The announcements by food manufacturers and importers Tnuva, Strauss, Tara and Diplomat at the beginning of last month about a significant series of price increases are expected to exacerbate the problem of the cost of living and make it even more difficult for the Israeli consumer.
If until now food manufacturers and suppliers feared a harsh public reaction that would include a stubborn struggle by supermarket chains against price increases for retailers, this is no longer the case. There is growing concern that the dam has been breached and that we are facing a significant wave of price increases.
What are the reasons that caused this across-the-board price increase? The common thread to the across-the-board price increases is the government's incompetence, and the fact that the government invests all its energy and resources in issues other than the cost of living, and it does not deal with the real problems of the public.
The increase in the price of unregulated dairy products is related to the Finance Minister's decision to allow a price increase of about 8 percent of the prices of supervised dairy products, in contrast to an earlier commitment by the Ministry of Finance according to which the prices of supervised products would increase by 16 percent. According to reports, in response to a breach of commitment by the Minister of Finance, the dairies announced an increase in the prices of the unregulated products they produce. Tnuva announced an average increase of about 4.65%, Tara 9.3%, Strauss 2.33% and Gad by 5%. In fact, these are not only significant price increases, but also damage to one of the symbols of the social protests of 2011, namely the price of cottage cheese. In June 2011, following a rapid and dramatic increase in the price of a cottage cup to close to NIS 8, a consumer boycott was spontaneously decided, which led to the price of cottage cheese being lowered below NIS 6 per cup. Since then, almost 12 years have passed, and the price of a cottage has hardly changed. It is believed that Tnuva, the main producer of cottage cheese, understood (so far) the explosive potential of raising the price of cottage cheese and refrained from doing so.
The story of the price increase of Diplomat, which is the exclusive importer of a wide and significant range of well-known brands, is also related to how the government deals with the cost of living. The draft of the Arrangements Law published in February included far-reaching measures designed to deal with a diplomat's market power, undermine its market power and profitability. When the initial intention to include the measures in the Arrangements Law was published, Diplomat informed TASE that it believes that if the proposal is approved in its format, and without changes, it is expected to have a material adverse effect on the company's results. Diplomat, which understood that public attention was focused on it, refrained from raising prices significantly as long as the measures it considered problematic were included in the Arrangements Law and there was concern that they would be promoted in the Knesset. After the measures in question were removed from the draft arrangements law discussed in the Knesset, Diplomat is no longer afraid, and is taking advantage of the opportunity that came its way to raise prices dramatically in a wide range of brands (such as Heinz, Pringles, Nutrilon and more).
The concern is that now that a number of food manufacturers and importers have decided to raise prices, the dam has been breached, and we are expected to hear about significant price increases from other manufacturers and suppliers as well. For example, Carmel Mizrahi announced a price increase of about 7%. One should not be surprised if more announcements are made soon. Finally, it should be remembered that a significant and across-the-board increase in food prices is expected to translate into an increase in the Consumer Price Index for May and June. Accordingly, the Bank of Israel will probably be forced to raise the interest rate in order to deal with the price increases, in a way that will raise mortgage repayments beyond their current already high level. The government of Israel should understand the consequences of its actions and direct its efforts to dealing with the real problems of the citizens of the State of Israel.
The author, Prof. Itay Etter of Tel Aviv University, is a senior fellow at the Israel Democracy Institute
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