Price limits

It is hard to tell yet exactly how much damage has been caused by the drought. Farmers talk about losses amounting to hundreds of billions, whereas another calculation recommended by the EU also exists. Compensation and other regional or nation-wide programs are based on this calculation. According to EU guidelines, the basis for compensation is not the quantity of produce lost, but the unrealised income. The latter amount is substantially less and can only be calculated at the end of the season. The unfavourable weather seen this year has thrown light on the fact that agricultural producers have only a single answer to a perfectly normal risk factor (the absence or rainfall) – subsidies. Or raising their prices, which is not the best answer, since imports can replace expensive domestic produce. It would come as a surprise to nobody if multinational processing enterprises made further attempts at concentrating their resources. Retail organisations are also effected by rising prices. Discount store type retail businesses become more popular, while the owners of small, independent stores will soon have to decide whether they join a chain, or go out of business. Fears are that several hundred small stores will actually close. A limit must be set for price rises and this magic limit has been defined as 20 per cent by József Gráf, minister of agriculture, though the influence of the government is limited in determining consumer prices. What the government would be able to do if the average price rise for the food products monitored by KSH reached 20 per cent, is to reduce the VAT of food products. Many expert do not regard this idea as feasible, since they believe that the big retail chains would simply pocket this extra money. József Gráf is more optimistic, he is confident that he would be able to reach an understanding with the retail chains. He also believes that we should get used to food prices rising in the long run, as the energy industry has become a new major consumer of agricultural products. In the long run, Hungary might even profit from this trend, as more and more countries realise that food is a strategic product.