After a prolonged struggle against the minister of finance, who refused to sign an order raising prices for price-controlled dairy products, while prices of unprocessed milk were rising, Tnuva has taken action. Israel's largest food and dairy company will raise its prices for products not subject to price controls by an average of 2.2%. The company declined to state today how much prices would rise for each product or the maximum increase, so there may be products who prices will rise more steeply. The company did say, "The vast majority of products will not go up by more than 3.4%," but consumers will have to wait and see. 3.4% is the price increase recommended by the price committee - the increase that Tnuva hoped to apply to its price-controlled products.
Which products will become more expensive? Tnuva said the list includes salted cheese, yellow shelf cheese, special cheese, delicacies, dairy beverages, and some yoghurts.
Tnuva is also emphasizing that the price of its cottage cheese will not rise, although this is not subject to price controls. Since the 2011 protests over the price of cottage cheese, which severely damaged Tnuva's image, the company has treated cottage cheese the same as price controlled products.
Damage to Tnuva: NIS 200 million
This measure follows months of controversy, including the presence of Tnuva CEO Eyal Malis at a Knesset hearing, lobbying efforts, and a High Court of Justice petition. Between January 2017 and July 2018, the government raised the price of raw milk (the target price) that dairies are legally required to pay to dairy farmers by NIS 0.12, amounting to 10.7%. The price was raised by a further NIS 0.0823 in July 2018 putting the cumulative price rise at NIS 0.2023 per liter.
The company said that the raw milk that it buys according to a government order "constitutes 50% of the cost of production, and the increase in its price has so far caused an average 6% increase in the cost of production for dairy products." Tnuva claims, "Revision of prices for products not under price control only partially reflects the rise in raw milk prices. In monetary terms, the added cost to Tnuva is NIS 160 million. By the end of the year, this cost will reach NIS 200 million."
Since May, Tnuva has been waiting for the minister of finance to update the price of dairy products subject to price controls by 3.4%, as recommended by a government price committee.
Good news for Tnuva competitor Strauss
Poalim IBI Underwriting and Investments (TASE: PIU) research department head Dorin Zelnir-Palas said today that this was good news for the Strauss Group, Tnuva's biggest competitor and Israel's second largest food group. "Strauss has not raised prices since the social protest, so a price increase in the dairy refrigerator will help it, whether it decides to adjust its prices upwards by 1-2% or leaves the price increases to Tnuva with consumers switching to Strauss as a result."
The vast majority of Strauss's prices (80-85% of its portfolio) are not price-controlled. Peles says, "A slight increase in the price list can contribute to the results of health activity and quality of life." Health and quality of life activity accounts for 25% of the company's total revenue and 28% of its operating profit.
The dairy sector is a sector that is planned and controlled from above and below. The price of raw milk (the target price) is set once a quarter by a government committee composed of representatives of the Ministry of Finance, the Ministry of Agriculture and Rural Development, the dairy farmers, and the Israel Dairy Board and is automatically revised. Price-controlled dairy product, on the other hand (drinking milk, yellow cheese, white cheese, eshel (fromage frais), gil, sour cream, butter, and sweet cream), have their prices set by a joint professional committee of the Ministry of Finance and the Ministry of Agriculture and Rural Development. The price committee revises the price when there is an increase or decrease of more than 3% or once a year, whichever comes first. The actual change in prices is carried out only after the minister of finance and the minister of agriculture and rural development sign the price revision order. In recent months, Minister of Agriculture and Rural Development Uri Ariel signed the order for raising prices, but Minister of Finance Moshe Kahlon refused to do so.
Tnuva said in response, "Tnuva will continue to act responsibly and to fulfill its obligation to the consumer, the farmers, and the Israeli economy. It will continue supplying a range of high-quality products and expects the government to act according to law and its responsibility to the industry and local agriculture."
Sources inform "Globes" of the following price hikes:
Yoghurt: Yoplait, Prili, and Tnuva yoghurt: 1.8%
Delicacies: Carlo, Yolo, Buddy: 2.5%
Milk not subject to price controls (flavored, enriched): 1.5%
Salty cheese: 3.1%
Chocolate milk beverages: 3.1%
Yellow shelf cheese: 3.2%
Special cheese: 2.7%
Published by Globes [online], Israel business news - www.globes-online.com - on August 5, 2018
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