Hungary Newsflash Week 43

Horticulture subsidy, agroeconomic figures, COVID-19 consequences, green policy, cereal price changes - The week in Hungarian agriculture

Today marks the sixty-fourth anniversary of the Hungarian Revolution of 1956.
The day of October 23 is celebrated as a national holiday in Hungary.
A bunch of vegetables on a market stand.
©Chris Hilbert
The increase of retail commerce in the third quarter of 2020 contributed to the gradual increase of output figures of the domestic agroeconomy. The weakening of the national currency also led to domestic agro production gaining a better position compared to import products.

€82.4 million for horticulture

The horticultural event “Vegetable Forcing Day” was held in Szentes, Southern Hungary last weekend for the 7th time and it was attended by members of the South Great Plains Horticulture Alliance (DélKerTÉSZ) as well as FruitVeB, the largest fruit and vegetable growing union and Minister for Agriculture István Nagy. The minister praised the dedication of the vegetable growers of the now 18-year-old DélKerTÉSZ alliance, and highlighted that joining forces in selling their produce, the farmers created opportunities for other sectors as well.

On October 19, a new call for applications will be announced for the modernization of horticultural production. The €82.4 million subsidy scheme is intended for the modernization of domestic vegetable producers’ cold storage, vegetable forcing and product processing infrastructures. Minister Nagy also commented that sectoral wholesale alliances play a cardinal role in Hungarian vegetable and fruit growing and that it’s the shared interest of producers and the Ministry of Agriculture to increase the efficiency of production and raise the added value of horticultural products.

The year of the pandemic – Macroeconomic figures

According to a new report by news portal Telex, the effect of the COVID-19 pandemic has had a measurable impact on the Hungarian economy based on the latest figures on the first six months of 2020 by the Central Statistical Office. One of the major effects of the crisis was a decrease in employment. By the second quarter of the year, the number of unemployed citizens increased by 59 thousand compared to Q2 2019. The rate of unemployment increased from 3.3% to 4.6%, with the largest increase (3.4 percentage points) occurring in Bács-Kiskun County in the Southern Great Plain region.

Another distinct effect of the pandemic has been a decrease in investments in the country. The aggregated value of investments in Hungary in the first half of the year was €8.95 billion, an average 3.5% decrease, however, the main contraction occurred in Q2, with a 8.6% drop in the volume of investments. 45% of investment resources were allocated at Budapest-based companies. Following a similar pattern, industrial production also took a major hit in the first pandemic months, with aggregate production figures decreasing by 37% and then 31% in April and May, respectively, with the decrease slowing down to 7.3% by June.

Tourism took a crippling blow in the first half of the year. The number of guests and the total number of overnight stays in the Hungarian tourism sector both dropped by a mean 61% this year. In June, the number of overnight stays was 75% lower than in June 2019 and the gross profit of the hotel and catering sector dropped by 59% as well. Due to changing consumer behaviors and quarantine measures, the multi-year growing trend of retail commerce also broke in 2020, however, with an overall 1.8% decrease in retail profit, the sector has been weathering the crisis relatively well for now.

Agroeconomy starts moving on from the crisis

Based on a recent study of the domestic agro sectors by Takarékbank for their composite agro index, Takarék AgrárTrend, the bank found after surveying the experience of their clients that almost all agro industries show positive growth trends in Q3 2020. This is due to an increase of retail commerce in the period and the widespread re-opening of the HORECA sectors but another main conclusion is that the integration of product chains can also help reducing uncertainty in the agroeconomy. Small producers were not well equipped to face the economic uncertainty of the pandemic, however, annual contracts for fixed input-output prices provided the necessary stability for small and middle sized producing companies to weather the storm.

The further weakening of the Hungarian Forint also affected the agroeconomy. While producers of agro products that require imported commodities faced 5-10% input price increases, the drop in the value of the national currency helped the domestic export agro sectors. The weaker Forint also hindered the import, strengthening the comparative position of domestic production.

