Shufersal this week had to agree to part of the price increase that the dairy giant Tnuva demanded from it. In the end, it cannot deny its customers a variety of products in which Tnuva has a sort of local monopoly. For another part of the variety of Tnuva products, 160 products, according to her, the price increases were not approved. It is to be expected that Shufersal will look for other sources and will eventually be forced to turn to imports as well, even if it involves logistical difficulties and the restrictions of the Ministries of Agriculture, Health and Finance.
The real hidden threat to Shoppersal as well as to other retail chains is from the French international Carrefour, which is entering Israel carefully and gradually, and it is possible that it will eventually hit the locals. Already today, a certain and small amount of its products, which are relatively cheap, appear in Beitan wines, which should open dozens of branches of the French company in the coming months and offer cheaper items, as befits Carrefour (currently the products are also sold under the “Super” brand, which will be converted to “Carrefour” with the official launch).
While the prices of food products are rising in Israel, they are actually falling in the world. The United Nations World Food Price Index for the month of November dropped to 135.7 points since the peak in April, when the index stood at 159.7 points. In other words, there was a decrease of about 15% in the basket of food prices published by the organization over seven months.
The UN food basket index is based on the basis of food prices for the years 2014-2016 which is set at 100 points. It is a weighted index for five basic products that the UN has chosen for this purpose. And in Israel? Food prices, including vegetables and fruits, rose for seven months through October, the last month for which data is available, by 3.3%. If we neutralize the vegetables and fruits, food prices increased in the same period by 2.9%.
There is no reason to increase
The question is whether the consumer public in Israel felt the drop in food prices or vice versa. The price of dairy products, which dairies in Israel continue to raise these days, decreased globally during that period by 5.7%, and the price of kernels and grains, from which the cornflakes are also produced, which recently became famous in the fight between giant manufacturers and other lesser-known brands (which you should perhaps prefer), actually decreased during This is 11.6%.
The index includes the ten most consumed grains, including four types of corn, which are used to produce the cornflakes, and four types of rice and wheat. The prices of edible oils and sugar decreased by 3% in the same period. Even the meat price index, which also includes “other meat”, decreased in the same period by 1.8%.
The makers will come and claim “depreciation”. Between April and November, the dollar became more expensive relative to the shekel by an average of 7.3% – which could point to a partial reason for the increase in food prices in Israel in shekel terms. Please note: the increase in the price of the dollar is still lower than the 15% drop in the UN’s food price index, so the reason for the devaluation is ruled out. Of course, most of the food to Israel is also transported by sea.
Importers and local manufacturers will come and claim that the transport prices – they are to blame, clearly. So that’s how the global container transportation price index, meaning the price of sea transportation in containers for goods shipped in containers, dropped between April and November by approximately 67%, yes sixty-seven percent.
Bulk transportation prices, according to an international index, decreased in the same period by 44%. The price of transportation from Southeast Asia to the Mediterranean Sea for goods imported to Israel from the vast region of China and other countries in the Far East to Israel fell by 65% during that period! Likewise, the reason for the increase in the cost of sea transport is also rejected.
So maybe we should blame the increase in the cost of labor wages in Israel that led to price increases in Israel? In the seven months before September (there are no later data, as of now) – if we refer to seven months as in the calculations above – the wages of workers in private companies in Israel, according to the Central Bank, actually decreased by 0.4%, meaning that there were no wage pressures for the increase in the cost of imports and production. Another reason for rising prices is ruled out.
Perhaps it is not at all worthwhile to import food products to Israel, and if food products are imported, must the prices be raised to compensate for the decrease in demand in Israel? To avoid fluctuations in the calculation due to seasonality and Israeli holidays (which apply each time in a different month), this time we will compare the imports of food products in the first ten months of the year until October, the last month for which there is data, compared to the corresponding ten months last year.
The result is nothing less than amazing – the import of food products increased between the two periods by 19%! Even if we subtract from this the increase in the number of residents, at a rate of 2% per year, there is still an increase in food imports per capita of 17%. That is, we experienced a rise in food imports. Who increases food imports if it’s not worth it? For the importers and the retail companies, who also entered the field of imports with private brands, the solution. Hence, the reason for the drop in demand is also ruled out.
There is another possibility that the treasury raised the corporate tax rate in 2022, and to compensate for the tax increase importers try to compensate themselves by raising prices (in practice and in theory a tax increase does not necessarily lead to an increase in prices). So no, the corporate tax was and remains 23%.
So maybe in the last year they raised the customs duty or imposed a fixed tax on the import of food products? Well, in practice the outgoing government actually increased the scope of quotas through tenders between importers in order to increase food imports. The quota system is bad from an economic and economic point of view, and it sometimes transfers “quota profits” to the importer beyond the equilibrium, if the customs duty or the fixed tax on imports were reduced for all importers.
