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Buying vegetables at an Osher Ad store in Jerusalem, August 12 2021 (Sue Surkes/Times of Israel)
Sue Surkes/Times of Israel: Buying vegetables at an Osher Ad store in Jerusalem, August 12, 2021

Doubts crop up as bid to lower price of produce targets farms for reform

Plan, which would up imports and pay farmers directly rather than via tariffs, ‘risks destroying entire sector,’ warns academic as data suggests retail markups may be to blame

Sue Surkes is The Times of Israel's environment reporter.

Main image by Sue Surkes/Times of Israel: Buying vegetables at an Osher Ad store in Jerusalem, August 12, 2021

Retailers are routinely marking up prices of fruits and vegetables by 100 percent, and in some cases over 200%, Agriculture Ministry research shows.

The data appears to undercut claims by Agriculture Minister Oded Forer that huge price markups by supermarkets are a “myth.” Forer is seeking to lower consumer prices for produce by pushing through controversial reforms that will cut the tariffs protecting local growers, but farmers insist they are paid a fraction of what supermarkets charge and are being unfairly targeted by the government plan.

On everything from eggplants to bananas, the Agriculture Ministry’s survey of 23 types of produce from the first week of August show supermarkets charging double and sometimes triple what they pay, minus a 20% deduction for the price paid to distributors.

The highest markups are seen at so-called city markets — corner stores, 24-hour minimarts and smaller chain groceries such as Shufersal Sheli, Rami Levi BeSchuna, Mega Ba’ir and Tiv Ta’am.

The stores are usually located in urban centers or small towns and often function as the only option for those without a car or other means to get to larger supermarkets on the outskirts of cities or in suburban shopping centers.

Produce at larger supermarkets, termed discount marts by the ministry, is still marked up, sometimes by over 100 percent, though they are usually only half as expensive as the same produce from city markets.

The ministry survey showed that all but six of the items being sold at so-called city markets were marked up by more than 100% compared with what the farmers were estimated to have received.

Estimated price paid to farmer, per kg* Markup, large “discount” retail chains Markup, small “city” markets
Beit alfa onion 1.17 NIS 127% 243%
Carrot 2.62 NIS 10% 74%
Eggplant 3.31 NIS 48% 117%
Cucumber 3.7 NIS 27% 101%
Tomato 4.07 NIS -11% 54%
Cherry tomato 5.95 NIS 149% 212%
Red pepper 3.11 NIS 118% 191%
Potato 2.76 NIS 37% 84%
Sweet potato 4.68 NIS 99% 133%
Cabbage 2.18 NIS 75% 162%
Zucchini 3.62 NIS 80% 148%
Pear spadona 7.26 NIS 43% 91%
Peach 11.24 NIS 55% 111%
Banana 4.32 NIS 84% 133%
Lemon 3.38 NIS 90% 175%
Watermelon 1.35 NIS 59% 138%
Nectarine 12.39 NIS 36% 78%
Choice grapes 9.77 NIS 75% 113%
Apple Granny Smith 6.01 NIS 66% 90%
Mango 4.62 NIS 99% 207%
Apple Pink Lady 7.8 NIS 92% 140%
Red grape 10.28 NIS 104% 160%
Plum 10.93 NIS 64% 112%

Source: Agriculture Ministry, Research, Economics and Strategy Unit, figures for August 1-7, 2021.
* After 20% deduction to distributors 

Among the more extreme examples, cherry tomatoes, for which the farmer received an average of NIS 5.95 ($1.84) per kilogram, had an average retail price in city stores of NIS 18.54 ($5.75) — a 212% markup.

Cherry tomatoes on sale at an Osher Ad store in Jerusalem, August 12, 2021 (Sue Surkes/Times of Israel)

Red peppers, for which the farmer was paid an average of NIS 3.11 ($0.95), sold on retail shelves for NIS 9.05 ($2.80) — representing a 191% increase.

Even watermelon sold for NIS 3.21 ($1) per kilogram, 138% more than the average NIS 1.35 ($0.42) paid to the farmer.

At the larger supermarket chains, which include stores such as Rami Levy, Shufersal Deal, Victory and Mega, cherry tomatoes were sold for an average of NIS 14 ($4.35) per kilogram (a 149% markup), red peppers for NIS 6.79, or $2.10 (a 118% markup) and watermelons for NIS 2.14, or 65 cents, (59% more than the farmer received).

