Stagnation at best expected for the food sector in 2009

The financial crisis has come at a bad moment for the food sector. A shortage of financing has occurred promptly, but the government hopes to keep the sector moving by subsidies totalling HUF 500 billion. Even the most optimistic forecasts for this year promise nothing better than stagnation. .There are few enterprises which can repeat last year’s results and even fewer which can produce expansion. At the time of writing this article, a number of issues still remain unresolved, including the ruling expected from the Constitutional Court about the law regulating the SPS system, or the agreement to be signed by the Ministry of Agriculture and the retail chains. Agriculture is the sector of the Hungarian economy which produces the greatest fluctuations in performance. This year, we’ll certainly see recession and an increase in rural poverty. Assuming that weather will be as usual this year, we can expect a drop of at least 10 percent in performance, following the 20 percent growth seen last year. Agriculture and the food industry have been the first to feel the effects of a shortage of financing. Global commerce in food has slowed down, with a drop in prices. The bio-fuel projects are among those which have suffered the biggest blows. The decline in the availability of financing can also threaten development projects relying mainly on EU sources. Many projects will remain uncompleted, or fail to operate in the long run, as a result of the insufficiency of the own funds of applicants. Brussels intends to amend several regulations defining quality standards which will have an adverse influence on Hungarian production of quality vegetables. The planned reform of the use of pesticides will leave many plants unprotected, putting imported products in a better position. We can be quite certain that the domestic market will not produce anything better than stagnation in 2009. Owing to the numerous factors reducing competitiveness and the pricing policies of retail chains, domestic products are unlikely to boost their market share. Agricultural export is most likely to show stagnation in terms of quantity in 2009, following a drop of 5-10 percent in 2008. It is certain to show decline in terms of value. Demand is not expected to grow in Germany or Italy, which are leading export markets. Growth in Romania, the largest export market is going to slow down in 2009, but will remain significant. Export to new EU member states might grow in terms of quantity, but not in terms of value. Overall demand for Hungarian food products is not expected to grow. Noticeable improvement cannot be expected during the eighteen months. Funds available through the Ministry of Agriculture will total HUF 483 billion this year, of which HUF 338 billion is of EU origin. The Ministry has promised to do everything in its power to help applicants in the co-financing of their projects. Another HUF 1000 billion is available for the technical development of the food sector this year. Strategic thinking is needed in order to respond adequately to the crisis. Farmers will be forced to sell the biggest part of the good harvest of 2008 at depressed prices, or wait until prices begin to rise, provided they can finance this period.