Russian embargo may lead to circular debt in the Hungarian food sector

According to Balázs Vanek, country manager of Atradius Credit Insurance the embargo Russia not only causes a loss in revenues to Hungarian agri-food companies, but also results in losing market in the long run. Atradius’ estimation is that – based on data from 2013 – Hungarian agri-food companies may lose HUF 24-25 billion in export sales because of the Russian ban, but if things turn to the worse up to 50 percent of Hungary’s HUF 60-62 billion-strong food and drink export to Russia may be lost. It is true that the EU pays compensation to food industry companies struck by the sanctions, but the budget for all member states is EUR 400 million, so Hungarian firms are afraid that they won’t get full compensation. Data from the Atradius Payment Practices Barometer shows that the main reason of late payment between companies is the lack of available resources (in Hungary this ratio was 60.7 percent with domestic transactions and 33.3 percent with international transactions in 2014). Consequently, falling revenues can easily lead to a worsening in the payment discipline of companies, resulting in circular debt we know so well from the building and construction sector. Atradius’ experience is that Latin American companies are becoming rather active in the Russian market lately, for instance in August the Russian health authorities gave a green light to the products of 87 (!) Brazilian meat processing plants and 2 Brazilian dairy companies are now also allowed to export to Russia. In this new situation Hungarian firms will be forced to do business with new partners, some of which may be risky – they better learn about their payment practices and financial situation and use effective debt collection services.