Hey everyone, welcome back to My Weird Prompts. I am Corn Poppleberry, and I am sitting here in our kitchen in Jerusalem with a half empty container of cottage cheese and a very frustrated look on my face. It is March seventeenth, twenty twenty six, and honestly, looking at this receipt from the supermarket this morning, I feel like I need a stiff drink, but even the milk for my coffee is starting to feel like a luxury purchase.
And I am Herman Poppleberry. I can see that look from across the table, Corn. Is that the five percent fat variety or the nine percent? Because depending on your answer, we might be talking about a significant portion of our weekly grocery budget right there. I was reading the latest consumer price index report this morning, and dairy is once again outstripping almost every other category in terms of year over year increases. It is relentless.
It is the five percent, but that is exactly the point. Our housemate Daniel was actually pointing this out when he sent over today’s prompt. He was looking at his banking app and then looking at the fridge, and he asked us why on earth a basic staple like dairy feels like a luxury item in this country. It is a question that hits every Israeli right in the wallet every single time they walk through a supermarket. We are talking about the Cottage Cheese Index. If the cottage cheese is too expensive, the country feels like it is in trouble.
It really does. And it is funny you mention the cottage cheese specifically, because in the history of Israeli consumer economics, that little plastic tub is legendary. We are talking about the two thousand eleven cottage cheese protest. It started with a single Facebook group and turned into hundreds of thousands of people in the streets, setting up tents on Rothschild Boulevard in Tel Aviv. It became the ultimate symbol for the high cost of living here. Back then, people were outraged that a tub of cottage cheese had climbed to nearly eight shekels.
And here we are, fifteen years after those protests, and while there were some temporary dips and a lot of government promises, the structural issues seem as entrenched as ever. If anything, the problem has metastasized. Daniel’s prompt today is pushing us to look past the surface level frustration and actually get into the gears of the machine. Why is it like this? Why does a country that prides itself on agricultural innovation and high tech prowess have some of the highest dairy prices in the developed world?
It is a fascinating and deeply frustrating topic, Corn. To understand it, we have to move away from just complaining about the grocery bill and start talking about market architecture. We are going to look at the three major players that dominate the landscape, the way the government actually protects them from competition, and why the solutions people usually point to, like kashrut supervision, are often just a convenient distraction from the real structural problems. We are going to peel back the label on the Israeli economy and see what is actually curdling inside.
I think that is a great place to start. Let us define the landscape first. Most people talk about monopolies when they are angry, but what we are dealing with here is technically an oligopoly. Herman, for the folks listening who might need a refresher on their Econ one hundred and one, can you break down that distinction and introduce us to the big three?
So, a monopoly is when one single company has total control over a market. Think of a utility company or the old days of the national phone company. You have no choice. An oligopoly is a bit more subtle but often just as restrictive for the consumer. It is when a small handful of very large firms dominate the market. In Israel’s dairy sector, we have what people call the Big Three. That is Tnuva, Strauss, and Tara.
And between those three, they basically own the entire aisle, right? From the milk cartons to the puddings to the hard cheeses.
Tnuva is the undisputed giant. Historically, they were a cooperative owned by the kibbutzim, the very backbone of the early Zionist socialist project. But they were eventually sold to private equity and then to Bright Food, which is a Chinese state owned conglomerate. They control more than fifty percent of the total dairy market. Then you have Strauss, which is a massive publicly traded food company that has partnerships with global brands like Danone. And finally, there is Tara, which is owned by the Central Bottling Company, the same people who own the Coca Cola franchise in Israel.
So you have a Chinese state owned giant, a massive public conglomerate, and the Coca Cola people. That does not exactly scream "local farmer's market" to me.
Not at all. When you have three players controlling nearly ninety percent of the market, they do not necessarily have to sit in a smoke filled room and fix prices to hurt the consumer. They just have to practice what economists call tacit collusion. They follow each other’s lead. If Tnuva raises prices by five percent, Strauss and Tara usually follow suit within days, citing increased costs. There is no real incentive to start a price war because they all benefit from the high price floor. In a normal market, if one guy raises prices, the other guy keeps them low to steal customers. Here, they all just move up together.
That is the part that always gets me. In a healthy market, competition should drive prices down toward the cost of production. But here, the gravity seems to pull everyone upward. Is that just a natural result of being a small island economy? We are only ten million people, after all. Is it just that we lack the scale?
It is definitely not natural, Corn. It is manufactured. And this is where we get into the really technical, nerdy stuff that is the heart of the problem. It is called the Milk Board, or Moetzet HaHalav. In Israel, the dairy market is centrally planned. It is one of the last vestiges of the old socialist economy that hasn't been modernized. Every single liter of milk produced in this country is governed by production quotas.
