MKs, farmers, slam ‘dangerous’ sale of Tnuva to Chinese
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MKs, farmers, slam ‘dangerous’ sale of Tnuva to Chinese

Israel’s biggest dairy company is already foreign owned, but the Knesset is protesting its sale to a Shanghai-based firm

Farmers protest against plans by Apax Partners to sell Tnuva to China's Bright Foods outside Apax's Tel Aviv offices. The demonstration took place a day ahead of an emergency meeting of the Knesset Economic Affairs Committee on the matter (Photo credit: Roni Schutzer/Flash90)
Farmers protest against plans by Apax Partners to sell Tnuva to China's Bright Foods outside Apax's Tel Aviv offices. The demonstration took place a day ahead of an emergency meeting of the Knesset Economic Affairs Committee on the matter (Photo credit: Roni Schutzer/Flash90)

Israeli politicians are usually very enamored with the idea of Israeli-Chinese business cooperation, but support for such cooperation has its limits. On Tuesday, members of the Knesset Economics Committee expressed their strong opposition to the purchase of Israeli dairy conglomerate Tnuva by China’s Bright Food Group, a deal that could be worth as much as NIS 9 billion ($2.6 billion).

Members of the committee conducted a raucous discussion on the possible sale of Tnuva Tuesday, with many MKs expressing fear that one of Israel’s largest food companies could end up in foreign hands. Committee Chairman MK Avishay Braverman said that Israel’s food security required the government to step in and prevent the sale to Bright Food, a Chinese government-controlled firm that is China’s second largest food company.

Braverman and other Knesset members are trying to raise public consciousness against the sale. “We want to generate public pressure to prevent the sale,” Braverman said Tuesday. “Tnuva is not just a company, but like its logo, Tnuva is also a ‘home’ for Israeli consumers.” The corporate logo, which appears on all its dairy products, features a house and garden that is meant to evoke the moshav and kibbutz communities where the raw materials for Tnuva’s dairy products are produced.

Among Israeli dairy farmers, no consciousness-raising is needed; most are vehemently opposed to the Bright deal, and have been conducting protests over the past week in Jerusalem and Tel Aviv against the sale. In one protest Monday, farmers in Tel Aviv gave out blue balloons and posters of Tnuva products with the words “Made in China” on them, and demanded that the government step in to prevent the sale. “This is a matter of food security,” a protester told Channel One. “We cannot trust our food supply to the whims of the Chinese. Israelis want Israeli milk.”

Food security was also a major theme of Tuesday’s Knesset discussion, with no less a personage than former Mossad director Efraim Halevi telling MKs that the sale was a bad — and dangerous — idea. “For China, Tnuva isn’t just a food company,” Halevi said. “China is doing everything it can to involve itself in Israeli research and development. The Chinese are very creative and flexible. If we do not wake up in time we will find that they will take over not only our food, but our academia. We must organize in order to defend Israeli assets, which are part of our national security conception.”

While MKs and protesters have been framing the issue of the sale as the takeover of an Israeli institution by foreigners, the truth is that Tnuva has not been Israeli-owned for nearly a decade. Tnuva started out nearly 80 years ago as a cooperative owned by kibbutz dairy farmers, who marketed their milk, cheese, and meat products under the Tnuva name. In 2007, a British investment firm, Apax Partners, bought control of the majority of the company from most of the kibbutz partners, together with Israeli investment holding company Mivtach Shamir. A minority of the co-op’s partners refused to give up their shares, but were unable to prevent the purchase of the company by Apax. Currently, Apax owns 56.05% of Tnuva, Mivtach Shamir 20.67%, and the holdout kibbutz partners 23.3%.

At the time, Apax’s purchase of Tnuva was opposed by many of the farmers, as well as by the Finance Ministry, but Apax was able to convince a majority of the farmers to sell their shares by working out supply agreements with them. It is those agreements that the farmers are keen to preserve; farmers fear that the new bosses would seek to renegotiate their deals, as often happens when companies are bought and sold.

