Food industry in Hungary
EU accession Expected and unexpected consequences
New challenges,new opportunities
On May 1st 2004 Hungary became full member of the European Union.
Joining the EU brought a number of profound changes that influence
the production and market environment in the food industry. Firms in
the sector must adapt to these changes. Joining the EU was preceded
by various kinds of anticipation, some of which turned out to be false.
At the same time some unexpected consequences occurred.
By joining the EU Hungary became affected by the free movement of
products, capital, and the free movement of labour. This involved the
disappearance of customs procedures and subsidised EU exports, the
westward movement of qualified labour, and large scale company fusions.
These circumstances did not result in significant changes in the
price level of foodstuffs and price rates in general, although in the
case of some products changes did occur. Food prices did not surge,
moreover in the case of some products prices even fell. A decrease
occurred in the price of dairy products because of the import competition
of other New Member States. As a result of joining the EU the
market structure of the food industry and commercial activity is undergoing
changes. Hungarian companies are expending their reach
beyond the country’s boarders, while strategic alliances with new dimensions
Joining the EU did not only bring challenges, but it also brought plenty
of new opportunities for the Hungarian food industry. The need for
modernizing machinery, as well as the need for the modernization of
technology and supplementary business processes (marketing, brand
development and management) is becoming ever so clear. At the
same time the favourable supply of natural endowments, the traditional
importance of the sector, and comparative advantages that
characterize agriculture and the food industry in Hungary mean these
sectors will keep their importance in the long-term. At the same time
purposeful policy is indispensable to increase the competitiveness and
solve the structural problems of the Hungarian food industry.
1. Trends in the European Union and in the region
WTO Doha round and the EU
For the Member States of the European Union the development of the
Doha round of trade arrangements is a key issue from the food industry’s
point of view. The EU presently distributes 75 million dollars of
trade distorting production subsidies, which represents a higher level
than the production subsidies used in the United States. The Hong
Kong meeting of the World Trade Organization to be held in December
2005 will be a key point in order to meet the goals of the Doha development
agenda. Therefore as the year’s end is approaching the pressure
increased to reconsider the structure of production subsidies, and
trade-distorting tariffs used in the union. Some tariff reductions are
sure to occur, but the real thing that matters is the scale of the reduction.
The tariff ceilings used today are significantly higher than the
prices used in reality. If only a small reduction occurs in the tariff ceiling,
it will not have an effect on prices, and as a result free trade will
not gain more ground. The EU wants to leave 8% of its products out
of the tariff reductions, which would be unacceptable for the other
participants of the negotiations.
measures that must be put into effect.
2. Evolution of the sector in Hungary
Decreasing volume of sales
Decisive role of domestic sales
The growth of the volume of production and sales in the food industry
in 2005 remained below the level of growth experienced in manufacturing
and industry as a whole, just like in the previous year. Volume
of production and revenues in the food industry were following a decreasing
trend in the first quarter. Between April and May a stronger
improvement was observed in revenues, while a weaker improvement
occurred in the volume of production. After May, both indicators
started to worsen, and by August they were both below levels observed
in the beginning of the year.
Despite the strong external orientation of the Hungarian food industry,
domestic sales also play a decisive role. Domestic sales reached
their maximum in June (later than exports) in the period between
January and August 2005.
Live animals and cereals (unprocessed goods) represent the largest
share of Hungarian food exports. In 2004 5.1% of all exports to the
EU-25 were related to the food industry, while the share of food exports
in all exports to all non-EU countries amounted to 9.3%, and to
European countries that are not members of the EU its share reached
12.8%. Therefore a larger share of food exports is flowing towards
countries where the pay setting happens in dollars. As a result, the
weak dollar had a detrimental effect on Hungarian food exports during
Income from foodstuffs exports was the highest in May (during the
period between January and August 2005). Income from food industry
exports was following a trend just opposite to income from exports of
industry as a whole and the processing industry (moving side by
side). Export income from the food industry was highest in May (between
January and August 2005).
