Agricultural Policy Monitoring and Evaluation 2019

Chapter 14. Israel

Support to agriculture

Despite continued efforts to introduce market-oriented reforms, total support to agriculture in Israel continued to increase, which reflects mostly the persistence of regulations, price controls and border protection targeting specific commodities.

The share of producer support in gross farm receipts (%PSE) reached 17.7% in 2016-18, which approached the OECD average. At the same time, the share of potentially most market-distorting forms of support in Israel (91%) is much higher than the OECD average. This can be explained by the persistence of domestic price support and border measures in favour of several meat and dairy products and to selected fruits and vegetables. Although support to poultry and milk producers declined, these producers still benefit from the highest level of market price support, accounting for 37% of the total PSE in 2016-18. Total support for agriculture (TSE) remained stable at 0.5% of GDP, just below the OECD average.

The share of General Services Support Estimates (GSSE) in total support in 2016‑18 represented 12% of TSE and 5% of agriculture value-added, both totals below the respective OECD averages. Public spending to finance general services increased 10% in 2018 due to additional expenditures for the agricultural knowledge and innovation system and the development and maintenance of water infrastructure.

Main policy changes

In October 2018, the government signed an agreement with farmers to undertake a comprehensive reform of the dairy sector. The outline of the reform includes a reduction of target prices, further reduction of customs tariffs, support for farmers leaving dairy production, and the introduction of subsidies for increasing the efficiency of dairy farms. The reform process aims to lead to structural change in the sector, with the expansion of the average size of dairy operations.

In the midst of a six-year long drought, the Water Authority imposed further cuts in agricultural water quotas throughout the country, by up to 41% for irrigators accessing the national water system. This quota restriction was applied in conjunction with the application of the 2017 water price reform, which aims towards convergence in freshwater prices for irrigators using the national water system and prices for producers accessing water from other sources.

Assessment and recommendations

• The level of support to agriculture in Israel has continued to increase from 2013 to 2018 reflecting the high border protection for selected agricultural commodities and various forms of support for farm inputs. The focus on price support effectively raises market distortions and taxes for consumers.

• While the agreed reform outline for the dairy sector, if approved by the next government, would be a significant step in the right direction and follows a gradual tariff reform of the beef sector, other commodities remain subject to high border protection. Israel maintains high tariffs for goods such as poultry meat, sheep meat, eggs and certain fruits and vegetables that could be gradually removed and, if necessary, replaced temporarily by direct payments. The tariff system for agriculture should also be simplified, avoiding non-ad-valorem tariffs.

• Israel should continue and intensify its ongoing efforts to diminish the regulatory burden and improve the transparency and competition in the agro-food chain. Progress made in these areas would not only reduce trade costs and encourage trade flows, but would also diminish costs for the processing industry and prices for the final consumers of agro-food products.

• Expenditures on agricultural knowledge and innovation systems have been continuously increasing, following with the trend of the OECD average, which should help the country remain at the cutting edge of new agriculture technologies.

• Israel’s comprehensive water management system has enabled the country to sustain a productive agriculture sector under very intense water stress. Still, recent restrictions on water quotas amid an intense drought spell suggest that, despite continuous investments in water resources, the sector will continue to face increasing water scarcity pressure. The use of optional compensations for unused water quotas could be explored further. Facilitating further trading in water allocations among irrigating farmers or with other water users could help improve the system’s flexibility and strengthen the farmers’ resilience during intense droughts, while contributing to reinforce the sector’s adaptation to climate change.

• The government should increase its efforts to reduce the sector’s negative environmental impacts. Improvements should be sought to converge to OECD-levels for nutrient balances. Regional agri-environmental programmes should be bolstered and complemented by other targeted policies and regulations geared towards higher environmental performance.

