Israel's Antitrust Authority to Examine Food Price Hikes

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Food makers and retailers began raising prices last week on a wide range of products. But preparing the groundwork for that started as far back as July. Over the weeks that followed, senior executives were quoted in the media saying the increases were on the way and unstoppable.

The sense was that the food industry was preparing consumers for the bad news. But they could also have been using their warnings as a way of pushing rivals to join the price hikes with their own announcements.

Now, David Gilo, the antitrust commissioner, plans to sharpen the criteria by which companies make such announcements.

The plan is to determine when announcements of these kinds constitute cartel-like behavior - a kind of collusion on prices that is barred under the law - and when they constitute valuable information to the consumer and serve to make the market more transparent.

Under the law, companies are barred from privately sharing information on price changes with one another. But public announcements of the kind that food companies issued present a more problematic legal issue, even if the results are the same.

"It's clear that this situation isn't healthy, especially in a small and concentrated economy like Israel's. But there is a problem dealing with it," a source close to the antitrust office told TheMarker. "The authority is engaged in a serious examination of the matter to see how we can deal with the phenomenon. We will be innovative as much as the law allows."

By announcing planned price increases to the public, companies can claim they are informing the wide public of consumers and investors alike, not just competitors, the source said. The antitrust authority confirmed that it was examining the issue and will form new guidelines.

The phenomenon is not unique to Israel. Competition authorities in the developed world have been discussing the issue since last February in the framework of the Organization for Economic Cooperation and Development .

About a month ago the OECD published its first statement of principles on the subject, culminating a year of discussions. It stated that all exchange of information through public channels can aid market transparency and help consumers, but that each incident should be weighed by the authorities.

One condition that might arouse the concern of regulators is parallel behavior, such as when one company after another announces similar steps.

OECD antitrust officials agreed that in a small and concentrated market - Israel being an example - the potential for undermining competition is higher because, as the position paper sees it, it removes an element of uncertainty that exists between market rivals.

The latest round of price increases in the food industry began last summer.

"Part of the rise [in commodities prices] I will absorb, but part of them I need to pass on to the consumer. If the retail chains don't let us raise prices, we don't supply products because we can't do this at a loss," Gilles Gamon, a top executive at Sugat, told TheMarker.

Osem executives said much the same, noting that if commodities prices continued climbing "we'll need to examine whether that will affect food prices in Israel." At a medium-sized food maker, a manager said: "We're waiting for the big companies to raise their prices first and then we'll try our luck."

In the weeks that followed, companies waited to see who would be the first to make an announcement of an actual price increase and take the blows of bad publicity. Executives called journalists and supermarket managers to learn whether any of their rivals had made any announcements.

In the end, Unilever Israel was the first, announcing increases of 5% to 6% that would go into effect two months later, after the High Holidays. The company broke two customs - one, that retailers were the first to learn about price changes, and two, that it made an announcement of price hikes in principle, without saying which products would be included.

Some industry sources said Univever's announcement was aimed at letting other manufacturers follow suit until Unilever itself would detail which products were going up and by how much. Others said Unilever was simply testing the water for consumer reaction. Three weeks later it distributed a detailed price list to retailers containing increases on hundreds of products.

Osem, which competes with Unilever in hundreds of product categories, was the second to announce price increases near the end of September. A week later Central Bottling Company, the local Coca-Cola franchisee, announced rises of 5.7%. Nearly all the companies said prices would go up at about the same time, the start of November. Small and medium-size firms followed suit, although they did so by informing supermarket chains of their plans without making a public statement.

David Gilo.Credit: Ofer Vaknin
Food product price hikes.