Middle East

Israeli dairy farmers voice fears at government reforms

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Media captionMany of Israel's 900 dairy farmers are being pushed to the brink of bankruptcy

After protests about high living costs - including the price of dairy products - the Israeli government intervened in the market, lowering import barriers. Many farmers are now worried for their futures, as the BBC's Philip Hampsheir found when he visited a dairy farm near Nazareth for Middle East Business Report.

There is a metallic click high in the rafters of the cowshed. Two-metre-wide (6ft) electric fans begin their hum.

At the other end of the complex, small water nozzles begin spraying a fine mist into the air.

It is the hottest part of the day on this farm outside Nazareth.

The cows swagger back and forth between the light shower and the artificial breeze to keep themselves cool.

The farm belongs to Jonathan Aril. Government-backed reforms in Israel's dairy industry mean he has had to invest in technology.

It is an investment that has caused him to build up a large amount of debt.

"We've just been through a decade of reform. Thirty percent of the dairy farms in Israel have closed down," Mr Aril says.

"We had to invest heavily in new buildings, new equipment, more cows. So we're all very heavily in debt."

Israel's dairy farmers have become an important national issue.

This summer, hundreds of thousands of protesters took to the streets to complain about the high cost of living.

Opening up the market

Image caption Farmer Jonathan Aril says he has invested heavily in technology in an attempt to survive

The initial spark was the surging price of cottage cheese.

To calm the protests, the government intervened in the market. Import barriers were lowered. Many farmers worry they may go bust.

"All of a sudden, the government comes along and says 'right - we're going to cut your price by 30%'," Mr Aril says.

"My overheads are the same. If I have to take a cut, there's no way I can survive."

For farmers, many costs - like land, water and electricity - are in part state set. Production quotas come from the Israeli Dairy Board.

The government wants to lower Israel's high cost of living. Liberalising the market is its preferred route. Cheaper imports should cause prices to fall.

But that is a recent change of heart. The last part of the decade-long dairy reform was a law that only came into effect on 6 October of this year.

The Israeli Dairy Board is now using the government's own law to bring a court case and stop the lowering of tariff barriers.

"The law says we can import only if production is not sufficient to meet consumption," says Dr Tova Avrech, senior manager at the Israeli Dairy Board. "This is not the situation."

At issue is a difference of approach between government ministries.

'Prices marked up'

The Ministry of Agriculture has worked to change the law and modernise the dairy farmers, while the Ministry of Finance is behind the latest push to lower Israel's tariff barriers.

Image caption Mr Yashiv says there are too few companies involved in the processing part of the market

"We have a unique dairy sector," Dr Avrech says. "It's all planned. By unilaterally opening the market to imports, we don't know how much to ask local farmers to produce for next year."

But not everyone thinks that the high price of milk and cheese in Israel's supermarkets is due to the farmers or government policies.

Economist Eran Yashiv at Tel Aviv University says it's the limited number of companies in the processing part of the market that are responsible.

According to him, they have marked up prices too much before passing their finished products on to the supermarkets.

"In this market, there are three major producers of dairy products," he says.

"They've just lowered their prices by 15% in response to consumers getting ready to boycott their products."

When the largest of the dairy produce companies, Tnuva, agreed to slash prices, the chairman stepped down.

Tnuva controls 70% of the market. Its main rivals quickly followed suit and cut prices too.

The argument over why the price of milk and cheese is so high is spilling over into unusual parts of the economy. Dairy farmers have found unlikely allies in the textile industry.

Ramzi Gabbay is executive chairman of Offis Textiles. He says the situation the dairy farmers find themselves in now is exactly what his industry has already been through.

"Twenty years ago, the textile industry had 50,000 workers," Mr Gabby says. "The government decided to open the market by lowering duties for countries in East Asia. The industry of Israel step by step disappeared."

"Today, we have just under 7,000 workers in the textile industry in Israel. Those that remain work in companies that have had to invest heavily in technology in order to survive."

'Won't come back'

Image caption Those in the textile industry say it has suffered similar problems

And that is why the finance ministry is making its push to lower tariff barriers: while it is true the number of workers in textiles is lower, the companies left are more efficient. Historically, that has been a path to economic growth.

Back on Jonathan Aril's farm, he is less sure.

The reforms the industry has already been through mean the farmers have already invested to improve efficiency.

There are also other differences in the dairy industry that may mean usual market reforms do not lead to lower prices.

Israel's neighbours - Jordan, Egypt, Lebanon and Syria - are not big milk producers or consumers. So free trade would likely be with the European Union.

It would also be one way - with Israel taking imports but without the ability to easily export into those markets.

"With the cost of bringing the milk from overseas, we may not even see prices in supermarkets fall," Dr Avrech says.

"While the market decides and adjusts, we will see more Israeli farmers go out of business. Once gone, they won't come back."

All this complexity means the row over Israel's milk is likely to roll on.

Public hearings are scheduled to discuss whether the tariff barriers will stay down or not.

With the cost of living in Israel still high, they will have to weigh the price of this summer's protests against the true price of cheese.

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