Agricultural production centers on three main farm types, the large-scale collective kibbutz, the cooperative family farm and private holdings. Farm sizes range from an average of about 1,000 hectares on the kibbutz to fewer than 10 ha on private land.
Agricultural policy. Beginning in 1990, the Israeli government began to cut back its involvement in agriculture by reducing production subsidies and moving toward private-sector systems for domestic trade and grain and oilseeds imports. But the government still exercises control in some areas, as flour and some bread prices remain regulated and grain import sources are monitored.
Flour milling. Israel has 20 flour mills, and all are private, family owned facilities, operated mostly by third generation millers. The largest company operates two mills, but most companies operate only one.
Most mills are at least 30 years old. Although automation is widespread, computerized process control is being introduced slowly.
Milling in Israel is extremely competitive, and mills generally decline to divulge their capacities. Even so, millers concede that the industry overall is plagued by excess capacity.
Mills representing more than 90% of total capacity are members of the Israel Association of Flour Mills. This organization is very active in the milling industry because the government, despite recent liberalizations, still plays a large role.
Until 1990, the government allocated wheat through a quota system, calculated on each mill's market share. Under market liberalization, quotas were eliminated, wheat prices were deregulated and domestic and import wheat trade was placed in private hands.
But the government did not deregulate flour prices, leading some millers to call the 1990 action a "half way" liberalization. Consequently, millers, through the milling association, are in nearly constant negotiations with the government over flour prices, depending on the direction of wheat prices.
In establishing the flour price, the government views a margin of about 3% as "adequate" for the mills. Millers compete for business through other services, such as terms of payment or free deliveries.
Even though all flour prices are controlled, only "basic" bread prices are controlled, so bakers are able to buy flour at controlled prices and expand profits in "non-basic" bread production.
Although importing of wheat was moved to the private sector in 1990, the government still controlled import sources for milling wheat through licensing. Because Israel has a long-term commitment to buy 1.6 million tonnes of U.S. grain annually, U.S. wheat comprised nearly 100% of Israel's milling wheat imports until 1995.
When the U.S. declined to include Israel in the its Export Enhancement Program of wheat export subsidies, the Israeli government in September 1995 began to approve wheat import licenses from any source, as long as mills bought 30% of their needs domestically.
Since then, Israeli mills have imported some wheat from non-U.S. sources, mainly in eastern Europe, but quality is reported to be irregular. Because Israeli millers are prohibited from adding anything to the flour, consistent wheat quality is critical. To satisfy bakers, some millers have begun to produce premixes, to which improvers may be added.
Some mills import wheat individually, but others have pooled resources. After arrival in port, wheat is moved by truck to the mills or by rail to intermediate storage, then by truck to the mill.
Some millers expect to see rationalization within the industry over time, particularly given existing overcapacity. The changing political environment also is likely to affect Israeli milling.
Currently, a large market for Israel's flour exists in the autonomous Palestinian Authority, but it is unclear whether or how long that market may remain. Agreements allow the P.A. to import wheat, coarse grains and flour from any source.
Reports have surfaced that the P.A. is building at least one flour mill in Gaza, and flour could be purchased from other producers. Some Israeli millers think the industry will need to locate new export markets.
Feed and livestock. In the feed industry, six companies account for 63% of production; the largest has an annual capacity of about 350,000 tonnes. Of the 2.2 million tonnes of mixed feed produced in 1994-95, 1.4 million was for poultry, the primary product of Israel's livestock industry.
The feed industry is highly competitive, and as a result, mixers are constantly seeking least-cost formulations. In 1991, low-cost feed wheat induced ration formulations with as much as 30% wheat, while lower fish meal prices in 1993 and 1994 bumped other meals from the rations.
The poultry sector historically has been highly segmented, with production, processing and marketing conducted by separate private entities. Heavy government involvement, including subsidies and production quotas, enabled this system to survive.
Government control over the industry began to diminish in 1990, when subsidies and price controls on poultry products were reduced. The government also began to take steps to remove the production quotas.
This liberalization is expected gradually to remove inefficient producers and stimulate consolidation and vertical integration, although movement in this direction has been rather slow to date.
According to the trade, the process may continue for five to seven more years, at the end of which the poultry industry will consist of perhaps up to 10 companies or groups, some of them cooperative integrations and some privately controlled.
In light of the competition that should develop, the industry will not be able to continue to produce at a feed conversion ratio of 2.3 to 2.4, but will need to achieve rates of 1.9 to 2.0. This conversion rate, at the forecast production levels, should lead to a reduction of approximately 75,000 tonnes of compound feed required per year.
As with wheat and flour, the Palestinian Authority currently is a market for Israel's feed mills. But over the medium term, Palestinians are likely to shift from Israeli suppliers to their own importers and feed mixers.