Refrigerator Prices in Israel Remain Unchanged One Month After Customs Reform

Survey by TheMarker at three leading chains shows Israeli finance minister's program has had little effect

Finance Minister Moshe Kahlon speaks during a conference in Tel Aviv March, 2015
Reuters

When Finance Minister Moshe Kahlon launched his “Net Reduction” plan to minimize duties in a range of products, the goal was to decrease the price for consumers in the stores.

But a month after the program went into effect, a check by TheMarker on February 22 found no evidence of lower sticker prices on refrigerators and freezers, which were some of the key items in the plan. In a few cases, prices even rose.

The order Kahlon signed also eliminated duties on products like apparel, textiles, lighting, cosmetics, toys and home appliances. In the case of refrigerators and freezers, 12% of duties were eliminated, which should have resulted in price reductions in the hundreds of shekels.

The treasury estimated that eliminating duties on all the products covered in Net Reduction would cost it some 543 million shekels ($155.8 million) in tax revenue, most or all of which was supposed to go into the pockets of consumers.

There are no duties on imports from the European Union, the United States and Turkey, among others, but the new program also eliminated them on imports from the Far East, including Samsung and LG products from Korea and Sharp from Japan.

In surveys of prices at three leading appliance chains, which were taken just as the order went into effect, and a again a month later, results found little change, or change for the worse. For example, a Samsung refrigerator-freezer went for 4,103 shekels at the ALM chain, and remained that both before and after duties were cancelled. The price of a Sharp model was just 61 shekels less.

Tamir Ben-Shahar, of the market research firm Czamanski & Ben-Shahar, said he wasn’t surprised.

“All the gifts that Kahlon has given to the citizens of Israel are systematically taken over by the retailers. Consumers lose twice over – once when the government lowers duties and loses revenue, which consumers have to pay for some other way, and a second time when the reductions don’t get passed on to them,” he said.

At Traklin Electric, LG and Sharp models were priced the same as they were a month earlier as well. At Mahsanei Hashmal, the price of a 4,676-liter Samsung refrigerator-freezer increased from 210 shekels to 2,990 shekels.

The retailers had different answers explaining why prices were unchanged. One is that prices were indeed cut for a variety of products, but that TheMarker survey had failed to find them. Another claim was that the chains are still selling inventory acquired before the Net Reduction plan went into effect.

However, Tzvika Aharonovitch, the CEO of ALM, said that was unlikely to be true. “Big products like washing machines, dryers, dishwashers, television sets and refrigerators are in the stores for display and aren’t on inventory in the stores,” he said. “Inventory turns over at a very high frequency – several times a month.”

Another claim retailers made was that importers were not lowering their prices or that other costs have risen.

“The one who sets the price isn’t the store but the importer. The importers have been telling us is that their suppliers in Europe, China and Korea have raised prices because of higher input costs,” said Aharonovitch.

He also noted that in November and December, most chains offered Black Friday and end-of-the-year sales, which he said made it unfair to compare prices. The customs reforms occurred at the end of January, near the finish of the year-end sales.

At Mahsanei Hashmal, managers noted that they had run an advertising campaign touting that they were cutting prices before the Net Reductions program began. Nonetheless, that doesn’t explain why prices at their stores subsequently rose.

Traklin said it also began lowering prices last December in anticipation of the Net Reduction program in cases where suppliers let it.

“On certain products we didn’t make reductions because our suppliers had inventory that had already been released and customers paid on it,” it added. “Prices on those goods will eventually be lowered with the arrival of new inventory.”