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Support to agriculture in Iceland has declined but remains high at 48% of total income, and the forms that most distort production and trade still present two-thirds of total support.
The level of price distortions, as measured by the Nominal Protection Coefficient (NPC), has been reduced, and direct payments – largely based on historical livestock production – has replaced some of the former price support.
- Progress in policy reform since 1986-88 has been limited overall. Despite the substantial decline in the level of producer support in recent years, it remains much higher than the OECD average.
- The significant weakening of the Icelandic Króna during 2007-09, and higher international prices for the products most important to Iceland’s agriculture, dairy, led to a significant increase in border prices denominated in local currency. As a consequence market price support fell and overall support to producers, expressed as a percentage of gross farm receipts decreased significantly.
- The policy mix in Iceland remains dominated by production and trade distorting measures. With the change in payments to sheepmeat producers made in 1996, and more recently following a renewed six-year agreement between the government and the farmers’ association concerning the framework of support to sheepmeat production that took effect in 2008, there has been a shift towards somewhat more decoupled forms of support.
- Further efforts are still needed to reduce the level of support and to continue the development of more efficient and coherent policy measures. They should target explicit policy objectives, including environment protection, in ways that are less production and trade distorting and that conserve natural resources.
Iceland: OECD Producer Support Estimates (PSE)
Level and composition by support categories, 1986-2010