16. Israel
Despite efforts to introduce market-oriented reforms and temporary measures to lift trade restrictions early in the COVID-19 pandemic, total support to agriculture in Israel continued to increase from 2019 to 2021. The total support estimate (TSE) amounted to 0.4% of GDP in 2019-21.
The share of producer support in gross farm receipts (PSE) reached 14% in 2019-21, under the OECD average and below the 2000-02 level of 19%, but above levels seen in the early 2010s. At the same time, the 91% share of potentially most-distorting forms of support remains 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 selected fruits and vegetables. Poultry and milk producers benefit from the largest share of market price support, accounting for 48% of the total producer support in 2019-21.
Single commodity transfers (SCT) represented 85% of the PSE in 2019-21. Market price support is the main component of SCT: poultry, tomatoes, eggs, apples and bananas have the highest share of SCT in commodity gross farm receipts.
The share of general services support estimates (GSSE) in total support in 2019-21 amounted to 3% of the value of the agriculture production, slightly below the OECD average, and the same proportion as in 2000-02. These expenditures focused mostly on agricultural innovation and infrastructure.
To facilitate agriculture policy reforms, the government introduced Decision no. 213 in August 2021, “Increasing competition in agriculture and streamlining regulation processes in the field of imports”. Though the implementation acts of the Decision are still under discussion, it aims to reduce customs for fresh produce and ease import procedures. It also includes commitments for more investments in agriculture innovation and proposes a shift towards direct support to farmers.
The 2021 Dairy Agreement sets out the policy for local production and import of dairy products to Israel for the coming years. It leaves open the possibility to re-discuss the target price mechanism by 2026, and exempts imports of specific dairy products from customs. In parallel, the government eliminated customs charges on butter to prevent shortages and lower living expenses.
An inter-ministerial committee was assembled to establish Israel’s vision, goals and objectives for Israel’s climate-ready and sustainable food system for 2030, and to promote integration of climate change assessment and adaptation actions in planning and policy.
Free trade agreements (FTAs) with the European Free Trade Association (EFTA) signed in 2018, the FTA with Ukraine signed in 2019, the United Kingdom-Israel Free Trade Agreement, and a related protocol for the mutual recognition of organic produce entered into force in 2021.
Tackling climate change requires effective action to limit greenhouse gas (GHG) emissions arising from the agriculture and food sector. While direct GHG emissions from agriculture represent a small share of emissions, this should not prevent the government from including the sector in national targets and the Nationally Determined Contribution (NDC). GHG emissions generated by the sector’s activities, energy and water needs should be fully accounted for in mitigation efforts. This requires quantifying emissions associated with current activities and mitigation efforts.
The level of support to agriculture in Israel remained relatively stable between 2019 and 2021, but some commodities remain insulated from international markets. The focus on price support distorts markets, taxes consumers, and can harm the environment.
International price inflation and market tensions associated with recovery from the COVID-19 pandemic and Russian aggression against Ukraine should further encourage the Israeli Government to pursue the needed reforms proposed under Decision no. 213.
While the new dairy sector agreement, the exemption of customs on butter and the gradual tariff reform of the beef sector are steps to limit market distortions, several commodities remain subject to high levels of border protection. Israel maintains high tariffs for goods such as poultry meat, sheep meat, and certain fruits and vegetables. These could be gradually removed and replaced temporarily by direct payments, if necessary. The tariff system for agriculture should also be simplified, avoiding non-ad-valorem tariffs.
Expenditure on agricultural knowledge and innovation systems declined since 2019, after multiple years of steady growth, which may limit the future productivity and environmental performance in the sector. From 2010 to 2019, production was driven by inputs rather than innovation, as measured by total factor productivity (TFP), which is not sustainable in the long term. Additional funding could be made available by redirecting market-distorting subsidies, which amounted to about ILS 340 million (USD 100 million) annually from 2019-21, towards agriculture knowledge and information systems.
