Required Report - public distribution

**Date:** 4/20/2004

**GAIN Report Number:** HU4009

HU4009

**Hungary**

**Oilseeds and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Sarah Hanson

U.S. Embassy

**Prepared by:**

Dr. Ferenc Nemes

**Report Highlights:**

The 2003 sunflower crop was the largest in seven years, and farm
expectations are high for MY 2004/2005. Weather has been good thus far
this year, and oilseed producers will receive increased direct payments
under the EU Common Agricultural Policy. Stagnating poultry and swine
production will limit the demand for domestic and imported protein meals
in the next years.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Vienna \[AU1\]

\[HU\]

# 

# Production

After a record area and bumper crop of sunflower in 2003, forecasts for
2004/2005 indicate 5 percent lower area. About 430,000 ha (of the
planned 482,000 hectare area) are crushing varieties, 40,000 ha are
devoted to bird feed (pet food) and 10,000 ha are confectionary
sunflower varieties.

Area of rapeseed plantings increased in the fall of 2003 to 112,000 ha.
The green crop suffered frost damages during winter, without adequate
snow cover. About 25 percent of the area will be plowed under. The
harvested area is going to be only about 85,000 ha. Spring forecasts
indicate better than average rapeseed yields.

Soybean production remains confined to traditional micro-climatic
regions in the Danube basin. Both area and crop yields are expected to
be stable. However, after the severe drought in 2003, this stability
means definite growth.

# Production Factors

Fertilizer use in 2003 was at 460,000 MT active ingredients, 8.7 percent
above the 2002 level. Analysts expect higher fertilizer use and more
rational input use from 2004 as a result of increased production support
for oilseeds.

Prices and leasing fees for agricultural land were low in Hungary until
2003. Due to increasing EU and GOH support, leasing fees and land prices
have started to increase. Direct payment on arable land was HUF 7,000/ha
(USD 34/ha) in 2003. This support may reach HUF 38,000/ha (USD 183) in
2004 \[although a part of it may effectively be paid out only in 2005;
see Policy section for additional information\].

# Consumption

The major consumer of sunflower seed is the sole crushing company of
Hungary, Bunge Rt. There are production organizers, who specialize in
sunflower seed exports, as well. About one third of the total sunflower
crop goes for export and includes low oil pet food (bird‑seed)
varieties.

Half of the rapeseed crop is usually exported, the other half is used
for crushing.

The minor domestic soybean crop is partly crushed in Croatia under
long-term contracts or processed for special products for human
consumption. The Hungarian crushing industry does not process soybeans.

Vegetable oil meal consumption for animal husbandry is based on imported
soybean meal and domestic and imported sunflower meal. Total vegetable
oil meal consumption and imports decreased in 2003, and this tendency
continues in 2004/2005.

Swine stock numbered 4.7 million at the end of 2003, the lowest in ten
years. Opening stocks of adult poultry in 2004 were 55.4 million, 2.3
million lower than a year ago. The increase in chicken, turkey and geese
numbers could not counterbalance the drop in the number of layers and
ducks.

Production in the main compound feed consuming sectors, poultry and
swine, will decline further in 2004 and 2005 (see Gain Reports HU4001
Poultry and Products and HU4006 Livestock and Products reports).
Preliminary compound feed production data for CY 2003 shows an 8 percent
drop from the previous year. Feed for swine was 2.1 million MT, poultry
1.6 million MT, cattle 0.6 Million MT, and other mixed feed 0.2 million
MT.

# Prices

The crushing industry does not fix prices in its production contracts
for sunflower-seed. Purchase prices are derived from the August
international commodity exchange prices for sunflower oil. Harvest
normally starts at the end of August.

