Hungary has the largest fruit and vegetable growing industry in eastern Europe after Poland, and, as such, presented a significant threat to the rest of the continent in terms of competition when it became a member of the European Union.
Prior to accession Hungary was one of the more advanced countries when it came to fruit and vegetable production and, along with Poland and Cyprus, is one of the major exporters and importers of produce.
According to EU figures from the Director General for Agriculture, the country’s main products include fresh peppers (at 21,000 tonnes in 2002), watermelons (21,000t), sour cherries (17,000t) mushrooms (14,000t) and plums (10,000t).
At the same time Hungary has a significant production of frozen products, with vegetables making up around 44,000t in 2002. The country has a production area in excess of 200,000 hectares and exports 40 per cent of its production.
Overall production has remained relatively stable in the last few years, with only slight rises from 2,711,000t in 2002 to 2,793,000t in 2004.
Prior to accession, a report by the DG for Agriculture suggested one impact from the enlargement of the EU would be an increase in exports into the original EU15.
As it joined the EU, the country had a number of key advantages, ranging from strong levels of production to the lower costs of labour. It also has an earlier season, which could prove advantageous, says Eric Baas, analyst with Netherlands-based Rabobank.
“Hungary is a couple of weeks earlier in production than the rest of Europe, which gives it a clear advantage when getting its fruit into the market.”
However, one year on from accession, have the predictions and fears come true? And has the country managed to exploit the opportunities EU membership has opened up?
According to some market watchers, the impact of accession has, so far, been limited. Baas says: “Not a lot has happened, overall. There have been some increases in trade flows. Hungary has seen a 23 per cent rise in the export of fruit and vegetables and that’s not bad. Imports were also up by about 15 per cent.
“Production is not rising as fast as trade is growing, however, and also, while some areas are up, others are falling, with exports of frozen raspberries dropping from 8,300 tonnes in 1999 to 2,240t now.”
While many expected the new EU members to benefit from accession, Zoltan Fodor, of the Hungarian Fruit & Vegetable Interprofessional Organisation, says the past year has actually been somewhat negative, with many producers experiencing losses.
While the industry was well aware of the changes coming its way, it still failed to prepare itself fully and, according to Fodor, this has not been helped by the fact the Hungarian government has largely ignored the fresh produce sector: “It has been concentrating mainly on the big volumes from the cereal and meat sector, and left fresh produce alone.”
While the proportion of arable and cultivated land taken by the fruit and veg sector is just 3.2 per cent, he says it accounts for about 15 and 17 per cent of the total agricultural primary production in terms of value, making it the third largest part of the sector. Despite this, it receives very little by way of subsidy.
“As a result, we are behind with the necessary development on issues like cultivation, logistics and post-harvest technology. We have also started late in building up our quality assurance systems.
“This has contributed to the losses over the last year, and prices were 30 per cent lower than on average. Therefore the general mood of the sector is very bad,” says Fodor.
He says there is a wide range of reasons for the price drop, from poor organisation within the Hungarian industry to easier market access for the rest of the EU members and also increased competition among retailers.
A lack of investment in the sector in the late 1990s, following a serious production decline in the early part of the decade due to privatisation, has also caused problems. According to a pre-accession report by Terézia Radócz Kocsis and Mária Erdész, from the Hungarian Agricultural Research Institute: “It is a problem that in the last few years new plantations have not been established in a desirable quantity, which resulted in a very unfavourable age and type structure.
“It is a very urgent task to renew fruit plantations. State subsidies have motivated the establishment of new plantations to a certain extent but farmers are still too reluctant.”
The fragmented nature of the industry also exacerbated the problem, the report says: “The scattered farm structure worsens the efficiency of fruit production. The decreasing commodity stock and the low profitability hinder the restructuring and renewal of plantations and jeopardise the long-term subsistence of farmers.”
Fodor, however, says the situation created by accession has meant a large number of smaller growers have given up and the rest of the sector is suffering from a lack of capital and there is general insecurity in the market.
While Hungary was perhaps a little unprepared to take full advantage of the situation when accession rolled round, it was one of the more advanced in other respects, says Baas.
“Hungary has been very strong in setting up producer organisations (POs), which basically means groups of farmers getting together to meet the right criteria to gain EU subsidies.”
