• Congratulations on your election as Chairman. First, let’s go back in time: how would you describe last year with regard to the situation of the poultry industry, and especially in light of the avian flu panic that broke out in October?
- Avian flu left an indelible mark on poultry industry despite the fact that no avian flu occurred in the country by the end of 2005. The industry got off to a good start last year: the broiler industry was in relatively good condition, the reduction of production slightly improved the market situation of turkey products, and demand for duck was rising steadily. The situation of market figures improved due to the reduction of goose production, too. In the last quarter, however, avian flu panic wreaked havoc on these positive tendencies. In summary, the year 2005, which started off favourably, was not the year of poultry industry.

• How do these facts translate into figures?
- The Council’s member companies purchased 3.2% less poultry in terms of live weight than in the previous year. Of the purchased quantity, broilers represented over 50%, which is a 1.8% increase on the previous year. The purchase of turkey and goose decreased by 15%, whereas that of duck increased by 16%. Domestic sales grew by 5.7%: the sales of the two most popular types of poultry, chicken and turkey, increased by 6.3 and 3.4% respectively, and fall in the sales was observed only in the case of goose. In terms of prices, however, Hungarian poultry is undervalued. Over the past five years, the price of chicken increased only slightly. Both the general consumer index and the food price index, however, increased by 30%, and the price of energy increased by 50%.

• This year, avian flu occurred in Hungary: first swans then homestead poultry were affected and as a pre-emptive action, about 800 thousand fowls were destroyed. Have the poultry farmers been compensated?
- The catastrophic market situation, which was the result of last autumn’s panic, began to slowly improve early this year. The favourable tendency, however, came to a halt when the consumers again lost confidence in the safety of poultry after news of sick swans was published. Officials of the European Union finally seemed to be willing to address the crisis: the EU adopted an order that enabled a more flexible subsidy system. The positive impact of the new order on the Hungarian poultry industry is not expected to be observed before September-October. The 1.5 billion HUF Hungary is expecting to receive from the EU will lessen the damage only to a certain extent and, in addition, will undoubtedly encourage the reduction of production. According to our calculations, the value of the destroyed fowls and the cost of their killing amounted to 1.5 billion HUF, but the indirect damage caused to the poultry industry was actually many times greater than the direct damage, that is, 18-20 billion HUF.

• In light of these antecedents, how are you going to commence your work at the Product Council?
- Hoping. I am hopeful, for example, because the Product Council has the opportunity to set the direction of the development for next seven years in order to ensure that the poultry industry develops in a politically neutral and competitive way. The occurrence of the avian flu and the related events made us realize that the industry will not be able to overcome the disappointments and hardships without being more active. The realization caused us to assess ourselves and our situation and we concluded that it is not only our Western European rivals that has about 15 to 20 years’ advantage over us but also the Slovakian, Czech and Polish companies, despite the fact that the latter countries did not have a significant poultry industry until about ten years ago. However, their adaptability is much better than ours. They have adopted and maintain Western European production systems. The three to four poultry producing companies that operate in Slovakia can adequately supply consumer demand, whereas in Hungary there are almost fifty companies in the poultry market. It is unreasonable and pointless to sacrifice profitability and efficiency for the sake of any regional goal. This practice is unknown in markets. In other words, although the majority of slaughter-houses are correct enterprises that risk their assets for the sake of business, it does not necessarily mean that they are efficient. Multinational supermarket chains did not only introduce extensive product ranges and attractive packaging but also the method of eviscerating domestic suppliers in order to ensure that their consumers can buy the products for unchanged, or even lower, prices.

• You are saying this despite the fact that your company, Master Good Kft., which is known for its free-range farming methods, supplies the above-mentioned supermarket chains?
- Painful as it is, we have to be outspoken because this is how the world and competition work. The consequence of this process is going to be the reduction of domestic poultry businesses to two-thirds, or even half, of the present number within the next three to five years. This selection would have taken place naturally in four to six years even without the avian flu panic, which only accelerated the process.

• What makes you think so?
- A few generations of my ancestors were involved in poultry production, started by my grandparents, who dealt with poultry hatching. I live and work in Szabolcs-Szatmár-Bereg County, where 58 hatcheries operated ten years ago, and only four exist today, despite the fact that there have not been any governmental decisions that could potentially cause such a substantial, 90%, fall in the number. Plants that were less efficient had to close down because of competition and the market environment. The short-term prospects of animal breeding, including poultry farming, in Hungary are poor, and that will further accelerate the tendency. I am still hopeful because Hungary is a major grain producer and we simply cannot give up hope that the current trends will change on the basis of certain interests.

• What can these interests be?
- It is important to maintain an internal market segment because fresh poultry cannot be supplied from a distance of a thousand kilometres due to logistic difficulties. It is possible to import and disturb the market with Dutch chicken legs, French chicken wings and even American chicken liver, but the daily supply of poultry in the desired quality is only possible within 300 kilometres. This, I think, guarantees the survival of Hungarian poultry businesses. This, however, applies to frozen products and products with a long shelf life to a lesser degree. Another thing is that selection results in the strengthening of some companies, which is a wholesome tendency. Banks are more willing to lend money, even long-term credits, to these companies. The world is full of money that awaits to be invested and, as a general rule, investors are trying to find places where their capital can be most safely multiplied. In a country where raw materials for feed as well as inexpensive and relatively qualified labour are available in the poultry industry virtually without limitations, investment capital is expected to appear.

