The pricing agreement the finance and agriculture ministries signed with dairy farmers late Sunday aims to head off retail price increases and to increase competition, but it will take some time before consumers see lower prices.
That’s because the deal calls for gradual changes over the next eight years, during which the price farmers receive for raw milk will drop and customs duties on imported hard cheeses will be cut. It’s only at the end of the process that the Israeli consumer will benefit fully from the drop in the price of imported dairy products, including specialty cheeses, such as Gouda, Brie, Camembert and Parmesan.
The prevailing assessment is that the pact will only begin lowering dairy prices in two years, while the reduction in customs duties on imported cheese, which will affect the price of hard cheeses and specialty cheeses, will only be completed in 2026. Next year, we will see a 38% cut in customs duties. In 2026, the duty will be cut by a total of 68% from its current levels.
In the interim, Israelis will have the benefit of a price freeze on government controlled dairy products. The initial plan called for price-controlled dairy items to rise in price by 5% to 6%, but Finance Minister Moshe Kahlon refused to sign off on the proposals. Price-controlled dairy products are only expected to decline in price in two years, a delay that follows a disagreement between Kahlon and the Tnuva dairy, which threatened, due to the increase in the cost of raw milk, to increase the prices that it charges for its if Kahlon refused to allow a price increase on price-controlled dairy products. The dairies are seeking to receive compensation.
On the positive side, the agreement signed Sunday will open up the imported cheese market in Israel to products from additional importers, increasing competition. The change in the importation of hard and specialty cheeses is already being felt. Since 2015, the Economy and Industry Ministry has put a system in place through which it has allocated quotas on exemptions from customs duties on imported hard cheese in an effort to increase competition and lower prices.
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The system of exemptions, which importers have been able to bid on, has provided customs exemptions on up to 6,000 tons of cheese a year. Imported cheeses brought in excess of the quotas are charged duties of about 8 shekels per kilogram (about a dollar per pound).
The system brought the retail price of leading brands of imported hard cheese down last year by more than 10% compared to 2015, the economy minister reported. The trend has continued into this year and prices are expected to drop considerably under the new pact signed this week with the dairy farmers. The new agreement provides for across-the-board customs reductions rather than cheese imports that have come in duty-free but subject to import ceilings. The new system should boost competition further and result in lower prices on a greater selection of imported hard and specialty cheeses.
Sales of hard and specialty cheeses in Israel are currently 1.3 billion shekels a year, about 20% of which is from the sale of imported cheese. Of the 80% from domestic sales, Tnuva’s Emek brand dominates.
One cheese importer, who concurred that the price of imported cheese will continue to fall, added: “In recent years you can see that in every instance in which the state has opened up the market to real importing, prices have fallen. The price of hard cheese has fallen dramatically, but the problem up to now has been that there was a system of quotas, which is a very unstable system. As soon as customs duties are cut across the board, there is no doubt that prices will drop substantially.”
European cheeses will become a stronger market force, the source predicted, while the share of local dairies will shrink. Israeli importers, he explained, procure their cheese mainly from Europe, because the proximity of European producers means that the products arrive in Israel with more time to have them sold before their expiration dates. “The moment you shift to somewhere else, the shipping costs increase and it takes more time, and these are products requiring refrigeration,” he said, so importers prefer suppliers that are relatively close.
A senior executive from a supermarket chain said he also expects dairy imports to be expanded to other products with a shelf life of more than three weeks, such as refrigerated puddings and goat’s milk yogurt, which will also be sold at lower prices. Imports of cottage cheese and similar products with a short shelf life are not expected.