Although the price increase of fruits somewhat aided domestic growers, this in itself could not balance out the massive losses caused by the spring frosts while vegetable growers report the challenges of changing commercial channels. Almost all sectors show growing trends however, with the marked exception of the pig sector, which is now contracting due to the ongoing ASF outbreak in Germany. Pork meat prices have already been somewhat lower before the outbreak due to the temporary closure of the Tönnies slaughterhouse in Germany.

The causes of food inflation

A recent analysis of the latest statistical figures of consumer price index changes by Csaba Héjja of the Takarékbank Agrárcentrum shows that the accelerated inflation of food prices are better explained by the African Swine Fever outbreaks of 2020 than the COVID-19 pandemic. The analysis is based on the recent findings of the Central Statistical Office which show a 3.5% increase in the overall consumer price index compared to 2019. The price of food however shows a steeper increase at 4.5%. In comparison, the mean annual inflation in the past five years was 2.8%. Based on these figures, inflation has accelerated.

In the total increase of the consumer price index, the weight of the food category was 24.96%. In weighted averages, the greatest driver of inflation was the category of meat, fish and meat products. Another steep price increase occurred in the case of fruits. The analysis concludes that the impact of ASF was greater on prices than the one caused by COVID-19.  Meanwhile, due to the panic shopping sprees in the spring, the price of non-perishable and easily storable food products also started increasing. These causes together accelerated the rate of food inflation.

Et tu, corn?

An unpleasant surprise of 2020 in the fall harvest and winter sowing season is the unexpected lower yield of corn. With its harvest now at 40%, corn yields have turned out to be 8.3 tons per hectare, however, soybeans also disappoint: With the harvest finished in over 75% of the plantations, soy yields are now between 2.7-2.8 tons per hectare, which is also lower than the expectations.

As the harvest continues, the sowing of winter crops has halted due to the recent rainy period. The longest delays have occurred in fields in which winter cereals will take the place of maize, which accounts for 100-150 thousand hectares of farmland. Currently, 60% of the winter barley sowing has been completed, while winter wheat sowing is around 25%, both being behind schedule in the season. (South of the border, Serbia faces similar issues - See more in the Serbia Newsflash over here.)

Meanwhile, the price increase of cereals has continued. The domestic price of milling quality wheat has reached €165 per metric ton, which is a 20% price increase since the beginning of the harvest season. While starch production requires 240-260 thousand tons of wheat, the milling industry also faces fierce competition from foreign markets soaking up Hungary’s export wheat, which means that the milling industry, which now has to buy at a higher price, will in turn have to increase the price of flour for the second time before the end of the year.

Tamás Petőházi of the National Chamber of Agriculture (NAK) told the news portal Agrárszektor that this is due to multiple reasons: One, harvest yields of all cereal exporting countries have been consistently lower this year, two, due to the pandemic, cereal importing countries have moved up their import purchases, putting a demand pressure on the market and three, another increase in the demand is due to a large-scale purchasing of corn by China following a decrease in the tension in the trade war between China and the United States.

A scoop of flour on a board.
©Hans Braxmeier
As the price of wheat went up by 20% since the start of the harvest, domestic mills can be expected to further increase the price of flour before the end of the year.

Consumers dislike dual food quality

Based on their recent survey, the National Food Chain Safety Office (NÉBIH) reports that the majority of consumers dislike the practice of “dual food quality,” in which similarly branded and labeled products wary in quality and composition by country. In their previous survey in 2019, NÉBIH found that 50% of consumers found a difference between similarly labeled products in which cases they found foreign ones superior to their domestic counterparts. Most found this true for sugary confectionary products.

In the current survey, 60% of respondents found it unacceptable that various producers sell products of different composition and quality but which are branded similarly. NÉBIH also comments that their own research supports the presence of the dual food quality trend. Based on their investigation of fifty-one product pairs, perceivable quality differences could be observed in twenty-seven cases.

€33 million employment program launched

The Ministry of Innovation and Technology launched a new public program for aiding young and undereducated workers. The nearly €33 million program offers employment subsidies to employers who decide to take on undereducated workers or young employees under 25 years of age.