• What capital do you exactly mean?
- I expect the involvement of state subsidies in the acquisition of interests by farmers on the basis of what Mr József Gráf, Minister of Agriculture and Animal Breeding, talked about on several occasions. But I can also imagine that within the next one to two years, either English, French or Dutch major poultry producing groups will try to commence operation in Hungary. There may be Western European professional investors with adequate financial resources and market potentials. I don’t think these expectations are without any grounds because the same trends are observed in Poland, where 60% of the country’s broiler and turkey industry now belongs to French, German and American professional investors. Why would it not be possible in Hungary? I think there is a real chance for this scenario. Even more so because if the entire poultry industry declines, for a short period of time there will be a lot of poultry businesses for sale at very low prices and, as a matter of fact, right now there are no potential professional investors in Hungary that would be able to take advantage of the situation and conduct large-scale purchases.

• Would this situation be beneficial or harmful to Hungary?
- In terms of patriotic emotions, it would be harmful, although no one checks on the package any more which company makes the product. It will also be harmful to those who will be forced to leave the market. This category includes small-scale chicken and turkey farms and duck feeding plants. At some point they have to be told that the poultry processing plants are not going to conclude any more contracts with them because their production is so expensive that it renders the processing plants’ operation unprofitable. A few of us in the poultry industry suggested that the state should provide a grant for these small farms if they close down. Even EU-funds can be requested for this purpose since it is the EU’s interest, too, to terminate redundant and inefficient capacities. The bankruptcy of many family-run businesses could be prevented this way. However, the above-mentioned market figures may fail to acknowledge that they have to give up operation even if such grants would be in view.

• How can Master Good Kft surmount the difficulties that dominate the market? Do you plan to add new capacities to the existing plants?
- A hundred per cent of Master Good is owned by our family. The past period was not an easy one for us either but we stand on firm foundations because we operate an entire integrated system, which ranges from cultivation and feed production to hatching, breeding, slaughtering and processing. It is this type of processing companies that is able to survive the situation and it will be them who will be able to, following the above-described concentration and selection, purchase one another if they have a chance. These companies include, besides Master Good Kft, Gallicoop Rt., Hungerit Rt. and Her-Csi-Hús Kft. In the broiler sector, Master Good has 70 to 80% of the necessary capacity. We do not plan to considerably increase the existing capacities of primary processing, instead, we aim to invest in reprocessing. We have a poultry breading facility, and based on the current tendencies, demand for convenience foods is expected to increase because fewer and fewer women have the time and willingness to deal with the preparation of dishes.

• What about the black market? At your first press conference you said that the poultry industry needs 25-30 billion HUF for various improvements in the next few years, including the modernization of heating systems, the development of more efficient epidemic prevention and market protection measures as well as the implementation of other veterinary measures. Is this a realistic goal amidst the many economic restrictions?
- Fight against the black economy is necessary for recovering from the present crisis, and also, a part of the above-mentioned amount, 15 billion HUF in the first year, 10 billion in the second, and 5 billion in the third, may be raised as a result of the elimination of black economy. About 30 to 35% of the poultry, that is, 50 million kilogram (5 kg/person), bought by Hungarian consumers come from the black sector every year.
Currently, profitability in the poultry industry is very low and banks are not keen on lending to poultry producing businesses. The Poultry Product Council and the Ministry of Agriculture and Animal Breeding have recently signed an agreement according to which the state budget will get an extra income of 8 to 10 billion HUF per year if 70 to 80% of the grey and black economy is eliminated. The issue has been pushed to the foreground because we can now see that if the current disorder of the sector remains unchanged, there will be no chances for raising any funds. This means that order has to be restored in the market and illegitimate businesses that “steal” from legitimate suppliers by supplying poultry without invoicing for it cannot be put up with. This is a market protection measure. If some elements of the system have to be eliminated, they certainly shouldn’t be the legitimate businesses. For this reason, the Poultry Product Council is introducing a new emblem that can be used on poultry products by businesses that work on a legitimate basis.

• Your office term is three years. Do you think that the reduction in the number of market figures, possibly to half, in the next three years will bring about a similar reduction in the livestock?
- No. At present, 470-480 thousand tonnes of live poultry are raised in Hungary annually, of which 230-240 thousand tonnes are chickens, 110-120 thousand tonnes are turkeys and 120 thousand tonnes are ducks and geese combined. I believe that the volume of domestic chicken and turkey production, and not that of consumption, will decrease by 15 to 20%, but since this slightly decreased quantity will be produced by far less companies, the facilities’ capacities will be more efficiently utilized. And the missing quantities will be provided from import. Poultry consumption has been a steady 34-35 kg per person annually for quite a few years now. However, we expect pork consumption to diminish, while beef, lamb and fish consumption will probably rise, mainly at the cost of diminishing pork consumption.

• What are the prospects of the water fowl sector?
- Due to the avian flu, the quantities produced fell sharply, but they are expected to increase. However, the annual 120- to 130-thousand-tonne production of the sector, which was observed last year, too, will never be achieved again. I think that the annual production of the sector will settle at 90 to 100 thousand tonnes, and the sector itself will consist of only three to four companies. It has to be mentioned that over the past few years, three major figures of the water fowl industry left the market in rather ignominious circumstances. The first was Hajdú-Bét Rt., which was a determining producer of goose and duck. Then Bábolna Rt. followed suit by transferring a part of its capacities to Carnex Group, which is now implementing the largest-ever reduction both in terms of production volumes and extent. Carnex Group used to be the market leader and produced 60-65% of domestic duck and goose. These cases should be talked about for a while and not forgotten in order to prevent similar events from occurring.

By László Levente Tóth
Napi Gazdaság - ‘Agrobiznisz’ supplement / 31 July 2006