Concerns about an increase in food prices are keeping Finance Minister Moshe Kahlon awake at night. He wants to be perceived as Santa Claus, someone only on the giving end, so the expected rise in the price of vegetables, milk and chicken is very bad news for him.
There are a number of reasons for Israel’s high cost of living: high protectionist customs duties, interest groups in agricultural production – most of which are monopolies – exclusive importers, the beholden standards institute, anachronistic dumping fees, expensive kashrut supervision, complex bureaucracy and excessive regulation.
But there’s another reason that’s not apparent: a nontariff barrier that prevents competing imports from entering the country, letting farmers raise prices. Haim is an importer of fruits and vegetables. He noticed that tomato prices have gone up in recent weeks, so he decided to import several dozen tons of tomatoes from Turkey.
He called the Agriculture Ministry, where he was told there was a simple rule: Once the wholesale price of tomatoes remains over 6 shekels per kilo (75 cents a pound) for four days in a row (with the price to consumers at about 10 shekels), the Agriculture Ministry issues licenses for the duty-free import of tomatoes, in an effort to lower prices.
Haim took a risk and gambled that wholesale tomato prices wouldn’t suddenly drop. He bought 150 tons of beautiful red Turkish tomatoes and had them shipped to Israel in seven refrigerated containers. At the same time, he agreed on price with Israeli supermarket chains. The shipment arrived quickly, but getting it released without paying customs required that he present an import license.
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But then the clerk at the Agriculture Ministry said: “I’m not giving you a license. I can exercise discretion.” Haim replied: “But you said the only condition was that the wholesale price stay over 6 shekels.” The clerk responded: “The rules have changed.”
I looked into the matter and discovered that Agriculture Minister Uri Ariel, who wanted to curry favor with the farmers, struck an agreement with the tomato growers: They would ensure that tomato prices didn’t rise too much, and he wouldn’t allow tomatoes to be imported duty free. And if the price rose anyway due to short supplies? The consumer would pay at the checkout counter. And that’s exactly what’s happening now.
And what’s happening to Haim? He was forced to pay 140,000 shekels ($45,000) in customs duties, which rendered his purchase of Turkish tomatoes a losing proposition. He clearly will never import tomatoes again, and it’s also clear that the cost of living will rise.
“Why don’t you import tomatoes from Jordan?” I asked Haim. “They’re cheaper.”
He told me that tomatoes from Jordan are inspected at the border, ostensibly to make sure they’re not carrying a certain virus, but he said this was actually due to their low price. One day he got a notice that a virus was found in a shipment that he was due to receive and that it had to be sent back to Jordan, at a major loss to Haim. After the tomatoes were inspected, Haim realized the job hadn’t been done properly; the officials simply decided and that was that.
After the tomatoes were correctly inspected, no virus was found and the produce was released from customs. But in the meantime, two days had elapsed. The tomatoes ripened in the heat and their value dropped so much that Haim suffered a loss. Also note that the same virus has infected tomatoes grown in Israel in the Eshkol region in the south, so the virus is nothing but one more hidden way to raise prices.
Apple imports are also stymied. Officials closely inspect every shipment with a magnifying glass to find some dead insect or fungus, and ultimately they find something that’s in every crate of apples and bar the entire container. And if they don’t find anything, they summon a retired bug expert from the Volcani Institute, who inspects the apples until he finds a certain kind of bug and bars the entire shipment. So what’s the surprise that apple prices are sky high?
A report this week by the Organization for Economic Cooperation and Development stated that government support for farmers is the reason for high food prices. Kahlon knows this but isn’t doing a thing.