Does Israel Really Need Its Farmers Any Longer?

Once the backbone of society, many are saying that agriculture is no longer central to the country’s economy

Eliyahu Hershkovitz

Agriculture is an emotional topic in Israel, embodying a wide range of feelings: nostalgia, romanticism, a connection to one’s roots. But some people have negative attitudes toward agriculture. They belittle the farmers who speak of their work in Zionist terms, who declare that without them we would all starve to death.

On the eve of the harvest festival of Shavuot, TheMarker asked economists and farmers: Does Israel really need agriculture?

Both groups responded in Hebrew, but they seemed to be speaking different languages. For example, while the farmers spoke of the importance of food security, the economists, who prefer to think in terms of strategic plans, dismissed the concept. Talk of agriculture as the core of the Zionist enterprise is met by economists with analyses of return on investment and anger that agriculture seems to be exempt from antitrust rules.

One truly important question, however, is the contribution of Israeli agriculture to the cost of living. If domestic agriculture is so essential, the economists ask, why are fruit and vegetable prices so high, to the point where 37% of the children in this sun-drenched country eat mainly cheap carbohydrates, according to a poverty report issued by the Israeli charity Latet. And what about agricultural quotas and customs duties and subsidies?

Farmers have a clear response. The problem, they say, is not of their making. It’s the retailers and bureaucrats, the value-added tax and even the requirements of Jewish dietary laws that are to blame. Economists argue for a totally open market, while the farmers retort that the country’s food supplies must be protected for its citizens.

One issue over which there is nearly no argument, however, is that Israeli agriculture is important. The argument is over the state of the sector and how it can become more modern and efficient.

Israeli farming today is a far cry from its glory days. The Startup Nation pays more attention to advanced communication technology than to water, solar energy or seed technology.

It wasn’t always the case. In 1949, the first full year after the state was established, agriculture accounted for 12% of gross domestic product and 65% of exports. By 2011, agriculture accounted for just 1.7% of GDP, and farm exports were less important to trade. In the 1960s, they made up 20% of all exports. In 2011 they were just 2%, although at $1.38 billion the sum was considerable. Since the 1980s, very few new farm-based communities have been established.

On the other hand, Israel has made significant strides in agricultural productivity. Agricultural production rose 46% between 2002 and 2011, an average of 4.4% a year, due to innovation and technology.

Self-sufficient

According to the Agriculture Ministry, Israel is wholly self-sufficient in the production of fruit, vegetables, poultry and eggs, a fact that goes to supports the farmers’ arguments that they provide the country with nutritional security.

But it imports beef, as well as grain, sugar and other dry foods, as well as some farm equipment. It also relies on 24,000 foreign migrant workers, mostly from Thailand. Arik Reichman, a former CEO of the Tnuva food manufacturer and current chairman of the Arava Export Growers firm, says it would have been impossible to establish the State of Israel without borders, which were defined by the location of agricultural communities, including kibbutzim and moshavim. Israeli agriculture has done a lot for the environment, he says, with farmers making wide use of recycled, treated wastewater. Finally, he notes the contribution of agriculture to the economy.

“Agriculture was at the heart of the establishment of the State of Israel and anyone traveling the country’s roads sees that it’s also true now,” Reichman insists.

Most of Israel’s rural communities now derive most of their livelihood from activities other than agriculture, but Reichman says that image is misleading. “Although moshavim and kibbutzim do have diversified sources of income now, not one of them does not also have farming.“ Those sentiments are seconded by Itzik Bader, a member of Kibbutz Givat Haim Meuhad, who for the past 20 years has served as chairman of Granot, the marketing and purchasing agency for 41 kibbutzim.

“Every civilization since human beings ceased being hunter-gatherers is built on agriculture. Every country in the world cultivates and preserves its local food production,” Bader says, “because agriculture and settling the land are not just about producing food, but rather a whole worldview that includes maintaining the land and the borders. Settling the land is part of the quality of life and culture of every people.”

In addition, Bader says, a geographically isolated country such as Israel must maintain food security and self-sufficiency for times of emergency.

Comparative advantage

But Yaron Zelekha, a former accountant general of the Finance Ministry, says the claim that Israel needs to maintain self-sufficiency in food is nonsense. And Iddo Kan, who heads the department of agricultural economics and management at Hebrew University’s Rehovot campus, says the real question is where Israel has a comparative advantage and where it doesn’t.

“Currently we don’t have food security because we import a significant portion of our food. In fresh food, we have a comparative advantage because shipping costs are high,” Kan says. “Israeli zucchini, for example, costs 3,000 shekels ($860) per ton, compared with 5,400 shekels for imported.” On the other hand, he says, imported onions cost 1,500 shekels a ton, compared with 2,200 shekels for domestically grown ones. “The country must ask itself if a sector is profitable and supports itself, if we have a comparative advantage over the alternative. If so, then it should be preserved. If not — then not.”