Production in the branches of the foodstuffs sector
As for the production of food processing industry branches, volume of
production of meat processing and packing increased by 13.3% in the
first eight months of 2005 compared to the same period of the previous
year. However a drop was experienced in poultry processing, and
the production of meat and poultry products. A favourable tendency
was experienced in sugar production. Domestic sales increased by
62%, and exports grew fourfold in the observed time period. Soft
drink production and sales (domestic sales and exports) increased by
more than 10%. However the drop in tobacco production became
Apart from sheep breeding, there was a fall in the number of animals
bred in all branches of livestock breeding, in the year to the day of
joining the European Union. The fall was more pronounced in the case
of individual farmers (apart from cattle breeding). As for sheep breeding
the upsurge was stronger in the case of individual farmers.In the time period between December 1st 2004 and April 1st 2005
there was a clear increase in the number of chicken and sheep stock,
while cattle stock only increased steadily in the case of individual
farmers. The drop in the pig stock has been a characteristic tendency
since the end of 2004. Individual pig breeders are on average more
affected by this trend.
3. Market structure
Two-thirds of the Hungarian food industry is in foreign
hands Changes in the list of companies (according
to turnover) Mill building in Csorna, as a greenfield investment
More than two thirds of the Hungarian food industry is in foreign
hands, and one third is owned by Hungarian individuals or Hungarian
companies. A large proportion of the meat and poultry processing industry,
fish and game processing, vegetable and fruit processing, mills
and the baking industry is in Hungarian hands.
The list of the twenty most important Hungarian firms in the food industry
changed significantly between 2002 and 2004. Many companies
among the "top twenty" in 2002 were no longer on the list in
2004. One such company is Zwack Unicum Rt. Companies in the tobacco
industry (BAT Pécsi Dohánygyár Kft., Philip Morris Magyarország
Kft.) experienced significant revenue falls. After being in the lead
in 2002 they could only make it to the end of the list in 2004. In the
observed two year period Nestlé Hungária Kft., Coca-Cola Beverages
Magyarország Kft., and Sága Foods Baromfiipari Rt. moved up on the
list, after the occurance of substantial revenue gains.
Although the mill industry faced significant losses in the year following
EU accession, in the summer of 2005 Pannonmill Rt. (connected to
Raiffeisen Group) built a new mill as a greenfield investment in
Csorna. The new Csorna mill is capable of grinding 100 thousand tons
of grain per year. The investment made in Hungary is supposed to
contribute to the leading European place of the Austrian Raiffeisen
Increasing concentration in the meat processing industry
The agrarian companies of Mr. Csányi
Increasing number of discount chains
Group in the mill industry. This is a good example of the large scale
strategic alliances emerging in Europe in the food industry, and their
impact on Hungary. The leading Hungarian company in the sugar
processing industry (Magyar Cukor Rt.) is also a part of a larger Austrian
alliance, Agrana Group.
During 2005 increasing concentration was observable in the meat
processing industry. As a result three important actors emerged in the
industry, who now together own 60 percent of the meat processing
capacity in Hungary. The three leaders are Délhús (owned by Mr.
Sándor Csányi), Carnex Group (belonging to Mr. Péter Mónos) and
the R-KO-N Group of Mr. Gyula Román. However the consolidation
process in the meat and poultry processing industry is far from over.
The future of Gyulai Húskombinát and Zalahús is still unclear. The
present market structure will be influenced by the sale of these companies.
The aim of Mr. Sándor Csányi (who is also successfully increasing his
share in Pick Szeged) is to create a vertically integrated concern. He is
planning to amend his group of companies now consisting of Dalmand
Mezõgazdasági Rt., Délhús, Új-Mizó, Csányi Pincészet, and Sole by
buying a commercial chain. Mr. Csányi’s investments in the food industry
contributed to the increase of concentration in the milk and the
meat processing industry. As the owner of Új-Mizó and Sole, 25 percent
of the milk market falls under his influence.
In line with the tendencies observed across Europe, discount commercial
stores and gaining more and more ground in Hungary as well. The
four most important chains present in the country are Plus, Penny,
Profi, and Lidl. They together operate 387 discount stores. Hungary is
classified by analysts one of the best places for commercial investment,
therefore the appearance of new discount chains can be expected.
Aldi, the main competitor of Lidl, started building a new logistics
centre near Biatorbágy in the summer of 2005. Aldi is still leading
the German discount market, but on the European level Lidl already
took the lead.
4. Short and long term prospects
Ways to improve competitiveness
Characteristics of large food processing plants
Further concentration and specialization is expected
SMEs in an unfavourable position, unused capacities
The most important structural problems of the Hungarian food industry
are the following: low exploitation of capacity, lack of sufficient
specialization, low productivity of workers, and lack of modernizing
Competitiveness could be increased with the following instruments:
• Structural development
• Innovations for reducing production costs
• Development of innovative products, and more processed
• Development of methods for using different marketing channels.