A Lasova restaurant soup kitchen employee serves bread to the needy in the Israeli coastal city of Tel Aviv on September 8, 2019. (Menahem Kahana/AFP)

The high prices put fresh produce out of reach for many Israelis, especially those with access to only the most expensive stores. Fruits and vegetables are considered the basic building blocks of a healthy diet, but without the availability of affordable produce, many families are forced to rely on less salubrious processed foods.

Some 656,000 Israeli families currently live with food insecurity — the inability to afford healthy, nutritious food — according to the most recent poverty report from Leket, the National Food Bank.

Abolishing import barriers

According to Finance Minister Avigdor Liberman, fruit prices have risen by more than 100% and vegetables by more than 80% in the last 20 years, all while consumption has fallen by 20% because people cannot afford the cost. Official data collected by the state generally backs up his claims, showing that between 2000 and 2021, produce prices rose by some 80%, while prices for all other consumer goods rose by only 33%.

Liberman and Forer, both from the Yisrael Beytenu party, are seeking to bring these prices down by abolishing import barriers and opening farmers up to foreign competition.

Currently the vast majority of produce consumed by Israelis is locally grown — some estimates put the number as high as 90%.

Under the plan, import tariffs on all fruits and vegetables will be erased gradually over five years (depending on the product), and immediately on eggs, avocados, lychees, and pineapples, according to their plan set out in the Economic Arrangements Bill, which accompanies the state budget.

Avocados for sale at Jerusalem’s Mahane Yehuda market on December 12, 2011. (Uri Lenz/Flash90)

To cut bureaucracy and further ease imports, the government will replace its strict plant health requirements with certification that meets general international rules.

The finance and agriculture ministries predict that the plan will save NIS 2.7 billion ($824 million) per year for Israeli consumers, equivalent to a saving of NIS 840 ($260) per year per household, or NIS 70 per month.

“Do we live in a free market with protection for those who produce in Israel or do we have a market like a Soviet one in which a group divides up the quotas by itself?” Forer asked Army Radio earlier this month. “I say, let’s have competition and I will be responsible for making it fair.”

Buying lemons at a Rami Levi supermarket in Jerusalem, August 12, 2021. (Sue Surkes/Times of Israel)

Farmers are unsurprisingly peeved by the plan, which will increase competition and could spirit away a large chunk of their business. They maintain that the prices they charge are not the cause of rising produce bills, pointing a finger instead at the retailers. They are supported by the Agriculture Ministry’s own data showing the high markups at many grocery stores.

Boosters of the plan note that it comes with several programs meant to help soften the blow for local farmers, following a European Union system that provides direct aid instead of indirect subsidies via customs taxes, price controls, quota allocations (given in Israel just for milk and eggs) and regulations, all of which help to distort the relative prices of different products.

Instead farmers will now get NIS 100 per dunam of cultivated land per year (approximately $7.75 per acre), with the state paying out NIS 420 million total for all 4.2 million dunams being worked. A Finance Ministry official with knowledge of the plan said that the figure was roughly equal to 2.5% of the total industry, matching the 2.6% profit an interministerial committee found supermarkets make off of produce.

Hebrew University Prof. Ayal Kimhi, vice president of the Shoresh Institution for Socioeconomic Research, said that while direct payments work, the suggested figure is “so inadequate that you risk destroying the entire farming sector.”

Prof Ayal Kimhi, director of the Hebrew University’s Environmental Economics and Management Department. (Courtesy)

The number, he told The Times of Israel, was taken from the European Union, where there are large tracts of pasture land, and in no way reflects the tens of thousands of shekels poured into intensive vegetable and fruit farming. “If prices go down as a result of lowering the tariffs, people will simply abandon their farms,” he warned.

Kimhi noted that fruit and vegetable prices in Israel are still cheaper on average than in other countries in the Organization for Economic Cooperation and Development — 5% cheaper in the OECD’s most recent analysis, carried out in 2017.

In Europe, the process of moving to direct payments to farmers took two decades. “Lowering import tariffs is right but you need to do it slowly, carefully, and to stop each time and review the result. Five years is too fast,” said Kimhi.

The plan’s backers note that the abolition of tariffs on animal feed, pesticides and other materials will lower farmers’ expenses, according to the proposal. Tax breaks are to be given to encourage capital investment in agriculture; grants will be offered for cutting-edge equipment such as robots that can harvest fruit automatically, better seeds, and other technological advances; and cash will be earmarked for research, innovation and efficiency.

