Ministry of Agriculture THE HUNGARIAN AGRICULTURE AND FOOD INDUSTRY IN FIGURES

Ministry of Agriculture THE HUNGARIAN AGRICULTURE AND FOOD INDUSTRY IN FIGURES 2016

Preface The common professional publication of the Research Institute of Agricultural Economics, the Ministry of Agriculture and the Hungarian Chamber of Agriculture undertakes to provide comprehensive information on the achievements of the Hungarian agriculture in 2016. Owing to its special natural endowments, Hungary has been carrying out significant and worldwide recognized agricultural production for centuries and, accordingly, agriculture is an outstanding strategic sector of the Hungarian national economy. The role of agriculture in economic growth has been outstanding in three of the past five years. In 2016, the gross added value of the sector grew by 16.8 percent, contributing by 0.6 percentage points to the 2.0 percent economic growth. Knowing this, it is not surprising that the exports and foreign trade surplus of agricultural products have increased spectacularly over the past few years, resulting in a further strengthening of the macroeconomic role of agricultural foreign trade. The growth in agricultural output, which has been going on since 2011, continued in 2016 as well, resulting in new records. The remarkable results are mostly attributable to the excellent performance of crop production, but it should be noted that despite the low producer prices, livestock production volumes also continued to grow in 2016. During the examined period from 2012 to 2016, agricultural output grew by more than one-fifth, that is, by 20.8 percent at current prices, with crop production contributing 25.2 percent and livestock production 13.5 percent. All this is primarily the success of the hundreds of thousands of Hungarian farmers living in rural areas from, and for agriculture. After the dynamic growth in the previous two years, in 2016, food industry production continued to increase, although to a lesser extent, but still significantly exceeding the 2012 figure. Food industry performance has been positive in recent years as both production and sales have improved significantly. This favorable process is mainly due to the strong expansion of exports, but domestic sales have also increased. Looking at the results we can state that domestic agriculture is getting stronger and its significance is increasing. Our task can be nothing else than to promote further uninterrupted development and to support the socio-economic growth of the countryside. Anikó Juhász General Director Research Institute of Agricultural Economics Sándor Fazekas, DR. Minister of Agriculture Balázs Győrffy President Hungarian Chamber of Agriculture 1

1 Macroeconomic role of Hungarian agriculture and food industry Thanks to its favourable natural endowments, Hungary has had a significant and internationally appreciated agricultural sector for centuries, and a considerable share of its products are processed by the domestic food industry. Moderate climate, fertile soils and outstanding water endowment together with high levels of technology and knowledge enable agriculture to supply domestic citizens and foreign markets with safe, high quality food. Thus, agriculture is of outstanding and strategic importance in the Hungarian national economy, which is shown by its contribution to Gross Domestic Product (GDP), its role in the production of safe and healthy food, in sustainable and efficient management of natural resources, in rural employment, as well as its contribution to the maintenance of rural landscapes. % In recent years, the joint share of agriculture and food industry in total gross value added was about 7 percent, of total investment was 8-9 percent and of total employment was 8 percent. Agriculture s contribution to growth in GDP was outstanding in three out of the last five years; in 2016 the gross value added of the sector grew by 16.8 percent, which thus contributed 0.6 percentage points to the 2.0 percent overall growth. 2

table 1: Share of the agro economy in the national economy YEAR SHARE OF AGRICULTURE SHARE OF FOOD INDUSTRY FOOD, BEVERAGE, TOBACCO from employment from gross value added from investment from employment from gross value added current prices current prices AGRO PRODUCTS from investment share % international trade food from consumption c balance prod- exports d (HUF ucts billion) CONSUMER PRICE INDEX previous year = 100 2012 5,0 4,6 5,6 3,2 2,2 2,8 26,8 10,1 1046,3 105,9 105,7 2013 4,7 4,6 5,7 3,3 2,4 2,6 27,7 9,8 1049,3 102,8 101,7 2014 4,6 4,7 5,7 3,5 2,3 2,9 28,6 9,1 943,0 99,6 99,8 2015 4,8 4,1 4,7 3,3 2,3 2,2 29,3 8,7 947,7 100,9 99,9 2016 5,0 4,5 5,2 3,3 3,7 29,6 8,6 896,3 100,7 100,4 a) Data of agriculture, forestry, aquaculture. b) Data from Labour force survey. c) Based on Classification of Individual Consumption According to Purpose (COICOP). d) Based on Combined nomenclature (CN). Source: calculation based on Hungarian Central Statistical Office data total Exports and the trade balance of agro-food products have expanded significantly in recent years, gaining a major macroeconomic role. Following the trend of the last two years, exports of agro-food products increased further and reached EUR 8037.3 million, EUR 123.9 million more than in the previous year and only EUR 37 million less than the all-time record achieved in 2012. However, the growth of imports was even higher in 2016, thus the trade balance decreased slightly. Imports of agro-food products were EUR 5159.6 million (up 6.3 percent or EUR 304.4 million compared to 2015), the trade balance was EUR 2877.8 million (-5.9 percent or EUR -180.5 million). In the last five years, the share of agro food products in total exports was about 8-10 percent, from imports was about 6 percent, and from the trade surplus was 29-54 percent. The output of agriculture increased further in 2016, continuing the trend which started in 2011, and reached a new record. According to the second estimate of Economic Accounts of Agriculture, the output was HUF 2619 billion at current basic prices in 2016, 5.3 percent more than in 2015. Output volume increased by 8.7 percent, more than balancing the 3.1 drop in producer prices. 3

