Dairy reforms won’t cut prices by much, says new report

Report says NIS 2b. invested in dairy farms in past decade and even more invested in cultivating dairy herds will “go down the drain" under reforms.

By NADAV SHEMER
August 1, 2011 02:39
2 minute read.
cow farm

cow farm 311. (photo credit: Liat Collins)

 
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The government’s recently announced reforms to the dairy industry do not address the main points and are not expected to trigger a significant reduction in prices, the Taub Center for Social Policy Studies said in a report published Sunday.

Prime Minister Binyamin Netanyahu agreed last week to open the dairy market to imports, adopting the Kedmi Committee’s recommendations on how to bring down prices. Among a raft of changes, dairy farmers and supermarkets will be required to report profits, unfilled dairy quotas will be opened up to competition, and the target price (the amount dairy farmers get for a liter of milk at the cowshed gate) will be lowered by five to six agorot.

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But according to the Taub Center’s report, NIS 2 billion invested in dairy farms in the past decade and even more invested in cultivating dairy herds will “go down the drain” under the reforms.

The report cited Dairy Board calculations which showed that in the past 18 months the price of reconstructed milk from imported milk powder and butter has not been significantly lower than the domestic price, and added that forecasts indicate increased demand will trigger a prolonged increase in world milk prices. By opening the local dairy market to imports of milk components, Israeli consumers would be exposed to unprecedented fluctuations, the report said.

In addition, it argued that imports will hurt the current mechanism for regulating seasonality, under which winter milk surpluses are used to make yellow cheese. Milk production is seasonal, with gaps of up to 20 percent between the quantities produced in winter and summer, the report said.

It also accused the government of acting contrary to its stated policy of strengthening the periphery.

“In recent weeks it has seemed like the government has realized the need for more market intervention in order to protect consumers from market failures,” Taub Center deputy director Ayal Kimhi said.



“But in the dairy market, the proposed policy goes in the opposite direction. While the large dairies and supermarkets enjoy monopolistic power and are responsible for the lion’s share of price increases of dairy products, the committee chose to focus most of its attention on the weak part of the chain, the dairy farmers, who have always been subject to supervision and regulation.

“The proposed reform will hit hardest for small farms and dairies, located mostly in the periphery, while the large dairies and marketing chains, as well as the new importers, will continue to enjoy wide profit margins. Dairy farm efficiency can and should be enhanced gradually, as has been done in the past, but opening the milk market to imports without regulating monopolistic profits will not affect consumer prices considerably.”

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