For real competition

It’s not prices that need to be regulated but anti-competitive conduct.

By
June 23, 2011 06:44
3 minute read.
cottage cheese

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

 
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Atrusty old adage advises us to “never ruin an apology with an excuse.” But this is just what Ofra Strauss did at the Caesarea Public Policy Forum on Monday, when she admitted: “We were wrong. It’s a fact.”

She is chairwoman of the Strauss Group, Israel’s second-largest food and beverage company and also a substantial international corporation. Strauss’s firm is one of the prime targets – right after Tnuva – for public outrage over skyrocketing dairy prices, which have sparked the consumer boycott of cottage cheese.

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Her apparent contrition afforded a unique opportunity to peek into the mindsets of some in our rich set. Strauss confessed that she was taken aback by the omnipresent anger, which she never expected and had never suspected existed “out there.” Her consternation was so profound that it took her two days just to regain her composure, she said.

Her shock is perhaps the most disquieting factor of all, along with the use of the term “out there.” It denotes alienation from average folk, the ones who purchase the Strauss Group’s products and those of companies like it, and a lack of consideration for customers’ buying-power. It suggests a prevailing assumption that consumers can be relied upon to pay, docilely, whatever they are asked to pay.

Strauss offered several excuses for the price hikes that have caused widespread outrage, including that the food industry is “merely one link in the chain of prices” and that “this is part of what is happening in the whole world.”

She omitted mention of the fact that, even if we factor in higher raw material costs globally, Israelis still pay far more than their counterparts in other developed countries. There’s no avoiding the conclusion that we’re being charged exorbitantly – far above what commodity fluctuations in the international marketplace mandate.

Moreover, this has been escalating ever since price controls were lifted a few years ago. Deregulation was supposed to spur competition, which was supposed to lower prices. Instead, the precise opposite has occurred.



The fact that prices increased rather than decreased indicates that no improved competition took place. This points to the probability of price-fixing and similar cartel- type machinations.

Most milk producers in this country sell their product to the giant Tnuva, which is flanked on the production side by Strauss and Tara. The retail chains evince no regular long-range readiness to reduce their profit margins either. Everyone but the consumers seems to be doing well.

The very notion of introducing dairy imports to force competition on the local market, as suggested by some in government, seems to have set the cat among the pigeons. Kibbutz dairymen have gone so far as to threaten to violently disrupt imports. That all components comprising the local milk-processing complex are so agitated merely by the threat of imports speaks volumes.

But imports aren’t an ideal solution, especially when elsewhere in the world governments subsidize and protect farmers. We don’t want to destroy our agriculture and allied industries, even if they have misbehaved. But that misbehavior cannot be countenanced either. When arrogant producers and retailers habitually and haughtily ignore consumer buying power, they gravely undermine the entire economy.

Both over-regulation and under-regulation are detrimental to free enterprise. Imposing price controls gums up the system. Conversely, the importation of short shelflife products isn’t necessarily practical (not to mention kashrut issues).

The point of attack must be elsewhere. There is chronically in this country a mammoth failure to root out price-fixing. Groceries aren’t the only cases in point.

Monopolies pervert much of our consumer reality – from housing, cars, fuels, electric appliances and hi-tech gadgets to cable, Internet and cellphone services. The readiness of the Israeli consumer to put up with anything is taken for granted.

It’s time bureaucratic snarls were undone to facilitate deterrent antitrust enforcement. As things operate here – and as they have for decades – we enact laws that prohibit price-fixing but these are rarely implemented vis-à-vis the most egregious conglomerates, whose movers and shakers often closely collude with political power-players.

Turning the spotlight on actual cartels or quasi-cartels is a strategy that demands extraordinary political courage given our specific circumstances. But this is what must be done. It’s not prices that need to be regulated but anti-competitive conduct.

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