figure 1 Output of agriculture HUF billion 3000 2500 Output at current price Output at constant price 2000 1500 2012 2013 2014 2015 2016 Data source: Hungarian Central Statistical Office Economic Accounts for Agriculture The outstanding performance in 2016 was driven by crop production, however the volume of animal output increased further despite the low producer prices. Crop output was HUF 1571 billion in 2016 (+8.2 percent at current basic prices) as a result of a 12.9 percent growth in volume and a 4.2 percent drop in producer prices. Produce prices of live animals and animal products also decreased, however volume growth managed to outbalance this impact only in the case of live animals. Animal output was HUF 866 billion at current basic prices (+1.1 percent compared to 2015); its volume grew by 3.1 percent while producer prices decreased by 1.9 percent. Between 2012 and 2016, the output of agriculture at current basic prices increased by 20.8 percent, and both crop production (+25.2 percent) and animal output (+13.5 percent) contributed to this achievement. Calculated at constant prices, the output of agriculture has increased by 33.1 in the last four years: crop output grew by 47.9 percent, while the animal sector experienced 13.2 percent growth. Intermediate consumption (inputs used in production) stagnated in 2016, since volume growth was outbalanced by the prices. Intermediate consumption was HUF 1482 billion in 2016 (+0.2 percent) while the volume of input use increased by 2.4 percent. As a result, gross value added was HUF 1137 billion in 2016 (+12.7 percent at current prices and +17.8 percent at constant prices). Thus, the income from agricultural production increased considerably in 2016. Factor income (which includes decoupled subsidies) was HUF 1291 billion in 2016 (+15.2 percent) and entrepreneurial income (which excludes compensation for production factors (land, labour and capital) expanded by 19.5 percent. In the last four years, factor income increased by 42.5 percent and entrepreneurial income by 48.7 percent. 4

Agricultural investment declined in 2016: farmers spent HUF 253.3 billion on development (-7.6 percent at current prices and -7.3 percent at constant prices). Agricultural investments experienced considerable volume growth in 2013 and 2014, followed by falls in 2015 and 2016; thus growth at constant prices was 1.6 percent between 2012 and 2016. Despite this, the share of agriculture in total investment grew from 4.7 to 5.2 percent, while it varied between 4.7 and 5.7 percent in the last four years. Investment in the food industry, following the drop in the previous year, increased dynamically in 2016 again, and reached the highest value in recent years. Investments in the sector were HUF 1178.3 billion, 31.5 percent higher in volume terms. Food companies increased their development spending by 44.8 percent between 2012 and 2016, calculated in constant prices. The food industry s share in total investment increased by 1.5 percent in one year, and by 0.9 percent between 2012 and 2016. Agricultural employment expanded dynamically, faster than that of the national economy in 2016, and more than 200 thousand people lived principally from the sector. The number of employees in agriculture was 217.0 thousand persons in 2016 (+13.8 thousand, +6.8 percent compared to 2015). Agriculture s share of total employment was 5.0 percent in 2016, 0.2 percent higher than in the previous year. Employment of the sector grew in all years except 2013 in the period between 2012 and 2016, thus it was 12.6 percent, 24.3 thousand persons higher in 2016 than four years earlier. Employment in the food industry also grew in 2016, and as a result it was considerably higher than in 2012. Food companies employed 143.8 thousand persons in 2016, 3.4 thousand or 2.4 percent higher than one year earlier. Employment in the sector expanded in 2013 and 2014 as well, therefore it was 22.8 persons or 18.8 percent higher in 2016 than in 2012. The sector s share in total employment was 3.3 percent in 2016, similar to 2015 and 0.1 percentage point higher than in 2012. Food industry production, following the dynamic growth of the previous two years, increased further in 2016, and thus it was considerably higher than in 2012. Production value of the sector was HUF 2880.1 billion in 2016, 1.4 percent higher than in 2015 and 9.3 percent higher than in 2012, calculated in constant prices. Domestic and direct export sales grew to similar extents in 2016. Domestic sales of the food industry were HUF 5

1713.3 billion, 1.6 percent higher compared to the previous year at constant prices, and its share of total sales approached 60 percent. Direct export sales of the sector were HUF 1167.1 billion in 2016, 1.2 percent higher than one year earlier at constant prices and their share of total sales was more than 40 percent. In a multiannual perspective, the growth of direct export sales was dominant, thus they were the backbone of the development. While domestic sales of the sector increased by 4.3 percent, direct export sales grew by 20.0 percent between 2012 and 2016, at constant prices. There was no significant inflation in the national economy in 2016: consumer prices decreased by 0.4 percent and food prices increased slightly, by 0.7 percent. The importance of the agro economy is much more significant than the shares of agriculture and the food industry in macroeconomic indicators. High quality food supply demands the cooperation of sectors which are independent from the agro economy. Today, the food supply chain has become a well-integrated network which includes agriculture, food processing, their input supplies as well as wholesale, retail trade and catering. This integration is well shown by the notion of agribusiness. The output of agribusiness was HUF 10,485.1 billion in 2015 and its gross value added reached HUF 3418.8 billion. Output increased by 0.3 percent and gross value added grew by 0.6 percent compared to 2014. The share of agribusiness in output decreased from 15.8 to 15.4 percent, while from gross value added it decreased from 12.5 to 12.0 percent. Altogether 592.3 thousand people were employed in agribusiness in 2016; its share of total employment increased from 13.5 to 13.6 percent. 6

