Israel's Treasury Devises Plan to Lower Dairy Prices

Finance Ministry wants to open the milk and dairy markets to competition by significantly reducing import duties.

In an effort to lower prices, the Finance Ministry has formulated a plan to open the fresh milk and dairy product market to competition over the next four years, by significantly reducing import duties on those items.

Under the proposal, initiated by the Treasury's Income Tax Authority, import duties would be cut by tens of percent and relaxed quotas would permit the entry of imported products that have until now been effectively barred from the domestic market. The barriers would be removed gradually between 2013 and 2016.

The reductions would cover a wide range of products, including soft cheese. Yogurt, powdered milk, table butter and cream spreads. The duties on these products are among the highest, ranging from 120% to 160%.

The treasury initiative comes amid heightened consumer sensitivity to price increases for food and other consumer goods. Osem and Unilever Israel, two of the biggest food makers, have both said they plan to raise prices for a wide range of products this month, citing higher costs for everything from wheat to electric power.

Although the increases have yet to arouse widespread opposition from consumers, it was the price of cottage cheese that sparked the social justice protests in the summer of 2011.

Among the biggest decreases in duties would be those for imported fresh cheese, which would drop from 60% to 20% in 2016. On table butter, duties that now amount to NIS 10 a kilogram would fall to NIS 4.5 in 2016. Duties on liquid milk with up to 10% fat will fall by a third from 60% to 40%.

On sweet cream, duties will go down over the four years from NIS 7 a kilo, or a maximum of 60%, to NIS 5.50, or no more than 40%. Duties will also be cut on powdered milk as well as a range of yogurt products.

The initiative is being undertaken by Finance Minster Yuval Steinitz in response to the Agriculture Ministry's decision this week to raise the target price on raw milk. That has prompted country's dairies to lobby for a 5% rise in controlled retail prices for milk.

Immediately after the High Holidays end next week, the State Control Committee is scheduled to meet to discuss the impending price rises for dairy products, which are expected to go up by between 5% and 10% as a result of the increase in prices for raw milk.

State Comptroller Yosef Shapira said in a report last month that prices of dairy products had gone up in recent years by between 10% and 38%, despite a period of some 20 months during which the price of raw milk fell. He blamed the increases on the policy of reducing price controls.

Treasury sources said Steinitz instructed officials to hold public hearings on the plan to reduce duties and increase quotas before making any final decision on the matter.

The Agriculture Ministry defended its decision to raise the target price for milk, saying it was simply employing a mechanism that has been in force since the Knesset approved it less than a year ago. The finance and agriculture ministers both signed off on the mechanism at the time, officials noted.

"We're talking about a one-sided and populist measure," Agriculture Minister Orit Noked said about the treasury initiative. "Opening the market to imports without coordinating policy with the Agriculture Ministry is likely to lead the closing down of dairy farms, a reliance on global prices while local production capacity declines. In the end, it will hurt the consumer."

She said the best way to protect the consumer is by putting more prices under government supervision.