Figure 14.1. Israel: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) has moderately declined between 2000-02 and 2016-18. At the same time, the share of potentially most distorting transfers remains high in the last two decades due to a high of market price support (MPS) and continued border protection (Figure 14.1). From 2017 to 2018, the level of support rose by 8 percent, due to an increase in price distorting measures (Figure 14.2). Effective average prices received by farmers declined by 2% but remain 14% higher than world prices, with large differences between commodities. MPS is the main component of Single Commodity Transfers (SCT): bananas, milk, poultry and tomatoes have the highest share of SCT in commodity gross farm receipts (Figure 14.3). Overall, SCT represent 86% of the total PSE. The expenditures for general services (GSSE), mainly on knowledge and infrastructure, have slightly declined relative to agriculture value added between 2000-02 and 2016-18.

Figure 14.2. Israel: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 14.3. Israel: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 14.1. Israel: Estimates of support to agriculture

Contextual information

Israel’s economy is relatively small but has been growing rapidly and its GDP per capita almost doubled over the last two decades, even as the population increased by 50%. The share of agriculture in total employment and in GDP has fallen to around 1%. Israel is unique among developed countries in that land and water resources are nearly all state-owned. Jewish rural communities, principally the kibbutz and moshav, dominate agricultural production, accounting for about 80% of agricultural output. Partly due to this structure, total agricultural area has remained relatively stable over the past twenty years, despite the country’s continued development. While the agriculture sector is relatively diversified, most of the value of production and exports is generated by high value fruits and vegetables.

Table 14.2. Israel: Contextual indicators

	Israel		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	110	339	0.4%	0.3%
Population (million)	6	9	0.1%	0.2%
Land area (thousand km2)	22	22	0.03%	0.03%
Agricultural area (AA) (thousand ha)	573	532	0.02%	0.02%
			All countries1
Population density (inhabitants/km2)	..	399	48	60
GDP per capita (USD in PPPs)	19 744	38 277	7 642	21 231
Trade as % of GDP	24	18	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	2.0	1.3	3.3	3.5
Agriculture share in employment (%)	2.9	1.0	-	-
Agro-food exports (% of total exports)	7.0	3.7	8.1	7.5
Agro-food imports (% of total imports)	6.6	8.1	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	57	58	-	-
Livestock in total agricultural production (%)	43	42	-	-
Share of arable land in AA (%)	60	55	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

Israel maintains a highly performing economy among OECD countries, with robust GDP growth, exceeding 3% per year and close to full employment in 2017-18. After two years of deflationary pressure, moderate inflation started again in 2017 (Figure 14.4).

The agriculture trade balance of Israel continued to decline in 2016-17, with the value of imports of mostly processed food products increasing more than the value of exports of mainly primary commodities (Figure 14.5). This gradual shift may partly reflect the relative appreciation of the Israeli currency compared to the US dollar and the Euro in 2017 (OECD, 2018[2]).

Figure 14.4. Israel: Main economic indicators, 1995 to 2018

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 14.5. Israel: Agro-food trade

Note: Numbers may not add to 100 due to rounding.

Source: UN Comtrade Database

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The productivity of Israeli agriculture is generally high, but its estimates fluctuate with changes in the total value of outputs in US dollars. The estimated 1.4% annual growth rate of total factor productivity (TFP) in agriculture over the period of 2006-15 is lower than the world average, unlike past periods, which may be partially attributed to the lower value of output in 2015 (concurrent with an appreciation of the Israel currency).

The overall environmental performance of Israel’s agriculture has improved significantly in the past twenty years. In particular, nutrient balances and agriculture’s share of freshwater abstraction have declined significantly, partly due to better agronomic practices and changes in water management. Still, nitrogen and phosphorous balances remain four to ten times the OECD average level, calling for additional efforts.

