Required Report - public distribution

**Date:** 11/6/2003

**GAIN Report Number:** HU3011

HU3011

**Hungary**

**Livestock and Products**

**Annual**

**2003**

**Approved by:**

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

#### U.S. Embassy

**Prepared by:**

Dr. Ferenc Nemes

**Report Highlights:**

The hog market in Hungary became saturated during the 2002/2003 winter.
With massive support from the GOH, exports grew sharply. High feed grain
prices and low profitability will slow hog production and stock build up
in 2003/2004. Hungary's EU membership in May 2004 will not result in
tariffs increases for U.S. pork and edible offal. However, unsettled
animal product disputes with the EU limit export opportunities.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Vienna \[AU1\]

\[HU\]

# Production

#### General

Hungary's opening swine stock in January 2003 was 3 percent above the
previous year level. By April 2003, the number of slaughter hogs was 10
percent above the same figures of 2002 and the number of piglets and
sows was rather low. These figures indicated a heavily saturated market

The GOH managed to reduce hog numbers by August 2003. Seasonal animal
stock building will be weaker than in other years due to high feed
prices and bearish demands for pork.

**Production Policy**

Hog farmers and slaughterers receive several kinds of production and
marketing support from the federal government. These range from direct
payments for quality bonuses, intervention purchase payments, partial
write-off of interest on investment loans and interest reimbursements
for operating loans.

Hungary will become a member of the European Union as of May 2004.
Generally speaking, the competitive position of the poultry and swine
sectors, and in particular the sheep sector, will be worse after EU
membership, at least in the first years. EU intervention prices of feed
grains are high enough to generate about a 15 percent grain price
increase in 2004/2005, even if the June 2003 negotiations on the
modification of the CAP result in intervention price reductions.

Some subsidies (such as export subsidies, meat storage, some breeding
programs, etc.) are only paid as the result of a competitive bidding
process open for all EU member states. Hungarian farmers are still
inexperienced at writing tenders and, in many instances, are short of
collateral and credit needed for performance bonds.

The hog and poultry sectors will be negatively affected by the
forecasted increase of domestic feed grain prices (though most input
prices are now considerably lower than EU prices). Overall production
efficiency in the swine and poultry sectors is less than in the EU due
to a low level of capital investment. Feed conversion is up to 30
percent worse in Hungary and the quality of the product is often not
good enough for the EU market (for example, it is estimated that only
60% of slaughtered hogs meet the EUROP quality standards).

**Consumption**

After bottoming out in 1998 at 26.5 kg/year, per capita pork consumption
has started to grow again. BSE and FMD rumors eroded beef consumption,
but pork has had to compete with poultry meat on image (poultry meat is
believed to be healthier). Pork consumption from household production or
from unregistered local sources is still significant, and this adds
uncertainty to official consumption figures.

Per capita consumption of major food items:

  -------------------------------- ------------ ------------ ------------
                                   1998         1999         2000

  Meat & products, kg              61.8         61.5         71.7

  of which Beef                    4.1          4.2          4.4

  Pork                             26.5         28.8.0       28.5

  Poultry                          24.4         26.8         34.4

  Fish, kg                         2.5          2.8          3.0

  Milk & Dairy, kg                 151.8        154.3        154.3

  Eggs, kg                         14.9         15.5         15.6

  Fats & Oils, kg                  36.7         34.8         39.7

  of which Lard                    17.5         18.6         18.3

  Butter                           1.1          0.9          0.9

  Vegetable Oil, Margarine         16.6         13.7         18.3

                                                             
  -------------------------------- ------------ ------------ ------------

Source: Central Statistical Office, Hungarian Statistical Yearbook,
1998-2001

**Prices**

Domestic live hog producer prices in Hungary had been above the EU
market prices since August 2002 until May, 2003. This caused the pork
market to become saturated and domestic consumption to weaken. GOH
programs helped to reduce stocks but hog prices went down 17 percent in
the first half of 2003.

A devastating drought in 2003 increased feed grain prices beyond the
price rise of the consolidating hog market. Livestock and poultry
associations even lobbied for feed and feed grain export ban at GOH in
September-October.

Domestic hog prices will be depressed, just above the average production
costs, until the first half of 2004.

**Trade**

**General**

Hungary's swine industry is very much export oriented and about 20-25
percent of pork produced is for export markets. In some years, live hog
sales are also significant.

Exports of live hogs in the first half of 2003 were low, about 77
percent of the same figure in 2002. Main destinations were the
neighboring non-EU countries, Romania, Bosnia and Croatia.

