Complex reasons keep prices of imports high in Israel

It’s a question many a shopper in Israel has pondered, particularly those who’ve spent time overseas: Why does everything seem to cost more in Israel?

Whether it’s a box of Cheerios, a supply of Ziploc bags or a shirt from H&M, Israelis pay more for many consumer goods than shoppers in Europe and North America.

Consider the price for a pair of women’s slim cargo pants from the Swedish retailer H&M. In the United States, the pants cost $29.95. In France, the same pair of pants cost $32.40. In Israel? $39.22.

What accounts for the difference?

A crowd throngs the H&M store in Tel Aviv last year. photo/jta/flash90/meir partush

Experts say the reasons vary by market category, ranging from higher taxes — the tax rate on new cars, for example, is 78 percent — to Israel’s unusually small market size to the Israeli consumer’s eagerness to pay a premium for brand-name imports.

In the clothing industry, for example, the profits that retailers in America and Europe generate through volume are not possible in Israel, a country with just 7.5 million people.

In addition, logistics like transportation cost more in Israel because imports must come by air or ship rather than by truck or rail. That all translates into higher prices.

But Israelis aren’t taking it sitting down anymore. There is growing discontent in the country over the high prices Israelis pay for everything from housing to cottage cheese, and the massive social protests last summer brought new scrutiny to those sometimes prohibitive costs.

The Marker, the financial section of Israel’s daily Haaretz, launched a new column this fall called “How long do you need to work for…” listing the number of hours the average Israeli has to work in order to pay for products ranging from Heinz ketchup to an Ikea side table.

There once was a time when imported products weren’t even available in Israel. Twenty years ago, if you wanted M&Ms, Secret deodorant, Playtex or Saran Wrap, you had to ask your second cousin in the United States to bring it in his suitcase. Americans would immigrate to the country with rolls of Reynolds Wrap aluminum foil in their luggage.

But in the early 1990s, multinational corporations entered the Israeli market after the government liberalized the import process and eliminated import quotas. Consumer goods giant Unilever bought Israeli food manufacturer Telma, and Swiss food company Nestle bought Osem, another major Israeli food manufacturer. Today, Israel has some 2,000 food importers alone, according to the Israeli Chamber of Commerce.

At present, customs taxes of approximately 12 percent are charged on imported items, including toys, clothing, cosmetics, luggage, medicine, tires, raw materials for chemicals and wood, and electric appliances like dishwashers, washing machines and ovens.

In an effort to appease the public following the summer protests, Finance Minister Yuval Steinitz signed a directive in late December abolishing customs duties on hundreds of imports; the changes took effect Jan. 1 and are expected to cost the government more than $100 million annually in lost revenue.

Economist Natanel Haiman, head of the Manufacturer’s Association of Israel’s international regulation department, says the 12 percent tax isn’t what accounts for the difference in the price of goods in Israel and the U.S. It’s about consumer demand, he says — and importers know it.

 If people don’t want the products, they wouldn’t shell out money for them, agrees Gali Berger, a spokesperson for Super Pharm, the country’s largest drugstore chain. “The customers vote with their feet, whether it’s Israeli or not,” she says.

Over the last decade, many imported clothing and furniture retailers have entered the Israeli marketplace, from European retailers Zara, Mango, H&M and Ikea to U.S. retailers American Apparel, Crocs, Payless, Columbia Sportswear and the Gap. The Israeli stores of these retailers are jammed with eager consumers.

When U.S. teen fashion chain Forever 21 opened in Tel Aviv in December — with thousands of Israelis storming the store — customers purchased an average of 7.5 items per person, compared with the international average of two to three items per person, according to store personnel. The prices at Forever 21 are the same in Israel as they are in the United States — for now. Experts say that may be because Forever 21’s management doesn’t know the Israeli market yet and hasn’t figured out it can charge more.