Price Supervision Does Not Lead to Cheaper Food for Israelis

Price supervision is not an effective way of lowering food prices. To do that, Finance Minister Yair Lapid needs to tackle the strongest pressure groups in the economy.

Nehemia Shtrasler
Nehemia Shtrasler
Milky (left), the pudding snack that has triggered a consumer protest.
Milky (left), the pudding snack that has triggered a consumer protest.Credit: Daniel Bar-On
Nehemia Shtrasler
Nehemia Shtrasler

“The Milky protest is justified, the food producers must lower prices. I’ll include more food products under price supervision,” said Yair Lapid on the eve of Sukkot, in response to the Milky protest in Israel [triggered when it was revealed that the dairy pudding is available at a third of the Israeli price in central Berlin].

Lapid, who loves quotes, is probably familiar with the one made by Spanish-American philosopher George Santayana: “Those who cannot remember the past are condemned to repeat it.”

Many years ago I met Mark Moshevich, founder of Elite Food Industries. I asked him what Elite’s best era was and he replied, unhesitatingly, “When we were under price supervision. All I had to do was persuade one clerk in the Industry and Trade Ministry, and it wasn’t so hard. It’s much harder to persuade the consumers in a competitive market.”

And that’s the truth. Price supervision is the best thing for the manufacturer, the worst for the consumer. The supervision, or control, creates a pretense of “the right price,” yet there isn’t a clerk in the world who can set the “right price” after the manufacturer deceives him with all the means he can muster. Only competition and market forces can do so.

The state comptroller proved this in a 2012 report, when he wrote about formulas to update controlled prices, which caused precisely the opposite – unjustified price rises. This led to enormous profits for the manufacturers and suffering for the consumers.

Why go so far, Mr. Lapid? In the cottage-cheese protest of June 2011, when Tnuva was forced to reduce the product’s price to 5.9 shekels ($1.60) due to public opinion, the finance ministry calculated and found that the “right” price of cottage cheese must be 6.3 shekels! In other words, higher than the price set by Tnuva itself. Do you need any better proof?

But Lapid knows that image is better than the truth. He understands that putting products under supervision makes a deep impression on the public. It says that here’s a minister who’s “doing something,” here’s a minister who “cares.” So simple, yet so wrong. Who will notice that the same manufacturer whose Milky is put under supervision raises prices on other products? Who will keep an eye on the controlled price’s rise? Not to mention the distortions, cheating and reduced production that supervision causes.

There are real ways to fight the rampant cost of living. But for that, the minister has to take on the strongest pressure groups in the economy.

He must carry out a comprehensive reform in the Bolshevik dairy market. He must eliminate the “target price” method (which exists only in North Korea), a method that inflates the raw milk price to a fantastic level. It is necessary to reduce to zero the insane customs levied on imported milk products – currently between 55 percent and 212 percent (!). The moment these are canceled, we can import cheap dairy products from Europe. This would force the three big dairy firms – Tnuva, Strauss and Tara – to lower prices.

Dairy products aren’t alone. Taxes of tens and hundreds of percent are imposed on all the basic food products: beef, chicken, fish, eggs, vegetables, fruit, canned food, canned tuna, olive oil, tomato paste, almonds, dates, olives, peanuts, honey, etc. They must all be revoked if we want to reduce the cost of living.

That’s not all. Our economy is centralist and monopolistic in dozens of areas. Exclusive importers overprice products. The Standards Institute of Israel prevents competition from imported products. We have farmers’ production councils that act as cartels, and we have expensive kashrut requirements. The bureaucracy in Israel is twisted and the regulation is excessive. They must all be dealt with.

To top it all, there’s an enormous security budget that is antisocial. The high, bloated taxes on fuel and excessive prices of land, electricity and water – all stem from the need to finance an overblown, illogical security budget, which is ultimately reflected in the Milky price.

Finance Minister Yair Lapid as the treasury presented its 2015 draft budget, September 28, 2014.Credit: Emil Salman

So Lapid, drop the Milky and move onto the real war. Otherwise you’ll end up repeating all the past’s mistakes. Listen to George Santayana.

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