Food crisis reaches Israel, stores ration rice sales


By Bar Hion, Adi Daveret, and Ophir Bar-Zohar
Last update - 09:54 12/11/2007

Branches of Israel's "Supersol" and "Blue Square" supermarket chains have placed limits on the amount of rice they will allow customers to purchase, according to an investigation by TheMarker.

Cashiers at the branches probed said the limits were enacted in response to an expected worldwide shortage of rice, something that Israeli market leaders have said will not affect the supply of rice in Israel.

Nonetheless, a senior business official has stated that rice prices in Israel will rise by 70 percent, along with price hikes for other staple goods like tuna, flour, coffee, cooking oil, and sugar. Other food items made from rice, such as breakfast cereals and snack foods are expected to become more expensive as well, though it is not clear at this point by how much.

Since the beginning of the year, there has been a 50 percent hike in the price of rice worldwide, along with other basic foodstuffs such as milk, meat, sugar, and flour. Analysts surmise the problem is linked in large part to rapid population growth that is outpacing food production.

Analysis / Removing bread price controls: Let them eat capitalism

By Ora Coren, Haaretz Correspondent
Last update - 18:52 11/11/2007

Israel recorded a milestone in its socioeconomic policy history on Sunday - price controls on the five most common breads were removed.

For years, price controls on these products (whole and sliced white and dark breads and ordinary challah) had been the symbol of social justice, because bread is a basic necessity of life. Their removal thus appears to represent a further collapse of the idea of protecting society's weaker members, another victory for capitalism and free markets.

Even with controls, the price of these breads had risen gradually over the years, to ensure that bakeries at least earned enough to cover their production costs, albeit with little profit. Everything went smoothly until Eli Yishai (Shas), who sees himself as the representative of the weaker classes, took over the Industry, Trade and Employment Ministry. He initially refused to raise bread prices even when soaring production costs necessitated it, unless the poor were compensated. But he lost that battle - in June 2007, prices were raised with no compensation to the poor.

Yishai did not intend to fall into that trap again. Meanwhile, the Prime Minister's Office had been pressing to end price controls altogether, both as part of its general policy of reducing government involvement in the economy and out of the realization that price controls also benefit the well-off, who can afford to pay full price. Thus when the bakeries began demanding another increase in bread prices, agreeing to end price controls in exchange for compensation to the poor gave Yishai a way to escape a repeat of July's fiasco.

As always, the Finance Ministry pushed to minimize the compensation, while Yishai strove both to increase the immediate payment and to create a permanent mechanism for compensating the poor for price increases. The final deal stated that price controls will end (causing bread prices to rise), the poor will be given one-time compensation, and a long-term mechanism will be developed to compensate the poor for price increases in any basic product - a sort of consumer price index based solely on the consumption habits of the poor.

The rise in bread prices will be immediate, while the one-time compensation will be paid in another three weeks. Both of these developments seem certain. In contrast, it is not clear when the new index will be finalized or what it will look like.

Bread prices will also certainly continue rising in the near future, as bakeries start setting prices based on economic considerations and grocery stores add their own markups to give themselves a slice of the profits. Bakeries termed the newly deregulated market an "earthquake." They will now have to get used to pricing their products, while consumers will have to start shopping around to find the stores with the lowest prices.

It is an ironic twist of fate that Yishai, the minister of the weaker classes, is the one who signed the order creating a free market in bread. Now, he will have to ensure that the second half of his reform also works - that the index for compensating the poor on a regular basis is indeed developed and applied. Otherwise, instead of being remembered as the man who created a new mechanism for helping the needy, he will be remembered as the one who ended the price controls on bread from which they had long benefited.

Cabinet votes to remove state price-control on basic bread

By Ora Coren, Haaretz Correspondent

The government approved on Sunday to lift all price controls on bread, and voted to allocate NIS 60 million to disadvantaged sectors of the population as compensation. The bread, including white bread, dark bread, and challah, will be removed from the state's price-controlled products in coming days.

The compensation will be distributed starting from December 1, 2007. According to Employment, Trade and Industry Minister Eli Yishai's original proposal, the compensation was to reach up to NIS 80 million.

In addition, the Central Bureau of Statistics will formulate a cost-of-living index for the lower classes' compensation, a process that is due to take several months. If an addition to the compensation sum is needed, Yishai, along with Finance Minister Roni Bar-On and Prime Minister Ehud Olmert, will reevaluate the issue. The cost-of-living index is dependent upon the costs of basic necessities, such as bread, electricity, and milk.

Last July, the cabinet approved a proposal to increase the price of basic bread by 12.5 percent, following a crisis that saw bakeries shut down their production lines of bread subject to government price controls.

Under a compromise deal, the cabinet also agreed to increase National Insurance Institute allowances according to the increase in next week's cost-of-living index.