Reform Aimed at Reducing Israel's Dairy Costs Moves Forward

The plan aims to bring down prices by nudging small, inefficient dairies to sell production quotas to larger operations.

A proposed reform designed to make farm output of milk more efficient and reduce the price of dairy products is slated to clear a major hurdle Monday.

Last week, the Finance Ministry approved an allocation of NIS 65 million of the NIS 200 million called for in the four-year plan. Because there is no approved state budget, formal approval by an exceptions committee is required for the allocation, and that is expected Monday.

The plan calls inpart for small dairy farmer to be able to sell their milk production quotas to other dairy farms and shut down their own production.So far, the owners of 54 small farms have expressed interest in participating in the program, which sources at the Israel Dairy Board say is sufficient for it to move forward after it receives final approval.

The dairy reform was headed by Harel Locker, the director general of the Prime Minister's Office. The plan, which got the consent last year of milk producers, aims to lower the retail price of dairy products by reducing the price farmers get from dairies. The plan will save consumers NIS 300 million per year, according to government officials.

"This is a process that will definitely lead to efficiencies in the industry," said dairy board director general Shaike Drori. The expectation, he said, is that the farmers selling their quotas will get NIS 73 million for selling the production of 280 head of dairy cattle. "We don't anticipate [small] dairy farmers refusing. It's like being offered a new car for NIS 1,000."

The price the dairies pay for milk will be set jointly by the government and producers rather than on the free market. Because the price is based on the cost of production, shutting down small inefficient farms is expected to lower overall average costs in the industry and the price farmers are paid by the dairies. The plan calls for the elimination of farms with a production capacity of less than 700,000 liters of milk per year and fewer than 70 milk cows. The process of closing the small farms is scheduled to continue into 2016.

Ilya Melnikov