The role of foreign capital and its effects on the achievements of farming in the food industry

Hodina, Péter – Lámfalusi, Ibolya

Keywords: foreign capital, food industry, profitability, employment, productivity

In the early years of the 90’s the food industry was a main target area of foreign investment. By 1993 foreigners owned 43% of the Hungarian food industry due to an extraordinarily rapid buy up of state enterprises and accomplished increases in shares of capital investment. By 2000 this figure has exceeded 60%. Since then the tendency of dynamic increase in capital investments into the Hungarian food industry has halted and every year the share of both registered and foreign capital has declined somewhat. In the period before 2000 any increases in output registered in the food industry has been wholly associated with enterprises operated at least partly by foreign capital. In the year 2000 and after a fundamental change has occurred: the output of enterprises operated by foreign capital has moderated whereas that of enterprises run by home capital has begun to increase. Following 2000 increases in the output of food industry has been associated entirely with enterprises operated by home capital. If during the studied period we contrast the output of enterprises operated by foreign capital with the growth rate of enterprises run by home capital alone, the total output of the sector in 11 years would 30% less, valuing 4830 billion HUF.

The rapid increase in exports is also mainly associated with enterprises operated by foreign capital. In 2002 foreign enterprises representing a mere 12% of all enterprises in the food industry produced 63% of the entire agricultural export. Between 1993 and 2003 the number of people employed in the entire food industry decreased by 20%, while in the same period output calculated at unchanged prices increased by more than 13%. Due to these two factors the productivity of live workforce improved by more than 40%. The productivity of live workforce in enterprises run by home capital alone is considerably lower than in those operating foreign capital.

In eleven years the profitability of the sector has changed significantly. Industrial activities, which were less than 21 billion HUF worth in 1993 have increased to more than 120 billion by the end of 2002, which is nearly six times the 1993 value. The indices reflecting income from industrial activity of the two groups of enterprises compared and the capital involved moved in the direction of convergence. In contrast values before tax reflecting also income and own capital did not converge, on the contrary strongly diverged. The four time bigger profits of foreigners operated enterprises were not associated with proportionally larger taxation. Dividends paid in eleven years by foreign operated enterprises have exceeded the highest values for any foreign capital. In other words the capital invested into the Hungarian food industry has already returned its full value to the investors who already withdraw 30% more than the amount invested.

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