Free Competition Can Drive Down Food Prices

Food import reforms are a good first step but many more changes are needed to bring down the cost of living in Israel.

Tomer Appelbaum

The cabinet took an important decision this week: to ease the controls on parallel imports of certain food items so that we will finally be able to buy breakfast cereal, pasta, rice, coffee, beans, cookies, snack foods, sauces and jam at prices similar to those in Europe rather than at the crazy prices of Israel.

For many years, the Health Ministry impeded parallel imports. It required small importers, who did not have exclusive agreements with large foreign manufacturers, to submit a product file with details of inspections and data these small firms could not obtain. The result was that parallel importers were pushed out of the market, leaving the field to the big importers with exclusive contracts. This is how the import monopolies were created in addition to the local monopolies, and it all led to unreasonably high prices and an annoyingly high cost of living.

While government officials say this is a revolution that will bring prices down, that is not at all certain. The large importers will fight back, with the international manufacturers beside them. The supermarkets, too, will prefer to work with the large companies because it is easier and more profitable to work with those who have a large selection of brands. This is why government intervention on behalf of the small importers is necessary here.

It is also appropriate that the government not settle for opening the market to non-sensitive products. It should also allow free import of sensitive foods, as is accepted in Europe. It also ought to remove several more obstacles that raise the cost of living. First of all, the government should lower the unreasonably high tariffs (55 percent to 212 percent!) on staples such as meat, poultry, fish, dairy products, fruits and vegetables, canned foods, olive oil, tomato paste, almonds, dates, olives, peanuts and honey.

It should also deal with the monopolies and cartels that have control over all areas of life. It starts in the public sector with the Israel Electric Corporation, the seaports, the Airports Authority, Israel Railways and the Egged and Dan bus cooperatives, which jack up the prices of every product in the economy because of their inefficiency and surplus personnel. It continues with the private sector, which is controlled by companies with monopolistic power. The same is true of the food industry, which is controlled by Tnuva, Strauss-Elite, Osem, Coca-Cola-Tara and Unilever. It is also true of the banking, insurance and fuel industries, together with those of natural gas for home heating, cooking gas, vehicles, concrete and even the books market. All of them need to be decentralized or split, or have competitors brought in.

The government should also deal with the Standards Institution of Israel, which was established to ensure the quality of the goods we consume but has actually become an obstacle to import that is run by the manufacturers. The SII delays imports, raises their prices and makes sure to enact unique standards that prevent imports. All this should be changed by adopting international standards.

Then, the government ought to deal with the agricultural manufacturing councils, which deal with market planning, setting tariffs and regulation of agricultural supply so as to obtain the maximum price. There are six such councils: the Israel Dairy Board, the Plants Production and Marketing Board, the Israel Egg and Poultry Board, the Israeli Honey Production and Marketing Board, the Israel Wine and Grapes Board and the Israel Peanut Board. So it is any wonder that milk, chicken and honey are so expensive in Israel?

Then it will be time to deal with the high cost of kashrut certification, which raises the cost of all foods by around five percent and that of imported meat and dairy products by around 15 percent. For dessert, the convoluted Israeli bureaucracy must be eliminated and the over-the-top regulation moderated, since they, too, leads to higher prices.

All these obstacles are the result of a centralized economy, monopolies and cartels, and over-protection of Israeli products. Only a change in attitude toward free competition can heal the economy and lower the cost of living.