Agricultural exports are in deep crisis, says the farming sector and highlighted in a new, in-depth report prepared by the Israel Farmers Federation. The report raises questions on whether the present government’s agricultural policies are effective and whether they will be adequate to preserve agricultural exports and deal with the sector's problems - while still trying to lower the cost of living in Israel.
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Today, farmers are at a crossroad because of the fight against the high cost of living in Israel. The opening-up of local markets to agricultural imports will probably become even more prevalent, either as a result of unilateral acts by the government or on a more gradual basis in coordination with farmers.
At the same time, while the government is considering aiding farmers to increase productivity and yields (along with efficiency), a loud and vocal protest can be heard from farmers in the poultry and fish industries. They're demanding a direct infusion of tens of millions of shekels as compensation for the switch from indirect to direct support for farmers.
Farmers who grow fruits and vegetables are battling with a troubled export market, and the government isn't providing them with adequate tools to help develop new competitive varieties. The sectors that export large quantities of fresh produce see dwindling future prospects, and farmers who want to switch from traditional crops to more competitive ones don’t see breakthroughs relating to them sitting on the shelf in the Volcani Center (one of Israel’s major agricultural research institutions), whether for export or the local market.
On the other hand, the trend of declining profitability because of rising agricultural costs – a trend that has been going on in Israel for a number of years - has reversed itself in the past three years. Today, the price the farmer receives is rising faster than the price of the costs. But this improvement is not translated entirely into growth in the agricultural sector, and the improved profitability is actually expressed in a drop in productivity per worker. If in the past farmers compensated themselves for the erosion in profitability by increasing productivity, the opposite has occurred in the past few years.
These trends are detailed in the Israeli agriculture report for 2015, which was presented to the farming federation’s board last week by its chief economist, Rachel Boroshek. In addition to all these problems, she says the agricultural sector is facing a shock caused by the government - whose main focus is on increasing imports of fresh products to drive down prices at the supermarket, along with the transition to direct support to agriculture. It's possible that the main attention should have been directed at finding the right diagnosis of the situation in the sector and, based on that, gradual changes should have been made, she said.
Since the beginning of the social protests in the summer of 2011, decision makers have shown greater sensitivity to the question of the high cost of living, Boroshek wrote in the report. But the issue has served the politicians as a sort of excuse for actions that have affected farmers, and have almost no connection to the cost of living, she added.
“The most convenient punch bag in this case is agriculture, as the supplier of fresh produce and raw ingredients for the Israeli food industry,” she wrote.
The report is based on an analysis of data from the Central Bureau of Statistics, which shows that household spending on agricultural products makes up just 7% of overall household expenditures.
4% drop in revenue for dairy farmers
The report compares the changes in prices for agricultural products at the farm, i.e. the price the farmer receives, and the price paid by the consumer. One of the numbers that stands out is an almost 30% jump in the prices beef farmers received. The beef market is controlled by Tnuva and the Dabah family, and this concentration has worried the Antitrust Authority, which has recommended increasing competition in the meat industry.
The increase in revenues for cattle farmers was accompanied by a much more moderate increase in beef prices for consumers. In her report, Boroshek notes there is no complete explanation for the phenomenon. However, in previous years when producers received lower prices, consumer prices did not respond accordingly, either. It seems it is clear to those involved that prices for fresh meat are already so high for consumers that any further price rises would seriously affect demand, she noted.
Another figure that stands out is a drop of almost 4% in the price dairy farmers received, while consumer prices for dairy products fell by only 2%. In addition, the costs for producers fell by another 2%. Boroshek does not explain this disparity, but it is likely that the extra profits simply were kept by the dairies. At the same time, higher prices paid to farmers for fresh vegetables matched the price increase for consumers: 7%.
Agricultural revenues for 2015 were a little bit less than in 2014: 29.5 billion shekels ($7.72 billion). These revenues have been pretty much stuck in a rut for the last five years (between 29 billion to 30 billion shekels). But in 2015, when the situation in the crop-growing and animal-raising sectors are looked at separately, it became clear that things have changed.
