Dr. Arieh Sheskin Dr.

Arie Regev

Second Edition December 2001

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PREFACE
I am pleased to mark the first, Ministry of Agriculture and Rural Development publication in English on Israel agriculture that provides the reader information, statistics, developments and trends which have occurred during the last decade. The influential role of agriculture in Israels national economy, although small (1.5% of the GNP), is impressive. As a sector operates in the peripheral areas, protects the natural environment, landscape and land, it also acts as a lever for other economic branches. The early settlers in the 19th century were committed to working on the land. Since then, agriculture and settlements are synonymous for multifaceted activities, which led to the creation and distribution of hundreds of active rural communities throughout rural areas until today. This activity involves veterans and newcomers, farmers in moshavim and kibbutzim (cooperatives), as well as private farmers in the Jewish and Arab sectors. The unique geographical location of Israel enables the farmers to grow a wide variety of produce throughout the year, and the different climatic regions, some of which are in arid areas, are taking an increasing role in agricultural activities. These are unique activities in which the farmers have to confront advanced forms of production, the use of high-level technology, and the constant search for new products. The result is that we now produce more and more with less farmers. Israel agriculture is dynamic, innovative and based on advanced technology. This is to say, based on a relatively small number of efficient and innovative farmers, whose achievements are recognized throughout the world. Israeli farmers are an outstanding example of agricultural technology in Israel. Drip irrigation systems, automatic and controlled mechanization, high quality seeds and plants, and other products are exported to a host of countries in addition to the export of fresh agricultural produce. We are motivated by the desire to make the desert bloom and find solutions to the natural limitations of land and water. The Ministry of Agriculture and Rural Development together with the Government of Israel helps Israel agriculture to cope with the challenges it is facing. These includes a considerable improvement in the quality of the produce that has to conform to international standards and international trade agreements, protection of the environment and a variety of activities in the rural sector. I believe that we will overcome the obstacles facing our agriculture, and Israel agriculture will continue to develop and contribute to the economy and society in Israel. May I wish the reader who meets, for the first time, the information presented in this modest publication, that it will be interesting and useful. The staff of the Ministry of Agriculture and Rural Development will welcome providing additional information on request. Shalom Simhon Minister of Agriculture and Rural Development

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TABLE OF CONTENTS
Page Introduction ...............................................................................................1 Agriculture in the Israeli Economy .............................................3 Factors of Production .........................................................................5
Land Use .............................................................................................5 Water ....................................................................................................6 Employment..........................................................................................7 Capital...................................................................................................8

Agricultural Production.....................................................................10 Foreign Trade ........................................................................................14 Agricultural Economics ....................................................................18

Prices..................................................................................................18 Productivity .........................................................................................21 Income of Employed in Agriculture .................................................22 Interest Rates ....................................................................................24 Economic Account of Agriculture.....................................................24 Intermediate Consumption.................................................................26

Food Consumption .............................................................................28 Summary of 2000 ................................................................................30

MINISTRY 0F AGRICULTURE AND RURAL DEVELOPMENT P.O.Box 30, Beit Dagan 50250 Israel

www.moag.gov.il

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Introduction
Israel Agriculture: Facts and Figures is being published for the first time in English. Its contents and objectives are to summarize the activities, economic data and statistics related to agriculture in Israel. The current publication follows a number of earlier publications issued periodically during the 1990s by the Israel Ministry of Agriculture, Department for Foreign Relations and the Israel Export Institute (in the English, Russian, Chinese and Spanish languages) under the title Israels Agriculture Achievement Through Innovation and Technology. This publication focuses on macro-economic data of agriculture in Israel. The figures collected and summarized, include data on annual production of Israeli agriculture, as well as information regarding the role of agriculture in the national economy. Facts on employment, investment, export of fresh agricultural products and its share for land use and water are provided. The foreign trade balance for fresh and processed agriculture produce is presented as well. Data on the export of the agricultural inputs industries in Israel is given, their export value is double that of fresh agricultural produce. Through these figures, it is intended to show a phenomenon, that although relatively small, Israel agriculture serves as a laboratory for advanced agricultural technological innovations of the inputs industries which are exported throughout the world. Long-run development trends, namely prices and selected input and output indexes (employment, water, investment etc.) are presented as well as selected rates of productivity of Israel agriculture during the 1990s. The presentation of these time series aims to underscore the impact of changes over a period on the economic state of Israel agriculture. The publication is based on official data of the Central Bureau of Statistics for the year 1999. However, as initial data for Israel agriculture for the year 2000 was recently received from the Central Bureau of Statistics, it was decided to include a short chapter for this year. Israel agriculture, like the agricultural sector in every modern economy plays a small but important part of the national economy. The agricultural sector in Israel employs, according to 1999 data, almost 80,000 workers (70% are hired laborers), which represent 3.3% of the total labor force employed in the economy, and has an annual production of $3,279 billions. That is an annual production rate of $41,000 per employee. The gross agricultural produce

