OKSZ: Margin stop is wrong

The government announced yesterday that it would extend the margin freeze until the end of February, and even extend it to new products. The measure was not preceded by any professional consultation. “The Hungarian Trade Federation was shocked to learn of the decision, because the margin cap should not have been extended, but rather abolished,” said Tamás Kozák, the organization’s secretary general.

After the announcement of the measure in the spring, which was not supported by any impact study, Minister of National Economy Márton Nagy repeatedly stated that the condition for its elimination was a food inflation rate of permanently below 5 percent. “This condition was met a long time ago, the price increases in shops and supermarkets do not reach this level,” says the OKSZ secretary general.

According to the OKSZ, the margin cap is a measure that can temporarily mask a very real problem, the increase in the costs of food producers and processors. However, this effect will cease after exactly 12 months, and inflation will return to where it was before the margin cap was introduced, and the later the phasing out occurs, the greater the inflationary shock will be.

The margin cap is therefore only a temporary sweeping of a problem under the carpet, but it still causes losses for everyone while it makes the problem invisible. The measure will suck customers away from stores not affected by the margin cap (i.e. Hungarian chains and independent traders) because it makes products cheaper in stores with the margin cap. This is expected to trigger a new wave of store closures, the biggest losers of which will be small towns.

In addition to those who were customers of large retail chains until then, the margin cap will also lose out. Until the margin freeze, the large chains (Aldi, Auchan, Lidl, Penny, SPAR, Tesco) spent their investment budget partly on developments, partly on competition with each other, mostly on continuous promotions.

“This opportunity has been damaged by the margin freeze, because it is impossible to launch promotions, open stores, or develop stores at a loss”

– says Tamás Kozák.

The margin freeze also puts Hungarian suppliers, i.e. Hungarian producers and processors, in a difficult situation. The margin freeze limits the competition of retail chains to the purchase price, which necessarily leads to an increase in cheaper imports. Not surprisingly, the Hungarian food industry’s production is decreasing (except for one month, it is lagging behind the performance of a year ago), and this is pulling down GDP, more than 10% of retail investments are lagging behind.

“The margin freeze is bad. It does not solve, but temporarily masks a problem, namely the deterioration of the competitiveness of Hungarian food production and, as a result, the increase in supplier prices. This problem is largely caused by the government’s economic policy. This is manifested in decisions such as the special retail tax, which increases the VAT on a significant part of food from 27 to 31.5 percent, the increase in extended producer responsibility fees, or the overly hasty increase in the minimum wage. Hungarian suppliers can only manage these costs by raising prices. It was not us, but the draft sector investigation carried out in two product areas by the Hungarian Competition Authority GVH in July, which stated, that these reasons lie behind the soaring food inflation at the end of last year, and not the retail margin. We continue to recommend to the government to withdraw the margin freeze, to facilitate the contribution of trade to economic growth by creating a market-conform regulatory environment. The large food retail chains will be partners in this”

– says Tamás Kozák.