Ben-Gurion University of the Negev Jacob Blaustein Institutes for Desert Research Albert Katz International School for Desert Studies
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I Ben-Gurion University of the Negev Jacob Blaustein Institutes for Desert Research Albert Katz International School for Desert Studies LOCALIZATION OR CAVIAR? KIBBUTZ BUSINESS ADAPTATIONS TO COPE WITH RISING TRANSPORT FUEL COSTS Thesis submitted in partial fulfillment of the requirements for the degree of “Master of Science” By Dana Shapiro March 2011 III Abstract Many rural communities face unfavorable market structures and rising global competition; at the same time, one longstanding cost assumption – the availability of cheap fuel – is being called into question. Since at least the 1950s, rural development strategies have largely been premised on long distance transportation to reach markets and centers of employment. Over the past 20 years, however, oil prices have risen and undergone dramatic fluctuations. Thus, while the large distance from consumer and employment markets has always represented a relative disadvantage for rural communities, volatile fuel prices have intensified this challenge. In Israel, fuel prices doubled between 2004 and 2008, and are still among the world's highest. In parallel, Israel’s Kibbutz Movement, an association of collectivist rural settlements, has undergone massive structural changes in the past two decades, leading most kibbutzim to adopt a ‘renewed,’ more privatized organization. The resulting variation among kibbutzim, coupled with high and volatile transport fuel prices in Israel, provides a natural laboratory to explore how community collectiveness affects rural organizations’ sensitivity to market changes as well as their capacity to adapt to those changes. This study analyzes over 100 enterprises belonging to nine kibbutzim in three regions of Israel, with varying degrees of remoteness and isolation. Through focused interviews with community and business managers, we examine the methods used by kibbutz firms to cope with rising transport costs. Among the strategies proposed in the literature, localization has received particular attention for its potential to reduce fuel expenditures while at the same time reducing CO2 emissions, strengthening intra-regional ties and (in times of global market swings) providing a relatively low-risk investment strategy. However, despite theoretical benefits, it is unclear how or to what extent localization has been implemented by rural enterprises. Other variables in the transport cost equation may be easier to change, such IV as product price or shipping logistics. This study aims to analyze the methods used by gathering qualitative descriptive accounts as well as quantitative data about firms’ revenues and actual transport costs; geographic data about the locations of employees, customers, suppliers and business partners was also used to generate GIS spatial maps to illustrate the extent of localization and compare the geographic implications of different transport strategies for kibbutzim and businesses. Findings indicate that firms in remote and isolated regions are strongly inclined to reduce transport distances, and also rely on strategies of dematerialization and high value density. While privatized communities may be successful in regions with access to robust horizontal and vertical networks, those in extreme peripheries often rely on platforms for collective action such as cooperatives, regional ventures and mutual guarantees, to overcome some of the disadvantages posed by their remote location. Moreover, it appears while access to all forms of capital facilitates adaptation and thus provides important advantages for organizations coping with change, social capital might be particularly significant, as it enhances rural communities’ ability to utilize the knowledge and resources of members, thereby bolstering the community’s capacity to innovate and leverage other forms of capital that may be otherwise unavailable. V Acknowledgements I would like to express enormous gratitude to my advisors, Drs. Moshe Schwartz and David Pearlmutter, who not only nurtured my academic learning but did so with much patience and compassion. Various obstacles and challenges arose during this research project – but at every point, Moshe and David responded with support, empathy and encouragement. They always believed in me, and let me know it. Dr. Menachem Topel provided valuable insight into the recent developments occurring in the kibbutz movement. He also helped connect me to interviewees in Sha'ar HaNegev. Dr. Aviva Peeters provided vital support – both conceptual and technical – with ArcGIS software; I thank her for both her patience and the thoughtfulness with which she assisted me. I am also grateful to the Arava Institute for Environmental Studies, for serving as a bridge to the Albert Katz International School (AKIS) and the Department of Man in the Desert. The United States-Israel Educational