Required Report - public distribution

**Date:** 11/10/2003

**GAIN Report Number:** EZ3014

EZ3014

**Czech Republic**

**Exporter Guide**

**Annual**

**2003**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Petra Choteborska

**Report Highlights:**

This report contains detailed information on how to import food products
into the Czech Republic, market prospects, and points of contact. The
economic outlook for 2003 is positive with expected GDP growth at 1.6%.
The country is becoming a wealthier market, and the standard of living
and per capita disposable income continue to rise. In May 2004, the
Czech Republic will join the EU and adopt the EU tariff system and
Common Agricultural Policy. The affects on U.S. exports will be mixed
and driven mostly by tariff changes.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Vienna \[AU1\]

\[EZ\]

# SECTION I. MARKET OVERVIEW

[Summary:]{.underline}

The Czech economic situation continues to improve as the Czech
government prepares for the EU accession in May 2004. The food
distribution system changed dramatically in the 1990s with an infusion
of foreign capital into the food retail sector (see Section III.).

Consumers demand variety, and although price still plays a key role for
many customers, quality is becoming increasingly important. In the early
1990s, many U.S. food products were available on the Czech market (e.g.
nuts, rice mixes, tex-mex foods). At present, such products are less
available due to pricing difficulties or legal trade barriers (retailers
demand that all products be certified as GMO-free).

With the EU accession there will be changes in the food consumption:
increased purchasing power will create demand for higher quality U.S.
product, and demand for organic and healthy products will increase.
There is a potential for U.S. organic and high quality beans, lentils,
rice, nuts, frozen juice concentrate, etc. After accession, tariffs will
be higher for tobacco, dried fruits, nuts, and fish. U.S. suppliers will
see lower tariffs for whiskey, cigars, and wood products (see GAINS
report #EZ3007)

[Overall business climate:]{.underline}

## The negative economic situation in the late '90's started to improve in 1999. This trend continued in 2000 and generated a renewed economic growth. Positive economic development continued in 2001. However, the second half of the year showed a deceleration of the general economic growth. Year 2002 brought very low growth in consumer prices, which even caused deflation at the beginning of the year. Positive values were restored in June 2003. The economic analysts forecast growth of consumer prices for 2004. 

The economic development in the past years resulted in a raised GDP,
strengthening of the Czech currency (Czech crown, CZK) toward Euro and
USD, the growth of real incomes and final consumption of households. On
the other hand state debt is increasing, and there is an unfavorable
demographic situation (aging of population).

## The table shows main economic indicators of the CR:

  ----------------------- ---------- ---------- ---------- ---------- ----------
                          **1998**   **1999**   **2000**   **2001**   **2002**

  GDP growth (%)          -2.2       -0.8       3.1        3.6        2.0

  Inflation rate (%)      10.7       2.1        3.9        4.7        1.8

  Unemployment rate (%)   7.5        8.6        9.0        8.9        9.8

  Income growth (%)       -1.3       6.0        1.9        3.2        5.1
  ----------------------- ---------- ---------- ---------- ---------- ----------

The Czech Republic is a net importer of agricultural products (live
animals, food, drinks, and tobacco). Total import of agricultural
products in 2002 was \$1.9 bill, out of which \$55 mil was from the U.S.
(structure of imports is shows in the table in Section IV.) Total export
in 2002 was \$1.2 bill, out of which \$200 mil to the U.S. (mainly
beverages and confectionery).

[Consumer Food Market:]{.underline}

The percentage of disposable income spent on food is slightly declining.
In 1999 it was 23.2% while in 2002 it dropped to 22.2%.

