Agriculture downturn contributes to second consecutive negative quarterly GDP, Hungary in technical recession

Agriculture contributes to weak GDP in Q3 – Hungary in technical recession, forint exchange rate slips

According to the Central Statistical Office (KSH), Hungary’s GDP data from Q3, 2024 was y-o-y 0.8% lower according to raw data, and 0.7%, adjusted. While detailed data is not yet available, according to KSH, both the country’s industrial sectors, as well as agriculture, affected the country’s GDP negatively.

According to Telex.hu, given the poor performance of the domestic economy in the first half of the year, the current result is not surprising. In Q1, economic growth was 0.6%, which was a modest result. By Q2, GDP growth had already turned into the negative. With both Q2 and Q3 showing negative growth data, Hungary has entered a technical recession.

According to the Q3 KSH data, the poor growth figure was contributed by the combined performance of three industrial sectors that together make up one-third of the nation’s economy: Agriculture, the manufacturing and processing industries, and the construction industry. These contributed approximately 2 percentage points to the decline. We have reported in September how the effects of this year’s summer drought had started to show up in the country’s macroeconomic performance in the data from Q2.

One major factor in the decline was a lull in the electric vehicle industry. Ongoing issues in the German economy also caused ripples in Hungary since the Hungarian economy is very dependent on Germany, its primary export market. Telex.hu added that this year, the budget deficit is also enormous, so the government has to cut spending, and in turn, public investments cannot stimulate the economy like they usually do.

Hungary’s national currency also took a hit from the news, and fell to a 22-month low against the euro, with an exchange rate of 406 forints to the euro.

A new plan against desertification in the Hungarian Plains

The portal Válasz Online has reported on a new policy plan to develop the country’s water infrastructure to stop desertification caused by Hungary’s changed climate.

In a discussion in Hungary’s National Assembly, Gábor Czepek, parliamentary state secretary of the Ministry of Energy has stated that The "Water to the Landscape!" program, worth approximately €1.18 billion, is being launched in the Upper Tisza region. The comprehensive planning has already been completed, and the first phase, valued at about €53.95 million, is now underway. The River Tisza is one of the major tributaries of the Danube, and Hungary second-most important river. It cuts straight through the Great Hungarian Plain and flows into the River Danube in Serbia. With the landscape water retention program, in the Upper Tisza region, over a hundred interventions are being implemented to support local water retention.

Another program targets the Homokhátság (Sand Dunes) area of the Danube-Tisza Interfluve region in Central Hungary. It has been documented for years that this region is affected by aridification. According to the new plans, the region's water needs—affected by increasing desertification—will be addressed through pumped water transfer systems and new high-elevation reservoirs. Another program with a total investment cost of approximately €4.32 billion is about to commence in the region.

Farmer numbers “dramatically declining”

The newspaper Népszava reported this week that the number small scale farms has “drastically declined” in Hungary as more and more subsidy is directed towards large-scale producers. Based on data from the Central Statistical Office (KSH), the portal reports that in June, 2023, 198 thousand farms operated in Hungary. Between 2020 and 2023, the decline in the number of farms was 18%, however, compared to 2013, the number is 33% lower. The largest decrease was observed among animal farms.

According to the data, the number of farms with a standard output of less than €4,000 has decreased the most, by 54%. The number of farms with an output between €4,000 and €8,000 has also decreased, by 28%. In contrast, the number of farms in the three largest size categories has significantly increased, raising their share from 11.9% to 27.9%. In the case of the €100,000-€500,000 output value bracket, the number of producers more than doubled (135% increase) in a decade.

While in 2013, farms in the two lowest size categories accounted for 80% of all producers, by 2023, this proportion has decreased to 61%. In contrast, the share of farms in the two largest categories those with outputs above €100,000 and €500,000, respectively, has increased from 2% to 6.6%. The portal concludes that, considering the changes in the ownership structure and the increase of the share of large farms, the data shows that as the years pass, more and more of the agricultural subsidies pour into large-scale farms, while small farmers are receiving less and less.

Soy proving more profitable than sunflower or corn

Agrárágazat.hu reports that as opposed to Ukraine, in Hungary, soy harvest yields will probably further drive interest for the crop as the average was 2.3 tons per hectare which is comfortably above the profitability margin, and while in previous years, yields were higher with 2.6-3 tons per hectare, the soy production area will likely continue to increase in the country.

The total production area was 112 thousand hectares this year according to the portal, out of which, 80 thousand hectares have been harvested. The price of soy is above €417.06/ton, which means that the crop breaks even at around 1.5 -1.7 tons per hectare, and produces a profit at over 2 tons.

Agrárágazat.hu highlights that this profitability is very viable especially in comparison with sunflower and corn. The expected average corn yield is projected to be 5.4 tons per hectare this year, which, at a price of €171.7 per ton, translates to roughly €932.2 in revenue for every hectare of corn. This will likely not break even as production costs which include drying, are climbing to around €1,100-€1,230. Sunflower is expected to have an average yield of 2.5 tons per hectare, and its price of €368/ton is unlikely to cover expenses exceeding €907.7/ton.

Hungarian plans for nature conservation

Minister for Agriculture István Nagy has stated at COP16 in Cali that Hungary is planning on implementing multiple important nature conservation investments until 2029. Mr. Nagy also stated that “in the past fifteen years, Hungary has invested a significant amount into biodiversity protection,” reported Agrárszektor.hu recently.

In his speech, the minister added that one-fifth of the land area of Hungary has a nature protection status, and through nature conservation investments, over around 15% of the protected area, which is around 300 thousand hectares, the natural environment has been improved. €300 million has been spent on improving the country’s nature conservation infrastructure. According to the minister, another 100 thousand hectares will be affected by future nature conservation investments until 2029, and “of the €119 million subsidy package, more than 70% will be spent directly on nature restoration and nature conservation infrastructure development.”

The minister reminded that the Kunming–Montreal Global Biodiversity Framework was adopted two years ago, and its implementation is now paramount. A press release from the agriculture ministry stated that the “Hungarian EU Council presidency aims to adopt a solid, effective, transparent, and clear assessment system at the 16th Biodiversity Summit to monitor the implementation of the global strategy. Furthermore, we must work together to ensure that the resources necessary to achieve our goals are available.”