‘Cornflake Reform,’ Aimed at Spurring Food Sector Competition, Passes Knesset Panel

Industry sources say easing of trade barriers won’t affect retail prices until late next year.

Tomer Appelbaum

A plan that is designed to lower retail food prices in Israel by easing barriers to food imports and thereby increasing competition got the consent of the Knesset Labor, Welfare and Health Committee Wednesday, clearing the way for its eventual passage in the legislature.

The provisions of the plan, which is commonly known as the “cornflake reform” and is part of the Economic Arrangements Bill, supplementary legislation to the national budget, includes steps designed to ease the import of dry foods such as breakfast cereal, pasta, cookies, rice and packaged snacks. If passed, it will take effect six months from the day of its official publication, but sources in the food industry said they did not expect the effects of the law to be felt by consumers until sometime near the end of next year.

The proposal includes measures to reduce delays and bureaucratic obstacles to importing foods in the specified categories, including a simplification of import requirements. The draft law eliminates the need for importers to present certain original documentation from the food manufacturer. It also allows for parallel imports, in which multiple businesses can import the same goods from the foreign manufacturer, ideally creating price competition between the various distributors. The easing of procedural requirements and documentation should accelerate shipping times.

In addition to the provisions regarding food imports, the bill also streamlines the inspection process for meat produced in Israel for local consumption. It eliminates meat inspections during the transportation process and instead increases veterinary service inspections at meat processing plants and at retail outlets.

The plan, development of which was led by Harel Locker, the former director general of the Prime Minister’s Office, does not include more lenient regulation of foods that are considered sensitive, such as baby food, meat and food supplements. About two weeks ago, the cabinet approved similar reforms put forward by the Health Ministry for toiletries including cosmetics, shampoo and perfume.

Senior executives at the country’s supermarket chains said they intend to initiate parallel importing as soon as the food reform takes effect, but they said there is a need for additional reforms if food prices at the retail level are to be brought down substantially.

“The reform will lead to more parallel importing and more competition, but the problem hasn’t been solved. We need to prohibit a situation in which one company is the manufacturer, the importer and the seller of the product, as happens with companies like Procter & Gamble, Nestle and Henkel,” said Rami Levy, the controlling shareholder of the discount supermarket chain that bears his name.

“If I go to Procter & Gamble abroad and ask to buy 100 pallets of Pantene shampoo, they’ll tell me to go to their representative [distributor] in Israel,” he said. “It will be easier after the reform, because I won’t need the approval of Procter & Gamble in Israel, but it’s still possible that P&G will see the serial numbers on the packages of products that I will sell, identify the seller I bought them from and warn him not to sell to me the next time.”

Levy said the reform plan will help, and he will begin looking for products to import, but he said the legislation isn’t perfect.

“Really solving the problem of food prices in Israel requires a genuine free market, without quotas, without customs duties and without other limitations,” Levy said.

Eyal Ravid, the CEO of the Victory discount supermarket chain, called the plan “one of the most important steps taken on behalf of the consumer in the last decade,” saying that it could save families about 20% on their grocery bills. For example, he said, if he manages to import cookies at a lower price, domestic manufacturers will have to lower their prices as well.

A remaining problem, he said, is kashrut certification. The Israeli Chief Rabbinate, Ravid said, needs to accept products certified as kosher from a wider range of rabbinical authorities abroad. Failure to do so, he said, limits the range of products that can be imported into Israel.