For access to the subsidy, employers need to apply to the country district (or in Budapest, city district) governmental employment agency at which the new employee must also be registered. Employers are to receive the subsidy as a non-refundable grant. The course of the subsidized period is five months and the monthly grant is equal to 50% of the gross payment obligations of the employer (including the employee’s gross salary plus social contribution), capped at €275 per employee per month.

Walnut worries intensify

According to the largest domestic fruit and vegetable alliance, FruitVeB, Hungary’s walnut harvest yields are severely lower this year due to multiple causes. Based on current calculations, the total harvest will only amount to 3.5-4 thousand tons this year, which is around half of the harvested amount of 2019. One of the primary culprits is the recurring problem of 2020, spring frosts. However, the forced delay in the harvest due to the extremely rainy weather of the past weeks is also at fault. Still more damage can be accredited to the walnut pest species Rhagoletis complete, however the pest invasion is now only widespread in Transdanubia, in the western part of the country where one of the three major walnut producing areas, Somogy county is located. The other two major walnut producing areas are the counties Szabolcs-Szatmár-Bereg and Borsod-Abaúj, in North-Eastern Hungary.

Hungarian walnut is a niche premium product on the European market, competing with the largest producer France and the lower-price import produce out of California. Hungary annually exports 1.5-2.7 thousand tons of walnut worth between €3.6-6.9 million, and the volume of the export of peeled walnut kernels is 1.5-2 thousand tons, with a worth between €6.9-9.6 million. Walnut production is a dynamically expanding business in Hungarian agriculture. In ten years, the total area of walnut orchards grew from 3 thousand hectares to 8.3 thousand, with 5-6 thousand hectares being mature plantations.

The domestic price of walnut has not yet changed however. The price of fresh, wet walnuts is currently €1.2 per kilogram, while the producer price of walnut kernels is between €4.1-5.5 and the consumer price can range, depending on quality, from €6.9 to €11/kg.

The walnut season on the market will commence around the end of the year. In a typical Central European fashion, the dominant home-made Christmas treat in Hungary is sweet rolls – A pastry in which minced walnut shares the number one place with poppy seed.

The prospects of green policies in Hungary

A recent study by Hungarian think-tank Policy Solutions shows an in-depth analysis of the prospects of green politics in Hungary based on a survey of 1000 people. While generally agreeing with the goals of possible green policies, according to the study, the populace sees the quality of healthcare, low wages and high living expenses as the primary issues of Hungary today. This shows the impact of the COVID-19 pandemic – While a year ago only 20% of respondents found high living expenses a primary issue, 43% now lists it as one of the main problems. Other regularly high-ranking perceived problems (democracy, migration, climate change) have now been only mentioned by 10% of the respondents. Similarly, socio-economic issues have gained a higher significance as growing social inequalities and low pensions also received high ratings.

However, although the threat of climate change was less on the minds of respondents, the support for green policies was almost universal. 92% of respondents supported the transition to renewable resources, 94% agreed with energy efficient building renovation, 89% supported the higher taxation of polluting companies, while the support for reducing the VAT tax rate of organic food was 85%. The support for other green initiatives such as curbing the carbon emissions of traffic and the industry was more moderate but still dominant. 70% of respondents agreed with the environmental taxation of air travel another 70% also supported the ban of the circulation of old and polluting cars, and there was a 54% support for a carbon tax. On the topic of nuclear power the responses were divided, still, a slight majority, 57% would put a stop to the Paks 2 nuclear power plant construction.

The support for responsible consumer behavior was lower however. The majority, 57%, would not spend more money for green products and only 35% said definitely that they would. According to the study, most would not see the changing of their own consumer habits as the way to realize green policy goals. Budapest however, differs from the country average – Here the willingness to pay more for environmentally friendly products is higher than the refusal to change. (48% and 41%, respectively.) Education also plays a role in these considerations. Only 16% of the citizens with the lowest education (colloquially called “eight-years-elementary” in Hungary) would spend more on organic and 80% would not, this rate is 58% and 34% among graduates.

An English language summary of the study can be found here.

Photo credit:
"Vegetables" by Chris Hilbert via Pixabay
"Flour"by Hans Braxmeier via Pixabay