Israel Moves to Open Meat and Dairy Markets to More Competition

The Israeli government took a belated, hesitant step toward a more competitive market this week, as an interministerial committee recommended a partial relaxation of import duties on meat and dairy products.

In a joint statement, the Ministries of Finance, Economy and Agriculture proposed that the meat market and 20 percent of the dairy market be opened to foreign producers, a measure aimed at reducing the cost of living.

The proposal would eliminate the import duty on veal and open up the duty-free fresh meat market to imports. In addition, import quotas on duty-free hard cheeses, yogurt and cream will be reduced by thousands of tons a year, amounting to 20 percent of Israeli dairy consumption.

The Andorn Committee, named for Ministry of Finance director general Yael Andorn, focused on meat and dairy products, which account for over 17 percent of expenditures by the average Israeli family, or NIS 2,251 a month. The committee said that these markets were characterized by higher prices compared with corresponding foreign markets, because of market failure, import barriers, regulatory requirements and the lack of competition in links in the production chain in Israel.

The committee found that staple foods in Israel cost 30 to 40 percent more than in comparable OECD markets. For example, a liter of milk which costs 6.1 shekels in Israel sells for only 4.6 in Europe.

Although the measures are aimed at lowering prices, they could have some undesirable ramifications, as well. One of the factors in the high price of dairy products cited by the committee was that of kashrus restrictions. In particular, opening the market to foreign suppliers could bring an influx of dairy products containing non-kosher milk, which are cheaper than their strictly kosher counterparts. This, in turn, would make it difficult for the domestic kosher companies to compete, and the availability of kosher products would be diminished.

Of no less concern is the possibility of a sharp rise in the import of non-kosher meat in its various forms. Restrictions currently in place keep many such items off the Israeli supermarket shelves. But as the country embraces cheaper meat products from abroad, that too could change, for the worse.

The recommendations, slated for submission to the Cabinet for approval in a few weeks, comes two years after mass protests over the high cost of food and housing rocked the country.

The slow pace of reform in the dairy market was at least in part due to angry opposition from Israeli dairy farmers. The suggestion that import duties be lifted brought them into the streets and saw them spilling out thousands of liters of milk in protest. They insisted that such measures would be ruinous to their livelihood while making little difference to the average consumer’s monthly grocery bill.

Since then, the farmers have retreated, apparently worn down by official pressure and the inevitability of market reforms.

As one of the dairy farmers put it, “We’re a weak link in the (market) chain. They’ll hit us anyway; demonstrations won’t help.”

On the other hand, one recommendation included in the Andorn Committee report that could have far-reaching, positive effects calls for breaking up the dominance of the few giant food chains, which are responsible for keeping prices high.

So far, the politicians have shown little enthusiasm for taking on those powerful interests. Time will tell if the Cabinet will adopt such a recommendation, or choose again to avoid a head-on confrontation with Israel’s powerful tycoons.

This article appeared in print in the April 25th, 2014 edition of Hamodia.