Food sector waiting for reforms

Well-known experts of the food business, including József Gráf. Minister of Agriculture and Rural development and Péter Futó, chairman of Futureal Holding and of the National Association of Industrialists and Employers, discussed future prospects at the second Business Dinner organised by Trade Magazin and Lánchíd Klub. László Hovánszky, vice chairman of Lánchíd Klub noted in his opening address that relations between retailers and food processing enterprises had improved since last year. András Köves, a member of Lánchíd Klub mentioned that the age of rising agricultural prices has arrived. He believes that food processing enterprises are caught in the crossfire between farmers and retailers. Rather than increasing their prices, companies in the food industry are trying to cut costs. According to József Gráf, minister of agriculture and rural development, the EU is beginning to realise that food has become a strategic commodity. This is why it is important to use the HUF 1300 billion available for funding development most effectively. HUF 90 billion is available for subsidising companies in the Hungarian food industry. Only the largest enterprises are excluded from subsidies. The maximum amount available for a single project is HUF 400 million. The modernisation of production has already begun in Hungarian agriculture, while the reduction of production was still the number one priority in the EU. Significant growth is expected in the fruit, vegetables and animal husbandry sectors. Peter Futó spoke about the position of the food industry. He noted that while multinational companies can expect a profit rate of 4-5 per cent, smaller enterprise can feel lucky if they achieve any profit at all. The average profit rate in the food industry is 2-3 per cent per revenues. According to József Gráf, the poultry and swine sectors are in the most difficult position. However, overall profits in the agricultural sector amounted to HUF 150-160 billion last year. Péter Futó believes that the bargaining position of the food industry is very weak, as most Hungarian enterprises are too small. While only 10 per cent of family income is spent on food in wealthier EU countries, this figure is 34 per cent in Hungary, which means that any price rises lead to a reduction in demand. Prospects for the export of fresh fruits and vegetables are bright, but supply is limited at the moment. According to Péter Futó, a tax reform would be the starting point for inducing economic growth. This would mean essentially a reduction in employment related costs. Experts agree that a tax reform is inevitable. Ferenc Kuti, a member of the supervisory board of Globus Zrt. noted that since food is a strategic commodity, it deserves more attention from the government. Péter Futó criticised the strong HUF as an obstacle of increasing exports. He also mentioned the problems of the welfare and pension systems. The issue of selling agricultural land to foreigners was brought up by Béla Fischer, CEO and chairman of Magyar Cukor Zrt. He noted that that the rising price of land will also start driving food prices up soon. From 2011, foreigners will be able to buy land freely in Hungary, which means that the five parties in parliament should reach an agreement on new legislation this year. However, negotiations have been broken off by the opposition. It would be desirable if the 300 hectare limit on land ownership could be lifted or increased.