Ministries Threaten to Go After Supermarkets, Animal Feed Plants

Finance and Industry, Trade and Labor ministries have set their sights on what they view as two major market failures in the Israeli economy that the ministries believe are pushing up food costs.

Next on target for lowering food prices:

The Finance and Industry, Trade and Labor ministries have set their sights on what they view as two major market failures in the Israeli economy that the ministries believe are pushing up food costs - agreements between large retailers and their suppliers, and the production of animal feed.

Supermarket - David Bachar - July 2011
David Bachar

"There are two market failures in the food supply chain: One concerns the business terms between the supermarket chains and the suppliers, and the other relates to the large centers for producing animal feed that are very centralized and cause high prices," said Industry, Trade and Labor Minister Shalom Simhon yesterday in a meeting with the Manufacturers Association.

According to Simhon, the way to bring down prices for farmers is to deal with the animal feed centers, which will most likely bring down Israeli food prices in general.

The way to deal with the animal food production plants was via the proposed law against "concentration groups" - business groups that are overly powerful and control large swathes of the Israeli economy, the minister added.

"We should examine the hidden profit margins between the supermarket chains and suppliers. The huge profit margins between the wholesaler and suppliers are beyond belief, and exist only in Israel," he said.

Simhon related to a number of agreements between suppliers and the chains that generate large costs for suppliers - and are then passed on to consumers. Simhon gave examples of the problem, such as forcing suppliers to give the chains year-end "bonuses," pay for marketing campaigns within the stores and forcing them to participate in sales.

The Finance Ministry also supports examining these additional costs stemming from the agreements between the chains and suppliers. The treasury is considering examining whether the supermarket chains are actually abiding by the antitrust rules set for them in 2005 by then Antitrust Commissioner Dror Strum. These rules banned such tactics as payments for product placement, setting aside shelf space and fines for suppliers who gave lower prices to competitors. As for dairy product imports, Simhon said that was an important tool in lowering prices, but could not solve all the problems.

The chairman of the Histadrut labor federation, Ofer Eini, and his counterpart from the business sector, the head of the Federation of Israeli Economic Organizations, Shraga Brosh, asked Prime Minister Benjamin Netanyahu and Simhon to appoint a joint professional taskforce to formulate a socio-economic plan to prevent harm to the lower and middle classes from the high prices, as well as the business sector.

Diaper wars reaching saturation

Meanwhile, the diaper wars heated up yesterday as a new Israeli diaper brand entered the market - BabySitter.

At the same time, the supermarket chains have been slashing diaper prices to well under NIS 40 per package as both the chains and manufacturers are fighting to hold on to customers.

While Blue Square's Mega stores started the war with its importation of Turkish Huggies, Pampers has also joined the fight - and the Israeli manufacturer of Huggies is also fighting back with lower prices. The question is whether the battle will end quietly in a few days, as some retailers say, or whether consumers will see a long-term change and lower prices.

The new brand is one possible source of continued competition. "The supermarket chains do not profit today from diapers, but if the market is opened up to competition, the supermarkets and the consumer will benefit," said Einav Adiv, the CEO of DPL, which is behind the NIS 40 million investment in the new BabySitter brand.

Adiv said it was possible to sell a package of disposable diapers for NIS 40 and still make a profit. She promised that her company's products would be cheaper than both Pampers and Huggies, but still of high quality.