**The table shows different eating habits in 1996 and in 2002:**

  ------------------ --------------- ---------------- --------------------
  **Item**           **Consumption   **Consumption in **% Index (2002
                     in kg per       kg per capita in compared with
                     capita in       2002**           1996)**
                     1996**                           

  Meat total         85.3            79.1             92.7

  Out of which: Pork 49.2            40.5             82.3

  **Beef**           18.2            10.9             **59.9**

  Veal               0.3             0.2              66.7

  **Poultry**        13.6            23.9             **175.7**

  Fish total         5.2             5.2              0

  Vegetable edible   15.8            16.0             99.4
  fats and oils                                       

  Milk and milk      199.2           220.6            110.7
  products                                            

  Eggs (pieces)      276             298              107.9

  Cereals (in flour) 113.8           101.51           89.5

  Sugar              39.5            40.0             101.3

  Potatoes           77.2            76.0             98.4

  Pulses             2.0             2.1              105.0

  Vegetables         79.5            84.0             105.7

  Fruit              73.5            69.4             94.4

  Spirits (40%)      8.0             8.2 (2001)       102.5

  Beer               157.3           156.9 (2001)     99.9

  Wine               15.8            16.2 (2001)      102.5

  **Non-alcoholic    127.0           220 (2001)       **173.2**
  beverages**                                         
  ------------------ --------------- ---------------- --------------------

The biggest changes reflect trends towards what's believed to be
healthier: decreased consumption of red meat, especially beef; increased
consumption of poultry, mainly chicken; substitution of butter and other
animals fats with vegetable oils and margarine; increased consumption of
vegetables, pulses and some fruit.

Much higher consumption of non-alcoholic beverages and slightly
increased consumption of milk and dairy products are a result of a wider
supply of these products on the market. Multinational companies
(Coca-Cola, Pepsi-Cola, Danone) sell most of their production in the new
supermarkets and hypermarkets.

[Key demographic developments and their impact on consumer buying
habits:]{.underline}

The number of single and childless households is on the rise. Primarily
due to young people waiting longer before they have a family and more
women entering the professional job market. The result is a higher
demand for convenience products and frozen foods. Recently fresh,
chilled, ready-made meals have become popular. Additionally, with the
boom in hypermarkets and larger home refrigerators, once-a-week food
shopping is quickly replacing daily purchases of fresh food items.

**Advantages and Challenges for U.S. Suppliers on the Czech Market:**

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

  Improving economic situation and    U.S. exporters have to compete with
  growing purchase power              EU exporters that have better
                                      conditions (closer distance, free
                                      trade with many agricultural.
                                      Commodities) and domestic producers
                                      (cheaper products)

  After the EU accession in May 2004  After the EU accession in May 2004
  some products will have lower       some products will have higher
  import duty (e.g. wine, spirits)    import duty (e.g. seafood, nuts)

  New investments throughout the      Relatively small volumes with high
  country will create new demand in   transportation costs
  smaller cities and rural areas      

  Changing lifestyle, eating habits   Low appreciation of high quality of
  -- eating out is more and more      U.S. products (e.g. nuts); price
  popular                             still plays a key role

  Boom of large and modern            Food safety issues (fear of GMO;
  hypermarkets that carry a wide      import restrictions for hormone
  range of products (30-50,000)       treated beef)

  Willingness to try new products;    Lower purchase power compare to the
  innovative products and packaging   EU
  increase demand                     
  ----------------------------------- -----------------------------------

***SECTION II. EXPORTER BUSINESS TIPS***

[Local Business Customs:]{.underline}

The Czech system of duties imposed on imports is transparent and stable
and the customs system generally respects the country's obligations in
the WTO. In May 2003 Double Profit Agreement, which liberalizes trade of
95% of agricultural commodities between the EU and the Czech Republic,
came into force.

[General Consumer Tastes and Preferences:]{.underline}

Demand for typical Czech cuisine which is quite heavy, usually
consisting of meat and dumplings with sauce, has been declining and is
being replaced with healthier eating habits (see Consumer Food Market
part). Demand for organic products is on the rise. General public is not
concerned much about GMOs, however, retailers require a certification
from suppliers that their products are GMO free (which is a imitating
factor for export of some U.S. food products, e.g. tortilla chips).

[Food Standards and Regulations:]{.underline}

Food Act no. 274/2003 replaced Act no. 110/97 and establishes basic
rules for food production in the Czech Republic.

Act no. 153/2000 on Genetically Modified Organisms (GMOs) is currently
being replaced by a new act (still in the Parliament). For more
information on biotechnology regulations, see EZ3012.

