Report: Country’s big 3 dairy producers are a cartel

Gov’t policies at fault, says economist; Jerusalem Institute for Market Studies says gov't sanctions cartelization of sector.

July 7, 2011 05:18
2 minute read.
cottage cheese

cottage cheese 311 R. (photo credit: Marc Israel Sellem)


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As concerns about the price of cottage cheese and other dairy products continue to grow, a study published Wednesday by the Jerusalem Institute for Market Studies (JIMS), a nonprofit economic policy think thank, argued that the three largest Israeli cottage cheese producers - Tnuva, Strauss and Tara – are acting as a cartel.

The report by JIMS economist Keren Harel-Harari faulted Israeli economic policies for allowing the companies to influence the market and price of cottage cheese.

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Harel-Harari wrote that the high prices of cottage cheese and dairy products have persisted “mainly because the government has sanctioned the cartelization of the sector.”

She also noted that policies such as exceptions to anti-trust law and high import tariffs enable the three dairy companies to set high prices for cottage cheese and other goods.

Dairy producers can “coordinate their activities and exert market power, and thus bring about higher prices for consumers,” according to the Ministry of Agriculture’s proposed budget, as quoted in the report.

Harel-Harari called for this state sanction of an agricultural cartel to be removed and for other tax benefits that currently only apply to large companies be applied to small businesses as well.

Harel-Harari’s analysis of cottage cheese prices also revealed that since January 2008, consumer prices rose 10 times as fast as the price dairy producers paid farmers for the milk. Tnuva, which controls 70 percent of the cottage cheese market, also raised its prices by 45% percent since 2006, she found.

The report added that high tariffs, which are as high as 150-200% for dairy imports, create obstacles for foreign dairy products to enter the Israeli market.

More foreign dairy products in the Israeli market would lower the price of goods, which prompted Harel-Harari to also advocate for a decrease in import tariffs.

The JIMS study was released the same day a new inter-ministerial government committee formed to investigate the regulatory and business barriers that affect food prices convened its first hearing.

Yoash Ben-Yitzhak, spokesman for the Manufacturers Association, the umbrella organization for Israeli manufacturers in which the three dairy companies are members, would not comment on JIMS’s recommendations.

But he said that the dairy producers are “part of the committee that is trying to find a solution.”

The committee, chaired by Sharon Kedmi, director general of the Ministry of Industry, Trade and Labor, will examine different concerns about the food industry and market failures, including domestic supply, tariffs and market barriers. It will also investigate the disparity between the cost of consumer goods in Israel and other Western countries with similar populations and economies.

The committee is expected to present its interim findings in two months and its final report in four months.

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