Israel’s skilled farmers, continued investments and comprehensive water management system enable it to sustain a productive agricultural sector under very intense water stress, and contribute to the sector’s adaptation to water risks. Still, sustainability and flexibility could be improved by ensuring that farmers are charged water prices in line with marginal costs of supplying water, by facilitating further trading in water allocations among irrigating farmers and other water users, and by using optional compensations for unused water quotas in severely dry years.
The government should build on recent initiatives to limit the sector’s GHG emissions and other negative environmental impacts. This includes reducing the high and rising nitrogen surplus associated with agriculture production, and limiting methane emissions generated by livestock activities. Regional agri-environmental programmes should be scaled up and complemented by targeted policies and regulations incentivising better environmental performance. R&D and agriculture extension activities should encourage environmental improvements. Reforming the most-distorting agriculture support policies, particularly in the case of animal production, would also contribute to that effort.
Overview of policy trends
Agriculture was a priority for Israel during its early years for three main reasons. First, the state needed to settle undeveloped areas of the country for geopolitical security. Second it wanted to avoid food shortages, due in part to an inability to import agricultural products from surrounding countries. Third, it needed to provide employment and livelihood for new immigrants to Israel (OECD, 2010[1]). Its objectives are still to improve food supply and self-sufficiency in agricultural products that can be produced locally, expand existing export markets, and maintain the rural population, particularly in the peripheral areas.
Over the past thirty years, Israel 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. Major reforms in the agricultural sector began in the early 1990s with trade and market reforms limiting the role of the state in agricultural markets, including in central planning, consumer prices, and export and import policies for specific commodities. Reforms continued into the 2000s with a focus on competitiveness and gradual efforts to limit interventions in the dairy and beef sectors. Most recently, in 2021 the government renewed its impetus to reform in order to lower food prices. Despite these, the country continues to support its agriculture with price controls, import tariffs and payments to farmers (Table 16.2).
Over the last 20 years, trends in producer support in Israel, expressed as percentage of gross farm receipts, encompassed four main phases: (1) a steady reduction until the food crisis of 2007-08; (2) a rapid rebound in support with this crisis, leading to a plateau in 2008-11; then (3) a fall and new increase in support from 2012-16; and (4) fluctuating levels since 2016. Fluctuations in agricultural support are largely attributable to market price support (and to input support early-on), as budgetary support to producers remained relatively stable. The market price support results largely from guaranteed minimum prices and import tariffs, while budgetary support is mostly provided based on current production and input use (Figure 16.4).
Main policy instruments
The government is involved in allocating key factors of production, including land, water and foreign labour. 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 for 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 are supported by guaranteed prices and production quotas. Guaranteed prices for milk are based on the average cost of production and, while 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 are applied together with border protection as an instrument to provide price support to producers and are the basis for calculating maximum retail prices. 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 payments, based on output levels for eggs, and encompassing a mixture of payments decoupled from production and output payments for poultry producers (OECD, 2010[1]).
Capital grants provide support to investments. Farmers who participate in the investment support scheme also receive income tax exemptions and accelerated depreciation. Since 2009, an investment support programme was implemented to partly replace foreign workers in the agricultural sector, but budgetary allocations for this programme declined strongly in recent years.
The Insurance Fund for Natural Risks in Agriculture (Kanat) provides subsidised insurance schemes. The share of support in the total insurance 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 is applied to rain-fed crops to protect against a loss of revenue caused by price falls, low yields or both.
In 2015, a credit fund launched with the goal of establishing or expanding small farms that specialise in crop production. The government serves as the guarantor for bank loans with an 85% guarantee to ensure that small farms with insufficient collateral can access loans.