Wait, let me make sure I understand this. If a farmer in the Galilee wants to buy ten more cows because he thinks he can produce milk more efficiently and sell it for less, he is actually forbidden from doing that?
He literally cannot. The government, through the Milk Board, tells every dairy farm exactly how much milk they are allowed to produce each year. If they go over that quota, they get penalized. This is designed to keep the price of raw milk stable for the farmers, which sounds like a noble goal for food security, but what it actually does is artificially limit the supply. When you limit supply in a growing population, you keep the price high. There is a set price called the target price, or mechir matara, which is what the big dairies like Tnuva have to pay the farmers. Because that price is fixed by the government and the Milk Board, the raw material cost is the same for everyone, and it is kept intentionally high to protect the least efficient farms.
So the competition is killed before the milk even leaves the farm. If the input cost is fixed and the production volume is capped, there is no way for a smaller, more efficient player to come in and disrupt the market by offering a lower price. They cannot get enough milk to scale up, and they cannot get it any cheaper than the big guys. It is a closed system.
Precisely. And then you add the second layer of the fortress, which is the import barriers. If you cannot produce it cheaply here because of the quotas, you would think we could just import it from Europe, right? I mean, you can go to a supermarket in Berlin and buy a liter of milk for less than one Euro, which is about four shekels. In Israel, that same liter is often six or seven shekels. But the Israeli government imposes massive tariffs on imported dairy. We are talking about duties that can reach one hundred percent or even one hundred and sixty percent for certain cheeses and yogurts.
One hundred and sixty percent? That is not a tax; that is a wall.
It is a moat with alligators in it. There are also strict import quotas. Only a certain amount of butter or hard cheese is allowed into the country at a lower tariff rate. And here is the kicker: those quotas are often handed out to the big domestic dairies themselves. So the government is essentially giving the keys to the gate to the very people who are being protected by the gate. If Tnuva gets the quota to import cheap European butter, they are not going to sell it at European prices and undercut their own local production. They will sell it just a few agorot cheaper than the local stuff and pocket the difference as pure profit.
That is the definition of a closed loop. It reminds me of what we discussed back in episode four hundred seventy two when we talked about the five hundred percent markup on tech hardware. It is that island economy mentality where the barriers to entry are so high that the local incumbents can charge whatever they want because the alternative simply is not allowed to exist. But Herman, whenever I bring this up with my neighbors, they always point to the rabbis. They say the reason the milk is so expensive is because we have to pay for all these kashrut supervisors to watch the cows and the bottling lines. Is the "Kashrut Tax" real, or is it a myth?
It is largely a myth, or at least a massive exaggeration used as a convenient scapegoat. When you actually look at the balance sheets of these massive operations, the direct cost of kashrut supervision is a rounding error. We are talking about a fraction of a percent of the total cost per unit. Now, there are indirect costs, like stopping production on Shabbat or the logistical nightmare of cleaning the entire factory for Passover, but even those do not account for a thirty or forty percent price gap compared to Europe.
So why does everyone believe it?
Because it is a very convenient narrative for the oligopoly. If you blame the religion, you turn an economic debate into a cultural and religious one. It becomes a fight between secular and religious Israelis, which is a fight that never ends and never gets solved. Meanwhile, the executives at the Big Three can keep their high margins because everyone is too busy arguing about the Rabbinate to notice the import tariffs and the production quotas. The real price driver is not the rabbi in the factory; it is the lack of a competitor from Poland or Greece being allowed to put their product on the shelf next to the local stuff.
That is a brilliant and cynical point. It is a distraction tactic. I want to dig deeper into the political side of this. We have had multiple governments over the last decade, from the right, the left, and the center. Every single one of them promises to lower the cost of living. And yet, the Milk Board remains. The tariffs remain. Why is the political will so weak? Is the dairy lobby really that powerful?
It is a combination of regulatory capture and the revolving door. This is something that happens in many countries, but in a small, concentrated place like Israel, it is very intense. Think about the people who work in the Ministry of Finance or the Ministry of Agriculture. These are the regulators who are supposed to be setting these quotas and tariffs in the public interest. But after they finish their government service, where do they go? Very often, they end up in high paying executive roles at Tnuva, or Strauss, or the Central Bottling Company.
So they are essentially auditing their future employers. If you are a young economist at the Finance Ministry and you want a lucrative career in the private sector later, you are probably not going to be the one who dismantles the dairy protectionism that keeps those companies profitable.
