How will the price of pork change and why are Hungarian and foreign meat processing companies fighting each other?

English2021. márc. 29.D.J.

Most small and medium-sized meat processing plants made most of their living from the catering industry. Many of these companies now either had to close completely or only operate at a fraction of their capacity, Tamás Éder, president of the Meat Association told növekedé

Players in the meat industry have been saying that there is huge competition between foreign and domestic companies, as international players enter the Hungarian market offering depressed prices. What should be done to help Hungarian companies get in a better position? 

The competition in the meat industry is really huge, as foreign companies can offer competitive prices as they take advantage of modern technological innovations and economies of scale, even if the actual production takes place hundreds of kilometres from here. One of the problems is that in the last 15-20 years, the majority of Hungarian companies have not been able to make investments that would enable them to catch up.

Lately we have seen some improvement in this respect, though.

There are also problems with the organization of the product chain. Long-term relationships based on trust between suppliers, processing companies and trading partners are still rare.

Why is that so? 

In our experience, integration is working in sectors where the VAT rate has been reduced to 5 percent. There, it no longer pays off to work illegally, so the sector has started to become clearer. We have already seen this in the pig sector. Although the number of pigs has decreased since 2014, the officially reported number of slaughtered pigs has increased by 1 million. With the 5 percent VAT rate, it's no longer worth playing tricks.

In such an environment, long-term relationships with suppliers and integration between the various players are becoming more important.

There is a growing demand for premium meat products in Hungary. What lies behind this? 

When the stores of modern, concentrated retail chains first appeared in the country, consumers followed their old instincts and bought the cheapest products. It took time for customers to understand that cheaper prices usually mean poorer quality.

There have been various educational campaigns to help this realization.

For example, we have been systematically informing consumers for years that in the Easter period stores offer an extremely wide range of smoked meat products, and different prices usually indicate differences in quality. The growth of real wages also contributed to the increasing demand for better quality products over the past decade, enabling consumers to choose more expensive goods in the stores.

What impact will the epidemic have on this trend? 

That’s impossible to foresee. On the one hand, the crisis is eroding consumer confidence, but on the other hand, because of the restrictions, people are spending less on entertainment and travel, which means they have more money left for food. These are two opposing effects and we do not yet see exactly how market processes will continue to unfold. 

There was a slight growth in food retail sales last year, so 2020 was not a bad year for big meat processing companies. But what about small and medium-sized processing plants? 

In the meat industry, these are the companies that are being hit hardest by the crisis. Most small and medium-sized plants used to live largely from the catering industry. As their catering partners have been closed for a long time now, many of the companies involved either had to close down completely or they only operate at a fraction of their capacity.

They would badly need state support if they want to survive.

The price of pork is going to rise, according to forecasts. Why? 

There have been huge price fluctuations in the live pig market, especially in recent years. The nearly 50 percent price increase in 2019 was followed by a 30 percent decline in 2020. This year we have seen a rise of more than 25 percent in one month and this trend is not expected to be over yet.

The main reason is the rise in the price of feed grain, but the weakening of the forint and the rise in energy prices also play a role here.

The appearance of the African swine fever has caused disruption in the meat market in China and also in Germany. How prepared is Hungary for the fight against the disease? 

First of all, it must be pointed out that the fact that we have managed to prevent the domestic pig population from becoming infected so far has been a huge achievement. Unfortunately, however, we could not stop the spread of the infection among the wild boar population. The higher the wild boar density in a country, the easier it is for the disease to spread. Players in the Hungarian pig sector have been calling for the overpopulated wild boar population to be reduced to the ideal level for several years.

This year, a program aiming to reduce the domestic wild boar population has finally been completed.

We hope that this will be effective as soon as possible and it will enable us to stop the spread of the virus, and later eliminate it altogether. If this happens, the Hungarian meat industry will once again have access to important markets in the Far East, the loss of which has been causing more than 10 billion forints of damage annually to the players in the sector.