Behind the Headlines the State of Israel’s Agriculture

When 25,000 angry formers from all over the country descended on Jerusalem March 5 and stormed the Knesset building, the riot was described as one of the worst in the city’s history. It was symptomatic of the mounting crisis in Israel’s agriculture, once the proudest and in many ways the most successful branch of the nation’s economy.

The farmers were infuriated by the Likud government’s slash in price support subsidies for agricultural products. It has left them at the mercy of a market where triple-digit inflation has drastically reduced consumption of what farmers grow and produce.

The government took a hard line toward the demonstrators, claiming that the farmers were the “most pampered” segment of Israeli society. If that phrase was infelicitous, its meaning was to a large extent true. Israel’s agriculture has been a dependency of the government ever since the State was founded and, necessarily so. But times have changed. The supportive policies of the past have clashed with the hard realities of the present and that, in essence, is the cause of the crisis.

The present condition of agriculture stems from a built-in contradiction: a profit-oriented business whose profits depend, at least in part, an subsidies that drain the Treasury.

SUBSIDIZATION IN THE EARLY DAYS

Subsidization of agriculture was inevitable in the early years of the State. The country needed infusions of foreign funds to emerge from the small-scale economy of the Mandate period and to seek new horizons which would eventually make Israel a self-sufficient economic entity. Agricultural exports were a means to earn foreign currencies but Israeli farmers needed support if they were to expand from the locally oriented market into an export oriented agricultural industry.

Private forms as well as the more sophisticated farms of the kibbutzim and moshavim were created with Jewish Agency funds. The money was used for an infrastructure — houses, work tools, livestock and other necessities. In the early days of the State, farmers were not required to reimburse the Agency. As Prof. Roanon Weitz, head of the Jewish Agency’s settlement department, explained in a recent article in Hoaretz:

“It is true that in the past, in the early 50s, inefficient formers were given agricultural tools, the reason being that all new settlers were inefficient farmers. It was known, a priori, that in order to make them into successful farmers, one had to pay rebbe gelt.’ It was the only way that we succeeded in turning new immigrants who had no professional know-how into successful farmers.”

The formers’ debts were written down only years later. Repayment was calculated on very easy terms. The farmers were asked to pay back loans that were not linked to inflation, over a period of 50 years at two percent — virtually a gift.

Weitz said this was justified under the circumstances. He noted that many other countries which invest in rural development, such as Holland, Spain and Italy, grant villagers similar and sometimes even more generous conditions. The philosophy is that new settlements have a national importance and therefore the State must share the burden.

Public support of Israel’s formers did not end with the infrastructure. Price supports were also needed. The intention was good. The State wanted to provide its citizens with basic commodities at reasonable prices. Milk, eggs, bread and other products — and services — were supplied to the consumer at low prices. The government paid the difference between the market price and the actual cost. The subsidies sometimes absorbed the greater part of the costs.

ELEMENTS OF SUCCESS

With so much care and support, it is small wonder that agriculture prospered. It enjoyed all of the elements of success: cheap money, advanced technology, high motivation — especially in the kibbutz and moshav movements — and a rising market. In 31 years, Israel reached a point where it was self-sufficient in most food products and had a healthy surplus for export.

The local demand for agricultural products never exceeded on annual rise of four percent. The productivity of the formers grew by at least five percent per annum. A growing share of the local produce was being sold abroad.

Israel’s mild climate, especially in the Jordan Valley, Arava and the Bessor, permitted the large scale development of winter crops such as tomatoes, peppers, watermelon and flowers. These were hungrily grabbed up by the European market whose customers were willing to pay high prices in foreign currency for out-of-season crops of good quality.

Israeli flowers become popular even in Holland, the land said to have “invented” flowers. Israeli flower production was the result of huge investments in hot houses with government loans at very easy terms. High prices were commanded on the European market where the clientele was an affluent one. As a result, Israelis deserted other occupations to become florists. Initial financial and professional help was provided by the Agriculture Ministry.

But inevitably, the rapid expansion of this branch brought its downfall. Israeli florists began to compete vigorously with each other for the overseas market, by passing Agrexco, the central body for agricultural exports. The competition resulted in a sharp drop in overseas prices while the energy-linked expense of producing flowers grew. Recently, florists were forced to destroy hundreds of flowers because it was no longer worthwhile to ship them abroad. A similar crisis may face other export-oriented agricultural products that overexpanded.

CRISIS ON THE LOCAL MARKET

The crisis on the local market has a similar background. For one thing, the government no longer makes gifts to farmers. Loans to agricultural settlements are now linked to the rapid rate of inflation. Monthly payments are much higher than in the past. The government is also determined to eliminate price support subsidies and has begun to reduce them by stages. The rate of inflation has made it increasingly difficult for the State to catch up with the rising costs of basic commodities.

This trend, begun under the previous Labored government, intensified when Likud took power and has become especially sharp under the leadership of Finance Minister Yigal Hurwitz. The government’s policy is now the opposite of what it was in the early ’50s. The State is no longer willing to pay for milk, eggs or bread. The price the consumer pays for those basics is now determined almost entirely by the rules of supply and demand.

With a liter of milk now costing four times more than it did a year ago, it is not surprising that Israelis drink less milk and eat less cheese. There has been a 25 percent drop in the consumption of dairy products in the last six months and the dairy industry is in serious trouble. Similar problems are faced by the poultry industry.

There is little argument that Israel’s agriculture is passing through a serious crisis. But most experts believe there is a way out. They believe that a reorganization is needed so that Israel produces those items that are most in demand. Weitz has suggested, for example, that the winter crops branch be expanded.

According to Weitz, “It is our duty to continue to invest in the development of new agricultural settlements. But of the some time, we have to make a point of checking their profitability. We should direct new agricultural settlements only to those area which have proven suitable for export-oriented crops. Agricultural settlements which will not produce for export should be frozen.” Weitz said such steps could make agriculture once again one of the leading and most profitable branches of the national economy.