Popp JózsefPopp József

Effects of the Effects of the CCrises on the rises on the PPerspectives and erspectives and EExport xport PPossibilities of the ossibilities of the HHungarian ungarian

AAgriculturegricultureSolutions Through Cooperation

Harkány 2009. 06. 23.

Development of the CRB Food Index Development of the CRB Food Index (1984 may – 2009 april)(1984 may – 2009 april)

Source: CRB Reuters/JefferiesSource: CRB Reuters/Jefferies

0

50

100

150

200

250

300

350

400

450

500

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Prices seceding from market funds

Escape of capital, high supply

Products: wheat (Kansas City, Minneapolis), sugar, cattle, pork, cocoa, corn, soya oil, butter, pork fat

Expected Development of real GDP on the middle Expected Development of real GDP on the middle runrun

Source: World Bank, OECD-FAOSource: World Bank, OECD-FAO

-6

-4

-2

0

2

4

6

8

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%

OECD ARG BRA CHN IND RUS

7,5%7,5%6,8%6,8%

4,5%4,5%

2,7-3,4%2,7-3,4%

??

Food Safety ChallengesFood Safety Challenges Growing populationGrowing population – – growing demand for foodgrowing demand for food

1,2% yearly (growth rate 70-80 million person per year)

Growing incomesGrowing incomes – – growing demand for foragegrowing demand for forage Economic growth of Asia 5-6%/year Consumption of animal products (meat, milk) growing

Growing production of biofuelsGrowing production of biofuels – – growing demandgrowing demand Competition for land (problem will return after recession)

Limited agricultural landLimited agricultural land Expansion: Ukraine, Russia, South America Buying/renting of agricultural land abroad

Technological development is determiningTechnological development is determining Is another “green development” necessary? Will that be GMO? Stimulation/subsidies are important

Climate changeClimate change SpeculationSpeculation

Is important for market liquidity May increase price volatility

Incoming Incoming mail about mail about GMOGMO!!

Gazdasági növekedés

Europe`s answer for the GMO: unnatural… but we ain`t producing food for the nature!

Eat more chicken

Proof of climate changeProof of climate change

18. cent.

Food and Energy SafetyFood and Energy Safety: : Global OverviewGlobal Overview

World World populationpopulation:: from from 6,76,7 bln to bln to 8 8 blnbln

Demand of food Demand of food growsgrows

Food

Forage Bio materials

(ex. biofuel)

Global food production Global food production has to increase byhas to increase by 5050%%

Energy safety???(will be important again with growing oil

prices)2008

Grain: used for ethanol production 6% Sugarcane: for ethanol production 10%

Oilplants: for biodiesel production 9% (vegetable oil)

Till Till 20252025

Growing dependency

Low CO2 emission

Source: UNEP/GRID-ARENDALSource: UNEP/GRID-ARENDAL

Countries renting/buying agricultural land in Countries renting/buying agricultural land in other countries for food safetyother countries for food safety

Countries renting/buying Countries renting/buying agricultural landagricultural land

thousand hectares

Every square is for 50 Every square is for 50 thousand hectares. Where the thousand hectares. Where the

bought/rented land is less, bought/rented land is less, figures one square.figures one square.

Growing Water ConsumptionGrowing Water Consumption

Till 2050 - 70-90% more foodstuff will be needed: growing food consumption and dietary changes.

Urbanization: domestic and industrial water consumption grows to double. Climatic changes: extreme weather Energy prices: water power plants, biofuel, desalination, fertilizers and chemicals

Without increasing efficiency of water utilization the water consumption will grow to double in plant growing!

Diet on Earth

Utilization LiterDrinking water 2 - 5 liters/capita/dayHousehold 20 - 500 liters/capita/dayWheat 500 - 4 000 liters/kgMeat 5 000 - 15 000 liters/kgBiofuel 1 000 - 3 500 liters/litersClothes (cotton) 2 000-3 000 liters

Agriculture 3 000 liter/capita/day 1 liter/calory

Global evaporation of agricultural plants 7 100 km3/year: 7 100 000 000 000 000 liter 78% of water utilized in food production comes from the rain. Growing share of irrigation in water usage.

