The government has developed a plan to lower customs duties on imported dairy products in an effort to reduce prices to the consumer - and Finance Ministry officials say the reduced rates will not apply to foreign products imported by the major local dairies.

At the same time - with regard to broader price increases at the supermarket - although a number of food manufacturers have recently announced their intention to raise their product prices, the CEO of the Mega supermarket chain, Zeev Vurmbrand, blamed the government for touching off the price hikes by raising the cost of price-controlled bread.

A proposed system of quotas that allows the import of dairy products at gradually reduced customs rates is designed to increase competition in the sector, but over the weekend officials said the major dairies - Tnuva, Strauss and probably also Tara - would not be able to import products under the reduced custom duty plan.

The officials said the system is designed to encourage new importers to enter the market to compete with the major local dairies. They said import duties on dairy products are currently so high that they constitute a barrier to importing some products altogether.

Finance Minister Yuval Steinitz said over the weekend that hearings will be held on the proposed plan, which would reduce the duties on products such as yogurt, soft cheeses and butter from the current 120-160% to 20-70% by 2016. The ministry also plans to increase the maximum import quotas on products such as cheese that can be imported at the lowest customs tariffs.

Treasury sources said they would not allow the Industry, Trade and Labor Ministry - which doles out quotas on the volume of imports at reduced rates - to give quotas to Tnuva, Strauss and perhaps also the third-largest dairy, Tara, that would enable them to get the customs benefits.

In the face of arguments that the new system would damage the local dairy industry, the officials said imports are only expected to capture 10% to 20% of the local market, and on the plus side would drive down the retail price of dairy products, help head off price increases unrelated to global agricultural forces, and encourage innovation in the local dairy industry. Finance Ministry officials also said the price of food products here has been rising faster than is justified by global food-price pressures, and that imports would therefore act as a safeguard against further unjustified increases.

The Finance Ministry's plans, which could be softened, are part of broader measures under consideration to lower the cost of food to the consumer.

Price hikes across the supermarket

With regard to broader price increases, a number of food manufacturers have announced their intention to raise the prices they charge retailers after the holidays, which end tomorrow night at the end of Simhat Torah.

"It's true," said one industry source, "that up to now most retail chains haven't approved the price list, but their [bargaining] power with the manufacturers is limited."

The multinational firm Unilever, whose brands include Telma, Knorr and Hellman's, has announced price increases averaging 3% to 6%. The company's local CEO, Angelo Trocchia, said the company had absorbed increases in its own production costs for a considerable period without raising its prices, but that it can no longer continue to do so.

Other local food producers such as Osem have also announced increases, followed most recently late on Thursday by the Central Bottling Company, which makes Coca-Cola products here.

Unilever has said it would defer its own price increases to November 1, in an apparent effort to institute its own price hikes at the same time as Osem and Coca-Cola, to avoid drawing unnecessary, unwanted publicity to itself alone. But one industry source said the increase was also being deferred because retail chains have demanded that manufacturers moderate the price increases they have announced. Osem's announced increases average 4.8%, while Central Bottling's hike ranges as high as 5.7%.

Vurmbrand, Mega's CEO, accused the government of starting the wave of price increases a month and a half ago when it approved a 6.5% increase in the cost to the consumer of price-controlled bread. The price hike by the Industry, Trade and Labor Ministry followed a major jump in the global price of wheat following drought in major wheat-producing countries including the United States. A day after the ministry gave its approval for the hike in price-controlled bread, Vurmbrand warned that the step would usher in increases in the price of a number of other products whose ingredients had gone up in price.