Israel- Exporter Guide 2012

An Expert's View about Business Environment in Israel

Posted on: 11 Jan 2013

The Israeli economic slowdown, a strong dollar, and a reduction in U.S. corn exports combined with a good grain harvest in the countries of the Former Soviet Union have slowed imports.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 12/27/2012 Israel Exporter Guide Approved By: Jonathan P. Gressel Agricultural Minister Counselor U.S. Embassy, Cairo Prepared By: Gilad Shachar and Mariano J. Beillard Report Highlights: This report provides updated information for U.S. companies exporting food and agricultural products to Israel. The report highlights import custom duties changes signed into effect in July 2012, which may benefit a number of U.S.-origin products. However, where the United States has a tariff-rate quota these changes may erode trade preferences granted under the U.S.-Israel Free Trade Agreement. Best prospects for U.S. exports include grains, oilseeds, dried fruits, all kinds of tree nuts, and prepared food products. Israel’s imports of U.S. agricultural products may fall in 2012 to $560 million, a drop of 27 percent. The Israeli economic slowdown, a strong dollar, and a reduction in U.S. corn exports combined with a good grain harvest in the countries of the Former Soviet Union have slowed imports. Section I: Market Overview Economic and Demographic Situation Israel is a parliamentary democracy of 7.7 million people, of which 75 percent are Jewish (5.8 million) and 20 percent Arab (mainly Muslim). Israel hosts some 200,000 Southeast Asian guest workers. Israel’s population growth rate is 1.8 percent. Israel is a sophisticated, industrialized country with a diversified manufacturing base. However the global economy’s weakness and economic malaise in the European Union (EU), Israel’s main export market are contributing to an economic slowdown. The recession in the EU has slowed demand for Israeli exports and contributed to an increase in Israeli unemployment (currently 6.5 percent). Sources indicate that the global economy’s sluggishness will not undermine Prime Minister Benjamin Netanyahu (Likud) and his coalition of right-wing and religious parties going into the January 2013 Knesset elections. Netanyahu enjoys a comfortable lead despite Israel’s EU trade ties leaving it vulnerable to European financial difficulties. The EU and the United States account for one-third and one-quarter of Israel’s trade activity. Israeli policymakers are estimating gross domestic product (GDP) growth of 3.3 percent in 2012 and forecasting 3 percent growth in 2013 (see, table 1). Israel’s GDP real growth rate is retreating from the 2011 level of 4.7 percent, due to EU economic and financial problems. Current growth assumptions are premised on the EU succeeding in pulling itself out of the current economic doldrums. Table 1: Main Economic Indicators, Israel, Percentage Actual 2011 2012 2013 Forecast Estimation GDP 4.7 3.3 3.0 Civilian Imports 8.9 3.8 5.9 (excl. diamonds, ships, and aircraft) Private Consumption 3.7 1.6 3.2 Public Sector Consumption 3.4 1.5 3.1 (excl. defense imports) Exports (excl. diamonds and start-ups) 4.6 1.7 6.0 Unemployment Rate 5.7 6.8 6.7 Inflation Rate 2.5 2.8 2.2 Bank of Israel Interest Rate 2.9 2.25 2.25 Source: Bank of Israel High international commodity prices, along with an increase in the value-added-tax (VAT) to 17 percent (up 1 percent) as of September 2012, are exerting inflationary pressure on the Israeli economy. Israeli policymakers are attempting to hold inflation at 2.8 percent in 2012 with varying degrees of success. Although the New Israeli Shekel (NIS) has weakened against the U.S. dollar by 13.3 percent since January of 2012, it has now strengthened by 3.3 percent versus the euro (see, chart 1 and 2). Post finds that while this makes imports of U.S. agricultural and food products more costly, it also undermines the competitiveness of Israeli exports to the EU member states. ($1 = ~NIS 3.868 and €1 = ~NIS 5.004). Chart 1: U.S. Dollar to Israeli Shekel Exchange Rate Source: Bank of Israel Chart 2: Euro to Israeli Shekel Exchange Rate Source: Bank of Israel The Israeli Market, Food and Agricultural Products Israel is a modern, technologically advanced market economy. Over the past decade Israel has undergone major structural changes, shifting from a traditional manufacturing base to an export- driven high-technology base. Similarly agricultural production now accounts for only about 2.5 percent of GDP; employing 2 percent of the labor force compared to industry (16 percent) and services (82 percent) sectors. The Israeli agricultural sector remains dominated by the cooperative movement. The agricultural sector has sought to develop niche exporting capacities for avocados and exotic fruit along with cut flowers. While this has transformed Israel into a net importer of food, its food security is ensured by a combination of domestic production and trade with reliable commodity suppliers such as the United States. Best prospects for U.S. exports include grains, oilseeds, dried fruits, all kinds of tree nuts, and prepared food products. Israel’s imports of U.S. agricultural products may fall in 2012 to $560 million, a drop of 27 percent. Exports of U.S. agricultural products to Israel totaled $875 million in 2011. Leading categories include: coarse grains ($170 million), wheat ($146 million), and feeds and fodders ($106 million). United States imports of food and agricultural products from Israel totaled $284 million in 2011. Leading categories are Israeli snack foods (including chocolate) ($60 million) and processed fruits and vegetables ($25 million). Agricultural production is concentrated in the northern coastal plain, the central highlands, and the Jordan River Valley region. Sources estimate that roughly 20 percent of the land is cultivated. Israel’s agricultural potential is limited by water and weather pressures in addition to limited amounts of arable land. Agriculture subsequently has become more mechanized and intensive over the years. The Israeli agricultural sector however benefits from the Dead Sea’s salinity which contributes to substantial fertilizer reserves of potash and phosphate. Key Economic Developments in 2011 The Central Intelligence Agency (CIA) indicates that Israel has weathered better the global financial crisis (2008-09) and subsequent economic recession (2010) than most advanced, comparably sized economies. This is due to a combination of significant foreign investment inflows with tourism revenues and other service sector exports. Inflows