Cottage cheese victory is only the first step

Locally produced goods sell for less overseas than they do at home, owing perhaps to the presupposition that docile Israeli consumers will pay anything.

By JERUSALEM POST EDITORIAL
July 3, 2011 06:00
3 minute read.
cottage cheese

cottage cheese 311 R. (photo credit: Marc Israel Sellem)

Despite its declared uncompromising company line, dairy giant Tnuva last week significantly slashed the price of cottage cheese. This climb-down is nothing to scoff at. Only days earlier it had rigidly insisted that higher prices were genuinely force majeure. Zehavit Cohen, who chairs the Tnuva board, had vowed that no way would prices be lowered.

In remarkable synchronization, Strauss and Tara too rushed to decrease prices, yet again underscoring the impression that a cartel, or quasi-cartel, fixes prices rather than free marketplace competition.

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Cottage cheese, our household breakfast staple, had become the unlikely focus of this country’s largest-ever consumer revolt, which now appears to have succeeded.

But as the organizers themselves have hastened to warn, victory is partial at best and the fight is by no means over.

For one thing, though the price is some two shekels down (from nearly NIS 8 per tub), this is still higher than it should be, higher than the product sells for in comparable markets abroad and higher than at smaller discount chains in Israel.

Moreover, thus far, only the price of cottage cheese has been reduced, as it became the uprising’s cause célèbre.

Nonetheless, other foods, cheaper to process, remain overpriced.

Worse still, locally produced goods sell for less overseas than they do at home, owing perhaps to the presupposition that docile Israeli consumers will pay anything.

Yet the fact that the consumer boycott – and the Treasury’s threat to allow competitive imports – did lower prices, highlights the speciousness of earlier assertions that international commodity market fluctuations made exorbitant domestic prices unavoidable. Raw material costs obviously didn’t force foreign prices up as drastically.

The bottom line is that too many conglomerates operate on the assumption that Israeli consumers can be overcharged.

Frequently prices are hiked surreptitiously by tinkering with the packaging or the ingredients of the product. This is also true of importers, some of whom allow themselves liberties here that would be unthinkable elsewhere.

We can only hope that the great cottage cheese showdown will begin to change those belittling perceptions of Israeli consumers. But for that to happen, consumers cannot afford to rest on their laurels. The cost of cottage cheese remains excessive even at the lower level. Other dairy products are still far too expensive. Other processed foods cost more in smaller, “redesigned” containers. And it’s not only groceries.

The danger is that jubilation will lead to complacency, ardor will give way to indifference and a few weeks down the road things will return to the status quo ante – i.e.

prices will again spiral. Let’s furthermore remember that cheese is easy to boycott. It’s far more difficult to rebel against unwarranted charges for water, electricity, fuel, gasoline, Internet, etc.

To be fair, though, producers, wholesalers and retailers – their established excesses notwithstanding – are not the only villains of the piece. Ten percent of what we pay for cottage cheese goes to VAT. The government contributes inordinately to the inflation it purports to combat. The imposition of VAT on basic provisions raises their prices. It also raises them unfairly.

Indirect taxation is inherently regressive because it is not income-based and hits the lower income segments of society disproportionately.

Israelis pay more in indirect taxes than consumers in most developed countries. Israel’s indirect taxation is the third-highest in the OECD. The Treasury’s own report, published last week, shows that the burden of indirect taxes is significantly heavier here. Indirect taxes, according to the report, accounted in 2008 for 16.2% of Israel’s gross domestic product, compared to an average of 10.2% in other OECD countries and a mere 6.9% in the US.

And things have been getting worse since 2008. The Treasury’s income from indirect taxes constitutes half of its revenues nowadays.

The picture is gloomier when broken down into specific indirect taxes – for real estate, fuels, even water. Theoretically, higher direct taxes impede growth, which is why governments prefer making up budgetary shortfalls via indirect taxes. Yet indirect taxes too eventually hamper growth because they erode the population’s buying power by increasing prices. The resultant dreaded inflation is, of course, another concealed regressive tax. Whichever way this is viewed, ordinary folks lose.

What a difference it makes being native-born!


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