Tnuva remains a monopoly

Tnuva, once a dairy monopoly, was for many years also a monopoly in poultry, eggs and vegetables.

By MOSHE LICHTMAN/GLOBES
June 20, 2011 22:42
Baby bottle

Baby bottle. (photo credit: Courtesy)

 
X

Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief

UPGRADE YOUR JPOST EXPERIENCE FOR 5$ PER MONTH Show me later Don't show it again

The story of Tnuva Food Industries Ltd. is proof of the claim that veteran Mapai politicians created monsters that the Likud does not understand how to handle.

Tnuva, once a dairy monopoly, was for many years also a monopoly in poultry, eggs and vegetables.

Be the first to know - Join our Facebook page.


Strauss Group Ltd. and Tara Dairies got the leftovers from Tnuva’s dairy raw materials. If a grower wanted to market his chickens to a slaughterhouse not belonging to Tnuva, he was told: “If you don’t market your chickens through us, we won’t market your milk and vegetables.”

There was a regime of fear.

To survive you needed to smuggle a couple of trays of eggs in your car trunk and sell them door to door and maybe sell a few vegetables directly to the local grocer. In the moshavim they called it “Gnuva,” (a play on Tnuva and the Hebrew word for stolen).

In the dairy sector, historically there are so many protective layers built to preserve the power of Tnuva as a monopoly that it has become a most appropriate case to be studied in depth for the committee probing concentration in the Israeli economy.

While Tnuva’s shareholders were hundreds of kibbutzim and thousands of moshav members, then it was possible to view the company as a “public” asset. The moment it was sold to Apax Partners and Mivtach Shamir Holdings Ltd. it was no longer entitled to such a status.



Exactly for that reason, during negotiations for the sale, Zahavit Cohen insisted that a mechanism for protecting the dairy industry be enshrined in law, including a guaranteed price for the producer.

Tnuva’s CEO Eyal Malis said during the Knesset debate: “We can see that cottage cheese has become a symbol.

We propose there be a thorough probe of all cost components, and we would fully cooperate with such an examination.”

An examination of the dairy sector gives just one figure: the “target price,” meaning the amount the dairy-herd owner gets for a liter of milk at the cowshed gate. The “target price” the herd owner gets today is NIS 2.1491 per liter. The Milk Council takes a service charge of NIS 0.0471 per liter. The target price comprises: 58 percent feed; 14% other expenses, such as electricity, water (subsidized rate for farmers), vets and maintenance; and 15% labor (selfemployed and employees).

And who sets the target price? The Milk Council, where the dairies have historically controlled matters. The main entity controlling the Milk Council is Tnuva. A small producer can earn 10% on the target price, but larger and more sophisticated producers can earn a lot more.

And what happens along the way from the target price? Does anyone know how much it costs Tnuva to process a tub of cottage cheese from milk containers via the factory and until the tub is marketed to the chains? Is the answer hidden in those mysterious Tnuva reports that Zahavit Cohen is fighting over with the public and Meir Shamir? It is doubtful. What does it cost the retail chains to handle a tub of cottage cheese from the moment they receive it from Tnuva? Is it possible to find out the figure? What profit margin does the public “permit” the dairies and chains to add onto the target price? Without answers to these questions, it is impossible to draw a conclusion as to whether NIS 6 for a tub of cottage cheese is daylight robbery in light of the target price of NIS 2.15 per liter of milk.

Tnuva’s principle defense, as well as its historical control of the Milk Council, is enshrined in the black hole of the Antitrust Law. Nobody has dealt with this Mapai relic. It was a law especially tailored for Tnuva when it was a “public” asset.

Further protection for Tnuva is the continued regime of quotas, which prevent new players to enter the milk production market. The historic masters of the quotas and their offspring received a concession from the state as if it was their entitlement.

Even further protection is anchored in the Milk Law passed a few months ago by the Knesset at the behest of former agriculture minister Shalom Simhon. After the law was passed Simhon said: “It serves both the cowshed owners, by ensuring profits, and the consumers. In addition, it ensures suitable conditions for dairy activities.”

As if all these forms of protection are not enough, there is also a scandalous excise on cheese products (it is difficult enough to import fresh products because of the shelf life, and what is possible to import to encourage competition are hard cheeses and milk powder). Excise is excellent for Tnuva.

The storm over cottage cheese can end with a lot of spin and lower prices here and there, with bargain offers over cottage cheese tubs and other nonsense.

The real debate should be about the monopolistic structure of the dairy sector (the word cartel is suitable here, but the monopoly is still in Tnuva’s hands) and the layers of protection it provides for the major players – and why that protection was not dealt with when Tnuva stopped being a “public” asset, and what should be done now? Such a discussion would very quickly lead to an even more fundamental question: Is there room to continue to continue preserving the system of quotas for farmer-producers, or at least creating new competitors? Have we reached an historic stage where we can think about a tender for milk quotas? The debate must deal with a no less important question: Farmers’ subsidies are perceived as a vital need and are implemented in various ways in Europe, but would it not be more appropriate to subsidize the farmers rather than guaranteeing a cost-plus mechanism for the producer.

Related Content

The Teva Pharmaceutical Industries
April 30, 2015
Teva doubles down on Mylan, despite rejection

By GLOBES, NIV ELIS