In previous years, the crop sectors have grown at a faster rate than the animal sectors because of the expansion of exports of fresh produce and other crops. These exports were the main growth engine, while the local market was rather limited in its growth in demand.
By comparison, in 2015, the crop sectors lost about 1 billion shekels in revenues, which was completely the result of a smaller volume of goods sold. These changes may be linked to the sabbatical year (when some religious farmers let their fields lie fallow), which ended in September 2015, and from the import of fresh vegetables during the preceding year. At the same time, the animal-product sectors increased sales by about 500 million shekels, attributed mostly to increases in prices.
The cost of agricultural inputs fell, except for water, whose price is set by the government. In 2015, the agricultural industry bought some 17 billion shekels of inputs. The big drop in prices was for energy costs: Electricity, natural gas and other fuels - along with the cost of animal feed. Despite the rise in water prices, the average cost of the input basket for crop farmers fell by 2%.
Yet at the same time as water prices rose, the government lowered costs for farmers by 150 million shekels in 2016 by canceling the employer’s tax of 10% per worker in agriculture.
Agricultural exports are the growth engine of the entire farming sector. Some agricultural sectors, such as citrus and other fruits, have been little changed. But others – mostly flowers and vegetables – have lost a large share of their exports over the past two years. So far, no analysis has been conducted that explains whether this shrinking of exports is temporary or permanent, and whether the solution lies in finding new markets, new products in which Israel has a relative advantage, or both.
The government tackled the situation in the pepper sector in the Arava region in the south, but other agricultural export crops that have been affected, such as potatoes and carrots, could create a problem because of the large investments made in the systems for growing and harvesting these crops.
Vegetables: Drop in sales, rise in prices
The revenues from selling fresh products to the local market – mostly fruits, eggs and fish – amounted to 11 billion shekels in 2015. That was 37% of all agricultural sales last year. Vegetables made up about 40% of fresh produce in terms of revenue (4.4 billion shekels).
In 2015, the amount of vegetables sold dropped by about 6%, a relatively steep decline, while prices rose 7% on average. A partial explanation for the drop in quantities sold relates to the sabbatical year, along with severe crop damage from the extreme heat at the end of last summer.
At the same time, imports of fresh vegetables rose in 2015 – almost three times that of the previous year – to some 80,000 tons. The explanation for this steep rise is much the same: the hot weather and the sabbatical year.
The report also discusses the talks between the farmers and state over its shift from indirect support – such as imposing customs duties on imports, production controls and price supervision in the dairy and egg industries - to direct support (subsidies for water, insurance and investment grants).
The main problem that's preventing progress in these discussions is that direct support will have to come from the state, so there's little certainty that the level of support will remain stable over time. In addition, some of the agricultural products that will be imported will be exposed to major price fluctuations, which will affect market prices, the report says.
The cost of such direct support for farmers will not be in the billions of shekels a year, as the leaders of the agricultural sector have said in the past, but only in the hundreds of millions, says Boroshek. Previous estimates published in TheMarker have put the cost for such direct support at about 700 million shekels a year.
The move to direct support will require building the farmers’ confidence in the state over the long term, says Boroshek, and any such changes will have to be made gradually, she adds.
Meir Zur, who is secretary-general of the Moshav Movement and chairman of the farmers’ federation, said in response to the report that the crisis in agriculture is deep and endangers its continued existence – the family farm in particular.
The data require the government to wake up and understand the size of the crisis and the vital need to save agriculture. Exports, which were the most important growth engine in Israeli agriculture, is in deep crisis, and we are on the edge of the abyss and may find ourselves without exports of Israeli agricultural products, warned Zur.
Avshalom Vilan, the secretary-general of the farmers’ federation, called the report "a warning light for the future of Israeli agriculture. The large decline in exports and the decrease in productivity represent a real danger. We are living on past achievements. A national emergency plan is needed with the government to return agriculture to a path of growth.”