Amber alert for Israeli butter successful

Tnuva might be saving China from threats to its authoritarian leadership by exporting dairy products.

By HAROLD GOLDMEIER
October 7, 2019 22:25
MORE BUTTER?

MORE BUTTER? . (photo credit: REUTERS)

Israel’s butter and the ingredients to make butter have been on amber alert for almost a year. I believe they are largely being exported to China and elsewhere, including Walmart. In part, Israel is contributing to China’s food security program and thus its stabilization. Tnuva might be saving China from threats to its authoritarian leadership by exporting dairy products.

Butter made in Israel has been missing from supermarket shelves for nearly a year. It is a surprising turn of events since Tnuva is the largest dairy food manufacturer in Israel. Butter and cottage cheese are the company’s staples. Tnuva sales account for 70% of the country’s dairy market. The Israel Antitrust Authority once labeled Tnuva a monopoly.

China’s state-owned Bright Foods owns a controlling interest in Tnuva. The behemoth of food security has the power and authority to order Tnuva management to ship products wherever it wants. The 2014 deal was an early warning sign from the Netanyahu government’s fledgling policy of promoting the wholesale sale of Israeli companies to foreign investors without demands for job protection for Israel’s workforce. This was done for four reasons.

First, government coffers are filled faster this way because of the huge taxes collected on big deals. Businesses have become Israel’s largest export, relabeled for public relations purposes as investments.

Second, China’s investments and growing trade helps cement diplomatic relations in the face of hostility toward Israel, such as the Boycott, Divestment and Sanctions movement.

Third, the investments in Israel demonstrate Netanyahu’s commitment to building solid foreign relations in addition to those with the US and Europe.

Fourth, Chinese workers and scientists have reasons to visit Israel and become boots on the ground, witnessing the magical start-up nation and carrying home the message. Missing butter, however, in addition to lost jobs, may be a side-effect of this foreign investment government policy. China’s self-interests in Israel are threefold.

China enjoys a growing middle class. They buy cars. They eat more meat and dairy, abandoning their vegetarian diet as living standards rise. China’s production of dairy products is sluggish, so the country imports $10 billion a year including milk powder, cheese, butterfat, whey products, lactose and more. Beijing’s imports of US dairy products fell dramatically in the heat of the tariff war. China does not seem too bothered because its needs are being met by imports from other countries which are filling the void. China also imports Israeli know-how, technology and equipment like robotic milking systems for building its dairy farming enterprises. If you want kosher butter, go to China.

President Donald Trump is appropriately using tariffs on imported goods from China to change its government’s collaboration with manifestly bad business behavior. Beijing is accused of stealing intellectual property and takes pride in selling “knock-off” goods at cheap prices. It devalues its money to ensure that cheap exports keep flowing. But the impact of tariffs is threatening China’s economic and social stability.

A HALLMARK of Chinese Communist authoritarian rule is that it operates on a planned economy. China has been bracing for years for the arousal of other governments’ antipathy for these pest-house business practices. Moreover, though no one anticipates a regime change from the unrest in Hong Kong or the deteriorating mainland economy, a February book review published by the Harvard Fairbank Center for Chinese Studies – which I got to know when I was a research and teaching fellow – claimed that the Chinese government has a tight grip on things but “amid surging protests.” Nothing ensures peace like a government that can feed its people and that fulfills the growing demands of the middle class.

In retaliation, China announced tariffs on a slew of US goods. Soybeans, dairy products and hogs are especially hard-hit. US dairy exports by volume to China fell 43% in the previous year. China is sourcing these from Europe, South America, New Zealand and Israel.

For example, China turned to New Zealand farmers to supplement the growing middle class’s demand for more dairy products. In 2019, China’s Yili dairy company bought New Zealand’s second-largest dairy cooperative, Westland, for an estimated $165 million. The largest NZ dairy company, Fonterra, continues being a preferred supplier to China. Exports of European Union butter to China in 2019 are up 13%. Cheese exports to China are up 20%, more than to any other single destination.

Moreover, China’s Bright Food Group owns the controlling interest in Israel’s Tnuva Food Industries. Tnuva appears to have stopped manufacturing butter for the Israeli market, claiming it gains greater revenue exporting butter that sells at higher prices. Efforts to determine the destination of butter/dairy exports go unanswered. The longest-running absence of domestic-made butter from supermarket shelves in Israel cannot be a coincidence in timing to China’s sourcing alternative dairy.

But things do not always go as planned. In September 2019, the Chinese government seemed worried enough to change policy and loosen or eliminate (depending on how you translate the term from Chinese) the tariffs on US soybeans and pork/meat imports as a way of easing internal pressures and mitigating the Hong Kong protests from spreading to the mainland, even though the issues are different. Soybean and hog farmers are Trump’s backbone voters, and Trump subsidies (90%) are allocated to states where they have political sway.

So why is a nice, kosher-keeping boy writing about pork? Because pork is a staple of the Chinese diet. Soybean meal is a staple of China’s hogs. Unrest is growing among the Chinese from economic woes coupled with stress on the hog herds. The pressure is forcing the government to cut the Gordian Knot by announcing days ago that tariffs on US soybeans and pork are being rescinded or will not be raised again (once more, it depends on how you translate Chinese).

Pork and meat are not simply staples in modern China, but obsessions. Meat and pork consumption is growing among China’s growing middle class. Pork by-products are widely used in Chinese cooking for shortening, flavorings, main dishes and sausages. Pork is the most popular dish on Chinese recipe shows. And in China, 2019 is the Year of the Pig.

Pork prices skyrocketed from an epidemic of African swine fever in China. Now in its second year, the fever is responsible for the destruction of half the world’s hog population. China’s herd was decimated by the loss of some 300 million hogs. Herd sites are contaminated sometimes for as long as three years. Adding to the strain are tariffs nearing 62% on pigs. Soybeans and soy meal imports to feed the pigs were drastically reduced by the trade war.

The Chinese government’s announcement is expected to lead to renewed imports of American pigs and soybeans, and comes none too soon for both countries. Herds are falling in numbers in America. The US government is subsidizing soybean farmers. In China, one city is capping prices and rationing pork. Pork is now a luxury item.

And in Israel, butter is a luxury item. Is cottage cheese next?

The author is manager of an investment fund, and a university teacher, business consultant, speaker and writer for many sites and newspapers. He can be reached at Harold.goldmeier@gmail.com.


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