Experts say Israel’s 2% annual population growth, the fastest-growing in the developed world, means the country will need to import more or farmers will need to find ways to get more out of the ground. According to the Finance Ministry official, Israel has only 200,000 dunams (50,000 acres) of land left for cultivation that is not already being worked.

Over the last five years, he said, yields have barely budged.

Shai Hajaj, chairman of the umbrella body for all rural regional authorities, recently told Army Radio that farmers were willing to see tariffs lowered, if it were done in consultation with the farmers, gradually and with proper monitoring. “Tariffs were lowered on imported beef and the prices have just gone up,” he said.

Israeli farmers demonstrate against the Finance and Agriculture ministries’ plan to open up the fruit and vegetable market to imports, Jerusalem, August 1, 2021. Olivier Fitoussi/Flash90)

Questioning the figures

According to Kimhi, there are a number of reasons that fruit and vegetable prices have risen so dramatically. In a recent article for business daily Globes (Hebrew), he noted that Israelis are eating more exotic products and want to eat fresh fruit and vegetables out of season, both of which are costlier to produce; pesticide restrictions are forcing growers to use costlier solutions; extreme weather, which can damage crops, is becoming more frequent; and costs for inputs such as water and labor are going up. Lastly, he noted the conglomeration of retailers and wholesalers, which has picked up in recent years.

A 2019 State Comptroller report quoted a 2015 Agriculture Ministry survey that found that “the centralized structure in the wholesale and retail sectors of the fresh fruit and vegetable market, in contrast to the dispersed nature of the agricultural one, creates unequal power relations between the farmers and the big retailers which is likely to to harm farmers… The nature of the agricultural product also weakens the negotiating power of the farmers because fruits and vegetables are perishable goods and the farmer has to sell in a short time, ‘whatever the cost.”

“The large companies don’t only determine prices,” said Gadi Horowitz, a third-generation farmer who grows mangoes and olives on 150 dunams in northern Israel. “You can send a truck to the packing house and the chain can turn around and tell you that they don’t want the fruit because it’s too small or too soft. So you dump it.”

Not only were high prices not benefitting the farmers; they were hurting them, he argued.

“The consumer buys less because it’s so expensive and that leaves the stores with a surplus,” he said. “After two to three days, the chain will come back to the farmer and say ‘don’t pick any more.’ But I have to take the fruit off the tree, I can’t freeze it!”

Former Agriculture Minister Tsahi Hanegbi (L) and Shai Hajaj, chairman of the Regional Councils Center and head of the Merhavim Regional Council in southern Israel, speak at an emergency confab about food production in the shadow of Corona virus, March 33, 2020. (Courtesy)

Horowitz said he wasn’t opposed to imports, particularly from countries to which Israel exports produce such as carrots, potatoes, avocados, mangoes, dates and pitayas. “If we don’t allow them to export to us, they won’t want our imports,” he noted.

But, he stressed, imports should be limited to produce that is hard to grow in Israel, such as asparagus or forest fruits, or is out of season at that particular time.

Kimhi, too, was skeptical that bolstering imports would solve the problem of high produce prices.

“Some people think that we can import everything and it will be OK. Today, tomatoes and cucumbers are being imported from Turkey and Jordan,” he said. “But what will happen to them if climate change affects their water supplies and prices go up? Regarding imports from Europe, the distribution is expensive and it comes through an importer who must also make money. I’m not sure whether it will be any cheaper.”

An Agriculture Ministry spokesperson attributed high prices to “the volatility in the prices of agricultural produce due to its being a product affected by weather conditions, diseases and pests. These fluctuations are also reflected in our weekly reports.”

Leveling the playing field

Horowitz noted that the NIS 15,000 he will get annually under the new program will cover his water bill for about two weeks.

Despite Israel’s relative water security, resulting from desalination and sewage purification, Israel’s farmers must pay NIS 1.5 to NIS 2.8 (50 to 90 cents) per cubic meter of water, while in Europe, where rain is plentiful, water costs much less.

“If you want competition, we need equal conditions. Competition must be fair,” Hajaj said.

Labor costs as well are putting Israeli farmers at a disadvantage, they say. Because few Israelis work in agriculture, growers must bring foreign workers to Israel to do the tough manual work, but are limited by how many permits the government allocates, driving up salaries.

