Food shortages may hit Hungary because of the new price caps

The government is preparing to extend the food price cap scheme, PM Viktor Orbán cleared in his interview in the Kossuth Rádió, Hungary’s public broadcaster. However, he did not tell which products would be concerned. The reason is the skyrocketing food prices, reaching more than 35 percent, based on the Hungarian Central Statistical Office (KSH). However, experts agree that food price cap scheme extensions may bring shortages instead of decreasing prices.

Hungary is among the countries with the highest food price rise rate. In September, the KSH reported a 21.1 percent average and 35.2 percent food price inflation. Meanwhile, Eurostat said the latter rate was 39 percent in Hungary, which is the worst in Europe. Lithuania is in second place, but the food price rise is “only” 29.5 percent. In Poland, that rate is 19 percent, while the EU average is 15.8 percent, Népszava wrote.

The reasons are the ongoing war in Ukraine and the summer droughts. Meanwhile, in Hungary, forint weakening, the government’s pre-election money distributions and the price caps also play crucial role. PM Orbán regularly says the anti-Russia EU sanctions caused the food price rise. But the government introduced them on seven basic food items (wheat flour, sunflower cooking oil, granulated sugar, pork thigh (leg/hock), chicken breast and 2.8% fat cow’s milk) on 1 February. The Russian invasion in Ukraine only began on 24 February.

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These food items cannot be sold for more than their October 2021 price, so the retail sector has a massive and growing loss on them. For example, the production cost of the chicken breast is currently HUF 2,009 (EUR 4.87) per kilo, while its consumer price is only HUF 1,564 (EUR 3.79). Of course, the retail chains do not swallow that difference. They increase the prices of other food products more to compensate. That is why the government could not curb the food price rise in Hungary.

Furthermore, Népszava says that a growing number of businesses in the sector run short of the basic food items concerned by the price cap scheme. Moreover, if there are such products, their quality (and production price) is lower to reduce the loss. That is the biggest in the case of the rural shops, where the product range is narrow. Thus, they cannot pass the price increase on other products. As a result, many of them decided to close recently.

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Economists agree that the government should not extend the food price cap scheme, but it should abolish it because it generates more price rises. Éva Palócz, the CEO of Kopint-Tárki, said the government’s decisions protected nobody because the prices of other products increased. Barnabás Virág, the vice president of the National Bank of Hungary, said earlier this week that the food price rise accelerated in October in Hungary, especially in the case of eggs and potatoes. For example, egg prices go up 14-17 percent every week, Népszava reported.

The price of dairy products, cottage cheese and cheese are also skyrocketing, so it might be that the government will extend the price cap scheme on them, the Hungarian daily believes. Péter Virovácz, an analyst of the ING Bank, agreed with that, adding that even bread will be concerned in the extension. He also cleared that the price cap scheme harms the Hungarian economy in the long run, Pénzcentrum wrote.

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Source: Népszava, Pénzcentrum