Israel's Tuna Trap: How Did Lower Tariffs Lead to Higher Prices

Canned tuna is now more expensive in Israel than it was when duties were higher

Ryder Devoe, 19, catches a 200-pound Pacific bluefin tuna spear fishing off San Diego, September 5, 2018
\ STRINGER/ REUTERS

In the universe of household expenses, the price of tuna fish doesn’t figure prominently. But when Israel’s government undertook to gradually reduce tariffs on canned tuna, it had good reason to celebrate a small victory in its campaign to bring down the cost of living.

A two-year process that had eliminated a duty of 3.51 shekels (94 cents) on each kilogram of tuna, leaving just a 12% duty, had brought down the price to shoppers 14.5%.

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As it turns out, however, even that small achievement didn’t withstand the anti-competitive forces of the Israeli market: Two years later the price of a 160-gram can of the fish is even higher than when the tariff cuts started.

According to figures from the Central Bureau of Statistics, it averaged 7.50 shekels for a can in October 2013, fell to 6.90 when the treasury was lauding its achievement and, as of October 2018, was up to 7.80 shekels.

What happened? The treasury chief economist didn’t deny that when prices had fallen in 2016 it was because the price of raw tuna internationally had fallen. However, he argued that without the tariff reduction, falling tuna prices would never have been passed on to the Israeli consumer.

But a cursory examination of raw tuna prices in subsequent years doesn’t bear that out. The price was $1,400 a ton in October 2016, shot up to $2,300 a year later but was back to $1,400 in November 2018. But the tuna reached the Israeli supermarket shelf was constantly rising.

The industry’s response is that it takes time for changes in the global price to feed through into Israel.

Shraga Brosh, the president of the Israel Manufacturers Association, blames faulty government policy for the failure of tariff cuts to lower prices – not just for canned tuna but for a host of products.

“Israel chose to reduce tariffs from countries with whom we have no trade agreements, which was an unprofessional decision, unproven and a dangerous experiment with the Israeli economy that was taken despite warnings by manufacturers,” he says.

“Today we can declare the experiment a complete failure, as we had warned the government. The price of tuna didn’t fall, but canners were forced to close their factories in Israel and moved to import tuna and can it overseas,” Brosh said.

He doesn’t blame importers or retailers for high prices, but it’s hard not to point the figure at them. There are no major barriers to importing tuna and a number of companies are doing it, but note that StarKist controls 40% of the market.

That should be reason enough for the antitrust authorities to examine whether the strangling of local production with tariff cuts ended up coming at the cost of real market competition.

Actually, as Brosh notes, Israel lost twice in the process. Not only didn’t consumers enjoy lower prices for tuna, the local canning industry was forced out of business, laying off hundreds of workers in the process.

There were once four factories processing imported tuna for the local market, but soon there will be just one – Filtuna in Be’er Sheva. StarKist Israel announced recently it would shut down production and turn its Tirat Hacarmel facility into a logistic center for imported tuna. Eight of its 100 workers are losing their jobs in the process.

The high tariffs that had originally been imposed on canned tuna to protect those jobs. There’s no other economic case for processing tuna in Israel. The raw tuna has to be imported from Asia and local costs are high and have grown as environmental rules have grown tougher. Even when some factories switched to lower-cost natural gas for fuel, they still couldn’t compete with imports.

The industry couldn’t even make the case that it was a source for fresh, locally produced food.

A pity for the workers. As industry lobbyists continually pointed out in their losing fight to stop the tariff cuts, the industry provided jobs (albeit mostly at the minimum wage) to people with little education and in towns in the periphery where there are few jobs. The workers who are being let go have little prospect of finding alternative employment, all the more so because they are older.

Unfortunately, their sacrifice wasn’t for the greater good of the economy, but to increase the profits of importers and retailers.