The chains that bind the food market can be broken
the committee examining the country's food industry wants to increase competition in manufacturing and sales, increase imports and improve consumers' knowledge.
Supermarket chains shouldn't be able to have more than a certain percentage of the market, and the strong distributors need to be controlled, stated the committee examining the country's food industry in a draft report released yesterday.
The committee, which is discussing ways of lowering prices on food and basic hygiene and cleaning products, wants to increase competition in manufacturing and sales, increase imports and improve consumers' knowledge.
Not all its recommendations are final, and government ministries are at odds over some of them, including those regarding import duties. The committee is supposed to pass on its recommendations to the Trajtenberg Committee, which is currently formulating recommendations for economic reform.
In order to improve competition, the committee called for preventing big players from controlling too large a market share. One way of doing this could include "splitting up the operations of manufacturers that use their market control in one sector to push out competitors in another sector."
This means that if a large manufacturer such as Tnuva holds a significant portion of a certain market, such as dairy products, and uses its power to damage competitors in another category, such as meat products, it could be forced to sell off either its dairy or its meat business. This could be applied to Coca-Cola Israel, which controls the Tara dairy, and Strauss, which controls Elite Coffee.
The committee is also calling for stopping retailers from growing past a certain market share. "We should consider limiting the growth of national-level retailers for a defined period of time, as well as forcing retailers to sell off operations in locales where they have monopolies," the committee wrote. It has not yet determined what that maximum market share should be.
The main goal of this recommendation is to keep Super-Sol and Blue Square from growing any further. These two chains expanded over the past several years, making the market more concentrated, the committee found. Furthermore, the Antitrust Authority can force them to sell off branches in areas where they control more than 50% of the market.
The Antitrust Authority needs to change its approach and stop large companies from growing further by buying out smaller companies, states the committee. Until now, the trustbuster let major food producers like Osem and Strauss buy smaller companies nearly unlimited, and thus let them gain strength and make the local food industry more concentrated. The committee thus recommends limiting acquisitions by major producers.
It also recommends canceling real estate contracts that state a landowner will not rent space to a retailer's competitors. In some cases, when retailers open shops, the force the landowners to sign such contracts. In order to limit large retailers' ability to raise prices, the report recommends enabling regulators to demand data on prices throughout the supply chain for retailers with more than a set amount of annual revenues.
The report also calls for having the government set prices "for products by dominant producers with more than an X% market share in a given category." It's not clear whether the Finance Ministry, which opposes price regulation in general, will accept this. In terms of structural changes, the committee wants to increase competition by separating between production and distribution.
"The team will examine the following tools to break the relationships between the supply chain and the retail sector, to the extent that these relationships limit competition and push out competitors," states the report. It calls for banning chains with more than a 10% market share from having suppliers finance new branches.
The committee also calls for separating agriculture, production and sales. "In cases where there are cross holdings between chains and factories (including animal feed producers ), such as Hadera Paper (Holga-Kimberly ) and Super-Sol, special rules need to be set to increase competition," states the report. Thus, it wants to prevent cross holdings across the supply chain that could prevent the animal feed producers from behaving competitively with Tnuva and other companies belonging to the same group. This also holds in the case of the IDB group, which controls both Super-Sol and manufacturer Hadera Paper.
In terms of shelf space, the report recommends forbidding producers from telling supermarkets how to arrange their shelves, which can hurt the producers' competitors. It also seeks to stop supermarkets from giving certain manufacturers preference on the shelves. It recommends "stating that retail space is open for all suppliers, and thus preference cannot be given to certain suppliers." Suppliers should not be involved in arranging shelves, it adds.
It also suggests creating middlemen to enable smaller suppliers to better distribute their products, on the assumption that distribution is prohibitively expensive for small suppliers and prevents them from expanding.
To boost the small distributors, the report recommends limiting the number of days that retailers have to pay suppliers. To boost small retailers, it recommends forbidding suppliers from selling to different retailers at different prices.
The report also seeks to increase imports by removing bureaucratic obstacles and lowering import duties on products such as electronics and telephones, which total NIS 500 million a year.
The committee wants to see import duties lowered on products including honey, olive oil, fish and fresh beef. It does not call for lowering duties on fresh produce. It also wants to ease parallel imports, meaning imports by anyone other than a product's official importer in Israel.
It wants to do this by canceling the importers' obligations to have their products pass standards checks, in favor of a simple declaration by the importer that the products meet standards, which is how this is done in the European Union. It also wants to bring Israeli food standards in line with international standards.
The committee also calls for giving consumers more information by forcing retailers to publish prices for a set list of products on a monthly basis and by improving consumer protection legislation.