The Land of Milk and Money

With the High Holidays upon us, we are yet again confronted with the sad stories of daily hardships and financial struggles of many Israeli families. Within Israeli society, there is an ongoing debate about whether or not there are Israelis who truly cannot afford to buy enough food. The big question is – what is enough?

According to the National Insurance Institute (NII), 320,000 Israeli households (about one million people) suffer from nutritional insecurity. That does not necessarily mean that one million Israelis go to bed hungry every night, but it does mean that they are unable to afford a balanced and nutritious diet on a daily basis. Yet the NII’s estimates should be taken with a grain of salt, as they are based on a survey and thus only reflect the subjective, self-reported condition of participants. In other words – it is possible that some survey participants do not actually suffer from nutritional insecurity even though they believe that they do (and the opposite case is also possible). One way or another, it is clear that a serious discourse on this issue must be based on more objective facts.

But how can one answer these complex questions in an objective manner? There are of course many nutritional experts who rely on conventional (and unconventional) knowledge and experience: but who should ultimately decide which food items are essential and in what quantities? Taub Center’s latest research concluded that revealed preference is the preferred way of deciding. Put simply, this means that the essential types of food and their desired quantities were not determined arbitrarily, but rather by observing the consumption patterns of different Israeli households

Taub Center researchers assumed that there are three types of households: 1) Those who cannot afford to buy all the food they need; 2) Those who can afford to buy the food they need, but cannot afford luxury foods; 3) Those who can afford luxury foods.

The idea is quite simple: for groups 1 and 3 (the poor and the relatively well-off households), an increase in income should result in an increase in food expenditures. The poor would use some of that extra income to buy more essential food items, and the relatively well-off would use some of it to buy more luxury food items. The only group that would not use the extra income to purchase more food is the second group – those households who get by, but cannot afford luxury food items. For this group, the extra income would be directed into other essential expenditures, such as mortgage payments and better education for their children.

Following this logic one can conclude that there is a relatively wide income range in which food expenditures do not rise significantly when income rises – the income range of those households who just manage (group 2). It also follows that the (stable) level of food expenditures within this range is the normative (essential) level. In other words, families in this income range buy exactly the amount of food they need.

But is that really how it works in practice? The data suggests that it does. In fact, when the population is divided into income deciles, the three groups can be easily identified (see figure). The normative expenditure range is thus identified as that of households in income deciles 3-5. Households in income deciles 1 and 2 are forced to forgo some essential food items, while households in income deciles 6-10 are able to add some luxury foods to their diet.

This means that about 20% of Israelis (roughly the same population that is officially defined as poor) forgo essential food consumption. But which types of food are they forgoing, and how much? In order to answer that question, we repeated the procedure mentioned above for each food category. We found that poor Israelis primarily forgo dairy products and fruits and vegetables, but are less likely to forgo meat and chicken, bread and pastries, and oil/fats. It appears that from the perspective of the poor, when exchanging shekels for calories, bread and chicken provide better value for their money than dairy products or fruit. Clearly, these coerced choices lead to an unhealthy and unbalanced diet.

Some might argue that this is a sad, but inevitable reality, given the limited income of such families. But does it really have to be this way? Is it normal that dairy products and fruit are now perceived by many Israelis as luxury foods? Are they really that expensive to produce? The obvious answer is no. Israeli agriculture is at the cutting edge of innovation and efficiency, and production costs are relatively low. The blame does not lie with the Israeli farmers, but rather with the retail supermarket chains, who sell these products at a very high mark-up.

It is no coincidence that the two recent major protests related to food prices were directed at dairy products (the cottage cheese boycott), and fruits and vegetables (the pepper protest). In the latter, it is the farmers themselves who protested against the high prices for which their produce was being sold by the retailers – and decided to cut out the middlemen and sell directly to consumers.

Clearly, the Israeli food industry is not competitive enough, and Israeli consumers are still to a great extent a captive audience. Despite the appointment of several government committees in recent years, designed to address this problem – not much has improved. While the high food prices affect us all, they have the most damaging effect on the very poor, and lead to an incomplete and unhealthy diet. The State should therefore employ a more “hands-on” approach to increase competition and lower prices, and should also consider broadening the list of essential food items that are under price supervision.

The state should also take responsibility for eradicating food insecurity by providing food-targeted help to the poor (e.g. food stamps, food baskets). According to estimates, this can be accomplished with only 0.5-1 billion shekels (while Israel’s GDP is 1,000 billion shekels). Can we really not spare one thousandth of our national income in order to ensure that no Israeli family is forced to forgo essential food items?

Eliminating food insecurity in Israel is not an impossible task. In fact it is very feasible. A combined course of action, which includes financial support to the poor and effective measures to reduce market distortions that lead to inflated food prices – would not only enable all Israelis to buy enough food, it would also allow for healthier and more balanced diets.