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represents 1.6% of the gross domestic product which reaches in Israel $16,100 per person in a population of more than 6 million. Capital stock in the agricultural sector (on farm and off farm) stands at $68,000 per employee. The production and investment per employee in agriculture do not reach the levels existing in the Israel High Tech sector. Yet it reflects a dynamic and highly developed sector both from the aspect of technological know-how as well as management of the individual farm unit. The current publication is aimed at professional readers outside of Israel, Ministries of Agriculture, international organizations, agricultural counselors and consultants, the diplomatic corps, importers, exporters, researchers, academics etc. Through this edition, the Israel Ministry of Agriculture joins a long-standing tradition of publications of this kind in the English language by many of the European countries. The sources for the data presented in this publication are first and foremost from the Central Bureau of Statistics of the State of Israel, as well as statistics of the Planning Authority, Israel Ministry of Agriculture and Rural Development, from the Central Bank of Israel, the Economic Department, Agriculture Center, (the largest agricultural organization in Israel) and the Israel Water Commission. I would like to thank all those who helped in the preparation of this publication, first and foremost, Mr. Zvi Alon, Senior Deputy Director for Foreign Trade at the Israel Ministry of Agriculture and Rural Development, who promoted the idea of this publication. I would also like to thank Professor Yoav Kislev, from the Department of Agricultural Economics, Faculty of Agriculture, Hebrew University of Jerusalem, together with Mr. Ilan Shapira, Economics Department, Agriculture Center, who read and reviewed the drafts, commented and corrected accordingly. Special thanks are due to Rafi Sternlicht, Planning Authority, Ministry of Agriculture and Rural Development, who, in addition to his important comments, helped in preparing the statistical data. I would like to thank as well Ms. Devoira Auerbach for the English language editing and to Mr. Rafi Weis from the Planning Authority, Ministry of Agriculture and Rural Development for editing the attached geographical map. Finally, I would like to thank Dr. Arieh Sheskin, my predecessor as Director of the Department for Foreign Relations at the Ministry for Agriculture and Rural Development who retired in the year 2000, and undertook the bulk of the work regarding the editing of this publication and deserves credit for its publication. Dr. Arie Regev, Director, Department for Foreign Relations.

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Agriculture in the Israeli Economy

The share of agriculture in GDP continues to vary slightly around 1.6-2.0% reflecting the growing constraints of water supply to agriculture and the fast development of high-tech industries. Table 1: Agriculture in National Economy (% of total) 1996 Gross Domestic Product Employment Investments Land Use Water Use Exports* *Fresh Source: Statistical Abstract of Israel 2000 1.9 3.3 1.4 19.0 64.1 4.2 1997 1.8 3.3 1.3 19.0 64.5 3.8 1998 2.0 3.3 1.5 19.1 62.8 3.9 1999 1.6 3.3 1.5 18.3 59.6 3.4

The share of investments and employment remains stable due to long-term efforts to change the production structure toward crops using less water per unit of production value such as flowers. Table 2: Rural Population and Settlements 1999 Settlements Total Cooperative villages - subtotal Kibbutzim Moshavim Collective Moshavim Non-cooperative villages - subtotal Jewish sector Arab sector Source: Statistical Abstract of Israel 2000 981 722 268 411 43 259 224 35 Inhabitants (000) 633.3 318.4 115.7 184.5 18.2 314.9 236.9 78

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The cooperative sector plays a dominant role in the organizational structure of the Israeli rural areas. It should be mentioned that most of the manpower living in these areas is not employed in agriculture but is engaged in industrial activities or services. The two main forms of cooperative settlements are the kibbutz and moshav. The kibbutz is a distinct socio-economic entity based on cooperative principles. The members of a kibbutz own collectively the means of production and share social, cultural and economic activities. The moshav is a village of some 60-100 family farms. Each family maintains its own household and earns its income from what it produces, while at the same time, belonging to the moshavs cooperative framework. At present only a small number of farms are fully engaged in agriculture. The average size of a moshav farm is between 2.5 to 6 ha. The kibbutz and moshav today account for 81% of the countrys fresh agricultural produce. The Jewish non-cooperative sector includes mostly non-agricultural rural settlements, such as regional centers, rural communities as well as educational institutions. Some of them are based on the moshava settlement type. Historically, the moshava was a village of private farmers who acted on the basis of individual initiative, growing mostly orchards. Today only a small minority of their population is still engaged in agriculture. The Arab agricultural sector is based mostly on traditional crops, such as olive orchards, vegetables, some of them for export (strawberries) as well as flowers. This sector is also an important producer of sheep and goats.

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Factors of Production
Land Use
The Negev Desert, located in the southern part of Israel accounts for some 50% of Israels national area and dominates its land use. (See attached Map) Table 3: Land Use in Israel Thousands Ha Total area of Israel Built-Up Area Open Areas and other uses Natural Parks and Forest Pasture Arable Land 2,245,000 200,000 1,146,000 347,000 141,000 411,000 % of total 100.0 8.9 51.0 15.5 6.3 18.3

Source: Rural Planning Authority, Min. of Agriculture and Rural Development

Two additional main features of the land use structure characterize its impact on agriculture development: the very limited area of pastures and the high dependence on water in order to utilize the arable land. Table 4: Agricultural Use of Land by Crops, 1999 Thousands Ha Total thereof irrigated unirrigated Orchards thereof citrus Vegetables, potatoes and melons Flowers and ornamental plants* Field Crops thereof cotton wheat Source: Statistical Abstract of Israel *Thereof greenhouses 1,456 ha 328.2 192.3 135.9 84.8 25.3 55.1 5.2 183 29 86 % 100.0 58.6 41.4 25.8 7.7 16.8 1.6 55.8 8.8 26.2

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A comparison of Tables 3 and 4 shows that large areas of arable land were not cultivated in 1999 (411,000 328,000= 83,000 ha).

