Why Everything Is So Expensive in Israel

We have Bolshevik-style management, cartels and monopolies, huge customs barriers, burdensome regulation, and expenditures on kashrut.

How is it possible that Gouda cheese, which in Holland cost 18 shekels ($5.14) per kilogram, cost 60 shekels in Israel? How does this inflation take place and who profits from it?

To the 18 shekels, the basic price, the importer adds three shekels for kashrut certification, which includes sending a respectable delegation of rabbis abroad. To that we have to add two shekels for shipping, two shekels for port and storage expenses, and a customs charge of 5.6 shekels per kilogram – so that the price comes to 30.6 shekels. To that we add the importer’s profit, 25 percent, which raises the price to 38 shekels. The marketing chain adds its own 35 percent profit, bringing the price up to 51 shekels, on which the government imposes a value added tax that brings the price to a sky-high 60 shekels per kilogram.

The customs charge mentioned here, 5.6 shekels per kilogram, is relatively low and is levied on only a small and specific quota of imported hard cheeses. The ordinary import tax on cheeses and dairy products is much higher, 70 percent to 210 percent, and is designed to prevent importing in significant quantities in order to enable the farmers, manufacturers and marketing chains to celebrate at our expense.

This is a market that is run Bolshevik style, with centralized planning from above. The price of the raw milk that Tnuva, Strauss and Tara pay the dairy farmers is determined by a “price committee” in the Agriculture Ministry, whose interest is to support the farmers. That is why the price of raw milk here is higher than in Europe and the United States.

The second link in the chain is the manufacturers, i.e. Tnuva, Strauss and Tara. They are the biggest beneficiaries, especially Tnuva, which has monopolistic power. For example, it controls 72 percent of the cottage cheese market and 93 percent of the hard cheese market. It calls the shots. It is also the only one with milk-drying facilities, which in summer turn surplus milk into milk powder for use in the winter, so that its competitors are dependent on it. And because there is no competition from imports, Tnuva, Strauss and Tara can overcharge for their products.

The third link in the chain are the large marketing chains, Super-Sol and Co-Op, which control 58 percent of the food chains industry. Their power enables them to charge inflated prices. In places where there is only one chain, there is a local monopoly that charges even higher prices.

The dairy market is just an example. The high customs charges (up to 190 percent) and additional restrictions on imports also apply to basic agricultural products such as meat, poultry, fish, fruits and vegetables, juices, ketchup, olive oil, honey and canned tuna.

In addition to the customs barriers, there are other ways to raise prices. There are cartels of farmers and cartels of wholesalers who coordinate prices at the expense of the consumer, and there is the Health Ministry that makes it hard for parallel importers to compete against the large and exclusive importers, and in doing so also contributes to the high cost of living.

The antitrust commissioner is also to blame. For years he allowed the major food producers to take over their small competitors, thereby reinforcing the monopolistic power of the five major manufacturers – Tnuva, Strauss, Osem, Coca Cola and Unilever – and enabling them to raise prices.

So what have we here? Bolshevik-style management from above, cartels and monopolies, huge customs barriers that enable price inflation, five giant food producers who dominate the leading brands, two large marketing chains that we cannot do without, expenditures on kashrut, a Health Ministry that prevents competition and an antitrust commissioner who fell asleep on his watch.

So is it any wonder that food prices here are 25 percent higher than in Europe?

Ofer Vaknin