Cheap food after a good harvest

According to a forecast by Kopint-Tárki Konjunktúrakutató Intézet Zrt. and Agrár Európa Tanácsadó Kft., food prices will only rise moderately this year, increasing at a slower rate than inflation. The market share of cheap products is expected to grow and consumers will get increasingly price-conscious. The number of food processing enterprises will probably drop, but co-operation between market players is expected to increase. Agricultural production was up by almost 30 percent last year compared to 2007. Profits generated by the sector totalled HUF 150-160 billion. Production has showed intensive fluctuation in recent years, owing to its dependence on weather. The profitability of wheat, maize, sunflower production dropped, while that of animal husbandry, vegetable and fruit production improved somewhat. Extreme changes took place in grain prices and even the price of unprocessed milk dropped by more than 20 percent. The shrinking of the domestic market continued in 2008, but at a slower rate. Sales generated by the domestic food industry were down by 9.3 percent in the first 11 months on 2008. Agricultural import was up by 4.6 percent in the same period. Production of the domestic food industry shrunk at an accelerating rate last year. The sugar industry accounted for the biggest part of the 7.4 percent average decrease. Production of meat, poultry, mill products, beer and wine also dropped by more than 10 percent. Domestic sales also dropped. Last year, the value of food import equalled that of export. Food prices are expected to rise slower than inflation this year. This is bad news for the food sector, because costs will continue to rise, while demand will drop. Demand for low price foods will increase, resulting in the growth of private labels and no-name products. However, demand for products in the premium segment is not expected to drop. Mid-category brands, including most Hungarian brands will face shrinking demand and employment will also be adversely effected. The situation is made even more difficult by the change in the financing policies followed by banks. The shortage and/or slowness of financing can result in a critical situation for the sector. This is why new financing solutions discussed by the Ministry of Agriculture and Rural Development and MFB and intended for the food sector are important. As a result of the weakness of the HUF, export revenues can grow, while import is expected to slow down. Though 2008 was a good year for animal husbandry in general, milk producers have found themselves in a very difficult situation recently. As a result of a decision about milk quotas made by the EU in 2007, import has soared, putting domestic processing enterprises in a very difficult situation. In 2008, an excess of supply appeared in the EU market, leading to a drop in price and sales. 12 month supply contracts with farmers have been replaced by 1-2 month contracts. Exports to Italy have dropped substantially. The domestic dairy industry is continuously losing ground.