2 The place of Hungarian agriculture in the European Union While just 2.9 percent of the European Union s (EU) agricultural area is located in Hungary, the country has used 4.3-4.9 percent of EU agricultural labour in recent years. Hungarian agriculture has accounted for about 2 percent of the EU s agricultural output and added value for years, while its share of factor income has been higher, at 2.1-2.5 percent. Since Hungary s the accession to the EU, its agriculture has developed considerably and its efficiency, competitiveness and profitability have begun to catch up with the EU15. As a result, the significance of Hungarian agriculture has increased in terms of production and income indicators. Nevertheless, there are still many reserves in the agriculture of the country; its role in the EU s agriculture can be further increased in the future, with a better utilization of its capabilities. table 2: Hungarian agriculture in the European Union, percent 2012 2013 2014 2015 2016 OUTPUT 1,8 1,8 1,9 1,9 2,1 ADDED VALUE 1,6 1,7 1,9 2,0 2,3 FACTOR INCOME 2,1 2,2 2,5 2,4 2,8 AGRICULTURAL AREA 3,0 3,0 3,0 3,0 n. a. LABOUR INPUT 4,3 4,5 4,8 4,6 4,7 INVESTMENT 1,3 1,4 1,6 1,3 n. a. Data source: Eurostat Economic Account for Agriculture 7

The share of Hungarian agriculture in the output of plant products was 2-2.4 percent and 1.6-1.8 percent in livestock production in recent years. The share of Hungary is particularly high in the production of grain (mainly maize), oilseeds (mainly sunflower) and poultry. Agriculture in the EU is heavily concentrated: most of the output is produced by the EU15, which accounted for 83.6 percent of agricultural output in 2016, 0.4 percentage points lower than in 2015 and 0.3 percentage points lower than in 2012. The five largest producer countries (France, Italy, Germany, Spain and the UK) accounted for 62.1 percent of EU agricultural output in 2016. By contrast, the output of Hungarian agriculture in 2016 was 2.1 percent of the EU28 and 12.8 percent of the EU13 agricultural output, which has been the highest figure since its accession to the EU. figure 2: Cereals Wheat and spelt Grain Maize Industrial crops Oil seeds Rape seed Sunflower Fresh vegetables Fresh fruits Wine Animal output Animals Cattle Pigs Sheep and goats Poultry Animal products Milk Eggs Agricultural output Hungary s share of EU agricultural output in 2016 (Oilseed rape and sunflower: 2015 data) Crop Output 2,4% 5,2% 3,4% 13,1% 6,4% 9,8% 2,7% 20,2% 1,9% 1,9% 0,9% 1,8% 2% 0,8% 2,1% 1,1% 4,1% 1,3% 1% 2,1% 2,1% 0 5 10 15 20 25 percent 8 Data source: Eurostat Economic Account for Agriculture second estimation

figure 3: Breakdown of agricultural output of the European Union by Member State, 2016 1,1% 1,5% Finland 17,5% 12,8% Sweden 0,2% Estonia Ireland 1,8% 6,9% 6,7% 2,4% Denmark 5,6% 0,7% 0,3% Latvia Lithuania 11,7% United Kingdom Hollandia 2,0% 13,2% Germany Belgium 0,1% Luxemburg 1,2% 1,7% Poland Czech Republic 0,5% Slovakia 2,1% 3,8% France Austria 0,3% Slovenia 0,5% Hungary Croatia Romania 0,9% Bulgaria 1,7% Portugal Spain Italy 2,6% Greece Cyprus 0,2% 0,0% Malta Data source: Eurostat Economic Account for Agriculture second estimation EU agriculture used 9.4 million annual work units (AWU) in 2015. Of these, the EU15 used 51.9 percent and the EU13 used 48.1 percent, so the share of the latter is three times more from labour input than their share from EU s agricultural output. This is not favourable for profitability and it shows that the EU13 use more labour and less capital in production. The labour utilization of Hungarian agriculture was 439.9 thousand AWU in 2016, 4.7 percent of EU28 agricultural labour force utilization, which is a significant increase compared to previous years. 9

The differences in the intensity of production are well illustrated by the basic price output per hectare of agricultural land. In 2016 in the EU15 the value of production on average was EUR 2643 per hectare, while in the EU13 it was EUR 1263. In Hungary the output per hectare was significantly higher than the EU13 average, EUR 1573. In terms of output per AWU, the advantage of the EU15 is even greater: here, EUR 68.8 thousand was produced per AWU in 2016, while in the EU13 this value was EUR 14.5 thousand. This figure has improved by 1.8 percentage points since 2012. For this indicator, Hungary also has a more favourable value than the average of the EU13, and in 2016 the output per AWU was EUR 19.1 thousand. table 3: Efficiency of agricultural production, 2012 2016 Output per hectare, EUR 2012 2013 2014 2015 2016 EU28 2 319 2 389 2 351 2 316 2 241 EU15 2 738 2 808 2 767 2 743 2 643 EU13 1 291 1 364 1 331 1 275 1 263 Hungary 1 405 1 463 1 488 1 501 1 573 Output per AWU, EUR EU28 41 313 42 916 42 992 43 435 42 673 EU15 69 077 71 980 71 435 71 240 68 771 EU13 13 370 14 157 14 203 14 263 14 548 Hungary 17 306 17 575 17 188 18 161 19 119 Data source: Eurostat The EU average output per AWU was EUR 42.7 thousand, the lowest in Croatia (EUR 11.4 thousand), Poland (EUR 11.6 thousand) and Romania (EUR 12.7 thousand), and highest in the Netherlands (EUR 189.4 thousand), Denmark (EUR 175.0 thousand) and Belgium (EUR 146.1 thousand). 10