Figure 14.6. Israel: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 14.3. Israel: Productivity and environmental indicators

	Israel		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	2.8%	1.4%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha	139.8	121.6	33.2	30.0
Phosphorus balance, kg/ha	40.6	31.3	3.7	2.3
Agriculture share of total energy use (%)	1.1	1.6	1.9	2.0
Agriculture share of GHG emissions (%)	3.6	2.6	8.5	8.9
Share of irrigated land in AA (%)	45.2	..	-	-
Share of agriculture in water abstractions (%)¹	64.0	32.0	45.4	42.5
Water stress indicator	64.0	40.5	9.7	9.7

Note: * or closest available year. 1. Share of agriculture fresh water abstraction in total fresh water abstraction.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

Over the past thirty years, Israel has implemented a number of reforms related to the provision of subsidies, central planning of agricultural industries, and the allocation of production quotas, price controls and import protection. The government continues to be involved in the allocation of key factors of production such as land, water and foreign workers. Land and water resources are almost entirely state-owned. Land is allocated to farmers for a nominal fee and is not tradeable. Water is allocated to farmers through a quota system; all water consumption is metered and charged. The government also applies a yearly quota of foreign workers with permits to work in agriculture. Both the overall quota and the allocation of workers to individual farmers are strictly regulated.

Some commodities continue to benefit from guaranteed prices and production quotas. Guaranteed prices for milk are based on the average cost of production and while they are updated regularly, they diverge considerably from the level and evolution of prices on international markets. Minimum prices are also guaranteed for wheat, based on the Kansas market price, adjusted for quality and transportation costs. Egg production quotas and recommended prices, which serve as the basis for calculating the inspected retail prices, together with border protection, are applied as an instrument to provide price support to producers. On the other hand, consumer price controls are applied for a range of basic food products, including bread, milk and dairy products, eggs and salt. Egg and poultry producers in “peripheral areas” at the northern border receive direct payments, based on output levels for egg, and encompassing a mixture of payments decoupled from production and output payments for poultry producers (OECD, 2010[3]).

Support to investments is provided by capital grants. Farmers who participate in the investment support scheme are also entitled to income tax exemptions and accelerated depreciation. Since 2009, an investment support programme has been implemented to partly replace foreign workers in the agricultural sector, but budgetary allocations for this programme declined strongly in recent years.

Insurance schemes provided by the Insurance Fund for Natural Risks in Agriculture (Kanat) are subsidised. The government intends to increase premium subsidy rates and to extend the coverage through the inclusion of new crops. The share of the support in the total assurance premium is 80% in the case of the multi-risk insurance schemes and 35% in the case of the insurance schemes against natural hazards. Since 2010, revenue insurance has been applied for rain-fed crops to protect against a loss of revenue caused by price decrease, low yields or a combination of both. In 2015, a credit fund was launched with 85% state guarantee.

Israel maintains a transparent and open trade regime overall. However, high border tariff protection on agri-food products, although much below bound rates, remains an important tool in supporting agricultural producers. Israel’s average applied MFN tariff on agricultural goods (WTO definition) amounted to 19.1% in 2018, down from 27.7% in 2012, but still much higher than the 3% average for non-agricultural goods (WTO, 2018a). Israel has tariff rate quotas (TRQs) for wheat, fats and oils, walnuts, prunes, maize, citrus juices, beef and sheep meat and various dairy products. Most of Israel’s preferential trade agreements also include tariff-quota commitments for agricultural products, often with reduced out-of-quota tariffs. In total, Israel implements 258 preferential TRQs for agricultural goods (WTO, 2018[4]).

Despite certain reforms that began in 2014, Israel’s tariff profile for agricultural products remains highly uneven, with very high – sometimes prohibitive – tariffs for goods such as dairy products, eggs and certain fruits and vegetables, and low, sometimes zero, tariffs for other commodities such as coarse grains, sugar, oilseed and frozen beef. The tariff system on agriculture is also complicated, involving specific, compound or mixed duties (WTO, 2018[4]). Twenty percent of imported agricultural products are subjected to non-ad valorem rates, compared to 3.8% for all goods (Ibid.). At the same time, some 55.6% of agriculture imports entered Israel duty-free, mostly through MFN duty-free access and under preferential agreements (the most important ones are with the European Union and the United States) (WTO/ITC/UNCTAD, 2018[5]). With the exception of beef, poultry (including turkey), and mutton and products thereof, there is no legal requirement for imported food and agricultural products to be kosher, although imported, non-kosher agro-food products are rarely accepted by local marketing channels.

