Following persistent shortages of domestic butter in Israel since the beginning of the year, the Economy and Industry Ministry is recommending the total elimination of tariffs on butter imported from abroad and opening the Israeli market completely to imported butter.
The butter market is currently regulated through a system of quotas that are provided to local producers of butter and it is also subject to price controls.
In a letter to the agriculture and finance ministries and the Competition Authority, the director of the Economy Ministry’s import administration, Danny Tal, wrote: “It is our position that the distribution of butter quotas creates distortions in the market, and that their elimination along with the elimination of tariffs, will make it possible to open the market to butter imports, diversifying its sources and preventing future shortages of this basic consumer item, which the [local] market cannot provide on its own.” The move has the support of Economy Minister Eli Cohen.
Opening the market to tariff-free imports of butter will eliminate shortages, increase competition and lower what consumers pay for butter, Tal wrote. He noted that the tariffs on imported butter for consumer use run from 126 to 140%, which in turn increase the price the consumer pays for imported butter that is not subject to price controls.
But for the moment, at least, the prospects of completely opening the butter market foreign completion to open are slim. Israel is functioning with a caretaker government after September’s Knesset elections produced a result that so far not resulted in a new governing coalition. Substantive policy changes become difficult to make and many plans for changes in policy remain stalled.
In the dairy sector, the market is highly regulated down to small details, with the government setting the price of locally produced wholesale milk. The market is also constrained due to the business interests of the dairies, and any policy change engenders strong resistance.
The reason that butter has been in short supply but not other price-controlled dairy products is that butter production requires the use of the top layer of fat on the milk, and in large quantity.
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The government thought it addressed the butter shortages several years ago by increasing quotas on imported butter. But the situation has changed as global butter prices have increased recently, and Israeli importers no longer find it profitable to sell imported butter at prices set by the government.
Shuki Sadeh contributed to this report.