Israel’s economy is supported by a transparent and open trade regime overall. However, border tariff protection on agro-food products remains an important tool to support agricultural producers. Israel’s average applied Most Favoured Nation (MFN) tariff on agricultural goods (WTO definition) amounted to 11.6% in 2020, down from 27.7% in 2012, still much higher than the 2% average for non-agricultural goods (WTO, 2018[2]; WTO, ITC and UNCTAD, 2021[3]). 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 over 660 preferential TRQs for agricultural goods.1
Israel’s tariff profile for agricultural products remains uneven, despite reforms that began in 2014. There are 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 specific coarse grains, sugar, oilseed and frozen beef. The tariff system on agriculture is complicated, involving specific, compound or mixed duties (WTO, 2018[2]); in 2020, 16.6% of imported agricultural products were subjected to non-ad-valorem rates, compared to 3.1% for all goods (WTO, ITC and UNCTAD, 2021[3]). At the same time, some 50.7% of agriculture imports entered Israel duty-free, mostly through MFN access and preferential agreements (notably with the European Union and the United States). With the exception of beef, poultry (including turkey), and mutton and products thereof, there is no legal requirement that imported food and agricultural products be kosher, although imported, non-kosher agro-food products are rarely accepted by local marketing chains.
Budgetary allocations for research and development regularly increase and account for over 20% of the total agriculture-related budget in recent years. During 2019-21, ILS 358 million (USD 105 million) was allocated annually to agriculture research and development, of which ILS 70 million (USD 21 million) was used for a competitive research fund. Together with effective transmission of innovation to the farm level through a public extension service, this allowed Israel to become a world leader in agricultural technology, particularly for farming in arid and desert conditions.
The government introduced and applied a number of programmes to support climate change adaptation. In addition to its forward-looking water resource management – in which irrigation relies on recycled wastewater and desalinated water, flexible quotas, and irrigation charges – the government supports research and development of improved agronomic practices, breeding, soil conservation and efficient use of resources. The programme also maintains the Israel Plant Gene Bank to conserve indigenous plant species. Efforts to develop a national quantitative assessment of climate change risks for agriculture are ongoing.
Climate change mitigation policies in agriculture
Israel has no sector-specific target for climate change mitigation in agriculture because agriculture accounts for a limited share of the country’s total GHG emissions (2.6% in 2019)2 Agriculture does not feature in Israel’s Nationally Determined Contribution or national mitigation plan. Furthermore, GHG emission reduction potential in Israeli agriculture has not yet been quantified.
However, the government contributed to the development and supported the adoption of a number of agriculture practices and technical measures to reduce GHG emissions in addition to generating other environmental and economic benefits, such as:
Conservation or regenerative agricultural practices, including minimum tillage, cover crops and the addition of organic matter to soils (compost and treated manure), supported through financial support, research and development and extension activities.
Improving the use of nitrogen in soils by reducing the use of natural and synthetic fertilisers, treated wastewater, and soil amendments through R&D investments and extension activities.
Improving the treatment of organic agricultural waste including manures, green waste, tree uprooting and animal mortality management through specific policies.
Developing knowledge and know-how for climate-smart agriculture in view of achieving higher yields in a challenging climate, including via a more efficient use of water resources.
Protecting trees and forests in rural and urban areas to sequester carbon, including perennial plants in agriculture.
Facilitating the role of farming as a host for renewable energy production. Renewable energy production is largely supplied through generators located on agricultural lands; wind turbines are placed in fields, and solar panels are positioned on agricultural structures such as livestock barns and shelters. Israel started a multi-faceted pilot project to examine the benefits of dual agriculture-photovoltaic practices (also known as Agri-PV).
Although the GHG reduction potential of these measures remains unknown, the quantification of the benefits is important to put into place national emission reduction plans. The Ministry of Agriculture plans to conduct a study on the costs and benefits of various measures to reduce GHG emissions in agricultural production.
Domestic policy developments in 2021-22
Overall policy reforms
After four rounds of parliamentary elections in two years (April 2019 – March 2021) the new Israeli Government (established on 13 June 2021) passed the state budget for 2021 and 2022. Along with the budget, a new Arrangements Law was also passed.
On 1 August 2021, the new government introduced a major resolution to facilitate agriculture policy reforms, called Decision no. 213 “Increasing competition in agriculture and streamlining regulation processes in the field of imports”. However, this decision was removed from the Arrangements Law and its implementation acts are still in discussion. Decision 213 aims to reduce customs on agricultural fresh produce and to ease import procedures. At the same time, the decision includes commitments for more innovation investments in agriculture and proposes a shift towards direct support to farmers. The Decision also creates the basis for an intergovernmental team aiming to analyse the supply chain of fruits and vegetables and to examine market barriers and failures, including marketing margins.
