The cost of price-controlled dairy products in Israel such as milk and sour cream is set to rise by 9% on Monday. This increase is only half of what was announced earlier this week and comes as a result of a deal with the Agriculture Ministry cut by Finance Minister Bezalel Smotrich, who sprang into action to stop the increase only days before the price increase was to occur, despite having been expected for several months.
According to the new decree drafted by Smotrich and Agriculture Minister Dichter on Thursday, the price hike will only reflect the increase in costs for dairy production and will defer outstanding reimbursements owed to the dairy industry for similar moves in the past.
It is expected that these reimbursements will be paid over the next three years — meaning that the Finance Minister has merely kicked the can down the road, and will be faced with the obligation to pay the pipers (or milkers, as it were) once again in November 2023.
Israel’s dairy manufacturers are opposed to Smotrich’s move and are examining its legality, as it is in violation of an industry agreement signed at the beginning of the year, which would see dairy prices be revised automatically — in a system similar to that which dictates the price of gas — and without consideration of the Finance Minister’s political considerations.
In light of dairies’ dissatisfaction with the Minister’s decision, the Prime Minister’s office is expected to step into the fray and sort things out with the parties involved.
Why is it more expensive, anyway?
The rise in the cost of milk is primarily due to two main factors, the first of which is related to ongoing expenditures incurred by dairies, such as increased livestock feed prices as a result of the war in Ukraine. The second factor in the increased price is the retroactive reimbursement of income owed to dairies for similar occurrences in the past, which they had to absorb.
Analysts have suggested that the move will result in a shortage of price-controlled dairy products, as manufacturers choose instead to produce those for which they can charge an appropriate price. A similar phenomenon was witnessed a few months ago, when price regulation issues led to a shortage of locally-produced butter, leaving consumers to choose from a spectrum of pricier imported options.