Next week, most Israelis will be celebrating Rosh Hashana with the famous tradition of eating apples and honey. As we all go to the supermarkets to buy the honey that symbolizes the sweetness with which we hope to start the New Year, I hope that the price tag attached to this product will not make this experience bitter for most of us.
Here are some facts: The honey market in Israel is of about $150 million per year. However, two big companies, Yad Mordechai and Emek Hefer, hold around 80 percent of the retailing market. In a market with such a lack of competition, it is therefore no surprise that prices for honey in Israel are much higher than in other countries. The average price for one kilogram of honey in the US is around NIS 40. In Israel, the average price for one kg. is around NIS 54 – an increase of about 35%.
Why is it that the price of honey in the Land of Milk and Honey is so high? How is it that the market is so centralized? If the market in Israel was truly a free market, with prices so artificially inflated, one would expect new players to come on the scene – thus lowering the prices through competition. What, then, is stopping new players from entering Israel’s honey market?
In this column, I will look at the various obstacles to true competition in the honey market. Many of these obstacles are representative of problems which exist in many areas of Israel’s economy, and raise the cost of living and hurt the quality of life of the average Israeli. However, as we will see, the honey market is still an extreme case, with specific obstacles which do not exist in other markets.
Blocking local competition with regulation and the requirement of permits
The problems with competition in the honey market start with an odd rule requiring that anyone who wants to own hives for honey production must get a permit from an organization called the Honey Council.
To most people who are not familiar with honey production, this seems reasonable. Honey production is a dangerous business and dealing with hives seems to warrant a permit. However, a quick comparative look at the way the world relates to honey production shows that this rule exists only in Israel. In the US, France, Australia, Belgium and the UK, there is no such requirement. Rather, in most cases, the regulations require the hives to be a certain distance from public areas – without the need for a special permit.
Regulations are also aimed at stopping epidemics among bees, which have plagued many areas in the past. Honey production is also guided, like any other business, by tort law. Why, then, must Israel be different and require a special permit for owning hives for honey production? This question becomes even more pressing when we look at the body that grants these permits. The Honey Council is not a government body, but rather a private organization. The government gave this private body the right to decide who is allowed to own hives and produce honey, and who is not. This private council even decides who is allowed to enjoy the benefits of the pollen that is grown on private farmlands. Farmers are not allowed to decide themselves what to do with the pollen on their land.
As a private body, the Honey Council has its own interests and as such, has worked to limit competition in this sector of the Israeli market. For example, the council has the power to grant the right for bees to pollinate in certain areas.
However, in the past few years, the council made a conscious decision not to allow any new pollination areas. This makes competition in this market almost impossible.
This over-regulation, which is representative of many sectors of the Israeli economy, hurts the consumer – who is then the one to pay for the centralization of the market. What is unique and especially appalling in the case of the honey market is that the regulation is enforced by a private body with private interests, rather than by the government, which is supposed to watch out for the public interest.
Blocking international competition
One of the most obvious sources of competition for local producers of honey would be international competition. In an increasingly global world, there is no reason why international competition would not enable the lowering of product prices.
However, when it comes to honey, high tariffs make international competition completely irrelevant.
The price of the tariff on the import of honey is, since 2011, between NIS 12 and NIS 17 a kilogram. This is about the price of honey production in the international market, and is therefore close to a 100% tariff rate.
According to some bilateral trade agreements, there are some allowances for the import of honey with lower tariff rates.
Such agreements exist, for example, with the US and the EU. However, these agreements have a set quota of how much honey can be imported under that tariff rate, and the importation can only be done by authorized resellers who import the raw honey and resell it as part of their own produce.
Therefore, even these trade agreements which are usually intended to promote free trade do very little to enhance competition in the honey market in Israel.
Even more so, the honey authority distributes the rights to imports under the quota – according to a company’s size in the market. This method means that bigger companies get to import more, while smaller companies are only given the right to import quantities that are not economically viable. Thus, the bigger companies automatically inherit the import permits from the smaller companies, and instead of leading to competition, the imports end up causing further centralization.
The current tariff rates and regulations on importation of honey therefore strongly hinder the competition in the honey market.
Time to reform the market
The problems with the honey market have been known for a while.
In 1991, the state comptroller wrote in a report: “Since honey is not a basic need, there is no justification for a guiding hand [regulations] in this market.”
In 1998, the state comptroller once again reported: “The Honey Council has a broad authority and leads to lack of competition in this sector. The lack of competition is the cause for much higher consumer prices compared to prices outside Israel.”
Even the legal adviser to the Agriculture Ministry expressed opposition to the current situation: “Is there a justification for the violation of the right to freedom of occupation in the case of the Honey Council? This is doubtful.… Such benefits could be reached without the intervention of regulators, but rather through the free market.”
For over 20 years, the problem with Israel’s honey market has been known to all.
However, no one has yet fixed the problem.
The last few years of Israeli politics were characterized by the newfound consciousness shown by Israelis of the country’s economic policies. Israelis had enough of paying more than they should for the products they purchase.
Unfortunately, some populist politicians tried to gain votes by calling on price regulation and price control. Instead, the way to fix Israel’s warped economy is by taking unnecessary regulation, when it exists, out of the market – and letting the market act more freely.
By allowing for a truly free market with free competition, the consumers will be able to buy products at reasonable prices without hurting the country’s economic growth. Actually, true competition will only lead to further economic growth.
As we go shopping for honey for Rosh Hashana, let us ponder this extreme example of overregulation and hope that in this New Year we will see a year where businesses will compete with each other in order to give us, the consumers, the very best service at the very best price.