Government ministries are blaming each other for the severe shortage of butter in Israel over the past year, and are postponing a decision about import quotas until next year. At least for now, the shortage will continue. Discussions to find a solution through butter imports are still taking place.
In order to ease consumers' distress, the Ministry of Economy and Industry officially recommended to the Ministry of Agriculture and Rural Development "total elimination of customs duties and the butter quotas system." The Ministry of Agriculture and Rural Development rejected the recommendation and argued that it required legislation.
"The problem is not butter import quotas; it is how they are distributed"
A response letter by Ministry of Agriculture and Rural Development international division director Gilad Eliraz addressed to the Ministry of Economy and Industry import administration, of which "Globes" obtained a copy, contends that the problem is not the existing quotas, but how they are distributed. The Ministry of Agriculture and Rural Development thereby directly blames the Ministry of Economy and Industry, arguing that its distribution of the quotas is the source of the problem.
The letter states, "Your recommendation is unfortunately inconsistent with a planned sector. Furthermore, imported butter is used as raw material for producing dairy products. Until legislation is passed, the quotas systems is the only possible system for allowing imports.
"In our professional opinion, the problem is not butter import quotas; it is how they are distributed, with an emphasis on the terms dictated by the Ministry of Economy and Industry and the type of eligible importers… Were the quotas distributed according to the recommendations of the Ministry of Agriculture and Rural Development's professional staff, the butter would have reached Israel, the supply and demand would have been equal, and the shortage, if any, would be negligible."
The Ministry of Agriculture and Rural Development adds that the economic price of removing the byproducts of butter production is enormous. In order to make supply and demand equal, the Ministry of Agriculture and Rural Development therefore recommended instituting import quotas for butter in 2019 and 2020. "We propose that responsibility for distribution of butter quotas be shifted to the Ministry of Agriculture and Rural Development, the professional ministry directly linked to the dairy sector, which can provide a solution for all of these professional issues."
The recommendation published by the Ministry of Economy and Industry recommended "immediate elimination of the quota for butter" and proposed "opening the market completely to imports." Minister of Economy and Industry Eli Cohen even told the media, "The solution to the butter shortage is through a free market - the complete elimination of all customs duties and the butter quotas system. This will increase competition, diversify sources, and prevent a shortage of butter." As far as is known, however, as of now, there is no basis in existing legislation for this recommendation, and it certainly cannot affect the market in the short term.
In its official response today, the Ministry of Agriculture and Rural Development writes, "The idea proposed in the letter from the Ministry of Economy and Industry is interesting, and should be seriously considered, but a change in the quotas policy cannot be implemented under a transitional government. The matter will be left to the next minister. Any discussion now of a change in policy will delay distribution of the import quotas that are needed now."
In other words, the Ministry of Agriculture and Rural Development is saying that doing away with quotas is too weighty a matter to be addressed by a transitional government. It is calling on the Ministry of Economy and Industry to step aside and allow quick distribution of butter quotas for the coming year, a period of time during which it is clear that legislation will not be enacted.
An attempt to apply the controlled price to imported butter
The growing demand for butter, a trend that accelerated over the past year, has created a situation in which the local suppliers had to choose whether to use their milk fat for price-controlled butter or products with a higher premium, and of course chose the second option. There is another complicating factor: the current lack of balance in the market between the demand for protein and the demand for milk fat. Milk fat production causes milk power surpluses for which the manufacturers have no need, forcing the Israel Dairy Board to pay for destroying them, which entails heavy costs. The Ministry of Agriculture and Rural Development sought to solve this structural imbalance through imports.
The Ministry of Agriculture and Rural Development sought to allow quotas of butter to be imported, and in September asked for approval of customs duties-exempt butter import quotas for 2020: 3,500 tons for industry and 1,500 tons of butter for consumers.
Since butter produced in Israel must be sold at a controlled price, the Ministry of Economy and Industry tried to apply the controlled price to imported butter in order to avoid having only imported butter on shelves costing as much as double the controlled price. Due to this decision, a large proportion of the players importing butter said that they could not sell imported butter at the controlled price because the global price was higher. This created shortages in the market.
In any case, it appears that the current attempt to divert the discussion to long-term issues of principle is liable to aggravate the shortage in the coming year.
Published by Globes, Israel business news - en.globes.co.il - on October 30, 2019
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