Ruble rout wreaks havoc with Israeli produce exports

Ruble rout wreaks havoc with Israeli produce exports

Potato, carrot, and pepper growers are in big trouble because of the economic woes of Russia, for many their biggest export customer

Illustrative photo of yellow peppers being processed. (photo credit: Rachael Cerrotti/Flash90)
Illustrative photo of yellow peppers being processed. (photo credit: Rachael Cerrotti/Flash90)

The crash of the ruble has been a disaster for Israeli agriculture, according to the Israel Moshav Movement, with dozens of Israel’s largest farmers on the verge of bankruptcy. With Russian markets essentially closed, at least until the ruble recovers – if it ever does – hapless farmers are looking for alternative markets to export potatoes, peppers, carrots, and other Israeli-grown produce that were largely sold to Russia.

But with every cloud there is a silver lining. For exporters, that lining comes in the form of sharply lower oil prices – ironically, a major factor in ruble’s weakness. If in recent years it wasn’t economical for Israel to export its produce to far-flung markets like the US and Asia, sharply lower prices for fuel could revive Israeli agricultural sales to alternative markets, enabling farmers to make up at least some of the losses caused by the ruble’s slide.

And those losses are substantial, according to Moshav Movement spokesperson Dafna Cohen-Nouriel. “Our best estimates until now indicate that Israeli farmers have lost at least NIS 200 million ($46 million) because exports to Russia have basically been halted. We are currently gathering specific data on the losses as we prepare to ask the government to intervene and save the Israeli agricultural industry.”

Why oil prices have slid so quickly and so sharply is anyone’s guess – with theories ranging from the return to the market of Libyan oil to the refusal of Saudi Arabia to cut its production to the emergence of the US as a major energy producer. There’s even a conspiracy theory on the matter – that the US is deliberately monkeying with the price of oil to foment discontent in Russia and dissatisfaction with the rule of Vladimir Putin.

Whatever the reason, Israeli farmers have been badly hurt by the ruble’s loss of value, with Russia’s currency worth less than half than at the beginning of the year on international exchange markets. According to the Moshav Movement, nearly a third of all of Israel’s agricultural exports go to Russia. For potato, carrot, and pepper growers the situation is even worse; between 75% and 95% of export crops are destined for Russian markets. Avocados and citrus fruit are also affected, with about 30% of export crops set for export to Russia as well.

Definitive numbers on what portion of these Israeli crops go for export are hard to come by because there is no one organization recording the data. Instead, it is logged by private groups like the Moshav Movement. It comes to at least half, but is most likely substantially more than half.

Although Israeli farmers could continue to export, most of them are locked into contracts in which Russian wholesalers pay a set number of rubles – which are now worth less than half in dollars, euros, or shekels than they were when the contracts were signed. Under those circumstances, only farmers who can’t find anywhere else to sell their produce have been shipping to Russia.

Pretty soon, though, those desperate farmers are likely to include the large majority of Israel’s vegetable growers, especially those producing the potatoes, carrots, and peppers Russia largely buys. That’s because larges batches of the crops are due to be harvested in the coming weeks, and unless something is done, farmers will have to either dump them at half their value in Russia, or on local markets – where they will fetch less money as well, as the Israeli market can only handle so much of those normally Russia-bound crops.

Farmers have turned in desperation to the Moshav Movement for help, and on Wednesday, the organization held an emergency meeting, to which Agricultural Minister Yair Shamir and Director-General of the Agricultural Ministry Rami Cohen were invited. Neither showed, said Cohen-Nouriel, “which lent a different atmosphere to the proceedings than we had expected.” It later emerged that Cohen was detained by police and is being investigated in an unrelated matter.

Still, the group, under pressure to come up with solutions, said it was preparing to ask for government intervention. “The only way to save farmers is for the government to get involved,” said Cohen-Nouriel. That means temporary subsidies to bail out farmers until either Russia recovers or alternative export markets are found.

One reason for Israeli growers’ increased dependence on Russia is sanctions placed on Israeli produce by European Union countries. As of September 1 of this year, the European Union banned entry of all dairy, meat, poultry, and egg products from the West Bank, the Golan Heights, and Jerusalem, expanding an existing ban on produce from the region. Reports said that the ban could be extended even further, keeping out food products produced even within the Green Line, unless producers can prove that they did not use any ingredients from the banned regions. The EU sanctions are designed to pressure Israel into negotiating with the Palestinians and withdrawing from the named areas.

With those markets closed, Russia – which was facing US-sponsored sanctions of its own due to its intervention in Ukraine — seemed like a good solution for Israeli farm exports. Shamir said in an interview in Moscow in September that Russia’s need for fresh produce is “a great opportunity” for Israel.

“Take into account that lately the Europeans have been putting some boycotts on our products,” Shamir said in the interview. “They boycott us and then tell us we can’t help somebody else? They can’t do that. They can’t on the one hand stop [Israeli] sales to Europe and on the other hand stop sales to Russia. That doesn’t go together.”

Now, though, with the difficulties Israeli exporters are facing in the EU and Russia, many are thinking of returning to another market they have been priced out of in the past. According to Avi Kadan of Adafresh, which grows and exports peppers, the US could be a good alternative for companies seeking greener export pastures.

“We used to be very strong in the US, until the air freight price became too expensive for us, but with the current oil price sea freight is an option, and the US is certainly becoming again a good option,” he said.

Another advantage for his firm and others is that they already know the market in the US, having sold there in the past, so it would be relatively easy to begin exports there again. “The situation for exporters will depend on the percentage that the Russian market represented for them and who their clients were,” he added. “Those trading with supermarkets in US dollars, for example, will be in a good position.”

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