Sector specific reforms
Due to a significant scarcity of butter, custom duties on imported butter were temporarily lifted from March 2020 to the end of 2021. In December 2021, the Minister of Finance, in collaboration with the Minister of Agriculture, issued an order eliminating customs charges on butter to prevent shortages and help lower living expenses. The directive calls for the elimination of customs taxes on butter for consumers, as well as a temporary tariff exemption for butter destined for industrial uses until the end of 2022.
On 14 January 2021, after a long period of intensive negotiations, representatives of the Ministry of Finance, the Ministry of Agriculture and Rural Development (MARD) and producers signed the new Dairy Agreement, which sets out the policy for local production and import of dairy products to Israel for the coming years. Under this framework the target price mechanism remains unchanged for the next three years, after which the Ministers of Agriculture and Finance need to decide whether to extend the mechanism for another two years, until 2026. Imports of cheese, yoghurts and dairy desserts up to 5% fat content are exempted of customs, and the TRQ for yellow cheese will increase by 65% over the next 5 years.
Negotiations are ongoing on a far-reaching reform of the egg sector. The potential reform includes the elimination of the quota system, a decrease of custom duties, investment in new and larger hen houses, and compensation for chicken farmers leaving production. Egg production is planned to gradually move towards free-range hen houses. The reform includes an upgrading of the sector with regard to both sanitary conditions and animal welfare.
Preparation for the Jewish Shmita (Sabbatical) Year
Preparation for the Jewish Shmita (Sabbatical) Year concluded in the summer of 2021. The Hebrew year 5782 (September 2021 – September 2022) is a Sabbatical Year (Shmita), which is a Jewish traditional law occurring every seven years. It applies only to the biblical land of Israel and forbids the cultivation of agricultural land unless under specific circumstances. Almost 600 producer requests for non-cultivation were submitted during 2021 and an additional ILS 30 million (USD 9 million) was allocated. In total, about ILS 93 million (USD 29 million) will be dedicated to support farmers who choose not to cultivate their land during Shmita.
In addition, a total of ILS 7 million (USD 2 million) was approved (for 2021-22) for investments in new greenhouses in the non-Jewish sector to increase their production potential, and to support conversion to growth in soil-less beds and hydroponics (a “specific circumstance” that allows cultivation during the Sabbatical Year).
It should be noted that the majority of the more than 7 000 Israeli farmers act accordingly to the Jewish law solution of a sale permit. In the Sabbatical year the land “is sold” to whoever is not Jewish and thus it can be farmed in a similar way as a normal year. The Chief Rabbinate Office – a state institution – is handling the sale permits (contracts, legal fees etc) in the current Sabbatical Year at an estimated cost of ILS 8 million (USD 2.5 million).
Climate change adaptation and water management
Israel’s significant dependence on the wellbeing of the global and local food systems and the projected climate change impacts on regional food availability and food security raise the urgent need to integrate climate readiness in all areas of its food policy. To fulfil this purpose, an inter-ministerial committee led by the Ministry of Agriculture and Rural Development and the Ministry of Environmental Protection has been assembled. The committee will establish Israel’s vision, goals and objectives for Israel’s climate-ready and sustainable food system for 2030, and will promote integration of climate change assessment and adaptation actions in planning and policy.
Water allocations for most of the country in 2021 remained unchanged compared to 2020, though an additional allocation of 20 million cubic meters was provided to irrigators in the south via the national system. Contrary to forecasts, suggesting a 20% rain shortfall, total precipitation in 2021 reached its multi-annual average. The Sea of Galilee maintained its high water level and low salinity. However, water supply in northern rivers slightly decreased, as did the aquifers in the coastal plain. In the southern part of the country, the level of precipitation was below average, and accordingly water consumption from the national system in the area increased.
The forecast for 2022 remains stable with projections estimating total precipitation to be 100% of the multi-annual average. Water allocations for 2022 will be increased by 15 million cubic meters via the national system plus an addition of 10 million cubic meters for the Shmita year for farmers from the non-Jewish sector who will increase their production to compensate lower production from Jewish farmers choosing not to cultivate during this year (who keep their quotas to irrigate trees on their farms).
