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Why Is Everything So Expensive?

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The solution to the high prices in Israel (25 percent higher than in Europe and the United States) lies in fixing the distorted structure of the economy.
The solution to the high prices in Israel (25 percent higher than in Europe and the United States) lies in fixing the distorted structure of the economy.Credit: Getty

The Israeli consumer won. Last week, the three major importers surrendered and did not raise prices. They gave in when faced with heavy pressure from all over: Yair Lapid threatened to open the market to parallel imports, the Histadrut labor federation organized a consumer boycott, the public switched to competing products, the media bashed them mercilessly, and the supermarket chains announced they would not agree to the new price listings.

Diplomat, Schestowitz and Kimberly-Clark lost the battle but not the war. They say it is just a postponement, until after the holidays, but meanwhile we’ll gain three months without price hikes, and that’s no small thing. And who knows what will happen after Sukkot? Maybe the world will sink into an economic slowdown, maybe the cost of raw materials will be reduced, and then price hikes will be irrelevant.

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This latest round in the struggle against large importers proves how strong the Israeli consumer is. The importers would not have given in had they not feared a boycott. They apparently remember what happened to Tnuva in June 2011. That’s when it raised the price (for the umpteenth time) of cottage cheese to 7.1 shekels, and that was a step too far. The public outcry was huge, and a boycott was declared.

At first, Tnuva held firm and wouldn’t budge, but within days, when it saw that sales were plummeting, it relented and lowered the price to 5.9 shekels. And lo and behold, that price has stayed the same ever since, for the last 11 years! Which is how cottage cheese came to symbolize the victory of the Israeli consumer.

But the truth is that a boycott is not a long-term solution. The solution to the high prices in Israel (25 percent higher than in Europe and the United States) lies in fixing the distorted structure of the economy. The most important measure is to cancel all the tariffs on imports of beef, chicken, fish, dairy products, fruits and vegetables, juices, canned goods, olives, dates, almonds, olive oil, honey and more. These tariffs are insanely high – ranging from 70 percent to 170 percent, which deters imports and enables local producers to raise prices sky-high.

Another thing that needs to be addressed are the exclusive importers, who basically hold a monopoly on international labels in the food and pharmaceutical categories. The exclusivity should be canceled. Whoever wants to be an exclusive importer should go work in some other country.

Also, in Israel we have agricultural councils – the Dairy Council, the Poultry Council, the Honey Council, the Wine Grapes Council and the Groundnuts Council – that operate with communist-style methods. They set production quotas and ensure that prices are maintained at a high level. They should all be shut down. And there are also 65 (!) monopolies, cartels and oligopolies, in both the public and private sectors, that are hurting competition and raising prices. They must be dealt with too.

And that’s still not all. We have two government ministries, the Agriculture Ministry and Health Ministry, that are fighting against parallel imports. They make it difficult for small importers to compete with exclusive importers, and thereby enable them to charge exorbitant prices. Then there is also the Standards Institute, which blocks imports by insisting on unique standards that it invents for the purpose of defending the industry.

This week, for example, we found out why we pay such high prices for air conditioners: The Economy and Trade Ministry exempted air conditioners from the import reform and left in place the requirement that they meet a unique Israeli standard, which prevents competition from abroad. Only after heavy pressure was exerted on Economy Minister Orna Barbivai did she deign to cancel the special Israeli standard, opening the door to the import of air conditioners and to lower prices.

And added to all of this is the convoluted Israeli bureaucracy that makes everything more expensive, the over-regulation that suppresses activity, the out-of-control municipal taxes (arnona), high taxes in general and numerous other fees and tolls. No wonder everything here is so expensive.

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