Food Import Reforms Could Drive Prices Down

Committee recommends cutting through the red tape that blocks competition to 'cartel-like' importers.

Ilan Assayag

The government is planning major reforms of the rules governing food imports to Israel, which would open the local market to mass imports. The reforms include changes to Health Ministry regulations under which the importer would only have to declare the food meets the accepted safety standards in Israel, and would adopt European Union standards for food products. Importers are currently required to receive approval in advance, a complicated bureaucratic process that is a serious barrier to food imports.

The reforms are expected to increase competition and lower prices for consumers for a large number of popular food items such as rice, breakfast cereals, crackers and cookies, pasta and various snacks, as well as increasing the variety of such products available to consumers.

The committee headed by the director general of the Prime Minister’s Office, Harel Locker, on parallel imports [non-counterfeit product import without the permission of the intellectual property owner] is behind the proposal. The recommendations are to be brought before the cabinet for approval soon, and are to be implemented quickly, say government officials involved in the matter. Committee members include outgoing Health Ministry Director General Roni Gamzu and Economy Ministry Director General Amit Lang. Both Prime Minister Benjamin Netanyahu and Health Minister Yael German were personally involved in the process.

“This is good news in terms of lowering the cost of living and it affects all non-sensitive food imports, for example pasta, cereals and cookies,” said an official involved in the reforms. Non-sensitive food imports comprise half of all food imports to Israel, figures from the Central Bureau of Statistics show. Total food imports are valued at $4.3 billion a year.

The Prime Minister’s Office chose to announce the reforms just before the Passover holiday, even though the proposal will only be presented to the cabinet in a few weeks, after which the legislation will have to be finalized and then sent to the Knesset for approval − a process that will take at least until well into the summer. It will also require the cooperation of the Antitrust Authority and the finance and economy ministries.

The Health Ministry currently requires approval for each individual product imported. The process includes filing a “product file” with a large number of forms, each product requiring a separate bureaucratic procedure, and the testing of a sample of each batch of the imported foodstuff. This applies to both products new to the country and those brought in regularly.

The committee examined a number of ways to make the process simpler and more efficient, while maintaining high standards for guaranteeing the quality of the imported products. After a number of meetings and intensive staff work over the past few months, including reaching understandings with the EU, the committee decided to adopt European methods for food imports. In the EU, such non-sensitive food items can be imported freely, and they pass through the “green channel” where the only condition they must meet are standards set in advance by the EU’s postmarketing regulations.

Israeli food costs are about 19% higher on average than those in other Organization for Economic Cooperation and Development countries, and some products cost far more than in other developed countries. Oils, for example, cost 40% more in Israel than elsewhere in the OECD on average, and bread and cereals are 26% more expensive.

Increased supervision and harsher punishments against violators

Israeli importers will be required to meet these standards by making a formal declaration, the same as in the EU. This will make it easier to import regular food products. At the same time, the committee recommended increasing the legal punishments against importers who do not meet the new standards, along with increased enforcement and supervision of the importers.

Sensitive items not included under the new rules will include items such baby food, animal products and various other foodstuffs that have specific health issues involved. These products will remain under the present individual approval process. The list of such items will be updated regularly as necessary.

“The direct connection with the manufacturer has been exploited for years in Israel, and has created exclusivity agreements with manufacturers and exclusive importers, resulting in a centralized market in this area,” said a senior Health Ministry official.

“Current requirements from importers are so severe that it has become the most significant barrier for importers, said the official. “The importer must prove he knows the composition of the product, supply analytical tests and provide an enormous portfolio on the product. These requirements are so severe that many importers who could import the same product, but not directly from the manufacturer but from [others] in the supply chain, cannot receive this information and cannot import,” he said.

As for parallel imports, the Health Ministry official said: “In the past we opened the market for parallel imports, but the parallel importer could only bring in a product that had a principle importer. This harmed the variety and destroyed the freedom of the entire system.”

Israel’s food sector is considered to be one of the most highly concentrated in the OECD. For example, the top three dairy food manufacturers hold a 90% share of the dairy market, compared to only 27% in the United States and 15% in Britain. For coffee, the top three firms in Israel control 83% of the market, compared to 35% and 67% in the U.S. and Britain, respectively. For pasta, the figures are 69% for Israel, and 35% for the U.S. and 32% for Britain.

A change in approach

“This is not the main disease of the high cost of living, but it is definitely one of the diseases,” the Health Ministry official said. “The goal is for there to be more importers who can import food not necessarily from the manufacturers. We do not need the full information from them on the product and manufacturer, but certain minimal information, and mostly responsibility. This is a change in approach that should allow and transfer responsibility from the regulator to the importer, and also to the retail chain that needs to know it is buying from an importer who meets the standards. In Europe this works quite well.”

As to the question of how this all will affect food prices, the senior official said: “There are those who think it will not cause a lot of change since the majority of the problem is retailing, and there are those who say it is combined and prices will fall significantly.”

The committee was established by a cabinet decision in January, and at the time Netanyahu said: “The retail market is cartel-like and we need to open it up to competition.”

There is a tradition of historic agreements that have led to higher food prices and exploitation of the consumer, Netanyahu said, and the only way to lower prices is to open the food sector up to competition. The prime minister added that there is no reason that the tests the EU uses for food are not good enough for Israel.

Small changes for parallel imports did not suffice

The Locker committee’s original mandate was to examine the issue of parallel imports of food, while preserving the high standards needed to protect the public’s health. In practice, the committee’s recommendations dealt with all imports, and not just parallel imports. The reason was that the deeper the committee delved into the matter, the clearer it became that in order to increase competition it was necessary to change the existing process completely and remove the requirement for individual product approvals.

Last week, as part of the committee’s study of the issues involved, members visited the European Commission in Brussels as well as the national food authorities in Denmark and Britain. Gamzu led the delegation, and was accompanied by a number of senior officials from the Health Ministry and others.

It was agreed with the EU that Israel would become part of the EU’s recall mechanism, and would also receive ongoing, immediate and regular “intelligence” information on faulty products that are to be recalled and removed from stores − the EU’s Rapid Alert System for Food and Feed program. The EU also proposed to provide Israel with advisors to help the Health Ministry in implementing the reforms.

A Health Ministry spokesperson said: “Health Minister Yael German presented to Finance Minister Yair Lapid a report on the progress of the food reforms, which has been led recently by the director general of the Prime Minister’s Office Harel Locker with the goal of bringing about the lowering of food pries in Israel.” The spokesperson added that German is a strong supporter of the reforms.

How the EU does it

The EU’s program for food safety to protect the health of the public is based on a number of principles, which are the basis for the proposed reforms:

* To place responsibility for the food’s safety first and foremost on the businesses involved, including the importers.

* Every business involved in the food supply chain, including manufacturing and sales, is required to keep documents testifying to the identity of those it has sold to or bought from.

* The responsible authorities in the participating member countries provide routine supervision of all these business interests, and they are entitled to do so at any point once the goods have entered the country.

* All the costs of the testing and supervision are to be paid for by the business interests involved, without creating a profit for the authorities.