It creates a psychological and professional incentive not to rock the boat. Beyond that, the agricultural lobby in Israel is incredibly well organized and emotionally resonant. Even though farmers only make up a tiny percentage of the population, they are historically connected to the kibbutz and moshav movements. These are the people who are viewed as the "pioneers" who hold the land and protect the borders. Any move to lower dairy prices by allowing imports is immediately framed by the lobby as an attack on Israeli agriculture and national food security.
We actually touched on that specific tension in episode four hundred seventy four, the one about the price of autonomy. There is this deep seated fear in Israel that if we do not produce our own food, we will be vulnerable during a war or a blockade. It is a powerful emotional argument. If you tell an Israeli that their cottage cheese is expensive because we need to be self sufficient, they might grumble, but they will usually accept it as a price of living in this neighborhood. But is that actually true? Does protecting a three company oligopoly actually make us more secure?
Most modern economists would say no. True food security usually comes from having diverse and robust supply chains, not just one local source that could be disrupted by a single missile strike on a processing plant or a labor strike at a port. If we had a mix of local production and robust imports from multiple countries, we would actually be more resilient. But the incumbents use the national security narrative to protect their margins. It is a classic case of using a noble, collective goal to shield a very profitable status quo for a few private entities.
It feels like a contagion, honestly. Once you see how successful the dairy industry has been at this, you start to see the same pattern everywhere else in the Israeli retail sector. It is not just the milk. It is the pasta, the cleaning supplies, the toiletries. It feels like the dairy sector provided the blueprint for how to lock down a market.
You are hitting on a really important point there, Corn. The dairy sector is the most visible symptom of a broader systemic disease. If you look at the food and consumer goods market in Israel, it is dominated by a few massive importers and distributors. Companies like Diplomat, Schestowitz, and Leiman Schlussel. These companies have exclusive distribution rights for global brands like Procter and Gamble, Gillette, or Nestle. Because the Israeli market is small and has unique regulatory requirements, like Hebrew labeling and specific kashrut certifications, a global brand would rather just hand the keys to one local distributor than deal with the market themselves.
And that distributor then has a mini monopoly on those specific brands. If you want a specific brand of toothpaste or laundry detergent, there is literally only one company allowed to bring it into the country.
And then those distributors sell to the big supermarket chains, which are also highly concentrated. We have Shufersal and Rami Levy, which control a massive share of the retail space. So you have a few big producers, a few big importers, and a few big retailers. At every step of the chain, someone is taking a massive margin because there is no one else to go to. This is why when we talked about the Amazon Effect in episode six hundred fifty five, we noted that while it helped lower prices for electronics and books, it has barely touched the food sector. You cannot easily ship a carton of milk or a bag of flour from a warehouse in Germany to a house in Jerusalem without it costing more in shipping than the product itself. The local gatekeepers know they are protected by geography and regulation.
It is a headache tax, like we called it in that episode. You pay more because the friction of trying to find an alternative is just too high for the average person. But Herman, let us talk about the two thousand thirteen Concentration Law. That was supposed to be the big fix after the cottage cheese protests. The government was going to break up these pyramid structures and force these conglomerates to choose between being a bank or being a food company. Did it actually do anything for the guy buying cottage cheese?
It did some things for financial stability, but it was like bringing a knife to a gunfight when it comes to consumer prices. The law forced massive holding companies to divest from certain assets so they wouldn't control both the money and the goods. For example, some families had to choose between owning a major bank and owning a major retail chain. That was good for preventing a total systemic collapse, but it did not address the import barriers. You can break up a conglomerate into three smaller companies, but if all three of those companies are still protected by a one hundred percent tariff on foreign competitors, they are still going to charge high prices. The Concentration Law focused on the top of the pyramid, but the foundation of the problem is the regulatory wall around the island.
So if you are the Minister of Finance and you actually want to fix this, not just give a speech about it, what do you do? Because every time they try to lower a tariff, there are protests at the border. Farmers bring their tractors and dump milk on the road. It is a political nightmare that can topple a coalition.
It is a nightmare, but the solution is actually quite simple from an economic standpoint. It is just politically painful. Step one is to move from a system of production quotas and price supports to a system of direct subsidies. This is what many European countries do. Instead of forcing the consumer to pay high prices at the supermarket to support the farmers, the government should just give the farmers a direct check from the tax revenue. That way, the farmer is still supported, which satisfies the food security and pioneering narrative, but the market price of milk can drop because it is no longer being artificially propped up by the Milk Board.
That makes a lot of sense. It makes the cost transparent. Right now, the cost is hidden in our grocery bill, which is a regressive way to do it because the poorest families spend a larger percentage of their income on milk and bread. If it were a line item in the national budget, we could at least argue about whether it is worth it and pay for it through progressive taxation.
