The major food importers have exploited the strong shekel in recent years to pocket millions of shekels at the expense of the consumers, who should have benefited from lower prices, Ministry of Finance chief economist Yoel Naveh writes in his weekly review of the Israeli economy. According to his analysis, the profit margins of the food and beverages importers began to surge in 2007-2008, when the shekel strengthened against foreign currencies. Profit margins dropped somewhat in 2011, following the social protest, but aggregate profit rose again in 2012.
Naveh says that the aggregate profit of the 10 largest food importers rose 230% in real terms in 2005-2013, while their salves volume grew only 31%.
The fact that the price differences did not reach the consumer, but was retained by the importers, can be explained by the lack of competition in the food import sector. For example, in 2008, when the shekel strengthened significantly against foreign currencies, instead of falling, imported food prices climbed 11.5%, far beyond the increase in the general index.
According to Naveh, the rise in profit margins was even steeper among the 10 largest food importers, adding, "The shekel exchange rate cannot by itself explain the change in the importers' profit margins."
Only two of Israel's 10 largest food importers are public companies that report their profits to the public. The others are private companies that are not obligated to report their profits.
In order to calculate profit margins, the chief economist's unit uses Israel Tax Authority figures for the importers' pre-tax profit. These figures for 2012-2013 are based on reports submitted by the companies to the Tax Authority, salary reports by employers, and exports figures. The Ministry of Finance does not publish figures for specific companies in order to avoid violating the confidentiality of the figures given to the Tax Authority.
The figures obtained indicate that in 2003-2012, the pre-tax profit margin more than doubled from 3.5% of sales turnover to 8%. In money terms, this amounts to an increase of hundreds of millions of shekels in aggregate profit: from less than NIS 300 million in 2003 to NIS 650 million in 2012.
"An analysis of the findings shows that the food importers' profits are high, and even exceptionally high, particularly the large importers," Naveh writes. "This increase in profit margins was steep, starting in the second half of the preceding decade."
Naveh's analysis also indicates that as of 2013, the number of workers employed by the food importers totaled 20,000. Their average gross monthly salary was NIS 9,200, following an average rise in real terms of only 6% in 2003-2013, less than the 7.6% average rise in wages in the economy as a whole during that period, while the profits of food importers as a whole doubled in real term.
Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2015
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