Later this week, Minister of Finance Yuval Steinitz is expected to call for a public hearing ahead of the implementation of the recommendations to lower the high protective customs duties on dairy products. Last week, the Prime Minister's Office and the Ministry of Finance to reduce duties, after the Israeli Dairy Board announced a 10% rise, or NIS 0.21 per liter, in the target price of milk.
The new target price was set at NIS 2.30 per liter, over objections by the Ministry of Finance's representative. This high price includes massive subsidies for small dairy farmers. According to confidential figures of the Dairy Board, the production price of milk reaches NIS 1.70 per liter at big dairy farms and over NIS 2.50 per liter at small dairy farms.
Ahead of the hearing, agricultural boards, milk producers and marketers, all of which are considered to be highly concentrated sectors, are expected to respond. They face consumer organizations, which say that the global rise in prices of inputs should not automatically lead to higher prices in Israel, especially not in a planned and concentrated market such as agriculture, especially the dairy sector. They claim that prices in a market with an economic balance are set by supply and demand, and that price setters should also consider the state of the economy, which is already in a slowdown and is liable to slide into a recession.
The dairy market and its products have tariffs of 150-200% of the product price, the historical and political purpose of which was to prevent imports. Import duties are imposed on hard cheeses, soft cheese, yogurt, puddings, condensed milk, cream, butter, and other products. Last week's recommendations advise that the maximum tariff should be 50% of the product price, and to slash tariffs to 10% of the price of high-demand products for which prices are not competitive. The tariff on hard cheeses will be cut to 20% of the product price, and there is currently discussion to set an especially low tariff for an unlimited time on imports of soft cheeses. It is believed that it will be possible to import, at competitive prices, all dairy products sold in Israel, except for milk.
Implementation of the recommendations will be affected by a decision on early elections. On one hand, Prime Minister Benjamin Netanyahu and Steinitz will prefer speeding up competition in an industry where prices have become a burden on the public. On the other hand, they are liable to encounter massive resistance from the strong farming lobby, which has a strong influence on Israel's big political parties.
Published by Globes [online], Israel business news - www.globes-online.com - on October 2, 2012
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