Yisrael Katz is a good agriculture minister. He knows exactly which side the bread should be buttered on. Four months ago, with a little help from his friend Prime Minister Ariel Sharon, he prevented an increase in water prices for farmers that the Finance Ministry had wanted. Now, he has reached out to the dairy sector - the cat guarding the cream.
Katz announced a hike in the price the dairy farmers will charge dairy product companies Tnuva, Strauss and Tara for unprocessed milk. But since he is also a good guy, he announced that the price the public pays for dairy products will not rise. A sort of financial wonder. The cost of the raw materials will climb 5 percent, but the producers will eat the loss in silence. This gimmick is easily worthy of a Nobel Prize in economics. Not surprisingly, Tnuva - which controls 70 percent of the market - rushed to announce that it was not buying the pig in that poke.
The dairy products market is huge, with NIS 8 billion in sales annually
. Forty-five percent of that massive turnover is in price-controlled products, while the rest is an open market. The entire market is micromanaged from above. There is an effective prohibition on imports, due to quotas of 100 to 200 percent that the Dairy Council distributes among the various dairies. The treasury and the Agriculture Ministry determine the price the dairy farmers will be paid for each drop, as well as the prices of the regulated dairy products.
Obviously, in this archaic structure, the essence of Bolshevism, inefficiency reigns and prices are far too high. The price of 100 kilograms of milk is the equivalent of 39.4 euro, compared to 31.3 euro in the European Union, 27.7 euro in the U.S. and 16.8 euro in New Zealand. In other words, we are paying about NIS 1 billion every year for the outrageous inefficiency of the local dairy industry.
In order to streamline slightly, the government decided three years ago to give dairy farmers grants to merge and increase their herds while gradually lowering the price of milk. The farmers (kibbutzim and moshavim) have so far received NIS 120 million in herd-merger grants and another NIS 120 million have been approved. The number of dairies has fallen and the price of milk and milk products has been cut 5 percent, which amounts to pure profits of NIS 300 million annually for the milk-consuming public.
But now Katz has "done some thinking." The grants have already been given. So it is time to go whole hog and raise milk prices. That way the dairy farmers win twice - and dumb ol' Israel will pay the price in silence.
But one question remains: Will Finance Minister Benjamin Netanyahu stand in the breach? Katz is a member of his camp in the Likud. But Netanyahu does not like cartels, and raising milk prices means hurting the public and the economy. And the treasury has many weapons at its disposal with which to fight back. It could, for instance, approve the import of milk powder, putting an end to the milk cartel. That would be good for all of Israel - except maybe the dairy farmers and Yisrael Katz.
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