The Ministry of Agriculture and the Ministry of Finance intend to abolish production quotas on eggs, poultry and milk, sources inform "Globes". The matter has been discussed between the ministries as part of the general plan to reduce the cost of living in Israel. In return, the government will compensate the farmers directly, in a similar fashion to the subsidies given to farmers in Europe. Over the years, wholesalers have claimed that the agricultural marketing boards were to a large extent responsible for the high cost of living, and that they provide cover for coordination between farmers and growers, and behave as a cartel.
A prominent wholesaler told "Globes" yesterday, "If the boards are abolished, there will finally be a market that operates cleanly, and I believe that there will be competition and that prices will fall. It will be good for the consumer, and it will be good for the wholesaler. It will also be better for the farmers, because they will act rationally and not be pushed around. At present, they are managed by a group of people with their own interests."
The plan under discussion is revolutionary. Under it, the boards that currently operate by virtue of the law will be abolished, the most important ones being the Israel Dairy Board, the Egg and Poultry Board, and the Israel Plants Production and Marketing Board. These three boards have statutory powers. The other boards that operate within a legal framework, but that do not have statutory powers, will also be abolished. So, for example, the Israel Wine and Grapes Board, the Israel Ground Nuts Production and Marketing Board, the Israel Cotton Board, and the Israel Honey Production and Marketing Board, will also be abolished.
The basis of the boards' activity in the past has been the concept that a planned agricultural economy should be managed so as to ensure regular supply of agricultural produce to consumers on the one hand, and on the other hand to prevent dumping on the market. In practice, these closed markets have become one of the causes of the high cost of living in Israel.
The idea behind the measures planned by the Ministry of Agriculture and the Ministry of Finance is a general opening up of the market and the removal of all barriers with the aim of boosting competition and bringing the cost of living down. A government source told "Globes": "There's nothing we haven't considered. The farmers are aware of the fact that we will meet with them after matters are concluded between the ministries. It's agreed that things should be done by consent, that is, we won't go over the heads of the farmers. The aim is to ensure that it will remain economic for the farmers to produce, even though everything is being opened up to imports."
How will that be done?
"By providing safety nets. For example, by reducing costs, providing income supplements. We aren't inventing the wheel. This is how it's done in the developed countries."
"Globes" has also learned that representatives of the two ministries held a meeting a few days ago with representatives of the OECD, and presented the plan to them. The government is taking into account the broader implications of these steps, among them the impact on market supply. "There will be specific products on which customs duties will remain, and we will reduce them gradually until the market reaches equilibrium, but in general everything is open," a government source said, "When you abolish quotas, there will be peaks and troughs until the market balances out. It could be, for example, that there will be a shortage of eggs for a certain period. When you don't have controls, the price falls, but a shortage could also be created."
For all the talk of consultation, the assessment is that these measures will not pass without a struggle on the part of the farmers, because of the far reaching consequences for them and for the succeeding generation of farmers.
There is also the question of what will happen to retail prices of eggs and dairy products that are currently controlled. It is believed that the government will not initially remove price controls, at least not until it makes certain that the general reform does lead to lower prices.
Today, by law, there is planning and control of the growing of fresh produce, including milk, eggs, and poultry. The Israel Dairy Board, for example, was established in 1956, and is responsible for planning Israel's dairy industry and for ensuring regular supply of milk and dairy products throughout the year.
The board's members are representatives of the government, the producers' organizations, retailers and consumers, and it is responsible for distributing production quotas to producers of dairy products.
The board's annual budget is NIS 50 million, the sources of which are the dairy farmers and the dairy foods producers. The Dairy Board receives NIS 0.038 on every liter of raw milk, representing 2% of the price of the milk, which is currently NIS 1.88 per liter. As soon as the Dairy Board is abolished, the price of raw milk will automatically fall. Abolishing production quotas can be expected to lead to a further price fall because of the competition that will open up between dairy farms. An indirect consequence could also be consolidation of dairy farms and greater efficiencies.
The price of raw milk in Israel is currently up to 40% higher than in Europe. "Globes" has learned that in a discussion on the matter in the past between the Ministry of Agriculture and the farmers, there was talk of the desire to make the price of raw milk in Israel equal to the average price in the countries of the OECD. At the time, the idea was a direct subsidy of an amount of money per liter to be given to dairy farms in the periphery, while dairy farms in the center of the country would have to cope with open competition. Because of the complexity of the situation vis-a-vis the farmers, the government will probably implement its plan gradually, and it will have to finance the subsidy.
Published by Globes [online], Israel business news - www.globes-online.com - on February 22, 2016
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