Fruit and vegetable production in Hungary
Analysis – Horticultural grower sectors in Hungary: What are the challenges and opportunities today?
The most picturesque photos of the Hungarian landscape always show draw wells rising out of the horizon in the the meadows and pastures of the Hungarian Great Plains, verdant green forests covering the sloping hillsides in the North and West, or hilltop castles overlooking golden fields of wheat, criss-crossed by wide, blue rivers and of course, dormant volcanoes rising above the aquamarine blue of Lake Balaton.
However, if you ask a Hungarian about the elders selling their produce at local markets, many will tell you about cherished childhood memories of sitting in the laps of smiling grandmas and grandpas, the sweet scent of ripe apples, plums, peaches and cherry, the vibrant cacophony of colors at the farmers’ market. Fruit and vegetable growing is something that Hungary carries in its bones, in its collective memory. Even though these sectors have been slowly declining for decades, the country remains a strong net exporter of fresh and processed fruits and vegetables.
The climate is changing; the international economy hides threats and opportunities. New technologies are now needed to stay in the game and demand is shifting due to an ongoing global crisis. What are the main structural strengths and weaknesses in Hungary’s fruit and vegetable sectors? We looked at the data from the second half of the last decade (2015-2019) to see the major trends - Here is our overview.
Horticulture – Overview of the fruit and vegetable sectors
Since the EU accession in 2004, the production area of fruits and vegetables in the Hungarian horticultural sectors has been declining. Still, Hungary is a net exporter of fruit products, fresh vegetables and vegetable products – With most of the export going to other EU member states. However, in the second half of the 2010s decade, trade has been declining, with the foreign trade surplus dropping by 80% between 2015 and 2019. There are multiple reasons and structural issues in the economic, societal and natural environment which can explain this pattern.
First, climate change is a real threat to fruit and vegetable growing. The length and severity of spring droughts, as well as their frequency, has been increasing throughout the decades. Also, unpredictable weather events and frosts in the spring season can catastrophically damage crops and the unpredictability of spring and summer rains, the uneven distribution of precipitation causes further problems for farmers.
Second, the international market presents its own challenges. Bilateral and multilateral agreements by the EU, as well as BREXIT, translate as real threats to Hungarian fruit and vegetable export. For example, in the case of sweet peppers, while 80% of Hungary’s import comes from the EU, there is also a considerable amount of produce coming from Serbia, Turkey, Macedonia and Morocco. In the case of fruits, Hungary has to compete with strong fruit-growing countries. Chief examples of trade competitors in the case of apples are Ukraine and Poland.
Across the southern border, as the Great Plains stretch further until they hit the mountain chains of the Dinarides, lies Serbia with its sunlit meadows and hillocks and powerful fruit production. With its annual 500 thousand tons of production, Serbia alone accounts for 24.5% of the EU’s apple import. (See more about the Serbian fruit sector in our overview here and click here to learn more about developments in 2020.) As an important trading partner for the EU, Serbia is a very strong competitor in the trade of apples as well as sour cherries.
Third, in the case of most fruit and vegetable crops, vertical coordination is weak in the horticultural sectors. Fruit production is often hindered by the fact that most orchards are aged and there is a structural deficiency in post-harvest infrastructures – Cold storages, sorting and packaging facilities. This leads to the decreased competitiveness of Hungarian producers on the international market. They are often forced to sell locally – “Pick-your-own” sales are not an unusual sight in rural Hungary, and the limited sales options can seriously diminish growers’ returns, which in turn, leaves them with less money for development and modernization.
Fourth, there is a structural deficiency in modernized infrastructure. These include the lack of post-harvest capacities as mentioned above, but also technologies in the protection against weather damages (frosts, droughts, hail, etc.). Mechanization is not uniform, and the processing industry lacks the sufficient capacity in the case of most crops.
Fifth, there is a shortage of skilled labor. Usually, farm owners, the family members who work on, and manage, the farm, lack qualifications in agricultural and business education. Fruit and vegetable growing is also an aging sector – Most farm owners are between 55 to 64 years of age. Furthermore, the general labor shortage in the Hungarian agro sectors also affects the horticultural production of vegetables, fruits and permanent crops.
Sixth, structure-wise, the growing of fruits and vegetables is very fragmented. As a country with good natural conditions for agriculture, Hungary grows a wide variety of permanent and perishable crops. However, production structures are fragmented, illegal activities are frequent and with this fragmentation comes the weakness of farmers’ collectives. Only a few effective producer organizations and groups are active domestically, and their number has been declining throughout the last decade. This lack of horizontal coordination weakens the bargaining position of Hungarian growers.
