Minister of Finance Bezalel Smotrich published a draft ordinance for public comment yesterday cancelling the duty on imported milk, which currently stands at 40%, for a period of three months. Israel is currently suffering a milk shortage.
Dairy farmers’ organizations have always claimed that it is impossible to import milk because of its short shelf-life, or at least that imports are not economically viable. The Ministry of Finance’s inquiries with professionals in the field and with importers have found, however, that milk imports actually are possible. On the political level, though, the move will mean a head-on clash with the dairy farmers’ organizations.
Last week, several players in Israel, among them the country’s largest supermarket chain, Shufersal, contacted the Ministry of Finance asking for a cut in customs duties and the opening of the milk market to imports. Shufersal requested the ministry "to allow the import of fresh milk from nearby countries and long-life milk from various countries by allocating quotas for duty-free imports." The Ministry of Finance apparently seeks to go one step further, and, rather than allocating limited quotas, to remove customs duties entirely for three months.
Shufersal also wrote that, because of the short shelf-life of fresh milk, regulations would have to be adapted to allow a swift import process.
Because milk prices in Europe are much lower than in Israel, it is possible that the imported milk will be even cheaper than locally produced milk subject to price controls. According to the Numbeo website, for example, milk is 45% cheaper to buy in Poland than in Israel. Poland is one of the countries being considered as a supplier of imported milk, and even after the various costs of importing, the retail price of milk from there could be 20-30% lower than the price of local milk under price controls.
Not a paying proposition?
Some retailers fear that the investment in kashrut certification and in the importing operation will not be worthwhile, given the short time for which customs duties will be suspended. Others have already started to plan the operation, even for a situation in which the customs duty remains and they have to import at loss-making prices, in order to ensure a continuous supply of milk, which is an anchor product in any supermarket.
For their part, the dairy farmers are adamantly opposed to imports. Although their traditional argument is that milk imports are impractical, the agreements between the dairy farmers’ organizations and the government should, on the face of it, rule them out in any case.
In response to the step proposed by Smotrich and the Ministry of Finance, Lior Simcha, CEO of the Milk Producers Association, said: "This evening, the state again demonstrated that you can’t make agreements with it. After countless discussions with the minister of finance, Budgets Division officials, and in the Knesset Economic Affairs Committee, in which we made clear to all concerned the importance of preserving local production, the Ministry of Finance is again spitting in the face of the farmers and giving preference to the producers in Poland, Hungary, and other Eastern European countries, over Israeli production, while enriching the importers."
Central planning
In any event, milk imports are just a stop-gap solution to high milk prices. Milk production in Israel is subject to centralized planning that exists nowhere in the West besides here and in Canada. Under the current method, the Ministry of Agriculture together with the Israel Dairy Board (on which representatives of the producers have a clear majority) set milk quotas. Only those with a quota can legally produce and sell raw milk in Israel. A quota is an asset that can be traded, and even inherited.
This is one of the reasons that raw milk in Israel is so expensive: whereas the price of raw milk in the European Union stands at NIS 1.83 per liter, in Israel (not including Israel Dairy Board levies) it stands at NIS 2.4, almost a third higher.
The price of raw milk is set in accordance with a formula and published by the Israel Dairy Board. This is a minimum price, intended to support the dairy farmers. On the other side, the consumer price of price-controlled regular milk is a maximum, which means that the profitability of milk production is defined and very low. Many dairies therefore prefer simply to abandon production of price-controlled milk altogether, and to focus solely on uncontrolled products. This is one of the reasons that, despite the wish of Israel’s largest dairy products company Tnuva to increase production, consumers have in recent years experienced shortages of regular milk.
According to the OECD, support for milk and egg prices represents 48% of the Israeli government’s support for agriculture. The European Union, by contrast, abandoned planning of the dairy industry in 2015. The OECD calls this kind of support for agriculture "most distorting", and recommends reducing it as much as possible, and replacing it with direct subsidies to farmers.
Published by Globes, Israel business news - en.globes.co.il - on July 4, 2023.
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