The government is to increase farmers' incomes two per cent, or SFr200 million ($123 million), despite pressure from the United States, which says that Swiss farmers benefit from too much state aid.
The cabinet announced the move on Wednesday, along with other measures to support organic farming. It also said the price of milk would not be reduced despite falling costs in the dairy industry.
The measures were welcomed by farmers' associations. Swiss milk producers said the government had met its most important demands and that "any other outcome would have been unacceptable".
The government described the measures as necessary to keep Swiss agriculture competitive, and to provide incentives to organic farmers. Organic farms will receive up to SFr200 more per hectare in subsidies, and payments will be backdated to January 1.
The government also plans to lower tariffs on the import of feeds from July 1 by SFr5 per 100 kilogrammes. It said this would help competitiveness among meat and egg producers.
The move comes after the United States complained that Swiss farmers receive too much state aid, and that the market is too insulated from foreign competition.
Despite the strong state support, Swiss dairy farmers earned an average of just SFr27,000 a year in 2000. That is SFr6,000 less than their average German counterpart, and some SFr33,000 less than a non-agricultural worker in Switzerland.
Swiss dairy farmers have seen their income fall consistently for the past decade. Eight years ago, they received SFr1.07 per kilogramme of milk, compared to just 77 centimes today.
swissinfo with agencies