A diagnosis of the Hungarian dairy product chain

Popp, József – Potori, Norbert – Papp, Gergely

Keywords: Hungary, dairy market, milk production, competitiveness

Milk production in Hungary fell back after the country’s accession to the European Union. Over the last years, the mostly low purchase prices and the stricter quality requirements forced many producers to leave the market. Since 2004, Hungary has become a net importer in the foreign trade of milk and dairy products both in terms of volume and value.
The phasing out of the dairy quota may have an indirect effect on the Hungarian dairy industry (the country uses up less than 85% of its quota): Member States able to produce more efficiently may gain advantage in Italy, a market important for Hungary, causing a pinch in sales opportunities and putting more pressure on prices domestically.
Despite the large number of companies, milk processing is rather strongly concentrated in Hungary. The dairy industry is under double pressure: commercial operators force lower prices in order to win customers, while dairy processing companies compete with one another and with the export market for raw materials and for the better utilisation of heir capacities. Hungarian producers are behind their competitors in terms of technology, efficiency and product innovation.
Sale of dairy product is dominated by retail chains, whose market strategy is unilaterally consumer oriented; their policy is to follow prices, and their private label products weaken the position of dairy processors. Increased import of milk and dairy products may continue to erode the market share of domestic dairy producers, making selection among companies inevitable and facilitating acquisitions by foreign entities.
Milk production in Hungary, calculated on the basis of protein and fat, is relatively expensive. The weakest point in the cost structure of production is feedstuff cost, but veterinary expenditure and various forms of losses are also important. Producers are clearly inferior in terms of organisation and productivity, when competitiveness is determined by relative cost efficiency already on the medium term.
Farming partnerships in Hungary are reliant on land owners because they have no land of their own. Development subsidies attract very little attention, as acute lack of capital funds, expensive lending, market conditions and economic prospects, as well as the production requirement set as the precondition to receiving such subsidies cause a significant portion of producers to be unmotivated for modernisation.

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