Water
Water scarcity is a main limiting factor in Israeli agriculture. Along the 500 km. from North to South, the annual rainfall amount varies from 800 mm to 25 mm. The rainy season lasts from October to April. More than half of the area in the South gets less than 200 mm annual rainfall. Three main water resources, besides rainfall, supply most of the water demand for agriculture, domestic and industrial use. They are the Sea of Galilee, from which an average annual amount of 400 million cu.m. is pumped to the South, and the coastal and mountain aquifers. Because of over-pumping and frequent droughts, especially during the last decade, the water availability has substantially decreased, making it necessary to cut the water quantity allocated to agriculture. Agriculture not only had to limit cultivated areas but also had to find alternatives to fresh water resources as can be seen in Table 5: Table 5: Use of Water 1989-1999 1989 Million cu.m Total - Israel thereof agriculture Agricultural use by water quality: Fresh water Marginal (brackish and other low quality water) Recycled 226.0 56.0 17.3 4.3 224.0 198.0 17.7 15.7 1,022.0 1,851 1,304 100.0 70.4 100.0 78.4 842.0 % cu.m. 2,076 1,264 100.0 60.9 100.0 66.6 1999 Million %

Source: Rural Planning Authority, Ministry of Agriculture and Rural Development According to the Water Commission, the Government institution responsible for water policy and its implementation, the present situation of water supply potential has reached a critical threshold. Estimates of the Water Commission show that the deficit in water resources in the year 2001 will amount to 395 million cu.m. Table 6 presents the demand for fresh water in the next 20 years

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Table 6: Fresh Water Demand in Israel, 2000-2020 Year Domestic Use 2000 2020 Source: Water Commission *According to an international Agreement 700 1120 90 150 702 530 Industry Agriculture Palestinian Total Authority and Jordan* 94 200 1586 2000

The additional fresh water supply required in the next two decades amounts to 445 million cu.m. meaning the construction of a new desalination plant with a 50 million cu.m capacity every three years. Agriculture will need an increased supply of water from recycled. and other marginal water resources.

Employment
The employment structure of those engaged in agriculture reflects two basic trends: a decreasing number of self-employed farmers, mostly members of cooperatives (see Table 2) who have been substituted by hired workers and the increase of hired workers as additional manpower in the sector. Table 7: Employment in Agriculture Thousands 1996 Total* Self-employed Farmers Hired Workers % of Hired Workers of total Source: Central Bureau of Statistics *Not including employed in gardening 72.4 26.0 46.4 64.1 1997 74.4 24.4 50.0 67.2 1998 78.4 22.8 55.6 70.9 1999 79.6 22.8 56.8 71.4

About 36,000 hired workers of the total of 56,800 come from outside of Israel, this represents 64% of hired employees and 46% of total agricultural manpower. Shortage of water, a relatively small local market and high technological level of agricultural know-how enable the sector to change the crop structure towards high added value produce, mostly directed to export. These changes dictate not only the use of less expensive labor forces but also the increasing demand for capital.

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Capital
This factor of production enables the development of greenhouses for flowers and vegetables with high yields as well as sophisticated irrigation system and equipment. Table 8 presents gross and net investments in agricultural production and infrastructure. Gross investment is defined as the total amount of new capital goods added to the existing stock of these goods in the sector during a given period whereas net investment is the net addition to the stock of the capital goods. Table 8: Investments in Agriculture 1999 (US$ millions, at 1999 prices) Type of Activity Gross investment US$ million Total 1. On-farm assets - total Orchards Greenhouses Livestock Irrigation systems Agricultural machinery Drainage Other 2. Off-farm infrastructure - total Post-harvest services Water infrastructure Land reclamation and afforestation 667.7 432.0 31.0 171.0 126.1 64.6 33.4 4.8 1.1 235.7 61.9 126.1 47.7 100.0 64.7 4.6 25.6 18.9 9.7 5.0 0.7 0.2 35.3 9.3 18.9 7.1 % Net investment US$ million 213.0 89.4 8.6 60.1 10.4 8.0 0.0 1.2 1.1 123.6 21.5 58.8 43.3 100.0 42.0 4.0 28.2 4.9 3.8 0.6 0.5 58.0 10.1 27.6 20.3 %

Source: Rural Planning Authority, Min. of Agriculture and Rural Development

High investment was one of main features of agricultural development in Israel. It was measured by the growth rate of capital stock in agriculture. However, during the period 1985-1997 the capital stock representing the total of all fixed capital invested in agriculture, decreased (at real prices). This trend was due to a process of adjustment of investment to production. In the last two years a slow increase of capital stock in agriculture was recorded.

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Table 9: Gross Capital Stock in Agriculture 1999 (US$ million, at 1999 prices) US$ millions Total Orchards Livestock Agricultural equipment and machinery On-farm buildings Irrigation systems Greenhouses Fish ponds Land reclamation and drainage Source: Statistical Abstract of Israel 2000 The ratio capital/output was, in the last five years, (excluding 1999) around 1.25, namely to produce US$1, it is necessary to use US$1.25 of capital. 5,449.7 706.0 788.2 1,710.2 1,108.0 324.0 119.7 165.6 528.2 100.0 13.0 14.5 31.4 20.3 5.9 2.2 3.0 9.7 %