[General Import and Inspection Procedures:]{.underline}

All imported products must comply with Czech food safety regulations
(Food Law 110/97 along with the relevant amendments). Products of animal
origin are subject to certification and the State Veterinary
Administration has specific requirements for importing poultry, beef,
pork, horsemeat, and fish products. These products must be accompanied
by appropriate USDA Food Safety and Inspection Service (FSIS)
certificate. Fresh/frozen red meat and poultry are not eligible for
export from the U.S. at this time (go to for a current listing of
certification requirements).

Veterinary law requires administrative fees for veterinary checks on
animals, animal products, and fodder imported into the Czech Republic.
The fee for a veterinary check per metric ton of live animal is 170 CZK.
The fee for one metric ton of animal product and fodder is set at 110
CZK. The minimum fee per consignment is 1,120 CZK and the maximum 11,900
CZK.

The State Agricultural and Food Inspection Service (SAFI) is a
government organization that regulates food safety for products that
have already been imported and are being sold in stores, restaurants
etc. SAFI inspects the quality of the foods including its; shelf life,
expiration dates, prices and other characteristics.

[Tariffs and tariff rate quotas (TRQs):]{.underline}

Information regarding the fill rate of a particular TRQ is published
regularly and can be found on the Internet at: TRQs are generally
administered on an MFN basis (i.e. they are not earmarked for a specific
country).

As off May 2003 Double Profit Agreement between the Czech Republic and
the EU liberalizes trade with 95% of agricultural products between the
CR and the EU.

[Taxes:]{.underline}

The Czech Republic has two VAT rates: 5% on foodstuffs, and 22% on
tobacco, alcoholic beverages and seafood. VAT for public catering was
reduced from 22% to 5% in April 2000. In addition to the VAT, some
products are subject to excise tax. However, the Czech Republic is going
to change VAT and excise taxes based on the EU rates prior to the EU
accession in May 2004.

The following list shows the 2003 rates for selected products:

cigars and cigarillos 0.36 CZK/piece + 5% from retail price

cigarettes 0.36 CZK/piece + 22% from retail price

beer 24 CZK/hectoliter for each percent of original malt extract (e.g.
10% beer = 240 CZK, 12% beer = 288 CZK)

alcohol and spirits 234 CZK/liter

grape wines 2.5 CZK/liter

fortified wines 16.40 CZK/liter

sparkling wines 23.40 CZK/liter

A listing of the product categories subject to excise taxes was
published in the government's Excise Tax Act No. 587/1992 Col., a copy
of which may be obtained through the American Embassy in Prague.

# SECTION III. MARKET SECTOR STRUCTURE AND TRENDS

#### Food retail sector

The size of the food retail sector in 2002 was around \$12 bill. The
sector has been growing, but its pace has already slowed down. The
biggest boom of retail sector came with multinational retailers in the
second half of the 1990s. In 1996 the Czech Republic had 2 hypermarkets,
in 2002 there were 127 hypermarkets). Market share of the top 10
companies accounts for more than 50% of the sector sales.

The largest players on the Czech retail market are:

  --------------------------------- --------------- -----------------------
  **Retailer**                      **Ownership**   **Food Sales in 2002
                                                    (\$mil.)**

  Makro - cash and carry (part of   Dutch           \$976
  Metro)                                            

  Ahold - supermarkets,             Dutch           \$978
  hypermarkets                                      

  Kaufland -- hypermarkets          German          \$620

  Rewe Group -- supermarkets,       German          \$712
  discounts                                         

  Tesco -- supermarkets,            U.K.            \$376
  hypermarkets                                      

  Tengelmann -- discount stores     German          \$393

  Globus -- hypermarkets            German          \$342

  Carrefour -- hypermarkets         French          \$264

  Delvita - supermarkets            Belgium         \$379
  --------------------------------- --------------- -----------------------

The table below shows where Czech consumers prefer to shop (in %):

