Israel Faces Rising Food Prices Amidst Conflicting Explanations

By Aryeh Stern

In recent weeks, Israel has experienced a surge in food prices, with prominent companies such as G. Willi-Food, Strauss, Shastovich, and Wissotzky announcing increases of up to 15% and, in some cases, 25% on select products starting last Thursday, Feb. 1. These companies attribute the hikes to rising costs of raw materials, citing increased supplier prices, elevated shipping expenses due to Red Sea ship attacks, and the depreciation of the shekel affecting import costs.

However, available data presents a different perspective. A survey by investment firm Meitav Dash indicates that prices for most agricultural commodities have actually decreased in the past six months, except for cocoa, coffee, and rice. The discrepancy between the announced price hikes and the global trend is evident, with the food price index in Israel rising significantly (5.9% in the past year) compared to global averages.

Bank Hapoalim’s survey further supports this, revealing a 0.5% decline in the food production index in December when the Israeli price hikes commenced. Critics argue that the Israeli government is a significant factor contributing to the high prices, pointing to a 17% VAT rate (while many OECD countries exempt food from VAT), additional taxes, fees, kashrus requirements, and elevated power and fuel costs.

Despite the companies attributing the increases to external factors, market insiders claim that the recent price hikes are unrelated to the ongoing conflict. They suggest that most companies planned to raise prices after the Jewish holiday season, and the decision was postponed until the conflict’s escalation.

Market sources emphasize that the primary cause of expensive food in Israel lies in government policies, highlighting the state’s failure to address systemic issues. Critics argue that the average wage has risen more than food prices over the past decade, but the state has not tackled underlying problems, such as the 17% VAT on food and other policies that impact agricultural costs.

The market anticipates ongoing challenges as the war continues, with companies realizing the need to adjust prices due to an extended conflict and upcoming events like Pesach. While raw material prices have experienced minor falls recently, many argue that they remain higher than previous years due to stockpiling during the war in Ukraine. Despite the current challenges, some industry experts express optimism that the market will stabilize, and prices will eventually decrease in the first half of the year.

Critics also point to the structure of the Israeli food market as a significant factor in high prices, emphasizing the need for substantial and systemic changes. Advocates for market reform argue that competition is limited, with half the market controlled by a few companies. They suggest that breaking up large companies would promote competition, leading to lower prices for consumers.

In contrast, supermarket chains, which led protests against price hikes a year ago, appear less likely to engage in a similar battle this time. Last November, when retailers vowed not to raise prices, manufacturers and importers responded by withholding products, leading to empty shelves. This time, it seems supermarket chains are wary of an uncertain outcome, considering past consumer behavior where willingness to pay higher prices prevailed.

The ongoing debate highlights the complex dynamics at play in Israel’s food market, intertwining global trends, government policies, and market structures. As consumers grapple with rising prices, the factors contributing to this situation remain a subject of contention among industry players and observers.