Comptroller Blasts Government Failure to Keep Down Food Prices

Shapira says policymakers didn't weigh social, health factors.

The government has failed in its efforts to regulate food prices, the State Comptroller's Office said in a report Wednesday.

The finance, industry and agriculture ministries failed to consider the social, health and consumer implications when they relaxed price supervision on basic items such as dairy products.

Prices of dairy products rose in recent years by 10% to 38%, even though the price of raw milk fell over much of that period.

In his report "Supervision of Food Prices and Supervision of Dairy Prices," State Comptroller Joseph Shapira wrote that Israel had "reduced [price] supervision on dairy products to the lowest possible level in a centralized market that had not yet developed the conditions for true competition."

He said this "seriously harmed consumers' economic interests."

The ministries did poorly, for "in Israel there is a large population having trouble making ends meet and securing necessary food products."

This is the first report by Shapira, who took over as state comptroller and national ombudsman in July.

Last year the Trajtenberg committee on socioeconomic change, established after 2011's cost-of-living protests, revealed that Israel's consumer prices have been rising faster than in other developed countries.

Following the Trajtenberg report, the Kedmi committee investigated the food sector in an attempt to lower food prices. It pointed out the role of the supermarket chains and manufacturers in rising prices, recommending steps to reduce prices and improve consumer awareness about items under supervision.

But Shapira's report focuses on the government's role in the rise of food prices, noting that between 2005 and 2011, food prices rose 10% in real, inflation-adjusted terms. During that time, most people's income decreased in real terms, squeezing consumers, especially the poor.

Cottage cheese was highlighted in the report. Shapira wrote that in July 2006 the Price Committee had advised the finance and agriculture ministers to relax supervision, contravening a government decision of August 2005. As a result, cottage cheese prices soon surged 35%, while prices of other dairy products under relaxed supervision climbed between 33% and 39%.

During this period, prices of dairy products that remained under supervision went up only 10%. Moreover, between the beginning of 2009 and September 2010, the price of raw milk gradually fell, yet there was no reduction in the retail price of dairy products.

According to the comptroller, there were many lapses. The ministries failed to:

• Identify the products that should be under price supervision

• Properly use measures set out in advance when considering removing price controls

• Consider social and health aspects when making their decisions

• Use proper standards when updating supervised prices set by the Industry and Trade Ministry

• Consider consumer welfare when making their decisions

When he was sworn in this summer, Shapira said the previous summer's social protests had been a harbinger of good tidings. Social justice is not an empty slogan, he said. The government is responsible for correcting distortions and increasing food security, especially among weaker segments of society.

In the summer of 2011, the State Control Committee asked the comptroller to prepare the report in the wake of the social protests.

The comptroller's office said Wednesday that Shapira plans to give special attention to strengthening individual rights, particularly the rights of the weaker classes. This report was the first in a series of efforts in that vein, the comptroller's office said.

The comptroller suggested four products as candidates for price supervision -- coffee, cocoa powder, chocolate and carbonated drinks. Their prices, he said, rose faster than other food prices.

Officials made dairy deal

Rising dairy prices weren't just a bugaboo of the social protesters last year, they were a political football passed between the finance and agriculture ministries, the comptroller said in his report Wednesday.

State Comptroller Joseph Shapira attributes much of the dairy-price hikes to a deal between then-Agriculture Minister Shalom Simhon and senior officials at the treasury - in particular the budgets chief at the time, Kobi Haber.

The Agriculture Ministry justifed removing dairy products from price supervison on the grounds that it would increase competition in the market. But a study by the ministry in 2011 found no increase in competiton and that prices rose in the previous five years 33% and 37%.

As part of the deal, Simhon promised to remove certain dairy products from price supervision in return for the Finance Ministry's consent to change the Dairy Law. The legal changes guaranteed additional state support for dairy farmers in the long term.

Simhon's replacement, Orit Noked, stopped the deal, saying that not only had too many products been removed from price supervision but that more should be added.