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$Unique_ID{bob00270}
$Pretitle{}
$Title{Israel
Chapter 4B.   Budget}
$Subtitle{}
$Author{Richard F. Nyrop}
$Affiliation{HQ, Department of the Army}
$Subject{water
percent
agricultural
fy
tax
land
israeli
budget
increased
1970s
see
pictures
see
figures
}
$Date{1979}
$Log{}
Title:       Israel
Book:        Israel, A Country Study
Author:      Richard F. Nyrop
Affiliation: HQ, Department of the Army
Date:        1979

Chapter 4B.   Budget

     The annual budget was prepared by the Ministry of Finance and submitted
to the Knesset (parliament) for approval. When conditions required, which
were not infrequent, supplemental budgets were submitted for portions of a
year. The government's budget concerned only its activities. Government
businesses, national institutions, and local governments were reflected in the
national budget only to the degree that they received government financing
and forwarded revenues to the treasury, such as taxes, royalties, profits,
and other funds. Although local governments had some financing of their own,
they depended heavily on funds from the central administration. Public sector
businesses financed part of their own expansion.

Revenues

     By the late 1970s Israelis were probably the most heavily taxed
population in the world. The ratio of tax collections to GNP amounted to
48 percent in FY 1976, considerably higher than the 28 percent in FY 1968.
Taxation had three major objectives: to produce revenue to cover expenditures,
to reduce aggregate demand for goods and services in the economy, and to
permit income transfers from the more affluent to the poorer segments of the
society. The latter two objectives become more important in the 1970s,
accounting for part of the growth of tax revenues in relation to GNP.

     Direct taxes historically have accounted for slightly less than half of
tax revenues; the share was 49 percent in FY 1968 and FY 1976, but direct
taxes were expected to account for 54 percent of tax revenues in FY 1978
(see table 12, Appendix A). Indirect taxes accounted for 50 percent of tax
revenues in FY 1968 and FY 1976. Miscellaneous taxes and fees, such as
vehicle taxes and court fees, amounted to slightly less than 1 percent.

     By the late 1960s personal income tax rates had become extremely high.
Tax liability began (at a marginal rate of 25 percent including compulsory
loans) not much above the minimum wage. The maximum marginal tax rate of 69
percent became operative at an annual income of less than the equivalent
of US $10,000. Rates were also quite high in middle-income brackets compared
with other countries. The high rates required imposition of compulsory loans
on various kinds of income after the six-day war instead of higher rates.
Numerous legal exemptions narrowed the tax base and lowered revenues, however,
and widespread evasion was suspected. Officials recognized that the high rates
affected incentives and compliance.

     Major modifications of the tax laws began in the early 1970s and
continued through FY 1977. The general direction in terms of income taxes was
toward somewhat lower rates, a broader base, and improved collections.
Recordkeeping was imposed on the many small businesses and the self-employed
in FY 1975, for example, greatly increasing tax collections from this source
in FY 1976 although spot-checks of returns indicated liabilities were often
double that estimated by the taxpayer. Wage earners accounted for nearly one
third of income taxes, and businesses, including the self-employed, for little
more than one-half. Tax revenue from incomes increased sharply between FY 1968
and FY 1978.

     Custom duties and surcharges were the most important indirect taxes
until 1977. The country started out in the 1950s with a high tariff schedule
to protect domestic industries. The rates were lowered considerably for
essential commodities, raw materials, and investment goods-sometimes to the
point of exemption. In 1971, for example, only about 30 percent of total
imports were subject to customs duties for an average rate of about 36 percent
although there was considerable variation in individual rates with luxury
goods carrying the highest. A defense levy of 20 percent was additionally
applied to most imports from mid-1970; the surcharge was raised to 35 percent
after the 1973 war but subsequently lowered. The import surcharge was
abolished in November 1977 while customs duties were lowered by an average of
20 percent and fixed duties raised 25 percent, reducing the revenue expected
from import levies in FY 1978.

