Menacing shadows

According to a study prepared by experts of Kopint-Tárki Konjunktúrakutató Intézet Zrt. and AgrárEurópa Tanácsadó Kft about the current position of Hungarian agriculture and its future prospects, food prices are not expected to drop soon. As it has been explained by Zoltán Fórián, business director of AgrárEurópa, demand exceeds supply for an increasing number of products. Prices rises will continue to accelerate for one or two more years. This trend could only be countered, if the EU allowed cheap imports to enter its markets. The food industry is facing a tough period, as in addition to the rise in food prices, it also bargaining position is also getting weaker compared to that of retail chains. While total food sales are expected to drop by 1-2 percent this year, sales of the domestic food sector will be 3-4 percent lower than they were in 2007. The market shares of Hungarian companies continue to shrink. While the market share Hungarian food products had been 90 percent before accession to the EU, it is now down to 75 percent. Sales of Hungarian products were down by 7.8 percent in the first four months of 2008. No change in the strategy of retail chains is expected. The popularity of cheaper products continues to increase, with private labels benefiting the most from this trend. Regarding distribution channels, discount stores and hyper markets continue to expand their market shares. Changes are taking in the world market, with major exporters continuing to increase their weight at the expense of European agricultural producers. Production and consumption is growing at a faster rate in developing countries than in industrialised countries. The market share of Europe has dropped to 20 percent from 24 in the world market of agricultural products in the past ten years. The EU’s ability to influence prices is also decreasing. In order to keep prices low, EU subsidies are expected to rise, but this will not prevent the gradual decline of European agriculture. As problems for the food sector are the same everywhere in the EU, the solution is not likely to come from the EU. According to Márton Szabó, senior researcher of Kopint Tárki, domestic agricultural production is expected to grow by 10-15 percent this year, while added value is expected to be up by 15-20 percent. Domestic demand is only expected to show some growth in the last months of 2008. Export will be reduced compared to 2007. The rise in food prices is expected to slow down in the second half of 2008, bringing the average rate to10 per cent for this year.