Small grocery stores struggling with the price cap policy in Hungary

The economic news portal HVG.hu reported recently that the owners of small grocery stores are now struggling to comply with the regulations around the price cap on basic food items. This policy was twice extended, and as things stand, it will stay in effect until October 1.

The problem started with the issue that although the price cap policy regulates consumer prices, stores still have to get their goods from wholesale suppliers at market prices, often leading to losses. Entering July, the owners of small grocery shops are now running out of their supplies and are forced to buy from wholesalers as having insufficient quantities of the products regulated by the policy, or not selling them, could cause the owners to receive fines in the millions of forints (HUF 1 million equals €2,520).

László Süveges, a store manager from Békés county, South-Eastern Hungary, told the news portal that aside from pig thigh (lower meat ham), all the items on the list of foods regulated by the general price cap policy generate losses (prices per kilogram):

• Granulated sugar: Wholesale price: €1.43, consumer price: €0.68-€0.73
• Chicken breast: Wholesale price: €5.16, consumer price: €4.03
• Flour: Wholesale price: €0.86, consumer price: €0.45-€0.55
• Sunflower oil: Wholesale price: €4.28, consumer price: €1.76
• UHT cow’s milk: Wholesale price: €0.92, consumer price: €0.75
• Chicken back/carcass: Wholesale price: €0.79, consumer price: €0.66

In the case of granulated sugar, shortages started to occur on the supplier side a month ago, reports the portal. In that month, the supplier price of sugar went from €0.86/kg to €1.44/kg, and wholesalers also started enforcing a daily quantity cap. “We can’t sell consumers tens of kilograms of granulated sugar these days when the shop can only get twenty kilograms per day from the supplier.” The temporary shortages in sugar and flour are due to the increased demand due to the start of the home canning season.

Due to these difficulties, grocery stores started to implement daily quantity caps for consumers. “If we only sold ten kilograms and ten liters, respectively, of the regulated products per day, that alone would generate €37-€50 in losses for that day,” Mr. Süveges told hvg.hu. “We must buy these products. We must have them in our stores. These are not luxury items, these are needed for cooking, for people’s everyday meals. However, if there was no price cap, we wouldn’t even have chicken breast in our store because we would be selling at €7.56/kg and no one would buy it.”

Another issue for store owners is that since distributors are issuing quantity caps on certain products, stores aren’t always able to acquire as much of certain regulated products as the governmental decree stipulates they must hold, even if they order them daily, since the price cap policy dictates both the price, and the minimum available quantity of the regulated products.

This means that groceries constantly risk fines for not meeting the minimum product availability quota, which is the daily average of the stock in 2021. Store owners who do not comply may be fined for an amount between €126 and €7,500. Multiple offenses might also lead to forced store closures for time periods between one day and one year, and repeated authorities are also required to fine repeating offenders for the double of the first fine, without upper limit, reports hvg.hu. The store owner they interviewed also mentioned that he found it impossible to meet the daily quotas.

“I simply cannot get as much granulated sugar from wholesalers as the regulation dictates me to hold. It’s the same situation with chicken breast. … There are small retail owners who only sell the products with price caps on weekends, otherwise, they risk the fine because if they sold them every day, they would simply go bankrupt. This way at least, if they manage to avoid an inspection, they can stay afloat.”

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