It was a pat line that Prime Minister Benjamin Netanyahu repeated in dozens of speeches during his second tenure in office, singing the praises of Israel’s technology and what it offers the world.
“What is the most productive cow in the world?” he would ask. He would then answer: "It’s not Switzerland, but rather Israel, because in Israel, 'every moo is computerized.'”
The purpose was to elicit a chuckle from the crowd, which the line usually did, while also instilling a sense of awe in this start-up nation, honing efficiency to the point that even milk production was computerized.
If that’s true, if Israel’s technology is making Israel’s cows so productive, why does a liter of milk in Israel cost around three times what it does in the US, and roughly double the price in much of the EU?
Finance Minister Bezalel Smotrich believes the answer lies in the structure of Israel’s milk industry - over-centralized, over-regulated, and under-challenged.
The heart of the problem, he argues, is that Israel’s milk industry is not really a market in the free-market sense.
From the cow onward, almost everything is planned and managed by the state. The government sets how much raw milk can be produced nationwide and allocates that quota to individual dairy farms, most of them kibbutzim and moshavim, down to the liter.
Farmers do not decide how much milk to produce based on demand, nor can they shop around for the best buyer. They must sell their milk at a government-set price to a small group of dominant large dairies - Tnuva, Strauss, and Tara, for instance - who then turn it into all the dairy products Israelis see on supermarket shelves.
That tightly controlled system guarantees stability. But it also guarantees a lack of pressure to cut costs, become more efficient, or lower prices for consumers. The farmers know they will receive a set price for the quota they are assigned, so there is little market pressure to cut costs or to translate efficiency gains into lower prices.
Imports that could trigger competition are largely blocked by tariffs, often around 40% on many dairy products, while at the retail end, powerful supermarket chains add their own profit margins.
Rising cost of living in Israel unfolds against political backdrop
The result is a paradox: the highly productive cows Netanyahu once waxed comically about, operating within one of the most technologically advanced agricultural systems anywhere, yet producing milk that costs Israelis far more than it does consumers in countries with far less productive cows. In Smotrich’s telling, it is not the cows that are the problem, but a system that insulates everyone else in the chain from real competition.
And that is not the only paradox in this saga over the milk reform Smotrich is trying to push through, with dairy farmers kicking, screaming, and now threatening to withhold milk.
The other is this: the government in general, and Smotrich in particular, are regularly pilloried for Israel’s high cost of living.
Along with the failures of October 7 and the haredi conscription issue, the Likud and its coalition partners will almost certainly be targeted once new elections are called over the country’s high cost of living, including skyrocketing food prices. Yet here is the finance minister initiating a reform in the milk industry that could lower prices, and being harshly criticized for it.
Why? If tariffs are removed and imported milk and dairy products are allowed, it could put small dairy farms - whose livelihoods depend on the current system, which guarantees them a market for their raw milk - out of business. Many of these farms are located in the north near the border with Lebanon, or in the south in communities near the Gaza border. Putting them out of business would weaken those communities.
To many, the closure of smaller dairy farms would be more than just an economic disruption. It would be a blow to the Israeli agricultural sector, a sector long woven into the country’s foundational ethos.
There is also the question of dependence. The closure of local dairy farms would mean Israel would rely on countries such as Spain and Turkey for basic dairy products. Given Spain and Turkey’s implacable hostility, is this really something Israel wants to do?
And herein lies yet another paradox: At a time when the government has announced a plan to spend NIS 350 billion over the next decade developing a domestic arms industry so it does not need to depend on the US for bullets, mortars, and bombs, does it really want to increase its dependence on other countries - not as friendly as the US - for milk?
Smotrich’s answer is that warnings about Israel becoming dependent on countries like Spain or Turkey miss the point. Israel would not tie itself to one or two countries, hostile or otherwise, but would rather import from multiple countries. Removing tariffs and dismantling quotas would diversify supply and make the market more stable by reducing dependence on any one source, either domestic or foreign.
Efficient local farms, he insists, will survive in an open market. Inefficient ones will not. And that, in his view, is precisely the correction the sector needs.
Critics see this as reckless. Smotrich sees it as overdue. He dismisses threats by dairy producers to halt supply as pressure tactics by entrenched interests, vowing that if dairy farmers do withhold their milk, he will simply remove any remaining barriers and allow imports to flow freely.
As for claims that the reform undermines a key pillar of Zionism - agriculture - and harms communities on the periphery, Smotrich answers that protectionism itself is not a Zionist ideal, and that Zionism is not about preserving economic arrangements that have been in place since the founding of the state but are no longer suitable or efficient.
As for whether this move will weaken border communities, his position has long been that the government's way to strengthen these communities is direct - through regional development or targeted subsidies - not through hidden price protections that are passed on to Israeli consumers when they buy a carton of milk.