Prepare for Food Price Increases, Warn Israeli Food Manufacturers, Retailers

Over the past year, raw materials and transport have increased, and manufacturers can't delay a price hike much longer - despite concerns over poverty and hunger.

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טיב טעם רמת החייל
סניף של טיב טעם ברמת החייל. סופר הוא שירות חיוני שפעל בכל הסגריםCredit: Eyal Toueg

It’s not clear if and when Israel will face economic measures aimed at scaling back the country’s deficit, but it seems like an increase in food prices will be coming within the next few months.

Senior executives in the food industry said it’s likely that prices will be increasing by the second half of the year, if not sooner. This is because while prices of foods and commodities varied without a clear direction over the past five years, over the past year the trend has been that of a clear increase.

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This comes after the price of commodities dropped sharply in March 2020. In January, the Food Price Index reached a six-year high. The index, which tracks the prices of agricultural commodities, increased by 4.3 percent in January versus December 2020, reaching its highest level since June 2014. This was its eighth straight month of growth, and the longest period of growth in a decade.

When food commodity prices increase, so do the prices of the final products, and this also raises concerns of poverty and hunger, which increased during the year of the pandemic.

The price of commodity transport has increased as well.

Food prices in Israel have not increased over the past year, but executives are preparing the public for what may come.

“I don’t intend to address this issue before the end of March, after Passover,” said an executive at a major food corporation. “But after the holiday we’ll have to examine what we’re doing. If the prices of raw ingredients continue to increase, we’ll be forced to raise prices.”

“Since we’re a big company, our contracts for raw ingredients are set several months in advance, which gives us more breathing room. We also managed to save in other ways, and we’re benefitting from the plummeting value of the dollar and euro. But I imagine that smaller companies won’t have a choice, and they’ll be forced to raise prices pretty quickly.”

An executive at another major food group stated, “Given the increase in the price of raw ingredients and shipping, there’s a risk of price increases. Currently we’re not planning this and we’re managing to absorb the cost increases, but in two or three months we’ll need to take another look to see if these trends are continuing and making a decision. Given the current state of the economy I don’t believe we’ll see a major company raising prices right now, but in two to three months it’s more than possible.”

Representatives of smaller companies said they wouldn’t manage to put off price increases much longer. Vita Pri Galil CEO and Chairman Oshik Efraim noted that farmers raised the price of tomatoes for industrial use a year ago, and that the company didn’t raise its prices at the time. “Furthermore, our situation worsened significantly during the pandemic, since 35% of our sales are to the institutional market, which nearly vanished. We’ll raise prices slightly, but we’ll wait a bit,” he said.

The major grocery store chains also play a role, as they decide whether to approve the suppliers’ new price lists. Rami Levy, owner of the Rami Levy Shivuk Hashikma supermarket chain, stated that the company wouldn’t approve increases before Passover, saying “prices drop over the holidays because of sales, since consumption increases and we need to consider the people who are spending more than usual.”

Shipping prices have increased by up to 500%, noted Levy. “Ocean transport from China, which up until half a year ago cost $1,500-$2,000 per crate, now costs more than $12,000. Shipping from Europe has increased as well, but less, by only 140%. We’re also feeling it on our imported goods, but we’re absorbing the cost for now. The dollar exchange rate may have dropped, but not enough to compensate for the massive increase in shipping costs. We’re hoping shipping costs decrease, but after the holidays we’ll reexamine.”

The last time there was a significant wave of food price increases in Israel was in 2018, when several companies, including Unilever, Tnuva, Osem, the Central Bottling Company, Gad and Tempo, announced price increases.

“For nearly a decade, Israel’s food industry cut prices,” said Dudi Manevitch, chairman of the Association of Food Industries at the Manufacturers Association of Israel. “In Israel prices increased by 6% between 2012-2019, versus the OECD average of 12%. Over those years the industry cut its wholesale prices, but that didn’t make its way to consumers.”

The companies were scarred by the 2011 social protests, which were sparked in part by the high price of food in Israel, and waited seven years until they tested Israeli consumers’ willingness to absorb price increases, which took effect in 2019. However, not all the price increases were justified by higher costs, and the companies took advantage of media attention being diverted to other matters.

While the gap in food costs between Israel and other countries narrowed after the 2011 protests, the food companies ultimately raised prices by 16% in real terms, versus 1.8% in the European Union, according to a Knesset Research and Information Center report published for the years 2005-2013.

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