Budgetary allocations for Research and Development have regularly increased and have accounted for about 20% of the total agriculture-related budget in recent years. During 2016-2018, ILS 325 million (USD 90 million) were allocated annually to agriculture research and development, of which almost ILS 75 million (USD 21 million) were used for a competitive research fund each year. This, together with an effective transmission of innovations to the farm level through a public extension service, has allowed Israel to become a world leader in agricultural technology, particularly for farming in arid and desert conditions.

Israel has not developed sector-specific policy measures for greenhouse gas mitigation in agriculture, given that agriculture accounts for a limited share of the country’s total greenhouse gas emissions (2.7% in 2018). Instead, the government has introduced and applied a number of programmes to support climate change adaptation. In addition to its forward-looking water resource management, the government supports research and development programmes on improved agronomic practices, breeding, soil conservation and efficient use of resources and maintains the Israel Plant Gene Bank to conserve indigenous plant species. As explained below, efforts to develop a national quantitative assessment of climate change risks for agriculture are ongoing.

Domestic policy developments in 2018-19

Israel continues to work on the reform of support for animal production. At the end of October 2018, an outline for a new reform was signed between the government and the representatives of the dairy farmers. This reform aims to switch from the fixed target producer price mechanism to an alternative mechanism of minimum price. The outline of the reform includes a reduction of target prices, further reduction of customs tariff, subsidies for increasing the efficiency of dairy farms, and support for dairy farmers leaving dairy production. The reform process aim to lead to structural change in the sector, with the expansion of the average size of dairy operations. The reform agreement requires a change in legislation to be implemented; a memorandum of law was issued on the subject but the examination of the law was postponed until after the April 2019 general elections.

The Ministry of Finance is continuing to discuss a reform programme with growers of table eggs. In the meantime, the Ministry of Agriculture and Rural Development (MARD) has been involved in the enforcement of sanitary conditions at poultry house, and managing a call for proposals and tenders for constructing poultry house complexes for a budget of ILS 50 million (USD 14 million). At the same time, the Galilee Law, which was introduced in 1988 to support holders of egg production quotas or broiler in the Galilee region, with intention to be phased out in 2017, was renewed in 2017 and continued in 2018.

During 2018, the Ministry was engaged in execution of plans to reduce regulatory burden, which were formulated in 2015, 2016 and 2017 (OECD, 2018[2]). An analysis of the implementation of the plans formulated in 2016 and 2017 shows that as of 1 January 2019, the completed reforms yielded savings of ILS 150 million (USD 42 million) and 443 000 waiting days for bureaucratic permits per year. Additionally, in 2018, five plans were formulated to reduce the regulatory burden involving the veterinary supervision on the importation of poultry and birds, the quarantine facilities and veterinary control of horse imports; animal care and animal shows; licenses for removing and transplanting trees; and allocation of grazing areas. These plans were approved by the regulators and by the Director General of the Ministry, and were published in December 2018.

The government also continued to improve the agriculture marketing system to reduce costs and possible consumer price pressures.1 In light of increasing concentration in the wholesale and retail segments and in view of the special production and marketing characteristics of fresh fruits and vegetables (lack of homogeneity, perishable products), MARD conducted a regulatory impact assessment (RIA) of unfair trading practices to evaluate alternatives for improving commercial relations between farmers and wholesalers/retailers of fresh fruit and vegetables. After receiving responses to a draft document, it was decided to establish a voluntary code of conduct. A draft of the code was published in January 2019 for responses from stakeholders. The effectiveness of the code will be evaluated in 2020, and if necessary, the code will be transformed into binding regulation.