Pork sales were 12 percent above the previous year results in the first
half of 2003. Enhanced sales can be attributed to GOH market access
programs (see at Export Subsidies). Reduced support for exports and
stagnating animal stock will result in lower exports for the second half
of 2003 and 2004.

Imports of lower quality frozen meat and edible offal for further
processing have been stable in the 15,000-30,000 MT range in recent
years. Pork imports from the EU increased 20 percent in 2002 on the
basis of low prices in the EU. But in the first seven months of 2003,
pork imports went back to normal.

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

  Country               Hungary                           

  Commodity             Meat, Swine                       

  Time period           CY 2002          Units:           1,000 MT

  Exports for:                                            

  U.S.                                   U.S.             

  Others                                 Others           

  Japan                 57                                

  Spain                 47                                

  Korea                 36                                

  Italy                 16                                

  Slovenia              14                                

                                                          

                                                          

                                                          

                                                          

                                                          

  Total for Others      170                               0

  Others not Listed     58                                

  Grand Total           228                               0

                                                          

  Import Trade Matrix                                     

  Country               Hungary                           

  Commodity             Meat, Swine                       

  Time period           CY 2002          Units:           1,000 MT

  Imports for:                                            

  U.S.                                   U.S.             

  Others                                 Others           

  Germany               26                                

  Denmark               9                                 

  Netherlands           9                                 

                                                          

                                                          

                                                          

                                                          

                                                          

                                                          

                                                          

  Total for Others      44                                0

  Others not Listed     15                                

  Grand Total           59                                0
  --------------------- ---------------- ---------------- ----------------

**Competitive Situation for US Exports**

Product certification has become a major trade issue since Hungary
harmonizing its veterinary regime with the EU. Continuous communication
with importers and regulators is necessary in order to follow the
ever-changing requirements for handling edible offal, specified risk
materials (SRM) for BSE, certifications and other technical issues.
There are currently no valid USDA/FSIS meat export certificates for
Hungary.

From May, 2004 Hungary will use the relevant EU import rules.

**Export Subsidies**

Under the WTO export subsidy commitments Hungary has very much limited
opportunity to give export subsidies to hog and pork. Because of severe
overproduction (more exactly low consumption and exports) during the
winter of 2002 and continuing over 2003, GOH was forced to spend about
HUF 15.5 billion (USD 68 million) on marketing and export support for
the swine sector in 2003.

Direct export support was offered on live slaughter hogs HUF 65-90 (USD
0.28-0.4)/kg for a 12,600 MT quota, and fresh/chilled half carcass, HUF
150 (USD 0.66)/kg for 5,000 head of hogs. Above subsidies are given for
exports to any countries excluding the EU, Czech and Slovak Republic.
Marketing support included subsidies on cold storage costs of products,
slaughter costs of overweight hogs, packaging material, waste treatment,
food hygiene costs etc.

With EU membership, Hungary's export subsidy system will be terminated
and the full EU export refund system will be applied.

No EU subsidies have been used for products exported to Hungary in
recent years as a result of the 'double zero' agreement.

**Tariff Changes**

On January 1, 2003, Hungary published its revised tariff schedule. As
with last year, the first column (I) shows GSP tariffs on imports from
developing countries, the second column (II) contains the MFN tariffs,
and the third column (III) contains the preferential tariffs based on
free trade agreements with the EU, EFTA, Turkey, Israel, Bulgaria, Czech
Republic, Estonia, Latvia, Poland, Romania, Slovakia, and Slovenia (the
latter eight countries will be referred to later as \"CEFTA\"). If a
tariff is not set for the 3rd sub‑column, the MFN tariff is used.

Under separate decrees, the Government of Hungary announced further
preferential tariffs under quota (TRQ) for imports from:

The EU and CEFTA (Order #18/2002 Sep. 20.)

All countries (unilaterally given quotas)(Order #1/2003 Jan 6.)

All countries (GATT quotas) (Order #23/2002 Nov.30.)

