The Ministry of Finance has recently published a proposed resolution to increase the tariff-free import quota on wheat by 5%, which translates into an addition of approximately 100,000 tons of wheat per year. According to the proposal, the regular quota of approximately two million tons is insufficient this year due to a decline in corn imports that increased the demand for wheat used for animal feed, and a drought that damaged local cultivation. Import duty on wheat imported outside the quota stands at 50%.

The explanatory notes state that “wheat, being almost entirely imported, is a unique product, and the payment of tariffs could make its derivative products more expensive”. But if most wheat is imported anyway, the inevitable question arises: why does a 50% customs tariff exist in the first place, if a duty-free quota is opened every year and at times even increased? If the customs duty only makes bread and baked goods more expensive, why not abolish it entirely?

This question reveals the logic behind the current system. The customs tariff is not intended to prevent importation, but rather to serve as a subsidy mechanism for local farmers. Israel’s Ministry of Agriculture has determined that licenses to import tariff-free wheat would be granted exclusively to importers who also purchase local wheat, under a scheme called a “linkage arrangement.” In other words, anyone interested in import must also buy Israeli produce.

No less problematic than the obligation itself is the method used to determine the price of that local wheat. The Ministry of Agriculture calculates the “linkage price” according to the wheat price on the Chicago exchange – which represents expensive American wheat that is not actually imported to Israel – plus shipping costs, insurance, and more. The absurd result is that Israeli wheat is priced according to expensive overseas wheat, when in actuality Israel imports it from much cheaper countries, like Ukraine. For example, in the third quarter of 2025, the price of American wheat stood at approximately $297 per ton, while it was only $235 in Ukraine.

Moreover, the linkage price also includes the cost of transportation from the United States, despite the wheat being grown in Be’er Sheva or the Jezreel Valley. Local farmers thus have almost no incentive to improve quality or increase efficiency, since importers are obligated to purchase from them in any case.

The Ministry of Agriculture has claimed in the past that the policy’s impact on consumer prices was negligible, since local wheat accounted for only 10% of the market. However, recently, the Ministry – now called “Agriculture and Food Security” – intends to increase that market share to 30%, while investing hundreds of millions of shekels in infrastructure and equipment. In other words, the state is planning, in the name of “food security”, to expand a method that deliberately increases the price of bread, flour and baked goods.

As far as food security goes, the Ministry of Agriculture is responsible for the emergency wheat stockpiles. To this end, it operates several contractors who won a tender to maintain designated warehouses, purchasing local wheat at the linkage price. However, in the State Comptroller’s report from last October, it was revealed that in all inspected sites bar one, the stored wheat did not meet required conditions – with some infested with insects and moths, some moldy due to inappropriate temperatures, and some contaminated with dust and debris.

There is little disagreement over the importance of encouraging local production; however, the current arrangement is harmful to the general public. Instead of a linkage mechanism that raises the price of the most basic of foods, it would be far better to permit free importation of wheat and give local farmers direct subsidies while they adjust to the new conditions.

In contrast to the hidden tax of higher bread prices, direct subsidies are transparent, fair and efficient.

(First published in Hebrew in B’Sheva)