Despite intended efforts to reduce food prices, the guaranteed price of eggs continued to increase by an average of 3.5% in 2018. Milk target prices declined by 2% from 2017-18. Still, the national producer price for milk remained significantly higher than international prices. Milk accounts for 20% of the total market price support measured for the Israeli agriculture in 2018 and hence still contributes significantly to the relatively high level of Israel’s farm support.

The government supported new tracks of veterinary services through the Israel Veterinary Services and Animal Health (IVSAH) agency. While it continued to implement control programmes on brucellosis for sheep and goats, salmonellosis and campilobacteriosis in poultry, IVSAH updated the rabies control programme in wild animals in 2018. IVSAH also developed a new information technology system to manage the livestock registration and to reduce the regulatory burden by enabling self, online production of different permits.

In 2018 the six year drought continued and the water levels of the Sea of Galilee and of the aquifers worsened, leading the Water Authority to impose further cuts in the allocation of water throughout the country, even in the national system (-41%), which is sourced in part by desalination plants. Although the precipitation forecast for 2019 is above the annual average (105-110%), thanks to an unusually rainy winter, water resources are still facing shortage risks in the near-term. The Sea of Galilee has a very high level of salinity and the aquifers are below acceptable levels, except for the Coastal Aquifer. Accordingly, plans are being considered for connecting the Sea of Galilee to the national system and for constructing two additional desalination plants. The option of voluntarily waiving part of the quota in exchange for support was given to farmers in the national system, in order to optimise the usage of the overall water resources. In the Galilee region, support was given in compensation for the cut in water quantities in 2018, as done in 2017.

In parallel, the government continued to implement the 2017 reform of the agriculture water pricing system, which aims lead to a convergence in water prices nationally for equity purposes (OECD, 2018[2]). Water prices for private producers were raised for a second time, while water prices for consumers of the national company Mekorot declined to ILS 1.98/m³ (USD 0.55/m³). The price increase for private producers will continue in 2019, and prices for consumers of Mekorot will decline to ILS 1.54/m³ (USD 0.43/m³) for areas lacking alternative water sources and to ILS 1.81/m³ (USD 0.50/m³) for the rest of the country. At the same time, financial support was given to private producers in the Hula Valley area to ensure that the peatlands are irrigated to prevent ecological hazards. The rest of the producers will be eligible for compensation due to the prices' increases as of 2019.

Water and other climatic risks continue to be important elements of Israel’s efforts to bolster agriculture’s adaptation to climate change. Beyond long-term programmes on research and development, soil or plant genetic conservation as well as applicable means of adaptation, MARD is currently collaborating with the Israel Meteorological Service (IMS) to develop a map of quantitative agriculture climate change indicators, which will serve as a basis for a climate change impact assessment. Mapping agricultural risks resulting from climate change requires relevant spatial and temporal resolution. It also requires understanding of the specific sensitivities of each agricultural industry/sector to climate change. In collaboration with climate experts, growers, researchers and extension officers, the project defined around 60 climate change indices relevant to Israel agriculture (e.g. the annual number of warm days above 34^oC, the highest annual number of consecutive dry days and other critical indicators). IMS is conducting multiple analyses of past and projected climate indices. The project, which is expected to conclude in 2020, shall help to quantify climate change’s agricultural and economic impacts for different sub-sectors as well as a basis for risk assessment.

The government also continued to invest in the future viability of its agriculture sector. In September 2017, MARD and the Ministry of Finance signed an agreement of ILS 160 million (USD 44.5 million) for three years, called “The Next Generation in Agriculture Plan”. Within this plan, ILS 45 million (USD 12.5 million) is used to encourage new farmers to join the sector, by supporting 40% of their initial investments. Another ILS 45 million (USD 12.5 million) was allocated as grants for investments in new technologies for all farmers (covering 25% of their investment); ILS 10 million (USD 2.8 million) was assigned as state guarantee for credit for farmers; ILS 15 million (USD 4.2 million) was allocated to breeding new and niche varieties and the remaining ILS 45 million (USD 12.5 million) was used to renew the budget for ongoing programmes.