The sale itself is actually the upshot of recent Knesset legislation requiring holding companies to spin off assets in order to foster competition. Apax also owns Israel’s Psagot investment house, as well as other assets, and company officials have been quoted as saying that they fear the Israeli government will force them to sell off some assets. As a result, they entered into talks with Bright Foods to spin off Tnuva, which has appreciated significantly during the time the company has owned it. Apax bought Tnuva for a little more than $1 billion in 2007, and analysts estimate the company could fetch more than double that now.

Bright Foods, which is owned by the Chinese government, is China’s second largest dairy processor. Like other Chinese conglomerates, it is awash in cash, and has been on an acquisition spree recently. Last year, for example, the company acquired US meat processing giant Smithfield Foods.

Speaking Tuesday, Braverman said that a better solution for Tnuva, and Israel, would be for Apax to sell off shares in an IPO on the Tel Aviv Stock Exchange, instead of selling them to Bright. “We made a mistake in allowing the Apax deal, and we must not make another one,” Braverman said. “Unlike the Chinese who see 100 years ahead, like an empire, the Israeli culture is one of here and now, take the money and run. Israelis have enough money to keep the milk industry in Israeli hands. We can use the billions we have in pension funds to do this, if necessary.”

Besides Braverman and Halevi, numerous other spokespeople, including attorneys and farmers, voiced their opposition to the sale at the committee meeting. Only one person — Yitzchak Bader, a representative of the farmers who still held 23% of Tnuva’s shares — spoke in favor of the sale. “For us, this would be a strategic investment,” he said. “Working with the Chinese could be beneficial for Israeli farmers and industry,” as it would enable Israelis to further penetrate the Israeli market. However, he added, Israelis would need to be in charge of Tnuva’s day to day activities, and be the main decision makers for company policy. In addition, current sales agreements would have to remain in place.

As the government has no legal recourse to prevent a deal, Braverman suggested encouraging public activism to pressure Apax into agreeing to an IPO, instead of selling to Bright. But generating public sympathy for Tnuva may not be as easy as he thinks, said consumer activist Itzik Alrov. Survey after survey — including one released just last month by the Knesset Research and Information Center — show that food prices, and especially dairy product prices, are significantly higher in Israel than in Europe or the US. Prices in Israel are 25% higher than in Europe, and between 2005 and 2013 the price of food in Israel rose 16% in real terms, while in Europe it only rose 1.8%. Tnuva, with its huge market share, said Alrov, is squarely at the center of this problem, and it’s unlikely many Israelis will go out of their way to encourage preservation of a situation that has not benefited them.

'The people demand social justice' was a catchphrase of the social protests that erupted around the country in the summer of 2011. The Trajtenberg Committee was established following the protests. (photo credit: David Katz/The Israel Project)
Social protests in the summer of 2011 (photo credit: David Katz/The Israel Project)

Just a few years ago, masses of Israelis took to the streets to protest Tnuva’s high prices for dairy products. In June 2011, 100,000 people joined a Facebook page started by Alrov against the high price of cottage cheese, leading to mass protests that summer demanding price rollbacks for cottage cheese and other dairy products. The protests were directly chiefly at Tnuva, which controls more than 70% of the dairy market in Israel.

After a summer of boycotts and protests — which morphed into demonstrations about the high cost of housing, transportation, and other basic necessities — supermarket chains, and eventually Tnuva, temporarily dropped prices on some dairy items. But about a year after the price drop, cottage cheese prices — and prices for other dairy products — resumed their march upwards, prompting Alrov to tell reporters that “Tnuva has apparently decided that they need to milk not only cows, but consumers as well. The lack of competition in the dairy market is shocking.”

In a Facebook post this week, Alrov said that nothing has changed at Tnuva, and that the only way to bring prices down was to force a breakup of the company to foster competition. “There aren’t too many Israelis who are worried about who buys Tnuva,” he wrote. “The best thing would be to eliminate it as a single company altogether.”

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