3 Land use, farm structure 3.1. LAND USE In Hungary, the shares of utilised agricultural area and arable land in the total land area is high in international comparison. Of the 9.3 million hectares, 58 percent is under agricultural cultivation. The most significant forms of land use are arable land (four fifths of the total agricultural area) and grassland (15 percent of the agricultural area). By comparison, in the EU, 42 percent of the total area is agricultural area, and 25 percent is arable land. In Hungary the share of agricultural area in the total area is the fifth highest, and of the arable land in the total area is the second highest in the EU. The agricultural area increased in 2016 to 5372.0 thousand hectares, 25.6 thousand hectares more than in 2015. This growth is driven mostly by the increased area of grassland, and to a lesser extent arable land, while the areas of kitchen gardens, orchards and vineyards did not significantly change. An increase in the agricultural land was offset by a drop in the uncultivated area. In a multiannual perspective, slow but continuous expansion of the arable land and grassland can be observed, while the areas of the other land use forms have remained almost constant. In the period 2012-2016, the agricultural area increased by 34.0 thousand hectares, of which arable land grew by 11.1 thousand hectares and grassland increased by 25.3 thousand hectares, whereas the size of kitchen gardens, vineyards and orchards decreased by 0.2-1.7 thousand hectares. The growth of land use by private farms, which started in 2012, continued in 2016. The agricultural area cultivated by private farms has increased by 117.7 thousand hectares since 2015 and by 391.5 thousand hectares since 2012. This is due to the increases in arable land and grassland, but in a multiannual perspective vineyards and orchards have expanded as well. In contrast, agricultural area cultivated by enterprises decreased further in 2016. Agricultural enterprises used 84.4 thousand hectares less land than in 2015, and 211.4 thousand hectares less than in 2012. This was mostly due to the reduced areas of arable land and grassland. Because of these changes, private farms cultivated 54.2 percent of the agricultural area, while 35.5 percent belonged to enterprises and 10.3 percent was with unidentifiable holdings. Private farms accounted for about two thirds of the total vineyard and orchard areas, but they cultivated more than half of the total grassland area. Enterprises had the highest shares of arable land and grassland. 11

figure 4: Agricultural area by category (1000 hectares) figure 5: Use of land area by land-use categories and by legal forms (1000 hectares) ARABLE LAND 4400 4300 4200 4100 4000 4323,6 4325,7 4331,3 4331,7 4334,7 2012 2013 2014 2015 2016 37,9% 53,8% 8,2% KITCHEN GARDEN 85 83 81 79 77 75 81,3 2012 80,9 2013 80,3 80,5 2014 2015 79,7 2016 0,6% 48,4% 51% ORCHARD 95 94 93 92 91 90 92,6 2012 92,2 2013 92,6 2014 92,2 92,3 2015 2016 20,8% 71,2% 7,8% VINEYARD 83,0 82,5 82,0 81,5 81,0 80,5 80,0 81,6 2012 82,0 2013 81,2 2014 80,6 2015 81,1 2016 17,5% 65,7% 16,7% GRASSLAND 800 780 760 740 720 700 758,9 759,1 760,9 761,5 2012 2013 2014 2015 784,2 2016 29,4% 53,2% 17,4% Enterprises Private farms Area unidentifiable with holdings 12

3.2. FARM STRUCTURE According to the Farm Structure Survey carried out in 2016, 415.8 thousand private farms operated in Hungary, 12.3 percent less than three years earlier. This is mainly due to structural change: small, parttime, private farms have been going out of business, while the number of larger, market-oriented farms has increased. In the period 2013-2016 the number of farms with less than 4 hectares of land decreased, while number with more than 4 hectares expanded. The drop in the number of farms was influenced the most by farms cultivating less than one hectare, since their number decreased by 30.4 percent. In contrast, the number of farms using more than 4 hectares of land increased by 4.0 percent. The number of farms cultivating between 50 and 200 hectares of agricultural land expanded the most, but that of farms using between 300 and 1000 hectares of land also increased dynamically. Altogether, 8 946 enterprises were active in agriculture in 2016, 10.6 percent more than in 2013. The growth in the number of enterprises with less than 300 hectares of land was common, but the number of enterprises with between 1000 and 2500 hectares of land, and above 2500 hectares of land fell by 3.1 and 45.4 percent respectively. The average size of agricultural enterprises fell from 310 to 253 hectares (-18.4 percent) between 2013 and 2016, while that of private farms increased from 5.6 to 7.6 hectares (+35.1 percent). Middle-sized farms are dominant in terms of the land use of private farms. The share of farms using between 20 and 200 hectares of land is more than 50 percent, while farms having between 10 and 300 hectares of land cultivated three quarters of the total land of private farms. Land use of enterprises is strongly concentrated: the share of enterprises with more than 500 hectares of land was 71.8 percent, and that of enterprises with more than 1000 hectares of land was 47.4 percent. figure 6: Land use of private farms according to land size classes and Land use of agricultural enterprises according to land size classes 1000 hectare 700 600 PRIVATE FARMS 1000 hectare 700 600 AGRICULTURAL ENTERPRISES 625 500 462 450 477 500 466 400 400 334 300 266 300 278 200 229 194 200 195 131 100 47 0 0 1 4 10 20 50 100 200 300 63 4 500 1000 2500 100 0 0 0 2 6 11 32 113 122 56 1 4 10 20 50 100 200 300 500 1000 2500 2500+ Data source: Hungarian Central Statistical Office, 2016 Farm Structure Survey, preliminary data 13

