OECD to Israel:Privatize Farmland, Cut Water Subsidies

Ahead of deciding whether or not to allow Israel to join it, an OECD report has recommended Israel privatize agricultural land, raise water rates, and reduce protectionist quotas on agricultural imports.

Israel should consider additional ways to sustain outlying towns other than through shielding the local agriculture sector from competition, says the Organization for Economic Cooperation and Development.

Acting as a meeting ground for the 30 most developed countries in the world, the OECD also represents strong advocacy for the free market system. In its recommendation, the delegation to Israel called on the government to maintain the reform process centered around reducing the heavy consumer tax burden, which is a derivative of state support for agriculture.

One of the central points in the OECD report on Israel's application addresses the rate of state support provided to Israeli farmers (directly, through protectionist quota policy, and through support of agricultural produce consumers). The report found that between 1995 and 2008, state support had fallen from 33% to 25% of total gross agricultural product, and that Israeli farmers now receive slightly less government support than those in European Union countries, but dramatically more than U.S. farmers.

The government is more heavily involved in the agriculture sector than any other domestic sector, through allocation of production input (land and water), subsidization of water prices and capital through investment grants and insurance policies, but mainly, through protectionist quota policies, the report found.

Israel's import tax on agricultural produce is three times higher than that levied on non-agricultural products, the report says.

These quota policies for agricultural product imports skew farmers' economic feasibility considerations when choosing what to produce, the report notes.

On the issue of quotas on imported fruits and vegetables, the report found vegetable and fruit prices on the local market to be generally lower than the export price of these products, so that high quotas may no longer even be necessary.

The OECD report recommended that the price of agricultural water be raised to at least cover the cost of production. It also recommended that differential prices be set for agriculture water, reflecting geographical and seasonal variances in the supply.

Agricultural productivity, the OECD report found, has increased at a faster pace over the past 20 years than any other branch of the economy, and is now on par with other sectors. Agricultural exports have increased over the past 20 years by 3% annually, growing at a faster pace than any other sector of the economy.

The OECD delegation visited Israel in May and met with the heads of the agriculture, finance, and environmental protection ministries, as well as farming organizations, the Water Authority, the Central Bureau of Statistics, the central bank and academic leaders.

The delegation will visit again in September, in preparation for the final draft of the report to be submitted to member countries prior to the deliberations on Israel's application in Paris next December. The report was submitted to Agriculture Minister Shalom Simhon and the ministry's director general, Yossi Yishai.