The Israeli Fruit and Veg Firm That’s Growing at the Expense of Farmers

When farmer Shauli Peretz went head to head with the Sheva brothers, he discovered the lie of the land in the local produce business.

Rami Shllush

The phone call announcing the premature death of the farming season caught Shauli Peretz unawares. Peretz, a farmer from near Zichron Yaakov in northern Israel, had just finished loading a truck with produce and was about to drive to the logistics center of his client, Bikurei Hasade Darom – the biggest fruit and veg wholesaler in the country.

“You know you’re not bringing us any more produce until further notice? We received a notice to stop working with you,” said the secretary to Alex Lokotkin, the chief finance officer of Bikurei Hasade Darom.

The day before, Peretz had been surprised to find the 1,815 shekels ($476) that Bikurei Hasade Darom was meant to pay him for 726 kilograms of cucumbers had been subtracted from the company’s check to him. Next to the item, Bikurei Hasade simply wrote, “Donation.”

Peretz didn’t recall donating cucumbers to anybody. And nobody had solicited him for a donation of cucumbers or money. “Who did you donate it to?” he asked Sasi Sheva, procurement VP at Bikurei Hasade Darom, adding, “It’s my produce and I have the right to know. I want to see the receipt for the donation.”

Sheva was happy to put him in his place. “This is my method. I donate and don’t ask your permission. You want to work with me, fine. Don’t want to – also fine.”

Over the following days, Peretz came to learn the breadth of the system concocted by Ilan and Sasi Sheva, aged 46 and 48 – the brothers who rule Israel’s fruit and vegetables market with a heavy hand. He also learned what happens when you don’t play by the rules that the two perfected over the last 10 or so years.

A few hours after Bikurei Hashikma (a joint company owned half by Bikurei Hasade Darom and half by the Rami Levy business group) advised Peretz it wouldn’t be buying so much as a baby cucumber from him until further notice, two other wholesalers did the same. One was Bikurei Bitan, a wholesale company (and fourth biggest food marketer in Israel) jointly owned by Bikurei Hasade Darom and Bitan Wines; and Bikurei Shuk Ha’ir, a wholesale company jointly owned by Bikurei Hasade Darom and the Shuk Ha’ir chain. All three companies suddenly severed business ties with Peretz, and his father Albert, at the same time – though none had been involved in Peretz’s argument with Ilan and Sasi Sheva. Evidently, all three companies are de facto run by the Sheva siblings. Peretz’s attempt to question the brothers’ system had not gone well.

Playing monopoly

This March, the Antitrust Authority ruled that farmers had other ways to market produce, based on measurements of market share. But the reality for farmers and the authority’s theoretical models are very far apart. A farmer can’t switch from one chain to another in mid-season. Chains make season-long commitments to farmers; a chain won’t suddenly procure mid-season from a new farmer with whom it has no contractual relations unless a critical shortage develops.

Anyway, the next day Peretz uprooted 6.5 dunams (1.6 acres) of cucumber plants – but had nobody to sell them to. “I worked with them for years. But I can’t just show up at other chains, because they’ll ask where I’ve been all year. I got stuck with 45% of my produce. Bikurei Hasade caused me a 500,000 shekel loss. They destroyed me economically.”

‘Farmers are cowards’

Bikurei Hasade Darom, which is owned in equal parts by the Neto company and the Sheva brothers, is – according to its own website – the leading company in Israel for the cultivation, marketing and distribution of fresh fruit and vegetables, including chilled and packaged ones, dried fruits, and logistics services. The site also claims to provide farmers with solutions for the regular purchase of their produce.

“In a world of restricted natural resources and a growing population, Bikurei Hasade acts to be the leading player in supplying fresh agricultural produce, while providing extraordinary service and developing efficient solutions for customers and suppliers,” its site says.

However, the forced donation affair was merely the acme of the abuse Shauli and Albert Peretz had suffered, as had other farmers.

“Farmers are a cowardly bunch,” says Albert Peretz. “The cartel has been operating for years and the ones running it are Ilan and Sasi Sheva. They dictate prices, sometimes don’t pay the prices they promised and take advantage of their clout and the farmers’ lack of alternatives. And everybody takes it. I couldn’t stand it any more.”

How the system works

To understand how central Bikurei Hasade Darom is to the wholesale produce market, it’s important to study the process by which fresh fruit and vegetables go from field to table.

Farmers can’t sell fruit and vegetables directly to stores. They have to sell to wholesalers, who inspect the produce and grade it, and pay the farmer accordingly. The wholesale companies then sell it at a markup to the retailers, who then sell to consumers at a handsome markup of their own.

Bikurei Hasade Darom’s financial statements attest that the company grosses 27% of its sales turnover. The Super-Sol supermarket chain grosses 28% on fresh produce, according to its financial reports – which is high compared with the 19% it grosses on dry goods, 16% on meat and frozen goods, 25% on dairy and 15% on drinks.