+-------------------+--------+--------+---------+---------+---------+
|                   | Br     | Other  | B       | Other   | Sheep/  |
|                   | eeding |        | reeding |         |         |
|                   |        | Cattle |         | Swine   | Goats   |
|                   | Cattle |        | Swine   |         |         |
+-------------------+--------+--------+---------+---------+---------+
| HS codes (4)      | 0102   | 0102   | 0103 10 | 0103 91 | 0104    |
|                   | 10     | 90     |         |         |         |
+-------------------+--------+--------+---------+---------+---------+
| MFN Tariffs (%)   | 23.5   | 40     | 29.5    | 50.2    | 32      |
+-------------------+--------+--------+---------+---------+---------+
| EU                | 0      | 0      | 0       | 0       | 0       |
+-------------------+--------+--------+---------+---------+---------+
| CEFTA CZ          | 0      | 15     | 0       | 10-15   | 0       |
+-------------------+--------+--------+---------+---------+---------+
| CEFTA Sl          | 0      | 15     | 0       | 10-15   | 0       |
+-------------------+--------+--------+---------+---------+---------+
| CEFTA Po          | 0      | 15     | 0       | 10-15   | 0       |
+-------------------+--------+--------+---------+---------+---------+
| GATT quota(1)     | 13,595 | 13,595 | 19,909  | 19,909  | 92 MT   |
|                   | MT     | MT 15% | MT      | MT      |         |
|                   |        |        |         |         | 9%      |
|                   | 15 %   |        | 15%     | 15%     |         |
+-------------------+--------+--------+---------+---------+---------+
| Unilateral quota  | 6330   | \-     | 400     | \-      | \-      |
|                   | head   |        | head    |         |         |
|                   |        |        |         |         |         |
|                   | 0%     |        | 0%      |         |         |
+-------------------+--------+--------+---------+---------+---------+

+--------------------+---------+---------+---------+---------+--------+
|                    | Beef    | Pork    | Edible  | Bovine  | Bovine |
|                    |         |         |         |         |        |
|                    |         |         | Offal   | Semen   | Embryo |
+--------------------+---------+---------+---------+---------+--------+
| HS codes (2)       | 0201,   | 0203    | 0206    | 0511 10 | 0511   |
|                    | 0202    |         |         |         | 99 50  |
|                    |         |         |         |         | 00     |
+--------------------+---------+---------+---------+---------+--------+
| MFN Tariffs (%)    | 71.7    | 51.9    | 42.9    | 18      | 19.2   |
+--------------------+---------+---------+---------+---------+--------+
| EU                 |         |         |         | 0       | 0      |
+--------------------+---------+---------+---------+---------+--------+
| CEFTA CZ           | 25      | 25      | 0       | 0       | 0      |
+--------------------+---------+---------+---------+---------+--------+
| CEFTA Sl           | 25      | 25      | 0       | 0       | 0      |
+--------------------+---------+---------+---------+---------+--------+
| CEFTA Po           | 25      | 25      | 0       | 0       | 0      |
+--------------------+---------+---------+---------+---------+--------+
| EU quota(8)        | 1740 MT | 21,000  | 12,000  |         |        |
|                    |         | MT      | MT      |         |        |
|                    | 15%     |         |         |         |        |
|                    |         | 0%      | 0%      |         |        |
|                    | 0202 20 |         |         |         |        |
|                    | (3):    |         |         |         |        |
|                    |         |         |         |         |        |
|                    | 6210 MT |         |         |         |        |
|                    |         |         |         |         |        |
|                    | 10.5%   |         |         |         |        |
+--------------------+---------+---------+---------+---------+--------+
| GATT quota         | 13,595  | 19,909  | 1122 MT | \-      | \-     |
|                    | MT      | MT      |         |         |        |
|                    |         |         | 15      |         |        |
|                    | 15% (1) | 25% (1) |         |         |        |
+--------------------+---------+---------+---------+---------+--------+
| Unilateral quota   | \-      | \-      | \-      | 34,000  | 500    |
|                    |         |         |         | doses,  | pieces |
|                    |         |         |         | 0%      |        |
|                    |         |         |         |         | 0%     |
+--------------------+---------+---------+---------+---------+--------+

Notes:

\(1\) GATT quotas are for the combined preferential imports of live
animals and meat

\(2\) Last four digits (7-10th digits) may differ from the US coding

\(3\) 0202 20: Frozen beef with bones

As of May, 2004 Hungary is going to take over the EU outside tariff
system. The number of potential export products from the United States
to Hungary where EU membership brings a higher tariff is surprisingly
limited. These products are beef, poultry meat, barley, rice, some beef
preparations, margarine and apple juice concentrate. Hungary imports
these commodities regularly, and in some years from the United States.
With the exception of rice, Hungary is also often a net exporter of
these commodities.

Edible offal (hog and cattle) including poultry liver from the US will
meet lower tariffs, but purchases very much depend on domestic demands
and future EU technical import restrictions.