Tnuva Shuts Down One of Its Two Remaining Milk Bag Production Lines Amid Industry-Wide Shortages

Tnuva, Israel's largest dairy company, has decided to close one of its two remaining milk bag production lines, significantly reducing the supply of the country's cheapest type of regulated milk. Despite the ongoing war in the south and military tensions in the north, Tnuva's move appears to be a strategic business decision, with widespread implications for consumers.

50% Reduction in Milk Bag Production

Over the past few years, Tnuva has gradually scaled back its milk bag production. From four operational lines, the company had already reduced its production to two lines last year. Now, Ynet reports that one of the two remaining lines, capable of producing between 500,000 and 750,000 liters of milk weekly, has been dismantled. This represents a 50% reduction in Tnuva's milk bag production. For context, the amount of imported milk by supermarket chains, permitted by government policy, reached a peak of just 100,000 liters per week.

Concerns Over Local Supply and Holiday Demand

The local dairy industry is grappling with challenges, including threats to production from the Golan Heights due to northern conflicts, as well as restrictions preventing other dairies, such as Tara and Strauss-Yotvata, from producing regulated products. With holidays approaching and demand for milk typically spiking, there is growing concern that Tnuva's decision will exacerbate an already fragile supply chain.

A source from the dairy industry expressed skepticism about Tnuva's ability to shift surplus milk production to carton lines, as some hoped. "While Tnuva has established a new line for milk in cartons, it’s not yet operational, and it’s unlikely to replace the bagged milk line," the source said. This adds to worries that a milk shortage is inevitable in the coming weeks.

Price Implications for Consumers

Milk in bags is a price-controlled product, making it more affordable than milk in cartons or other fortified dairy products. The price difference is substantial, with 3% milk in bags costing 6.21 NIS per liter, compared to 7.11 NIS for the same product in cartons—a 14% increase. The gap for 1% milk is even larger, with a carton costing 18% more than a bag.

If Tnuva's production cut results in a shortage, consumers will likely be forced to pay more for carton-packaged milk, further straining household budgets. This comes at a time when Tara Dairy, another major player, has already exited the milk bag market and shifted to selling higher-priced fortified milk products, leaving Tnuva as one of the few remaining producers of affordable, state-regulated milk.

Sweet Cream Shortages and Market Disruptions

In addition to milk shortages, the dairy industry is also grappling with a significant deficit in sweet cream. According to Storenext data, Tnuva controls 89.4% of the sweet cream market, but Tara Dairy's withdrawal from producing regulated products has led to a 38% shortage of 38% sweet cream. This shortage is expected to worsen during the upcoming holidays.

Despite Tnuva reportedly increasing sweet cream production in 2023, the exit of Tara from the market, combined with industry-wide staffing shortages, has exacerbated the situation. Consumers are now faced with higher prices and limited availability, further straining the dairy supply chain.

Looking Ahead

As the holiday season approaches, Israel's dairy market is bracing for further disruptions. Tnuva's decision to cut milk bag production adds another layer of complexity to an already precarious situation, with consumers likely to face rising prices and product shortages in the coming weeks.