Government pulls controversial dairy reform from upcoming budget

Finance Minister Bezalel Smotrich’s controversial dairy reform was removed on Tuesday from the 2026 Arrangements Law, which accompanies the 2026 state budget.

The reform generated significant opposition and protests from farmers, as well as industrial action, which left supermarkets without raw milk for a day. Farmers and the kibbutz and moshav movements argued that the reform would cause widespread job losses and harm national food security. There was opposition from within Prime Minister Benjamin Netanyahu’s Likud party, and particularly from Agriculture Minister Avi Dichter and Economy Minister Nir Barkat.

Following Hebrew media reports that Netanyahu had insisted on removing Smotrich’s reform from the law in order to pass the budget, a spokesperson for the finance minister’s office told The Times of Israel that “it was decided to split issues that are in dispute, such as the dairy reform, from the Arrangements Law,” and that the decision was made by the prime minister and Smotrich together.

“At the moment, the main task is to ensure the passage of a budget that addresses all security needs and provides stability for the economy,” the finance minister’s office said.

The office added that “in coordination with the prime minister, it was agreed that the reform will continue to advance in committee and, after the war ends, will be promoted as legislation under coalition discipline.”

As part of a broader plan to lower the cost of living, Smotrich’s proposed legislation would slash milk production from the current 1.5 billion liters to 1 billion, cut the price per liter that dairy processors pay to farmers by 15%, and abolish tariffs of up to 40% to flood the Israeli market with imported dairy products.

Though the plan was approved by the government in December, it needs the Knesset’s authorization to pass.

The dairy reform is the latest Smotrich-backed measure to be derailed. Last month, the Knesset revoked his order allowing Israelis to purchase up to $150 of personal goods from overseas websites without paying the 18% VAT, after Netanyahu declined to impose coalition discipline despite initially saying he would.

Amit Yifrach, Secretary-General of the Moshav Movement and Chairman of the Federation of Israel Farmers, welcomed the decision to suspend the reform, saying, “Throughout the struggle against the reform, we emphasized the importance of strengthening local production and food security as a significant component, both in routine times and certainly now, during this complex security and economic period.”

Shay Hajaj, Chairman of the Federation of Local Authorities and head of the Merhavim Regional Council, next to the Gaza border, said, “Such a reform requires deep examination, time, and a responsible process to ensure that it strengthens the industry and does not harm the dairy farms and agricultural communities that carry the burden of settlement (along Israel’s borders) and security.”

Lior Simcha, Secretary-General of the Kibbutz Movement, added, “This is the time for all of us to unite against the Iranian enemy and those who want to see the State of Israel destroyed. After the war, we will all sit together and reach agreements on strengthening the economy, lowering the cost of living, and bolstering Israeli agriculture and settlement along the borders.”

Uri Dorman, Secretary-General of the Federation of Israeli Farmers, said, “Especially at this difficult time, in the midst of the campaign against Iran and Operation ‘Roaring Lion,’ we saw further proof of the danger of opening up to imports, closing Israeli dairy farms, causing economic harm to families, and eliminating the local dairy industry.”