Historic food import reform allows for greater competition in Israeli market

Fernando Kauffman Weiss is a regular Israeli in many ways, especially when it comes to suffering from the rising cost of living. He works as a manager in a high-tech startup, and his wife is a medical case manager in an insurance company. They live in Netanya, a city with a strong economy but typically less expensive than Tel Aviv and Jerusalem. 

Like many others, he feels that living costs have increased dramatically in the last few months. “Even before the war, we noticed increased prices in our budget. However, after the war started, costs have gone through the roof. Meat prices have been one of the biggest impacts on our household, but certainly not the only one. Sometimes, we even consider moving to another country,” Kauffman Weiss told The Media Line.

His situation is common in Israel, and economists from the left and the right agree that the problem is urgent. In a recent move to combat Israel’s high cost of living, the government’s Health Committee approved the Health Ministry's food reform. 

Health Minister Uriel Bosso said the move was touted as "historic news for importers" and promised "significant savings for every household in Israel." The reform aims to streamline food importation processes, reduce bureaucratic hurdles, and align with European regulations.

According to Professor Alon Eizenberg, associate professor and the William Haber Chair in Economics at The Hebrew University of Jerusalem, this reform is an important step. “It is more comprehensive than previous reforms. Implementation will take some time, so the impact will not be immediate,” he said. 

“One interesting aspect to follow would be adjusting the market to a system where the government places more trust in importers. To a large extent, importers will be responsible for verifying that they meet the regulatory requirements, and the government will only perform some checks once the products are already in the Israeli market, as opposed to having to obtain upfront approval,” Prof. Eizenberg added.

If the price reduction is passed down to Israeli consumers, the Health Ministry expects significant savings for Israelis. With a food and consumer products market estimated at approximately US$14.5 billion (NIS 53 billion), Israel stands to benefit significantly from reduced import costs, which could substantially alleviate financial pressures on many Israeli households.

According to Minister Buso, “This is a significant regulatory change that will allow the importation of products found in European markets. A country with 10 million people like Israel cannot operate as an island nation. This move will bring savings not of a few shekels but thousands per year for every household. The Treasury estimates savings of 7,000 shekels per year. I don't know if it will reach exactly that, but it is still a significant saving.” 

According to Moshe Bar Siman Tov, director general of the Health Ministry, this regulatory overhaul is expected to create favorable conditions for food imports and provide regulatory certainty for Israeli industries. 

Vision behind the reform

In a recent statement, he shared his strategic vision behind the reform: "The food reform is part of the ministry's strategy to improve regulation and reduce the bureaucratic burden while continuing to maintain public safety and health, in accordance with our public commitment."

Israel’s Economy Ministry also expressed optimism about the measures. “The reform is expected to impact more than 90% of food products fully. This impact will allow for broader import opportunities, as reduced import costs will enable a greater capacity to increase the turnover and variety of food products. New importers will be able to join. Thus, the reform will lead to a reduction in food product prices and a decrease in the cost of the consumption basket,” according to the Ministry spokesperson. 

Despite being a measure taken by Israel’s Health Ministry, the effectiveness of the reform will be measured by the Economy Ministry. According to the answers given by the Economy Ministry to TML, “⁠The reform is accompanied by an effectiveness test that will examine the actual impact of the reform after its implementation and compare this impact against price changes. If we see a discrepancy between the two, we will work to identify and address the barrier. Therefore, a sample of 30 products and dozens of importers will be tested to closely monitor the implementation results and compliance with the reform's goals. The examination will include consideration of the import process cost, the number of importers, and the level of import concentration.”

The main change the reform would bring involves expediting relevant cargo from Israeli ports. As Mark Feldman, the CEO of Latfood, an Israeli private company importing high-quality food from European markets, explained, “The main change that is good for a business like ours is the fact that there is no human factor intervention from the Health Ministry who would monitor the release of the containers. The bureaucracy is received at this stage, and the whole process works automatically.”