Transparency is the enemy of the oligopoly. Step two is the immediate and total removal of import quotas and a gradual reduction of tariffs to international norms. We are talking about five to ten percent, not one hundred percent. If a company in Poland or Ireland can produce high quality yogurt and ship it to Israel for half the price of Strauss, we should let them. That competition would force Strauss and Tnuva to become more efficient, to innovate, and to lower their prices to stay relevant. They are capable of it; they are world leaders in dairy technology, after all. They just don't have to do it right now because they have no competition.
But what about the argument that our small market size means we can never have the same economies of scale as Germany or the United States? People say, well, we are only ten million people, of course it is more expensive to run a factory here.
I love that argument because it is so easy to debunk. Look at a country like New Zealand. They have five million people, half our population. They are also an island nation, effectively, in terms of geography and logistics. Yet they are one of the most efficient and competitive dairy producers in the world. Why? Because they deregulated in the nineteen eighties. They stopped protecting their local industry and forced it to compete on the global stage. Now they export to the whole world. Or look at Switzerland. Small, mountainous, very high cost of living, yet they have a much more open and competitive food market than we do because they are integrated with their neighbors. Israel’s problem is not its size; it is its isolation, and that isolation is a policy choice.
It really does come back to that choice. We choose to be an island. And I think that is the most important takeaway for our listeners. This is not some law of nature. It is not a religious requirement. It is a set of rules written by people, many of whom have a vested interest in keeping those rules exactly as they are. When we see the price of cottage cheese go up, it is not because the cows are getting more expensive; it is because the system is designed to prevent anyone from offering it to you for less.
And that brings us back to what you can actually do as a consumer. During the cottage cheese protests, people thought boycotting one product for a month would change the system. It did lead to a temporary price drop, but as soon as the cameras went away and the public got distracted by the next security crisis, the prices crept back up. You cannot boycott your way out of an oligopoly when there are no viable alternatives. If you stop buying Tnuva, you just buy Strauss. If you stop buying Strauss, you buy Tara. The money stays in the same small circle of three companies.
So the real agency is not in the supermarket aisle; it is in the voting booth and in the public discourse. We have to stop accepting the excuses. When a politician says they are protecting Israeli agriculture, we need to ask, are you protecting the farmer in the Galilee who is struggling to make ends meet, or are you protecting the executive at Tnuva who is making millions? Because those are two very different things. The current system actually hurts many small farmers because they are trapped by the quotas and cannot grow their businesses.
Precisely. And we need to demand transparency in the lobbying process. We should know exactly which former government officials are working for these companies and what their role was in setting the regulations that now benefit their employers. Sunlight is the best disinfectant for regulatory capture. We also need to push for the removal of those unique regulatory barriers, like the specific Hebrew labeling requirements that make it impossible for a small European producer to just ship a few pallets of cheese here without a massive investment.
This has been a really eye opening discussion, Herman. I feel like I understand why my grocery bill is so high, even if it does not make paying it any easier. It really is a systemic disease, and the dairy industry is just the most visible symptom. It is about how we define our economy—are we a modern, open nation, or are we still clinging to a mid century protectionist model that only benefits a few incumbents?
It really is. And I think it is important to end on a bit of a provocative thought. As we look toward the rest of twenty twenty six and beyond, can Israel afford to remain an island economy? With the cost of living being the number one concern for almost every Israeli family, the trade off between this version of "autonomy" and the actual prosperity of the citizens is becoming unsustainable. We are a high tech superpower that still manages its food supply like a socialist state from the nineteen fifties. That gap has to close eventually, or the social fabric will start to tear.
I think you are right. And hey, if you are listening to this and you have a thought on how we should fix the dairy market, or if you have found a way to get cheap cheese that we do not know about—maybe you have a cousin with a very productive cow—please get in touch. We love hearing from you.
We really do. You can find the contact form on our website at myweirdprompts dot com. And while you are there, you can check out all our past episodes and the RSS feed. We are also on Telegram; just search for My Weird Prompts to get a notification every time a new episode drops. We have been doing a lot of these deep dives into the Israeli economy lately, so check out the archives if you missed the ones on tech markups or the service crisis.
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It makes a huge difference. Well, Corn, I think it is time to go see if there is anything in the fridge that does not require a second mortgage to consume. Maybe some tap water? That is still relatively affordable.
For now, Herman. For now. Alright, this has been My Weird Prompts. I am Corn Poppleberry.
And I am Herman Poppleberry. Thanks for listening, and we will talk to you in the next one.
See you then.