Bikurei Hasade Darom has competition, including with Super-Sol company Katif, which has about 20% market share, and some other smaller companies. Another is Bikurei Hasade Tzafon, which weakened after Bikurei Hasade Darom won the tender to supply fresh produce to the Israel Defense Forces.

Although Bikurei Hasade Darom says on its website it grants good service to its customers, it turns out that a farmer arriving at its logistics center at Timorim must run the gauntlet, which has exactly one purpose: to minimize the payout to the farmer and increase the profit of the wholesalers when selling the same goods.

Quality inspectors, who get minimum wage from Bikurei Hasade Darom and the other wholesalers, are one of their more effective means to achieve this. They inspect the produce upon arrival at Timorim and sort it into two basic quality groups: code 5 (higher grade) and code 7 (lower). It’s common for them to detect a defect in a fruit or veg and rate it a 7, which means the farmer gets only 50% of the price he’d get for a 5. Some farmers supplying produce that Bikurei Hasade Darom badly wants are treated more gently, through a variation on the coding method: they’re asked to agree to an increase in depreciation and a decrease in the value of the produce from its packaging to its arrival at Timorim – at a standard rate of 3% to 10%. So when buying a 10-kilo box, the wholesaler pays for 9 kilos.

Yakov Neuman, a veteran farmer from Ganei Yohanan, isn’t scared to outline how he believes the Sheva brothers and their partners operate. “In principle, they order tens of percent more than they need, then wear down the farmer or his driver with a long wait for inspection – until he just goes home with the goods, or they bend him and make him compromise on a price 50% lower than he should get.”

Wholesale back-scratching circle

Ravit Arbel, a lawyer representing the Farmers Federation of Israel, shed light on some of the cartel’s abuses of power in a letter to the Antitrust Authority, objecting to the merger of Bikurei Hashikma with Rami Levy. One marked manifestation is uniform procurement prices and the fact that the wholesalers don’t conceal their price coordination. “I pay what Sasi Sheva pays,” a procurer for Bikurei Bitan told one farmer. Price fixing is also evident from the fact that small vegetable wholesalers buy produce at similar discounts to the wholesalers who buy bigger bulk, contrary to business logic.

The commercial manipulations Arbel described are just one of the tools the three companies use: “Bikurei Hasade Darom, Bikurei Hashikma and Bikurei Bitan typically refuse to pay the agreed-on price for produce they ordered after the produce arrives, systematically claiming poor quality,” she wrote. “The company rejecting the produce tells the farmers to sell to another company.” That second company starts the negotiation below the originally agreed-on price, “because, wondrously, the company knows the farmer reached it after his previous negotiation failed, so he is pressed to sell his goods rather than take them back home. In practice, the companies operate as a single body and supplement each other’s shortages. As a result they are undeterred about referring farmers between themselves, because the situation is uncompetitive and they don’t have to worry about being short of that produce.”

Ostensibly, a farmer who balks at the rating he received and refuses to increase his discount to Bikurei Hasade can find another buyer. That’s easier said than done, though. For one thing, each company has its own packaging. For example, Katif – Super-Sol’s fruit and veg wholesaler – has purple boxes, while Bikurei Hasade Tzafon has yellow ones. Switching clients means repackaging.

Bikurei Hasade Darom has another trick: When a surplus develops in a certain product, first thing in the morning it cancels orders. “I can commit to a certain number of pallets of harvested produce on a certain day,” says Shauli Peretz. “Sometimes I get orders that are too big for me to supply, so I split what I have with the different chains: four pallets to one chain, six to another. If Bikurei Hasade Darom cancels, I lose money because I could have supplied a bigger amount to another chain.”

‘Let them make money, but be fair’

The inability to quickly divert a large amount of merchandise between wholesalers is a particularly painful vulnerable for the Arava farmers, for whom the trip to Timorim, in central Israel, is long. “Transport alone to the Timorim logistics center costs 40 agorot per kilo from the Arava, and the commercial terms under which the goods are sold is ultimately determined by the Sheva brothers,” says Dror Gadish of Ein Yahav. The situation is worse for vegetables than for fruit, because their shelf life is shorter, and a trucker driving from the Arava loaded with pallets doesn’t have many options left after he’s been kept waiting for hours.

Gadish, an old hand at farming and former operations manager at Katif, also ran into problems with the Shevas and Bikurei Hasade Darom. “There’s an order not to work with me,” he says. “I’ve been weaned from working with the cartel – and it’s very difficult, because they have crazy power. If you want to reach a quality market, it’s difficult not to market through them. I’m mortgaged up to the neck, I owe millions of shekels. And if you come to the Arava, you’ll see deserted fields that nobody wants to rent, and confiscated cars and tractors.” Gadish can’t go back to the Arava and can’t get into the wholesale market because it’s impossible to sell just 20 to 25 pallets to a wholesaler.

