Overview of the Hungarian Agriculture Sector

Hungary has an area of 93,024 km² of which 57% is agriculture land, while forests cover 21%. Hungary has a population of nearly 10 million, of which more than 4.5 million (or 46.7%) live in predominantly rural areas. Hungary has a farming sector characterized by small farms, in which nearly 85% of the roughly 500,000 farms have less than 5 ha. In addition, it is also characterized by a rather atypical agricultural sector with a very high share of arable farming (81% of agricultural land and low grassland (14.2%).

According the latest national statistics (HCSO, 2017), there were 9,000 agricultural enterprises and 416,000 agricultural holdings engaged in agriculture in 2016. However, many of the agricultural holdings were subsistence or non-subsistence farmers cultivating agricultural areas less than 1 hectare (Szerletics, 2018). Due to the new Land Transaction Act in force in 2014, only active farmers (and their family members) living in Hungary and obtaining at least a secondary agricultural and/or forestry qualification can buy land up to 300 hectares (except for livestock farms and seed producers where the limit is 1,800 hectares). Furthermore, in the new Land Transaction Act, preemption rights are provided for the Hungarian State, the farmer using the land, the neighboring farmers, local farmers and farmers

living within 20 km distance. All of the above creates high administrative burdens and strong state control for local land markets. In terms of land use regulations, Hungarian land policy favors family farms instead of large farms. Overall, land regulations together with degressivity are responsible for the splitting up of large farms. Fig. 7 shows the share of economic sectors in gross domestic product (GDP) in Hungary from 2010 to 2019. In 2019, the share of agriculture in Hungary's gross domestic product (GDP) was 3.47%, industry contributed approximately 25.98% and the services sector contributed about 55.29%.

Source: Statista, 2020

Figure 7. Share of Economic Factors in Hungary’s GDP from 2010 to 2019

Source: Eurostat, 2017

Figure 8. Hungary: Farms and Farmland by Farm Size, 2016 (in standard output)

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Services Industry Agriculture

0 10 20 30 40 50 60 70 80 90

Very small farms Medium size farms Large farms Farms Farmland

Data from Eurostat (2017) backed up the evidence of farms and farmland by comparing small size, medium and large farms in Hungary. From fig.8, it can be seen that very small farms has more farms than farmland in contrast to large farms which have more farmland and less farms. The largest share of the total agriculture output in Hungary in 2018 was represented by cereals (27%), live animals (24%), industrial crops (13%), and animal products (11%). The share of total crop production was 58%

and 35% for animal and animal products (HCSO, 2018).

Source: World Bank, 2018

Figure 9. Agriculture, Forestry and Fishing to GDP and Employment in Agriculture in Hungary and Its Neighboring Countries (in percent), 2018

In addition, fig. 9 represents Hungary‘s agriculture position among its neighboring countries (Austria, Czech Republic, Croatia, Romania and Slovakia Republic), in which Hungary came in second position (3.6%) after Romania (4.3%) in terms of the agriculture sector‘s contribution to GDP, and in third position (5%) after Romania (22%) and Croatia (7%) in terms of employment in agriculture compared to the total employment.

Table 2 shows that in Hungary, most of the farm areas fall in the category of 0 to 3 hectares (32%, in 2016) as opposed to areas with more than 1,200 hectares (0.15%, in 2016). Although most farm size categories remain stable with a slight increase of decrease, the most significant change is in 2014-2015, where there is an increase in the category of 600 to 1,200 hectares of farm area.

1,1 2 2,9 3,6 4,3

4 3 2,4

7

5

22

3 0

5 10 15 20 25

Austria Czech Croatia Hungary Romania Slovakia

Agriculture, forestry and fishing, value added (% of GDP) Employment in agriculture (% of total employment)

Table 2. Number of Farms by Physical Size Categories in Hungary, 2012-2016

Farm size (UAA) 2012 2013 2014 2015 2016

0-3 ha 58,546 59,732 60,143 55,373 54,922

3.01 -5.00 ha 25,448 25,653 25,280 25,698 25,456

5.01 – 10.00 ha 32,214 32,433 32,134 33,808 33,863

10.01 – 25.00 ha 30,465 30,280 30,195 28,961 28,572

25.01 – 50.00 ha 12,997 13,032 13,024 13,035 13,044

50.01 – 100.00 ha 7,689 7,761 7,792 8,170 8,308

100.01 – 300.00 ha 6,509 6,574 6,669 6,979 7,154

300.01 – 600.00 ha 981 982 1,067 1,231 1,227

600.01 – 1,200.00 ha 556 566 565 701 773

>1,200.01 ha 477 443 439 323 259

Total 175,882 177,456 177,308 174,279 173,578

Source: Szerletics, 2018

The Common Agricultural Policy (CAP) is implied by the European Union to provide a decent standard of living for farmers and agricultural workers, in addition to provide a stable, varied food supply for its 500 million citizens. As a common policy for all 27 EU countries (Brexit taken into account), the CAP strengthens the competitiveness and sustainability of EU agriculture by providing Direct Payments aimed at stabilizing farm revenues and finances projects responding to country-specific needs through national (or regional) Rural Development Programmes. The impact of CAP also influenced the structural changes of agricultural holdings.

According to EC (2015), there were 11 million farms cultivating 172 million hectares of agricultural land with 22 million people in European agriculture in 2015. The European Commission or EC (2013) suggests that the number of farms has been declining since 1975 and those remaining have become bigger both in terms of agricultural area and also in economic terms.

According to the latest figures published by the HCSO (2019), capital expenditures in agriculture expanded by 8.3% at unchanged prices in 2018. Farmers spent HUF 347.7 billion (EUR 1.1bn) on development projects in 2018, HUF 43.6 billion (EUR 138 million) more (at current prices) than in 2017. The share of agriculture from capital expenditures within the national economy was 4.1%. Overall, the sector-level profitability of agriculture improved by 3% in 2018. The support schemes included in the Rural Development Program made a considerable contribution to the increased CAPEX. Specifically, farmers received HUF 12.5 billion

for the modernization of animal farms, HUF 15.3 billion for horticultural development, HUF 11.0 billion for value-added agricultural products, and HUF 3.7 billion for wine production. In addition to the above, the following factors also contributed to the increase in capital expenditures: income-supplementing agricultural subsidies, a stable financial background guaranteed by a sound risk management system, the growing profitability of agricultural production, and low loan interest rates.