Israel’s dairy sector is at the center of a heated political and economic debate after Israeli Finance Minister Bezalel Smotrich posted a satirical image of a milk carton branded with Chinese symbols on social media.

The meme underscored Smotrich’s push to increase dairy imports amid ongoing milk shortages and public frustration over high prices. The move reflects a broader struggle over the future of Israel’s tightly regulated dairy market.

In August, Smotrich approved a six-month waiver of the 40 percent customs duty on imported drinking milk, allowing foreign milk to enter the country at lower prices through February 2026. The measure responds to recurring shortages of regulated drinking milk, especially during peak demand periods such as the High Holidays.

“This is another milestone in our fight against the cost of living,” Smotrich said at the time. “By removing barriers and tariffs, we increase competition and make sure milk is available at a fair price.”

Finance Ministry officials say even modest volumes of imported milk can prevent empty shelves, smooth pricing fluctuations and counter incentives for retailers to prioritize higher-margin, unregulated products.

A highly regulated market under strain

Israel’s dairy industry is among the most tightly controlled sectors of the national food economy. The Israel Dairy Board (IDB) sets production quotas, while the government determines both the minimum price farmers receive for raw milk and the maximum retail prices for regulated products such as milk, butter and cottage cheese.

For decades, this system helped Israel achieve some of the world’s highest per-cow yields and reliable national output. But it struggles to adjust to seasonal demand spikes. Shortages often appear before holidays when consumption rises sharply and dairy closures reduce production days.

This year, analysts predicted a shortfall of roughly six million liters during the pre-holiday period. While farms generally meet quotas, downstream processing and distribution bottlenecks sometimes prevent regulated milk from reaching stores in sufficient quantities.

Smotrich’s push for reform

Smotrich’s reform plan goes beyond short-term shortages. He has criticized major dairy companies—Tnuva, Tara and Strauss—for using their influence to maintain high prices and protect what the finance minister calls monopolistic practices.

He argues that some farmers who support competition are hesitant to speak out due to pressure from these producers and the IDB, which he labels a “cartel.”

The proposed changes, he says, would give farmers more independence, reduce reliance on entrenched industry structures and increase competition, ultimately benefiting consumers with more choices and potentially lower prices.

Proponents see the temporary import waiver as part of a larger effort to lower household costs. Smotrich has pursued similar liberalization in sectors including cement and poultry, citing excessive market protections that raise prices. With Israel among the most expensive OECD countries relative to income, even small reductions in dairy prices can be politically and economically significant.

Agricultural groups have criticized the waiver, warning that imports could damage domestic production. The Israeli Cattle Breeders’ Association stresses that the sector remains economically efficient and strategically important.

“It has nothing to do with food security for Israelis or the challenges during the war period,” said Dagan Yarel, director of the ICBA. “We proposed alternatives, but these were not even accepted. Instead, the government prefers to harm dairy farmers around Gaza … and reward dairy farmers in Poland.”

Farmers and cooperatives also argue that opening the market could threaten national food independence. Once domestic capacity declines, restoring it could be costly or even impossible.

Political and regional stakes

Lawmakers representing agricultural districts in the Negev, Galilee and Jordan Valley are wary of reforms. Dairy farming supports local employment and economic development in regions still recovering from the two-year aftermath of the Oct. 7 war. Some coalition members, particularly from ultra-Orthodox and rural constituencies, have voiced concerns about reducing protections for domestic producers.

The Finance Ministry says that the import waiver is temporary and limited. Officials hope this trial will show whether modest liberalization can lower prices without undermining domestic production. The coming months will test whether imported milk can provide immediate relief while balancing long-term industry stability.

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