Pricing paradox: Hungarian food costs less abroad – here is why

A curious trend has emerged in the food industry: in many cases, Hungarian-produced food can be bought for a lower price in other European countries, like Germany. While travelling abroad, many Hungarians have likely encountered the eye-catching revelation that Hungarian products such as salami, pasta or snacks are notably more affordable compared to their prices back home.

An article by Portfolio.hu delves into the trajectory of a hypothetical meat product manufactured in Hungary priced at HUF 5,000 (EUR 12,6) in a quest to unravel the reasons for the price difference. The product which is presumed to be of superior quality and exportable enjoys demand both domestically and internationally. What does this hypothetical product tell us about the price difference?

Efficiency and wages

It is widely acknowledged in professional circles that the Hungarian food industry’s efficiency trails behind that of larger European producers which results in elevated operational costs within the country. Furthermore, the domestic food industry, which is in need of modernisation, contends with a higher interest rate when seeking investment opportunities for growth and development.

While this favours foreign corporations, it only partially explains why domestically produced goods can be cheaper abroad than at home. However, it is also evident that the less efficient Hungarian food industry struggles to mitigate economic impacts without resorting to price increases.

Competition strength also plays a role because a smaller domestic market with fewer players tends to inflate prices domestically, unlike the larger more efficient European market. Moreover, it is likely that higher domestic inflation provides room for raising prices, especially as competitors adjust accordingly and in an inflationary context, workers tend to demand higher wages. However, wage levels alone do not provide sufficient explanation for this trend.

While wages in Hungary remain lower than in most European countries, granting an advantage to domestic manufacturers, this wage gap, although narrowing in recent years, still persists significantly. This disparity grants domestic producers a competitive edge over foreign counterparts yet it fails to clarify why the same Hungarian products are cheaper in other countries.

The real reason

In conclusion, the price difference between the same product sold in Germany compared to Hungary can be largely attributed to taxes. These taxes are the value-added tax (VAT) and special retail tax which together contribute to a 23% increase in price in Hungary.

Additional factors such as differences in Extended Producer Responsibility (EPR), commercial sector uncertainty, exchange rate volatility, regulatory unpredictability, inefficiencies in the domestic industry and imperfect competition further elevate costs domestically. These factors are challenging to quantify but significantly contribute to higher prices in Hungary compared to foreign markets despite transportation costs. Consequently, it is not surprising that domestically produced products can be 25-30% cheaper in other countries.

Read also:

• Hungary falls behind Austria, competes with Bulgaria to avoid last place – HERE
• Hungarian forint falls at brutal pace: where will it land? – HERE