Ministry of Agriculture and Rural Development director general Shlomo Ben Eliyahu is likely to recommend to Minister of Agriculture and Rural Development Uri Ariel a change in the current quotas in the milk sector through a change in their definition, according to a letter written by Ben Eliyahu and obtained by "Globes." The ministry has formulated a series of recommendations with the initial aim of changing the distribution of the quotas for 2018. What lies behind this measure, however, is an attempt to prepare for ending the Locker arrangement in 2019, when the ministry will attempt to push through the elimination of planning and quotas, thereby instituting a free market in the milk industry. The Ministry of Agriculture and Rural Development hopes that the Locker arrangement will be succeeded by an attempt to open the dairy cattle sector to competition on the basis of efficiency.
Among other things, Ben Eliyahu is recommending a 50:50 division between the kibbutzim (collective communities) and the moshavim (cooperative communities). This contrasts with the current situation in the dairy sector. Enacted in 2011, the current arrangement give the kibbutzim a 58% quota and the moshavim a 42% quota. The kibbutzim are expected to oppose this change. The moshavim assert that a solution must be found for strengthening the small dairy farmers, while the kibbutzim believe that there are ways of giving small dairy farmers incentives for becoming more efficient, and that there are no grounds for this change.
Concern about production capacity
The Ministry of Agriculture and Rural Development is currently preparing the distribution of dairy quotas for 2018 in accordance with the Milk Sector Planning Law and its accompanying regulations. Ahead of the decision, the Israel Dairy Planning Board recommended increasing production quotas for the existing producers by 60 million liters in order to meet next year's projected milk consumption.
Enacted in 2011, the Milk Sector Law anchors the criteria for setting the target price - the formula according to which the dairies pay the milk producers and the producers' profits are ensured. The law also anchors management of the sector through a Dairy Planning Board composed of representatives of the producers, the dairies, and the government. The law gives the minister the authority to distribute quotas to new milk producers.
The Locker arrangement is due to officially expire in 2019. The Milk Sector Planning Law makes 2019 the year in which a discussion must be held about the target price mechanism. The government obviously wants to lower the target price, and the farmers will struggle to have it raised.
The Ministry of Agriculture and Rural Development supports the OECD argument that the arrangement in the framework of the agreements between the OECD and Israel must end what the OECD calls distortive support for agriculture and the prevailing policy in the milk sector in Israel.
The main dispute on this issue is the government ministries' aim of eliminating planning in the milk sector. At this stage, the kibbutzim are unwilling to conduct discussions without an agreement in principle that planning and the target price will not be eliminated. In order to understand the significance of changes in this sensitive sector, it is enough to consider Tnuva Food Industries Ltd.: the increase in the last year's target price cost the company NIS 80 million.
In other words, planning and quotas do not match this policy. Eight years ago, Europe decided to eliminate quotas. The moment for eliminating the quotas arrived two years ago, and the entire agricultural sector collapsed, despite the direct support. Farmers stopped producing milk because they were losing money on milk production.
What will be the consequences of the plan that the Ministry of Agriculture and Rural Development is proposing? Up until now, the state's position, which matched the interests of the kibbutzim, was that agriculture is not mere economics; other national interests must be taken into account, such as population dispersal, and self-sufficiency in food production, including for reasons of national security. The state adopted these arguments, which violate the principle of a free market.
In a free market, the result is likely to be the emergence of new over-concentration in the economy, whether in the suppliers segment or in the retail segment, as shown this week by the results of a survey this week of concentration in fruits and vegetables by the Ministries of Finance and Agriculture and Rural Development. Over-concentration will necessarily result in a lack of competition, accompanied by higher prices.
From an agricultural perspective, it will result in the disappearance of the small dairy farmers - the family farm - and some of the kibbutz dairy farms. The result will be a very strong motivation for creating large, concentrated production systems, which detracts from the idea of dispersal.
Published by Globes [online], Israel Business News - www.globes-online.com - on September 14, 2017
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