     One of the reforms discussed from the early 1970s was imposition of the
value added tax (VAT) to maintain government income as a result of lowering
income tax rates and eliminating some other taxes. The VAT was imposed in
July 1976 at a rate of 8 percent for most transactions. The effect was to
increase the price of goods and transactions to consumers in the manner of a
sales tax. It was similar in principle and application to the VAT used by many
West European countries. VAT was applied to most domestic commodities, imports
(including items for defense), financial transactions, and transactions of the
public sector and nonprofit institutions. The rates were substantially lower
for financial and public sector transactions, and this application was treated
as a form of income tax. VAT applied to other transactions was considered an
indirect tax. Special help was to be provided poor families to offset the
additional costs of the VAT. In November 1977 VAT was increased substantially,
the basic rate for most commodities increasing to 12 percent. In FY 1978 VAT
was expected to yield about half of indirect taxes, far more than customs
duties.

     The tax reforms of the 1970s were handicapped by the government's
pressing need for revenues and the effort to contract aggregate demand to
slow the high rate of inflation. Tax changes were made, but economists were
skeptical of the overall impact. Some noted, for example, that income tax
rates were lowered considerably less than the initial recommendations (geared
to stimulate incentive) because the budget could not stand a loss of large
amounts of revenue and that the overall tax burden was not changed but only
the form in which it was collected.

     The other major source of government income was from loans and grants.
In FY 1978 loans and grants were expected to provide about 45 percent of total
revenues, indicating how far expenditures exceeded tax collections. The main
source of budgetary aids came from the United States, primarily in the form of
military assistance. About 55 percent of the loans and grants were from
foreign sources including Israeli Development Bonds and 45 percent from
domestic borrowing.

Expenditures

     The difficulties the government had always had in controlling
expenditures, given its many goals, worsened in the 1970s. In the early 1970s
defense costs, which were continuously a major element of government spending,
were declining as a share of current expenditure and in real terms, freeing
funds for increased social services, export promotion, and economic
development. The October 1973 War and other events about the same time
reversed the favorable trend.

     The 1973 war affected military planning in several ways. The war's
first impact was to disturb the complacency that had set in after the 1967
war. The rapid destruction of equipment indicated that far larger inventories
had to be kept in reserve. The war also showed that the most advanced and
most costly equipment would be required for Israel's future defense. Moreover
the war exposed a reluctance as well as a slowness in mobilizing the reserve
components of the country's forces, which resulted in more frequent
mobilization and more active duty of reserve units in the mid-1970s. As a
consequence defense spending increased sharply immediately after the war
both for domestic costs and foreign equipment, the latter largely financed by
the United State. The gradual pressure on the budget imposed restraint in
domestic spending and a scaling down of imports from abroad to the level of
financing available. By FY 1978 military expenditures were scheduled to be
reduced from the level of the previous year by about 14 percent in constant
prices.

     In 1973 and early 1974 the price of crude oil increased several-fold.
The country's fuel bill for imports increased accordingly; fuel costs rose
further in 1975 when Egyptian oil fields in Sinai; from which Israel had
been obtaining a significant portion of its oil since 1967, were returned
to Egypt (see Appendix B). Costs of many other Israeli imports, such as
grains, sugar, and machinery, increased considerably between 1973 and 1975.
The higher prices affected direct government purchases as well as the subsidy
costs and price stabilization efforts the government maintained for the
population, particularly the poorer segments. These increased expenditures
coupled with the expansion of social services, income transfers, and economic
development resulted in large injections of liquidity into the economy,
fueling inflation. Wages, nearly all of which (including those paid to
government employees) were tied to the cost-of-living index, rose, further
increasing government expenditures. Increasing expenditures required
additional borrowing to finance the budget at the same time as older loans
were coming due for redemption.

     Efforts to restrain government expenditures began in 1974, but by 1978
they had achieved only partial success. The sheer costs involved required
successive increases of prices for such items supplied by the public sector as
water and electricity and limiting direct subsidies on goods and services.
Investments and social programs were reduced or allowed to increase slowly in
real terms because that was the only flexibility officials had.

