Why Is Agricultural Productivity Slowing Down in Israel? Measurement, Data Revisions, and Emerging Constraints

This paper examines whether total factor productivity (TFP) in Israeli agriculture has genuinely slowed or declined in recent years, or whether the reported trend is primarily driven by methodological choices, data limitations, and measurement error. We compare two widely used approaches to TFP measurement—those of the Bank of Israel and the U.S. Department of Agriculture (USDA)—which differ in their definitions of output, treatment of inputs, and assumptions regarding factor shares. We reconstruct and refine the underlying datasets, addressing important limitations in the existing measures, including the omission of foreign labor, inconsistencies in agricultural land measurement, and the application of non-representative input shares. Despite data improvements and methodological adjustments, both approaches yield similar qualitative conclusions. Following rapid increase in earlier decades, TFP growth in Israeli agriculture appears to have stagnated or declined since the early 2010s. A decomposition of output growth further indicates that recent production patterns have been driven primarily by greater input intensity per unit of land rather than by technological progress or efficiency gains. As a result, agricultural output has shown little or no net growth over the past decade. We discuss potential explanations for this slowdown, including climate change, the growing reliance on reclaimed and other marginal water sources, and the long-term decline in agricultural research and development (R&D) investment relative to sectoral output. Overall, the findings suggest that the productivity slowdown is real rather than an artifact of measurement and underscore the need for renewed investment in agricultural innovation and climate adaptation to sustain domestic production and strengthen food security.