+------------+----------+----------------+----------------------------+
| ### Type   | **2001** | **2002**       | **Note**                   |
|  {#type-1} |          |                |                            |
+------------+----------+----------------+----------------------------+
| Hy         | 29       | 30             | large and mid size cities, |
| permarkets |          |                | higher incomes, higher     |
|            |          |                | education                  |
+------------+----------+----------------+----------------------------+
| Su         | 26       | 21             | mid size cities, higher    |
| permarkets |          |                | incomes, secondary         |
|            |          |                | education                  |
+------------+----------+----------------+----------------------------+
| Discount   | 18       | 18             | mid and small size cities, |
| stores     |          |                | lower incomes, lower       |
|            |          |                | education                  |
+------------+----------+----------------+----------------------------+
| Small      | 20       | 22             | rural areas, older people  |
| stores     |          |                | with lower education       |
+------------+----------+----------------+----------------------------+
| Other      | 7        | 9              |                            |
+------------+----------+----------------+----------------------------+

#### Hotels, Restaurants and Institutions sector (HRI)

The size of the HRI sector in 2002 was \$1.9 bill., up 6% from 1998.
Hotel sales account for 24% (14% middle class, 7% luxury), restaurants
50% (23 middle class, 10% top class) and institutions 26% (10% schools,
2% hospitals, 12% company cafeterias, 2% army and police). While most
hotels and restaurants are independent, there are some Western chains
operating in the Czech Republic: hotels (Marriott, Hilton,
Intercontinental, Holiday Inn, Best Western), catering companies
(Eurest, Sodexho, GtH) and fast food restaurants (McDonald's, Pizza Hut,
Kentucky Fried Chicken, Little Caesar's, Subway).

While in the early 1990s many western hotels and restaurant chains
opened their establishments in the Czech Republic, the restaurant
industry focused on upgrading during the second half of the 1990s.
Several conditions have helped stimulate this sector: increased
purchasing power that let towards increased eating out, a lower VAT (the
value-added tax fell from 22 to 5 percent) and a demand for convenience
foods.

While the majority of foods consumed in restaurants are domestic,
imports account for 20-25%. Most come from the EU because of lower
duties and close distance: seafood, produce, nuts, dairy products,
pastas and sauces, breakfast cereals and spirits. Upper class hotels
offer some U.S. food products (e.g. wine -- Robert Mondavi, Beringer,
Ironstone; cranberry juice; seafood; appetizers -- almonds).

#### Food processing sector

The size of food processing sector in 2002 was around \$10 bill. After a
decline in 1999, the sector has been growing 6-9% a year. The largest
share on the total sector size has the following sub-sectors: meat,
beverages, other products (bakery, confectionery, pasta, coffee, tea,
spices) and dairy.

Czech food processing sector is not consolidated yet. Privatization of
the food processing industry sector was competed several years ago and
government ownership accounts for only a few percent of production
(e.g., the famous Budejovicky Budvar (Budweiser) brewery). Multinational
companies dominate the sweets, soft drinks, vegetable oil and tobacco
industries. Processors of meat, poultry, and diary products and the
canning industry are for the most part Czech companies. The level of
technology and the use of modern equipment vary among companies. There
is an over capacity of production and many companies that do not meet
food standards of the EU (especially meat production, dairy and milling
industry). In the future there will be a lower number of more efficient
companies that are modern and comply with food safety requirements.

The Czech Republic is a net food importer. In 2002 the CR imported 21.5%
of its total domestic consumption and exported 13.5% of its domestic
production. The following tables show export orientation and import
penetration in 2002 and shares of countries that export food to the CR
and countries that import food from the CR.