4 Agricultural employment There were 217.0 thousand employees in agriculture in 2016, 13.8 thousand or 6.8 percent up on 2015. Agriculture s share of total employment was 5.0 percent in 2016, 0.2 percent higher than in the previous year. In the period between 2012 and 2016, employment in the sector increased every year except in 2013, thus it was 12.6 percent, or 24.3 thousand persons higher in 2016 than four years earlier. Employment in the food industry also grew in 2016, and reached 143.8 thousand persons in 2016, 3.4 thousand, or 2.4 percent more than one year earlier. Employment in the sector expanded in 2013 and 2014 as well, therefore it was 22.8 persons or 18.8 percent higher in 2016 than in 2012. The number of employees in the food industry increased in 2014 and 2015 after a long period of continuous decline, but started to fall again in 2016. Therefore, the number of employees was at the same level as in 2012 (+0.5 percent, +0.5 thousand persons). Seasonal and part time work are significant in agriculture; the number of ad-hoc employees is the highest mostly between March and September. Furthermore, non-salaried labour input of family members on private farms should also be considered. Therefore, total labour input is best expressed in terms of annual work units (AWU), which converts part-time work to full time equivalent (1800 hours per year). 14

figure 7: Agricultural labour input 2012-2016 1000 Annual Work Unit 500 400 115 121 127 131 137 300 319 324 336 311 303 SALARIED 200 100 NON SALARIED 0 2012 2013 2014 2015 2016 Data source: Hungarian Central Statistical Office, Economic Accounts for Agriculture, 2016: preliminary data Agricultural labour input was 439.9 AWU in 2016, 0.5 percent higher than in 2015. In other words, the labour demand of agricultural production (considering seasonal and part-time work) was equivalent to 439.9 thousand full-time workers. Labour input increased by 1.5 percent or 6.6 thousand AWU between 2012 and 2016. Different trends can be observed for salaried and non-salaried labour inputs. While non-salaried labour input decreased by 4.7 percent between 2012 and 2016, salaried labour input has increased by 18.9 percent since 2012. Thus, a continuous shift occurs in the structure of labour input. Although about two thirds of the total labour input is non-salaried labour (characteristic of private farms, predominantly family labour force), the share of salaried labour input increased to 31.0 percent in 2016 (a 4.5 percentage point growth in four years). 15

5 Agricultural production 5.1. CROP PRODUCTION The natural and climatic conditions of Hungary are very favourable for agricultural production. Owing to the various advantages of the growing areas, crop production is very diverse, but cereals, oilseeds and industrial crops dominate. While 2012 and 2013 were characterised by extreme drought, crop yields in 2014 were good due to the mild weather. The very favourable climate of 2016 produced good results in crop production in Hungary. The optimum weather of the winter months, the heavy rains in May, and the surprisingly cooler and rainier summer made the conditions ideal for the growth of arable crops, as opposed to the disadvantageous weather in 2015 that had, either because of inland waters or the extremely hot weather and the summer drought, reduced the yield prospects. In 2016, cereals were harvested on 2.552 million hectares and yielded 17 million tonnes so, while the growing area declined by 5.4 percent compared to the previous year, the yield increased by 17.8 percent. The yield result surpassed the average of the period of 2012-2015 by 32.3 percent. The abundance of cereal stocks and the record production had an impact on stock quotes, which weakened considerably in 2016. Wheat was produced on 1.040 million hectares in 2016, 1.1 percent more than in the previous year. The record, 5.38 tonnes/hectare average yield ex- ceeded the results of 2015 by 4.7 percent, so 5.6 million tonnes of wheat (+5.8 percent) went into store. This was nearly 700 thousand tonnes more than the average of the previous four years. The rainy weather that preceded harvesting contributed to the fact that only 40 percent of the harvested grain yield in 2016 was of milling quality, compared with 70 percent in the previous year. In 2016 the yield prospects of maize were improved by the abundant precipitation and mild temperatures during the growing season. Owing to the abundant precipitation and the gentle climate, the prospects of the maize crop in 2016 were improved. The production area of maize was 1.023 million hectares, which was 11 percent less than in 2015. The average yield in 2016 reached the highest so far, at 8.61 tonnes/hectare, a 51.3 percent increase over the slight results of the previous year. 8.8 million tonnes went into store, which was 34.5 percent more than in the previous year and 28.7 percent more than the average yield of 2012-2015. 16

From the perspective of cultivation, oil crops were also very favourable in 2016. The main oilseeds (sunflower seed, rapeseed) were grown on 899 thousand hectares, that was slightly more in 2016 than in the previous year (+7.4 percent). The oilseeds producers harvested 30.5 percent (2.8 million tonnes) more yield than in 2015, and compared to the average of the four years (2012-2015) the harvested quantity was 35.8 percent higher. On the commodity exchanges the quotes of oilseeds and their derivatives was shaped by stocks and yield prospects of the main producer and exporter countries and the global demand for plant oils in 2016. Sunflowers were harvested on the largest area of all time in 2016 (642 thousand hectares), with an average yield (2.95 tonnes/hectare) never previously experienced in Hungary. The production quantity achieved (1.893 million tonnes) was a record, while the average yield was also the highest in the world. Rapeseed producers also achieved excellent results on 257 thousand hectares in 2016, because never such a large quantity of seed (882 thousand tonnes) was previously harvested in Hungary with such a high average yield (3.44 tonnes/hectare). The yield results of sunflower and rapeseed were both above the average of the period 2012-2015 (+27.5 percent and + 58.1 percent respectively). Sugar beet was grown on 16 thousand hectares in 2016, 6.7 percent more than in the previous year. However, the yield of 615 thousand tonnes was 30.6 percent down on 2015 (2012-2015: -35.7 percent). Compared to the recorded average yield of 2014, 2.5 percent less, or 67.48 tonnes of sugar beet were harvested per hectare in 2016, which surpassed the poor yield in 2015 by 17.0 percent. In the 2015/2016 economic year, the price of raw and white sugar increased significantly on the world market and also in the European Union. The global consumption exceeded the output, which pushed the price of the product higher. WHEAT MAIZE BARLEY SUNFLOWER 1000 tonnes 4904 Average of 2012 2015 1000 tonnes 6845 Average of 2012 2015 1000 tonnes 1190 Average of 2012 2015 1000 tonnes 1485 Average of 2012 2015 ezer tonna +14,0% +28,7% +35,1% +27,5% 5592 2016 8806 2016 1608 2016 1893 2016 882 558 +58,1% RAPESEED Average of 2012 2015 2016 17

