OECD Report: State Protection of Farmers Means Israelis Pay More for Produce

Farmed food costs Israelis more than the global average.

The price of foods in Israel that are based on agricultural products are higher than global averages due to the protection the government offers farmers against imports, found an OECD report released over the weekend.

“Government support to Israeli farmers has fallen over recent years but a number of market-distorting policies are still in place,” according to the first OECD Review of Agricultural Policies: Israel.

“Israel’s agriculture is unique among developed countries, in that land and water resources are nearly all state-owned and that agricultural production is dominated by cooperative communities,” the OECD notes in a summary of the report. “Israel is a world leader in agricultural technology, particularly in farming in arid conditions. Israeli agriculture thus relies on an ‘induced,’ rather than ‘natural’ comparative advantage, one built on knowledge and technological progress.”

In terms of exports, Israel specializes in winter vegetables, potatoes, seeds, tomatoes, flowers and fruit, mostly for the European market, as well as agricultural technology. Agricultural technology exports totaled $2.2 billion in 2007, more than agricultural exports, it notes. Israel’s main imports are generally products that tend to require a lot of land to produce, and include cereals, beef, oilseeds, sugar, tobacco, fish and tropical products such as cocoa.

Overall, agricultural output expanded 60% from 1990 to 2007, with livestock and crop output growing equally, notes the report. This works out to a 2.2% average growth rate, which is above the OECD average and also beyond Israel’s population growth rate, it states.

But the report also contains plenty of criticism.

Between 2010 and 2012, government-set prices for agricultural goods – such as the target price for raw milk paid to dairy farmers – were, on average, 11% higher than prices on the global market, states the report.

The report criticizes the government’s involvement and interference in food prices, and states that changing this could reduce prices. The dairy industry reform decided on in 2012, in keeping with the Locker committee recommendations, was a step in the right direction, but is unlikely to reduce pressure from consumers unhappy about prices over the long term.

In order to reduce prices and make Israeli agriculture more competitive, the report suggests further reducing government involvement in animal husbandry.

The report reviews government support for farmers, including dairy farmers and chicken farmers, in OECD nations and other countries. It notes that in keeping with the Kedmi committee recommendations, the finance minister approved a plan last year to cut back the government quota program for agriculture, but notes that this plan applies only to certain foods and is to take place over several years.

Due to international treaties, Israel has made its agricultural support policies more transparent. Yet high duties on imported food products are still a central means of supporting local farmers, it notes.

Direct government support for agriculture is about one-third lower than the OECD average and is lower than the European Union average as well, but higher than direct support in countries including the United States, Brazil, Chile and Australia, states the report.

In 1995-1997, direct government support equaled 20% of agricultural revenues. By 2010-2012, that figure was 11%, states the report. This is in keeping with global trends, it notes.

Most of the support is indirect, though - import taxes imposed on foreign competitors and on quotas for local production.

Israel’s import duties are not imposed consistently, notes the report. Duties on dairy products, eggs and meat, for instance, are particularly high, sometimes to the point of making imports economically unviable.

The average import duty on agricultural goods is 24%, as opposed to 4.2% on nonagricultural goods.

Agricultural imports are possible due to Israel’s free trade agreements with the European Union and the United States, among others. Imports under these agreements account for two-thirds of Israel’s agricultural imports.

Government intervention includes setting quotas and prices for milk and eggs, and setting minimum prices that farmers receive for selling wheat. The government is still highly involved in these two industries, even if its support for agriculture in general has dropped over the past two decades.

The Agriculture Ministry stated in response, “The report found that 16% of all support for agriculture is public support intended to preserve the country’s food security. Of this support, 38% is for R&D,” it added.

Agriculture Minister Yair Shamir added that agricultural R&D is the most important means of leveraging Israel’s relative advantage in international markets. Israeli agriculture will meet export targets and foreign demand for Israeli products will grow only due to increased R&D investments, he said.
 

Eyal Toueg