Dutch disease in the Norwegian agricultural sector

Abstract

Applying and augmenting the theoretical framework of the Dutch disease, this paper investigates potential negative effects from the petroleum industry in Norway on agricultural profitability, and implicitly on food security due to the farmland abandonment effect. Two fundamental transmission channels of the oil price with an impact on agricultural profitability are analysed by vector equilibrium correction models: (1) The impact on producer prices, which affect input prices and then the costs of production; (2) The impact on food imports via the import-weighted exchange rate. A third channel is the wage differential in the respective sectors. Arguably, further consequences of low profitability and less farmland area are an increased pressure to become more efficient, which may result in increased use of antibiotics and increased depletion of soil. Therefore, due to the natural limits of boosting efficiency in biological systems and the farmland abandonment effect, Dutch disease in the agricultural sector is generally more serious than in the classical deindustrialisation case.