     The budget contained expansionary factors. Concern for national survival
meant that defense expenditures were almost untouchable. Expanding force
levels and incentives to obtain recruits, more duty time for reserves, and
more frequent mobilizations escalated the costs of military preparedness.
Servicing of the debt, which had increased rapidly in earlier years became a
significant burden by the mid-1970s. Defense and debt payments alone accounted
for 58 percent of total expenditures in FY 1976 (see table 13, Appendix A). In
addition wages (including those of the defense forces) and loan repayments
were linked to the cost-of-living index, which in period of rapid inflation
quickly boosted expenditures because wages and debt servicing were large
items in the budget. Other legislative commitments, such as tax incentives and
social benefits, further constrained fiscal flexibility.

     In 1977 the mounting problems of controlling expenditures and continuous
injections of liquidity into the economy coincided with the first change of
the political power elite since independence (see Political Setting: Elite,
Values, and Orientations, ch. 3). Deteriorating economic conditions were cited
as one of the reasons, albeit a minor one, for the downfall of the incumbent
Israel Labor Party. The new prime minister, Menachem Begin, made important
changes expressed in the New Economic Policy and reflected in the FY 1978
budget (see The New Economic Policy of 1977, this ch.).

Budget Deficits

     The habitual budgetary practice of spending more than was received in tax
revenues created continuous deficits and a mounting public debt. In the
proposed FY 1978 budget, deficit financing amounted to 87.4 billion Israeli
Pounds, 46 percent of the total financing available to the government.
Government indebtedness, as of March 31, amounted to 1.1 billion Israeli
Pounds in 1956, 15.65 billion Israeli Pounds in 1970, and 96.1 billion Israeli
Pounds in 1976. On March 31, 1976, 46.6 billion Israeli Pounds was the
external debt and 49.5 billion Israeli Pounds the internal debt. Much of the
external debt was owed to foreign governments (where interest and repayment
schedules were relatively light) and world Jewry, who frequently renewed their
investments in Israeli Development Bonds at the redemption date; but during
the 1970s more recourse was made to international commercial credit for which
the terms were more onerous (see Balance of Payments, this ch.). The internal
debt was owed to numerous individuals and businesses (through compulsory loans
as part of the tax program) and many institutions (which were required to hold
a large proportion of assets in government securities).

     The bulk of the internal debt was linked to the cost-of-living index
although part was tied to an equivalent value in foreign currency. The
external debt was payable almost exclusively in foreign currencies. Debt
payments were 1.2 billion Israeli Pounds in FY 1968, 17 percent of budget
expenditures. In the 1970s the high inflation and rapidly rising
cost-of-living index, combined with near continuous depreciation of the
Israeli pound, automatically increased the repayment burden of the public
debt. By FY 1975 debt servicing was becoming difficult, amounting to 10.6
billion Israeli Pound-17 percent of budget expenditure. In FY 1978 interest
and principal payments accounted for 27 percent of budget expenditures, nearly
as much of a burden as defense.

     Debt servicing was expected to peak in FY 1978 and become a smaller share
of the budget in subsequent years. This hope of officials was problematical.
Even by April 1978 budget watchers were prophesying substantial increase of
the budget deficit in FY 1978 because of the Lebanon campaign, higher rates of
inflation than the budget assumed causing automatic cost-of-living wage
boosts, and the wage increases included in labor agreements already
negotiated. The country's debt problems and rate of inflation depended in part
on the ability of the government to restrain expenditures effectively.

Agriculture

     Agriculture has occupied a position of eminence in national life far
greater than its economic contribution, which by the late 1970s accounted for
only about 5 percent of the GNP. Its central place in Zionist ideology, its
dominant role in the settlement of the country, its important position in
absorbing new immigrants, and its security aspects have assured it priority in
the economic policies of the government and other public bodies. The
government has been involved in developing, subsidizing, and controlling
agricultural activity, including fishing and forestry, since independence.

     After 1948 the agricultural sector expanded rapidly. The value of
agricultural production, in current prices, increased from 44 million Israeli
Pounds in the agricultural year beginning October 1, 1948 (AY 1949) to 11.7
billion Israeli Pounds in AY 1976, an average increase of 23 percent a year.
The value of farm production grew much more rapidly than physical output,
however, because of inflation and rising prices; the quantitative index of
agricultural production increased at a more modest but still high average of
9.6 percent a year over the same period. The sector's growth rate was
substantially higher in the 1950s, when large amounts of new land were brought
under cultivation and rapid extension of irrigation occurred, than in the
1970s, when growth was largely dependent on improvements in yields that had
already reached high levels.