in 2011 help to compensate for Israel’s large trade deficits that result from crude oil, coarse grains, raw materials, and military equipment imports. Israel grew at 4.8 percent in 2011 with a relatively low unemployment level of 5.7 percent. The Israeli economy benefits from strong fundamentals, prudent fiscal policies, and a resilient banking sector. Natural gas fields discovered off Israel’s coast in the past two years are brightening the country’s energy security outlook. Israel however experienced a number of public protests in mid-2011 over growing income inequality and rising commodity prices and housing costs. Israeli consumers compared to their counterparts in the other Organization for Economic Cooperation and Development (OECD) economies pay on average 10 to 20 percent more for food. Although the Israeli government has formed committees such as the Kedmi Committee to address some of these grievances, it refuses to engage in deficit spending to satisfy populist demands. Israel acceded to the OECD in 2010. The Kedmi Committee Report Israeli consumer protests in 2011 against high living costs, including basic foodstuffs such as cottage cheese, spurred the formation of the inter-departmental Kedmi Committee. The Ministry of Industry, Trade, and Labor (MITL) and the Israeli Treasury are joint members of this committee. The Kedmi Committee reviews prices and competition in Israel’s food and consumer goods industries. It has published several recommendations on regulation and competition in the Israeli food market. The Kedmi committee finds that Israel’s food and consumer industries are centralized, non- competitive, as well as generally consumer unfriendly. Reportedly high food prices are due to a combination of problematic supplier-retailer ties along with the over concentration of the supply and retail segments. A general lack of price transparency further compounds this situation. The Israeli Finance Minister on July 11, 2012, signed orders to reduce or eliminate customs duties and purchase taxes on hundreds of commodities, including food, electronics, and textiles products. This ministerial order adopts three of the Kedmi Committee’s January 2012 recommendations for the food industry: The gradual reduction of customs duties, over a four-year period, on products for which there is local production but for which duties are relatively high, such as, mutton, fresh and frozen poultry, sausages, and juices (see, GAIN Report Israel - Reduced Import Duties on Certain Food Products). Immediate reduction of customs duties on fresh-food products that are not manufactured locally, such as specific types of fish, flowers, herbs and nuts, dried fruits, seeds, mushrooms, and certain types of jams. Differential reduction of duties, over a three-year period, on a range of processed food, some of them raw materials used by local industry and some of them completed products used by consumers, such as starch, canned fish, halva, sweets, biscuits, ice cream, baking powder, bulgur and buckwheat. The Kedmi Committee report finds that Israeli consumers compared to counterparts in the OECD economies paid on average 10 to 20 percent more for food in 2008-2010. The report highlights that Israelis paid 10 to 20 percent less for food than the OECD average in 2005. However, local food prices have risen more rapidly since 2005 than in the other OECD developed economies. The Kedmi Committee concludes that this price escalation results from the lack of competition within the local food industry. The committee recommends a 40 to 100 percent reduction on import duties on food products for which no domestic competition exists. It calls for lowering duties on agricultural products for which current rates are excessive (e.g., fresh beef) and reducing duties on packaged goods such as tuna and fruit juice. Some of these recommendations are included in the new ministerial order. The report also proposes a series of measures for dealing with the over-concentration of the supply and retail sectors. These include removing barriers to market entry and encouraging existing small businesses. The Kedmi Committee report besides recommending reducing import tariffs, also counsels adopting U.S. and EU standards for import licenses. The Kedmi Committee report recommends instructing the country’s antitrust authority to review whether the acquisition of smaller food manufacturers by larger suppliers reduces competition. Israel has the OECD’s most over-concentrated supply sector in 16 out of 22 food categories. The report stresses that Israel’s two largest retailers hold a 64 percent market share since Shufersal’s 2009 purchase of Club Market – making the retail sector the fifth-most concentrated in the OECD. Private labeling, the branding of retailers’ food product purchases with their own label, affords small-to-medium size U.S. food exporters enhanced opportunities. The Kedmi report recommends that retailers with a market share of 25 percent or greater not be allowed to source product for their private labels from local food manufacturers commanding a market share of 30 percent or greater. The Kedmi Committee report concludes that retailers’ private label products typically cost consumers 5 to 10 percent less than national brand name products. This recommendation, if fully implemented could increase the competitiveness of U.S. food manufactures produced in accordance with Israeli private labeling requirements. Consumer Behavior, Tastes, and Preferences Post’s Findings: The 2011 consumer protests over high living costs are forcing local food companies and retail chains to cut prices. Consumers identify private labeling with lower prices, but nonetheless guaranteed product quality. Annual household consumption expenditure in 2011 totaled about $ 1,093 (up 1 percent from 2010), 16.3 percent or $6,713 is allocated for food purchases. Where do Israelis buy food? About 56 percent of Israelis recur to supermarket chains, 19 percent to grocery stores, 6 percent to open markets, and 20 percent make their purchases at other venues. Israeli consumers have become extremely health-conscious. Israelis are adopting a more balanced diet and increasing exercise levels. Kosher food products offer the greatest potential for U.S. exporters. Rising Food Prices The Ministry of Agriculture (MOAG) reported in August 2012, that the prices for basic food products will rise by the end of the year. Prices for dairy products are forecast to soar by 6 to 13 percent. While egg prices are expected to increase by 8 to 17 percent. Poultry will see price hikes ranging between 6 and 