Foundation helped fund this study through the Fulbright Scholarship program; this research would not have been possible without that financial support. I would also like to thank all of my interviewees and kibbutz contacts, who were incredibly generous with their time and knowledge. Students at Sde Boker also helped connect me to their friends and family living in kibbutzim. Thanks also to my many wonderful friends at AKIS, who have truly become my family over this period. Our potlucks, cookbooks, tennis games, desert hikes and swims in the pool kept me sane, well-fed and happy. This experience would have been far less balanced and enjoyable without you. I would also like to thank Mrs. Dorit Levin, who takes care of all the AKIS students, and to Yoav Cohen, who makes sure we receive housing for just the right amount of time. VI Finally, I owe immense gratitude to my parents, who supported and encouraged my decision to spend time in Israel and learn about our family ties to the kibbutz movement – which, in varying ways, now span three generations. This adventure has led me to better understand my own background and where I would like to go next. Most importantly, it allowed me the chance to get to know Saba Adam, who demonstrated humility and humor in his approach to life, yet always surprised me with his perseverance and creativity. Saba always found simple ways to share profound stories, and I would not have come this far if not for him. VII Table of Contents Abstract III Acknowledgements V Table of Contents VII List of Tables IX List of Figures X 1. Introduction 1 1.1. High Transportation Costs and the Rural Development Challenge 1 1.2. The Israeli Context 2 1.3. Transformation of the Countryside: a Natural Experiment 3 1.4. This Study 5 2. Literature Review 9 2.1. Fuel price volatility and its implications for rural development 9 2.1.1. A brief history of fuel prices and predicted future trajectories 13 2.1.2. International variations in fuel price and demand, the case of Israel and methodological considerations 18 2.1.2. Fuel price elasticity of demand 22 2.1.3. Study context: kibbutz enterprises in rural Israel 26 2.2. Rural challenges and the 'new development paradigm' 30 2.3. A brief history of the kibbutz (1909-2010): From communal to plural, and from revolutionary to routine 37 2.3.1. Kibbutz economic trends today 44 3. Methodology 48 4. Case Studies 54 4.1. Hevel Eilot Regional Council: Remote and Isolated 54 4.1.1. Ketura: Collective Entrepreneur 55 4.1.2. Yahel: Privatizing in the Desert 60 4.1.3. Grofit: Saved by Semi-Privatization 65 4.2. Sha'ar HaNegev Regional Council: Not Remote, Not Isolated 69 4.2.1. Gevim: Collective and Wealthy 72 4.2.2. Nir Am: Most Privatized in the Region 76 4.2.3. Or HaNer: an Integrated Model 80 4.3. Galil Elion Regional Council: Remote, Not Isolated 86 4.3.1. Sasa: Climbing the Ladder, Collectively 89 4.3.2. HaGoshrim: Privatized for Survival 94 4.3.3. Dan: Gradual Semi Privatization 99 4.4. Comparison of case studies 104 5. Results 108 5.1. Transport Strategies Identified 109 5.1.1. Localization 111 5.1.2. High Value Density 122 5.1.3. Information 124 5.1.4. Logistical Arrangements 126 5.1.5. Foreign business network 130 5.1.6 Cheaper transport modes 132 VIII 5.1.7. Negotiation 134 5.2. Transport Strategies Identified by Kibbutz 135 5.3. Comparison of transport strategies by region 142 5.4 Transport Strategies Identified by Sector 145 5.5 Transport strategies by kibbutz privatization 147 5.5. Transport Sensitivity Ratio (TSR) for Selected Firms 150 5.6 Economic Geography Maps 154 5.6.1. Labor geography of kibbutz firms 154 5.6.2. Geography of members working off-kibbutz in collective vs. privatized kibbutzim 161 6. Discussion 167 6.1. Impact of regional characteristics on utilization of transport strategies 167 6.1.1. The incidence of specific strategies across regions 169 6.2. Impact of business type on use of transport strategies 176 6.3. Impact of community structure on use of transport strategies 179 6.4. The role of capitals and the emergence of "new" rural development models 188 6.4.1. Applicability of findings to larger economic trends 189 6.4.2. The capital equation 192 6.4.3. The emergence and divergence of "new" rural development models 196 7. Conclusions 201 7.1. Implications for kibbutzim 203 7.2. Implications for other rural communities 205 7.3. Theoretical and methodological contribution 207 7.4. Limitations of this study and suggestions for future work 209 References 211 Appendices 227 IX List of Tables Table 1. International comparison of crude oil, gasoline, and tax costs. 19 Table 2. International comparison of elasticities of demand for gasoline. 27 Table 3. Comparison of case study regions. 51 Table 4. Case study kibbutzim 52 Table 5: Ketura’s main business branches by net revenues. 59 Table 6: Kibbutz Yahel’s main business branches by net revenues. 64 Table 7: Kibbutz Grofit's main business branches by net revenues. 68 Table 8: Kibbutz Gevim's main business branches by net revenues.