The great butter shortage of 2019 is threatening to return next year as government officials debate whether to reimpose import quotas.
Israeli shoppers suddenly found supermarket shelves empty of butter at the start of last year, with grocers saying they were only getting a third of their usual stocks from the dairies. Who was to blame was a source of controversy.
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Many pointed the figure at the dairies, who they claimed were cutting back production because it wasn’t profitable enough. The dairies preferred to use the raw materials that go into butter to make higher-margin products that weren’t subject to price controls, such as yogurt.
A full year after the shortage emerged, Moshe Kahlon and Eli Cohen, the finance and economy ministers at the time, decided to solve the problem by temporarily lifting quotas on butter imports for the year 2020 by emergency order.
The order is due to expire at the end of December unless a joint committee of finance, agriculture and economy ministry officials decides otherwise.
On one side of the debate is the Israel Dairy Council and lobbyists for the farm sector, who are demanding that the ceiling on duty-free butter imports be restored; on the other are importers and consumer advocates, who want the ceiling to be removed permanently.
“At the moment we don’t know what’s going to happen when the emergency order expires,” said Yaffa Hovav, head of the food and beverages section of the Federation of Israeli Chambers of Commerce, warning that a shortage is likely to develop if the quotas are reimposed.
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The ceiling on duty-free butter imports is designed to protect the local dairy industry. Duties on butter for consumers are high, from 126% to 140%. The Dairy Council was opposed to the emergency order from the start and even unsuccessfully appealed it in the High Court of Justice.
In its defense, the council says that it isn’t opposed to what it calls a “controlled” level of butter imports to help supply a big increase in market demand over the last five years.
“Unfortunately, in 2020 the Dairy Council’s recommendation to allow butter imports in a quota framework wasn’t accepted and it was decided instead to allow unrestricted imports duty-free,” the council said. “The result was that in many cases, importers were able to charge much higher than the controlled [local] price and the consumer paid for it.”
The Dairy Council says the price of 100 grams of imported butter averages 5.70 shekels ($1.69), 44% higher than the controlled price for the locally produced product. The solution is to restore the quotas and limit the quantity of high-priced imported butter entering the market.
One industry executive, who asked not to be identified, defending the quota system, saying it shouldn’t be a problem to set a ceiling based on forecast market demand.
If officials want to plan properly for 2021, all they need to do is compare the amount of milk fat expected to be produced domestically with forecast demand.
“If you look at what happened with free butter imports in 2020, we got the [amount] required to meet the shortfall but we paid more for butter. The quota system ensures we get the right quantity and the price is monitored, so the consumer pays less,” said the source.
But there are no shortage of defenders for free butter imports, among them former Agriculture Ministry Director General Shlomo Ben-Eliyahu and the Kohelet Policy Forum, a think tank.
“Planning has failed miserably,” said Ben-Eliyahu. “It’s a survivor of the Bolshevik era, which failed in the Soviet Union and in Israel, but they’re still trying to save it to serve the interest of certain groups of farmers and dairy people at the expense of the Israeli citizen.
“Imported butter is more expensive? Okay, so what does the consumer prefer, that butter costs another shekel or that there won’t be any butter at all?” he said, noting there was all kinds of butter of varying quality and price on the market.
Ben-Eliyahu noted that the government in effect experimented with the two systems: In 2018-2019, there were quotas and a butter shortage, while in 2020 there were none, butter was available everywhere and the Israeli dairy industry didn’t collapse as lobbyists warned. Butter prices were higher but not much higher, he added.
“Every planned market suffers problems and always experiences shortages. Why? Because no one can really plan in advance – it’s megalomaniacal to think you can. Planning distorts the market. Importers know exactly where there are shortages and import as needed,” Ben-Eliyahu said.
He asserts the 2019 shortage was artificial. The price for fresh milk is controlled at a high rate, so dairy farmers have no interest in becoming more efficient producers or producing milk in line with demand. Milk comprises two main components: protein and fat, which are used to make powdered milk and butter. If dairy farmers produce enough fat to meet the demand for butter, they will be stuck with too much milk powder, so they produce less milk and there isn’t enough fat for butter.
Nanny Seyman, a partner in the food importer A. Seyman, said that even the claim that butter prices rose when quotas were lifted is untrue. Butter imported in 2020 from Eastern Europe was cheaper than the local product.
“What cost more were higher-quality butters, which you can’t compare to locally made butter. The market is now wide open, there’s more choice and everyone benefits,” he said. “You can pay more or less for butter depending on the quality and even prices for quality butter have fallen because of the competition. The situation is a lot better for everybody, certainly better than it was two years ago.”