Who Gets the Credit for Israel’s Falling Food Prices? Not the Government

Prices are dropping because Israeli consumers are in dire financial straits and world commodities prices are lower.

Shoppers in an Israeli supermarket, where the lights are dimming on the Era of the Free Bag.
Tomer Appelbaum

Virtually all the politicians are offering solutions, or at least slogans, about how they will address Israelis’ high cost of living. Chief among them is Economy Minister Naftali Bennett, the head of the Habayit Hayehudi party, who often speaks about how food prices fell 5% last year.

Bennett has taken pride in the drop, via newspaper and TV interviews, on the satirical program “Gav Ha’uma” (“Back of the Nation”), and in a Facebook post titled “Fact: After 10 years of rising food prices, we’ve put the brakes on and lowered them by 5% in the last year.”

After climbing for a decade, food prices did in fact fall in the 12 months through January, by 3.2%, according to the Central Bureau of Statistics.

But while the government has taken a number of actions to cut food prices, those measures largely haven’t yet taken effect and played no part in that decline.

Israelis are struggling

Behind the decline is the kind of news Bennett and other politicians may not want to relate to in any serious way: Israeli consumers are in dire financial straits.

They have less disposable income, having been hammered by two increases in the value-added tax to 18%, rising home prices, higher municipal taxes and more. They don’t have extra cash to pay for sometimes pricey food.

Simply put, Israeli consumers today are poorer than they were. And as a result, in 2013 they cut back the number of products they purchased by 1.9%, according to Storenext, a market researcher that tracks purchases at some 2,150 food retailers.

The decline on a per-capita basis is an even sharper 2% because Israel’s population is growing.

Faced with declining spending, the supermarket chains last year acted to coax shoppers into filling their carts by sharply lowering prices.

Food makers quietly helped somewhat since they were feeling the pinch of declining spending. They stepped up the number of discounts they offered retailers.

But Israel’s food producers themselves got help in offering those discounts to retailers, as world prices for commodity ingredients like sugar, wheat, soya and corn dropped.

And even with the discounting, quantity sales of food declined again in 2014, this time by 0.6%. The average 2014 shopping trip cost 1.7% less than it did the year before as consumers abandoned the traditional retail leaders, like Supersol and Mega, for discounters.

Hard on the bottom line

The process has been painful for Israel’s supermarkets. Supersol, Israel’s biggest, posted a 171-million-shekel ($42.8 million) operating loss for 2014 while No. 2 Mega reported a deficit of 136 million shekels (including rent it pays to a sister company, Blue Square Real Estate).

And there’s no sign that 2015 is going to be any different. In fact the decline in food spending may accelerate.

In January, food sales were down 5.5%, with even discounters seeing a drop of 4.7%. Some prices haven’t dropped as much as consumers might like. Prices for fresh produce, for instance, are still 2% higher than they were on the eve of the 2011 social-justice protests.

According to the 2014 State of the Nation report from the Taub Center for Social Policy, a Jerusalem research firm, the bottom tenth decile of Israelis consumes 25% less than his or her basic food needs. For the next decile up, the figure is one-sixth, more than 16%.

The Israeli Institute for Economic Planning says food prices have been falling in line with world prices, not due to any government action.

Eleanor Kalifzada, the institute’s chief economist, says falling commodities prices have led to deflation in Europe and Israel, which has helped consumers so far but risks pushing economies into a recession.

Initiatives take effect later

Bennett’s spokeswoman took issue with the view that ascribes lower food prices in Israel to external forces. “Bennett, of course, did nothing except have some good luck,” she said in a sarcastic response.

“Only luck enabled the Food Law to be approved. Only luck brought about the breakup of the Nesher [cement] monopoly. Only luck brought about the disbanding of the agricultural-market cartels after 10 years,” she said, citing a list of the government’s legislative and regulatory achievements.

To Bennett’s credit, the government has pursued a package of initiatives to bring down food prices through more competition and easier importation. He listed these on a Facebook posting that won more than 2,100 likes.

But almost none of them went into effect last year and had no effect on food prices.

Among those is the Food Law, which bars supermarkets and foods makers from coordinating prices. It also bars supermarkets from creating local monopolies and requires them to publish all their prices on the Internet in real time.

But the law went into effect only in January and the online-posting requirement goes into force only this May.

Other reforms, for instance, in customs exemptions for agricultural imports, go into effect this month. Others like the so-called corn-flakes law, which removes regulatory barriers to importing dry food, were initiated by others.