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Moshe Ronen  Letter 05  25-Mar-2000  The fallacy that higher volume lowers costs
"There can be no mistaking that the increased cost of kosher certification does not vanish, but must ultimately be entered on somebody's balance sheet as a loss." � Lubomyr Prytulak

March 25, 2000
Moshe Ronen
National President
Canadian Jewish Congress
100 Sparks Street Suite 650
Ottawa, Ontario
K1P 5B7

Telephone: (613) 233-8703
Fax: (613) 233-8748


Moshe Ronen:

Does the kosher business answer the objection of higher cost to the consumer by means of a fallacy?

The kosher-certification business answers the criticism that kosher certification raises prices by means of the widely-repeated argument exemplified in the two instances below:
Some criticism has been raised that the expense of kosher certification � plus the cost of running a plant partially or completely in keeping with the dietary laws � adds to the price of the certified foods paid by all consumers.

The response from marketers of these products is that certification, like advertising, increases sales, lowers the manufacturing cost per unit and thereby reduces prices.
Leonard Sloane, "Calling It Kosher: How to and Why," The New York Times, 18May75, p. F3.

Must a food manufacturer charge more money for his product to cover the cost of Kosher supervision?

Almost never.  The actual cost of supervision is generally minimal.  The increased sales which are generated by the Kosher certification program more than compensate for the additional Kosher related costs.
Union of Orthodox Jewish Congregations (OU) web site at http://www.ou.org/kosher/kosherqa/supervis.htm#6

However, if adding kosher certification to, say, the aluminum foil of Manufacturer A raises sales of Aluminum Foil A (a supposition that I make for the sake of argument, implausible and close to unprovable though it is), then surely this will mean reduced sales of non-kosher Aluminum Foil B, and thus increased cost per roll of Aluminum Foil B.  The aluminum-foil purchasing public taken collectively, then, is not benefitted, but rather is burdened by having to bear the cost of kosher certification.  Furthermore � paradoxically and inequitably � the burden of higher cost falls upon the shoulders not of the kosher consumer, but of the non-kosher.

If, furthermore, Manufacturer B, in order to maintain competitive pricing, fails to pass along his increased costs to his consumers, then he must take these costs out of the salaries of his employees, or out of their benefits, or out of company profits � but there can be no mistaking that the increased costs of kosher certification do not vanish, but must ultimately be entered on somebody's balance sheet as a loss.

Should Manufacturers A and B (assuming that they are equivalent in size and together monopolize the aluminum-foil market) both pay for kosher certification, then the surcharge imposed upon the aluminum-foil purchasing public doubles, neither manufacturer is able to use kosher certification to lure customers away from the other, and so no alteration in sales volumes from pre-kosher-certification days seems possible.  If it were to be argued that kosher certification of all aluminum foil would increase the public's use of aluminum foil (and in this way produce the higher-volume-lowers-costs effect), then it could be answered that the public would have less money to pay for other products, say non-kosher paper towels, such that reduced sales of non-kosher paper towels would lead to higher prices for them.  Again, we note that it would be the purchasers of non-kosher products that would end up subsidizing purchasers of kosher products.

The negative impression that your answer might try to correct here is that there is no escaping the conclusion that when kosher certification siphons money out of the economy, it truly does come out of somebody's pocket, most likely the consumer's, and cannot be compensated by the higher-volume-lowers-costs effect except in circumscribed cases, but not when bringing the larger economy into the equation.



Lubomyr Prytulak
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