Israel's food retail market is controlled by big players who make it difficult for new suppliers and retailers to enter the market or compete, says the committee drafting recommendations to reform the country's food sector.
The food-prices panel is headed by Sharon Kedmi, director-general of the Industry, Trade and Labor Ministry.
The big players control three sections of the supply chain - importing, production and sales. Their dominant position is responsible for the sharp increase in food prices - including those of fresh fruits and vegetables - from 2005 to 2011, beyond the rise in the consumer price index for that period.
The producers argue that their prices have increased because global inputs have become more expensive. But the committee found that since the second half of 2007, food prices in Israel increased more quickly than they did in the United States and the European Union, even though these markets are also subjects to rising prices in global inputs.
Local production is controlled by four big players, stated the committee: Tnuva controls 15.1% of the local food market; Strauss, 9.6%; Osem, 8.4% and Coca-Cola Israel (Central Bottling Company ), 7.1%.
"There are 1,700 factories producing food in Israel, yet the industry is highly concentrated," states the report. "More than 40% of all retail sales (including other consumables ) are from four big groups - Tnuva, Strauss, Osem and the Central Bottling Company. These companies employ 58,000 people (about 17% of all people in the industry ) at an average salary of NIS 46 an hour, compared to NIS 72 for the industry as a whole. The large majority of their sales, some 92%, are on the local market."Bigger size, smaller bill
The report found that the big producers sell to the big grocery store chains for less than they sell to small retailers, thus preserving the big fish's power.
Regarding sales, the committee found that while there are 16,000 retailers selling food, drinks and tobacco, the big players have most of the market share. The big grocery store chains had a 52% market share in 2004, which increased to 60% in 2009; in parallel, the smaller players, including corner stores, markets and specialty stores, lost market share.
In 2010, the two big players, Super-Sol and Blue Square (Mega ), had nearly 60% of the retail sector in terms of revenues and number of stores. The committee found that food prices continued to increase even as discount chains grew.
The suppliers and grocery chains are responsible for the increasing prices, found the committee. The suppliers create barriers preventing prices from being lowered, while the grocery stores draw customers by selling some products at a loss. But since most customers don't buy only the loss leaders, they ultimately wind up paying more, since other products cost more in order to compensate for the loss leaders.
In terms of imports, the committee found that beyond basic competition, importers bear the costs of bureaucracy, including receiving permits from the Standards Institution, the health, agriculture and industry and trade ministries and the Registrar of Companies.
The committee criticized the Standards Institution, "which takes in excess profits, beyond the accepted level, and works inefficiently, which makes importing more expensive."
The big importers include Unilever, Diplomat Distributors and Neto Trade. Importers of non-food products include Unilever, Diplomat, Sano, Holga-Kimberly and Schestowitz.
The high bureaucratic costs often make it unprofitable for unofficial importers. "In some fields, the bureaucratic costs are so high that they block parallel imports" alongside the official importers of a given product, states the report. The authorities' demand to see documentation of the full supply chain that brought a product to Israel also blocks imports sometimes, found the report.
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