Finance Minister Bezalel Smotrich on Monday decided to extend an order to slash the customs duty on imported milk for another six months to address the continued shortage of the dairy product in retail stores and supermarket chains.
The extension comes as consumers continued to encounter empty milk shelves in stores around the country in recent weeks, even after Smotrich signed an order in July to remove the 40 percent customs tax on imported milk for a three-month period, which would last until October 9. The Finance Ministry is now working to remove the customs duty until April 7, 2024, as it expects the milk shortage to last for at least the next six months.
The move started in July was aimed at encouraging cheaper imports, which had been economically unviable because of the high tariff. Israel regulates the price of a number of key locally produced dairy products including milk, soft white cheese and basic bread, which are more expensive than in European countries.
Local dairy producers have been complaining that the price of food grains for cattle that account for a significant part of the cost of producing dairy items has jumped, raising costs. Earlier this year as dairy manufacturers were seeking a 16% hike increase, Smotrich reached a last-minute agreement to raise the price of regulated dairy products by around 9%. This in turn is making the production of regulated milk less profitable for the three biggest dairy companies — Tnuva, Strauss, and Tara Dairy — which control more than 90% of the market.
Since the beginning of the year, Israel has seen a shortage of 1 million to 1.5 million liters of milk per month, said the ministry, adding that the three-month tariff removal has led to some milk imports. Regular milk has reportedly been imported from Poland in recent weeks by one of the country’s largest supermarket chains.
A further period of six tariff-free months will allow more players to enter the market for imported milk and thus eliminate the shortfall of milk, the ministry estimated.
“After we saw that it is possible to import regular milk and after I understood from other large retailers that they intend to import milk in the coming period, I decided to extend the cancellation of the milk duty for another six months,” said Smotrich. “This move will help to deal with the milk shortage on shelves and will lead to further price reduction.”
It remains to be seen if it importers will find it worthwhile economically and logistically to bring in milk for a limited time period, considering that the cost of kosher certification has to be factored in.
Smotrich added that over the coming six months his ministry, together with Agriculture Ministry, will examine alternatives for the milk market, including a reform and structural solutions, to ensure regular and cheap milk supply in the long term. The Finance Ministry also noted that Prime Minister Benjamin Netanyahu recently spoke out in favor of opening the milk market to competition and abolishing the quota regime and price controls.
Dairy prices in Israel are a sensitive issue and have sparked reactions that often snowball into mass demonstrations against the high cost of living. In 2011, the so-called cottage cheese protest sparked weeks of social unrest, resulting in supermarkets lowering the price of dairy goods alongside policy reforms aimed at lowering consumer costs.