Water utilization Water utilization The „water bubble” is not sustainable any more: today 6,7 bln people are sharing the same quantity of water as 300 million global population in times of the Roman Empire.

Source: IWMI ([2007) In: Source: IWMI ([2007) In: Water for Food, Water for LifeWater for Food, Water for Life: A Comprehensive Assessment of Water Management in : A Comprehensive Assessment of Water Management in Agriculture, London: Earthscan, and Colombo: International Water Management Institute Agriculture, London: Earthscan, and Colombo: International Water Management Institute

Losses in the Food chainLosses in the Food chain

Pre-processing

Transport

Stocking

Producers

Processing/ Packaging

Marketing

Orts

Production losses Pests and diseases

Broken grain, mechanical damagePouring, leaking

Insects, rodents, bacteria

Peeling, frittering,

Retail

Consumers/ Traders

Consumers

20-40%

10-15% of quantity

25-50% of value (quality)

5-30% developed countries

2-20% developing countries

Orts = tap left open

Source: IWMI ([2007)Source: IWMI ([2007)

Answers and ChallengesAnswers and Challenges Increasing productivity – Physical productivity of water – more yield/drop of water – Chemical productivity of water – more value/drop of water

Investment stimulation for increasing production in areas with natural fall and irrigation as well

Increasing water productivity – Technically possible, but farmers prefer to increase land productivity instead of water productivity mainly in areas where irrigation is being subvented. – What type of stimulation is necessary?

Stimulating trade of foodstuff between areas rich in water and areas with lack of water.

Decreasing losses in food chain

Anyone who can solve the problems of water will be worthy of two Nobel Prizes – one for peace and one for science” (John F Kennedy)

Due to economic crisis not just demand, but also trust Due to economic crisis not just demand, but also trust in partners has declinedin partners has declined

Economic recession till 2010-2011 Decreasing real income Decreasing demand, changing structure of demand

Products with higher added value: Cheaper substitutes: Brands:

Devaluation of currencies, Exchange rate volatility Restructuring of market positions

Lack of trust between market players and banks on domestic and international markets as well Decreasing credit possibilities

Trade is the motor of economics, it`s oil is creditTrade is the motor of economics, it`s oil is credit

Aggravation of credit terms Size and owner structure of company Brands and products of company Partners and markets of company Credit history, own capital Leading well capitalized, multinational companies from

developed countries will become stronger, while many small and middle-sized companies will bankrupt

Importers from risky countries can not obtain credit Decreasing business possibilities (also for big companies) Decreasing international trade volume

$$

Demand of agricultural products increasing again Demand of agricultural products increasing again after temporary stagnationafter temporary stagnation

Demand of basic foodstuff and biofuel is inflexible Increasing demand on quantity and qualityIncreasing demand on quantity and quality Food industry getting into the spotlight again. The output of the Food industry getting into the spotlight again. The output of the

sector in ten years has to be underlayed sector in ten years has to be underlayed Capital is already moving to countries where expansion of Capital is already moving to countries where expansion of

agricultural land is possible and obtains the reagricultural land is possible and obtains the ressources.ources. Real value of the amounts spent on research and development in OECD

region is decreasing.

The biggest problem today is the insufficient infrastructure and logistics – delivering the product to the market.

Immunity of agriculture to the crises is different in Immunity of agriculture to the crises is different in every country…every country…

Public opinion: agriculture (especially plant growing excluding bioproduction) is less affected by the crises than other sectors Countries where agricultural sector is barely affectedCountries where agricultural sector is barely affected::

ex.: USA, Canada, UK etc. Countries where agricultural sector is heavily affectedCountries where agricultural sector is heavily affected : :

Pl. Brazil, Argentina, New Zealand, Denmark, Slovakia etc.

The main differences are in the way of financing the agricultural production and in the target markets.

