Kahlon Claims First Win in War Against Price Hikes

Increases in food and utilities have sparked 'yellow vest' rallies in Israel as Kahlon and Finance Ministry officials work overtime to block pricing spikes

FILE Photo: Finance Minister Moshe Kahlon.
Nir Kedar

Finance Minister Moshe Kahlon appeared to have won the first battle in his war against rising prices on Wednesday, with two big food makers promising not to go ahead with plans for price hikes. But industry executives said Kahlon wasn’t facing up to the fact that manufacturers’ cost were rising.

The treasury said Osem, whose products include the best-selling Bamba peanut snack, would not go ahead with planned price increases for a third of its products. The reversal came after a nighttime meeting with Osem executives.

Strauss, Israel’s second-biggest maker of dairy products, also rescinded planned price hikes, according to the treasury.

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As of Wednesday night Tnuva, the No. 1 dairy maker, hadn’t backtracked on its planned increases, but Manufacturers Association President Shraga Brosh informed Kahlon that the food industry was backing off price rises.

“I am happy to inform you that due to your efforts, we have succeeded in preventing an increase in food prices to retailers for the coming period,” Brosh said in a letter released by the treasury.

Kahlon and Finance Ministry officials have been working intensively over the last several days to block price rises, not only by businesses but also by the state-owned Israel Electric Corporation. The increases, which have sparked “yellow vest” rallies in imitation of French protesters, threaten to undermine Kahlon’s reputation as a fighter for middle-class consumers.

While trying to contain rising food prices, the treasury has also been working on ways to moderate a rise of between 6.5% and 10% in electricity rates now scheduled to go into effect January 1. The most likely strategy is cancelling the excise tax on fuel used by IEC.

The Electricity Authority, which approved the rate increase earlier this month, said eliminating the tax wouldn’t do away with the rate hike but officials estimated it could reduce it to 4.35%. The excise tax costs IEC 700 million shekel ($186 million) every two years.

A 400 million shekel settlement with Siemens and other European companies over an old price-fixing lawsuit could be used to reduce the increase even more, officials said.

Food executives who spoke with TheMarker on Wednesday reacted to Kahlon’s campaign against higher food prices with disgust.

“Because of a few newspaper headlines, they suddenly decided to meet the manufacturers? It’s a joke,” said one executive, who asked not to be named. “We’re talking about a problem that’s been going on over four years.”

At a meeting Tuesday night, Osem executives, led by CEO Avi Ben-Assayag and chairman Dan Propper, told Kahlon that their costs had risen 20% due to the government-ordered increases in the minimum wage and higher water and power costs.

The fact that many commodity prices have fallen sharply in the last several years, they said, didn’t offset the increases. Kahlon said he would look into ending customs on some inputs used by companies like Osem, such as powdered eggs and tomato concentrate.

Referring to the halt to price hikes, a senior executive at one food maker asked, “How long can it hold? I don’t know.”

“We have absorbed [cost increases] and right now can continue to absorb them. But the public and its leaders have to understand that our ability to do so with eventually end,” he said.