Knesset Study: Food Prices Decline From 2014 After Decade of Increases

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Farmers at times destroy harvests to keep food prices up.Credit: David Bachar

After close to a decade of steadily rising prices, the cost of food has turned lower, although it remains higher than in Europe, the Knesset Research and Information Center told the Finance Committee this week.

Prices from the start of 2014 through April of this year fell 1.3%, according to economist Itamar Milrad. But, he noted, that did little to reverse the impact of a decade of rising prices. Food prices rose from 2005 to April 2015 by 35.4%, with prices of fresh produce climbing by 37.4%.

Food prices rose rapidly in 2005-2010 before slowing in the next two years in the wake of the social justice protests in the summer of 2011, which was sparked by a price hike for cottage cheese. They resumed their climb in 2013.

The research was ordered by the finance committee ahead of deliberations on competition in the food industry, which was approved by the Knesset 15 months ago about the time food prices began turning lower. The figures come at a time when food retailers – and to a lesser extent food makers – are grappling with slumping sales and falling profits.

The center attributed the decline in food prices last year to lower commodities prices worldwide and lower prices for processed food and ingredients in Europe, a major source of Israeli imports. Wheat, corn, sugar, cocoa and coffee prices all fell, as did the cost of energy, which factors in to the cost of food to the consumer.

But the center also cited domestic factors, namely the growing phenomenon of consumers shopping based on price, which has caused them to move to lower priced goods such as private-label products, and to shop at discount supermarkets.

“Consumers have become much more sensitive to food prices, a phenomenon economists call demand elasticity, which probably contributed to the decline in food prices. For example, research has shown that the 2011 protests led to increased elasticity in demand for cottage cheese, which helped bring down its price,” the report said.

Food prices exceed the overall rate of inflation in the decade by 11.9%. During most of that time, food prices rose more quickly than housing prices, which received far more attention from the government and media: Before they began to fall last year, food prices had climbed 13.4% after inflation since 2005, while housing costs rose 12.3%, the center said.

Israeli food price also rose faster than their European counterparts. Adjusting for the difference in how the European Union countries measure a basket of food items, Israeli food prices rose 35.3% between April 2005 and April 2015, compared with 25.7% for EU countries. Figures from the Knesset center showed that only since 2013 has the trend shifted, with Israeli prices down 2.9%, versus no change for the EU.

After discounting for local inflation, Israeli food prices rose the sixth fastest among 32 countries surveyed by the center – 11.8%, compared with an average of 4.6% for EU countries.

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