Surprisingly, Reichman agrees with this principle, primarily because by his estimation that comparative advantage does exist. If a particular branch of agriculture isn’t profitable, it simply stops operating, he says.

The farmers in the Arava [in the south], for example, currently have a problem with peppers. The dollar is constantly eroding in value and competition in Europe is increasing. No one supports them. The water on the moshavim is not subsidized and if it continues this way, the [pepper] sector will die out. Another example is cotton. In the 1980s, cotton was one of Israel’s most important sectors, and it’s been totally obliterated. With regard to citrus, we are seeing a revival in recent years,” he observes. “Other than eggs and dairy, Israeli agriculture is a free and efficient market.”

“A free market?” says a shocked Prof. Omer Maov. “What do banana growers contribute to the people of Israel? Nothing but damage. Why is it that in Britain can I buy bananas of excellent quality that cost [the equivalent] of 4 shekels a kilo, while in Israel it’s double that and the quality is nothing special? The sector exists to ensure that the kibbutzim that grow bananas have income, but they don’t create any value for me the consumer, in contrast to tomato growers. For tomatoes, imports are less realistic.”

It would be hard to accuse Maov of being an ivory-tower economist. He was once in charge of a date plantation on Kibbutz Kalia. “We knew we were part of the Palm Growers Union, a national cartel that sold our produce in Israel at high prices and abroad cheaply,” Maov says. “Agriculture is anything but a free market. Today we don’t need agriculture, which operates at the expense of the public, for instance by using so much fresh water.”

So you think there is no longer a need for farming in Israel?

“Generally speaking, yes. In every industry, those who have failed, who don’t enjoy any comparative advantage, must close. There’s no room for romance. If we want quality of life, social welfare and a better standard of living, we have no choice to operate along this principle: Whoever adds values can continue to operate and whoever doesn’t cannot. Farmers are no exception.”

What about food security?

“Forget that. If there were ever an embargo on Israel we wouldn’t survive it anyway.”

One of the main complaints about the local farming sector is the high price of fresh produce and the lack of imports. Economists say this is the ultimate proof of the market’s inefficiency. “The most important indicator is the price of food,” agrees Reichman. “Since 2008, prices have risen beyond what they need to, but even before 2008 they were too high by 15% to 20% relative to overseas.”

Cost of kashrut

If our farm sector is so productive, why is this happening?

One reason, Reichman says, is the high cost associated with maintaining the dietary laws of kashrut as they relate to food production. “This is an industry that supports a lot of people and raises the price of farm products. Also, VAT is high, which doesn’t help. VAT on food in Israel is 18%, as it is on all goods, while in Europe the average is half that. That is an example of political negligence of the first order. Differential VAT would immediately lower the price of food. In addition, geographically we’re an island. We’re not like the European market – there isn’t enough competition. Of course, retailers also get in on the act, and cause items that are relatively inexpensive to be costly.”

Economists have a different explanation, of course. They speak about a sector that relies heavily on cartels, subsidies and import quotas. “We need agriculture, not because we lack food or don’t know where to buy it, but because a country without agriculture can’t develop value-added products,” says Zelekha. “Organic pesticides, drip irrigation, genetic engineering – all these are specialties that have developed here because there is demand. A synergy has been created that enables the development of new products and services that increase local productivity and exports. Do we need to subsidize agriculture? Not necessarily …. But the subsidies should go to those who need them.”

For example?

“I, for example, am opposed to selling water to growers for less than the cost of producing it, because if the price is too low it will be used inefficiently. If we decide we are giving subsidies, they should be given directly …. We need to create a kind of chief scientist’s office, that asses the economic value in every area and allocates aid by project, directly to growers. If there is economic value, we give it, if there isn’t, we don’t. The kind of system will encourage innovation and reduce the cost to the government. In parallel, we of course have to eliminate quotas and tariffs. We need to start thinking economically by taking into account our comparative advantage as well as considering how to disperse the population and securing our borders. That would mean preserving part of agriculture while the inefficient part would disappear.”

From the farmers’ perspective, the debate over subsidies is unnecessary. According to the Agriculture Ministry, farm subsidies in Israel amount to just 14% of total receipts, compared to an average of 19% for Organization for Economic Cooperation and Development member states and 15% in the European Union. In states such as Norway and Switzerland, farm subsidies are as high as 55% and 60%.

“Agriculture is as much a matter of social priorities as it is an economic question,” says Dror Strum, a former antitrust commissioner.

“The State of Israel always wanted farming, not because it would improve our GDP but because of societal goals, to enable the wandering Jew to settle on his land and to earn a livelihood from it” says Strum. “ But since the establishment of the state, no one has ever really examined this societal preference. No one has asked whether over the years it has changed in its power, extent, focus or ability. Once there was a need for fruit orchards in the center of the country, but today our problem is housing. Has someone really bothered to examine which is more important?”