“Sasi and Ilan Sheva are market sharks. They have eyes and ears in the markets, they know everything, and they know the delicate situation of the farmers very well,” says Shauli Peretz. The Sheva brothers’ eyes and ears are companies like Bikurei Sadot Israel, which trucks produce from the fields to the wholesale markets; the Sheva Brothers Agricultural Produce Marketing company, owned by members of the Sheva family; and the produce exporter Green Ark, which is owned by Bikurei Hasade Darom. The tentacles of the Sheva family reach every corner of the agricultural market.

Moreover, beyond the Timorim logistics center, it’s hard to find buyers. Farmers who refused to accept the inspectors’ inferior grading and lower pay discovered that traders in the Tzrifin wholesale market didn’t want the produce rejected by Timorim except at a fraction of the price that Timorim had offered. “I have no proof of contacts between Bikurei Hasade Darom and the traders in the wholesale market,” says Peretz. “But even if there are no such ties, clearly the wholesale market isn’t working like in the past. Then, if I brought a wholesaler two pallets, he’d have no trouble selling them. Today, if I bring him one, it takes him two days.”

According to him, the Tzrifin wholesale market isn’t functional, because the marketing chains set up produce procurement companies that swallowed up the open-air markets and most neighborhood produce stores, too. The stores that remain independent get their merchandise delivered by the big chains.

“Setting up a wholesale market in Tzrifin is like setting up a shop where nobody ever goes,” says Neuman, who grows eggplants in Ganei Yohanan. “Usually, it gets merchandise the farmers don’t want to bring to the marketing chains, and most of it gets stuck and its price drops. You can’t build a pricing list based on such thin trade, because the price is biased down. Instead of building prices in the stupidest way possible, they should build a formula including cost of growing, transport and marketing. It would help the farmer not grow surpluses, and when the cost of sales doesn’t cover the cost of growth.”

It seems the benchmark price list for farmers is biased against them, but even that isn’t adhered to at Timorim. The formula states that the farmer will get the lower of two prices quoted for fruit and vegetables on the Plants Production and Marketing Board website, and the Yarkom “agricultural trade” website. But when they come to collect their money, they get responses like “This is what I can pay,” and have to settle for 5% to 10% less.

The total disruption of the balance of power between farmers and wholesalers in the vegetables market sometimes causes the wholesale procurers to treat the farmers like serfs. “One day, a procurer from one of the marketing chains calls me and says, ‘I’m discounting eggplants and need a large amount,” recalls Neuman. “I said, ‘Discounts are given by the seller, not the buyer. How exactly do you want this to work? Do you want me to sell my car and tractor, so long as you can sell eggplants for 10 agorot? How about I go to the supermarket tomorrow and say, ‘Hello, I am Yakov Neuman. Today I am here to buy everything for one shekel.’ The current situation makes me reduce my growing areas. I will not let Bikurei Hasade Darom dance on my head. I’ll throw produce out and won’t give it to Rami Levy – and if everyone did like me, things would be better. “

Bikurei Hasade Darom’s increased power is also found in the 17% jump in fees (from 8% to 25%) the farmers have to pay wholesalers for marketing the goods. On top of that, the farmer has to pay Bikurei Hasade Darom another 1.4 shekels for use of boxes, which translates into another discount of 14 agorot per kilo, as well as an unloading fee. And on top of that, the prices are below the agreed ones according to the formula, Neuman says.

“I have no problem with them getting rich, but let them be fair,” says Albert Peretz. “It’s true there’s a big supply of peppers in Israel, and maybe that’s the farmers’ fault. But if you buy pepper from me for 2 shekels per kilo, sell it to the consumer for 4 – make 2 shekels. Why are you selling it for 9.90? There’s no solution but to break up the cartel. The problem is that until that happens, a lot of farmers will leave the business because there’s no future in it.”

Bikurei Hasade Darom commented, “Work with Albert and Shauli Peretz was terminated because of their violence and threats at the company offices, and finally they were expelled by the Bikurei Hasade security officer. Donating to the needy is a customary practice at Bikurei Hasade, in which the suppliers also participate. When the Peretz family refused, their share was immediately returned. The claims of a cartel are baseless. The activity of Bikurei Hasade Darom and the structure of that activity were tested just recently and approved by the antitrust commissioner, as part of the application for the merger of companies. The grade of produce is determined by quality inspectors when accepting the merchandise, and is done transparently with regard to the farmer. It bears noting that fees that include logistics and distribution are necessarily higher than marketing fees, which do not include such components. Activity that includes marketing, logistics and distribution at a fee of 8% will run at a loss, so, therefore, the data presented in this article are wrong.”