Focus on Hungary

by Chris Lyddon
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Landlocked Hungary’s role in the world has changed dramatically in recent years with a transition to a market economy following the collapse of communism and E.U. accession in 2004.

Agriculture is an important part of the Hungarian economy. According to its ministry of agriculture, only Denmark and the U.K. of the E.U. member states farm a higher proportion of their total area, and Hungary devotes a higher-than-average proportion of that area — at about half — to cereals.

According to the International Grains Council (IGC), Hungary produced 12.3 million tonnes of grain in 2010, compared with 13.5 million in 2009. The wheat crop was 3.6 million tonnes, down from 4.4 million, while the maize (corn) crop fell from 7.5 million to 7 million. Barley production was unchanged at 1 million tonnes.

The drop in production was the result of a wet year, according to e-mail responses supplied by Ildikó Lippai of the Hungarian Grain and Feed Association to World Grain. “Although in Hungary we have a relatively constant grain sowing area, the grain production is very changeable and highly depends on climate,” she said. “This production change is reflected in price volatility.”

According to the Grain and Feed Trade Association, the average for wheat production is about 4 to 4.4 million tonnes on 1.1 million hectares. It quoted a national statistical office figure which showed that last year just 3.7 million tonnes of wheat and 6.9 million tonnes of maize were harvested on an area of 1.1 million hectares each.

“We are a net grain exporter,” it said. “Our national annual usage is l th25illion tonnes of wheat and around 4 million tonnes of corn.”

Of that total, 3 million tonnes are for feed use and 1 million tonnes for industrial use. The milling industry uses 1.2 to 1.3 million tonnes of milling wheat a year.

“As we usually produce more than our needs, we export annually 1.5 to 2 million tonnes of wheat and 3 to 4 million tonnes of corn depending on the production,” it said. “Our main destinations are the E.U. countries like Italy, Germany, the Netherlands and our neighbor countries.

“Our annual wheat flour export is approximately 100,000 tonnes, and its destination is mainly to our neighbor countries. The import is coming from the same area, but in a smaller quantity.”

Quality can also vary, but there has always been enough milling quality wheat to supply Hungary’s own needs. The ratio of milling to feed quality wheat is 70% to 30% in an average year.

The Hungarian Grain and Feed Association made its first register of mills in 1999 and updates it every year. The data show a long-term process of consolidation, with smaller mills being the most affected. In 1999, the number of milling companies was 92 with 142 mills, and in 2010 only 63 mills are operated by 46 companies.

“Although there was a significant reduction in annual capacity, we still have overcapacity, which is the main cause of strong competition on the flour market,” it said. “A few years ago, an intensive modernization process began in the Hungarian milling industry. In some mills a technological innovation took place and a number of brand new mills were built. The 10 market leaders represent 80% of the flour market.”

Three milling companies (Diamant International Malom Ltd., Julia Malom Ltd. and Pannonmill Inc.) with foreign investment take about 30% of the market, while the other milling companies are privately or family owned.

According to Hungarian Central Statistical Office’ data, annual flour consumption is 82.9 kilograms per person. The association points to the effects of the economic crisis on the milling industry. “The bank credit system became more restricted,” it said. “Lots of banks stopped financing the milling industry, looking for more profitable activities.”

The shortage of credit meant that most of the milling companies had to change the way they did business. Formerly, they would buy 60% to 80% of their total annual raw material needs at the start of the season. Now most of them only buy their needs for the current month and do it at the current market price.

INCREASING OILSEED PRODUCTION
According to the Ministry of Agriculture, Hungarian oilseed production has increased sharply as a result of changes in E.U. legislation which triggered a switch out of sugar beets. In 2009, sunflower production totaled 1.5 million tonnes, 38% more than the year before, on an area that was 7% larger than the previous year, according to the ministry’s 2010 yearbook.

In the same year, rapeseed area increased by 9% to 250,000 hectares and the crop was 656,000 tonnes.
“Due to the larger area, this was two or three times more than in former years,” the ministry said.

ETHANOL INDUSTRY
Hungary has seen major advances in ethanol production. According to the government’s annual report to the E.U. on developments in renewable fuel production, Hungrana opened its ethanol plant, Europe’s largest maize processing plant, in 2008 with an investment of €100 million ($135 million). Austria’s Agrana International and the Anglo-US Eaststarch (Tate & Lyle and ADM) each own a 50% stake in Hungrana.

“The company processes more than 1 million tonnes of maize a year, and the plant, which employs 285 workers, made HUF 70 billion ($346 million) in revenue in 2009,” the report said.

The Hungarian parliament passed a new law on biofuels on Nov. 2, just getting inside the E.U.’s Dec. 5 deadline for renewable fuels legislation. According to a USDA attaché report produced at the time, under the new law “the share of renewable energy consumption for the transportation sector must reach 10% in Hungary by 2020. The mandated share of bio component in fuels is currently is 4.8 %.”

ROLE IN THE E.U.
Hungary joined the E.U. in 2004, and the management of agriculture in Hungary is, therefore, carried out under the auspices of the E.U.’s Common Agricultural Policy.

Hungary holds the revolving Presidency of the European Union’s Council of Ministers (the body which includes min- isters from member state governments), a role which will give Hungarian agriculture minister Dr. Sándor Fazekas, officially the Rural Development Minister, a key part to play in the ongoing discussions on the planned new round of reforms of the CAP.

Hungary is likely to remain in the forefront of European opposition to the use of biotechnology in agriculture.

“Hungary continues to reject the domestic production of GM products as the health implications are still unclear and the exemption represents an export advantage,” the ministry’s yearbook said.

Land ownership remains a controversial issue and Hungary is negotiating for an extension to the seven-year moratorium on land purchases by foreigners which expires in April.

“There is full agreement among political and professional circles in Hungary that the moratorium must be extended,” the USDA attaché said in a report. “One of the most frequently quoted arguments for the protective measure is the low market price of farmland in Hungary. After an incremental increase in 2008, as an outcome of the economic crisis, average prices of agricultural land in Hungary are still only one-third of the price for the same quality land in Austria, or one-tenth of the corresponding prices in Italy or Denmark.

The majority (70% to 80%) of agricultural land is cultivated by private farmers and corporations under leases, the report said.

“These companies (partnerships, corporations, cooperatives, etc.) privatized the assets of old-fashioned agricultural cooperatives or state farms, excluding the land in the early 1990s,” it said.

According to the attaché, the ministry has proposed lifting the moratorium for companies involved in livestock production.
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