My fellow journalists have fallen into a trap. They so wanted to believe that the day has finally arrived when the prices of meat and dairy products would drop that they readily bought the propaganda of the Finance Ministry, which told the public that its proposed quotas on duty-free imports would bring prices down sharply. The sad truth is that the quotas will not lead to lower prices at all, though we might see some symbolic changes – accompanied by massive damage.
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In addition to announcing the new import quotas (an idea that has been attempted in the past, and failed), the task force charged with lowering the cost of living, headed by Finance Ministry Director General Yael Andorn, also revealed that dairy prices in Israel are about 30 percent to 60 percent higher than in Western countries – truly sensational news. They appear to have forgotten everything they learned about price theory, and therefore proposed attempting to control quantities and prices — snake oil that every economist knows is bound to fail.
The proof that this is mere sleight of hand is the fact that Israel’s dairy farmers have come out in favor of the “brave” steps the treasury is taking. Who is in the position to better understand that quotas on duty-free imports will change almost nothing? After all, the price of raw milk will continue to be set by the Agriculture Ministry’s price committee, and the dairy board will continue setting the production quantities for each dairy farm. That means the price of raw milk will continue to be higher than in Europe or the United States.
In addition, the treasury’s “news” won’t change by a whit the cartel that is dining on our dime: Israeli dairy giants Tnuva, Strauss and Tara. They will continue to enjoy total protection of high customs fees — between 55 percent and 212 percent — on all dairy imports, including soft and hard cheeses, yogurt, cream, butter, whipped cream and powdered milk. Requiring import quotas for just a few products will lead to only one thing: fat “quota profits” that will go straight into the importers’ pockets.
To impede imports, the dairy farmers demanded, and received, the Finance Ministry’s assurance that they must comply with Israeli standards. This pledge makes the entire plan appear absurd. Is the quality of Dutch yogurts or cheeses not high enough for Israelis? And if I want to eat Greek cheese that is deemed to be of low quality, will I be prohibited from doing so? Perhaps regulators should also ban the sale of cheap shirts from Taiwan or cell phones from China. Note the fact that the Finance Ministry is not restricting the import of the most significant dairy product: uncultured “white cheeses.” That’s because the dairy farmers objected, and the treasury caved.
Anyone familiar with the import business knows the quotas will not allow for cheap imports. Importing dairy products is costly. It requires a logistics network, distribution agreements, refrigerated ships and, for some products, expensive halav Yisrael kashrut certification. To sell cheaply, importers need to have a high degree of certainty. But under the quota system, importers don’t even know if they’ll be subject to the same import quotas tomorrow that they got today. Maybe someone else will win the tender. And so the importer will charge a high price to cover the risk. This is why the dairy farmers and Tnuva have agreed to the quota system. They know the prices won’t drop.
In order to try to bring the prices down anyway, the Finance Ministry’s budget division wants to hold a tender for importers; the winning importer will be the one who offers the lowest bid for a given product. To carry this out, the treasury will need to establish a “cheese police” to oversee the quotas and monitor price and quality. We will be the envy of North Korea.
The solution that will bring down the prices of dairy products is altogether different: canceling this Bolshevik plan, reducing all import taxes to zero and opening the market to imports without quotas or other restrictions. That is the only way we will be able to enjoy high quality and low prices, European-style.
But until then, we’ll just have to wait. The Finance Ministry’s Bolshevik solution is not going to bring any drops in prices.