+-----------------------+-----------------------+-----------------------+
|                       | **Export Orientation  | **Import Penetration  |
|                       | (in %)**              | (%)**                 |
|                       |                       |                       |
|                       | **(export/domestic    | **(import/domestic    |
|                       | prod.)**              | consumption)**        |
+-----------------------+-----------------------+-----------------------+
| Meat Industry         | 6.7                   | 9.9                   |
+-----------------------+-----------------------+-----------------------+
| Fish Processing       | 11.5                  | 69.2                  |
+-----------------------+-----------------------+-----------------------+
| Fruit & Vegetable     | 25.6                  | 59.4                  |
| Processing            |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Oils and Fats         | 13.6                  | 32.4                  |
+-----------------------+-----------------------+-----------------------+
| Dairy Products        | 13.6                  | 11.3                  |
+-----------------------+-----------------------+-----------------------+
| Bakery Products       | 21.1                  | 35.5                  |
+-----------------------+-----------------------+-----------------------+
| Feed Production       | 4.4                   | 14.9                  |
+-----------------------+-----------------------+-----------------------+
| Other food products   | 21.7                  | 35.2                  |
|                       |                       |                       |
| (confectio            |                       |                       |
| nery,tea,cofee,pasta) |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Beverages             | 14.0                  | 10.3                  |
+-----------------------+-----------------------+-----------------------+

**Import and export territories in 2002:**

+-----------------------+-----------------------+-----------------------+
|                       | **Import (% of total  | **Export (% of total  |
|                       | import)**             | export)**             |
+-----------------------+-----------------------+-----------------------+
| Germany               | 24                    | 17                    |
+-----------------------+-----------------------+-----------------------+
| Slovakia              | 11                    | 25                    |
+-----------------------+-----------------------+-----------------------+
| Poland                | 9                     | 13                    |
+-----------------------+-----------------------+-----------------------+
| Austria               | 5                     | 4                     |
+-----------------------+-----------------------+-----------------------+
| Hungary               | 5                     | 4                     |
+-----------------------+-----------------------+-----------------------+
| Italy                 | 5                     | U.K. 3                |
+-----------------------+-----------------------+-----------------------+
| ## France             | 4                     | Russia 3              |
+-----------------------+-----------------------+-----------------------+
| Netherlands           | 4                     | 3                     |
+-----------------------+-----------------------+-----------------------+
| Other                 | 33                    | 28                    |
+-----------------------+-----------------------+-----------------------+

# SECTION IV. BEST HIGH-VALUE PRODUCT PROSPECTS

The following high value products are considered to have good market
prospects:

1\. Dried fruits and nuts (almonds, raisins, prunes, pistachios, pecans,
peanuts)

## 2. Fish and seafood (live lobster, scallops, squid, salmon, mussels)

## 3. Alcoholic beverages (distilled liquor, wine, alcohol mixtures for cocktails)

4\. Rice (wild rice, rice mixes)

5\. Various mixes and ingredients (e.g. for ice cream, baking
ingredients)

6\. Spices

7\. Frozen juice concentrate

8\. Tropical fruit (red grapefruit)

9\. Sauces and spreads (salsa, peanut butter)

10\. Meat (horse, after negotiating import certificates also high
quality beef)

11\. Instant food (frozen)

12\. Petfood

13\. Tobacco products

**Imports to the Czech Republic in 2002:**

  ---------- -------------------------- ----------- ------------- -----------
  **HTS      **Item**                   **Czech     **U.S. share  **Czech
  Number**                              total       in %          total
                                        import in   (compared in  import in
                                        MT**        volume)**     mil. USD**

  0303       Fish, frozen, excl.        8,912       **2**         9.2
             fillets                                              

  0304       Fish fillets, chilled or   19,185      **7**         29.8
             frozen                                               

  0802       Nuts                       6,421       **37**        18.0

  080620     Grapes, dried              4,714       **9**         3.6

  1005       Corn                       15,530      **3**         13.5

  1006       Rice                       55,518      **3**         14.7

  2106       Food preparations,         41,448      **5**         106.5
             nonspecific.                                         

  2204       Wine                       103,422     **0.1**       44.8

  2208       Spirits and liqueurs       16,948      **9**         35.0

  2309       Pet food                   102,727     **1**         71.5

  2401       Tobacco unprocessed        12,143      **24**        45.3

  4407       Wood sawn/chipped/sliced   248,907     **0.3**       57.2

  4408       Veneer sheets/sheets of    11,867      **6.5**       25.1
             plywood                                              

  5201       Cotton not carded or       68,570      **2**         77.6
             combed                                               
  ---------- -------------------------- ----------- ------------- -----------