table 4: Changes over time in the harvested area, the production quantity and the yield of the major arable crops Item 18 Average of 2012-2015 HARVESTED AREA, THOUSAND HECTARES 2015 2016 Change 2015 vs. 2016 (%) Change 2012 2015 vs. 2016 (%) Wheat 1 076 1 029 1 040 1,1 3,3 Maize 1 194 1 150 1 023 11,0 14,3 Barley 280 296 313 5,7 11,7 Rye 35 37 27 27,0 23,4 Oat 50 45 36 20,0 28,0 Potato 21 18 16 11,1 24,7 Sugar beet 17 15 16 6,7 5,9 Sunflower 605 615 642 4,4 6,1 Rapeseed 200 222 257 15,8 28,7 Alfalfa 130 134 193 44,0 48,7 PRODUCTION QUANTITY, THOUSAND TONNES Wheat 4 904 5 284 5 592 5,8 14,0 Maize 6 845 6 545 8 806 34,5 28,7 Barley 1 190 1 428 1 608 12,6 35,1 Rye 97 103 81 21,4 16,1 Oat 134 130 101 22,3 24,5 Potato 504 412 403 2,2 20,0 Sugar beet 957 886 615 30,6 35,7 Sunflower 1 485 1 543 1 893 22,7 27,5 Rapeseed 558 584 882 51,0 58,1 Alfalfa 551 573 972 69,6 76,4 YIELD, TONNES/HECTARE Wheat 4,57 5,14 5,38 4,7 17,9 Maize 5,74 5,69 8,61 51,3 50,1 Barley 4,23 4,82 5,14 6,6 21,6 Rye 2,74 2,79 3,02 8,2 10,2 Oat 2,68 2,88 2,85 1,0 6,4 Potato 22,62 22,65 24,62 8,7 8,9 Sugar beet 56,65 57,66 67,48 17,0 19,1 Sunflower 2,46 2,51 2,95 17,5 20,0 Rapeseed 2,78 2,63 3,44 30,8 24,0 Alfalfa 4,26 4,29 5,04 17,5 18,4 Source: Hungarian Central Statistical Office

figure 8: Land and yield rates of the most important field crops in 2016 HARVESTED AREA PRODUCTION QUANTITY 20000 15000 10000 5000 jelmagyarázat: 0 Maize Wheat Sunflower Barley Rapeseed Alfalfa Sugar beet Oat Rye Potatoe 19

5.2. HORTICULTURE (PRODUCTION OF VEGETABLE, FRUITS AND GRAPES) Vegetable and fruit production have a long tradition in Hungary, thanks to the favourable natural conditions. Hungarian products are in demand on European markets. Horticulture is a very labour-intensive sector and plays significant role in agricultural employment. Despite the unpredictable weather, the sectoral participants closed an averaged year in 2016. Rainy weather was advantageous for the open field vegetables, and the yield of greenhouse vegetables increased due to technological modernization. 5.2.1. Vegetable production The area of vegetables was 92.5 thousand hectares in 2016, a 16.8 percent increase over the previous year, while the quantity produced increased by 1.5 percent. The large amount of rain has been expressly beneficial for production of sweet corn; which grew by 12.3 percent in volume. The yields of other industrial vegetables (green peas and beans, industrial tomatoes) were also good. Bacterial diseases reduced the quantities of green and red peppers produced. The harvested area of watermelon increased, therefore the producers had been expected a rise in yield, but due to the weather 6 percent less quantity was harvested as in 2015. table 5: Production of most important vegetables Denomination 2012 2013 2014 2015 2016 Total area (thousand hectares) 76,8 75,6 79,9 84,5 92,5 Production (thousand tonnes) 1363 1441 1514 1601 1625 Of which: sweet corn 434 497 467 479 502 green peas 92 68 88 95 111 tomatoes 109 136 153 200 173 green peppers 79 77 85 117 193 red peppers 22 14 21 22 20 watermelons 183 190 219 196 205 muskmelons 12 22 12 16 20 onions 57 60 62 60 55 carrots 75 67 84 78 91 green beans 18 17 18 21 20 cabbages 65 67 60 65 53 Data source: Hungarian Central Statistical Office 20

figure 10: The production quantity of tomato, 2012 2016 109 000 tonnes 136 000 tonnes 153 000 tonnes 200 000 tonnes 173 000 tonnes 2012 2013 2014 2015 2016 5.2.2. Fruit production The spring frosts, heavy rains and hail caused difficulties in fruit sector. Large amounts of rain caused botrytis in strawberries, monilia in peaches and apricots, and cracking during the ripening of cherries. The rainfall did not favour walnut production as there was an increased risk of bacterial infection. In some areas, the size of apple was smaller because of the frost. The quantity of apple was similar than in the previous years, but the quality was worse than usual, the ratio of industrial apple was 70 percent. In the main pear production areas, the spring frost and summer hail caused reductions in yield of up to 50 percent. Frost caused also a slight decrease in the yield of sour cherries. 21

