Israeli Consumers Would Benefit from Greater Competition in Agricultural Industry

By Kristen Carpenter

A gallon of milk in Israel costs approximately $6 and eggs are priced at around $3.50. Meanwhile, the prices of milk and eggs in the United States cost consumers about half as much: $3.20 and $2.41, respectively. Israel’s high food costs can largely be attributed to the country’s arid and hilly landscape being adverse to large-scale agricultural production. As a result, Israelis heavily rely on food imports. While this already makes Israelis vulnerable to fluctuating international market rates, protectionist trade barriers imposed by the government to insulate the local agricultural industry from competition contribute to increased prices for food.

The Jerusalem Institute for Market Studies estimates that ending Israeli agricultural subsidies and protectionist market barriers would save Israeli consumers around 3 billion shekels a year, or just over $850 million in US dollars. Following a series of mass protests against high prices, the Israeli parliament moved to reform the agricultural industry by passing the “Cornflakes Law.”

The Cornflakes Law, formally the Law for the Protection of Public Health Regulations (Food), deregulates certain aspects of the agricultural industry, such as easing imports of nonperishable food. The law also increases import quotas in the country while decreasing the amount that foreign competitors have to pay customs to sell certain food items.

The most promising aspect of the law for Israeli consumers is that it gives supermarkets and small importers access to “parallel import” commodities. Essentially, the practice of parallel importing allows for goods to be imported without receiving the direct consent of the main manufacturer who holds the intellectual property rights to that product. For example, the same brand of rice can be transported directly from Spain or the original producer in Greece instead of going through the primary importer. This drives down the prices of goods for consumers. In effect, easing import restrictions on dry food products has increased competition between domestic and foreign companies. Large supermarkets are decreasing costs through directly importing from foreign food exporters while giving Israeli consumers access to a wider array of products.

Perishable food items are not accounted for under the Cornflakes Law. This is ironic due to the fact that price hikes in dairy products were one of the many factors (along with high costs of other food items, housing, transportation, and gas as well as perceived economic injustice) that prompted a series of demonstrations by hundreds of thousands of Israelis in 2011. During this time of unrest and consumer dissatisfaction, Israelis launched a boycott of cottage cheese and other dairy products to pressure legislators to adopt reforms in the food industry. Yet, deregulatory measures to lower the price of dairy products have yet to be taken.

While implementation of the Cornflakes Law was an important first move in reforming its  outdated protectionist economic policies, Israel ought to continue deregulating the agricultural industry. Removing trade barriers in agriculture as well as extending the scope of the Cornflakes Law to apply to perishable food items would substantially benefit Israeli consumers and foreign trading partners like the United States. These actions would decrease the high costs of food in Israel while encouraging economic growth and prosperity.

 

About DeVoe Moore Center

The DeVoe L. Moore Center's economic research and policy analysis addresses the role of the private sector in the economy with primary interests in state and local policy issues. The DMC is located in the College of Social Sciences and Public Policy at Florida State University on the main campus in Tallahassee. As an educational institution the DMC provides professional research experiences to undergraduate and master’s students through an extensive program of internships and independent study to prepare them for the professional workplace or further graduate study in economics, public policy, urban planning, public finance, or entrepreneurship.
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