Hungary: Price caps, food retail issues

Agroeconomist analyzes the effect of the expansion of price caps

On November 9, the Hungarian Government expanded its policy of capping basic food products, adding potatoes and eggs to the list.

Agrárszektor.hu has published an interview this week with leading agroeconomist György Raskó who analyzed the situation. Both eggs and potatoes are products in which the country is not self-sufficient. According to the news site, for this reason, there is now “huge uncertainty” in these sectors because it is unknown “how long domestic supplies will last, and whether they will be replenished from foreign import or not.”

According to Mr. Raskó, in the case of egg production, retail chains will force the price decrease on producers and large producers who normally supply retail chains will have to decrease their producer prices by €0.012-€0.025/piece. György Raskó believes that this will be bearable as long as the policy will not be extended beyond December 31.

In the case of potatoes, the economist believes that domestic and imported stocks will last for months, however, in the spring the market will need large amounts of imported potatoes, most likely from Poland and France.

The portal also mentions that previously, György Raskó thought that expanding the price caps to eggs and potatoes would be a grave mistake. The economist has commented for the portal that he still finds the policy nonsense, as “it lacks economic rationale.” Furthermore, the economist added that both in the case of eggs and potatoes, as domestic production is declining, capping the price of these products will lead to more losses for the national economy than benefits.

Tesco CEO: Food price increases and market distortions caused by price caps

Zsolt Pálinkás, CEO of Tesco Globál Zrt. (Tesco Hungary) talked about the price caps and price increases in an interview with Forbes.  

Mr. Pálinkás has stated to the news portal that although “there were good intentions in the beginning,” their perspective on the price caps has shifted because “it distorts the market, artificially inflates the prices of other products, and by the way for Tesco Hungary it causes up to €27.1 million in damages.”

Mr. Pálinkás also said about the announcement of expanded price caps that these  announcements can be very disruptive to the market. Although there has been a continuous supply of goods, people jump on the freshly capped products and demand increases exponentially, inflating very suddenly. So in the end a price cap distorts market conditions and it has the effect of driving up prices by correcting the prices of other products, further increasing inflation.

Mr. Pálinkás also talked about the price increase of chicken. The CEO highlighted that due to the high demand for price-controlled chicken breast fillet, however, producers have to sell the rest of the carcass too, so they have two options: Slaughter a lot of chickens and sell the rest of the meat at a low price or balance profits and losses and slaughter fewer animals – In which case there will be little available and once the price-controlled chicken breast fillet runs out, the rest of the (not controlled) meat will be very expensive due to low available supplies. “You can’t only sell chicken breast,” Mr. Pálinkás told Forbes, “the poor animal has to be slaughtered whole, evolution can’t adapt this fast to market demands.”

National Laboratory of Infectious Animal Diseases to be created using EU funds

The establishment of the National Laboratory of Infectious Animal Diseases will be implemented with €8.1 million in non-reimbursable funding from EU sources. The University of Veterinary Medicine will be leading the consortium, Széchenyi István University told the news agency MTI on Tuesday.

The University of Veterinary Medicine, Széchenyi István University and the Eötvös Loránd Research Network Veterinary Research Institute will be the three member of the consortiums.

The development is being implemented with the use of EU funds, as a part of the government’s Széchenyi Plus program.

The establishment of the National Laboratory of Infectious Animal Diseases will be an important institution in the field of antimicrobial resistance, veterinary medicine, and food chain safety. It will also “will be important for the national economy and for public health, the announcement states.

The announcement also mentions that because Hungary has a large livestock population, the efficient monitoring, recognition and prevention of infectious animal diseases is a high priority.

Grocery retail chains expect a “subdued” holiday season

Hungary Around the Clock reports that although the country’s retail chains expect the season to be “subdued,” the high inflation value could lead to a turnover increase. In the case of Tesco, the average basket value is expected to increase by 15%.

Meanwhile, the demand for off-brand products, retailer own-brand cheaper replacements have increased. Tesco’s sales through its discount card sales promotion program has also gone up by 70%.

Sales at the discount store Penny have increased 34% y-o-y in October. Hungary Around the Clock also reports that Auchan’s sale of own-brand products, price capped goods and cheaper replacement products have also significantly increased in the share of their total sales.

In Spar, the sale of own-brand products increased from an average 25% in the past months, to 30% in October. This is in line with a trend of consumers more increasingly looking for cost-efficient options for their grocery shopping.