However, Hungarian fruit and vegetable growing also has strengths. There are four successful crop species which absolutely dominate the sector: Sweet corn, green peas, apples and sour cherry. Together, these cover 60% of the total fruit and vegetable growing area.
In the case of the two leading vegetables, sweet corn and green peas, vertical coordination, as well as the value chains, are stable, and growers can rely on a strong market position. However, the structural weaknesses show here as well: Throughout the past decades, vegetable growing has shifted towards species with easily mechanized growing, which are also less intensive in labor, knowledge and capital input requirements. Similarly, in the case of the fruit sectors, most of the vertical coordination capacity is centered around apples and sour cherries.
From the agricultural governance point of view, producers can apply for voluntary coupled support for fruit and vegetable growing. The average per ha payments vary between €178.5 and €369. On a policy planning level, the 2014-2020 rural development program focused on higher added value sectors, which favors horticultural sectors.
In this multiannual program, the development measure for the “building of glasshouses and polytunnel structures” operated with a financial envelope of €75.2 million, out of which, €69 million had been disbursed by the beginning of 2020. The measure for the “establishment of fruit orchards” had a financial envelope of €62.4 million, out of which, the disbursement of €31.8 million had been approved by the end of the period analyzed.
Subsidization makes up for varying shares of the production value in horticultural cultivation. In the case of sweet corn, this figure is around 17.5%, while in grean pea growing, it is higher than one-fifth, at 21%. In greenhouse tomato and sweet pepper growing, the share of direct subsidies in the product value is a negligible, marginal fraction. In the case of fruit growing, this figure is 13-18%.
While the impact of COVID-19 and the subsequent shockwaves in the global economy affected almost every sector, in fruit and vegetable growing, the crisis only had short-term effects. The wholesale markets were directly hit by the demand shock after the collapse of the tourism and HORECA sectors, which directly affected growers’ sales figures throughout 2020. This was apparent in the disappearance of Romanian and Serbian buyers in the wholesale markets.
Meanwhile, greenhouse vegetable and fruit sales decreased due to changing consumer habits, preferences on storable food stuff.
The labor shortage problem was also catalyzed by the pandemic-related border lockdowns throughout the year. Seasonal foreign workers could not enter until May, well into the growing season.
(Find out more about the effects of COVID-19 on the agroeconomy in our annual overview for 2020 over here.)
Vegetable and fruit production – Figures for major crops
Out of Hungary’s 5.3 million hectares of arable land, vegetable production and fruit growing makes up for 91.9 thousand (1.4%) and 93.4 thousand (1.7%) hectares. While these are a fraction of the total sum of available land, these horticultural sectors are high-value industries and together they make up for 10.7% of Hungary’s agricultural value output.
The most widely produced vegetables in Hungary are open-field vegetables, specifically, green peas and sweet corn. Sweet corn, arguably maybe the most successful vegetable crop in Hungary, has seen rising production figures throughout the last decade. Between 2015 and 2019, its producers saw incomes exceeding product costs by 10-30%, while in four years, the profitability of this vegetable increased by 64%, average incomes per working hour reaching €23.1. In sweet corn production, in terms of input costs, the largest item by far is machinery (31%), followed by seeds, land lease, fertilizers, pesticides and other costs – Labor only accounts for 5%.
The product value of green peas is more volatile, yet in the second half of the last decade, on average, it steadily exceeded production costs by 1-9%. In 2018, the production value of this crop dropped considerably under the five-year average, and similarly to sweet corn, the largest item in the input costs is machinery (29%).
Tomatoes and “sweet paprika” (bell pepper, sweet pepper) are also popular vegetables. These crops constitute almost one third of the country’s covered vegetable production. (Sweet peppers take up 15.5%, the share of tomatoes is 14.1%.) However, the share of greenhouse vegetable growing is low in Hungary. The total land area used in greenhouse growing was 3.51 thousand ha in 2019, out of which heated glasshouses accounted for only a fraction of the production, while the dominant method is polytunnel greenhouse growing.
The small-sized production utilizing heated greenhouses shows mixed figures. In the second half of the last decade, in the case of greenhouse tomatoes, incomes exceeded production costs by 49-84%. Still, throughout the past five years, the profitability of growing tomatoes in heated greenhouses dropped by 11%, which can be explained by rising input costs. The costs of heating and labor were particularly high in the past years, but a significant rise was also observable in the costs of seeds and fertilizer. In total, in the past five years production costs rose by 82% for greenhouse tomato production. Out of the cost structure, depreciation and labor have by far the largest share, 25% and 27%, respectively. Average incomes per working hour are around €8.4
In the past years, the value of production for sweet peppers exceeded costs by 56%-83%, with a decrease in profitability by 23% between 2015 and 2019. The average income per working hour is around €5.6. Sweet pepper follows the same trend that tomatoes do – The rising costs of heating and labor chip away at producers’ profitability, which is evident from the increase of wages and social contributions by 153% and 126%, respectively.
