Reduced Customs Won’t Lower Dairy Prices, Industry Sources Say

The finance and economy ministries must address concentration of economic power in the distribution chain if prices are to decline substantially.

The Finance Ministry and the Economy Ministry are rethinking lowering customs duties as a way to reduce dairy prices, industry sources say, because the move is not an effective means of reducing dairy prices at the retail level.

The plan to boost the volume of dairy imports by lowering import duties on milk products was part of a plan developed by a committee headed by Harel Locker, director general of the Prime Minister’s Office. The plan included a reduction in what dairy farmers are paid for their milk, in addition to a lowering of customs duties. The cut in the so-called target price paid to farmers is being implemented and at this point, there is no talk of changing that. When it comes to lowering import duties on dairy products, however, it appears that the move is not leading to lower consumer pricing.

Duties on imported hard cheeses, the sources noted, constitute just 6% or 7% of the final price paid by the consumer. The more major problem, they argue, is elsewhere in the distribution chain, including concentration of economic power among relatively few dairy product producers and supermarket chains. As long as the finance and economy ministries are unwilling to tackle those forces, dairy prices will not decline in a major way, the sources warned.

The Locker proposal is a long-term plan extending over eight years. It was only recently implemented, in mid-2013, following the Knesset election a year ago and the formation of the current government. Despite the short time during which it has been in effect, it has already shown results, the sources said.

The essence of the plan is a 11.25% reduction in the target price for milk paid to farmers over the first four years, and a subsequent cut by over 20% through the elimination of small, less efficient farms, the sources explained, with the target price already declining by 9% since the middle of last year.

Ilan Assayag