14 percent. Price increases are due to rising international commodities prices. Prolonged droughts in the U.S. Midwest, Russia, the Ukraine, Kazakhstan, Australia, and India are increasing prices for wheat, corn, soybean, sorghum, and feed stuffs. High international commodity prices, along with an increase in the VAT to 17 percent (up 1 percent) as of September 2012, will exert inflationary pressure on the Israeli economy. We foresee 2013 being a tough year for Israelis in terms of food costs. Competition: Israeli Imports of Agricultural and Food Products Israel’s import of agricultural and food products in 2011 totaled $5.4 billion, up $1.07 billion or 25 percent compared to the previous year (see, table 2). Improving local economic conditions in the first three quarters of 2011 strengthened Israeli demand for imports of agricultural and food products. United States exporters benefited throughout 2011 from the shortage of exportable grains from Russia and Ukraine, and a continued weak dollar along with good economic growth in Israel. Imports of U.S.-origin agricultural and food products reached $761 million, up 40 percent compared to 2010 levels. Similar imports from the EU increased at a slower pace of 12 percent, but still reached $1.89 billion. However, Post now estimates that imports from the United States in 2012 will drop to $560 million or by 27 percent. The anticipated drop is due to the Israeli economic slowdown combined with the strengthening of the U.S. dollar along with a reduction in U.S. corn exports and a good grain harvest in the countries of the Former Soviet Union (mainly Russia, Ukraine and Kazakhstan). Higher international commodity prices, combined with less competitive shipping rates from U.S. ports, will weaken demand for U.S.-origin commodities through 2012. Table 2: Israel Imports of Agricultural and Food Products, $ Million, CY US EU Total 2009 2010 2011 2009 2010 2011 2009 2010 2011 Live 15 31 47 115 192 193 544 712 1,003 Animals Vegetable 263 346 526 448 481 450 1,381 1,640 2,064 Products Animal and 4 4 4 61 59 78 137 142 186 Vegetable Oils Prepared 145 164 183 893 949 1,170 1,613 1,832 2,147 Foods Total 428 545 761 1,517 1,681 1,891 3,676 4,327 5,400 Source: Central Bureau of Statistics, Israel. The U.S.-Israel FTA and the ATAP This year, 2012, marks the twenty-seventh year of the U.S.-Israel Free Trade Agreement (FTA), which was the first FTA entered into by the United States. It continues to serve as the foundation for expanding trade and investment between the United States and Israel by reducing barriers and promoting regulatory transparency. The Agreement on Trade in Agricultural Products (ATAP) between the United States and Israel offers good export opportunities for U.S. agricultural and food products. However, the United States and Israel are renegotiating the current ATAP agreement to increase U.S. product competiveness in the Israeli market. The ATAP provides U.S. food and agricultural products access to the Israeli market under one of three different categories: unlimited duty free access, duty free tariff-rate quotas (TRQs), or preferential tariffs, which are set at least 10 percent below Israel’s Most Favored Nation (MFN) rates. Approximately 90 percent of U.S. agricultural exports (by value) enter Israel duty and quota free as a result of Israel’s implementation of its commitments under the World Trade Organization (WTO), the U.S.-Israel Free Trade Agreement (FTA), and the ATAP. Israeli Imports of U.S. Agricultural and Food Products Ninety percent of U.S. agricultural exports by value enter Israel duty- and quota-free due to Israel’s adherence to its WTO, U.S.-Israel FTA, and ATAP commitments. Unfortunately, the remaining U.S. agricultural export tariff lines (largely value-added consumer products) continue to face a complicated TRQ system and high tariffs. Israel’s TRQ system is non-transparent. Problems include the lack of quota fill-rate and license allocation data. Israel fails to provide information on small, non-commercially viable quota quantities. It also holds back issuing of within-quota licenses. Under the 2004 ATAP, Israel committed to improve the administration of TRQs, including engaging in regular bilateral consultations. However, the mid-year reallocation of unutilized quotas by the Israeli Quota Administration has so far failed to solve this problem. Negotiations on the new ATAP agreement are expected to be completed by the end of 2013. Israeli import requirements are relatively stricter compared to other developed countries. In addition, Israel is increasingly adopting EU standards and requirements on imports, which sometimes differ compared with the U.S. standards. Coarse grains and oilseeds, nuts, dried fruits, and prepared food products remain the key U.S. agricultural exports to Israel. Milling wheat, soybeans, and feed grains enter Israel duty-free. The U.S.-Israel FTA requires that most U.S. tree nuts and dried fruits located in Chapter 8 of the Harmonized Commodity Description and Coding System (HS) enter duty-free or under reduced tariff rates. Shelled walnuts and pistachios from the United States enjoy duty-free access. Exports of U.S.-origin beef face a difficult environment. Beside kosher restrictions there is beef ban due to veterinary restrictions. Lifting the ban on imports of live cattle, beef, and beef products is under advanced discussions. Competing FTAs 1. Israel-EU FTA Agreement on Agricultural Products and Processed Food Products: In November 2009 Israel and the European Commission signed a renewed and expanded FTA on agricultural products and processed food products. Under the proposed framework of the agreement, 97 percent of processed foods, imported and exported, are exempt from levies and quotas. Israel exports 75 percent of its fresh and processed agricultural products to the EU market. The agreement came into effect in January 2010. 1. Israel-India FTA: Israel is currently negotiating an FTA with India. India and Israel ended their fifth round of negotiations in August, 2012 in India. From 1992 to 2012 bilateral trade between the two countries experienced exponential growth, going from $180 million dollars to more than $5 billion. The bulk of trade is in chemical products, machinery, information, agricultural technology, and diamonds. India is one of Israel’s major trading partners. There is increasing interest from both states to extend cooperation to other sectors, including water, energy, information technology, and agriculture. 