Tnuva Food Industries Ltd., Strauss Group Ltd. (TASE:STRS), and Tara Dairy Ltd. have all announced price hikes for their dairy products, due to higher prices for inputs, including the target price for raw milk. However, an investigation by "Globes" has founded that the cumulative price hikes for dairy products made by the companies is double the rise in prices for inputs. Whereas prices for inputs have risen by 16-19% since the summer of 2007, prices for many dairy products have risen by 30-38%.
The fact that the dairy companies have already rolled the higher prices for inputs onto consumers has not prevented them from continuing to raise prices for their products.
To highlight this, we note that since Apax Partners acquired control of Tnuva in 2007, the price of Yoplait diet yogurt has risen by 28%. The fact that Tnuva opted not to lower prices when prices for inputs fell, nor after the cottage cheese boycott in the summer of 2011, has not prevented the company from again raising the price by 4.8%. The retail price of Yoplait, before VAT, has risen 34% from NIS 1.90 per container in the summer of 2007 to NIS 2.55 today. Although higher input prices can explain half of the price hike, the other half can only be attributed to Tnuva's wish to increase its profit from the product.
Demand unaffected
The cottage cheese protest broke out, in part, because food prices in Israel were rising irrespective of inputs, and prices did not fall even when prices for inputs declined. When prices for inputs fell, food producers opted to use the difference to fatten their profits.
Tnuva has also exploited its monopolistic position in the dairy market to raise prices in the full knowledge that higher prices would not affect demand for products.
Following the cottage cheese boycott, dairy companies cut prices for several products, but kept the cream for themselves; in other words, they were careful not to harm their huge profit margins on many products. Consumers were satisfied with the reductions in prices for cottage cheese and a few other products.
Moreover, when the price for raw milk fell, dairy companies did not lower retail prices, but opted to compensate themselves for the allege damage caused by the price reductions for cottage cheese. The present investigation also found that the companies are seeking to maintain their high profit margins for these products by further raising the prices for them.
Over the years, Tnuva has sought to strengthen its white cheese brand Piraeus, and that the price for the product rose in tandem with the strengthening of the brand. Since the summer of 2007, the price of Piraeus cheese has risen by 33.5%, including the latest 4.8% price hike, a rate that is more than double the rise in input prices. The price of Yoplait diet yogurt has risen 34% over the same period.
Yogurts are a profitable product, and the three dairy companies did not lower yogurt prices after the cottage cheese boycott. Another product whose price has never fallen at any time is White Chef brand 32% whipped cream, the price of which has risen 38.4% to become an especially profitable product. The price is paid by the consumer.
Tnuva is not alone, and many examples can be found among the products of other companies. The price of Strauss's 14-pack Actimel probiotic yogurt beverage has risen 30.6%, more than double the rise in input prices. Actimel has always been a brand for which Strauss has charged a high premium.
The price of another Strauss product, which was not included in the latest price hike, is 3% Danone natural yogurt, rose 33.1% by June 2011.
Tara Dairy began marketing some products after the summer of 2007, and it acquired other products even later, such as Meshek Zuriel. But prices for products it marketed during these years show the same picture. For example, the price of a 100-package of New York style cheese has risen 43% since June 2007, a rise that cannot be explained in any way by higher input prices.
Price for Strauss's glatt kosher milk price down
Notwithstanding claims about higher input prices, according to the Strauss price list, which "Globes" has obtained, the company has lowered the price of a 2-liter carton of milk by 6.4% - a major reduction. It seems that Strauss is ostensibly trying to narrow the price gap between its glatt kosher milk and Tnuva's glatt kosher milk. The price cut shows that competition can do what other factors cannot.
Tnuva is not raising prices for cottage cheese, the symbol of the social protest, at this time, but Strauss and Tara Dairy have both raised prices for their cottage cheese.
The government will shortly approve a price hike for price-controlled dairy products, which raises the question whether the dairy companies will raise prices for products whose prices have been kept unchanged, such as Tnuva cottage cheese.
Tnuva, Strauss, and Tara dairy have not yet responded to the report.
Methodology
The "Globes" investigation is based on a comparison of the change in prices for price-controlled dairy products and the change in prices for non for price-controlled dairy products. The change in prices for price-controlled dairy products is a reliable baseline for changes in input prices, because input prices are the basis for any change in prices for price-controlled dairy products.
Since the government delays raising prices for price-controlled dairy products, the calculation assumes a 5% price hike for these products, even though prices have not actually been raised.
For example, The investigation found that, since the summer of 2007, the price for a carton of 3% milk has risen by 16.5% (including the extra 5% price hike). The price for packaged Emek cheese, which is price controlled, rose by 19.2%. This means that this is the rise in input prices.
The baseline is the summer of 2007, when Apax acquired control of Tnuva, which resulted in steep price hikes.
Published by Globes [online], Israel business news - www.globes-online.com - on November 6, 2012
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