     Immediately after independence, large investments were begun in land
preparation, farm development, and water projects. The cultivated area
increased from 165,000 hectares in AY 1949 to 431,000 hectares in AY 1976, an
average addition of nearly 10,000 hectares each year. The irrigated area
increased from 30,000 to 186,500 hectares over the same period. By the
mid-1950s the land that was economically feasible to cultivate (approximately
360,000 hectares) was being farmed. Since then the expansion of the cultivated
area was primarily the result of raising more than one crop on part of the
land, almost exclusively land that was irrigated.

     In spite of the rapid growth of agriculture, it grew less rapidly than
other sectors of the economy. Agriculture's prominent position in 1948
gradually eroded. By FY 1976 agriculture contributed just under 6 percent of
GNP, and it was diminishing as a source of employment. Agricultural employment
was probably slightly less than 100,000 in 1950; the number of workers rose to
a peak of about 128,000 in 1960, after which it declined. By 1975 agricultural
employment amounted to 82,000 of which 26,000 were hired workers; this
included almost 10,000 agricultural laborers from the occupied territories.
The growth of output with a diminishing number of farmers was achieved by
improved techniques and mechanization. The number of tractors, for example,
increased from 1,300 in 1949 to 24,500 in 1976, and the use of other farm
machinery, such as grain combines and cottonpickers, also accelerated.

     At formation of the state there was an urgent need to provide food for
the large numbers of immigrants in the face of an acute shortage precipitated
by the total cessation of shipments from neighboring Arab areas. Large
investments were channeled into food production, and many of the immigrants
went to work on farms or in agricultural processing. As the food crisis eased
and immigration slowed, emphasis shifted toward production of such high value
produce as fruit and vegetables to increase farm income and the return on
investments because it was realized that self-sufficiency in food was
uneconomical. By the mid-1970s the country was self-sufficient (with some
exports) in fruits, vegetables, poultry, eggs, and dairy products but imported
a substantial part of its requirements of meat and vegetable oil and about
half of its grain needs. It was also realized the diversification of farm
produce could reduce imports of such products as sugar and cotton and expanded
exports that were much needed to ease balance-of-payments problems.
Agricultural exports increased and amounted to US $325 million in (1976) ($445
million including processed farm produce). Agricultural exports accounted for
13 percent of total exports (20 percent when processed farm produce were
included), a far larger share than the sector's contribution to GNP.

Water Resources

     Water is a scarce resource in Israel, as it is in most of the Middle
East. Rainfall diminishes rapidly between the northern and southern parts of
the country. Parts of the north might get as much as 1,000 millimeters of
annual rainfall, Tel Aviv 500 millimeters, Beersheba 200 millimeters, and
Eilat thirty millimeters (see Geography, ch. 2). Rainfall is confined to the
winter months, and the amount varies considerably from year to year. Farming
based solely on rainfall would be limited, risky, and unproductive.

     The advanced state of Israeli agriculture is partly the result of
extensive development of the country's limited water resources. In the thirty
years after independence, an integrated national water system was constructed
that utilized more than 90 percent of the available water. In 1975 an
estimated 1,720 million cubic meters of water were available, consisting of
1,150 million cubic meters of groundwater (including some brackish water) and
570 million cubic meters from the Jordan River watershed and springs.
Agriculture used 77 percent of this water, municipalities 17 percent, and
industry 6 percent.

     The main components of the national water system are the upper Jordan
River and its tributaries (including the Sea of Galilee ) and two large
aquifers. The major aquifer underlies most of the coastal area and extends
eastward to the foothills. The other large aquifer underlies much of the
northern mountainous area. The available water is concentrated in the north
portion of the country. Springs and wells have tapped these aquifers since
biblical times. Zionist settlement resulted in more wells and more extensive
irrigation systems. By the 1940 regional systems were being built. In the
1950s the decision was made to construct what became known as the National
Water Carrier, a 250-kilometer conduit to bring water from the north to the
central part of the nation and the northern part of Negev Desert. The conduit
linked the three main components and also the local and regional water systems
to form an integrated network. The National Water Carrier was completed in
1964 and was the country's largest development project.

