Who should own the food trade? Hungarian farmers to be put in a better position

English2020. okt. 31.Növekedés.hu

Farmers’ ownership in the food trade may be back on the agenda if the government is willing to work out a “new deal” for the agricultural economy. Many people hope that a new comprehensive concept will help to improve the market position of domestic food products in retail chains. However, even the best case scenario would mean that it will take farmers decades to reach a real commercial breakthrough.

A long-held ambition of Hungarian food producers could be realized if the government put the creation and implementation of a totally new agro-economic strategy on the agenda.

Although several similar concepts have emerged recently, it was Government Commissioner János Lázár who publicly expressed the view that a comprehensive “new deal” would be needed in the sector, with the primary aim of ensuring better development opportunities and also strengthening market positions of the market participants.

Agriculture Minister István Nagy after his appointment in 2018 made Hungarian farmers’ ownership in food chains one of his top priority goals.

According to him, the first step should be to increase the proportion of farmers’ ownership in the food industry, which supplies retail chains.

When talking about the need for a new deal, János Lázár made his point very clear, saying that  

if 80 percent of the food processing industry is nationally controlled, then we will be able to say that 80 percent of the food consumed will be of Hungarian origin.

As növekedés.hu reported earlier, with this statement the government commissioner referred to the 80-20 percent rate that, according to sectoral and political expectations, should prevail in key food products in favour of domestically produced goods over foreign products, as the same ratio today is 70-30 percent at best.

If a larger part of the product line were in Hungarian hands, it would definitely make this transition easier; however, there is another reason for strengthening domestic positions.

This is the so-called sharing ratio, which expresses how the profit from the production and sale of each food product is divided between raw material producers, food manufacturers and retailers.

In this comparison, producers are in the worst position while retailers are in the best, so it is reasonable to believe that farmers could make much more profit if they acquired ownership first in food processing companies and later in retail chains.

The question of how this could be achieved is not self-evident, though.

István Nagy even said that one of the biggest challenges of the future would be to achieve that farmers get a higher share of the profit from food processing.

In the future, however, it would be the profit from food processing plants owned by producers that would primarily enable them to buy retail chains in 20-25 years, and ensure a more stable market for Hungarian products than today.

Of course, it is not yet known which retail chains could be purchased at all, or whether new domestic chains should be established. It also remains to be seen whether producers who have become owners would have enough capital to run the food stores or whether they would need substantial extra state and bank resources to do so.

In any case, it is undeniable that this year’s coronavirus epidemic has also drawn attention to the strategic importance of the food economy also in terms of national security, and shown how crucial it could be to further stabilize domestic agricultural production and the food supply.

The strengthening of domestic ownership positions could also be an important tool for this, and at the same time it could contribute to the decrease in food import, which increases vulnerability.

According to the latest report by Trade Magazin, CBA, Coop and Reál, all Hungarian-owned retail chains, are still among the largest in the FMCG sector, but last year with their annual turnover of 400-650 billion forints (1,1-1,8 billion euros) they could only rank 4th-6th.

The first place was taken by Tesco with 740 billion, the second by Lidl with 685 billion, the third by Spar with 679 billion annual turnover, and Aldi, Auchan, Penny and Metro, which are all foreign chains, are also in the top ten in the food trade.

As for future prospects, it is not very encouraging that in the recent period Hungarian store chains have shrunk, while foreign discount chains have gained ground; especially Lidl, which jumped to second place.

Seeing this trend, domestic food suppliers fear that imported products may gain much more space in foreign chains, which could not only cause a market loss for Hungarian producers, but can also drive down prices. Increasing competition would slow down or hinder the growth of food companies, so it would not help the implementation of the concept aimed at bringing farmers together and helping them acquire ownership in the food processing and retail industries.