The Israeli Consumer Is No Sucker

Israeli consumers proved their strength during the protest against the price of cottage cheese last year, when they forced the large food companies to bring down their prices.

It is difficult to estimate what really happened there: Was it a plot to help the farmers or simply stupidity? In any event, the Agriculture Ministry's division for research, economics and strategy became the hero of the day last week when it published a survey which found that prices of fresh produce are due to rise sharply in the coming months.

The study estimated that if there was an increase in price of some 50 percent in the grains fed to animals, this would lead to a rise by the end of the year of 13 percent in the price of milk and milk products, 17 percent in the price of eggs, 14 percent for chickens and 13 percent for turkey.

If, on the other hand, the grains were to increase in price by only 25 percent, the same basic products would be "only" six percent to eight percent more expensive.

The media took this dramatic scenario to heart and issued scary headlines about the giant price hikes for food we could expect in the near future. Ministry experts were interviewed in depth in the media, getting their 15 minutes in the sun.

My first suspicion was that this was a well-thought-out plot on the part of ministry officials to make it easier for the farmers to raise prices.

After all, everyone knows that the Agriculture Ministry is really the Agriculturalists' Ministry - that is to say, a ministry that considers its chief mission to be assisting the farmers rather than protecting the consumers' interests.

Indeed, the "study" makes it legitimate to raise prices all along the food chain: by farmers, producers and supermarkets. It's good for everyone except the consumers. The hidden idea is that the moment the consumers see the high prices in the supermarket, they will accept it submissively because after all, this is what the ministry experts predicted.

But there is another possible explanation why the ministry people ran to the media. It is possible that when the results of the study reached the spokesman's office, they decided to give it to the media so that the public would know that the Agriculture Ministry has serious researchers who even deal with strategy. They did not take into account the damage this would cause and therefore this was just stupidity.

There was a reason why I put quotes around the word "study" - because this is actually only a forecast that borders on a guess. After all, no one really knows how much the price of wheat, soy and corn grains will go up before the end of the year. The United States still has large reserves and there are speculators who raise and lower the prices on the stock markets according to financial interests.

If someone in the ministry really knew what the prices of these goods will be in another few months, he would immediately leave his job and make a fortune on the commodities market. But since he doesn't know, he will remain at his job. That is to say, it is impossible to know now how much the price of grains will go up, if at all. Any number could win.

Even the price model of the research division is not convincing. After all, the price of grains is only one of the components that fixes the price of the end product for the consumer. Many other factors push up the price during production and marketing; there is the issue of demand and also of competition.

It is possible, for example, that the recession in Europe will lessen the demand for food and that this will moderate the price hikes. The public's behavior must also be taken into account because the moment farmers, producers and marketers raise their prices, the public will consume less and the prices will drop; at that point, farmers, producers and marketers will have no choice but to become more efficient and absorb some of the increases in their costs. It is also possible that some supermarket chains will want to attract customers and absorb the increases in their costs as well. Take a look, for example, at the campaign by Eden Teva Market, which has lowered the prices of all its milk products.

And now, as if to reinforce the damage caused by the ministry, the Unilever company, one of the biggest food producers in Israel, announced that it plans to raise prices by five percent to six percent immediately after the High Holidays "because of the rise in price of inputs."

Therefore we have a proposal for Unilever: Beware. It is true you have the backing of the Agriculture Ministry, but the Israeli consumers proved their strength during the protest against the price of cottage cheese last year, when by demonstrating and boycotting they forced the large food companies to bring down their prices. In some instances, significant damage was caused to those companies that had raised prices without justification. The Israeli consumer is no longer a sucker.