1. Israel-Mercosur FTA: Israel is the first country outside South America to implement a free trade agreement with the regional trade bloc. Brazil is Israel’s largest trade partner in Latin America. With the approval of this agreement, trade is expected to increase in agriculture, education, science, and medicine. The Mercosur-Israel agreement also contemplates animal and plant health measures, customs cooperation, safeguards and mechanisms to solve disputes, plus cooperation and technology transfer. 1. Israel-European Free Trade Association (EFTA): The FTA between the EFTA member states and Israel entered into force on January 1, 1993. The Agreement covers trade in industrial products as well as fish and marine products. Bilateral agricultural agreements concluded between the individual EFTA countries and Israel form part of the measures creating the free trade area. Total merchandise trade between EFTA and Israel amounted to $1.5 billion in 2011. Table 3: Advantages and Challenge for U.S. Exporters to Israel Advantages Challenges The Israeli economy grew at a rapid pace in Since the end of 2011, the pace of growth in 2011 (4.7 percent up) relative to other Israel has slowed. Israel's food and developed countries. The growth rate of per beverages market has shrank by 1.7 percent capita GDP was higher than the average in in the second quarter of 2012 compared to recent decades. the same period last year. Israel’s GDP is forecasted to grow by 3 percent in 2013, slowed by its trade partners’ economic and financial problems The security situation remains precarious. Israeli consumers’ eagerness to pay a premium Israel is a small market, only 7.7 million for brand-name imports. consumers. Israeli protests in 2011 over high living costs, The reduction or elimination of duties may including the high price of basic foodstuffs led benefit a number of U.S.-origin products. to the formation of the Kedmi Committee. One However, for products where the United of the committee’s key recommendations, the States has a tariff-rate quota this ministerial reduction or elimination of customs duties and order may erode trade preferences granted purchase taxes on hundreds of commodities under the United States – Israel Free Trade (including food), was approved by the Israeli Agreement. We anticipate increased Finance Minister on July 11, 2012. competition from the EU, Eastern Europe, the Former Soviet Union, Turkey, South America, and the Far East. The current exchange rate of the U.S. dollar The distance to market keeps U.S. shipping versus the euro still largely favors U.S. export costs high. Competition from Eastern sales. Europe, the Former Soviet Union, Turkey, and the Far East is fierce. The standard of living in Israel is expanding Israel is increasingly adopting EU standards rapidly, increasing the demand for high quality and requirements on imports. The Food food products. Service – Hotel Restaurant Institutional sector mainly buys kosher food products. About half of institutional customers require the “Mehadrin” or “Badatz” high-kosher certification. For most other markets, OU kosher certification is sufficient. Even though half of all Israelis do not regularly maintain kosher, most supermarkets and institutional customers demand the high- kosher certification to accommodate more religiously observant Jews. Strong consumer interest in new food products. Import requirements are strict, and new-to- About 3,000 new products are introduced to market products are sometimes detained at the local food market annually. port. Access for U.S.-origin beef and poultry products face SPS and non-tariff barriers (kosher requirements). Negotiations on the ATAP are expected to be In the past three years new agricultural completed in 2013. agreements were signed between Israel, the EU, and MERCOSUR, increasing their market access. India and Israel are also negotiating an FTA. Israel is a net food importer. Israel is highly As a result of the U.S. drought, corn exports dependent on grain and oilseed imports. to Israel have decreased significantly compared to 2011. Also the good grain harvest in the countries of the Former Soviet Union in 2011 has lowered demand for imports of U.S.-origin milling wheat. Section II: Exporter Business Tips Kosher Certification Except for beef and beef products, kosher certification is not an obligatory requirement for importing agricultural and food products into Israel. However, non-kosher products have a much smaller market share as the large supermarket chains, hotels, and institutional services refuse to carry them. Kosher requirements are becoming increasingly strict as the Israeli consumers demand high-level “Mehadrin” or “Badatz” kosher certification for their food products. Israel counts with about 300 (kosher and non-kosher) food and agricultural product importers. General Customs Procedures: Valuation and the VAT 1. Customs Valuation and Taxes: Israel has implemented the WTO Customs Valuation Agreement. Under WTO regulations, the basis for valuation is the transaction value, in most cases the cost, insurance, and freight (CIF) price. Israel's tariff classification is based on the Harmonized System (HS) Code. Israel’s Customs and Purchase Tax Tariff is the main instrument used for the classification of imported goods. The correct classification of goods is the key to determining correct duty rates. It is also utilized for obtaining authorizations, permits, licenses, and meeting all other conditions for the import of goods. 1. Value Added Tax: Israel increased its VAT rate on September 1, 2012, from 16 percent to 17 percent. The VAT is imposed on all products and services, with the exception of fresh vegetables and fruits. Venues and Consumer Trends The food service industry is expanding and consumers’ habits are changing. Israelis are increasingly opting to dine out more frequently and choosing premium food products. Approximately 20 percent of Israel's 7.6 million people are clustered in the Tel Aviv district, Israel's commercial and financial hub. Other major urban concentrations include the Haifa area (15 percent), a major port city and center for the petrochemical industry, and Jerusalem (12 percent). Most companies are headquartered in the Tel Aviv or Haifa metropolitan areas. Nonetheless a growing number of firms maintain branches, showrooms, or service facilities in Jerusalem and Beer Sheva. Israel does not have specific regulations applicable exclusively to foreign companies. Nevertheless there are important cultural and religious factors which foreign firms must consider, including kosher and Sabbath regulations. Sources indicate that Starbucks and Dunkin Donuts have met