Prices of sunflower seed for crushing, (bulk) sunflower oil, and
sunflower meal in Hungary at the end of February, 2004 were the
following:

Sunflower Seed USD 300.47/MT

Sunflower Oil USD 494.09/MT

Sunflower Meal USD 136.26/MT

April 2004 futures prices on the Budapest Commodity Exchange (BCE) for
the main kinds of oilseed were the following:

Sunflower for October 2004 USD 290.73/MT

Rapeseed for August 2004 USD 320.00/MT

Wholesale protein feed prices in April 2004 were as follows:

Soybean Meal (imported) USD 471.15/MT

Sunflower Meal (domestic) USD 144.13/MT

## Trade

The upward trend in oilseed exports continued in 2003/2004. Sunflower
seed exports grew by 52 percent in 2003, but the volume of rapeseed
destined for international markets dropped due to poor crop. Main
destinations for oilseed sales are EU countries.

The biggest buyers of Hungarian vegetable oil are FSU countries (Russia,
Belarus), and countries in the region such as Poland, Bosnia and
Slovenia.

Soybean meal imports have stabilized at a high level, in spite of
fluctuations in animal production. Whenever it is possible, feed and pet
food manufacturers try to substitute animal protein with vegetable
protein because of the EU's policy against feeding animal proteins. The
industry would like GM‑free soybean products, but no one seems willing
to pay higher prices for GM‑free soybeans. In any event, the testing of
shipments and certification are (so far) sporadic. The main supplying
countries are Brazil, Netherlands and the USA.

Export opportunities for U.S. businesses are best for soybean meal,
peanuts, sunflower planting seeds, corn oil, and special frying oils and
shortening.

**Trade Matrix for Soybean Meal**

  -------------------- --------------- ------------------- ---------------
  Import Trade Matrix                                      

  Country              Hungary                             

  Commodity            Meal, Soybean                       

  Time period          CY 2002         Units:              MT

  Imports for:                                             

  U.S.                 18605           U.S.                

  Others                               Others              

  Brazil               665735                              

  Netherlands          79095                               

  Argentine            47304                               

                                                           

                                                           

                                                           

                                                           

                                                           

                                                           

                                                           

  Total for Others     792134                              0

  Others not Listed    35707                               

  Grand Total          846446                              0
  -------------------- --------------- ------------------- ---------------

  --------------------- --------------- ------------------- ---------------
  Export Trade Matrix                                       

  Country               Hungary                             

  Commodity             Meal, Soybean                       

  Time period           CY 2001         Units:              MT.

  Exports for:                                              1

  U.S.                                  U.S.                

  Others                                Others              

  Bosnia-Herczegovina   1374                                

  Romania               945                                 

  Ukraine               70                                  

                                                            

                                                            

                                                            

                                                            

                                                            

                                                            

                                                            

  Total for Others      2389                                0

  Others not Listed     95                                  

  Grand Total           2484                                0
  --------------------- --------------- ------------------- ---------------

# Tariffs

After the May 1, 2004 accession of Hungary to the European Union, the EU
Common External Tariffs for oilseeds and products will be applied.

# Policy

Year 2004 will be a cornerstone year for production support in the farm
sector. The EU domestic support priorities differ from Hungary's, and
this may lead to changes in the production structure in the next years.

Hungary's agricultural support budget was USD 838.3 million (HUF 216.3
bn) in 2002 and USD 1,021.7 million (HUF 235 bn) in 2003.

In January 2004, the Ministry of Agriculture (MOA) terminated many kinds
of domestic production support due to two main reasons; first, the MOA
was starting the transition to the EU support regime; second, the GOH
needed to initiate austerity measures due to overspending in its central
budget in 2003. Farmers started road demonstrations as a response to the
cut of traditional forms of subsidies. MOA had to bring back some
transitional support measures (valid until May) worth HUF 50 bn (USD 244
million) for swine, poultry and dairy.

The above unexpected spending, as well as the HUF 80 bn (USD 390) worth
of carryover obligations from 2003 reduced the national agricultural
budget of 2004. The GOH launched a (HUF 100 bn; USD 488 million) loan
guarantee program for farms under EU and domestic government
supplemental subsidies when the short budget occurred (paid only from
the end of the year). Commercial banks and farms will finance the loan
guarantees until the relevant "Paying Agency" grants direct payments.

