelandic Association of Young Farmers, which is independent of the Farmers Association.
When the quotas were established in the early 1980s, they were a response to overproduction.
Haraldur maintains that the quota system is on its way out. Due to increasing demand, the production limit no longer applies, he says.
“It hasn’t mattered in two or three years.” Yet this doesn’t lead to more farmers entering the industry.
“Everyone who wants to can produce milk, but they won’t get funding unless they hold quota, so it’s mostly existing dairy farmers who are increasing their production. They used to get a lower price for additional milk but now the price is the same,” explains Sindri.
“This may be the first step towards abolishing the quota but we will always need a tool to control production so that the milk won’t be wasted.”
In the mid-1990s, output payments for sheep meat were replaced by payments based on historical entitlements, which are tradable between farmers.
“Those who are already in a good position accept direct payment from the state and the sale of entitlements results in those who are well-off buying more while young farmers are facing difficulties. I have witnessed this, unfortunately, that market control of the entitlements leads to inequality,” reveals sheep farmer Jóhannes Sigfússon.
The Sheep Farmers Association can publish reference prices for meat but these have no binding effect on slaughter companies’ pricing.
Sheep farmers receive a 25 percent lower price than the world market price for lamb, says Haraldur. “Farmers are fighting for a higher production price—the pricing is not in line with expenses,” adds Sindri, a sheep farmer himself.
“When comparing a sow and a ewe, the sow produces two tons of meat per year, but the ewe 30 kilos.”
Icelandic lamb is a unique product, he reasons. Roaming free in highland pastures in the summer, the lambs feed on wild herbs and “season themselves,” as he puts it.
Broke but Happy?
The annual monthly salary of a dairy farmer, excluding profits, is ISK 218,000 (USD 1,770), and ISK 129,000 for the average sheep farmer, as calculated in issue 39-2014 of weekly business journal Vísbending.
Ástvaldur, an agriculturalist by education, says there is significant interest among young people in farming, “but it isn’t attractive being a farmer, unless you can live with being broke.”
While agricultural trade agreements are up for review, Ástvaldur doubts revolutionary changes are on the horizon.
Agricultural policies in Iceland are determined by renewable multi-year agreements for dairy, sheep and horticulture between the government and the Farmers Association.
The agreement on horticultural production is up for renewal in 2015, on dairy production in 2016 and on sheep production in 2017.
“I hope that the new agreements will be modernized, but the older generation is too comfortable. The system wraps them up in cotton wool and prevents progress, neither benefiting farmers nor consumers.”
A farmer’s son from the West Fjords, Ástvaldur has aspirations of venturing into farming himself, but not under the current circumstances.
“Farmers should have the opportunity to sell their products directly. Today you can’t sell meat unless you operate a slaughterhouse on your farm, and the conditions you must fulfill are ridiculous.”
Ástvaldur adds that farmers can send their animals to slaughterhouses and then process the meat at home—provided they have the approved production facilities. However, this makes the products less attractive to consumers, he reasons, and therefore farmers should be given the opportunity to sell them directly, without the intervention of a third party.
“Being a sheep farmer is a lifestyle,” declares Jóhannes. He lives at Gunnarsstaðir in Þistilfjörður, Northeast Iceland, one of the largest and most profitable sheep farms in the country.
Two families run the farm, which has 1,200 winterfed sheep.
“If you invest 100 million krónur in a sheep farm and expect to get it back in your lifetime, it won’t work out.
However, if you’re sensible, and build up gradually, you can earn a decent income to support a family on an average-size farm, with at least 600 to 700 sheep.”
Still, farming alone doesn’t suffice. “It’s necessary to have other income while building up a farm. We have been luckyhere as the employment situation is good,” Jóhannes says in reference to the fishing industry in Þórshöfn, the region’s largest town of 380 inhabitants.
“Farmers can get a job offloading boats in shifts from January to March, which pays well.”
Jóhannes explains that such work goes together with sheep farming as these months are usually quiet. The sheep are kept inside and have to be fed, but even with maintenance of machines, farmhouses and fences, that’s not full-time work.
“Additional work in moderation can be a welcome change.”
Haraldur and Jóhannes, who used to be chair of the National Association of Sheep Farmers, took action to help young farmers starting out.
“In the agriculture trade agreement [from 2008] money from the joint fund of sheep farmers was reserved for supporting young farmers buying livestock. It helped a lot of people,” explains Jóhannes.
Now mostly retired as a sheep farmer, his children have taken over and the same can be said for many of the other farms in Þistilfjörður.