     The national water system attempts to capture all of the moisture that
falls and channel it into reservoirs, primarily the two major aquifers.
Because groundwater supplies about two-thirds of the water supply, natural
rainfall replenishment was not sufficiently dependable; artificial recharge
was developed to achieve maximum use of rainfall. Thus in the rainy winter
months the excess water in the Jordan River watershed is partly stored in the
Sea of Galilee and partly channeled by the National Water Carrier to
recharge the main aquifers via the well casings that are used to lift the
groundwater in the dry seasons. Seasonal streams along the coasts and flash
flood areas are also channeled to recharge the aquifers. The Sea of Galilee
and the aquifers served to even out the seasonal cycle of water. The two main
aquifers also serve as cyclical reservoirs, providing water in drought years
from that stored in years of excess rainfall. Israel has gained international
reknown for its highly efficient use of available water.

     Legislation enacted not long after independence declared water resources
public property and placed them under the control of the state. Responsibility
is lodged in the Ministry of Agriculture assisted by a water commissioner.
This commissioner licenses and prescribes the quantities of water and the
terms of consumption for the tapping or development of all water sources.
Two partly government-owned corporations plan, construct, and operate the
major irrigation and water supply works of the country. All water use is
metered, and norms for different kinds of consumption are set for particular
areas and uses. Development and operating costs were high, partly because of
the pumping needed to move the water from the sources to higher elevations
where most of the agricultural land is located. Water charges were subsidized
until late 1974 when rates were sharply increased. Water charges for home use
were about 80 percent higher than for agriculture. Rates for industrial
consumption were between those for agriculture and residential users. The
rates were high by American standards.

     By the end of the 1960s Israel had about reached maximum use of the
available water. In the 1970s water use, particularly in agriculture, leveled
off, and the expansion of irrigated hectares was slow. The growing scarcity
of water had been foreseen in the 1950s and many projects undertaken to help
solve the problem. In the late 1970s efforts continued to increase the
supply of water and to conserve its use.

     The government's most conventional approach to expanding the supply of
water was to seek additional large groundwater sources. A potentially
significant large aquifer was discovered under the Negev Desert that
extended southward into Sinai and may be connected with the coastal aquifer
above Tel Aviv. In 1977 pumping from this aquifer was limited, and officials
indicated it would remain low until more was known about the aquifer and
particularly the source of recharge and its relationship to the coastal
aquifer. Cloud-seeding experiments, in the northern and central sections
of the nation, showed some promise for a small increase in annual rainfall.
Use of brackish water, largely in agriculture but also for drinking purposes
in Eilat, was increasing. Agricultural experiments sought to determine how
much brackish water could be used in irrigation and also to find salt-tolerant
varieties of plants. Experiments in the Negev attempted to devise catchment
techniques for the occasional rainfall and to find special crop plants for
arid areas.

     Israeli scientists and engineers have developed a number of techniques
and processes to desalinize brackish and seawater. By 1978 some small-scale
projects were in operation, such as flash-evaporation plants in Eilat, which
furnished part of the town's water supply. Another pilot plant of unique
Israeli design was in operation on the Mediterranean coast desalinizing
seawater; a larger version was under construction. A still larger version was
planned and would be linked to a nuclear power plant to be constructed in the
1980s. Desalination costs still remained significantly higher than other water
sources, however, precluding sizable additions to the supply of irrigation
water until the price of desalination becomes more competitive.

     Treated effluent from urban areas promised a substantial increase in the
water supply, perhaps reaching 15 percent many years in the future. The
largest and most advanced effort in waste water reclamation was the Dan Region
Project, which by the year 2000 might process about 130 million cubic meters
of wastewater from a population of about 1.5 million in the area around Tel
Aviv. The first stage, 15 million cubic feet of reclaimed water from about
250,000 people living near Tel Aviv, was completed in the mid-1970s. The
processed effluent was pumped into coastal sand dunes for further filtration
and storage for use as irrigation water. By the early 1980s the project was
expected to reclaim 25 million cubic meters a year. Additional stages and
higher degrees of processing were to be added over a period of many years.

