bread biz july 10 88 298.
(photo credit: Ariel Jerozolimski)
Due to the standoff between the Industry, Trade and Labor Ministry and the country's large bakeries, no price-controlled bread has been available since last week. Doubtless those who regularly consume this particular product and cannot afford the more popular, higher-priced varieties are acutely troubled.
But if anything, the impasse demonstrates the absurdity of intractable price regulations. These cannot work where they constitute impediments to the manufacture and marketing of affordable products rather than provide real support for consumers who cannot pay more.
In order to avoid a 20-agorot price hike per unsliced standard loaf - which would then retail for NIS 3.85 instead of NIS 3.65, still one of the lowest prices anywhere - populist politicians, headed by Shas's Trade Minister Eli Yishai, have created a circumstance in which this low-cost basic food item is denied precisely to those sectors of the population that they claim cannot do without it. The needy - on whose behalf Yishai insists he is standing firm - have indeed been spared a 20-agorot rise thus far, but instead have had to pay triple the cost of the not-available inexpensive loaf to buy "specialty" bread.
The fault lies squarely with Yishai. Professing to be the champion of the poor, he assumed he could force bakers in a free country to produce a price-regulated product at a loss. But though Yishai wants to ignore the dramatic 30 percent increase in the price of flour over the past month, the bakeries can't wish it away; their expenses have risen.
Bread cannot be baked in a vacuum. The costs of flour, fuel, wages and so on must be factored in or the bakeries go out of business and their workers join the jobless lines.
The alternative to imposing losses on businesses which must stay in the black is to hike subsidies to an even more unrealistic level than currently. But that too makes no sense. It sounds facile but would mean that average taxpayers would artificially prop up producers while the principal beneficiaries wouldn't necessarily be the poor Israelis who Yishai insists he represents. We all recall the situation not too many years back when cattle and poultry were fed on standard bread. It really was cheaper than chicken feed.
It was indeed so cheap that merchants from bordering Arab countries began buying up Israeli bargain-priced bread. The Israeli taxpayer thus unwittingly ended up subsidizing the diets of consumers as far away as the oil-wealthy Gulf states.
In this context, a price rise of 20 agorot seems by far the lesser of all absurdities.
The greatest absurdity of all, of course, is the atavistic, yet not necessarily germane connection still drawn between bread and the sustenance of life, the one which nearly three decades ago moved then-premier Menachem Begin to forbid scrapping bread subsidies. We're still paying for that ill-advised decision today.
However, while Begin was ultra-sincere, some of those who have since manipulated that same emotive heartstring do so cynically, in knowing disregard for the economic facts of life, with a view to making political capital.
Their premise is that standard bread is consumed by the poorest social strata. This assumption, according to recurring surveys, is patently untrue. The considerably more expensive pita, for instance, is high on the shopping list of most low-income families, which spend twice as much on it as on bread, according to Central Bureau of Statistics findings. Indeed bakeries no longer depend on standard bread for their major income, precisely because it is no longer the staple of public consumption. The purchases of standard bread are steadily declining in the same proportion among all segments of society.
The "compensation apparatus," which Yishai managed to convince this week's cabinet meeting to "examine," would burden the taxpayer with more wasteful and utterly superfluous expenditures, as an army of bureaucrats would presumably begin to scrutinize how much various sectors spend on which bread, and by how much and according to which criteria to compensate whom. The bureaucratic bill would be higher than the bread price hike.
Perhaps the best price-reduction route would be to de-regulate everything. This was done in 1990 for a host of "basic foods." We aren't paying more for them and their supply hasn't diminished.
Competition in a free marketplace is the best price-controller - as Israel's experience with telephones has classically proved. Once competition was ushered in, prices fell dramatically and availability skyrocketed.