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Agricultural Production
During the last decade the total value of agricultural production decreased by almost 15% at real prices. However, this development represents different changes: declining prices of agricultural product prices and increasing quantity of production. The quantity index of agricultural production during the same period increased by 30%. Some export crops, in particular citrus and cotton suffered from a drastic reduction of prices and exported volume. In livestock products the prices received by producers were far behind the cost of living index. Table 10: Agricultural Production of Israel by Branch, 1989-1999 (US$ Millions, at 1999 Prices) 1989 US$ Millions Total Value of Production Horticulture and Field Crops Total Vegetables Flowers and Ornamental Plants Citrus Other Fruit Field Crops Other Crops Livestock Total Poultry Dairy and Beef Sheep and Goats Fish Other livestock Source: Central Bureau of Statistics 3,844 2,177 524 230 387 429 506 101 1,667 790 622 101 103 51 100.0 56.6 13.6 6.0 10.1 11.2 13.2 2.6 43.4 20.6 16.2 2.6 2.7 1.3 % US$ Millions 3279 1813 585 215 220 452 224 117 1466 648 545 97 114 62 100.0 55.3 17.8 6.6 6.7 13.8 6.8 3.6 44.7 19.8 16.6 2.9 3.5 1.9 1999 %

The share of horticulture and field crops in the total value of agricultural production during the last 10 years remains stable. This part of production is the main export supplier of Israeli agriculture. Livestock production, depending heavily on imported grains, cannot compete efficiently on foreign markets and therefore is directed mainly to supply domestic demand.

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Table 11: Main Horticulture and Field Crops, 1999 Commodity Vegetables Potatoes Edible Tomatoes Peppers Cucumbers Strawberries Flowers and Ornamental Plants*** Roses Carnations Gypsophila Fruit Citrus Oranges Grapefruit Easy Peelers Other Fruit Apples Apricots Table Grapes Bananas Avocado Field Crops Cotton Fiber Spices and Medicinal Plants Groundnuts Source: Central Bureau of Statistics *US$ Millions, at. 1999 prices **Thousands tons ***Millions of units export only 34.1 30.2 27.3 1.0 0.9 0.8 23 25 82.1 44.9 48.6 52.4 49.0 2.5 1.4 1.5 1.6 1.5 58.7 92.5 43.5 1.8 2.8 1.3 38.4 9.4 22.7 1.2 0.3 0.7 122.9 94.4 61.1 33.1 25.8 3.7 2.9 1.9 1.0 0.8 Value* % of Total Quantity** Production 2107 364 242 102 108 16 1,435 469 117 155 1299 723 204 372 97 575 128 46 49 118 56

Most horticulture crops are based on subtropical and deciduous fruits, and large selection of vegetables are grown under plastic cover or in greenhouses as well as in open areas but mainly under irrigation. However, due to water shortage, most basic grains for human and livestock consumption are imported.

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Table 12: Main Livestock Products, 1999 Commodity 1.Livestock for Meat Cattle Sheep and Goats Poultry thereof Broilers Turkeys 2.Milk Dairy (millions liters) Sheep and goats (millions liters) 3.Eggs (millions units) 4.Aquaculture Source: See Central Bureau of Statistics *US$ Millions, at Dec. 1999 prices ** Thousands tons, unless otherwise stated Value* 657.0 143.7 79.5 406.3 258.9 130.9 418.8 401.7 17.1 112.1 114.3 % of total production 20.0 4.4 2.4 12.4 7.9 4.0 12.8 12.3 0.5 3.4 3.5 1,157 29 1,640 30 88 22 391 260 125 Quantity**

Production of livestock products is characterized by very intensive use of technology. As a result, very high yields are obtained in many products. For example, average milk production has increased two and half times since the 1950s from 3,900 litters annually to an average close to 11,000 liters per dairy cow in 1999. Poultry farming which is the major supplier of meat for domestic demand has developed under extreme variations of climate. This fact has necessitated the development of poultry breeds that are highly disease resistant.

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Table 13: Selected Livestock Inventory, 1999 (Thousands, end of 1999) 1999 Cattle Thereof milk cows Poultry Laying hens Broilers Turkeys Sheep and Goats Sheep Goats Beehives Source: Central Bureau of Statistics 350 70 72 7,190 20,150 4,900 388 122

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Foreign Trade
The foreign trade balance of agricultural fresh and processed produce in 1999 shows a deficit of US$890 millions. However, the deficit in the trade of fresh produce was only US$176 millions. This gap between export and import is the result of a large import of cereals (see previous Tables) and timber in the range of unprocessed produce, and of importing processed products such as sugar, meat and fish which are only partly produced in Israel or not at all. It should be also mentioned that this category of commodities includes a large number of tropical products, which are imported for further processing in the Israeli food industry such as cocoa, coffee, and others. Table 14: Foreign Trade Balance of Agriculture, 1999 (US$ Millions, at 1999 prices) Export - f.o.b. Value Grand Total Fresh Agricultural Produce -Total Field Crops* Vegetables Flowers** Fruit Citrus Livestock Products Seeds Timber Processed Produce -Total Meat and Fish Products Fruit and Vegetables Products Sugar and Sugar Products Cereals Others*** 446 34 175 26 29 182 100.0 7.6 39.2 5.8 6.5 40.8 1,228 782 89 159 221 81 134 22 76 100.0 11.4 20.3 28.3 10.4 17.1 2.8 9.7 % Import - c.i.f. Value 2,118 958 509 36 6 88 0 131 19 169 1160 184 144 158 92 582 100.0 53.1 3.8 0.6 9.2 0.0 13.7 2.0 17.6 100.0 15.9 12.4 13.6 7.9 50.2 %

Source: Rural Planning Authority, Ministry of Agriculture and Rural Development *Imported field crops include grains, raw cotton and tobacco ** Flowers include propagation material ***Others include tropical products, such as coffee, cocoa and tea, alcoholic beverages etc.

