After 11 months of deliberations, the Kedmi Committee – one of several created
in the wake of last summer’s socioeconomic protests – has presented its
Tasked with combating exorbitant food prices that jack
up the average Israeli’s cost of living, members of the committee – head by
Industry, Trade and Labor Ministry director-general Sharon Kedmi – have made an
important contribution to the ongoing endeavor of improving the efficiency of
our markets. Unfortunately, the chances are slim that the key recommendations –
slated to be discussed by the cabinet in two weeks – will be implemented anytime
For seven years, Israeli consumers have been subjected to a steady
rise in the price of a wide variety of food products. If in 2005, we paid
between 10 percent and 20% less than OECD average for a basket of food products;
by 2010 we were paying 10% to 20% more. And the reasons for this sharp rise in
prices are well known.
A relatively small number of large food-product
suppliers and supermarket chains control the market.
For instance, the
two main supermarket chains, Shufersal, controlled by IDB Holdings, and Mega,
owned by Alon Holdings Blue Square, corner a 64% market share in the retail food
market. “The result is an oligopoly,” noted the Kedmi report. “Little
competition, few players.”
The solutions are well known also. Steps need
to be taken to prevent collaboration between the big food product suppliers and
the big supermarket chains.
Shufersal, Mega and other chains must be
forced to stop reserving shelf area for Osem, Elite and other large food
producers and suppliers.
Also, the Anti-Trust Authority must encourage
competition by preventing larger food producers or supermarket chains from
buying out small ones. In hindsight, the authority erred when it permitted
Shufersal to acquire Clubmarket back in 2005, though its intention was to
prevent massive layoffs and to stop creditors from losing money. And the same
holds true for Osem’s purchase of Materna in 2007. In parallel, steps must be
taken to make it easier for smaller players to enter the market and
Unfortunately, it will be no easy matter to undertake the
necessary reforms. Legislation must be passed to enforce the recommendations
against buying shelf space and the prohibition against collaboration between the
supplier and the retailer. During the long process of drafting and passing this
legislation, our lawmakers will be subjected to a sustained offensive by
lobbyists who will attempt to dilute the bill.
And even after a law is
approved, it will be nearly impossible to prevent subtle
To enable smaller players to enter the market, reforms
must be made in the way banks make credit available to small businesses. But
banks will be loath to change their lending policies. And the streamlining of
the licensing process for new business is another obstacle that cannot be solved
While the Kedmi Committee recommends that more information be
made available to consumers about the price and quality of products – including
those produced by smaller firms – there is no substitute for advertising on
prime time TV. And only the largest firms can afford to air commercials, which
inevitably have a crucial impact on consumer behavior.
There is little
that the government can do to prevent large firms from spending on advertising
or to lower the advertising costs for smaller firms.
Committee’s recommendation to encourage the large supermarket chains to provide
their own generic or store brand of products as a means of lowering prices is
impractical under the present circumstances. Due to the high level of
collaboration with brand-name food producers, supermarket chains are under
pressure not to market their own store brand. As a result, generic brands make
up just 5% to 10% of the market, compared to as much as 40% in Britain and
While the Kedmi Committee’s recommendations are good in
principle, their implementation will be no easy matter. Perhaps another round of
socioeconomic protests this summer will put the necessary pressure on
politicians to take Kedmi seriously.