Food industry in Hungary

Sectoral Analysis

Autumn 2005


Executive summary

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

are emerging.

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.



Domestic sales

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

more pronounced.



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

Structural problems

Ways to improve competitiveness

Characteristics of large food processing plants

Further concentration and specialization is expected

SMEs in an unfavourable position, unused capacities

"Austrian effect"

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 2007.

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

Strengths Weaknesses

• 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

and quality.

• 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

long term.

• 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

Single Market

• Opportunity to regain Eastern markets

• Brand development with effective

product marketing

• 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   
匈牙利貿易辦事處台北  top▲ 
為正確顯示本站內容請用IE 5.x以上版本800x 600解析度瀏覽