Produce Prices in Israel Are Skyrocketing, but Storm Isn't to Blame

Prices for fruits and vegetables in Israel have been rising rapidly for years. Now the famers' federation is advocating for government oversight.

Prices for fresh fruits and vegetables at the large supermarket chains continued climbing sharply last week despite no apparent shortage due to damages from the storm that hammered Israel. The president of the Israel Farmers Federation, Dov "Dubi" Amitai blames the trend on sales margins set by the two biggest chains, Mega and Super-Sol, both of which buy their produce directly from farms.

"The supermarket chains exploit storm damages to institute excessive price hikes," says Amitai. "There is no justification for margins amounting to hundreds of percent on fruits and vegetables, even after the storm and the enormous damage it caused farmers. Marketing margins and greed are the reasons for the price hikes. These don't just hurt the Israeli consumer who is forced to pay an inflated price for fresh produce, but farmers too who are pushed to the wall and have their profitability eroded due to market failure."

The supermarket chains deny the blame, claiming they need to cover many expenses beyond the price paid to farmers, and therefore sales margins are much lower than claimed.

"The prices presented by the farmers' federation as the supposed purchase prices for products in Super-Sol are baseless and completely unrelated to the real prices," says a representative of the chain. "The actual purchase prices include packaging, logistics, transport, storage, and more which are added to the initial price of the product. Therefore the claims about marketing margins are mistaken and truly misleading."

Mega agreed, adding refrigeration, manpower and depreciation as added costs that can double or triple purchasing price.

The farmers' federation and the Israel Consumer Council are pushing for legislation that would put sales margins for fresh fruits and vegetables under government supervision. Amitai says such a law would ensure the livelihood of farmers along with fair prices for consumers. Last weekend Ehud Peleg, CEO of the ICC, said the fruit and vegetable industry sees enormous gaps between what farmers receive and the amount paid by consumers. The product bought by the consumer in the store is the same product the farmer sold at the gate of the farm, according to Peleg, so it can't be claimed there are hidden costs other than for transport and marketing.

"The jump in price by large double-digit percentages, sometimes by hundreds of percent, compared with the price at the farm gate attests to the fact that intermediaries in the marketing chain have lost all restraint," says Peleg. "There is no choice but to impose government control over the margins they collect."

"Wholesaling in Israel works on margins that are considered reasonable: 13% to 16%," adds Amitai. "Unfortunately, the ones who caused prices to jump lately have been the chains, where 45% of purchases are concentrated. The chains set up subsidiaries that buy the produce from the farmer and sell at huge margins. The large chains make the worst moves, and these cut down demand."

Falling prices in Europe, but skyrocketing here

The Israel consumer has been faced with consistently rising fruit and vegetable prices in recent years, according to figures from the farmers' federation. The increase is also sharp compared to general inflation in the economy as well as in comparison to fruit and vegetable prices in Europe. Israel's fruit and vegetable price index rose 35% between 2005 and 2011 while at the same time, prices in the European Union fell 0.7%.

An executive at one the private discount supermarket chains claims the large chains do charge unnecessarily high prices, particularly in areas where there is less competition.

"In chains like Super-Sol Sheli, Mega Ba'ir, and AM:PM the prices are sky-high in areas without competition," he claims. "The discount Super-Sol Deal and Mega Bool chains also have sales margins that can reach 100% where competition is lacking. But in areas with competition the prices are reasonable and the gross margin is just around 25%."

Farmers, however, are also angry when fruit and vegetable prices fall too low. One source, who recently attended a meeting between Rami Levy, owner of the Rami Levy Hashikma Marketing discount supermarket chain, and hundreds of farmers at the Volcani Institute at Beit Dagan, says the farmers insisted that Levy boost his fruit and vegetable prices. "They said he's destroying the market by selling at a loss at some of his branches, damaging their image," he claims. "He drew a great deal of anger."

Nearly half of Israeli families do their food shopping, including for fruits and vegetables, at supermarket chains rather than at markets and grocery stores, as they did in the past, according to Central Bureau of Statistics figures. For example, 45.8% of families bought their vegetables at supermarket chains in 2010 compared with 32.5% in 2003. In 2010, 26.1% of families bought their vegetables at greengrocers, down from 27.7% in 2003.

Dan Peretz