Dairy Board. "It's not just the
kosher consumer, it's the culture,"
he says of the ancient restrictions
concerning the timing and con-
text in which milk products are
consumed by Jews.
Even so, the Israeli dairy in-
dustry is growing at around 4 per-
cent annually.
In 1995, the dairy sector con-
stituted 1.5 percent of Israel's
gross national product, with an
average per capita consumption
of 190 liters per year. There are
around 900 dairy products on the
market and last year their com-
bined sales totalled around $1.3
billion.
To avoid waste of milk, the en-
tire industry is carefully planned.
Each farm operating a cowshed
is allotted a production quota, set
by the Dairy Board. The process-
ing dairy pays the farmer the full
set price for the milk produced
within the quota. Any excess is
also bought by the dairy, but at a
lower price, and mostly for export
markets.
Around 40 or so dairies partic-
ipate in the process. Tnuva, the
oldest and the largest, processes
more than 50 million liters of milk
per month. Four medium-sized
competitors — Tam, Strauss, Yot-
, vata and the Ramat Hagolan
dairy— each process between 1.2
and 10 million liters per month,
and 35 or so smaller dairies han-
dle up to half a million liters
monthly.
Despite the apparent abun-
dance of dairies in Israel, Tnuva
is the sun around which all the
rest orbit. Not only does Tnuva
hold a 70 percent share of the
market, but 95 percent of all the
country's milk passes through one
of its dairies, where it is processed
and then partly sold back, in one
form or another, to Tnuva's com-
petitors.
Tnuva also owns the only fa-
cility for making milk powder, a
vital resource since it is a good so-
lution for surplus milk in gener-
al, and particularly in the winter,
when demand for dairy products
is lower.
Thus, in a nutshell, the dairy
market belongs to Tnuva, as a re-
sult of security considerations
which go back to pre-statehood
times, according to Dr. Avi Weiss,
an economist at Bar-Ilan Uni-
versity and director of the Azrieli
Institute for Research on the Is-
raeli Economy.
Indeed like public-transport
monopolist Egged, Tnuva took it
upon itself to supply the entire
country, including the most re-
mote places and even in times of
emergency.
Based on the very arguable —
actually, unfounded — premise
that if it were up to the market
the periphery would not be sup-
plied with basic food products,
Tnuva was given monopoly pow-
er. As this rationale gradually lost
its military relevance and eco-
nomic popularity, laws should
have been changed accordingly.
They were not.
"Any monopoly is harmful to
the consumer because it raises
prices," says Dr. Weiss, "especially
with necessity-type goods, where
prices can be raised without de-
mand falling. With goods like
milk, if prices rise people won't
lower their consumption. Then
the monopoly becomes more of a
concern."
One of the ways to reduce gnu-
va's grip on the industry is to re-
form its financial mechanisms, so
that some of ith separate produc-
tion and marketing companies'
combined revenues — which last
year totalled some $2.3 billion—
would be spread among its 650-
member kibbutzim and moshav-
im.
Besides ultimately generating
improved service for consumers,
this would certainly work in fa-
vor of those member kibbutzim
which are on the verge of bank-
ruptcy.
However, due to its unique
structure no one actually "owns"
Tnuva. Consequently, revolu-
tionary strategy decisions are sel- that we are making changes. We
dom taken, even in face of an es- will use the media far more
timated 40 percent plunge in strongly. We are going to almost
annual profits last year to rough- double our advertising budget."
ly $30 million.
The Tel Aviv advertising agency
Arik Reichman, general man- Gittam BBDO has been chosen
ager of Tnuva since January, is to coordinate Tnuva's PR effort,
not looking to reduce Tnuva's although the timing of a compre-
stake in the dairy market. How- hensive campaign has not been
ever, he knows something has to finalized.
change, as became clear during
Mr. Reichman, who was pre-
last September's public row over viously secretary general of the
the media's discovery of foam United Kibbutz Movement, says
avoiding, but potentially toxic sil- he is contemplating change,
icon in its long-life milk.
though in discussing it he does
Tnuva's self-damaging public- not go beyond "decentralization."
ity resulted from its Rehovot dairy
Tnuva's activities go far beyond
refusing to admit its wrong doing. the dairy sector: In the chicken,
Though the Israeli courts have fruit and egg markets, it holds
ruled that Tnuva's practice was more than a 50 percent stake in
not dangerous, the damage had each.
already been done. 'Perception is
"Although Tnuva was — and
reality," says Mr. Reichman grim- still is — the leader in the food
ly, who assumed office after market, there is a need to re-en-
Yitzhak Landsman's abrupt res- gineer the corporation," explains
ignation in the aftermath of the Mr. Reichman. "Every unit
silicon scandal. "Every house in should focus on its own activity."
Israel uses Tnuva. There is no
At the moment, Tnuva's activ-
question that it cost us in public ities are under the control of the
opinion," he concedes.
general manager. The dairy sec-
One of the ways Mr. Reichman tor constitutes 45 percent of the
is combating this aftershock is by organization's volume.
increasing contact with the con-
Mr. Reichman!s first action was
sumer. A toll-free number has to appoint a new manager to co-
been set up for queries, and Mr. ordinate the dairy side of the op-
Reichman says this is only the eration. "I don't believe you can
first step.
manage a big organization from
"Secondly, we are going to show the center," he says. ❑
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