Government lifts import tariffs to end year-long butter famine

Finance Minister Moshe Kahlon cancels financial and quota restrictions on foreign butter in bid to increase supply

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

Finance Minister Moshe Kahlon signed a long-awaited order lifting restrictions on tariff-free butter imports, in the government’s latest bid to end the nation’s year-long butter shortage nightmare.

The order lifts the severe restrictions on imports — including government-set prices, import and production quotas and other regulations — that many observers have blamed for the shortage.

It allows European butter producers easier and cheaper access to the Israeli market, and officials hope it will end up increasing the supply and lowering the cost of butter on supermarket shelves.

But before any products can be imported, foreign dairy producers must meet Israeli health regulations, as well as obtain approval of their kashrut status from the state rabbinate.

The order will go into effect in the coming days and last for one year, after which officials will examine its effect on the local dairy industry and consumer butter market.

Kulanu chairman Moshe Kahlon holds a faction meeting in the Knesset on November 26, 2018. (Miriam Alster/Flash90)

It is not yet clear if the imported butter will be subject to government-set prices, as with Israeli butter. The immediate order appears to leave the fixed prices intact, but the issue will be taken up by the Economy Ministry’s price-setting committee in the coming weeks.

Kahlon’s signature was delayed for several months by the thorny legal question whether an interim government can push a change to a longstanding regulatory policy ahead of an election.

Deputy Attorney General Meir Levin gave the okay earlier this month, allowing the order to go ahead.

In November, Kahlon attempted a less drastic solution, signing a directive raising the import quotas for both household and industrial-use butter — butter used by food producers to make other foods.

Quotas for household butter imports were raised 13 percent to 2,750 tons per year, and for industrial butter 24% to 3,500 tons.

Tnuva butter (Courtesy)

“There’s no reason in this day and age for there to be a shortage of butter,” Kahlon said at the time.

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

“In the 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.”

Israel’s butter shortage has been going on for over a year, 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% of domestic Israeli butter in 2018, or nearly 4,300 tons. The second-largest producer, Tara, made just 234 tons in 2018, according to the Calcalist business journal citing figures by the Israeli sales data research company StoreNext.

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. That is, it is being artificially capped by government fiat up the supply chain, and therefore cannot build up the production capacity needed to keep up with growing demand.

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

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, and the coming vote in March. Politicians in the midst of an election campaign have refused to raise consumer prices or lift protections for dairies, further exacerbating the shortage, according to analysts.

Similarly, many of the stipulations regulating the dairy market are 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 14 months.

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