Avocado farmer Sarit Uziely, from northern Israel, told The Times of Israel that she paid a worker from Thailand a gross salary of NIS 8,248 ($2,565) for 26 days of work last month (full time plus overtime), at an hourly rate of NIS 29.12, roughly equal to 7.6 euros or $9.

According to data compiled by the International Labour Organization, Israeli males working in agricultural or forestry average monthly salaries of $3,127 while those in Turkey, one of Israel’s largest produce importers, make only $713.

The Agriculture Ministry spokesperson noted that the reform would increase quotas for foreign laborers.

Farmers would also like the government to rethink what obligations they have to provide pensions or other benefits to foreign laborers.

“It’s not logical to pay a 20-year-old Thai farmer a pension. We need to give him health insurance and ensure that he lives properly, but all the extras on top of this are reflected in the price of the fruit,” Horowitz said.

A Thai farmworker in Israel. (Hadas Parush/Flash 90)

100+% markups? ‘Overseas, it’s worse’

The Finance Ministry official who is intimately involved with the reform said that he was not familiar with the weekly figures from the Agriculture Ministry’s research unit, preferring to focus on three studies, carried out by different groups at different times, all of which, he said, had concluded that the retailers and wholesalers are not to blame for price rises.

The first, by the Knesset Research and Information Center, was published in 2014 and based on data from 2013. This found that while the gap in prices set by farmers versus retailers averaged 103% for vegetables and 84% for fruit, gaps elsewhere in the world were even higher — 335% for vegetables and 203% for fruit, in the US, for example. While the difference in price for potatoes was 66% in Israel, it was 195% in Europe and while for carrots it was 133% locally, in Europe it was 167%.

The second study was carried out by the Interministerial Pricing Committee composed of officials from the Finance and Agriculture ministries. This, according to the official who spoke to The Times of Israel, ordered the big retail companies to provide information on their prices and profitability.

The committee wound up its work in 2019 after concluding that the chains’ average operational profit (net of all expenses except interest payments and taxes) was 2.7%, that the profit for fruit and vegetables was 2.6% and that these compared favorably with the 5.4% operational profit of a US company that was studied, and that of 4% for a large company in Holland. The operational profit of wholesalers was found to have gone down from 5.7% in 2017 to 3.8% in 2017.

View of an orchard in the Jezreel Valley, northern Israel, July 15, 2013. (Yaakov Naumi/Flash90)

The third study that the Finance Ministry has been using was released this year by the Israel Competition Authority. Its brief was to investigate the cause of price rises, which, according to the official, have exceeded housing cost rises over the past two decades. The authority concluded that neither the retailers nor the wholesalers were responsible, though it did not look at whether farmers profit.

“They didn’t have the data for the farmers,” the official said. “I myself haven’t come across any serious findings on the farmers.”

On the issues of water and labor costs, the official said that Israel had comparative advantages in some areas, and disadvantages in others.

A drip irrigated field in southern Israel (Photo credit: Kobi Gideon/Flash90)
A drip irrigated field in southern Israel (Kobi Gideon/Flash90)

He also said that the ministry had not seen importers consolidating, which has been blamed on driving prices up in other sectors of the economy.

Asked to comment on the proposed agricultural reform, a spokesperson for the Israel Consumer Council said that it supports “any steps to reduce the cost of living and food prices, including for fruit and vegetables in Israel.” But the spokesperson added that a way has to be found to lower prices for consumers “without harming farmers and the agricultural industry in Israel.”

The council said that affordable prices were also important for ensuring food security. For this, it was important to “examine in-depth” the entire food chain in a bid to pinpoint the reasons for high prices.

Shufersal, Israel’s largest supermarket network, refused to comment for this article.

Rami Levi, founder and head of the supermarket empire that takes his name, told The Times of Israel that he opposes direct payments, fearing that many farmers will take the money but not grow anything.

Portrait of Rami Levi taken in his supermarket in Jerusalem. on June 23, 2016. (Miriam Alster / FLASH90)

Instead, he said, the state should help farmers with the costs of water, labor and agricultural chemicals but in return, demand higher yields.

Levi insisted that his distribution network reduces the price negotiated with the farmer by 20% to cover its costs and then adds around 22% to the retail price.

“If there’s enough supply and local prices are competitive, there will be no need to import,” he said.

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