with limited success in Israel due to differences in consumer tastes and pricing issues. Locale ambiance is extremely important. An establishment’s management and product variety must be tailored to blend in with the local environment and consumers’ preferences. Consumer malls and shopping centers are popular in Israel. Over 200 malls exist and others are planned. American specialty shops, chain stores, and franchises have outlets in malls and shopping centers. When marketing to these venues, the key to success is offering a variety of new products that meet Israeli taste preferences. The institutional services, including the military, hospitals, hotels, restaurants, banquet halls and places of employment, account for 30 percent of the total market share (households and institutional). Over 50 percent of the total food supply directed at non-institutional consumers is sold through supermarkets and retail chains. Shufersal Ltd., (Super-Sal) and Alon Holding–Blue Square Ltd., are the two largest retail supermarket chains with hundreds of outlets throughout the country. Israel’s other major supermarket retail chains include Rami Levy Hashikma, Hatzi Hinam, and Tiv Ta’am (Israel’s largest retail producer and seller of pork and non-kosher products). The average floor size of a supermarket is 600 square meters. Some of the larger stores have areas of 1,000 - 2,000 square meters. Typical Middle Eastern-style open-air markets and small groceries serve the remainder of the food market. In recent years, specialty food stores have developed in all of the main metropolitan centers. Food Standards and Regulations See, GAIN Report – Israel FAIRS Country Report In the current report the following sections have been updated: Request for permission to import biotic material and heavy metals in foodstuffs New Ingredients that were approved/not approved by the Israeli Ministry of Health (MOH) for use in dietary supplements In 2011, the following food color additives have been forbidden for use in morning cereals (E127) Erythrosine and Indigo carmine (E132) New amendment to Mandatory Standard SI 373, honey and honey products Draft on the restriction to advertising and marketing of alcoholic beverages law, initiated by the MOH List of the requirements for importing medical food Updated import list of “sensitive” food products Updated import requirements for organic food and agricultural products Summary of all technical barriers to trade (TBT) notifications that Israel submitted to the WTO Approved plants and mushrooms for use in food and food additives Labeling regulations for food products containing genetically modified (GM) ingredients are expected to be implemented by the end of 2012. According to the proposed law, it is suggested that labeling will be only required for food products that exceed the 0.9 percent of the food ingredients considered individually or of the total ingredients. Sanitary and Phyto-Sanitary and Regulatory Systems Four agencies oversee Israel’s animal, plant, and food safety issues. These include: 1) the National Food Control Service (FCS), which is a part of the MOH; 2) the Standards Institution of Israel (SII); 3) the Israel Veterinary and Animal Health Services (IVAHS), and; 4) the Plant Protection and Inspection Services (PPIS). The latter two are agencies of the MOAG. Israel’s FCS is notorious for the requirements it places on high-value food products. Plant quarantine authorities have been slow to conduct their pest risk assessments (PRA) for U.S. requested products. Depending on the product, both the MITL and the MOAG may share responsibility for managing quota allocations under the United States – Israel FTA. The Standards Institute of Israel is responsible for product standards development, compliance testing, product certification, and industry quality assurance systems. The National Food Control Service enforces the food and food labeling standards. Israel is increasingly turning to EU standards and requirements to guide its food and food supplements legislation (see, GAIN Report IS1106 - FAIRS Country Report). We find that this action is causing United States and Israeli food regulations to diverge. The consequence of this is growing import licensing difficulties for U.S. processed food products and needless port-of entry detentions. The import of some U.S. product is now prohibited (e.g., beef and poultry products and a number of fresh fruit and vegetables). Post estimates losses to U.S. exporters and Israeli importers at $50 to $70 million per year. Israel is modeling its food legislation and standards on the European system due to: 1) the EU is Israel’s main trade partner; 2) Israeli regulatory agencies view EU legislation and inspection systems as more transparent than the U.S. system, and; 3) the substantial degree of Israel and EU regulatory agency interaction. After identifying a market opportunity, Post recommends that a U.S. company contact an experienced importer, an agent or a wholesaler. This entity will facilitate custom clearance procedures. The same will also advise the exporter on ways of complying with product specific regulations, such as labeling, packaging, import duties, and sanitary and phyto-sanitary (SPS) regulations. Most Israeli food distributors acquire imported products through an importer or an agent. Specialized importers and agents are often also distributors who count with warehousing and transportation operations. Some supermarket chains and large Food Service - Hotel Restaurant Institutional (HRI) chains may import directly. The Government of Israel requires that food and health products be registered with the MOH before they can be sold in the country. Food and Drug Administration (FDA) approval for food and health care products is not mandatory, but Israeli importers prefer it as it accelerates the product registration process and import license approval. Product registration normally takes from 4-6 weeks if all documentation is in order. Import Licenses With the exception of most agricultural and food products, all administrative import licensing requirements for U.S.-manufactured consumer and industrial goods have been eliminated under the U.S.