The Cottage Cheese Revolution

Tnuva raised the price of cottage cheese one time too many and the vociferous public protest that ensued has already yielded results.

One good thing has already come out of the cottage cheese revolution: The public has proven that it is no longer apathetic. That it is no longer willing to purchase any product at any price. That it can organize voluntarily on Facebook and threaten a consumer boycott of anyone who makes a laughingstock of it - in this case, the dairy product manufacturers.

Tnuva's management has proven that power has gone to its head. It believed it could raise the price of cottage cheese (a key component of its profitability ) time after time with impunity.

But it turns out that Tnuva raised the price of cottage cheese one time too many. The vociferous public protest that ensued has already yielded results: Some supermarket chains have reduced the price of cottage cheese, along with the price of milk and white cheese. Yet these are short-term price cuts that will last just a few days. This is not yet a consumer victory.

It's no coincidence that the anger focused on the dairy industry. The prices of milk, cheese and yogurt are many times higher in Israel than they are in Europe or the United States. This is due to the industry's cartel structure - an archaic, inefficient structure whose goal is to protect the dairy farmers and manufacturers at the consumer's expense.

This unacceptable cartel has three layers. The first is comprised of dairy farmers from the kibbutz and moshav movements together with private farms. This is the strongest group, as it is backed by the entire agricultural lobby. Each farmer has an allotted quota for milk production, and these quotas were set long ago on the basis of political affiliation. The price farmers are paid is also dictated from above, by the Israel Dairy Board.

There is no competition among the farmers, and as a result, they are less efficient than the international norm. Yet the price they receive for milk is higher than what their counterparts in Europe and the U.S. get.

The cartel's second layer is comprised of the manufacturers: Tnuva, Tara and Strauss. This is a market where competition is limited to three companies, of whom one, Tnuva, is the dominant player. If Tnuva jacks up its prices, Strauss and Tara do not need to receive an email or a telephone call. They see what is happening in the market and adjust their prices accordingly. The result is high prices for consumers and hefty profits for the producers.

The cartel's third layer is a bizarre government decision that effectively bans the import of milk and dairy products. Steep tariffs, ranging from 100 to 200 percent, have to be paid by anyone who wants to import white or hard cheeses. It is thanks to these import restrictions that prices in Israel can be kept so high: They face no competition from abroad.

Some say the solution is to introduce price controls for dairy products. But they are wrong. The worst thing that could happen to us would be for two government officials to determine the prices of dairy products. After all, it's easier to "persuade" two such officials than it is to convince the market. Mark Moshvitz, the legendary owner of Elite, once told me that the company's most profitable period was when it was subject to price controls.

The public should know that when products are subject to price controls, quality plummets and variety is limited, as companies do not invest in development and innovation. Just consider the miserable, outdated assortment of products that Communist countries provided for their citizens. In those states, everything was price-controlled.

The solution to the dairy cartel lies elsewhere. The Dairy Board should be disbanded, so that farmers would have to compete over price and quality. In addition, the draconian quotas on milk production should be abolished, and dairy imports should be allowed with no restrictions.

Finance Minister Yuval Steinitz should not "consider" allowing imports of dairy products; he should simply abolish all the tariffs and restrictions. Only then will the price of cottage cheese plummet to a reasonable level, akin to what it sells for in Europe - with no price controls, no policemen, no fines and no Dairy Board.

Unrestricted imports and improved competition are what will do the job. And then, the cottage cheese revolution will end in triumph.