The Real Battle Won't Be on Facebook

It's all very well to 'friend' pages calling for a boycott on cottage cheese. The problem is a lot more complex than that.

On Thursday, TheMarker's Yoram Gabison revealed the true bonanza of Apax Partners and Mivtach Shamir in their purchase of Tnuva. The land Tnuva owns in Tel Aviv alone is worth several times the amount they paid the kibbutzniks - and then there's the cheese.

The numbers show that the increase in raw-material prices around the world was not the real reason prices of cottage cheese and other dairy products increased. That was a smoke screen. To recap, Tnuva buys the raw milk it uses to make its goodies at a price set by the Dairy Board.

supermarket - Ofer Vaknin - June 17 2011
Ofer Vaknin

Now, from January 2008 to June 2011, for instance, Tnuva raised the price of cottage cheese by 39%. But the price it paid for milk rose by just 3.8%.

From January 2008 to January 2011, the price of cottage cheese rose by 29%. But the price Tnuva paid for milk dropped by 8.8%. Cottage cheese, a favorite among Israeli households, has been a cash cow for Tnuva.

What enabled Tnuva to raise its prices like that, regardless of the price of inputs? Mainly, the high level of concentration in the dairy market.

Tnuva's share of the cottage cheese market is about 70%. With an iron grip like that, you can raise prices without explaining anything to anybody. And its behavior in the cottage cheese market is just one example.

Here's another from this week. Apax, which owns the controlling stake in Tnuva, also controls Psagot, the biggest investment firm in Israel. Psagot was one of the investment firms that did not peep about the public's rights in another transaction, in which another concentration group, IDB, sold agrochemicals company Makhteshim-Agan Industries to China National Chemical Corporation. This week it turned out that IDB was prepared to pay the public $45 million more to avoid a court hearing on the class-action motion against it over unfair conduct in the sale.

Who took IDB to court? Was it the investment managers at Psagot, who control vast amounts of the public's money? Perhaps the investment managers at Clal Insurance, another member of Nochi Dankner's IDB group? Not at all. It was an 82-year-old retired accountant who owned some shares in Makhteshim-Agan and believed he deserved more, and while about it, protected the public as well.

Some may have thought the battle to reduce economic concentration in Israel is populism, or that the competitiveness committee was the artifact of somebody's whim. They didn't get the point. Now they do, in the form of a favorite food. Now these people are fighting like tigers to lower the price of cottage cheese, and they feel as if they're railing against the weather.

But, dear reader, there are pure economic reasons for the high price of cottage cheese and other products. Namely, Tnuva raises prices because it can, because it has new managers who have to deliver the goods to their bosses in London.

Making a profit is not a bad thing. That's the economy's life's blood. The problem is that the market isn't competitive enough.

It's a shame the kibbutzim didn't think of that when they sold Tnuva; they could have made a lot more off the sale, gratifying their bankers (another concentrated lot ).

The fight on Facebook is cute, as tens of thousands of people flock to "friend" the boycott sites. Maybe even it will move things a little. But the real struggle isn't cute and it isn't populist. It's complex. If the group of youngling cottage-cheese warriors on the Internet really cared about Israeli society, it would support the economic concentration committee.

What has this to do with us?

Meanwhile, the retail chains such as Super-Sol, Blue Square and Rami Levi have suddenly sprouted halos. Their executives grant interviews left, right and center, sometimes off the record. Their message is: It isn't our fault.

They have nothing to do with the bounding prices. It's the food manufacturers' fault, they insist. For their part, they heed the public's pain and do everything in their power to lower prices (for a day or two ).

But they too benefit from the high prices, since they live off the margin between the price at which they buy the product from the manufacturer, and the price consumers pay. The higher the price, the bigger the margin, in general.

Also, part of the battle the chains are waging against the food manufacturers is because of the trial of Super-Sol ex-CEO Efi Rosenhaus. Super-Sol, yet another member of Nochi Dankner's IDB group, has a 35% share of the organized retail market.

Rosenhaus is suspected of not allowing food manufacturers to lower prices and offer special deals to the public - at rival chains. He punished suppliers who rebelled against the diktat and gave low prices to Blue Square, by yanking their products from Super-Sol shelves, says the prosecution. In other words, Rosenhaus is on trial for allegedly - illegally - fighting against the public's interest.

If the chains really have changed their spots after Rosenhaus' indictment, here's an idea for them. Super-Sol, and Blue Square while about it, have private labels. They can lower prices of those products without waiting for the branded-food manufacturers to take up the challenge. True, none have private-label cottage cheese. But they do have hundreds of products. We may assume that lowering the prices of private-label products would depress prices up and down the aisles, as the food companies fight to stay in the game.