GSzÖ (2007):GSzÖ (2007): 619,0 thousand farmers619,0 thousand farmers

7,4 thousand agricultural 7,4 thousand agricultural companiescompanies

Private farms Private farms 1 pork or 400 m1 pork or 400 m22 vegetables/fruitsvegetables/fruits

Self-sufficient farmsSelf-sufficient farms

Average farm size in selected EU member statesAverage farm size in selected EU member states

Source: KSH: Gazdaságszerkezeti összeírás: GSzÖ (2007), EurostatSource: KSH: Gazdaságszerkezeti összeírás: GSzÖ (2007), Eurostat (2007)(2007)

Average size of Average size of farms farms (ha)(ha)

DenmarkDenmark 57,657,6

GermanyGermany 48,348,3

PolandPoland 7,07,0

SlovakiaSlovakia 45,545,5

HungaryHungary 8,78,7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Share of farms

Shar

e of

agr

icul

tura

l lan

d

DenmarkGermanyPolandSlovakiaHungary

Producing farms (2 ESU<): 90 000Producing farms (2 ESU<): 90 000 IIER data (2008): 188 000 farms were IIER data (2008): 188 000 farms were

entitled for direct subsidiesentitled for direct subsidies IIER data is not reflecting the real IIER data is not reflecting the real

situation („sofa” farmers)situation („sofa” farmers) Slow concentrationSlow concentration Limited land marketLimited land market

2%of the agricultural land subject of 2%of the agricultural land subject of sale 1%- subject of inheritage yearlysale 1%- subject of inheritage yearly

Direct payments (whether based on Direct payments (whether based on production or not) are conserving production or not) are conserving the actual situationthe actual situation

Efficiency of revenue transfer is low: Efficiency of revenue transfer is low: 38% of subsidies „seeping away”38% of subsidies „seeping away”

31% to land owners, 5% to others in 31% to land owners, 5% to others in the sectorthe sector

Farm size Number of farms Agric. land (ha) Agr. land (%)<10 ha 147 949 533 068 10,7%

10-50 ha 45 961 950 687 19,0%50-100 ha 6 952 486 168 9,7%

100-500 ha 6 460 1 272 183 25,4%>500 ha 1 173 1 757 600 35,2%Összes 208 495 4 999 706 100,0%

2004

Farm size Number of farms Agric. land (ha) Agr. land (%)<10 ha 132 110 479 688 9,4%

10-50 ha 45 054 952 949 18,7%50-100 ha 7 368 515 472 10,1%100-500 ha 7 115 1 394 507 27,3%

>500 ha 1 232 1 759 518 34,5%Összes 192 879 5 102 133 100,0%

2007

Source: Integrated Controlling and Management SystemSource: Integrated Controlling and Management System

Average farm size in Hungary (2007 vs 2004)Average farm size in Hungary (2007 vs 2004)

Source: Disappearing direct payments, AKI (2008)Source: Disappearing direct payments, AKI (2008)

Half of the arable lend is cultivated by farmers, half by agricultural companies!Half of the arable lend is cultivated by farmers, half by agricultural companies!

Foreign trade of hungarian food industryForeign trade of hungarian food industry (2000-2008) (2000-2008)

Source:KSH és AKI

mill

ion

€

Balance: 1,36 billion €

0

1000

2000

3000

4000

5000

6000

2002 2003 2004 2005 2006 2007 2008

Export Import

Balance: 1,91 billion €

Export of the Hungarian food industry by rate of Export of the Hungarian food industry by rate of processingprocessing (2000-2008) (2000-2008)

Source: KSH database and own calculation

703 777 652 759 933 956 920 927 1 014 1 077 1 251

1 977906 855 813

8911 000 949 925 933 992 1 044

1 139

1 412

910 841703

801897 916 983 995

1 0921 203

1 284

1 474

2 281

539

1 680

789

1 774

834

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1 996 1 997 1 998 1 999 2 000 2 001 2 002 2003(régi)2003(új) 2 004 2 005 2 006 2 007 2 008

mill

ion

EU

R

Agricultural products Product of primary processing Product of secondary processing

