Elimination of production quotas and reduction of customs duties in the dairy and other sectors, while providing compensation to farmers, are the recommendations of the professional staff in the Ministry of Finance to Minister of Finance Moshe Kahlon for combating the rise in food prices. Ministry of Finance director general Shai Babad is scheduled to meet Kahlon today or tomorrow in order to present to him work of a special team appointed to consider food prices issues, headed by deputy budget department director Adi Hachmon. The work of the team, appointed several weeks ago, is arousing high expectations in the wake of the dairy price hikes by Tnuva.
Sources inform "Globes" that the team believes that it is time for a change in strategy and opening agricultural produce sectors to competition, while providing a safety net for growers through direct support from the state budget.
Up until now, the Ministry of Finance has reduced customs duties in exchange for compensation to growers in two relatively small sectors, fresh fish and beef, in which the growers received tens of millions of shekels in compensation. 18 months ago, however, the Ministry of Finance admitted that its effort to eliminate centralized planning in the dairy and eggs sector had failed because of the wide gaps between the amount of compensation demanded by the producers and what the ministry was willing to pay. The producers reportedly demanded NIS 2-5 billion in compensation, while the Ministry of Finance was willing to give them less than NIS 1 billion.
The Ministry of Finance is now hoping to utilize Kahlon's anger at the recent daily sector price rises, although it can be assumed that the entire agricultural lobby will oppose a reduction in customs duties and the elimination of production quotas and assert that this will destroy agriculture.
Kahlon proved that he is willing to implement such a measure when he eliminated production quotas for basic food products before the holidays in order to prevent price rises. The question of whether he will agree to eliminate production quotas and cut customs duties on a larger scale in the long term depends to a large extent on continuation of the rising trend in fruit and vegetable prices.
A State Comptroller's report published three months ago found that 91% of the support received by farmers in Israel was indirect, compared with 27% in the European Union and an average of 55% in OECD countries.
The fact that agriculture in Israel is supported indirectly has caused severe criticism in recent years from organizations like the World Trade Organization (WTO) and the OECD. The indirect support prevailing in Israel consists of customs duties, market planning, and distribution of production quotas through the various sector production councils, in addition to setting standards that greatly restrict imports. The international organizations assert that indirect support has a negative impact on international free trade and distorts decisions on investment in production.
The Ministry of Finance said in response, "The minister of finance and his professional staff constantly monitor the cost of living in Israel. A number of options are under consideration for dealing with the intention of several concerns to raise prices. When there are operative measures, we will fully disclose them to the public."
Published by Globes [online], Israel business news - www.globes-online.com - on August 13, 2018
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