Improved agriculture conditions, industry restructuring and foreign investment are increasing Hungary's competitiveness and productivity. Most of its 6.2 million hectares of agricultural land is privately owned, and large corporate and cooperative farms account for about 70% of production.
Agricultural Policy. Hungary's agricultural policy is export oriented, and export and production subsidies are common. The agriculture export subsidy system was revised in January 1997, reducing subsidies but increasing the number of commodities eligible for them. Government spending on subsidies has exceeded budgeted amounts in recent years, prompting formal complaints to the World Trade Organization by four member countries. Settlements were negotiated in July 1997.
Market forces have determined grain prices since January 1991. The government subsidizes short- and long-term loan interest, cultivation of low quality land, crop insurance, new machinery purchases and diesel fuel. To encourage forward purchases of grain, storage costs for wheat and maize are subsidized. Mills and livestock producers also get interest reimbursements for buying at least a six month supply of grains. Hungary's government also establishes intervention prices for grain; these price floors have been surpassed by strong market prices in recent years.
Hungary is a net exporter of agriculture and food products, but exports are likely to remain flat in the near future because of stagnant production. Poor weather in 1995 and 1996, combined with outdated farm and storage equipment, limited both crop yields and quality.
There is room for cautious optimism, though. A land rental system was implemented in 1996. Capital investment in the food industry (including agriculture, forestry and food processing) increased 162% from 1992 to 1996. Investment was expected to total U.S.$530 million in 1997, with U.S.$310 million earmarked for agriculture. However, investment is still inadequate in the face of decades of poor investment and limited financing, and investment remains highest in companies privatized by foreign entities.
Hungary's smallest producers have been the most critical of its agricultural policy. Now required to register their farms in order to receive subsidies, small farmers held sporadic demonstrations and blockaded roads in early 1997.
Flour Milling and Use. Foreign investment has made Hungary's food processing system one of the most modern in the region. However, the milling, baking and pasta industries have been slow to privatize, and privatization has tended to create small- to mid-size joint ventures with Hungarians as majority owners.
About 1.7 million tonnes of wheat were milled in 1995. Mills used more wheat in 1996, bringing the industry up to 60% utilization of capacity.
Domestic wheat flour consumption dwindled in the early 1990s, falling 21% between 1990 and 1995 to 84.1 kg on a per capita use basis. A reduced standard of living, loss of purchasing power, supply fluctuations and rising consumer prices all contributed to the decline. This trend already has reversed, and flour use is likely to continue its recovery as the economy improves.
The price of wheat flour jumped 65% to U.S.$0.29 per kg between 1993 and 1996, and white bread prices rose 78% to U.S.$0.43 per kg during the same period. According to the Bakers' Association, strong competition among domestic flour mills had kept the price of wheat flour steady until 1993, when some recently privatized mills gave in to price pressure. Energy, transport and industrial input price inflation tended to fuel the price hikes.
Hungary is a net exporter of wheat and milled grain products. After slumping in the mid-1990s, flour exports began to recover, moving from 57,000 tonnes in 1994 to 338,000 in the July-December 1995 period. The latter number earned Hungary the fifth position among world flour exporters in that year. Most wheat flour sales are made to neighboring countries.
Livestock and Feed. Pork and poultry dominate the Hungarian meat market, although weak domestic demand and fluctuating coarse grain prices recently have resulted in stagnant sales. Total consumer demand for meat decreased 20% in 1996, largely due to a drop in real wages.
Hog production was expected to fall 6% to 8% in 1997 following a piglet and sow export surge early in the year. Poultry production fell 7% in the first half of 1997 compared with a year earlier, and cattle numbers declined 3% from 1996 levels.
Production of compound feed in 1996 was 2.4 million tonnes, 1.8% above 1995. The Association of Feed Millers forecast a 2% to 3% increase for 1997.
Trade. Agriculture and food exports total 21% of Hungary's total exports, but the margin between agricultural exports and imports is narrowing. In 1996, total agriculture export volume fell 6.5% to U.S.$2.16 billion, with livestock, meat and oilseed export growth offsetting a drop in grain exports. Hungary's live hog exports soared early in 1997 as several E.U. countries suffered from a hog cholera outbreak.
Wheat exports were hampered by high domestic production costs and prices, with exports reaching only 400,000 tonnes in 1996, down from 1.6 million the previous season. A recovery is expected for the 1997-98 season, with wheat exports projected at 1.2 million tonnes.
After the 1997 harvest, domestic grain storage capacity was strained, and the Association of Grain Traders and Millers pressured the government to push exports. But, high domestic prices relative to world prices and depressed international grain prices have limited export sales. Freight car shortages also have slowed export shipments, with the government trying to rent cars from neighboring countries.
More than 70% of Hungary's trade is with O.E.C.D. countries, and it has free trade agreements with the E.U., Central European countries (Poland, the Czech Republic, Slovakia and Slovenia) and Turkey. Preferential tariffs were maintained in 1997 for the E.U., C.F.T.A. and GATT imports. At the same time, many GATT commodity quotas were increased and some fees were reduced or eliminated.