“The children who were born here between 1975 and 1980 were a tight-knit group and when some of them started coming home, others followed.”
They’re not in it for the money, though. “Sheep farmers are like Bjartur í Sumarhúsum,” Jóhannes says of Nobel Prize in Literature laureate Halldór Laxness’ legendary protagonist of Independent People (1934-1935).
“It’s hard work and it doesn’t pay much but it gives you liberty, diversity and closeness to nature.”
Some of the 7,000 sheep being rounded up in Lokastaðarétt, Þverá, Dalsmynni, North Iceland.
Fear of Fresh Meat and Green Success
In addition to direct agricultural support, imports into Iceland are prohibited for uncooked meat and meat products, uncooked milk and uncooked eggs, skewing competition.
However, some products from the European Economic Area (EEA) partner countries and the more than 20 countries with which Iceland has free trade agreements carry lower, or no, tariffs.
The EFTA Surveillance Authority (ESA) concluded in a reasoned opinion in October 2014 that the Icelandic legislation applicable to the importation of fresh meat, meat preparation and other meat products is in breach of EEA law and an unjustified trade barrier.
The opinion will likely be heard by the EFTA Court, as the Icelandic government argues that the barrier is a security measure.
“For 11 centuries we have had special breeds of farm animals in Iceland, different from the breeds in the rest of Europe,” explains Sigurður.
The concern is that if fresh meat containing harmful bacteria enters stores in spite of health checks—of which there have been examples in other countries—it might come in contact with farm animals and cause an epidemic.
“As in the case of the horse flu,” says Sigurður.
In 2010, the majority of riding horses in Iceland fell ill and some died due to a previously unknown bacteria entering the country, perhaps with dirty riding gear.
“I’m a veterinarian, so I know what I’m talking about,” the minister stresses. By only allowing the import of frozen meat, Icelandic authorities have a 30-day buffer to respond, he reasons.
Not only the ESA has criticized this reasoning; the measure is heatedly debated in Iceland. “It sounds like scare tactics,” says Ástvaldur, who believes it’s only a matter of time before freer import of agricultural products will be permitted and that Icelandic farmers must be better prepared to handle the competition.
“No country allows unlimited import,” states Sigurður, “it would simply be bad business.”
As an example, he mentions negotiations currently taking place with the EU. Today, 380 tons of skyr, an Icelandic dairy product, are imported to the EU without tariffs and Iceland would like it to increase to 4,000 tons.
However, in turn, the EU expects Iceland to import a comparable amount of a product made in member countries, which would be much harder for the small Icelandic market to handle, the minister maintains.
However, Ástvaldur, Daði and others have pointed out that when the importation tariffs on cucumbers, tomatoes and bell peppers were lifted in 2002, the green-house vegetable sector was quick to recover after the original setback, especially in the case of cucumbers, where domestic producers now hold a 93 percent market share.
Simultaneously, the consumer price dropped by 40 to 60 percent.
“At the same time all-year lighting became a viable option because of cheaper electricity,” mentions Sigurður.
Direct payment and other support measures were introduced at the same time. “The garden plant market collapsed,” the minister adds of a sector which underwent a similar development but was not as successful.
Haraldur attributes the success of greenhouse vegetable producers to a health awakening and an effective marketing initiative, highlighting the products’ local origins.
A Giant’s Responsibilities
In September, the Icelandic Competition Authority (ICA) fined Mjólkursamsalan (MS), which holds a 99 percent share on the Icelandic dairy market, ISK 370 million (USD 3 million) for bullying competitors and abusing its dominant position on the market.
The ICA concluded that MS sold raw milk to its smaller competitors at a price 17 percent higher than to firms connected with MS.
Claiming that the company is operating within the legal framework of the dairy industry—it is exempt from certain competition laws—MS has appealed the decision.
“Production companies have grown into giants, taking over the market. After a certain point, they hinder competition and diversity in production. What you get is a basic product sold at the minimum price,” says Ástvaldur.
“If it turns out that MS violated competition laws, it won’t be tolerated,” announces Sigurður.
MS is the giant of the Icelandic dairy industry, equivalent to Denmark-based Arla, the third-largest cooperative dairy company in the world, and Tine in Norway. These giants are considered a necessity, not only by the authorities but also small-scale dairy producers, Daði explains.
Collecting milk from dairy farms is expensive and complicated and small-scale producers cannot commit to that.
“Tine too was found to have hindered competition and that was handled by the authorities,” adds Haraldur.
Now an environment has been created in Norway in which small-scale producers can thrive, selling specialty products, while Tine holds an 85 percent market share.
