A cottage cheese rebellion in Israel

DAVID ROSENBERG THE MEDIA LINE

“Cottage cheese, a basic good whose price has reached nearly eight shekels. Don’t buy it this month!”

As a revolutionary slogan, it’s unlikely to live in the annals of history alongside “Liberty, Equality, Fraternity” or “Workers of the World Unite,” but, in Israel, it inspired a grassroots rebellion that spread within days, from a Facebook page to the Knesset, where Prime Minster Binyamin Netanyahu had a container placed in front of him in protest over prices.

The rising price of cottage cheese would seem an unlikely Bastille for popular protests, especially at a time when Israel’s economy is booming and unemployment is at a three-year low. In fact, it is serving as the soft and chunky edge of an equally important economic trend – rising income inequality and the squeeze on middle-class consumers.

“Cottage cheese is just the tip of the iceberg. Nothing special happened this week to stir rebellion, but people said, ‘We’re being screwed and we won’t put up with it,’” said Pinchas Landau, an economic analyst who publishes the Landau Report newsletter. “This isn’t going to bring down the government, but it is going to change government policy and tax policy.”

Cottage cheese is high on the typical Israeli’s shopping list, a major item in a country where dairy products form an unusually big part of the diet but not big enough that its price affects anyone’s standard of living. Instead, experts say, the foundations of Israel’s spectacular economic growth over the last two decades – its high-tech industry and a policy of deregulating markets and paring back the welfare state – are the root cause of the revolt.

Like other modern revolutions, Israel’s cottage cheese revolt started on a Facebook page, in this case one set up by Itzik Elrov, a resident of the Tel Aviv suburb of Bnai Brak, whose profile picture depicts him broiling hamburgers on a grill. Inspired by a planned price rise to eight shekels for a 250-gram container, he urged Israelis to boycott cottage cheese “until it spoils on the shelves.”

Elrov found a hot-button cause, inspiring other Facebook pages and eliciting more than 66,000 fans, or a little short of one percent of the entire population, for his own. Yediot Ahronot, the country’s biggest newspaper, ran a front-page commentary, “Cottage cheese storm,” together with a cartoon of a woman angrily telling her cottage cheese-eating colleague during a coffee break, “Shame on you, breaking the strike.”

In the Knesset, cottage cheese became the subject of angry political debate. “The cottage cheese boycott is a protest against injustice, against the social gaps that have flourished under your watch,” opposition leader Tzipi Livni thundered at Netanyahu. Finance Minister Yuval Steinitz promised he would consider allowing dairy product imports in an attempt to boost competition and help reduce prices.

On the store shelves, retailers quickly moved to put cottage cheese on sale in the form of buy-one-get-one-free and similar offers. The counter-revolution had the effect of boosting cottage cheese sales for now, according to the manager of a supermarket in Jerusalem’s Talpiot shopping area.

A lot is at stake. With annual sales of about 600 million shekels ($176 million US), the curdled-milk product is a mainstay on supermarket shelves and a key product line for the some of Israel’s biggest companies, like Tnuva, Strauss and Tara, the latter a subsidiary of the local Coca Cola bottler.

Since price controls were removed on cottage cheese in July 2006, its price has risen 44 percent, according to the Central Bureau of Statistics (CBS). While politicians blame the companies for exploiting the absence of supervision and accuse them of exploiting an oligopoly, the manufacturers say they have no choice but to raise prices because of higher milk and other costs.

But cottage cheese prices have fallen a little this year even as other food prices have climbed, an official at CBS told this reporter on condition of anonymity. She suggested that there were psychological factors behind the rebellion rather than hard economics.

However, cottage cheese prices did rise 1.5 percent in May, the last month the government surveyed them, and they probably rose more in June, when Jews celebrated the holiday of Shavuot, when it is traditional to eat dairy products. In any event, people buy cottage cheese so often that they are more sensitive to any price change than, say, furniture or phone bills, the official said.

On the face of it, consumers shouldn’t be upset by the price rises. As consumers were protesting cottage cheese prices, the government reported that the gross domestic product expanded at a preliminary 4.8 percent annual rate in the first quarter, with consumer spending rising at more than double that. The unemployment rate was six percent in the first quarter, its lowest since 2008. But the top-line figures belie more complicated trends that have widened the gaps between the country’s wealthiest and poorest and made life more difficult for the great majority in the middle, said Ayal Kimhi, who teaches at the Hebrew University and is deputy director of the Taub Centre for Social Policy Studies in Israel.

High-technology has created an elite of well-paid, educated workers, not to mention entrepreneurs and investors, while leaving many others without the skills or education behind. Israel’s economy has evolved so quickly that schools and other institutions haven’t adjusted.

“We have two countries – one of the highly educated and highly paid, who have profited from the new economy, and a large numbers of others, who work in services and for the government, who earn a lot less and have no future,” Kimhi explained. “The middle class is going backward. On one side, they don’t see big improvements in the salaries and, on the other side, they are spending more on housing, water [and] energy.”

A small consumer revolution broke out last January over gasoline prices, but, as Landau observed, that was spurred by a sudden rise in prices due to higher world oil prices, new taxes and a weaker shekel. But, he asserted, the protests were part of the same phenomenon of middle-class distress.

The top 10 percent of wage earners earn five times as much as the bottom 10 percent, the widest gap anywhere in the developed world, he said. The Gini coefficient, a measure used by economists to measure income inequality, shows the gaps are growing, with the ratio to 0.39 in 2009 from 0.35 in 1998.

While lawmakers were debating whether to restore price controls on cottage cheese, economists were saying the real answer is to restore some measure of income equality. Kimhi said the most important thing is to invest in education and training to better adapt Israel’s workforce to the new economy.

Landau said he expected the popular protests to eventually pressure politicians to roll back some of the free-market reforms of the last decade, in particular the growing reliance on indirect taxes, such as the value-added tax, which tend to hit the poorest the hardest.

A recently released study by two economists at Jerusalem’s Van Leer Institute showed that indirect taxes had grown under the Netanyahu government, which cut corporate and personal income taxes instead to spur growth. Income from indirect taxes now equal 86 percent of the direct-tax take, among the highest ratios in the developed world, they said.

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