Source: KSH database and own calculation

Balance of the Hungarian food industry by rate of processingBalance of the Hungarian food industry by rate of processing (2000-2008)(2000-2008)

622

471

388

645 663

413

-68

25

337

1 502

1 271

662

519514543541

634

501506464

396335365

311348

429424415474

432440 433

447

-32

85

237

388378403459

563

392

-200

0

200

400

600

800

1 000

1 200

1 400

1 600

1 996 1 997 1 998 1 999 2 000 2 001 2 002 2003(régi)2003(új) 2 004 2 005 2 006 2 007 2 008

Mill

ion

EU

R

Agricultural products Products of primarz processing Products of secondary processing

Development of the foreign trade of foodstuff between Hungary and Development of the foreign trade of foodstuff between Hungary and USAUSA

0

10000

20000

30000

40000

2005 2006 2007 2008export import

Source: U.S. Department of Commerce és U.S. International Trade Commission.

1 000 USD1 000 USD

140

160

180

200

220

240

260

2008. VI. 2008. VIII. 2008. X. 2008. XII. 2009. II. 2009. IV.

Source: MNB

Development of Development of USD/HUF USD/HUF exchange rateexchange rate Exchange rate is influencing foreign tradeExchange rate is influencing foreign trade!!

Structure of Hungarian foodstuff exportStructure of Hungarian foodstuff export (2007-2008) (2007-2008)

Source: U.S.Department of Commerce és U.S. International Trade Commission.

1 000 1 000 USDUSD

0100020003000400050006000

2007 2008

Structure of Hungarian foodstuff importStructure of Hungarian foodstuff import (2007-2008) (2007-2008)1 000 1 000 USDUSD

Places where Hungarian foodstuff is entering the USAPlaces where Hungarian foodstuff is entering the USA (2008) (2008)

Source: U.S.Department of Commerce és U.S. International Trade Commission.

1 000 USD1 000 USD

0

5 000

10 000

15 000

20 000

25 000

30 000

1 2 3 4 5 6 7 8 9 1 0

1 00

0 t

Exports Domestic Use Imports Usable production

Development of supply and demand of grain in selected new Development of supply and demand of grain in selected new member statesmember states (2004/05-2007/08 (2004/05-2007/08 averageaverage))

Source:EurostatSource:Eurostat

PolandPoland RomaniaRomania HungaryHungary

■■ Production ■■ Domestic consumption ■■ Export ■■ Import

Share of livestock on the total output of agricultureShare of livestock on the total output of agriculture

Source: KSH

49,2 45,6 35,9 40,0 39,3 34,4 33,4

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2002 2003 2004 2005 2006 2007 2008

Source: AKI, IGC

30 €/t (FOT-fco) /500 km 22-24 €/t (FOB-FOB)15 €/t (FOR-FOR)

30 €/t (FOT-fco) /500 km

30-32 €/t (FOB-FOB)

15-20 €/t (FOB-CIF)

Transport costs of grain according to transport Transport costs of grain according to transport methods and directionmethods and direction

Radius of competitiveness: 500 km on land, 1000 km on water!Radius of competitiveness: 500 km on land, 1000 km on water!

Costs of sea transport to Spanish port Costs of sea transport to Spanish port (2008 October – 2009 May)(2008 October – 2009 May)

Source: IGCSource: IGC

0

5

10

15

20

25

30

35

40

29. o

któber

2008

19. n

ovembe

r 200

8

10. d

ecem

ber 2

008

31. d

ecem

ber 2

008

21. ja

nuár 2

009

2009

. febr

uár 1

1.

2009

. márc

ius 4.

2009

. már

cius 2

5.

2009

. ápri

lis 15

.

2009

. máju

s 6.