As already mentioned Israeli fresh agricultural exports are based on four groups of produce: vegetables, fruit, including citrus, flowers and field crops. Flowers and ornamental plants

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production has become the most important item in the agricultural fresh exports replacing traditional citrus as a main export branch of Israeli agriculture. High levels of technology, together with direct contact with markets, mostly auctions in Netherlands and continuous adaptation of supplied products, representing new varieties, to the European consumer taste, have strengthened the position of the Israeli farmer on the international flower market. Table 15: Main Fresh Agricultural Products For Export, 1999 (US$ Millions, at 1999 prices, f.o.b.) Product Vegetables Tomatoes Pepper Potatoes Melons Fruit Oranges Grapefruit Table Grapes Avocado Dates Flowers* Roses Gypsophila Ornamental Plants and Seedlings Field Crops Cotton Fiber Groundnuts Source: Central Bureau of Statistics *Millions of units 41.3 12.8 21.8 13 37.9 21.2 34.2 468.8 154.7 14.3 34.8 13.7 40.2 16.1 99 146.9 6.7 25.5 5.0 17.1 27.0 30.6 14.3 7.3 15.9 68.3 16.6 Value Thousands Tons

Development of fresh agricultural exports started in Israel, apart from citrus, as a result of overproduction. However, due to long-term policy, farmers efforts, expansion of marketing facilities, a trend of specialization has taken place. Table 16 shows that export play a significant role in many agricultural branches.

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Table 16: Agricultural Exports as % Of Total Branch Production, 1999 Branch Field Crops Vegetables Citrus Other Fruit Flowers Seeds and Seedlings Livestock Source: Central Bureau of Statistics % 37.3 18.5 55.7 16.3 73.7 27.0 2.9

Most fresh agricultural exports are directed towards European markets, in particular to the European Union with which Israel has a long-term trade agreement. Table 17: Agricultural Exports according to Country of Destination, 1999 Region and Country Total Agricultural Export European Union thereof United Kingdom Netherlands Germany France Benelux Spain Turkey Japan United States Rest of the World Source: Central Bureau of Statistics US$ Millions 782.3 596.0 120.0 194.1 62.3 71.8 36.1 32.7 36.7 17.2 44.4 88.0 % of total 100.0 76.2 15.4 24.8 8.0 9.2 4.6 3.6 4.7 2.2 5.7 11.2

Export of agricultural inputs is based mostly on Dead Sea minerals used as fertilizers as well as on the chemical industry of pesticides and herbicides. Both sectors represent 68% of agricultural inputs exports. Other items exported are the result of agricultural development in

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Israel, which has been a laboratory and testing ground for irrigation systems, agricultural equipment and know-how. Table 18: Export of Agricultural Inputs, 1999 (US$ Millions, at 1999 prices) Branch Total Fertilizers Pesticides and Herbicides Irrigation Equipment Seeds, Seedlings and Propagation Material Plastics Equipment and Machinery Livestock Feed and Supplements Other Source: Israel Export Institute Value 1,545 719 332 244 90 35 48 50 27 % of total 100.0 46.5 21.5 15.8 5.8 2.3 3.1 3.2 1.7

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Agricultural Economics
Prices In 1999 the agricultural sector experienced a severe deterioration in terms of trade, which expressed the relations between the agricultural input price index and the index of agricultural output prices. If the comparison is further extended to consumer prices changes measuring the purchasing power of the population, the situation of the agricultural sector in 1999 declined significantly, as can be seen in Table 19: Table 19: Output, Input and Consumers Prices, 1999 (Annual Change in Percentage) Output prices Total Agriculture Horticulture and Field Crops Livestock Consumer Prices* Source: Central Bureau of Statistics *Annual average Water represents one of most important inputs in crop production. However, the Government reduction of the subsidies to water, increased substantially water costs to the farmer. During the last decade the real water price to the agricultural producer rose by 21% whereas the output prices dropped by 44% (deflated by inflation index). 1.1 3.5 -1.7 5.2 Input Prices 6.2 7.8 3.2 5.2 Terms of trade - 4.7 - 4.0 - 4.7

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Table 20: Water and Output Real Prices Index (1988-1999) Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: Central Bureau of Statistics *Output of Horticulture and Field crops only Water 100 92 94 105 120 116 108 110 111 120 120 121 Output * 100 92 85 80 73 70 70 62 58 56 57 56

Prices received by producers of selected crops and livestock products are presented in Tables 21 and 22. The prices are calculated as annual averages and include returns from the domestic as well as foreign markets.

