Lessin: Food Prices Will Continue to Rise

Food prices expected to increase due to rising price of raw materials and macroeconomic forecasts of future shortages.

Don't expect relief from the increase in prices any time soon - food prices will continue to rise, forecasts Gadi Lessin, chairman of the Food Industries Association at the Manufacturers Association and CEO of Strauss Group, which among its many other products, makes cottage cheese.

"One of the challenges the food industry will face in the coming years is coping with the rising price of raw materials and with macroeconomic forecasts of future shortages," Lessin told TheMarker. Consumption around the world is rising not only because of population growth, but also, because people are eating better. Looking at long-term trends, Lessin says, in five to 10 years, raw materials will be running short, and this will translate into higher prices.

Gadi Lessin
Ofer Vaknin

TheMarker: Are you saying that the price increases we've been experiencing are nothing compared with what's to come?

"I quote leading economists and analysts around the world. This is not my personal theory. This is a huge challenge we all face because at the end of the day, nobody has an interest in product prices increasing. You have to understand, from the end of 2009 to date, the price of wheat has risen by 51%, sugar by 31%, coffee by 114%, diesel by 74% and water by 48%. This inflation is a huge challenge for food manufacturers."

Some raw material prices have dropped. The price of coffee for instance fell throughout 2009, but coffee prices in Israel did not drop.

"Raw material prices have been rising for the last 30 years. It isn't right to look at prices in one given month or a few months. You have to look at the long-term trend. Oil also dropped to $80 per barrel at some point and then flew to $112."

How is it that manufacturers all raise prices more or less together? Strauss announced a price hike on April 27, Tnuva came out with a similar announcement two days later and Tara raised prices a few days after Tnuva.

"I refuse to even comment on that claim."

Does Strauss feel that demand is falling?

"Not yet. I don't think it is because at the end of the day people have to buy food. It isn't a luxury. They might reduce consumption of some products that aren't consumer products."

The prices of some consumer products do make them a luxury. Yellow cheese costs more than NIS 40 per kilo.

"And when you pay double in Israel for a car compared with the price abroad, that isn't crazy? And when you pay double the VAT compared with the average in the rest of the world? And when you pay hundreds of shekels a month for your cell phone?"

Is that supposed to comfort consumers or justify the high food prices?

"It's no comfort and it's a serious matter. Gasoline in Israel costs twice as much as elsewhere because the state charges tax. That's also why cars cost double, and it's very sad. People look at absolute prices and don't understand that when prices and taxes are increased, somebody has to pay for it."

Do you worry about consumer ire?

"Manufacturers have to explain their position more often and much better. They have to make clear that they aren't the ones who set raw material prices. It's populist to say that companies are raising prices."