Are Israeli food products and consumer goods about to get more expensive? And if so, what will be the social fallout?
From an economic standpoint, price increases are inevitable. Prices of raw materials have begun rising worldwide due largely to complications in the supply chains. Global demand has skyrocketed for nearly all commodities, including corn, sugar, steel and lumber, as suppliers struggle to keep up with the pace of the economic recovery.
There are droughts in important growing regions, soaring demand in China and the looming fear of inflation after countries printed money to cope with the costs of the coronavirus crisis.
Shortages of essential materials are becoming more commonplace throughout the world. Manufacturers who had learned to rely on “just in time” shipping practices to keep inventories low are still learning how to adapt to a world where deliveries are not as reliable as they once were.
With all these factors creating a perfect storm of inflationary pressures, the United Nations recently issued a warning that world food prices are rising at their fastest pace in a decade.
Israel has some specific challenges of its own. The nation’s ports are severely backlogged due to work being done to upgrade infrastructure, as well as a large volume of imports, such as metal and cement, to stock up before the expected price increases.
A labor conflict at Ashdod Port is also exacerbating the situation, and cargo ships are being forced to wait for days, and in some cases weeks, to unload. The price of renting a shipping container has risen 50% in recent months.
Last Thursday, the Manufacturers Association called on the government to intervene to prevent further harm to businesses and consumers.
However, even if price increases are unavoidable, they could not be coming at a worse time. Israel, like other countries, wants to encourage economic activity and recover from the vast financial damage caused by the pandemic. Many households are still trying to make up for the losses they incurred in the past year from work stoppages and lost jobs.
A decade after a rise in cottage-cheese prices spiraled into the 2011 social-justice protests that brought hundreds of thousands of angry Israelis to the streets, there are fears that the cost of raising prices will not be worth it.
Battle lines are being drawn between Israel’s food manufacturers and the large grocery chains. Two weeks ago, Strauss Group, one of the largest food companies, suggested it was reviewing plans regarding changing its pricing policies, among other things, in response to its supply and production challenges.
Shortly thereafter, Unilever Israel and Diplomat Holdings, two companies that market many of the most popular brands, put out similar messages. Diplomat has already said it will raise prices of Pampers diapers by 5%-8% in July, ahead of a similar price increase slated by global parent company Procter and Gamble for later in the year.
Meanwhile, the grocery chains that directly interface with customers are saying they will put up a fight. The owner of the Yohannoff retail chain has been vocal in protesting price increases, saying he will put pressure on the manufacturers not to raise prices. If raising prices is unavoidable, the chain will do so in a “minimal and realistic” way, Eitan Yohannoff said in an interview in the Hebrew press.
Rami Levy, owner of the eponymous supermarket chain, has also pushed back. Despite the buzz, he has not received new price lists from the manufacturers yet, he told financial daily Globes, adding that if prices rise, the consumer has the power to protest for change.
Whereas 10 years ago, shoppers had far fewer options to choose from in stores, now there is a greater diversity of brands available, and buyers can choose to buy from those with the lowest prices, Levy said.
If consumers decide to rebel, it will not help the case of the food companies that they were among the biggest beneficiaries of the pandemic. Food sales skyrocketed during the past year as people were stuck at home much of the time, and both manufacturers and retailers enjoyed large jumps in sales and profits for 2020.
It may just be a matter of time before food prices start rising. But how Israelis on the street will react remains to be seen.