As part of the general trend of the rising cost of living in Israel, dairy prices are seeing significant rises. In order to deal with this crisis, Finance Minister Bezalel Smotrich put forward a plan to change controls on dairy prices and postpone an update planned for May 1, in which prices for controlled products would increase by 16%. This proposal was met with outrage from the dairy industry, who vehemently opposed the repeated delays in price updates on controlled products.
However, after negotiations with the Israel Dairy Board, a final agreement was reached early last week which included a 8.29% price increase on controlled products and a continued gradual roll-out of the increase. In an announcement, Finance Minister Smotrich blamed the issue on former Finance Minister Avigdor Lieberman’s policies, while pushing back the repayment of the 200 million shekel debt to the dairy industry to next year.
"We are entering an in-depth correction process in the dairy industry,” Smotrich wrote in his statement. “I directed the professionals in the Ministry of Finance to examine the entire production chain, starting with centralization in the grain import segment and cow feed, through the target price, and ending with the dairies, the cross costs and the controlled price, all with the aim of freeing the economy from excessive centralization and planning anachronistic and move towards an open and competitive market.”
The increase in production costs, primarily the cumulative increase in the price of raw milk, will also be reflected in the price of non-controlled dairy products. These include yogurt products, milk drinks, butter, cottage cheese, yellow cheese, salty cheeses and more.
Sources in the industry claim that the Finance Ministry has been attempting to push the price onto the dairies and the public, while the responsibility for the availability of dairy products at an equal price for everyone lies with the state.
During the last two years, in which the prices were not updated, the dairies that produce products at a controlled price suffered losses estimated at 200 million shekels, due to a steep increase in the prices of inputs in the dairy industry, from which production costs are derived. Namely, raw milk, which makes up over 50% of production costs, has risen in cost by 50 shekel per liter, a 20% jump in price since January 2021.
According to Tnuva, which produces about 70% of the controlled products, this is an addition of approximately 450 million shekels to the company's direct costs. This is in addition to the increase in the price of electricity, fuel, water, property taxes and packaging materials that make up the price of dairy products.
The dairy industry’s agreement to a continuous postponement of the increase in the price of the controlled dairy products does temporarily reduce the price increases, as is the case last week’s agreement (8.29% instead of 16%), but it creates an ever-increasing cumulative debt towards them, which rolls into the pockets of consumers.
The issue came up for discussion in the Knesset’s Economic and Finance Committees in November 2022 and again at the end of January this year. The representatives of the dairy industry then demanded that government officials, led by the Ministry of Finance, curb the expected increase, and even offered short- and long-term solutions.
This week, Chairman of the Economics Committee David Bitan (Likud),) called on the government to lower the price of controlled dairy products as soon as possible, demanding compensation of 100 million shekels for the dairy industry.
"If it doesn't happen by Monday, we MKs will be forced to act on the matter," Bitan said. "A bill will be submitted on Monday to reduce VAT on food products like in the rest of the OECD. This is our decision and we are asking the Treasury to go with us.”
This article was translated by Nancye Kochen and Lily Sieradzki.
