Customs duty on canned tuna cancelled, but consumer price barely moved: down by 1.1%

The attempt to lower the prices of canned tuna by removing the customs duty and opening the market to imports led to a meager reduction of only 1.1% in the consumer price. Based on the quantity marketed in 2023, the savings for all households are estimated at 21.8 million shekels, which is 3.35 shekels per person per year. This is according to a study conducted by economist Shlomit Arbel, director of research at the Arlozorov-Yesodot forum.

It was also found that the concentration index in the category remains at a high level: the three leading suppliers maintained a stable market share of about 75% and high price levels compared to other suppliers in the market. Although the removal of import barriers allowed the entry of small importers in parallel imports, their purchasing model, based on "opportunity" buys, limited their impact on concentration and the variety available to the consumer, and most of them held a negligible market share of less than 1% of annual sales.

According to Arbel, despite the clear recommendations of the OECD to accompany trade reforms with economic analyses in advance and in retrospect, reforms carried out by Israeli governments in the last decades were not accompanied by sufficient research and economic analysis, and there is a question mark regarding their effectiveness in lowering the price for the consumer.

The customs duty that applied to canned tuna on the eve of the reform's entry into force included two components: a shekel component of 3.51 shekels per kg and a relative component of 12% of the price of the imported goods. The reduction of the duty was carried out gradually: in September 2013, an order was signed for the gradual reduction of the shekel component in four stages, from November 2013 until its full cancellation at the beginning of 2016. In addition, in February 2022, an order was signed to reduce the relative component in two stages: a reduction to 6% in September 2022 and a full cancellation at the beginning of 2024.

Tuna in vegetable oil, the product covered by the study, accounts for about 65% of sales to the home market, where local manufacturers and importers operate. The raw material is imported to Israel, and until 2014, five local manufacturers operated in the market, who thawed the tuna fillets that arrived frozen from tuna factories abroad, subjected them to a thermal process, packed the product in tin cans, and provided 85% of local consumption. During 2013 to 2023, a fundamental change occurred in the market structure: local production decreased to about 20% of the market, and some local manufacturers shifted their operations to imports. Thus, for example, Diplomat closed the Starkist factory in Tirat Carmel in 2019, fired the employees, and moved to produce canned tuna in Vietnam and the Philippines.

The study examined the changes in price in three periods: 2013-2017, in accordance with the impact analysis period of the duty removal, which was previously conducted by the Competition Authority; 2013-2019, when the researcher had access to consumer price data in France; and 2013-2023, which covers the decade of analysis for all products. The study found a significant positive correlation between the consumer price and the shekel duty and the global raw material price in all three periods, but the longer the analysis period, the smaller the strength of the connection between the duty reduction and the consumer price. In addition, Arbel used the consumer price in France as an index for comparison to a market not affected by Israeli regulation, and a correlation was found between the price in Israel and the price in France. This hints at the existence of another influencing factor, which was not identified and is not explained only by the raw material price and customs policy.

In the analysis for the short period, it was found that the consumer price is positively and significantly correlated with the raw material price and the shekel duty, meaning a decrease of 1 shekel in the shekel duty or raw material price is correlated with a decrease of about 1 shekel in the consumer price in Israel. Also in the analysis for the medium period, the same significant positive correlation was found, and in addition, a significant correlation was found to the price in France. In the long period, a significant positive correlation was found between the consumer price in Israel and the raw material price and the shekel component of the duty, and a decrease of 1 shekel in the shekel duty is correlated with a decrease of about 72 agorot in the consumer price in Israel, but no correlation was found between the relative component of the duty and the consumer price, and it seems that the impact of the shekel duty on the consumer price decreases as time goes on.

Canned tuna is considered a basic food product, which even received specific attention in the report of the Kedmi Committee, which was established after the summer 2011 protest to check competitiveness in the food industry. In the committee's summary report, published in July 2012, it was written: "In industrial processed food products, the team recommends significant customs duty reductions, including in products where the duty is particularly high: canned tuna, fruit juice concentrates, and sausages and meat products". In the chapter discussing the reduction of customs duty on industrial food, it was written: "Canned tuna — the duty rate currently stands at about 30%. The team recommended reducing the duty to a rate of 12%, in a four-year outline". In the Treasury's announcement on the publication of the order to reduce the duty, it was clarified that "the reduction of the duty on canned tuna is intended to generate an effective price reduction for the final consumer and to increase competition in local markets".