The original GOH agricultural budget plan for CY2004 is about HUF 290 bn
(USD 1,415 million). HUF 154 bn (USD 751 million) comes from the
Hungarian budget, HUF 136 bn (USD 663) is expected from different EU
funds.

Concerning the structure of the direct payments in Hungary, the country
proposed the following Complementary National Direct Payment (CNDP)
version under the Single Area Payment Scheme (SAPS).

  --------------------------------------------- ----------- -------------
  **Breakdown of Complementary National Direct               
  Payments in Hungary**                                     

  ** **                                                      

  ** **                                         **Forint\   **US Dollar\
                                                (HUF)**     (USD)**

                                                             

  EU Direct Payment (25%)                       76 bn       370 million

                                                             

  Compl. National Direct Payment (30%)          92 bn       449 million

  of which                                                   

                                                             

  Arable land                                   72 bn       351 million

  Rice                                          0.7 bn      3 million

  Tobacco (Burley and Virginia Schemes)         4.5 bn      23 million

  Beef cattle (Beef and Suckler cow Schemes)    9.4 bn      46 million

  Dairy                                         3.6 bn      18 million

  Ewes                                          1.7 bn      8 million
  --------------------------------------------- ----------- -------------

The EU has not approved the above direct payments proposal of the GOH.
This is why the final per hectare payments are not known. However,
direct payments for oilseeds, forecasted at above HUF 30,000 (USD
144)/ha, will be higher than the production support of the previous
years. This may create better financing for the oilseed production and
will increase land prices and leasing fees.

The other factor that affects per hectare direct payments is the
registered area. Hungary claimed EU direct payments for 4,477,000 ha,
but until now only 3.5-3.6 million ha have been registered. This may
reduce the overall budget and per hectare direct payments.

# Biotechnology

The Hungarian government may potentially be one of the EU\'s more
forward-leaning members in support of biotechnology. Although the
Hungarian government has pledged to adopt all relevant labeling and
traceability legislation passed by the EU, the Hungarian government has
allowed field tests for herbicide resistant corn, wheat and other crops.

Extensive biotechnology research is taking place in Hungary, which
indicates the country's interest in further developments, and the use of
biotech will likely grow over time. Hungary has promulgated the main
pieces of legislation required by the time of accession (such as
executive orders on the labeling of food; sampling and threshold \[GMO\]
limits for imported materials; responsibilities of different authorities
in enforcement etc.). However, Hungary's considerable grain and seed
business will not open for biotech varieties in the near future.
Seemingly the country follows the EU's hesitant (de facto) application
of rules already made (several GMO plant varieties have passed the
required field tests and are waiting for (the deserved) registration).
The GOH has not shown any sign of having a real agricultural
biotechnology policy so far, rather than repeating the importance of a
"GMO-free" image for the country.

  ----------------- ----------------- ---------- ---------- ---------- ----------- ----------
  **Country**       **Hungary**                                                    

  **Commodity**     **Oilseed,                                         (1000       
                    Sunflowerseed**                                    HA)(1000    
                                                                       MT)         

                    2002              Revised    2003       Estimate   2004        Forecast

                    USDA Official     Post       USDA       Post       USDA        Post
                    \[Old\]           Estimate   Official   Estimate   Official    Estimate
                                      \[New\]    \[Old\]    \[New\]    \[Old\]     \[New\]

  **Market Year                       08.2002               08.2003                08.2004
  Begin**                                                                          

  Area Planted      415               415        550        504        0           482

  Area Harvested    415               415        550        504        0           482

  Beginning Stocks  0                 0          0          0          0           0

  Production        777               779        975        900        0           850

  MY Imports        2                 2          0          8          0           5

  MY Imp. from U.S. 0                 0          0          0          0           0

  MY Imp. from the  0                 0          0          0          0           0
  EC                                                                               

  TOTAL SUPPLY      779               781        975        908        0           855

  MY Exports        245               245        245        480        0           390

  MY Exp. to the EC 120               120        168        369        0           270

  Crush Dom.        496               496        688        383        0           418
  Consumption                                                                      