Sefi Kedmi, CEO of Sphinx Research & Consulting, foresees the positive impact that this reform will have on Israeli food producers, customers, and regulations. “Such regulatory changes will create competition by introducing a wider variety of products into the market. This includes food and other goods, which currently have high margins and are produced in bulk. Importers who previously held monopolies will face competition, which will drive prices down,” Kedmi told The Media Line. 

“These regulatory changes might encourage more entrepreneurs to import goods, leading to lower prices and greater consumer variety. This means more options to choose from,” he added.

The reform will adopt European regulations for most food products, and the quality shouldn’t concern consumers. “If it's good for Europe, it shouldn't be bad for us. However, consumers will have to make informed choices. Obtaining specific kosher certification for some products might be challenging, but it's a manageable issue," Kedmi noted.

While Feldman agrees that this reform can bring many potential benefits, he believes that it needs some polishing. “⁠The idea behind the reform is great, but it requires some fine-tuning. Thanks to the reform, the number of containers held back at the port has dropped to almost nothing. Regarding the competition between importers and local producers, we believe healthy competition can be created as more importers can enter the market more easily. At this stage, it is difficult to assess the impact on the market and the potential savings for households. On one hand, increased competition is possible as more importers enter the market. On the other hand, the reform imposes significant costs on importers,” he said.

Despite the multiple potential benefits of this regulatory reform, it could also negatively impact Israeli food producers, according to Kedmi. “This measure could hurt some local producers due to imports of products subsidized by foreign governments. In general, labor costs in Europe are lower than in Israel. In cases where import costs don't cover the difference, compensation for local food producers may be required, maybe in discounted water prices or other means to incentivize producers to be more efficient and competitive; otherwise, they would lose business,” he asserted. 

Kedmi highlighted that creating dependency on external markets can also provoke unwanted price fluctuations and hurt local food producers. Giving the example of olive oil prices, he said: “Prices went up from 14 NIS [$3.83] when the market was opened for imports to almost 60 NIS [$16.42]. Portugal, Spain, and France produce about 70% of the world’s olive oil, and their climate-related issues, alongside limited imports due to the war, led to a sharp increase in olive oil prices.” 

The Economy Ministry expects the reform to reduce costs for importers, with an emphasis on international chains. “It will allow the entry of new and parallel importers, increasing competitive pressure and lowering prices. In the long term, we expect increased competition, reduced concentration, and closing the price gap with OECD countries. Moreover, the entire market will learn to work with European regulations in a way that will benefit the industry in the long term and support exports,” the Economy Ministry official source told TML. Considering potential scenarios where local Israeli producers are hurt by lower food imports, the Economy Ministry noted, “⁠At this stage, no support has been established for manufacturers as the focus is increasing competition. However, the ministry will monitor market progress, and if the need for support arises, the issue will be considered.”

“It’s important that opening the Israeli market like this won’t hurt local producers by over-dependencies on specific markets, which could lead to the contrary desired effect and eventually increase prices for consumers and hurt the local industry,” Kedmi cautioned, adding, “Overall, these reforms are good and should help decrease the cost of living, provide more price stability, and, hopefully, make local food producers more efficient.”

The Health Ministry's reform aligns food import routines with European regulations, shifting product safety responsibility to importers and providing risk management and quality control tools. This aims to optimize food imports to Israel, maintain public health, and offer regulatory certainty for Israel’s industry. It removes the need for direct contact between importers and manufacturers while requiring risk management and quality control.

Feldman explained that “if importers will take seriously and responsibly the matter of food safety - as we do, by having a strict sampling program, then the main challenge in transferring responsibility to importers is the need for additional manpower to meet the import conditions within the framework of the reform, which requires the importer to spend Significantly higher costs.”

Prof. Eizenberg added that implementation is far from trivial and would require substantial efforts. “The government would need, on the one hand, to provide efficient guidance to the market so that importers and other actors could understand what is required of them. But also monitor and ensure that compliance is satisfactory and that consumers are effectively protected,” he said. 

“There will be some learning-by-doing on both sides of government and market along the way,” Prof. Eizenberg concluded.