Multinational companies, and large Hungarian firms own almost all
plants in the Hungarian food industry. These (about 200) firms have
the means to comply with changing market conditions. They already
meet all the European quality, hygiene and food safety standards.
Their market position is continuously strengthening, and they play a
determining role in foodstuffs exports and serving local markets. They
primarily use Hungarian raw material. Their suppliers are farmers who
are able to meet high quality standards and have high discipline regarding
In the near future it can be expected that the sales of companies, or
parts of companies is going to continue. New investors will turn up,
and old ones leave. This process is a result of globalisation in the food
industry, tendencies of concentration and specialization. If the Hungarian
food industry wants to be competitive, it has no choice but to
be part of this process.
The outlook for the rest of the firms (amounting to about 8 000) in
the Hungarian food industry is considerably gloomy. A part of this
group consists of small and medium-sized enterprises that are not
able to compete with multinational companies. The other part of the
group is made up of companies that have considerable unused capacity
resulting from narrowing markets and fall of production. They urgently
need to be modernized, and their productivity level must also
be improved. Their sales returns and profits are not enough to cover
the expenses of modernization, however. As a result of lack of new
business possibilities, outside funds are not available to them either.
Therefore some of these processing plants will be closed in the near
future. Some of them could stay in business if they successfully
change their production to specialized, high quality products, or to
products with a national character which could be sold in the national
In 2005 the volume of domestic sales is expected to be 3 to 4 percent
lower than in the previous year. Sales returns in the food industry de-
creased by 6 percent in 2004. Earlier exports projections for 2005
reached 10 percent, however by now it is clear that this year not only
domestic, but also foreign sales will fall. At the same time food imports
will increase, especially from other New Member States of the
EU. Import of foodstuffs for direct consumption will generate strong
competition for some Hungarian products, but in the long term this
competition is not expected to push products made in Hungary out of
the domestic market. In case of some products the so called "Austrian
effect" might follow, at least in the short term. After Austria’s accession
to the EU took place, some branches of its food industry that
were earlier successful faced hard times, and had to stop production.
This could also happen in Hungary. Those branches that manage to
stay in business will be able to increase their production again in the
medium and long term. According to the Austrian experience it can be
expected that Hungarian production in the food industry will gain momentum
In the long term an increase in demand for the products of the food
industry can be expected, parallel to the increase in the standard of
living. Now the most important task is to strengthen the position of
Hungarian products in domestic markets, by producing competitive
products from high quality Hungarian inputs. Keeping food quality
standards high is very important to stay (or become) competitive in
the long term.
5. Sectoral SWOT analysis
• Hungary has good fundamentals for agricultural
activity, and food processing.
• Inputs for the food industry are available
in large quantity and high quality,
with low transportation costs.
• The food industry has a long tradition,
with relatively strong brands. Good variety
• A large proportion of domestic demand
requires domestic products.
• The domestic market is stabile.
• EU regulations have been adopted on
schedule, with sufficient time for preparation.
• The labour force is educated and still
cheap (compared to Western-Europe).
• Positive balance of payments in the
• A large part of the agricultural product
market is fragmented, coordination is
missing. Structural weaknesses
• Incoherent system of subsidization
with lack of transparency, that substantially
influences input prices. Bureaucratic
functioning of product councils,
presence of cartels on the upstream
market• Overcapacity as a result of the collapse
of Eastern markets
• Lack of capital and low technical standards
in primary production
• No links to markets, low level of marketing
• Lack of cooperation on the production
s• Ample supply of raw materials for the
foodstuffs industry. Possibility to increase
their procession level and quality
• Free capacity standing for disposal
• Growing effective demand on the domestic
market in the long run
• Growing opportunities for export since
the EU accession, free access to the
• Opportunity to regain Eastern markets
• Brand development with effective
• The concentrated retail market provides
a base for the sale of specialized
• Organic products
• Reserves in productivity
• Growing imports from other EU countries.
Without effective up- and downstream
market organization, institutional
development and modernization
imports could push Hungarian products
out of the domestic market.
• The upstream market has an oligopolistic
structure, and further increase in
concentration can be expected. Procurement
associations effectively push
down the market price of food products
(while input prices remain high).
• The price of agricultural products is
very volatile and is strongly influenced
by outside factors.
• Changes in the forint exchange rate
can have detrimental effects on producers.
• Rise in costs as a result of stricter food
safety and environmental regulations.
(c) 2001Copyrights, Hungarian Trade Office, Taipei