table 6: Production of the most important fruits Denomination 2012 2013 2014 2015 2016 Total area (thousand hectares) 91,4 91,9 91,3 90,7 90,9 Production (thousand tonnes) 821 849 1039 777 800* Of which: apples 651 592 780 512 497 pears 15 28 21 37 23 cherries 5 10 9 11 11 sour cherries 53 70 92 77 74 plums 43 48 45 46 48 apricots 11 22 23 20 24 peaches 16 44 39 37 40 * preliminary data Source: Hungarian Central Statistical Office figure 11: The production quantity of apple, 2012 2016 651 000 tonnes 592 000 tonnes 780 000 tonnes 512 000 tonnes 497 000 tonnes 2012 2013 2014 2015 2016 5.2.3. Viticulture Over the past five years, cut-outs and weather have determined the volume of our grape and wine production, and the weather has significantly influenced the quality. Our grape and wine production decreases according to the decline of vineyard area. Despite the hail caused damage in vineyards, the volume of production in 2016 was 476 thousand tonnes, which is slightly higher than in the previous years. We currently produce wine grapes in the 22 wine regions on about 76 thousand hectares. 22

5.3. ANIMAL PRODUCTION According to Hungarian Central Statistical Office data, the stock of cattle has increased since 2011 and this trend continued in 2016, which is primarily attributable to the expansion of the beef stock and the favourable market conditions. The number of cattle increased to 852 thousand in 2016, a 4 percent rise over the figure for 2015. The stock of cattle increased by 12.1 percent between 2012 and 2016, the largest percentage increase among the EU Member States. The stock of cows has increased by 15 thousand to 382 thousand since 2015, that is 12 percent higher than in December 2012. The number of dairy cows did not change significantly in 2016, however it grew by 5 percent between 2012 and 2016, despite the two-year milk market crisis. The number of beef cattle has increased by 18 thousand to 138 thousand since 2015, which means there has been 65 percent growth since 2012. Cattle was mainly exported (exports of live cattle to Turkey have doubled in 2016). Hungary was a net exporter of live cattle and beef in 2016. In Hungary, milk production increased by 7 percent between 2012 and 2016. The amount of raw milk purchased by processors rose by 21 percent in the same period, and the production of almost all milk products has increased. Over the past four years, dairy product consumption has steadily increased, milk consumption per capita was 4.6 litres in the first half of 2016, up 4.1 percent from the same period last year. Eighty percent of the raw milk sold in Hungary was produced locally, while the proportion of imports fell below 20 percent. The pig stock in December 2016 amounted to 2.887 million, which was about 7.6 percent lower than in the previous year. The number of sows fell by 10.2 percent. The number of pigs decreased both in agricultural enterprises and in private holdings. At the end of 2016, private holdings and enterprises held 14.2 and 5.3 percent fewer pigs respectively than a year previously. The producer price of slaughter pigs was HUF 485 per kg in carcass weight in December 2016, which is 26 percent higher than in the previous year, but the favourable market conditions and animal welfare subsidies were unable to stop the decline in pig population. Owing to the decline in the domestic pig slaughter supply, slaughterhouses still need to import raw materials. Pork imports increased by 15.8 percent to about 144 thousand tonnes in 2016, while pork exports declined by 4 percent to 138 thousand tonnes, so Hungary was a net importer of pork in 2016. The value of foreign trade in live pigs grew even though the volume traded was lower than in the previous year. The quantity of imported live pigs was 57 thousand tonnes in 2016, while exports amounted to 32 thousand tonnes, so Hungary was a net importer of pigs. Both exported and imported volumes dropped by 3.3 percent compared to 2015, while in 2016 the trade deficit increased to EUR 44 million, which means a deterioration of more than 15 percent. In Hungary, the poultry flock decreased by 0.6 percent from the same period of the previous year to 40.1 million units in December 2016, but increased by 4 percent compared to the 2012 flock size. The decline in 2016 was mainly due to the damage caused by avian influenza (AI). In Hungary, the AI virus was detected in the poultry meat and egg sectors between November 2016 and April 2017, which resulted in a flock decrease mainly in the case of waterfowl. However, this is not yet reflected in the 2016 official statistics. The virus also caused market disturbances in the processing industry and in trade. 23

table 7: Production of meat and animal products in Hungary, 2012 2016 Item Units of measurement 2012 2013 2014 2015 2016 * Total slaughter thousand tonnes 1 354 1 339 1 414 1 507 1 575 Of which: cattle thousand tonnes 77 77 80 87 90 pigs thousand tonnes 517 523 557 587 599 sheep thousand tonnes 20 18 19 19 20 poultry thousand tonnes 705 688 724 782 835 Fish ** thousand tonnes 15 15 15 17 16 Milk million litres 1 765 1 726 1 826 1 890 1 900 Eggs million piece 2 411 2 469 2 420 2 555 2 468 Wool tonnes 3 834 3 843 3 887 3 840 3 840 * preliminary data. ** based on AKI data. Data sources: Hungarian Central Statistical Office, AKI figure 12: Distribution of meat production in Hungary, changes in production of animal products 2016/2015 2016 53,0% 5,7% 38,0% 1,2% POULTRY SHEEP CATTLE PIGS 0% 0.5% 2% 3% 5% 7% 6% 3% FISH EGGS WOOL MILK PIGS CATTLE SHEEP POULTRY 24