-Israel FTA. In the case of products for which there is a TRQ, the MOAG or the MITL issues a license, which either totally exempts the bearer from duty or grants a reduction in customs duty on the quantity indicated in the license. Importers wishing to bring in goods without availing themselves of the TRQ are not required to obtain a license. All imported agricultural and food products must carry a health certificate or an import license for veterinary, phyto-sanitary or public health reasons. The Israel Veterinary and Animal Health Services, the PPIS, and the FCS of the MOH issue these licenses. Israeli law requires that all beef and poultry imports be certified kosher by the Rabbinical Council of the Chief Rabbinate. Exporter Business Tips Exporters that adhere to following recommendations will stand a better chance of success in the Israeli imported agricultural and food products market: 1. Obtaining a Certificate of Free Sale in the United States may ease the MOH import licensing procedures. 2. Given that Israel is adopting EU standards, U.S. exporters already familiar with the EU import requirements will have a better likelihood of success in gaining entry to the Israeli market. 3. Products certified as being manufactured under Good Manufacturing Practices (GMP) or HACCP will have greater ease of access to the Israeli market. 4. Listing on the FDA’s list of registered facilities is viewed favorably by Israel’s import licensing authority. It provides confirmation that the exporting manufacturer’s facility has been inspected by the FDA and or USDA. 5. Products must have a minimum shelf life of 6 months. 6. Only facilities exceeding a minimal production capacity and export experience should consider exporting to Israel. 7. Kosher certification is an advantage in the local market. 8. Communicate with potential importers of your product. Contact FAS Tel Aviv to obtain a list of local importers; Tel: 972-3-519-7588/7324/7686; Fax: 972-3-510-2565; E-mail: gilad.shachar@usda.gov; yossi.barak@usda.gov ; http://www.fastelaviv.co.il/. Israeli Food and Agricultural Trade Shows 1. ISRAFOOD: International food and beverages exhibition for professionals in the catering and food wholesale, retail, restaurants, hotels, institutional, and food business. November 20-22, 2012 – Tel Aviv (http://www.stier.co.il/english/fairs/israfood/conv_list.htm). 1. AGRO-MASHOV: Agro Mashov is Israel’s largest international agriculture exhibition. June 11-12, 2012 – Tel Aviv (http://agro.mashovgroup.net/en). 1. WATEC: The WATEC exhibition is Israel’s main trade show for showcasing technologies and expertise in water and environment technology fields. November 5-7, 2013 – Tel Aviv (http://www.watec-israel.com). Foreign Food and Trade Shows Frequented by Israeli Buyers 1. Kosherfest is the world’s largest kosher certified products trade event serving the retail and foodservice industries. Many Israeli buyers attend this show (http://www.kosherfest.com). 1. Israeli importers, distributors, and food manufacturers attend the main European food shows (i.e., ANUGA, SIAL) food trade shows in Europe (ANUGA http://www.anuga.de/de/anuga/home/index.php and SIAL http://www.sialparis.com/?reqCode=accueil). Section III: Market Sector Structure and Trends The Israeli Food Association reports that Israel's food and beverages market shrank by 1.7 percent in the second quarter of 2012 compared to 2011. This contraction is due to this year’s general slowdown in the Israeli economy. As the market shrank in the second quarter, the Israeli food and beverages market grew even slower. The same grew only by 1.1 percent in the first half of 2012, reaching NIS 16.2 billion ($4 billion). We estimate that through 2012 the Israeli food and beverages market will grow at the slower pace of about 0.5 percent. Food Processing Industry The Israeli food processing industry counts with a number of technologically sophisticated companies. Many of these have joined forces with international companies to improve access to raw materials and overseas markets. Many also operate in foreign markets on their own. Multi-national food manufacturers like Nestle, Unilever, Danone, and Pepsi partner with well-known Israeli food companies such as Osem and Strauss. These partnerships capitalize on the size and sophistication of the Israeli market. They utilize the local market and its manufacturing practices for gauging the commercial viability of new product and health developments. The local food processing industry is dominated by four groups (Tnuva, Osem-Nestle, Unilever, and Straus). This has contributed to reduce competition and increased consumer food prices. Chart 3: Food Processing Industry Value, by Sub-Sectors, Percent, CY 2011 Source: The Food Industries Association, The Manufactures’ Association of Israel, Post estimates. Israeli Market Trends Israel’s food culture is as diverse as its inhabitants. The country is a “melting pot” of different culinary traditions. Demand ranges from Eastern European to North African traditional Jewish cooking. Additionally there are strong Arab and Mediterranean influences. Middle Eastern foods are very popular in Israel Israelis are increasingly demanding high-quality beef and seafood products when dining out. This has spurred the opening of more high-quality beef and seafood restaurants. Many of these restaurants can be located through Israel’s Restaurant Guide, the country’s restaurant and food sectors’ major internet portal. The online guide has the most up-to-date information on restaurants, bars, cafes, and kosher restaurants in Israel. Israeli consumers are increasingly health-conscious and better aware of the need to eat a balanced diet. However, many people still struggle finding the right balance between health and indulgence, unwilling to compromise on taste. Many local manufacturers are pitching the notion of balanced health and indulgence in their marketing campaigns. Fruit yoghurt led foodservice volume growth in 2011, with sales increasing by 12 percent. Good performance is due to the fact that Israeli consumers are seeking more products that satisfy health and taste requirements simultaneously. In 2011, breakfast cereals fell out of favor with consumers after receiving negative press on its health aspects. Yoghurt is Israel’s main breakfast alternative to breakfast cereals. Much like breakfast cereals, pastries are falling out of favor with consumers. Pastries were the weakest performers in 2011, with foodservice volume sales declining by 4 percent compared to 2010. Kosher food products will continue to retain the biggest potential in the Israeli market for the foreseeable future. However, one of the areas where inroads can be made is with private labeling. Adoption of private labels is increasing as consumers demand lower retail prices with guarantees of product quality. Baby food sales increased by 10 percent in 2011, rising to NIS 691 million ($173 million). Baby food remains a recession proof product. We do not see higher unit prices