What happens in Greece doesn’t stay in Greece. That’s what Israeli companies are learning as the sinking euro takes a toll on their exports to the continent, Israel’s biggest overseas market. The European currency is down 13% this year against the shekel, weighed down by Greece’s chronic financial crisis. On Sunday it was worth 4.1274 shekels.
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“On a single day in January 2015, the euro collapsed 15%. This means that, in one day, my profits were slashed 15%. No one expected it; it was like a natural disaster,” said Yossi Schwartz, whose Starplast firm, based in Alon Tavor, exports 97% of its plastic products – much of it to the European Union.
Israeli exports overall have been in a funk for some time, with sales to Europe, not counting polished diamonds, down at a 13.2% annualized rate in the second quarter. But Israel’s difficulties vis-à-vis Europe are especially problematic because the continent accounts for nearly a third of the country’s total merchandise exports.
Not all of Europe uses the euro and many exports, even those to Europe, are priced in dollars. But exports to the euro bloc reached a sizable $10.5 billion, or 22% of Israel’s total, last year. Israel’s trade deficit with the EU widened 21% in the first half of the year.
Plastic products, like those made by Starplast, are especially vulnerable, with more than a third of the industry’s overseas sales going to Europe.
The Bank of Israel regularly buys dollars to rein in the stronger shekel. But that has provided little comfort to exporters, who have also suffered a decline of more than 5% in the value of the dollar since April, to 3.7890 shekels on Sunday.
The Israel Export Institute says the trade-weighted basket of currencies, which is what the Bank of Israel uses to measure the value of the shekel, is at its lowest since it was first used in July 1999.
Another especially vulnerable sector is farm exports, 45% of which go to the euro bloc. Dror Eigerman, CEO of Galil Export, said he has been shut out of Europe not only by the weak euro but also Russian sanctions against European agricultural products. That has meant Europe is saturated with locally grown fruits and vegetables. Meanwhile, Russia is closed off to Israeli farm exporters because of the collapse of the ruble.
“Right now, we’re selling only mangoes in Europe,” said Eigerman, who expects to sell more products as the high season gets underway – though doesn’t expect to earn much in the process. “We’ll exports citrus, avocado, pepper and potatoes, but every decline in the euro means less money will come back to us,” he said.
Eigerman said exporters don’t dare raise prices to compensate for the weak euro. “There are growers who are losing money. We get no help from the government.”
“You can’t hedge against exchanges over a long period of time, so we need to learn to live with fluctuations,” said Sam Donnerstein, CEO of Rav Bariach, which makes doors and locks. Industry needs help from other areas to improve its profitability, such as [lower] municipal rates and electricity costs.”
Donnerstein has a long list of things that could help exporters like himself, including speeding up the expansion of the national gas pipeline network to factories, to prove them with cheaper energy. He wants the government to subsidize marketing programs, worker training and provide more investment grants.
He also wants lower costs at the government’s ports monopoly. A plan to develop private ports is underway, but it will be several years before they begin operations.
Importers, meanwhile, have been in no hurry to lower their prices to the Israeli consumer. They claim their contracts with big Europeans manufacturers of automobiles, food and electronics are long-term ones. In any event, they work on credit lines of 60 to 90 days and can’t be sure the euro will remain at its current low level, especially as the Greek crisis seems to be close to resolving itself.
“It would be sufficient for one importer to lower prices for competition to develop,” said one, who asked not to be identified. “For now, it looks like everyone is waiting to see what will happen with Greece, and how it will affect the euro.”