But, for our purposes, the import options have increased – which should have reduced food prices. Outgoing Finance Minister Avigdor Lieberman signed an order about two months ago to gradually reduce the duty on fish despite opposition from Israeli farms. So the reason for taxes and duties is also invalidated.
Maybe the weakness of the government? After decades in which the Vysotsky tea company dominates the tea market of all kinds and also dominates the shelves in the marketing chains, which have become a sort of walls of Vysotsky tea in the aisles of supermarkets, only a blind person who is blind will not notice that the competition authority was recalled to examine whether Vysotsky constitutes a monopoly according to the law. This is said in free language “good morning, Eliyahu”. This is a drop in the ocean of actions by the Competition Authority.
The Authority for the Prevention of Competition
What the Competition Authority did not understand and does not understand is that it should not check the scope of applications for mergers in various fields (it boasts that in 2021, 267 applications for mergers were submitted and in 245 cases the discussion of the applications ended). On the contrary, the competition authority must report to the groaning public about the breaking up of companies, their splitting and their transformation into several companies that will later compete among themselves.
What should the competition authority do? It must examine all the mergers and takeovers in the last quarter of a century, in our case in the food industry, what these takeovers caused to the competition, and after a few months of examination, issue an order to tear down the companies that were swallowed by the swallowing and takeover companies by forcing the takers to sell companies that they appropriated through mergers and the purchase of more and more companies, small along the way rule, and positioning them as an independent company after their sale to another party, that is, forcing the sale of these companies in the market after a given and known period in advance so as not to cause damage to the seller due to lack of time.
This will reduce the unity of the octagonal arms of the food companies in Israel. If necessary, the new Knesset will have to change laws that will allow the sorting, splitting, separation and sale of business branches of companies that are too large in the food market, which burden competition. The Competition Authority and its predecessors, under the previous names, such as the “Commissioner for Antitrust” or the “Administrative Unit at the Ministry of Industry”, did not do much to prevent the construction of giant octopuses that harm the standard of living of Israelis, who are fed up with politicians’ promises of consumer justice.
Please note that out of all the applications for mergers in all fields, not necessarily food, in 2021, the Competition Authority opposed only two. Out of 267 requests for mergers in 2021, only 8% were submitted in the food industry. Maybe there’s just nothing to blend anymore!
Even on the issue of the butter shortage at the beginning of 2019, the competition authority was not the one that acted from the beginning and initiated the requested change in the government’s policy, but was dragged into praising the government for its actions after the reform was carried out. The government expanded the import quotas for the duty-free butter, and later duty-free was applied to the import of butter and the basket of butter products under supervision was expanded.
The Competition Authority examined the effect of the government’s measures to address the butter shortage on prices, and found that the government did indeed lead to an increase in supply, a decrease in the prices of a variety of butters and the entry of small players into the import market. The Competition Authority issued a report in 2021 on the butter affair and suggested removing quotas and quotas for other industries.
Later, the Competition Authority proposed to the government to prohibit direct importers from doing actions that could harm competition from parallel imports, and even allow the Competition Authority to fine a direct and official importer of a firm from abroad for interfering with parallel imports, with the possibility of a fine of up to 8% of the turnover of the company that interferes with parallel imports up to a fine of NIS 100 million.
The French are coming
So maybe what the sovereign did not do will be done by the international French supermarket chain Carrefour, which was founded in 1959 and has about 12,000 stores worldwide with close to 320,000 employees. Its revenues in 2021 were about 73 billion euros.
Carrefour is about to make a school for the marketing chains in Israel, which have enjoyed for years in an uncompetitive market and are doing their best in the absence of competition from retail chains abroad. Carrefour operates in China, Taiwan (in local partnership), well in Brazil and the Middle East, including Iran, Egypt, Iraq and Jordan It operates in Turkey, Georgia and even Albania, in most of the European Union as well as in the former French colonies in North Africa – Morocco and Tunisia.
Naturally, Carrefour has tremendous power in shopping with suppliers all over the world for its chains, which are carefully planned according to predetermined sizes to increase sales per square meter and adapt to the designated population according to local consumption characteristics. Carrefour also buys small convenience stores as well as supplies goods to small independent stores. Carrefour uses advanced technologies to optimize its stores, increase productivity and accumulate tremendous information: what was bought, what customers preferred, how to return them to repeat purchases and, of course, attention to service.
Carrefour relies more and more on technology and algorithms to know what to offer customers – 23% of its sales are recommended by the algorithms. It also has a sophisticated set of digital advertising, data collection and performance data analysis. Already today, a fifth of its sales result from the digital push.
How will Carrefour act against Tnuva and what will the other marketing chains do to survive and prevent a decrease in their profitability? We will wait and see. What will the new government do in the field of reducing the cost of living in Israel? We will wait and see. How will the public and customers react? We will wait and see.