     Major efforts were also directed toward conserving water. Some savings
were achieved in household use and in shifting industry to drier processes and
recycling, but greater effort and more success was achieved in agriculture,
the primary user of water. Since independence all irrigation was converted
from the wasteful furrow-and-flood method to closed pressure systems. By 1977
sprinklers accounted for more than 90 percent of irrigation; the trend was
toward drip or trickle irrigation in which small quantities of water, together
with water soluble fertilizers and chemicals, were applied close to the
plants. In the 1970s new equipment was continuously being designed and
manufactured to match new techniques resulting from research. In some fields
irrigation was controlled by computers that regulated the drops based on
information from sensors placed near the plants. Experts considered Israel's
irrigation efficiency to be among the highest in the world, delivering between
70 and 80 percent of the water from the source to the plant. Since 1965 the
amount of water used per area of land was reduced by 20 percent, permitting
the increase in the irrigated acreage to exceed the growth in water use.

     Although considerable effort had been devoted to expanding the water
supply and using that available more efficiently, scarcity of water remained
a major constraint on agricultural expansion in the late 1970s. Unless a major
breakthrough occurred, the prospect was for a limited growth achieved through
continued conservation of water use, increases in productivity, and continued
shifts in cropping toward high value products.

Land Tenure and Farm Organization

     After independence most agricultural land became public property held in
trust by the state for the Jewish people (not all Israelis). Part of the
public land was that purchased before 1948 by the Jewish National Fund of the
Zionist Organization (see Glossary). Most of the remainder became public land
when landowners, primarily Arab, fled Israel during the war after formation of
the state (see Problems of the New State: 1948-77, ch. 1). Many Arabs and some
Jews argued that acquisition of public land was often expropriation in
various legal guises. Ownership was vested in the Israel Lands Administration
whose governing body is composed of equal representation by the state and by
the Zionist Organization. The exact share of farmland owned by individuals,
including Jews and non-Jews, was not available.

     Public land was leased (almost exclusively to Jews and Jewish
organizations) at varying rates depending on location, kind of soil, and
availability of irrigation, but rents were  nominal. Leases could be for a few
years or for many, but frequently were for forty-nine years with automatic
renewal. Leaseholds could be inherited. Lease terms provided security of
tenure and did not constrain improvements. Buildings and equipment could be
mortgaged. There was some leasing of privately owned farmland particularly by
those with smallholdings who sought fulltime employment away from their land.
Legal provisions attempted to prevent fragmentation of leaseholds or private
property into small, uneconomical units.

     Farm organization was predominantly cooperative in terms of agricultural
population, area cultivated, and the value of production. The best known by
far was the kibbutz (pl., kibbutzim), a unique socioeconomic organization (see
Distinctive Secular Institutions, ch. 2). A kibbutz is a voluntary association
of a group of individuals on the basis of absolute equality among all members,
mutual responsibility, absence of private-property, and organization of all
production and consumption on a collective basis. An agricultural kibbutz is
treated as one large farm in terms of production and finances and as a single
household in terms of consumption. The separation of material rewards (higher
income) from an individual's contribution to production proved not to be the
stumbling block early critics prophesied; members found nonmaterial
satisfaction in putting forth their best effort. The importance of kibbutzim
in settling the country and in affirming Zionist-socialist ideology and
politics perhaps exceeded their economic importance.

     Kibbutzim were always a minority movement, for the communal life-style
and egalitarian principles repelled many people. Founding of the first kibbutz
is generally accepted as 1909, but not until the 1930s did the institution
catch on and expand rapidly, accounting for about 6 percent of total Jewish
population by the late 1930s. By the end of 1976 kibbutzim numbered 256
(including moshavim shitufim-collective villages-discussed below) with a
population of 105,600, accounting for 3 percent of the total population and
3.5 percent of the Jewish population. In AY 1976 kibbutzim members cultivated
nearly 150,000 hectares, 35 percent of the cultivated area. In 1971 kibbutzim
had accounted for about 36 percent of total agricultural output, and their
share was about the same in the late 1970s.

