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Protecting Hungarian products

The government is making great efforts to protect Hungarian products and give them a competitive edge, but this may not beas easy as slapping a “Hungarianproduct” label on them: many segments also need modernization and funding. Meanwhile, the new tax on unhealthy foodstuffs could affect products traditionally considered to be Hungaricums,and further increase their already high prices.

One look at the dairy shelves of hypermarkets and small corner shops shows that regardless of the size of the shop, roughly two-thirds of yoghurt products are foreign made – mostly by French, German or Slovakian-owned companies. Looking at the selection of dairy products, it is easy to understand why so much effort is focused on the positive discrimination of Hungarian products– and producers.

A video widely circulated by two non-profit organizations, Magyar Termékek Nonprofit Kft and Magyarok a Piacon Klub, encourages consumers to choose Hungarian food products. The video explains the negative consequences of the dominance of foreign products, and suggests that if consumers choose to buy Hungarian products, they can help boost the local economy.

The definition of “Hungarian product”, however, is not clear. The category of  “national product” is currently defined by the European Union’s Community Customs Code. Based on this, a product made of imported materials, but packaged in the country, can be labeled as a national product.

In order to provide better protection for Hungarian national products, the government is trying to create a legal environment that favors local products. The Rural Development Ministry is looking to differentiate Hungarian products that are made of mostly local materials from those that are made primarily of foreign products but packaged locally.

The ministry is working on a bill that would be more restrictive than the EU legislation in what could be called a national product in Hungary. The draft bill on Hungarian products would introduce two categories for national products: “100% Hungarian product” and“Hungarian product.” These are meant to provide clear indications to customers about the origin of the products, and a competitive edge for the manufacturers of Hungarian goods.

Defining the definition

The category of  “100% Hungarian product” has met with criticism from the food industry, however, and market players do not believe it will live up to expectations. According to its definition, products labeled “100% Hungarian” cannot contain more than 5% foreign materials or additives – however, this would prevent numerous traditional Hungarian products from being included in this select category. For example, a jam exclusively made of Hungarian fruit would not be eligible for this label, since it contains more than 5% imported sugar. The ministry argues that manufacturers would be motivated to use Hungarian materials instead of imported ones.

But in the case of sugar, for example, domestic production can provide only an annual 105,000 tons, while local demand is 300,000 tons, Endre Fazekas, the managing director of juice maker Sió-Eckes Kft explained. So even if companies wanted to use only sugar produced in Hungary, they could not do so. In response, market players in the food industry have proposed raising the limit for foreign-originatedmaterials from 5% to 10%.

Competitive edges

The food industry has other problems with the bill, though, saying that Hungarian products would be helped better by means other than creating new labels. “The current draft bill does not help to provide the food industry with a real competitive edge,” Tamás Éder, president of the Federation of Hungarian Food Industries (FHFI), told the Budapest Business Journal. The biggest help for food industry would be getting funding to implement the long overdue modernization of facilities, he argues. Thus, his members would be able to keep pace with foreign products in terms of price and quality.

Éder also explained that while in the pastfew years most financial aid went to plant cultivation, other segments were neglected, such as manufacturing, animal husbandry and the growing of fruits and vegetables, leaving these struggling with a lack of modernization and capital. Under these conditions, it is difficult for farmers to match foreign competitors who use cost-efficient and high-performance facilities.

Sweet & expensive

Meanwhile, the government is also planning to introduce a new public health tax from early September, levying an extraordinary tax on unhealthy food products that contain too much sugar or salt. This would mean that various traditional Hungaricums, such as jams or chocolate fondants, could be affected. Although the list of products subject to the new tax has not yet been finalized, it is certain that, with an already high 25% VAT rate the last thing these Hungarian producers want is a new tax.