Finance minister says he’s upping butter imports to combat shortage

Moshe Kahlon calls for ‘dramatic decisions’ to fight the problem, including removal of foreign import quotas altogether

Bread and butter (iStock)
Bread and butter (iStock)

Amid a months-long butter shortage, Finance Minister Moshe Kahlon on Tuesday announced Israel would turn to overseas producers to make up the difference.

The minister signed a directive Tuesday raising the import quotas for both household and industrial use.

Household butter imports were raised to 2,750 tons, and butter for factories to 3,500 tons, an increase of 13% and 24% respectively.

“I signed [the directive] on increasing the import quotas in order to increase the butter supply in the market and end the shortages in stores,” Kahlon said in a statement.

Finance Minister Moshe Kahlon holds a press conference at the Finance Ministry office in Jerusalem, September 23, 2019. (Flash90)

“There’s no reason in this day and age for there to be a shortage of butter.”

He said the country would take more drastic steps going forward.

“In future, we will need to make dramatic decisions on this issue, like completely removing the quotas and opening the market” to unhindered foreign competition, “in order to ensure the Israeli consumer doesn’t face this kind of situation again.”

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Israel’s butter shortage has been going on for months, with the country’s largest manufacturer Tnuva being accused of cutting back its production to pressure the government to lift price controls on domestic butter. Tnuva produced some 80 percent of domestic Israeli butter in 2018, or nearly 4,300 tons. The second-largest producer, Tara, made 234 tons in 2018, according to the Calcalist business journal citing figures by the Israeli sales data research company StoreNext.

A Tnuva plant near Jerusalem on May 1, 2015. (Miriam Alster/Flash90)

Tnuva denies the accusation, saying the shortage is due to the government’s inefficient control of the entire industry, from caps on milk production by each dairy to price controls at every stage of production. The company has said it has run out of its milk fat stocks from which butter is made because production quotas for dairies have not risen as quickly as demand for products made from the fat.

The price of butter is set by the government at 3.94 shekels ($1.14) for a 100-gram (3.5-ounce) stick, a price that has not risen as quickly as production costs. The drop in profitability, say the dairy companies, led them to cut production in the first half of 2019, when Tnuva produced just 1,869 tons and Tara just 28 — a drop of 13% and 74% respectively compared to the same period the year before.

That’s when the butter shortage began to be felt in stores.

Much of this period of declining production and shortages has overlapped with election campaigning beginning with the 34th government’s collapse in December 2018 and continuing through the elections in April and September. Politicians in the midst of an election campaign have refused to raise consumer prices or lift protections for dairies.

Tnuva butter (Courtesy)

Similarly, a significant part of the dairy regulatory regime is contained in law, so a broader change to how the industry is regulated won’t be possible without legislation, which itself won’t be possible until the current political crisis is over and a fully empowered government replaces the interim government that has run the country for the past 11 months.

The political impasse has led the economy and finance ministries to recommend opening the market to foreign competition.

Government-issued tenders for importing butter failed at the beginning of the year due to the price controls imposed on the imported butter. The government then issued new tenders that waived customs fees and let importers set prices.

Kahlon’s decision on Tuesday raises the amount of butter that would be allowed into the country under the new scheme.

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