Proposal: Break Up Tnuva

Mooo over, say ministries, but disagree on how to attack the cash cow.

The committee studying ways to lower dairy prices is considering a proposal to break up the large dairies, and Tnuva in particular. The dairies would be forced to sell off part of their business to outside investors who are not involved in the dairy industry, if the proposal is accepted. In addition, the committee is studying the granting of various benefits for setting up new dairies, to compete with existing ones.

"The dairy sector and its products is rife with competitive failures," said a senior government official involved in the committee's discussions. There are market failures in the animal feed centers, in the relationships between the dairies and their market shares, and between the dairies and the large retail chains.

Netanyahu - Amos Ben Gershom - 13072011
Amos Ben Gershom

The proposal to break up the dairies is populist and lacking a legal foundation, said sources close to Tnuva.

The committee is headed by the director general of the Industry, Trade and Labor Ministry, Sharon Kedmi, and includes representatives of the finance, industry, trade and labor and agriculture ministries; as well as representatives of the supermarket chains and the dairies. Due to deep differences of opinion on the issue of lowering dairy prices between Finance Minister Yuval Steinitz and Industry, Trade and Labor Minister Shalom Simhon, the two will meet on Sunday with Prime Minister Benjamin Netanyahu in his office to discuss the matter.

The agriculture and industry and trade ministries support returning a number of dairy products to price supervision as the main means of lowering prices. But the treasury strongly objects. The Finance Ministry is pushing for opening the Israeli market to large-scale imports, but the other ministries object, as do the farmers and the dairies.

The three main issues to be raised with Netanyahu next week are opening the market to imports, including milk powder; lowering the prices paid to dairy farmers for their milk by 10% to 20% over several years; and returning a number of basic dairy products to price supervision.

"We must give significant breaks to new elements who want to enter the business, and we are considering significant structural changes, including even breaking up the dairies," said a source close to the committee. "But splitting up the dairies is a complex step that has still not been examined from a legal standpoint or an a cost-benefit basis," he added.

Another demand is for the Antitrust Authority to become more involved in the dairy sector, and for it to deal with the relationships between Tnuva and the farmers who supply it with raw materials. The problem is the Restrictive Trade Practices Law does not apply to agriculture, and it is still not clear whether the Antitrust Authority is able to take action against dairy farmers.

The Finance Ministry expects the authority to conduct an in-depth examination of whether the large retail chains have kept the rules the authority laid down in 2005 governing relations between the chains and suppliers. The general feeling in the ministries is that the supermarket chains have not kept all the requirements, or have created a system of agreements to evade them. The Antitrust Authority has not ruled out conducting such an examination in the next few months.

"The [dairy] sector is centralized by definition, but the committee has still not agreed on solutions," said the senior government official. Such solutions require in-depth study, he said.

The government actually set up two committees to study the issue of high dairy product prices, both headed by Kedmi. The so-called dairy committee is the one dealing with the ways to lower consumer prices as described above; while the second includes only government representatives and is supposed to present recommendations on structural changes to increase competition. In fact, the two committees have overlapped in their recommendations.