Israel to Reduce, Eliminate Tariffs on Farm Products

Move comes as finance and agriculture ministries ready historic overhaul of policy in favor of direct aid to growers.

Ofer Vaknin

Finance Minister Moshe Kahlon is expected to sign a series of directives tomorrow that will reduce or eliminate import duties on a wide range of farm products, most of them permanently and others only during the high-demand periods that precede the main Jewish holidays.

The directives, which the treasury has coordinated with the Agriculture Ministry, are aimed at lowering prices for foods ranging from fresh meat and fish and fresh and frozen produce to tomato paste, olive oil and hard cheese. Kahlon said they would go into effect before Pesach, which falls in late April this year.

TheMarker has learned that the finance and agriculture ministries are also working on the biggest shake-up of Israel’s agricultural sector ever. It would replace a long-established system of indirect price supports through tariffs on imported farm products and the like with a system of direct subsidiaries.

Under the plan, which would go into effect in 2017, government agencies such as the Egg and Poultry Board, which enforce production and price quotas that in effect subsidize farmers indirectly, would be eliminated. Import tariffs on foods would be removed at the same time, barring a few exceptions.

In exchange, farmers would receive direct subsidiaries from the state. The exact amounts have not been determined, according to sources, because they are still being negotiated. Farmers are pushing for direct support totaling 2 billion shekels ($510 million) a year, while the Finance Ministry hopes to get away with less.

“We’re going to insist that growers be compensated and that the agreement with the government be a long-term one,” said Avshalom Vilan, director of the Farmers Association.

Much of the cost will depends on the direct economic loss to farmers. While lower tariffs would lower the prices they get for their products, they might see their income grow if demand also grows due to lower prices.

Israel is acting on the recommendations of the Organization for Economic Cooperation and Development, which last year urged the country to move away from its system of indirect price supports.

The OECD estimated inflated food prices cost Israeli consumers some 2.7 billion shekels annually, while import tariff costs added an additional 1.5 billion shekels. The government pays out about 550 million shekels in direct support to farmers.

A pilot program that was shown to farmers Sunday would cut tariffs on imported fish by 50% while extending direct subsidies to local fish farmers.

Under the reform plan announced Sunday, the temporary tariff reductions will apply to produce. They could be extended beyond the holiday periods if officials think they will help keep prices lower. The exemptions will be in effect starting six weeks before Passover and eight weeks before the start of the High Holy Days, in the fall, the treasury said.

For fresh meat, the quota of duty-free imports will increase to 8,000 tons, or about 40% of all demand for kosher meat, while for olive oil they will increase to 4,000 tons, or about 20% of annual consumption.

While consumers should see the prices of many foods decline, manufacturers warned Sunday that the changes would lead to the loss of jobs in the food industry.

“If they make tomato paste duty-free and increase the quota for duty-free frozen vegetables, I’ll be forced to lay off hundreds of employees,” said Oshik Efraim, one of the principals in Vita Pri Haglil, a maker of frozen vegetables. “If I can import duty-free, I don’t need a factory and I don’t need 700 workers, just 30 maximum. Instead of taking populist measures and sticking his head in the sand, [Kahlon] should be working to reduce the costs the government imposes on us.”

In contrast, food retailers lauded the tariff cuts and said they would quickly lead to lower prices for shoppers, although retailers also complained that high arnona municipal taxes and electricity and fuel prices would limit the impact.

“It’s an excellent program and will lower prices in the relevant categories, but they still need to deal with exorbitant prices for the services the government provides,” said Rami Levy, who heads the discount supermarket chain of the same name. If they want retail chains to lower their prices, they need to lower their operating costs, otherwise prices won’t fall that much.”

Levy also warned that shopping bills won’t go down if consumers remain loyal to local brands instead of buying imports.. “We sell cheese from Poland for 27 shekels or 29 shekels a kilogram and a lot of people buy it, but there are also a lot who will only buy Tnuva because they’re used to it,” Levy said.