“We want more parties processing the milk, which results in higher quality, more diversity and a better price—positive competition,” he explains.
“MS has a social responsibility to support diversity,” Sigurður agrees.
Revamp or Revolution?
Everyone seems to agree that the Icelandic agricultural system is obsolete and must be changed to tackle future projects.
Charging the University of Iceland’s Institute of Economic Studies with estimating the system’s efficiency, the government is planning a revamp in consultation with stakeholders.
“We want to increase production and the system must be able to support that,” states Sigurður.
However, Daði believes the government’s efforts won’t amount to much.
“With the Progressive Party in control of the Ministry of Agriculture, there is no interest in changing the system.”
Haraldur, on the other hand, whose party is in coalition with the Progressive Party, is more optimistic. Reasoning that times are already changing with direct payments to dairy producers having decreased by 30 percent in the past decade, “We’re moving from overproduction into a new era,” he says.
Haraldur chairs a new Agriculture Cluster, aiming to bring farmers, producers and consumers closer together and involve farmers more in the processing and development of their products, encouraging innovation.
“We’re looking at the greatest revolution of the Icelandic agricultural system in decades with extensive changes to the work environment. But it will take time. Upheaval isn’t good.”
Haraldur points out that there are many who criticize the agricultural system without suggesting solutions and that many countries have systems that are less transparent and more complicated than here.
“The agricultural system is the heart of production—here, in the far north—of half the food we consume. We also import a high percentage of our consumption. That we have one of the most liberal agricultural systems in our part of the world isn’t much talked about.”
The question is how to modify agricultural support.
Sindri reasons that while the price of individual products varies greatly, without support, farmers would generally need to double the amount for their products.
In his view, limitation on imports is a condition for advances in agriculture. “If there wasn’t any support from the state, sheep farming wouldn’t exist as a profession,” predicts Jóhannes.
“Our neighboring countries support farming too, although it may have a different form. We must keep in mind that for every job in agriculture, there are three to four related jobs. If we want to keep the countryside populated, sheep farming is the cheapest way to maintain production, employing many others in servicing, processing and handling of the product. If sheep farming was abolished, the towns would collapse too.
“Fjallalamb is a good example; it’s by far the largest employer in Kópasker,” he says of a slaughterhouse and meat production company specializing in lamb from the region in the nearby 120-person village, in which his family holds a stake.
Daði suggests that instead of supporting certain types of farming, the state should support everyone equally through funding based on cultivated land.
Jóhannes disagrees. “It would go to suitcase farmers for simply owning land. State funding should be connected with production, not just for the sake of existing.”
His view is shared by Haraldur. “In 2003 the EU shifted funding from kilo of milk to cultivated land. It led to the price of land shooting up and a property bubble with the money no longer going into subsidizing food, which is the basic idea.” This has led to horrible consequences for Danish agriculture, he states.
In its report ‘Agricultural Policy Monitoring and Evaluation 2014’ published last September, the OECD recommends moving away from production-linked support.
“To sustainably reduce the level of support and its distortive effects, policies need to be changed in favor of measures less linked to production and away from border protection. The focus should be on efficiently targeting explicit policy objectives, including environmental protection and the conservation of natural resources, while reducing market distortions.”
Whatever the future may hold, there are those who remain passionate about farming.
“You’re tending to life,” excites Jóhannes. “It’s an indescribable feeling when you’re searching for sheep in blistering cold up in the mountains on a ski-doo when all of a sudden you find helpless sheep. It’s good to observe that young farmers share that attitude.”
There is no better environment for raising children, he argues. “When I think back, I can’t tell where childhood ended and adulthood started. The games that we played were all based on what the adults were doing and as soon as we could take part we knew what to do.”
Jóhannes doesn’t hesitate when asked whether he would consider a different profession if starting over.
“I would make the same choices.”
Agricultural Policy Monitoring and Evaluation 2014 – OECD Countries. Developments in Agricultural Policies and Support in Iceland (p. 111-117).
Bú er landstólpi. An article in issue 39-2014 of weekly business journal Vísbending by Benedikt Jóhannesson (p. 1-4).
Íslenska landbúnaðarkerfið – staða, horfur, framtíð. A presentation by Daði Már Kristófersson at a meeting held by political party Viðreisn in Reykjavík on October 21, 2014.
Landbúnaðarsaga Íslands, Volume 2 (2013). By Árni Daníel Júlíusson and Jónas Jónasson.
Svona er íslenskur landbúnaður – 2013. A report on the website of the Icelandic Farmers Association, bondi.is.
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