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Table 21: Producer Prices of Selected Horticulture and Field Crops, 1999 US$/Ton, at 1999 average annual price Vegetables Edible Tomatoes Potatoes Melons Strawberries Field Crops Wheat Cotton Fiber Groundnuts Fruit Oranges - Shamouti Grapefruit Apples Table Grapes Avocado Apricots Dates Flowers* Roses Carnations Gypsophila 82 80 147 312 248 646 1038 886 982 2243 251 1379 1214 346 334 443 1664

Source: Rural Planning Authority, Min. of Agriculture and Rural Development *Thousands of units

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Table 22: Producer Prices of Selected Livestock Products, 1999 Product US$/Ton, at 1999 average annual price Meat Broilers Meat Turkeys Meat Goose Liver Beef Sheep Milk Dairy Milk* Sheep Milk* Eggs** Source: See Table 23 *Thousands liters ** Thousands units Productivity The term overall productivity used in this chapter is the relation between an agricultural output in a given period and one unit of all inputs (intermediate and factors of production) employed in producing that output. The productivity in this meaning is therefore the change in output, which is not explained, by the changes in inputs. In spite of large annual variations, the long-term productivity trend measured by an index of cumulative changes in the last decade shows an increase of 26% in overall productivity of the agricultural sector. 333 684 68 997 1,043 31,053 1,636 3,781

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Table 23: Overall Productivity in Agriculture, 1989-1999 Year Annual change (%) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 10 years Average 2.73 9.90 -0.07 6.02 -2.05 0.48 7.34 4.76 0.05 2.13 -4.56 2.33 100 110 110 117 114 115 123 129 129 132 126 Index of cumulative change

Source: Economic Department, Agricultural Center

Income of Employed in Agriculture As shown in Table 7, during the period 1989-1999 employment in agriculture underwent structural changes. The number of self-employed farmers decreased and number of hired workers increased in a very significant way. In the same period the income of self-employed farmers fluctuated strongly. In 1999, the income of self-employed farmers was only higher by 5% than that of hired workers, but it should be noted that this was an extremely severe year for agriculture, in particular due to water shortage.

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Table 24: Total Income and Number of Self-employed Farmers Year Total Income US$ Millions at 1999 prices 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: Central Bureau of Statistics Note: Total income refers to total payments received by self-employed farmers for self-labor and returns to owners capital and loans. Table 25: Average Monthly Income per Agricultural Employee 1989-1999 (US$ at 1999 prices) Year Self-employed Hired Worker Relative Farmer 1 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1,727 2,009 2,009 2,218 1,679 1,952 2,142 1,981 1,814 2,307 1,286 2 1,194 1,266 1,341 1,329 1,266 1,516 1,298 1,322 1,343 1,244 1,218 Income 3=1/2 144.7 158.7 149.8 167.0 132.6 128.8 165.0 149.8 135.1 185.4 105.6 1,184 1,014 990 1,039 870 1,014 773 870 749 604 531 628 362 100.0 85.7 83.7 87.8 73.5 85.7 65.3 73.5 63.3 51.0 44.9 53.1 30.6 53,200 48,500 48,000 43,600 38,000 38,100 37,700 37,300 28,400 23,900 24,400 22,800 22,800 100.0 91.2 90.2 82.0 71.4 71.6 70.9 70.1 53.4 44.9 45.9 42.9 42.9 Index Self-employed Farmers Index

Source: Summary of Development in Agriculture 1999, Agricultural Center

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Interest Rates High real interest rates prevailing in the Israel economy are supported by the Central Bank (Bank of Israel) policy to keep inflation rate as low as possible. This policy is based on a long experience of the Israel economy, which has suffered from long periods of high inflation. Many private firms could borrow capital at less expensive rates of interest abroad. However, the farming sector, which is composed of a large number of small productive units, could not benefit from these facilities and has to apply to the local financial market for capital. As a result, the agricultural sector pays considerably high interest payments. In 1998, according to estimates of the Agricultural Center (the major organization of Israeli farmers) 5.9% of the value of agricultural production was paid as interest. Table 26: Interest Rates on Commercial Credit in Israel, 1987-1999 Year Current Interest Rate (%) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: see Table 25 *Annual cumulative rate (December 99 /December 98) 61.0 42.0 31.7 26.5 26.6 20.0 16.3 17.0 20.3 20.7 18.7 15.9 16.0 Inflation Index* (%) 16.1 16.4 20.9 17.6 18.0 9.4 11.2 14.5 8.1 10.6 7.0 8.6 1.3 Real Interest Rate(%) 38.7 22.0 8.9 7.6 7.2 9.7 4.6 2.2 11.3 9.1 10.9 6.7 14.4

Economic Account of Agriculture In 1999, the total value of agricultural production reached almost 3.2 billion dollars of which about 20% were direct exports. As the majority of exports come from crops, the share related only to horticulture and field crops was, of course, much higher about 33%. Livestock production was mostly directed towards the domestic market and local industry. Both destinations represented about 38% of total production value.

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Table 27: Agricultural Output by Final Use, 1999 Final Use Value of output - total Local direct consumption Thereof Horticulture and Field Crops Livestock Indirect local consumption (industry) Thereof Horticulture and Field Crops Livestock Fresh Export Thereof Horticulture and Field Crops Livestock Intermediate Produce and Miscellaneous Source: Central Bureau of Statistics US$ Millions, % of total at 1999 prices 3279 1209 872 337 1064 123 941 652 611 41 354 100.0 36.9 26.6 10.3 32.4 3.8 28.6 19.9 18.6 1.3 10.8

Table 28 Output, Input and Domestic Product in Agriculture, 1997-1999 (US$ millions, at 1999 prices) 1997 1.Total output Horticulture and Field Crops Livestock 2.Total Input Purchased Input Depreciation GDP - Gross Domestic Product 3. NDP - Net Domestic Product (1-2) 4.Compensation and other receipts 3,347 1,882 1,466 2,126 1,871 254 1,476 1,221 83 1998 3440 1925 1515 1993 1726 267 1713 1421 82 1529 1999 3279 1813 1466 2026 1746 280 1532 1253 82 1335

5.Income Originating in Agriculture (3+4) 1,305 Source: Central Bureau of Statistics

As seen in previous Tables, 1999 was one of the worst years for agriculture in the last decade. Income originating in agriculture, which represents the returns to labor (self-employed and hired) and capital, declined in one year by 13%, in comparison to 1998.

