Tnuva took advantage of its monopoly status in the dairy market to rake in NIS 103 million in excess profits in 2009 and 2010, two senior economic figures told the court as part of a class action suit against the company.
Prof. Avia Spivak and Dr. Meir Amir submitted their opinion as part of a NIS 125 million class action filed against Tnuva six months ago. The suit argues that Tnuva abused its position to raise cottage cheese prices by more than 40% between 2006 and 2011.
Tnuva sparked last year's cost of living protest movement, which began with a boycott of the company's cottage cheese over its high price.
Spivak, now an economics professor at Ben-Gurion University of the Negev, used to be the Bank of Israel's deputy governor. Amir, also an economics professor, used to be a senior Finance Ministry official.
The company, controlled by Apax Partners since 2008, took in at least NIS 50 million in monopoly profits, stated the professors.
They came to this conclusion based on a calculation that took into account the cost of producing cottage cheese, which decreased over that period.
Had Tnuva passed its savings on to consumers, which would have happened had prices been government-controlled, the public would have saved NIS 103 million, they noted.
However, in a free market, not all savings are passed on to consumers. Thus, Tnuva took in NIS 50 million more than it would have had it merely allowed itself to profit from the lower production costs, they found.
"What happened in 2009 and 2010, when the price of cottage cheese increased 12% while its production cost decreased 4%, leaves no room for doubt: Tnuva took advantage of its status in the cottage cheese market and repeatedly raised prices," they wrote.
"These moves had nothing to do with costs and all to do with raising its profitability in a market it controlled completely, when it was clear that the other two producers, Strauss and Tara, would follow in its footsteps.
"This behavior, of decreasing production costs while raising prices to consumers, cannot happen in a competitive market," they added.
This process was unreasonable, not to mention immoral, and could be carried out only by a monopoly, they stated.
Their calculations presume that retailers did not change their profit margins, they noted.
Tnuva is currently under investigation by the Antitrust Authority over alleged abuse of monopoly power.
As part of its defense in the class action, Tnuva submitted a report by Menachem Perlman, a former Antitrust Authority economist, who stated that retailers increased their profit margins. Spivak and Amir said they disagreed with Perlman's conclusion, and said the issue could be settled if Tnuva would agree to release its wholesale sales figures.
Mivtach Shamir, which owns the minority share in Tnuva, recently published an opinion stating that Tnuva's market cap had shrunk, which would suit the company's interest if it intends to buy control from Apax. Apax, for its part, denied that the company had lost value.
Spivak and Meir noted that based on the company's valuation, its gross profit increased from 24% to 29% between 2006 and 2010. During that period, the company raised prices for some of its products, even though production costs generally did not increase, they noted.
When Apax bought Tnuva in 2008, it was worth an estimated NIS 4 billion. Three years later, it was estimated as being worth nearly NIS 10 million - a 150% increase - even though the global economy was in crisis over that period, they stated.
Tnuva increased its value through careful management of the company and its real estate, and aggressive pricing, they said.
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