becoming a barrier to achieving market success. Marketing Channels in Israel Retail Supermarket Chains: In 2011, retail food and beverages sales by value increased by 1 percent compared to 2010. Previously sales by value had increased by 2.3 percent. The slower pace is due to price competition between the retail supermarket chains. Today Israeli retail supermarket chains are confronting: 1) a slowdown in the Israeli economy; 2) the increase in international commodity prices, and; 3) the impact of the VAT increase on consumer spending. We estimate that 2012 retail food and beverages sales value will remain largely flat compared to 2011. Shufersal has a market share of 38 percent. Its 248 stores and over 12,400 employees make it Israel’s leading retail supermarket chain. Alon Holding-Blue Square follows with 22 percent market share and 215 stores. These two chains dominate food retailing, accounting for 60 percent or $5.6 billion of the market. About 90 percent of the retail channel buys only kosher food products. Large supermarket retail chains import, as well as purchase from importers and wholesalers. Smaller retailers purchase through importers and wholesalers. Shufersal’s 2011 decision to scale back its hypermarket chain presence in favor of increasing discount store outlets has motivated Blue Square to do the same. There are 5,500 grocery stores and 1,700 convenience stores in Israel. Service stations with convenience stores attached are driving growth. Some 710 convenience stores are located at service stations in Israel. Food Service - Hotel Restaurant Institutional: Large hotel chains and large caterers often have central purchasing offices. The HRI sector mostly buys kosher food products. The Israeli Defense Force (IDF), the Israeli Police, and Israeli Prision Service are a significant component of the HRI sector. The Food Service – Hotel Restaurant Institutional sales are estimated at $1.7 billion per annum. Over the past few years the sector has shown good growth. We estimate that the HRI sector will continue growing at a rate of about 2 per cent per year. A key driver of growth in the HRI sector is the Israeli tourism industry. The Central Bureau of Statistics (CBS) informs that through the third quarter of 2012 some 2.6 million tourists visited Israel, a 7 percent increase compared to the same period in 2011. The Ministry of Tourism (MOT) reports that 3.4 million tourists visited Israel in 2011. Some 540,000 tourists, or 16 percent of all visitors, are single day cruise ship visitors from Eastern Europe. Tourism revenues reached a record high of NIS 35 billion ($8.8 billion) in 2011, up 2 percent compared to 2010. Sources indicate that the Israeli HRI sector produces about one million meals daily. Post Findings: Food service volumes in 2011 increased thanks to improved economic conditions. Demand for healthy and indulgence foods is driving food service outlet sales. The HRI is demands mostly kosher products. Animosity between Israel and Turkey is forcing Israelis to forgo travel to latter. Domestic tourism and the Israeli HRI sector are benefitting at Turkey’s expense. Roughly one million meals per day are provided. The HRI sector is characterized by significant competition combined with a high degree of concentration. Smaller companies specialize in single product market niches. Tnuva-Chef is the largest food service provider in Israel. It provides customer-specific solutions for clients’ vegetable, dairy, beef, fish, and bakery product needs. Nestlé Food Service is the second largest provider. Consumer Foodservice Outlets Large HRI firms have their own purchasing or importing division to handle food imports directly. Suppliers from the United States should initially contact the purchasing or importing divisions of these large hotel and restaurants chains. Most consumer food service outlets are franchises. Local players use the franchise model to expand firm presence, profits, and bargaining power. Franchising is utilized by foreign and local players. Shefa Franchisers has had good success with its Aroma Espresso Bar franchise. It surpassed McDonald’s in 2010 in sales volume. Franchisees of international brands are corporate entities. Most of franchisees of Israeli brands are smaller franchise holders. Foreign consumer food service operators often enter the Israeli market through franchise agreements. Major global brands such as Yum! Brands Inc., Domino’s Pizza Inc., McDonald’s Corp., Burger King Holdings Inc., and Sbarro Inc., operate in Israel through local franchisees. Israel has not enacted anti-foreign regulations. There are however kosher and Sabbath regulations. Indications are that Starbucks and Dunkin Donuts had limited success due to differences in consumer tastes and pricing issues. Locale ambiance is extremely important. An establishment’s management and product variety must be tailored to blend in with the local environment and consumers’ preferences. Section IV: Best Consumer-Oriented Product Prospects Baby food Non alcoholic drinks Organic and health/natural food products Dry grocery food products Specialty gourmet foods Frozen and canned vegetables and fruits Food industry ingredients Baking industry ingredients Frozen fish fillets Dried fruits Almonds, Pistachios and all kind of nuts DDGS and Corn Gluten Feed (animal feed) 2011 Annual Product 2011 Key Import Import Market nstraints Market Ca Imports Growth Ta Co riff tegory Size Over Market for USA (Volume) ($Sales) 5-Yr. Rate Avg. Development Pistachios $25 Mil $25 Mil Growth of U.S.- and Competition Demand 3 percent EU-origin mainly from for U.S.- per product Turkey. origin annum. face no pistachios import is strong duties. due to Turkey Turkish has a 100 imports tons TRQ, facing and above high that it import faces a 23 levies. percent U.S. duty of pistachio not less enters than NIS Duty free. 3.65/kg. Corn $346 Mil $346 Mil Dependent Duty free Strong Attractive (Feed) on supply treatment competition to large levels of for all from the U.S. other origins. Former Soviet suppliers grains Union (ADM, (feed countries. The Cargill, wheat and sector prefers CHS, barley). to import from etc.). Annual nearby growth is countries. The 1.8 U.S. market percent. share is 20-60 percent, but dependent on corn harvest levels in the Ukraine and Russia. Wine $83 $25 Mil Imports The About 70 This have been United percent of market is consistent State and consumption likely to in recent the EU is from local become years. enjoy production, more TRQs of and the rest is dynamic 200,000 mainly from as and France, Italy, consumers 430,000 South prefer liters. America, and local and Above the the U.S. EU wines. TRQ the market share United is about 5 States percent. faces a charge of 75 percent of the MFN, and the EU pays the MFN duty. Frozen $250 Mil $154 Mil Growth of 0 percent Importers The United Fish about 3 to NIS 15 prefer to States Fillets percent /kg import from enjoys a 5 per depending South ton TRQ annum. on America, for frozen product. African carp fillet. countries, and the far east countries. Fresh Local $17 Mil Growth of The The EU enjoys The United Apples production about 5 United a 3,200 TONS States has was percent States TRQ and 4000 tons record per and the shipping costs TRQ (duty high in annum. EU have a are lower free). 