Israel's 'Cornflakes Law': crunch time for high food prices?

Mon Jun 20, 2016 1:45pm EDT
 
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By Steven Scheer

JERUSALEM (Reuters) - For generations of Israelis, brand names like Heinz Ketchup, Skippy peanut butter and Kellogg's Cornflakes were a costly luxury -- available in stores but often passed over in favor of cheaper, locally made products.

Now, after decades of coddling domestic manufacturers, Israel is about to revise one of its oldest protectionist policies, allowing freer competition for some food imports in response to public outrage over high prices.

Despite average wages that are 17 percent below its Western peers, food prices in Israel have risen 50 percent since 2000 and are now 20 to 60 percent above the OECD average, with dairy products, eggs and soft drinks particularly expensive.

One reason is that Israel limits competition from imports to protect local producers, a throwback to the socialist principles it was founded on in 1948 and which persist in some areas despite a shift toward a free market economy in 2003.

In a recent report, the Paris-based OECD said Israel's products' markets had low foreign trade exposure and were characterized by oligopolies and monopolies, a situation that directly affects its 8.5 million people.

Israel's cost of living -- an issue that stoked mass protests in 2011 and helped give several reformist parties a foothold in government -- is 20 to 30 percent higher than in Spain and South Korea, respectively. Both countries have a per capita GDP similar to Israel's, the OECD noted.

Under a new food reform, dubbed the "Cornflakes Law", imports of low health risk dry goods such as cereal, rice and pasta will have easier entry access to Israel and will not have to be inspected at ports - which should lower costs even though hefty customs tariffs will remain.

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Cereal boxes for sale are displayed at a supermarket in Jerusalem June 19, 2016. REUTERS/Ronen Zvulun