In the fruit sector, there is a huge diversity in the advancement of applied production technologies, which leads to a wide variety in product quality, yields and profitability. In the case of apples, on average, incomes exceeded production costs by 27%-114% in the second half of the 2010s decade. Since 2015, profitability increased by 80%, while average incomes per working hour averaged around €5.3. Meanwhile, production costs increased by around 5% throughout the years, with labor, machinery and pesticides accounting for the highest share of the costs. (Labor is currently 30% of the costs, pesticides are 28% and machinery is 16%.)
In the case of sour cherries, the multiannual data suggests that production value exceeded costs by 33%-119% over the years, with an 86% rise in profitability by 2019.Average incomes per working hour averaged around €7.53. Similarly to apples, the largest cost items were pesticides, labor and machinery (20%, 28%, and 18%, respectively).
While the fruit and vegetable sectors started slowly declining in Hungary after the end of socialism, Hungary still remains a net exporter, mainly due to the production volume in these sectors. Most of Hungary’s trading partners are other EU member states, with a €49.4 million surplus in the fresh and processed fruit trade, which makes for a decrease of 80% in half a decade by 2019.
Between 2015 and 2019, the trade income of sweet peppers decreased by 30% to €12.1, which was mainly due to the increase in the value of imports by 44.8%, while the export value decreased by 3.7% and the volume of export dropped by 26.1%. The main buyers of Hungarian sweet peppers are the Germany, Slovakia, the Czech Republic and Switzerland, with Germany alone soaking up two-thirds of the export.
By 2019, the trade balance of tomatoes showed a deficit of €12.4 million, with trade dropping by 23% between 2015-2019. The import value increased by 13.5% (volume of 15.4 thousand tons) while the export value increased by 144.3% (volume of 8.8 thousand tons) throughout the years.
In the case of apples, in the past years, multiple seasons had so weak harvest yields due to weather damages that Hungary had to rely on imports. In 2019, this led to a trade deficit of €1.3 million. While for years, the imports had been decreasing in both value and volume, the 2019 season saw a sharp increase in imports, almost returning to the 2015 level.
On the sour cherry front, Hungary remains a net exporter, however, the value of trade decreased by 31.2% to €9.7 million by 2019. In 2019, Hungary exported 10.3 thousand tons of sour cherries and imported 4.2 thousand tons. In sour cherry-based processed fruit production and export, the leading products today are frozen products (mainly to Germany, Belgium and Romania, with a trade surplus of €3.7 million), and canned products (to Germany, Austria, Belgium and Poland, with a trade surplus of €37.3 million).
Hungary has strong, historical traditions in agricultural sectors, and plant cultivation is one of the two main pillars of Hungarian agriculture today (the other being animal husbandry). However, in the horticultural vegetable and fruit sectors (including greenhouse and open-field vegetables and fruit growing), the country’s figures have been slowly declining since the end of socialism. Today, Hungary faces structural challenges – Like a lack of horizontal organization among growers, a lack of vertical integration, labor shortages and high labor costs, international competition, and environmental and weather factors due to climate change. Another important issue is the low rate of investments due to the shortage of required capital. On this front, small- to medium-sized growers are more affected. Their margins are lower, and they feel more severely the blow from a loss of income due to economic factors or weather damages, which can further postpone investments into modernization and technologies which are already gravely needed.
However, the country also has strong traditions and good natural conditions for horticulture.
There are considerable opportunities available to these sectors today. Investments into modernization and the more ecological usage of resources could help improve productivity considerably, and increased vertical integration would bring more stability from an agroeconomic perspective. Stronger cooperation would be needed to increase growers’ bargaining positions and naturally, the competition from southern, sunlit Mediterranean member states, as well as EU trade partners is strong – However, there remains a stable demand both domestically and internationally for Hungarian fruits and vegetables.
|Dit artikel is een samenvatting van een sectorrapport groenten en fruit, dat in opdracht van het landbouwbureau van de Nederlandse Ambassade in Boedapest is opgesteld. Het rapport is beschikbaar voor Nederlandse bedrijven d.m.v. een email aan firstname.lastname@example.org