2012 and TRQ, and compared to Israeli totaled above it the United importers about they face States. like U.S.- 120,000 a MFN origin tons, in (NIS apple addition 2/kg). All varieties. Israel and other imported origins about face MFN 14,000 as well. tons apples. Imports of U.S. Agricultural and Food Products to Israel 2010 2011 Chapter Code Product Category Total Total $Thousands $Thousands 1 Live animals 989 2,097 2 Meat & edible meat offal 697 5,630 3 Fish, crustaceans and mollusca 4,379 5,559 4 Dairy produce; eggs, natural honey; edible products of animal origin 24,241 32,813 5 Products of animal origin n.e.c 703 490 6 Live trees and other plants, bulbs, roots and other garden plants 98 101 7 Edible vegetables, roots and tubers 3,896 5,391 8 Edible fruits and nuts; peel of melons and other citrus fruit 99,206 118,276 9 Coffee, tea, mate and spices 2,253 2,034 10 Cereals 99,455 219,379 11 Products of milling industry; malt and starches; wheat gluten 19,811 29,594 12 Oil seeds, grains, fruits, industrial and medical plants. Straw and feed 117,511 148,242 13 Tree gum; resins, other vegetable saps and extracts 3,760 3,396 14 Vegetable plaiting materials; vegetable products n.e.c 12 28 15 Animal or vegetable fats and oils; animal or vegetable waxes 3,491 4,430 16 Preparation of meat, fish, or of other aquatic invertebrates 7,800 6,166 17 Sugar and sugar confectionery 3,450 5,675 18 Cocoa and cocoa preparations 1,144 1,094 19 Preparations of cereals, flour starch or milk; pastry products 13,228 14,361 20 Preparations of vegetable, fruits, nuts and other plants 30,716 38,340 21 Miscellaneous edible preparations 59,136 56,692 22 Alcoholic beverages and vinegar 7,482 10,996 23 Residues and waste from the food industries; prepared animal feed 33,848 49,393 24 Tobacco and tobacco substitutes 7,304 509 Grand total $545 mil 60 million lion $7 Source: Central Bureau of Statistics, Israel. Section V: Post Contact and Additional Information Office of Agricultural Affairs, U.S. Embassy Tel Aviv, Israel Web site: http://www.fastelaviv.co.il Tel: 972-3-5197588 ● Fax: 972-3-5102565 E-mail: gilad.shachar@usda.gov; yossi.barak@usda.gov; levylx@state.gov; The Central Bureau of Statistics (CBS) Web Site: http://www.cbs.gov.il/reader/?MIval=cw_usr_view_Folder&ID=141 66 Kanfei Nesharim Street P.O.Box 34525, Jerusalem, Israel 91342 Tel: 972-2-6592666 ● Fax: 972-2-6521340 Food Control Service - Ministry of Health Web Site: http://www.health.gov.il/english/Pages/HomePage.aspx 12 Ha’arba’a Street 64739, Tel Aviv, Israel Tel: 972-3-6270100 ● Fax: 972-3-5619549 Israel Veterinary and Animal Health Services (IVAHS) Web Site: http://www.vetserveng.moag.gov.il/vetserveng Ministry of Agriculture P.O. Box 12 50250, Bet Dagan, Israel Plant Protection and Inspection Service (PPIS) Web Site: http://www.ppiseng.moag.gov.il/ppiseng/ P.O. Box 78 50250, Bet Dagan, Israel Tel: 972-3-9681560 ● Fax: 972-3-9681582 Standards Institution of Israel Web Site: www.sii.org.il 42 H. Levanon Street 69977, Tel Aviv, Israel Tel: 972-3-6465154 ● Fax: 972-3-6419683 Major Newspapers and Business Journals - Ha’aretz (daily English version) http://www.haaretz.com The Jerusalem Post (daily newspaper) http://www.jpost.com Globes http://www.globes.co.il/serveen/ The Marker http://www.themarker.co.il/eng / GAIN Reports http://gain.fas.usda.gov/Pages/Default.aspx USDA'S Global Agriculture Information Network (GAIN) provides timely information on the agricultural economy, products and issues in foreign countries since 1995 that are likely to have an impact on United States agricultural production and trade. United States Foreign Service Officers working at posts overseas collect and submit information on the agricultural situation in more than 130 countries to USDA's Foreign Agricultural Service (FAS), which maintains the GAIN reports system. Additional Web Sites Agriculture in Israel http://www.moag.gov.il/agri/files/agriculture/index.html The Agricultural Research Center of Israel - http://www.agri.gov.il/ Ministry of Agricultural and Rural Development - http://www.moag.gov.il/english/ The Centre for International Agricultural Development Cooperation (CINADCO) http://www.cinadco.moag.gov.il/cinadco Faculty of Agricultural, Food and Environmental Quality Sciences http://www.agri.huji.ac.il/index- eng.html Bank of Israel - http://www.bankisrael.gov.il/firsteng.htm Table A: Key Trade & Demographic Information, 2011 Agricultural Imports From All Countries ($Mil) / U.S. Market Share (%) $5,400/14.1% Consumer Food Imports From All Countries ($Mil) / U.S. Market Share (%) $2,147/8.5% Edible Fishery Imports From All Countries ($Mil) / U.S. Market Share (%) $294/1.6% Total Population (Millions) / Annual Growth Rate 7.7/1.8% Number of Major Metropolitan Areas 3 Per Capita Gross Domestic Product (U.S. Dollars) $31,000 Unemployment Rate (%), in the second quarter of 2012 6.5% Per Capita Annual Food Expenditures (U.S. Dollars) $4,634 Annual Average Exchange Rate for 10/2012 ($1 = X.X local currency) $1 = ~NIS 3.868 Source: Central Bureau of Statistics, Israel; Economist Intelligence Unit Map of Israel Source: Central Intelligence Agency Author Defined: Disclaimer: This report was prepared by the Foreign Agricultural Service in Tel Aviv for exporters of U.S. food and agricultural products, as well as U.S. regulatory agencies. While care was taken in the preparation of this report, information provided may not be completely accurate either because policies have changed since its preparation, or because clear and consistent information about these policies is unavailable. It is highly recommended that U.S. exporters verify the full set of certificate requirements with their foreign customers prior to the shipment of goods. Final import approval of any product is subject to the importing country’s rules and regulations.
Posted: 11 January 2013

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