Extraordinary snapshot – domestic food industry in 2007

The well known and grave problems of the Hungarian food industry continued to exist in 2007 and no major positive breakthrough took place. Domestic purchasing power is in decline, while the prices of domestically produced plants and some animal products are soaring. Retail chains have the power to keep consumer prices low and refuse to accept the increases in costs which suppliers are forced to bear alone. Unfavourable new developments also took place in 2007. As a result of frost and drought, the quantity of domestically produced plant products dropped, while prices rose owing to the globally growing demand for both food and bio-fuels. This has had an adverse effect on swine and poultry breeders and the production costs of such meat products. At the same time, the EU market was flooded with cheap Polish and Danish pork. Domestic producers of plant products took advantage of the global price rise by exporting their products. As a result, the price of plant products rose by 63.1 per cent in 2007, whereas that of livestock and animal products only rose by 6.7 per cent. The average consumer price of food was 11.6 per cent up in November 2007, compared to the previous November. The increase in suppliers’ prices accepted by retail chains was far below the increase in their production costs. Up to 50 per cent of the increase in prices charged by suppliers actually boosted the profit of retailers. Profitability and competitiveness of the domestic food processing sector is expected to continue deteriorating this year.
The production volume of the domestic food industry dropped by 2.4 per cent in the first ten months of 2007. Demand has been shifting towards cheaper products. Export shows an increase of 6.6 per cent for the same period, but this cannot compensate for the drop in domestic sales. The export of products intended for production of bio-ethanol and with no added value shows dynamic growth. Productivity showed some improvement in 2007. Unfortunately, a number of foreign owned production facilities were also closed down. The number of employees in the food processing sector dropped by 3.2 per cent during the first ten months of 2007. The present situation is critical. Many things need to be done. One of these would be to replace short term priorities with longer term ones. There should be incentives for closer co-operation between domestic agricultural producers and food processing enterprises. International manufacturers and suppliers which have substantial surplus production capacity are also a part of the problem because they are ready to sell their stocks at prices below production costs, in order to force competitors out of the market. The only priority for retail chains is price, which means they are partners in this. Government measures would be needed to ensure that the prices of domestic agricultural produce are kept in line with domestic purchasing power. Government subsidies would also be needed to finance innovation and accessing markets.