USD

/tonn

a

ARG CAN & USA Fekete-tenger

Problems of the Hungarian plant growing sectorProblems of the Hungarian plant growing sector Strong dependence on geographical distribution and seasonability of fall Drought: lot of words, lack of deeds: in year 2008 there were 165 000 ha of

agricultural land licensed by authorities for irrigation; in fact irrigated only 59 000 ha Too small average size farms, legislative barriers Decreasing usage of quality seeds Temporary limitations of other inputs Too high variety of wheat sorts (135), lack of big and homogenous shipments Infection of fusaria (periodically and locally) Continual decreasing of livestock (decreasing forage consumption) Uncertainty of investors in the biofuel sector Poor competitiveness of railway transport Unpredictability of river transport because of water level Domestic and international sales without documents (invoice) Lack of reliability in keeping the contracts, lack of long-term contracts Volatility of prices, lack of risk management GMO regulation

Production of (bio)ethanol European (and North American) ethanol price is depending mainly on Brazilian export

price + customs tariff Domestic capacities are poorly utilized (50%) Realization of planned projects in Hungary is hindered by

Lack of will for signing long-term contracts and sharing of risk Logistical conditions are not sufficient Domestic market is saturated, pressure to sell abroad. EU and Hungary are net

exportes of petrol and net importers of diesel Growing share of diesel in fuel sales (ma 63%)

Alternatives of diminishing the grain surplus Alternatives of diminishing the grain surplus

Alternatives of diminishing the oil plant surplusAlternatives of diminishing the oil plant surplusProduction of biodiesel Price of biodiesel determined by German price Leading companies in biodiesel production in Europe are Cargill, ADM and Bunge

These companies are integrating the production: who controls raw material, controls the market…

Interest of oil companies is to purchase standard quality biodiesel from a few big companies, MOL/ROSSI has own biodiesel production (purchasing plant oil)

Competitive disadvantages in the meat sector Competitive disadvantages in the meat sector (general)(general)

Genetics are ten years in front of the average applied technology Meeting the environmental regulations – mainly in times of recession – is a great

competitive disadvantage Difficulties of credits: interest rates much too high (14-16%) Black economy is holding up concentration

Prices of illegal meat sales are worsening the situation of legal meat producers Increasing VAT is another stimulation for black economy

Costs of safeguarding are increasing (up to 0,5% of revenues) Official dues are much too high (veterinary, meat checkup, etc.) Fragmented structure of processing sector, out-of-date technology, low rate

of capacity utilization (40-70%) Low efficiency of labour Parallel organizations

Boards, associations, etc. Hungary has become a net importer in pork meat and milk products

Competitive disadvantages in the meat sector (special)Competitive disadvantages in the meat sector (special)Poultry Low capacity of processing, presence of international investors is evanescent Competitiveness of chicken meat is decreasing, export of ducks and gees still important

Pork Disorganized production sector (gilts often produced by growers) Heterogenic genetic base, few growers, small stocks, small basis for selection For pork growing is necessary to own/rent land (manure placing, forage growing) Domestic buy-out prices following German and Holland prices

Exchange rate HUF/EUR is influencing the export and import: ex.: transport costs from Holland 45 HUF/kg (live weight) actually decreasing import (2008: 25 HUF/kg)

Cattle Significance of cattle breeding (with 50% of milk utilization) is decreasing, meat type cattle

selling on abroad markets Domestic demand is determining price stability (depending on market price and export

markets) Precondition of cattle breeding is own meadow and pasture and conscientious „stock

management”

Competitive disadvantages in the Hungarian milk Competitive disadvantages in the Hungarian milk sectorsector

Average content of fat and proteins is low in comparison with other member states

Lack of intensive meadow utilization, lack of low-cost pasturing, expensive intensive technologies

For milk production is necessary to own/rent land (manure placing, forage growing)

Owners of big dairy farms are old, they are selling the farms

Costs of safeguarding are increasing, official dues are much too high (veterinary, meat checkup, etc.)

Out-of-date technology in processing, low rate of capacity utilization

Smaller processors (producers of mass products) are getting into weaker position

Lack of will for rational division of labour between processors

Regional strength of processors could ensure some latitude against traders

Thank youThank you!!