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Intermediate Consumption However, the reduction in crop production in 1999 was not accompanied in a significant way by a decrease in outlays for inputs. Water continues to be the main cost element for crop producers and in spite of cutting water quotas in the same year, water prices still did not increase considerable. Therefore the total outlay for water remains around 19% of total input cost. Services and Government represent the various services required for farm management, such as financial and insurance services, different payments to the local government for municipal services, etc. Table 29: Cost of Inputs of Horticulture and Field Crops, 1999 US$ Millions, at 1999 prices US$ Millions Total Water Fertilizers Pesticides Transport and Spare Parts Fuel and Electricity Packing Materials Seeds and Seedlings Services and Government Source: Central Bureau of Statistics 921 177 78 93 112 107 119 105 130 % 100.0 19.2 8.5 10.1 12.2 11.6 12.9 11.4 14.1

The main component of inputs required for livestock production is grains for feeding, which are mainly imported. In 1999 this item represents 62% of total purchased inputs for the livestock branch.

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Table 30: Cost of Inputs of Livestock, 1999 (US$ Millions, at 1999 Prices) Value Total Feed Consumption Chicks Transport and Spare Parts Fuel and Electricity Services and Government Water and Packing Materials Source: See Table 29 908 566 128 50 40 102 22 % 100.0 62.3 14.1 5.5 4.4 11.3 2.5

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Food Consumption
According to systems introduced by F.A.O., a worldwide food balance is calculated in order to follow the changes in composition of the main nutrients consumed by various populations as well as to evaluate the total calorie intake. The World Health Organization has recommended minimum quantities of proteins, fat and calories required for the human body. Figures collected in Israel during the period 1960-1999 show a continuous increase in the daily intake of major nutrients per capita placing Israel among the most developed countries. Table 31: Food Balance - Calories and Nutrients, 1960-1999 (Per capita per day) Year Calories Index Protein (grams) 1960 1970 1980 1990 1999 2772 2988 2979 3089 3543 100 108 107 111 128 85.1 91.5 92.2 97.4 105.3 100 108 108 114 124 Index Fat (grams) 86.7 104.3 111.5 117.6 133.7 Thereof: animal origin 27.9 38.3 38.7 42.6 44.3 fat 100 120 129 136 154 Index Total Animal origin 100 137 139 153 159

Source: Statistical Abstract of Israel 2000, Table 11.11

These changes represent also the structure of the Israeli food basket, which is similar in many aspects to those of other Mediterranean countries. The main features of the food consumption in this region are a high intake of fresh fruit and vegetables.

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Table 32: Food Consumption by Main Commodities, 1999 (Per capita) Commodity Cereals Wheat Rice, millet Potatoes and Potato Flour Sugar Vegetables Fresh Fruit Oils and Fats Butter Margarine Source: see Table 31 0.8 5.2 104.9 9.6 43.4 43.0 186.8 102.5 kg per year Commodity Meat Beef, fresh and frozen, carcass weight Poultry, slaughtered Eggs Fish Milk and Dairy Products Cows Milk Cheese 61.9 15.9 16.1 56.7 14.6 13.4 Sheep and Goats, carcass weight 1.2 kg per year

The average food basket cost per capita in 1999 reached US$1,658, 60% of which was spent on four groups of commodities: meat and meat products, flour and cereals products, milk and sugar and their products. Table 33: Annual Outlay for Food 1999 (At 1999 prices, per capita) Commodity Total Processed Fruit and Vegetables Tea, Coffee and Cocoa Sugar and Sugar Products Fresh Vegetables Fresh Fruit Edible Oils Milk and Milk Products Eggs Fish Meat and Meat Products Flour and Cereals Products Source: Central Bureau of Statistics US$ 1658 157 79 187 122 147 39 241 34 78 288 287 % of total 100.0 9.4 4.7 11.3 7.3 8.9 2.3 14.5 2.0 4.7 17.4 17.3

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Summary of 2000
General Background
The developments, which took place in the 2000, reflect the long-term changes occurring in the position of Israel agriculture in the national economy. There was a further decrease in the share of agriculture in the main macroeconomic indicators: Table 34: Agriculture in National Economy (% of total) 1999 Gross Domestic Product Employment Investments Water Use Exports** *Updated **Fresh Source: Central Bureau of Statistics; Water Commission 1.8* 3.3 1.5 60.9* 3.0* 2000 1.6 3.0 1.3 53.6 2.2

Calculated in real prices of the year 2000, the value of agricultural output was US$ 3,377 million, which was 0.3% higher than in 1999. The number of employed in agriculture decreased from 79,600 in 1999 to 75,400 in 2000. However, the number of self-employed farmers increased from 22,800 to 24,500 whereas the number of agricultural workers declined from 56,800 to 50,900. These developments reflect the growing difficulties to find employment opportunities outside the farm. The use of water by the agricultural sector declined from 1,264 million cu.m. to 1,063 million cu.m (-15.9%), of which fresh water supplied to farmers decreased from 842 million cu.m to 702 million cu.m. The average monthly income amounts to US$ 1,209 per employed person in agriculture. This figure is equal to 57% of an average salary in the national economy. Nevertheless, it should be pointed out that most of employed in agriculture are part-time farmers and an additional income is earned in non-agricultural activities. The Gross Investment in agriculture in the year 2000 reached US$ 694 million of which US$ 463 million represent investments in on-farm assets and US$ 231 million investments in off-farm infrastructure. Calculated in fixed prices and updated figures for 1999 these data represent a decrease in capital outlay in the sector. The decline in investments directed towards greenhouses and citrus orchards constituted a major factor in this development.

