It’s all political. Around a hundred days before the polls open, Yair Lapid figures that rising bread prices will hurt him at the ballot box, so he's demanding bread subsidies.
If he could, he’d order bakeries not to raise prices before the election, but he can’t. The price committee has ruled that prices must be raised, for the first time in a long time despite rising wheat prices.
Lapid knows that if Benjamin Netanyahu were in power, he wouldn't hesitate to block the price increase; no economic principles would stop him. And if Netanyahu can do it, Lapid wants to as well. To Lapid, subsidizing bread is a minor issue compared to the really big thing: winning the election and preventing the Bibi-ist/Kahanist gang from returning to power.
But subsidizing bread is no tiny matter. It’s actually a return to the socialist mindset that ruled Israel's early years: The government must control every detail of the economy, including prices.
Sure enough, until the mid-1980s, the government subsidized dairy products, eggs, cooking oil, chicken, challah and bread in general. As a result of that and other errors, budget deficits were enormous and annual inflation reached 445 percent. In 1985 the subsidy policy was canceled, the waste was stopped and the budget was saved.
So if we return to subsidizing bread now, demands will pile up to subsidize other staples – milk, eggs, chicken, baby food and medication for the elderly. That’s a slippery slope that will once again end in a massive crisis.
When the subsidies were canceled 37 years ago, the government switched to controlling prices. It didn't have the courage to liberate the economy, allow free imports and let the market set prices.
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That's why to this day Israel is the only country in the West with price controls, which every other year or so doom us to crises over the price of bread, milk and eggs. And since politicians always postpone the increase, the gap grows until we need a very large rise that, as now, turns into a political crisis.
Contrary to popular belief, price controls are good for the manufacturer and bad for the consumer. After all, the producers always find reasons to demand price hikes, but when the price of ingredients drops – which also happens – nobody demands that they lower prices.
The fact is, bread prices are lower in many European countries than in Israel, and they have no controls or subsidies. That's also why the price committee, after examining all aspects of the issue, has recommended that price controls for bread be canceled, with competition taking its course.
And there's further proof that standard bread is overpriced. In 2009 the bakeries began offering discounts of up to 20 percent to the supermarket chains because of their high profitability at the controlled price, with the bakeries wanting to move as much product as possible. But when the discounts cut into their profit margins, they reached an agreement canceling the discounts and raising the price.
This is an illegal agreement that put the bakeries in the defendant’s dock, proving better than a thousand witnesses that price controls are in the interest of the producer.
Controls also cause shortages and low quality. In 2019, we experienced a severe butter shortage, triggering a loud public outcry. The government relented, removed butter from the list of controlled staples and allowed free imports. The impact was immediate: The supermarket shelves filled with many kinds of butter, quality improved and prices fell. And another win: The subject dropped from the headlines.
The same thing will happen when controls are lifted from bread. The bakeries will wage a price war because of the excess production, supermarkets will lower prices to draw customers, the quality of bread will increase and the entire matter will be scratched from the political agenda.