Fighting the cottage cheese wars

Ethics @ work: Consumer uproar over prices highlights shelter from foreign competition.

cottage cheese 311 R (photo credit: Marc Israel Sellem)
cottage cheese 311 R
(photo credit: Marc Israel Sellem)
Israelis, the veterans of so many wars, have lately been enlisting in a new one: the cottage cheese war. The main combatants in this war are the consumers versus the milk companies. Other regional powers – including the retailers, the dairies (who produce the milk), the industrialists and the various government ministries – have been scrambling to form alliances and to achieve a favorable outcome in this conflict.
The casus belli in this war was a sharp increase in the price of cottage cheese by all three major manufacturers in the beginning of this month.
The first shot was fired by an intrepid social-media networker, who felt the sharp increase in the price of such a basic commodity was an outrage and started a Facebook page calling for a boycott of cottage cheese until the prices went back down. In the following days and weeks, tens of thousands of Israelis rallied to the boycott flag.
The retailers placed their moral support firmly on the side of the consumers. Many lowered prices on cottage cheese to loss-leader levels, and representatives of a number of chains called on the milk companies to roll back prices. The prime minister declined to intervene, leaving the finance, industry, trade and labor, and agriculture ministers to work things out among themselves and among their various constituencies.
What is behind the price increase? The producers are blaming the increase on worldwide increases in the prices of raw materials. But myriad consumers are certain that there is a cartel at work.
What is the proper response? If the producers are correct, the proper response is to open the market to foreign competition.
Cottage cheese abroad is about half as expensive as it is here (in my opinion it is also only half as tasty). Evidently foreign manufacturers have access to lower-cost production methods, and Israeli consumers should too.
If the consumers are correct, the proper response is to open the market to foreign competition.
The presence of additional players in the marketplace will make collusion or anticompetitive conduct much more difficult.
Another solution that has been suggested is restoring price controls, which applied to milk products until 2006.
This solution is viable only if the source of the price increase is lack of competition. If underlying costs are indeed high, price controls cannot affect them and will only lead to shortages.

That representatives of the producers seem to favor price controls would seem to give weight to the second explanation: a de facto cartel at work.
In milk products, as in other branches of the market, Israeli consumers should have access to foreign products, and Israeli producers should be exposed to the salutary influence of foreign competition.
This step will in all likelihood bring down the price of the local cottage cheese. But to end on a personal note, this is one product that I will buy Israeli even at double the cost.
ethics-at-work@besr.org
Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).