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Agricultural Production
The changes in agricultural production as a result of severe draught caused further restrictions on water quotas available for the sector. These constraints have affected horticulture and field crops, such as cotton and vegetables. Flowers production decreased, too, by 240 million units (-16.8%). The output prices of horticulture and field crops, calculated in fixed terms, decreased in 2000 by 3.2%. The situation in livestock production was different: the volume of poultry production for meat increased but milk and eggs production slowed down. The output prices of livestock dropped slightly by 0.3%. Table 35: Agricultural Production of Israel by Branch (at 2000 Prices) US$ Millions Total Value of Production Horticulture and Field Crops Total Vegetables Flowers and Ornamental Plants Citrus Other Fruit Field Crops Other Crops Livestock Total Poultry Dairy and Beef Sheep and Goats Fish Other livestock Source: Central Bureau of Statistics3,376.8 1,844.2 604.9 194.1 207.2 522.9 228.2 86.9 1,532.6 659.1 588.8 104.5 115.4 64.8 % 100.0 54.6 17.9 5.7 6.1 15.5 6.8 2.6 45.4 19.5 17.4 3.1 3.4 1.9

Export
As a result of these developments the volume and share of fresh exports in the total agricultural production declined. During the three last years the share of exports went down from 20.6% in 1998 to 19.9% in 1999 and 17.5% in 2000. There were no significant changes in the share of various crops in the export structure. However, some exported products mentioned above noted a decrease due to price or quantities decline. The main export items are presented in Table 36:

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Table 36: Agricultural Exports, 2000 Branch Total Vegetables Flowers Citrus Other Fruit Thereof Avocado Seeds and seedlings Fields Crops Thereof Cotton Fish Livestock and Livestock Products Source: Central Bureau of Statistics US$ Million f.o.b. 702 152 191 92 86 40 73 89 56 6 13 % 100.0 21.6 27.2 13.2 12.2 5.7 10.4 12.7 7.9 0.9 1.8

The foreign trade balance of agricultural fresh and processed produce in 2000 showed a deficit of US$ 979 millions. However, the deficit in the trade of fresh produce was only US$ 317 millions. As in previous years, this gap between export and import was the result of importing cereals (US$ 500 millions), which due to water shortage are not grown in the country. It should be noted that the share of fresh export represented 61.4% of the total export of the agricultural sector, including processed products. The export of agricultural inputs amounted to US$ 1,440 millions. The share of fertilizers, pesticides and herbicides increased to 70.1% of the total value of exported inputs.

Agricultural Policy
Government support to the agricultural sector amounted in 2000 to US$ 169.7 million. This figure represented 5% of agricultural production value. The long-term trend in Government policy is towards a sharp decline in the overall subsidies to the sector. The two most important items, which represent public support to the sector, are: the development budget, which assists farmers in investing in production assets (US$ 32 million) and the use of water (US$ 65.7 million).

Research & Development

The high technological level of Israeli agriculture is attributed to the achievements of R&D activities, largely undertaken by the public sector. In 2000 the overall expenditure for R&D amounted to US$ 69.4 million. The Ministry of Agriculture and Rural Development plays in this area a dominant role through the responsibility for the Agricultural Research Organization

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(ARO), the most important complex of agricultural research institutes in the country. Government expenditure for R&D activities coming via the Ministry of Agriculture and Rural Development represents 64.1% of the total budget for this purpose. The remaining funding come from various institutions and is based mostly on bi-national agreements, which aim to develop R&D activities of mutual interest to two countries that established the fund. Nevertheless, it should be noted that the farmers too, through their professional organizations and marketing boards participate in financing agricultural research. They contributed in 2000 US$ 16.2 million to the overall expenditure for this activity (24% of total) During the last fourteen years the share of R&D in the agricultural GDP increased from 3.3% in 1986 to 4.6% in 2000. The objectives of the research and development activities for the current period are defined as follows: 1. Increasing an efficient use of water and the use of effluents 2. Water recycling 3. Restraining the use of chemicals and environmental protection 4. Promoting organic agriculture 5. Developing equipment and machinery in order to limit the need for seasonal workers 6. Development of new crops for local and exports markets 7. Improving the quality of agricultural products

Rural Communities
The rural population represents 8.6% of the total population of Israel. However, employment in agriculture occupies only 14.5% of the total manpower living in rural areas. The remaining employed people are engaged in various economic activities, such as industry, construction and transport (26.7%), tourism and commerce (13.4%) and services. Difficulties in the agricultural sector forced the need to look for alternative sources of employment in the non-agricultural sector. One of the major activities developed to face this challenge was the creation and expansion of tourism facilities in rural communities. During the last decade these efforts resulted in a very rapid increase in number of rooms offered to tourists. The tourism industry in the rural area is composed of B&B accommodation in the villages themselves as well as youth hostels, hotels and resorts located in rural regions. The total numbers of rooms available for tourists have reached 13,047 and the number of employed people in the industry is estimated to be 5,000.

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