OECD: Drop protectionist policies

‘More reforms to agricultural and water policies needed’

By RON FRIEDMAN
June 29, 2010 21:53
3 minute read.
Agriculture minister Shalom Simhon

Shalom Simhon 311. (photo credit: Ariel Jerozolimski/The Jerusalem Post))

 
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The Agriculture Ministry held Israel’s first event as an OECD member on Tuesday, where the Paris-based organization’s Trade and Agriculture Directorate’s director Ken Ash presented a report on Israeli agricultural policies.

The report, a 20-year survey on the nation’s agricultural development, praised Israel’s investment in agricultural research and development, but criticized its protectionist policies.

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Agriculture Minister Shalom Simhon said his ministry would study the report and work toward implementing some of its recommendations.

Ash presented the highlights of the report to Simhon and Agriculture Ministry directorgeneral Yossi Yishai at a conference in Beit Dagan, before an audience of 100 people from across the industry.

According to the report, the relative importance of agriculture in the Israeli economy has declined over the past two decades, now making up only 1.7 percent of the Gross Domestic Product (down from 2.7%), but that at the same time, a string of reforms in the sector between 1990 and 2007 caused a 60% rise in output leading to an annual average growth rate of 2.2%, higher than any other industry and higher than in most OECD countries.

The report states that Israel enjoys advantages in season and expertise, which allow it to successfully export many of its crops to the European market, but that its primary source of agricultural export is in technology. According to the document, in 2007 agricultural technology exports amounted to $2.2 billion, eclipsing agro-food exports.

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The main criticism found in the report is that “While the level of agricultural support has been falling (from 24% to 17%), the share of the most distortive types of support has increased over the last two decades. This mostly reflects continued high border protection for agricultural commodities pushing domestic prices above international levels and resulting in high market price support.”

Ash explained that the government, instead of offering direct budgetary support to farmers, supported them by placing high tariffs on international competitors, rendering them incapable of breaking into the local market. He said that while Israel was far from being the only country to practice such policies, it had a bad long-term effect because it was an inefficient means of support.

“Recent reforms in Israel have substantially increased efficiency of agriculture and its environmental performance, especially water use efficiency, but have nevertheless left a large part of the production planning system intact. In particular, the state remains strongly involved in the allocation of key factors of production such as land, labor and water,” read the report.

Its authors suggested that further reforms to Israel’s agricultural and water policies are needed to reduce costs to consumers and taxpayers, and improve agriculture’s environmental performance. The required reforms include: Lowering and simplifying import tariffs, reducing administrative costs linked to farmland transactions, improving enforcement of labor market laws and allowing water quota trading.

Simhon said: “Israel is aware that its acceptance into the OECD requires that it adopt governing and economical patterns that are approved by the other member states. Alongside this Israel is capable of contributing to the enrichment of ideas and benefiting other countries for its experience.

“Israeli agriculture performs additional functions, like providing environmental benefits, assisting in population dispersal and providing its rapidly growing public with ‘food security,’ by producing most of its food basket locally. These aims cannot always be measured by financial indicators,” the minister continued.

Yishai said the main value of the review was that it allowed the ministry to revisit all of its policies from a new perspective and focus on strategic thinking. He also said he took the report’s criticisms of Israel’s indirect support for farmers to mean that the ministry budget would have to be expanded.

“If we want to support the farmers directly instead, we have to increase the budget tenfold,” Yishai said.

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