  Food Use Dom.     13                15         17         20         0           22
  Consump.                                                                         

  Feed,Seed,Waste   25                25         25         25         0           25
  Dm.Cn.                                                                           

  TOTAL Dom.        534               536        730        428        0           465
  Consumption                                                                      

  Ending Stocks     0                 0          0          0          0           0

  TOTAL             779               781        975        908        0           855
  DISTRIBUTION                                                                     
  ----------------- ----------------- ---------- ---------- ---------- ----------- ----------

  ----------------- ------------- ---------- ---------- ---------- ----------- ----------
  **Country**       **Hungary**                                                

  **Commodity**     **Oilseed,                                     (1000       
                    Soybean**                                      HA)(1000    
                                                                   MT)         

                    2002          Revised    2003       Estimate   2004        Forecast

                    USDA Official Post       USDA       Post       USDA        Post
                    \[Old\]       Estimate   Official   Estimate   Official    Estimate
                                  \[New\]    \[Old\]    \[New\]    \[Old\]     \[New\]

  **Market Year                   10.2002               10.2003                10.2004
  Begin**                                                                      

  Area Planted      26            26         29         29         0           28

  Area Harvested    26            26         29         29         0           28

  Beginning Stocks  0             0          0          0          0           0

  Production        53            53         55         62         0           64

  MY Imports        15            5          15         4          0           5

  MY Imp. from U.S. 0             0          0          0          0           0

  MY Imp. from the  0             0          0          0          0           0
  EC                                                                           

  TOTAL SUPPLY      68            58         70         66         0           69

  MY Exports        10            10         8          8          0           10

  MY Exp. to the EC 0             0          0          0          0           0

  Crush Dom.        7             7          7          7          0           5
  Consumption                                                                  

  Food Use Dom.     5             5          5          5          0           5
  Consump.                                                                     

  Feed,Seed,Waste   46            36         50         46         0           49
  Dm.Cn.                                                                       

  TOTAL Dom.        58            48         62         58         0           59
  Consumption                                                                  

  Ending Stocks     0             0          0          0          0           0

  TOTAL             68            58         70         66         0           69
  DISTRIBUTION                                                                 
  ----------------- ------------- ---------- ---------- ---------- ----------- ----------

  ----------------- ------------- ---------- ---------- ---------- ----------- ----------
  **Country**       **Hungary**                                                

  **Commodity**     **Oilseed,                                     (1000       
                    Rapeseed**                                     HA)(1000    
                                                                   MT)         

                    2002          Revised    2003       Estimate   2004        Forecast

                    USDA Official Post       USDA       Post       USDA        Post
                    \[Old\]       Estimate   Official   Estimate   Official    Estimate
                                  \[New\]    \[Old\]    \[New\]    \[Old\]     \[New\]

  **Market Year                   06.2002               06.2003                06.2004
  Begin**                                                                      

  Area Planted      142           142        91         91         0           112

  Area Harvested    127           127        70         67         0           85

  Beginning Stocks  0             0          0          0          0           0

  Production        208           201        104        88         0           158

  MY Imports        6             6          0          0          0           0

  MY Imp. from U.S. 0             0          0          0          0           0

  MY Imp. from the  0             0          0          0          0           0
  EC                                                                           

  TOTAL SUPPLY      214           207        104        88         0           158

  MY Exports        110           105        25         50         0           85

  MY Exp. to the EC 0             0          0          0          0           0

  Crush Dom.        99            99         76         35         0           70
  Consumption                                                                  

  Food Use Dom.     0             0          0          0          0           0
  Consump.                                                                     

  Feed,Seed,Waste   5             3          3          3          0           3
  Dm.Cn.                                                                       

  TOTAL Dom.        104           102        79         38         0           73
  Consumption                                                                  

  Ending Stocks     0             0          0          0          0           0

  TOTAL             214           207        104        88         0           158
  DISTRIBUTION                                                                 
  ----------------- ------------- ---------- ---------- ---------- ----------- ----------