Baas says there are more than 100 POs now registered within Hungary, more than any other of the 10 new members.
But the story on the ground is less positive, says Fodor: “These organisations were set up with the promise of government assistance, but that was not kept, so they have not received any aid.”
He says the POs have also suffered from excessive bureaucracy and are not well organised. “Some of the groups do not have good management and therefore make mistakes in the business, which is not tolerated on the market.”
He says while some of the groups have grand plans for development, they do not even “have the money to pay the electricity bills”.
As a result, Hungary is caught in a Catch 22 situation - while its products may be of a high quality it is struggling to grapple with the bureaucracy to meet the specific market requirements of its potential new EU customers.
Fodor says: “To summarise the situation, we are facing the fact that we could have some very good new markets, but we have not got the necessary market ready products, or the required quantities.
“On the one hand we have great products, very tasty and very good quality, and on the other hand we cannot supply the market requirements of our potential buyers. That is the paradox situation in Hungary.
“We can see the opportunities, but we have yet to feel the positive impact of accession at present.”
And with depressed prices and little support, it remains to be seen quite how the Hungarian sector can make that jump and bridge the gap to meet those market requirements.
However, not all POs are failing to make the grade. Morakert, a co-operative with between 600 and 700 members, has recently been accredited to EurepGAP standards, says Bernadette Pufztar, quality control manager. “It is a big step in terms of quality assurance and gives us greater opportunity to export.”
She admits the industry remains fragmented: “The average area for each farm is around 3-5 hectares, but that is beginning to change and the farms are getting bigger, which is good news.”
A key issue for the sector, and the Hungarian government, is logistics, says Baas: “The main problem for Hungary is on the post-production side of things. When it comes to growing it is very good at that and it has the land and the advantage of low-cost labour, but the logistics need to be improved. It lacks a good infrastructure and there’s a lot to do in that area.”
While the industry may feel it is the poor cousin in terms of government attention with regard to agriculture as a whole, it does have one major advantage over some of the other sectors now it is part of the EU.
While the likes of cereals, meat and dairy find themselves under strict quota control, fruit and vegetables have no such problems and, as a result, production is likely to continue to expand unhindered.
Change is beginning to take place, says Katalin Halasz, accounting and finance manager with Bio Fungi. “The situation is changing in Hungary. Competition is much higher, and investment is being made by both Hungarian banks and foreign investors.”
EU money is beginning to trickle down to the industry through the Hungarian government but delays make it difficult for the sector.
Halasz says quality is key for the sector to succeed in Europe. “Quality becomes more and more important both in the Hungarian and the EU markets. If we maintain excellent quality, we are using our full capacity to face the demands, so we can sell all our products at a good price.”
And Fodor remains positive: “We can see it is a transitional period and restructuring is always painful and costly. In spite of the problems, we feel positive about the future of the Hungarian fresh produce industry.
“After this transition, we estimate in three to five years production will rise and stabilise at around 3mt.”
He says some products, such as cabbage, onions and carrots, have already lost out when it comes to competing on the EU stage. “But others will have vast opportunities for growth in the future. These will include paprika, watermelons and melons, asparagus, sweetcorn, tomatoes, mushrooms and cherries to name a few.”
And he is not alone in maintaining a positive outlook. “Hungary could become one of the leading fruit and vegetable producers of the continent in five to 10 years time,” claims Béla Mártonffy, md of the Hungarian Vegetable-Fruit Inter-Trade Organisation and Product Council.
However, he says the sector needs to tackle issues such as storage, packaging and logistics to meet the European requirements. “In order to do this, developments to the value of at least HUF10 billion (£27.3m) a year would be needed by 2006.”
Istvan Feher, under secretary for the ministry of agriculture, agrees that there needs to be change. He told delegates at this year’s Fruit Logistica: “We need to make improvements so that we can be more competitive in the European market.
“There is huge potential for us, with around 450 million consumers throughout the EU, consuming 3.5mt to 4mt of fruit and vegetables each year.”
There is a need for innovation within Hungary, he says: “We need to be working hard to create premium products, and not just aim for the mass market goods. We need to improve on marketing to increase our sales of products into the EU.”
He says the government has a role to play as well: “Improvement in the sector will take time and need a lot of investment, but as a member of the government, we need to support our producers to enable them to become more competitive.”
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