Agricultural products in Israel are 11% more expensive than the Organization for Economic Co-operation and Development average.

OECD report shows Israel’s support for farmers has led to increase in food prices. 

By Gil Kalian, Calcalist

Israel‘s support for its farmers carries a heavy economic and social price, according to a report released by the Organization for Economic Co-operation and Development (OECD), which looked into the agricultural support policy in 47 countries, which are responsible for 80% of the global agricultural produce.

Wheat field in the Hula Valley – Photo courtesy: Wikimedia Commons

The report’s findings reveal that agricultural products in Israel are 11% more expensive than the OECD average. The biggest differences were found in beef and milk prices.

The report’s authors are pleading with Israel and other countries to adopt a more lenient regulatory policy, continue reducing support to agriculture – including through indirect taxes.

The report also includes a recommendation to look into raising water prices for farmers in Israel, in a bid to encourage them to be more efficient. The report notes that Israel has greatly succeeded in improving farmers’ environmental settings, but further notes that agriculture today accounts for 58% of annual water consumption and that the government should consider raising prices to reduce water consumption.

The report reveals that the Israeli support for farmers is relatively low compared to the OECD average and European Union average, standing at some two-thirds of the average support in the OECD.

The Israeli support has been in a downward trend in the past two decades, similarly to the global trend, with the high produce prices helping the State reduce its support. The support for farmers in Israel stood at some 20% of the produce from 1995 to 1997, and fell to 12% from 2010 to 2012.

However, most of the Israeli support reflects continued high border protection for agricultural commodities maintaining domestic prices above international levels and a relatively high share of support to farm inputs that are known to be the most distortive forms of support.

When Israel imposes high taxes on imported goods, it raises the price of the goods imported to the consumer. Raising the consumer price allows farmers to charge higher prices, as the artificially high import prices pose no competition.

The price is paid by Israeli consumers, who have to pay for the government’s support for farmers every time they visit the supermarket. According to the report’s authors, consumers would be better off if the State gave the farmers direct support, allowing a significant drop in taxes followed by a drop in market prices, without affecting the farmers.

Intervene as little as possible

The report reveals that from 1995 to 1997 the most production and trade distorting policies (based on commodity output and variable input use) dominated and represented 84% of the producer support estimate. From 2010 to 2012, it went up to 89%.

The report notes that the reforms of reducing taxes following the social protest of the summer of 2011 and the appointment of committees to look into the cost of living were a step in the right direction, but that in the long run additional steps will have to be taken to reduce the prices of agricultural products for the Israeli consumer.

In general, the report’s authors recommend that all countries adopt a more lenient regulatory policy and avoid intervening in the entire market, excluding places where the State identifies a market flaw.

The authors also recommend that the countries support agriculture by supporting research and development and innovation, and implement a transparent support policy with defined goals and a horizon of several years.

According to the report, one of the problems in Israel and in other countries is the focus on the domestic agriculture industry as one which must provide for all of the State’s needs. The authors argue that relaying on self-supply of agricultural products leads to high food prices.

In addition, they recommend abandoning methods which give farmers a fixed and foreseen income and call on the countries to let farmers plan their economies themselves, and compensate them only in cases of natural disasters or other major incidents.

View original Ynet publication at: http://www.ynetnews.com/articles/0,7340,L-4433274,00.html