VAT Hike Not Expected to Boost Food Prices Much, but Other Factors Probably Will

Rami Levy, who heads the chain that bears his name, predicted that the total increase will amount to 0.5% to 0.75%, and not a full 1%.

The proposed increase in the value added tax from 16% to 17%, which is expected to take effect Wednesday, will only lead to slight food-price increases, supermarket executives say.

Rami Levy, who heads the chain that bears his name, predicted that the total increase will amount to 0.5% to 0.75%, and not a full 1%, he explained, because there is no VAT on fruits and vegetables, which he said constitute anywhere from 12% to 15% of the average customer's food expenses.

With regard to the higher VAT, Levy continued, on some products, the supermarket chains enjoy high gross profit margins, and therefore it is likely that on those products they will simply absorb the VAT increase rather than passing it along to the consumer. In any event, he predicted, the price increases will only be noticeable after the chains begin reordering stock after the new rate takes effect on Wednesday.

Another senior supermarket executive predicted that the price rise on food will amount to 0.5%, on average, because of products that the chains sell at a loss as well as fruits and vegetables on which VAT does not apply.

However, Gilad Zilberberg, who owns the Meir Beigel food firm and chairs the small- and medium-sized businesses' committee of the Manufaturers Association of Israel, said retailers will have to update their prices immediately. He added that he finds it hard to believe that they can actually absorb the increase.

Unrelated to the VAT increase, flour mills are expected to hike the prices they charge bakeries and other companies by over 20% in the near future. In addition, the retail price of price-controlled breads is expected to rise as early as Wednesday by 7%, according to Yohanan Aharonson, a baking industry executive.

For its part, the Industry, Trade and Labor Ministry issued a statement with regard to the impending rise in price-controlled retail bread prices, in which it acknowledged that the price of wheat abroad has increased markedly in recent months and the dollar has also become stronger; it noted that the cost of heavy fuel oil has risen, too.

"We currently lack updated data on fuel oil costs, which we receive at the end of each month. The procedure is that the bakeries have to send us a letter requesting a price increase based on the ongoing revisions, and we will consider it according to accepted practices. The bakeries' representatives have said that they will convey their request after they see what the change in the price of heavy fuel oil is," the ministry said.

The Stiebel flour mill said it expected increases of 25% in the price of flour, adding that it had already informed bakeries and other suppliers, and is now notifying the supermarket chains, of a price rise of at least that amount this Wednesday, August 1.

"We import most of our wheat from abroad," Boaz Turgeman, one of the mill's owners explained, "and are exposed to global shocks and wheat prices that have risen about 50% within the past two or three months. In addition, we buy wheat in dollars so we are also affected by the rise in the value of the dollar."

Turgeman cited the drought in wheat-, barley-, corn- and soybean-growing areas of the United States as another major factor in the rising cost of grains, in general.

Furthermore, local food manufacturers are warning that food prices will soon be rising across the board, irrespective of the VAT increase, due to the rise in the value of the dollar against the shekel and the increase in the price of raw materials.

The CEO of Willi Food, Zvi Williger, who is also an owner of the firm, recently said he would be revising the price list on products he sells to retailers - by upping them by 10%.

Zilberberg of Meir Beigel predicted that immediately after the Jewish New Year in the fall, food prices would certainly be going up, adding that about 80% of the raw materials used in that industry are affected by the strengthening dollar, which comes on top of the rising costs of goods around the world.

Drought in the United States and a weak shekel are among the factors driving up flour prices.
Tomer Appelbaum