The work of connecting the Galilee and eastern valleys to the national system is progressing, as well as increasing the production from the Sorek Desalination Plant.
Water prices remained the same in 2021. According to the 2006 Farmers’ agreement, the current outline ends in June 2022 and the price is expected to increase. A public hearing was held and discussions have been initiated regarding the planned price increase and compensations for farmers, but no agreement has been achieved yet.
Trade policy developments in 2021-22
The revised free trade agreement (FTA) with EFTA signed in 2018, the new FTA with Ukraine signed in 2019, and a United Kingdom–Israel Free Trade Agreement, as well as a protocol for the mutual recognition of organic produce, all entered into force in 2021. The new FTA with Korea was signed in May 2021, but has not yet been ratified. Negotiations on new FTAs with the People's Republic of China, Viet Nam, the Eurasian Economic Union, Guatemala, India and a new comprehensive economic partnership agreement (CEPA) with the United Arab Emirates are at varying stages of progress. A revised FTA with MERCOSUR is under negotiation.
Israel’s economy is relatively small but has been growing rapidly and its GDP per capita more than 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 moderately increased over the past twenty years. While the agricultural sector is relatively diversified, most of the value of production and exports is generated by high value fruits and vegetables.
Israel has maintained a highly-performing economy among OECD countries, with robust GDP growth exceeding 3% per year on average and close to full employment from 2017 to 2019. Its economy contracted in 2020 due to the COVID-19 pandemic and associated lockdown measures, but recovered quickly in 2021, while unemployment remained relatively low in 2020-21. At the same time inflation fluctuated around zero in the last five years (Figure 16.5)
The agriculture trade balance of Israel continued to decline in 2020, with the value of imports of mostly processed food products exceeding the value of exports of mainly primary commodities (Figure 16.6). This gradual shift may be partly influenced by the relative appreciation of the Israeli currency compared to the US dollar and the Euro since 2015.
While agriculture research and development activities continue to be strong, the overall productivity of Israeli agriculture, measured by total factor productivity (TFP), has been declining since 2010-19. While agricultural output has increased, inputs, particularly land and the use of farm machinery, and intermediate inputs such as animal feed have increased faster over this period (Figure 16.7).
While agriculture’s water use performance has largely improved, the environmental performance of Israel’s agriculture has deteriorated since 2000. Despite a 75% increase in irrigation area, agriculture’s share of freshwater abstraction has declined by 46%, largely due to changes in water management, encompassing the use of recycled water, efficient irrigation technologies and water demand policies. At the same time, nutrient surpluses have grown over time, particularly due to the increase in the use of fertilisers, to reach a level over seven times the OECD average levels for nitrogen and over twenty times for phosphorus (Table 16.4).
As noted above, GHG emissions remain close to 3% of total emissions. GHG emissions from agriculture are routinely assessed as part of Israel’s national emission reporting to the UNFCCC based on IPCC methodology. Over the past decade, Israel has reported annual emissions of nitrous oxide (N2O) and methane (CH4) amounting from agricultural activities – enteric fermentation, manure management and agricultural soils. Israel’s agriculture accounts for 10.8% of national methane emissions, 58.5% of national nitrous oxide emissions, and all in all 2.6% of greenhouse gas emissions in CO2-equivalent (Table 16.5). Carbon dioxide (CO2) emissions from burning of fuels in agriculture are attributed to the energy sector, but the proportion of agriculture in these emissions is small.
References
[1] OECD (2010), OECD Review of Agricultural Policies: Israel 2010, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://doi.org/10.1787/9789264079397-en.
[2] WTO (2018), “Trade Policy Review: Israel”, Secretariat Report, World Trade Organization, Geneva.
[3] WTO, ITC and UNCTAD (2021), World Tariff Profiles 2021, WTO, ITC, UNCTAD, Geneva, https://www.wto.org/english/res_e/booksp_e/tariff_profiles21_e.pdf.