Supply and demand, sidelined by monopolies

Globes online has a little peak at the effect lack of competition has in Israel in the field of food prices.

Food importers are pocketing millions of shekels at the expense of consumers and their own employees, says the Finance Ministry.

The major food importers have exploited the strong shekel in recent years to pocket millions of shekels at the expense of the consumers, who should have benefited from lower prices, Ministry of Finance chief economist Yoel Naveh writes in his weekly review of the Israeli economy. According to his analysis, the profit margins of the food and beverages importers began to surge in 2007-2008, when the shekel strengthened against foreign currencies. Profit margins dropped somewhat in 2011, following the social protest, but aggregate profit rose again in 2012.

One key takeaway:

Naveh says that the aggregate profit of the 10 largest food importers rose 230% in real terms in 2005-2013, while their salves [sales] volume grew only 31%.

That’s quite some profit growth.

And the lack of competition? Globes says:

The fact that the price differences did not reach the consumer, but was retained by the importers, can be explained by the lack of competition in the food import sector. For example, in 2008, when the shekel strengthened significantly against foreign currencies, instead of falling, imported food prices climbed 11.5%, far beyond the increase in the general index.

According to Naveh, the rise in profit margins was even steeper among the 10 largest food importers, adding, “The shekel exchange rate cannot by itself explain the change in the importers’ profit margins.”

So, these companies are making a killing.

What about the workers?

Naveh’s analysis also indicates that as of 2013, the number of workers employed by the food importers totaled 20,000. Their average gross monthly salary was NIS 9,200, following an average rise in real terms of only 6% in 2003-2013, less than the 7.6% average rise in wages in the economy as a whole during that period, while the profits of food importers as a whole doubled in real term.

That’s the reality of economics in Israel: a small market, lacking competition in many areas, allowing profits to rise without challenge, and wages to be artificially (but effectively) kept low, without an effective counter.

In times such as now when security is at the forefront of the news, it may be excusable to leave this thorny topic alone. But it is also a threat to our society, and a social and economic issue that must be addressed.

The Globes piece is here.