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.

 

One thought on “Israeli Consumers Would Benefit from Greater Competition in Agricultural Industry

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s