This week I took part in a TV panel discussion, and one topic that came up was the high prices of fruit and vegetables. One panelist said he bought fruit and vegetables directly from a farmer to save the cost of middlemen, but the price was high nonetheless.
I said the only solution to high prices was the abolition of our insane tariffs (ranging from 55 to 212 percent) on fruit, vegetables and other basic food products such as meat, poultry, fish, dairy products, canned goods, olive oil, tomato paste, almonds, dates, olives, peanuts and honey. And that’s only a partial list.
It’s obvious that as soon as Israelis are allowed to import these goods without tariffs, local farmers and food producers will face competition, forcing them to lower prices. Farmers will benefit from such a move; they’ll become more efficient and switch to more lucrative products.
Yes, I’ve long been aware of this duality. On the one hand, people complain about high food prices, but on the other they’re unwilling to embrace any change that would supposedly hurt local farmers. For them, farmers are in no way responsible for the high prices. It’s the Shylocks, the middlemen demanding enormous fees.
But the truth is different. Food retailers can’t demand any fees they choose. A customer can always go shopping at a competitor, take advantage of sales, go to an open-air market or buy directly online.
After all, our retail food market is highly competitive. That’s why prices in this market include a “reasonable profit” that gives a fair reward to entrepreneurship and invested capital, amid the need for large staffing, for the transportation, refrigeration and distribution of goods, and for all the other expenses including tax, property tax and various fees. The fact is, farmers tried to set up direct-to-consumer businesses, but these collapsed due to the high costs.
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The people who are opposed to competition via imports are the same ones angry at Pfizer for the large profits it makes from its coronavirus vaccine. They want to put the drug company under price control or revoke its patent.
But if it weren’t for Pfizer, we’d be under a fourth lockdown now, with horrific unemployment, enormous economic damage and no hope in sight. The very capitalist-minded willingness of Pfizer to take great risks and invest huge sums in developing the vaccine (without any help from the U.S. administration), with the goal of making a profit, achieved the production of the vaccine. Without the lure of great profits, the company wouldn’t have taken a high risk and no vaccine would have been produced.
As an illustration of the problem, the Institute for Biological Research in Nes Tziona, a tired government company, also tried to develop a vaccine, receiving 175 million shekels ($54 million) from the state for this purpose.
The institute failed. It didn’t have the profit drive. It still hasn’t begun final, Phase III clinical trials, which require 30,000 participants. So, what’s better? An expensive vaccine (expensive compared to what?) or no vaccine at all?
And high tariffs aren’t the only reason for the high prices of food. We also have multiple monopolies and cartels that raise prices, the Standards Institution blocks competition via imports, and agricultural marketing councils impede competition. There is also an expensive kashrut monopoly, as well as regulation and bureaucracy that drive up prices.
All these things must be addressed if we want to bring prices down. For this, we have to adopt a new approach and allow a market economy with free competition. High tariffs and price controls are bad solutions that will only raise the cost of living and reduce the quality of life.