     In 1972 the largest kibbutz had a population of 1,700, and only two
others exceeded 1,000. The bulk of kibbutzim had fewer than 750 people. The
average population was 400. Only a small proportion of the kibbutzim
population worked in agriculture; the rest had community duties or were
children. Irrigation expanded more rapidly on kibbutzim than on other Israeli
farms, but even by the mid-1970s slightly less than half of the land
cultivated by kibbutzim was irrigated. The large size of the farm unit of a
kibbutz promoted mechanization and production of field crops. Kibbutzim
were originally agricultural units, but since the 1950s an increasing share
of their income has come from industry, producing such items as processed
agricultural produce, irrigation equipment, furniture, and kitchen equipment.
Some kibbutzim joined to operate regional businesses such as cotton gins,
slaughterhouses, and feed mills. In the late 1970s urban kibbutzim were being
formed.

     Moshavim shitufim were collective villages sharing some of the features
of kibbutzim and were often included in statistics as kibbutzim. The land was
worked collectively as a single farm, and income was equally shared. Living
arrangements were by individual families, however. In AY 1976 there were only
thirty moshavim shitufim with a total population of 6,800, accounting for less
that 1 percent of the population. The cultivated land amounted to about 10,000
hectares.

     The most popular cooperative farm organization was the moshav (pl.,
moshavim) in which each family lived in its own household and operated its own
farm on its allotment of national land. The individual farmer engaged in
whatever branch of agriculture he chose. The amount of collective activity
varied, often extending to the purchase of equipment and supplies, sale of
produce, operation of machinery, provision of credit, and allocation of water.
In some moshavim, however, land was pooled and farmed collectively to use
modern equipment and management more effectively. In AY 1976 there were 350
moshavim with a population of 132,800 cultivating 122,700 hectares, about 51
percent of which were irrigated. Field crops predominated on moshavim,
particularly those lacking irrigation, but fruit and vegetables were the main
crops on irrigated land. In 1971 moshavim accounted for 41 percent of
agricultural output; their share may have increased a little by the late
1970s.

     Private farming was a minor part of the sector, accounting for 23 percent
of agricultural output in AY 1971. In that year, there were fifty-five
villages or settlements of private Jewish farmers with a population of about
11,000 cultivating 54,700 hectares. The bulk of the private Jewish farmers
had irrigation and concentrated on fruit and vegetable crops. In addition
there were about fifty settlements of Jewish institutions, such as
agricultural schools and quasi-public companies, cultivating a small amount of
land.

     Private farming also included non-Jewish farmers, mostly Arabs but
including Druzes living within the pre-1967 Israeli borders. In AY 1971
there were ninety-nine non-Jewish settlements with a population of about
89,000; the minority population living in rural villages but not farming was
much larger. In AY 1976 the minorities cultivated 79,000 hectares, 92 percent
of which lacked irrigation. Field crops predominated on the unirrigated land,
but still nearly one-third of the unirrigated land had sufficient rainfall for
cultivation of fruits (largely olives), vegetables (mostly melons), and
flowers. The small amount of irrigated land was primarily used to grow fruits
and vegetables. In AY 1971 non-Jewish farms accounted for less than 6 percent
of total farm output.

     Israeli agriculture was highly organized and efficient with very good
ancillary services. Cooperative marketing, even for private farms, and good
transportation moved farm produce expeditiously to markets, including those in
foreign countries. Agricultural research was extensive, and a large, highly
qualified extension staff rapidly disseminated results to the farm level.
Farmers were quick to adopt improved techniques and respond to changes in
market conditions. Adequate agricultural credit was available and convenient.
The government played an important role by setting quotas on individual crops,
affecting prices of various inputs and produce, and controlling agricultural
credit  and subsidies. Farm incomes increased steadily after independence, and
the gap between average rural and urban incomes was relatively small compared
with many countries, although the gap between prosperous and poor farmers was
fairly large.