Source: Czech Customs Directorate
(http://web.cs.mfcr.cz/cesta3_init_en.html)

# SECTION V. KEY CONTACTS AND FURTHER INFORMATION

#### American Embassy -- FAS

Ms. Petra Choteborska

Agricultural Specialist

Trziste 15

118 01 Praha 1

Czech Republic

Tel: +420-257-531-170

Fax: +420-257-531-173

E-mail: petra.choteborska@usda.gov

URL: www.usembassy.cz

#### Ministry of Agriculture

Ms. Zdenka Peskova

Director of Food Production Department

Tesnov 17

117 01 Praha 1

Czech Republic

Tel: +420-221-812-224

Fax: +420-222-314-117

E-mail: peskova@mze.cz

URL: www.mze.cz

#### Ministry of Industry and Trade

Mr. Otomar Louda

International Trade Relations Director

Politickych veznu 20

112 49 Praha 1

Czech Republic

Tel: +420-224-229-048

Fax: +420-224-221-560

E-mail: louda@mpo.cz

URL: www.mpo.cz

#### State Veterinary Administration

Dr. Josef Holejsovsky

Chief Veterinary Officer

Slezska 7

120 56 Praha 2

Czech Republic

Tel: +420- 227-010-142

Fax: +420-227-010-191

E-mail: j.holejsovsky@svscr.cz

URL: www.svscr.cz

# 

## State Agricultural and Food Inspection

Dr. Jana Palackova

Deputy Director

## Kvetna 15

603 00 Brno

Czech Republic

Tel: +420-543-540-203

Fax: +420-543-540-210

E-mail: jana.palackova@szpi.gov.cz

## URL: www.szpi.cz

# 

# TABLE A. KEY TRADE & DEMOGRAPHIC INFORMATION

**The following table shows data from 2002:**

+----------------------------------------------------------+-----------+
| ## Agricultural I                                        | ##        |
| mports From All Countries (\$Mil)/ U.S. Market Share (%) | 2,239 (3) |
+----------------------------------------------------------+-----------+
| ## Consumer Food I                                       | ##        |
| mports From All Countries (\$Mil)/ U.S. Market Share (%) | 1,396 (2) |
+----------------------------------------------------------+-----------+
| ## Edible Fishery I                                      | ## 82 (3) |
| mports From All Countries (\$Mil)/ U.S. Market Share (%) |           |
+----------------------------------------------------------+-----------+
| ## Total Population (Millions)/ Annual Growth Rate (%)   | ## 10     |
|                                                          | .2 (-0.1) |
+----------------------------------------------------------+-----------+
| ## Urban Population (Millions)/ Annual Growth Rate (%)   | ## 7      |
|                                                          | .4 (-0.1) |
+----------------------------------------------------------+-----------+
| ## Number of Major Metropolitan Areas                    | ## 1      |
+----------------------------------------------------------+-----------+
| ## Size of the Middle Class (Millions)/ Growth Rate (%)  | ## N/A    |
+----------------------------------------------------------+-----------+
| ## Per Capita Gross Domestic Product (U.S. Dollars)      | #         |
|                                                          | # \$5,650 |
+----------------------------------------------------------+-----------+
| ## Unemployment Rate (%)                                 | ## 9.2%   |
+----------------------------------------------------------+-----------+
| ## Per Capit                                             | ## \$700  |
| a Food Expenditures (U.S. Dollars) -- food and beverages | (yr 2001) |
+----------------------------------------------------------+-----------+
| ## Percent of Female Population Employed                 | ## 56%    |
+----------------------------------------------------------+-----------+
| ## Exchange Rate (US\$1 = X.X local currency)            | ## 27.4   |
+----------------------------------------------------------+-----------+

##  

## TABLE B. CONSUMER FOOD & EDIBLE FISHERY PRODUCT ![](media/image2.wmf)IMPORTS

# 

TABLE C. TOP 15 SUPPLIERS OF CONSUMER FOODS & EDIBLE FISHERY PRODUCT

![](media/image3.wmf)