'Food in Israel 20% more expensive than OECD'

In final report, Kedmi Committee on food prices blames market concentration for dramatic increase in food prices.

By NADAV SHEMER
Fruit and vegetables 370 (photo credit: Thinkstock/Imagebank)
Fruit and vegetables 370
(photo credit: Thinkstock/Imagebank)
The Kedmi Committee submitted its final report on the food market on Monday, recommending that the government work to restrict the market share of leading suppliers and retailers, encourage small businesses and remove import barriers.
The committee, headed by Industry, Trade and Labor Ministry director-general Sharon Kedmi, was established by the government one year ago, following a consumer revolt against dairy manufacturers Tnuva, Strauss and Tara.
Israeli consumers paid 10-20 percent more for food in 2008-2010 than their counterparts in the rest of the OECD group of developed economies, the final report concluded. It said Israelis paid 10-20% less than the OECD average in 2005, but that prices have since risen more rapidly here than in other developed economies.
The report blamed this rapid appreciation on over-concentration in the supply and retail sectors. It said Israel had the OECD’s most or second-most over-concentrated supply sector in 16 out of 22 food categories. The report also said Israel’s two largest retailers have held a 64% market share since Shufersal’s 2009 purchase of Clubmarket – making the country’s retail sector the fifth-most concentrated in the OECD.
The committee recommended regulating supplier-retailer relations through prohibiting suppliers from purchasing shelf space, placing salespeople inside stores, providing incentives to retailers, obtaining exclusivity to sell specific products or to offer exclusive discounts, and signing agreements that fix a minimum price or guarantee them a minimum market share.
The report proposed a series of measures for dealing with over-concentration in the supply sector, including removing barriers to market entry and encouraging existing small businesses; adopting US and EU standards on import licenses; and ordering the Antitrust Authority to examine whether acquisitions of smaller food manufacturers by larger suppliers have damaged competition.
Small and medium-sized enterprises (SMEs) have an important role to play in increasing competition in the food industry, the report said. It proposed designating SMEs a minimum amount of shelf space within supermarkets, giving them preference in government tender applications, subsidizing their participation at exhibitions and instructing the Industry, Trade and Labor Ministry’s SME division to conduct market research on their behalf.
Private branding – products which retailers buy in bulk and label with their own name – will be encouraged, after the report concluded that such products typically cost 5-10% less than other products. But retailers with a market share of more than 25% will be prohibited from purchasing their private brands from any manufacturer with above 30% market share.
For the retail sector, the report recommended increasing the number of competitors through a series of proposals including reducing regulatory barriers to opening new supermarkets in regions already suffering from high concentration, restricting the leading retailers from increasing their market share by preventing them from expanding their outlets, tightening state control over property agreements involving retailers and encouraging online and local retailers.
The report admitted that it would take at least two years for many of its recommended measures to make an impact, and proposed introducing price supervision as an interim measure in order to compensate for this. It recommended establishing a list of food products to be supervised for a twoyear period in accordance with the Supervision of Essential Goods and Services Law (1996).
In response to the report, Manufacturers Association director-general Amir Hayek said that Israelis have tired of complex recommendations with no impact whatsoever on prices. Arguing that consumers had not benefitted from the removal of some import barriers earlier this year, he said the continued removal of barriers would only damage “the soft underbelly” of Israeli industry and lead to mass layoffs.
Hayek proposed that Prime Minister Binyamin Netanyahu reduce the valueadded tax on food from 16% to 8%, saying that such a reduction would impact prices immediately and make Israeli food products among the world’s cheapest.
Opposition leader Shelly Yechimovich said the report proved that the government’s decision last year to open the market to imports had no impact on the cost of living.
“Uncontrolled importation in excess of what is already required under trade agreements will cause the collapse of Israeli industry, a fatal blow to Israeli agriculture and layoffs of tens of thousands of workers – and all without reducing prices,” she said.
Knesset Economics Committee chairman Carmel Shama-Hacohen (Likud) declared that his committee would hold a special discussion on the findings next Monday.
“The Kedmi Committee findings confirm what we have all felt at the supermarket checkouts and at the end of each month – it turns out that the people were not protesting for nothing. The people of Israel pay a price for concentration and a price for monopolies of their food products as well.”