Hungary, agriculture and the COVID-19 crisis

A quick assessment of the major effects of the pandemic on the Hungarian agroeconomy

Photo of a stand at a market in Budapest
©Erik
Food prices have been steadily increasing since the start of the pandemic.

Agriculture, economic effects

The spring 2020 European COVID-19 pandemic affected the agricultural and the food industry in Hungary in multiple ways. The price of food started to rise, partly due to other preexisting factors (food inflation in the EU and the ongoing inflation plunge of the Hungarian Forint), as well as weather circumstances and the immediate shopping rush by the citizens also led to temporary supply disruptions in March. The Hungarian food industry is also more concentrated on commodities and large amounts of processed food are imported. Put together with the crisis affecting supply chains, this led to the increase of the consumer price of food throughout the spring. (See our article on food here.)

Animal husbandry, one of the two major pillars of Hungarian agriculture, was affected by the crisis through disruptions in foreign markets and uncertainties around whether truck drivers could continue to work after returning from Italy. The lamb sector was hit immediately during its annual peak Easter export period. (See our article on this here.) Although the lamb & mutton trade was affected, in the end, most of the export concluded successfully. The fowl and pig sectors were also impacted, and furthermore, both faced losses due to ongoing animal pandemics (See our articles on Avian influenza here and here and on ASF here.) In the case of fowls, producers had to face competition in the EU since disruptions in global trade left a lot of European poultry meat stuck in the common market. Pork meat saw a drastic price increase, due in large part to the ASF pandemic. The milk industry was also hit by the crisis. Hungary produces and exports large quantities of milk, while importing a lot of the value-added milk products. Structural reforms have already started in the industry, and are now speed up by recent experiences.

The other major pillar, plant cultivation was also affected. Wheat and rapeseed took major blows, while maize, which is more versatile, could stay more stable. Crop cultivation also faced environmental challenges in the form of a terrible drought and spring frosts (See our articles here and here). Worst hit by the environmental factors were fruits, wheat and rapeseed. Another major issue was that similar to other European countries, there was a shortage of seasonal labor during the spring period due to border lockdowns, which was addressed in May when travel bans were progressively lifted for workers from neighboring countries, their travel subject to further police administration. The horticultural sector however, took a major blow due to the pandemic. Floriculture and small family producers lost most of their income in the spring period, and these are also the enterprises which generally have less financial reserve to fall back on for liquidity.

Smaller sectors and industries were affected in various ways. The wine industry started relying more on e-commerce while rabbit meat suffered due to export disruptions. Apiculture was affected through the price increase of raw materials but was presented a window of opportunity with the clearing out of cheaper third-country import honey in the EU. Aquaculture, and other businesses which rely on the hotel & catering industry in a major way were brought to the brink of collapse.

Governmental measures

In early March, the Government put together an Operative Board and allocated €25,8 million for crisis management. At first, planes out of Italy were not authorized to land, later planes from other infected countries were denied access and then all borders were gradually closed. On March 11, the Parliament put in effect the “state of danger”, a special legal order similar to state of emergency.

In March, the Government started deploying Home Defense Forces personnel at strategic companies and factories, which included key food retail and production companies as well. (See our article here.) The National Food Safety Office (NÉBIH) started creating procedures for freight drivers to enter the country in order to preserve food supply to the public. Between March and April, a partial curfew was also introduced.

The first policy response from the government was the March 18 47/2020 Governmental Decree, which introduced measures to halt payment duties on private loans as well as the temporary lifting of pension and social security duties in the most affected sectors. Later came the 61/2020 Govt. Decree, aimed to aid SMEs through the suspense of certain tax duties of small enterprises. In late March, Minister for Justice Judit Varga introduced an “authorization law” package, which sparked heated debates domestically and internationally. Among others, it introduced the punishment of the “crime of misinformation” and that “certain laws” could be suspended.

Starting March, the Ministry of Agriculture commenced the introduction of accelerated payment of subsidies, totaling at €343.9 million. In April, the Ministry announced a €5.52 million subsidy scheme for mitigating the pandemic effects in the pig and poultry sectors. In April, the Government unveiled a “Five-Point Plan,” with governmental payments on partial employment, a staggering €1.237 billion investment into subsidies in job creation, with investments in key sectors including agriculture and the food industry and €5.5 billion allocated for loan interest subsidies. Later in April, the Government also increased the loan ceiling on the Agricultural Széchenyi Card instrument to €569 thousand per company (details here). The Economic Action Plan (122/2020 Govt. Decree) also introduced administrative aid to agricultural companies. In the end of May, the Ministry for Agriculture introduced another subsidy package of €228.9 million aimed specifically at the disaster-struck domestic animal husbandry and horticulture and €71.53 million for an agricultural crisis management program.

Later, in April and May, the Government introduced other measures to protect domestic producers. These included a new central agricultural insurance scheme, and the 180/2020 Govt. Decree, which will penalize traders for employing “unfair trading practices” against producers.

While the economic policy measures use ample financial resources, there has been criticism about the government’s response time as well as their effectiveness in the number of people reached.

Conclusion

The Hungarian agroeconomy was affected by the COVID-19 pandemic through the disruption of supply chains, losses of export to key target markets, the increase of the price of food and major liquidity issues in small enterprises. Ongoing environmental effects (Drought, spring frosts, animal pandemics) as well as the inflation of the Hungarian Forint also catalyzed these trends.

As the shocks of the crisis have passed, the agroeconomy is returning to normal business operations. While various governmental policy tools were employed to mitigate the crisis, it is likely that there will be mid to long term effects of the pandemic in Hungarian agriculture.

Photo credit: Vásárcsarnok Market by Erik via Flickr.