One of the programmes funded by this last share of the plan aims to support farmers’ markets. MARD set a budget amounting to ILS 20 million (USD 5.6 million). Twenty-seven municipalities have committed to start the process; however only three markets were operating as of early 2019.

The government is also supporting the development and viability of agtech startup companies. MARD’s goal in this area is to support this emerging industry and help more new technologies to successfully overcome the often economically difficult stage for innovators to reach the market. In 2018 it initiated a new support track together with the Israel Innovation Authority (IIA) with a total budget of ILS 20 million (USD 5.6 million) (state participation in 30-60% of the eligible costs). The fund shall provide three types of support: 1) deliver research and development to companies, 2) encourage co-operation between companies and regional research and development centres, and 3) support the development new products (prototypes) at the customer site overseas. The fund was attributed to MARD in 2018 but it will become available for beneficiaries in 2019.

According to the Jewish religion, every 7 years a sabbatical year (Jewish Shmita) is announced, in which no agricultural land is to be cultivated; the next sabbatical year will take place from September 2021 to September 2022. In practice, farmers have different options; a large majority of Jewish farmers symbolically “rent” their land to non-Jews for a year and continue to cultivate, but some farmers (less than 1% in 2015) apply the recommendation and stop cultivating the land. In November 2017, MARD and the Ministry of Finance signed an innovative agreement to help those participating farmers prepare. Under this agreement, the participating farmers will establish a saving account based on their annual revenue and the government will triple it, in order for them to cope with the loss of income involved in complying with the Shmita. ILS 81 million (USD 22.5 million) was allocated to this fund for the years 2018-21.

Trade policy developments in 2018-19

The government is seeking ways to reduce Israel's reliance on imports of live animals, for animal welfare reasons. At the same time, it is aiming to optimise the welfare of animals imported by sea. Israel depends mainly on beef and lamb imports for consumption. Those imports include live animals and frozen and chilled meat (beef and lamb). Among the activities that were carried out in 2018, the government implemented the extension of shelf life of chilled meat imports to 85 days, enabling imports from distant origins. In addition, the tariff reduction plan that was started in 2017 is expected to increase competition and the variety of sources for imports.

Free trade agreements (FTA) were signed with the European Free Trade Association (EFTA) in 2018 and with Ukraine in January 2019. The revised FTA with Canada and the new FTA with Panama were ratified by Israel in 2018. New FTA negotiations with several other countries, including South Korea, the People’s Republic of China, Viet Nam and the EAEU, are at varying stages of progress. A revised United States–Israel Agreement on Trade in Agricultural Products (ATAP) is also under negotiation.

References

[1] OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

[2] OECD (2018), “Israel”, in Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/agr_pol-2018-16-en.

[3] OECD (2010), OECD Review of Agricultural Policies: Israel 2010, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264079397-en.

[4] WTO (2018), “Trade Policy Review: Israel”, Secretariat Report, World Trade Organization, Geneva, https://www.wto.org/english/tratop_e/tpr_e/tp476_e.htm.

[5] WTO/ITC/UNCTAD (2018), World Tariff Profiles 2018, World Trade Organization, International Trade Centre and United Nations Conference on Trade and Development, https://www.wto.org/english/res_e/booksp_e/tariff_profiles18_e.pdf.

Note

← 1.  The Joint Price Committee of MARD and the Ministry of Finance, acting according to the “1996-5756 Produce and Services Price Supervision Law”, did not find any exceptional profitability of the retail chains in the financial statements of retailers and wholesalers for 2016. Following data analysis of 2017 reports, the Price Committee will consider further measures if necessary.