Importers: Blame Supermarkets, Not Taxes, for Sky-high Food Prices

Supermarket chains sell imported goods at a 60% to 100% profit, and the rest of the market adapts itself to these prices, say importers.

Israelis pay two to four times what Europeans pay for foods such as wine, almonds, garlic, honey and fish, according to a study conducted for TheMarker by the Chamber of Commerce.

The problem may not lie in the protectionist import taxes meant to protect the country's producers. Importers say the blame for the country's high prices lies with retailers, mainly the supermarket chains.

Supermarket - David Bachar - July 2011
David Bachar

Importers said that import duties and taxes make up only a small percentage of the high prices. The main issue is that supermarket chains sell imported goods at a 60% to 100% profit, and the rest of the market adapts itself to these prices.

Supermarkets refute the claim, stating that their profit margin is only 20% to 30% on most products.

One importer of beans and grains said the supermarkets could sell some of his products for NIS 30 a kilogram, and everyone would still take home a profit. In practice, these products are sold for NIS 50 to NIS 60, he said.

"It's a well-known fact: The chains double prices," said the importer, who, like others interviewed, asked to remain anonymous in order to protect his business.

Alcohol importers said supermarkets earn a 60% profit on a bottle of wine. "The duty on wine isn't too high, but if I buy a bottle of wine in Europe for 20, pay a NIS 6 import tax on it and sell it to the supermarket chain for NIS 30, the consumer will pay NIS 45 to NIS 50 at the store," one importer said.

Nevertheless, importers say the time has come to change the country's import policies. Import duties should protect farmers, but they should also force farmers to be competitive, some importers say. One way to do achieve this is through altering the quotas for tax-free imports of certain items. Some items may be imported in limited quantities without being taxed, thereby creating a black market.

The Industry, Trade and Labor Ministry is aware that the sale of duty-free import quotas has become a business for producers in and of itself. The ministry has tried to fight the phenomenon but has had little success.

From the importer's perspective, the license to a quota means a certain guaranteed income.

One of the problems with the ministry's quota distribution policy is that it tends to give preference for permits to producers rather than importers. Imports could reduce local prices by increasing competition, but producers have no interest in doing so. Therefore, imported goods are often sold at the same high price as local goods.

Olive oil is one example of such a product. Over the past few decades, olive oil has become a staple in local kitchens, but it is also very expensive; a 750-millileter bottle often sells for NIS 45 or more. After the last few weeks of consumer protests over high prices, stores started offering bottles of olive oil on sale for NIS 30. That is still considerably more than the price of extra-virgin olive oil abroad: The same bottle sells for NIS 19 to NIS 24, and that's before any sales.

Reuven Schlissel, head of the food industries division at the Chamber of Commerce, said the problem lies with the government's policy. Local olive oil producers hold a significant volume of duty-free import licenses, the explanation for which is that importers create more jobs by importing the oil in barrels and bottling it here. On the other hand, giving them such a large portion of the market means that imports don't create any additional competition that could lower prices. The result is that producers take the profit themselves, or split it with the retailers, and sell all the olive oil at the same price.

Representatives of the supermarket chains said that since most of the market is controlled by the large discount stores, their profit margins are not nearly as high as importers claim.

"I don't know of any goods that have a 60% profit margin," said Rani Zim, one of the owners of the Kimat Hinam supermarket chain. His stores earn a gross profit of 22% to 30% on imported goods, he said.

A top official at a privately-held chain said most stores have profit margins of 20% to 25%, though that can be as high as 35% to 45% at outlets within cities. Chains that do their own importing, such as Tiv Taam, earn 50% profit margins on certain goods, he said.

Yossi Shalev, Tiv Taam's head of marketing and commerce, said his chain has a gross profit margin of around 28%.

Willi-Food owner Yossi Williger said he objects to the government's discriminatory tuna taxation policy. Importers of tuna cans pay 50% tax while importers of frozen fish pay no import duties. Tuna isn't grown in Israel, so the policy cannot be said to protect local producers. The Chamber of Commerce found that it is designed to protect 800 canning employees in the outlying parts of the country.

The result is that while tuna sells for between NIS 3.50 and NIS 3.80 in the United States and the United Kingdom, it sells for NIS 5.50 to NIS 7 in Israel.

Ido Hamama, who imports agricultural products, said excessively high import taxes on products such as chickpeas, pine nuts, bulgur wheat and peanuts create excessive protection for farmers, who have seen their profits increase over the past few years. Import duties could be cut so that farmers would still earn profits but consumers would pay less, he said.

Vered Mussafi, head of business development at food importer Moshe Mussafi, said the high import taxes mean that local farmers don't need to invest additional effort or become more efficient.

"Imports are necessary because local production doesn't meet demand, but the high import duties mean that farmers don't have to be efficient," she said.

These prices are passed on to consumers. While a kilogram of almonds sells for about NIS 18.50 abroad, Israeli consumers pay NIS 70 to NIS 80. Import taxes make up at least 30% of the price, she said.

Likewise, for chickpeas - which have jumped in price in recent years - taxes account for 30% of the purchase price. Dry chickpeas cost $1,400 to $1,600 a ton on the international market, but Israel charges import taxes of $1,000 a ton.