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Israelis Paying Steep Price for Goods

January 5, 2012 By:
Jessica Steinberg, Jewish Telegraphic Agency
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Jerusalem Mayor Nir Barkat (right) helps affix a mezuzah during the grand opening of the first Gap store in Israel, which debuted in 2009 in Jerusalem's Mamilla mall. Photo by Abir Sultan/Flash 90/JTA

It's a question many a shopper in Israel has pondered, particularly if they've spent time overseas.

Why does this fill-in-the-blank cost more in Israel?

Whether it's a box of Cheerios, a supply of Ziploc bags or a shirt from H&M, Israelis are paying more for many consumer goods than their counterparts in Europe and North America.

Consider the price for a pair of women's slim cargo pants from the Swedish retailer H&M. In the United States, the pants cost $29.95. In France, the same pair of pants cost $32.40. In Israel? $39.22.

What accounts for the difference? Experts say the reasons vary by market category, ranging from higher taxes -- the tax rate on new cars, for example, is 78 percent -- to Israel's unusually small market size to the Israeli consumer's eagerness to pay a premium for brand-name imports.

In the clothing industry, for example, the profits that retailers in America and Europe generate through volume are not possible in Israel, a country with just 7.5 million people and two seasons rather than four.

"In the U.S.," says economist Natanel Haiman, head of the Manufacturer's Association of Israel's international regulation department, "you can sell a product with different margins, knowing there's such a huge market out there. By us, the margins are smaller. Even if every single Israeli buys a certain product, you can still only earn so much from it. So if it's a brand name, and people want it, the supplier can place a premium price on it. There's no one factor that stands out in the price issue."

In addition, logistics like transportation cost more in Israel because imports must come by air or ship rather than by truck or rail.

"Buyers have to know what is going to sell from a collection before they order it," says Ophir Lev, general manager of the Israel Textile and Fashion Association. "They have a much smaller window of opportunity because of the market size, and they don't want to get stuck with any leftover inventory. That brings the price up."

There is growing discontent in Israel over the high prices Israelis pay for everything from housing to cottage cheese, and the massive social protests over the summer brought new scrutiny to the costs of living in Israel.

The Marker, the financial section of Israel's daily Ha'aretz, launched a new column this fall called, "How long do you need to work for ... " listing the number of hours one needs to work on an average Israeli salary in order to pay for products ranging from Heinz ketchup to an Ikea side table.

There once was a time when imported products weren't even available in Israel. Twenty years ago, if you wanted M&Ms, Secret deodorant, Playtex or Saran Wrap, you had to ask your second cousin in America to bring it in his suitcase. Americans would immigrate to the country with rolls of Reynolds Wrap aluminum foil in their luggage.

But in the early 1990s, multinational corporations entered the Israeli market after the government liberalized the import process and eliminated import quotas. Consumer goods giant Unilever bought Israeli food manufacturer Telma, and Swiss food company Nestle bought Osem, another major Israeli food manufacturer. Today, Israel has some 2,000 food importers alone, according to the Israeli Chamber of Commerce.

At present, a customs tax of approximately 12 percent is charged on imported items, including toys, clothing, cosmetics, luggage, medicine, tires, raw materials for chemicals and wood, and electric appliances like dishwashers, washing machines and ovens.

In an effort to appease the public over the cost-of-living protests, Finance Minister Yuval Steinitz signed a directive last week abolishing customs duties on hundreds of imports; the changes took effect Jan. 1 and are expected to cost the government more than $100 million annually in lost revenue.

The changes were among the recommendations of the Trajtenberg Committee, which the government set up to formulate possible ways to address the demands of this summer's protests.

Haiman says the 12 percent tax isn't what accounts for the sometimes vast differences in price between Israel and America. He attributes the price differences to importers who have figured out they can charge higher prices in Israel for brand-name products because consumers are willing to pay it.

If people don't want the products, they wouldn't shell out money for them, says Gali Berger, a spokeswoman for Super Pharm, the country's largest drugstore chain.

"It's about consumers and their needs and what they want on the shelf and what sells," she says. "The customers vote with their feet, whether it's Israeli or not. And we try to offer the best products available."

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