The hen population accounting for 80 percent of the poultry stock decreased to 31.9 million, a 1.3 percent decline from 2015. The laying flock population was 11.4 million, 7.8 percent below the population registered at the end of 2015. The turkey population decreased by 0.4 percent to 2.8 million, while the population increased by 19.4 percent to 1.22 million, while the duck population has remained substantially unchanged at 4.3 million. The poultry stock changes rapidly because of the short life cycle, and the producers adapt flexibly to market signals, demand and supply, so it is common for all species of poultry that the stock levels at a given time do not exactly reflect the annual production. If the stock is less than in the December of the previous year, the annual slaughter production may be higher for the given year. Unlike large livestock, poultry are kept in multiple rotations, so the production can be adjusted relatively fast within the year according to market demands. In Hungary, 210.3 million poultry were slaughtered in 2016, 5.8 percent more than in 2015. During the last four years, the duck and chicken sectors have been developing dynamically, but they have been negatively affected by the appearance of avian influenza, especially in the case of waterfowl. 2.5 billion eggs were produced in 2016, 2.3 percent more than in 2012. The sheep stock decreased by 2.5 percent to 1158 million in 2016 compared to the previous year. The number of ewes also decreased, by 5.1 percent to 805 thousand. The number of private farms with sheep fell by 4.8 percent to 23.8 thousand, while the number of enterprises rose by 4.2 percent to 548 thousand. The number of ewes on private farms was on average 5.9 percent lower (708 thousand ewes, on average 30 ewes per holding). For enterprises, the number of ewes remained unchanged from the previous year (97 thousand, on average 177 ewes per holding). Sixty-eight percent of the sheep stock was kept on the Great Plain. The purchase price of sheep decreased by 5.5 percent, while the volume of purchases increased by 5.5 percent in 2016 compared to 2015. Domestic consumption remained low (0.2 kg / head) and nearly 90 percent of lambs were sold in Italy as in recent decades. Sheep meat exports continued to be negligible compared to live lamb exports. Like the live lambs, the majority of milk products and wool were exported. Hungary s goat population was 78 thousand on 1 December 2016, an increase of 8.3 percent over the previous year s figure. 25

6 Results of agricultural holdings The data of the Farm Accountancy Data Network (FADN) can be used to evaluate the financial and income situation and property status of agricultural holdings. The data collection includes about two thousand sample farms, which cultivated 95 percent of all land used by all registered holdings and produced 93 percent of all Standard Output (SO) in the examined years. National-level data are produced by weighting the data of the sample farms to the data of the Farm Structure Survey of 2013. The average utilised agricultural area of the represented farms was 44.03 hectares and the average employment rate of a farm was 1.5 persons. Individual farms produced 55 percent of the total net value added, while corporate farms produced 45 percent of the total at national level. Agricultural incomes have consolidated quickly after the financial crisis in 2009. In terms of profitability, a more stable period began in 2010. The price index of expenses has hardly changed, and the decline in producer prices since 2013 has been compensated for by increasing direct payments. figure 13: Development of net added value and widening input and output price difference NET VALUE ADDED: % 120 110 100 90 thousand HUF/hectare 250 200 150 100 Price index of agricultural expenses Agricultural producer price index Net value added is the difference between the production value and the value of those products and services which were used during production. 80 70 2012 2013 2014 2015 2016 50 0 Net added value Sources: FADN Information Department of AKI and Hungarian Central Statistical Office 26

The FADN data reveals much higher income fluctuations by analysing farm types. The variability of incomes is particularly high for pig farms and grape producing farms. The results of the grape producers follow the farm price of grapes, and the change in feed prices has the strongest impact on income for pig farmers. The dairy market crisis resulting from the milk quota abolition caused a significant decrease in the income of dairy farms in 2015, which was only partially restored in 2016. The most successful year for fruit production was 2013: although the quantity and the price of the dominant crop, apples, decreased, the other types of fruits influenced profitability in a positive way. figure 14: Development of the net value added per hectare according to farm type 1000 800 600 400 200 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 FRUIT PRODUCERS ARABLE CROP FARMERS GRAPE PRODUCERS MIXED FARMS Source: FADN Information Department of AKI 27

figure 15: Development of the net value added per livestock unit according to farm type 400 350 300 250 200 150 100 50 0 20122013201420152016 POULTRY FARMERS 20122013201420152016 CATTLE- AND SHEEP REARING FARMERS 20122013201420152016 PIG FARMERS 20122013201420152016 DAIRY FARMERS Source: FADN Information Department of AKI Investments in agriculture do not follow the income expectations: they are influenced by financial support, and the holdings adjust investments to the parameters of the subsidies. The net investment (total investment minus depreciation) approached zero in 2016; moreover, if the land acquisition of individual farms is deducted, it becomes negative. Holdings have not even made replacement investments. An increase may be expected in 2017. 28

figure 16: Development of gross and net investment (thousand huf/hectare) 120 100 80 60 Gross investment Net investment 40 20 0 2012 2013 2014 2015 2016 Source: FADN Information Department of AKI The financing structure of agriculture has developed positively due to the stable profitability and the favourable development of the credit market in recent years. The proportion of longterm obligations, including the share of development credits, has been increased. Thus, the net worth of fixed assets and the liquidity of the holdings also improved significantly. 29

7 Performance of the food industry The Hungarian food industry has performed well in recent years, as both production and sales have increased considerably. This favourable trend was driven mainly by the growth in direct export sales, but domestic sales have also progressed. Production value of the sector was HUF 2880.1 billion in 2016, 1.4 percent higher than in 2015 and 9.3 percent higher than in 2012, calculated at constant prices. Domestic sales increased by 1.6 percent to HUF 1713.3 billion in 2016, and their share of total sales approached 60 percent. Direct export sales experienced a slightly smaller growth of 1.2 percent and reached HUF 1167.1 billion; their share of total sales was about 40 percent in 2016. Between 2012 and 2016, domestic food industry sales grew by 4.3 percent, while direct export sales expanded by 20.0 percent at constant prices. table 8: Production and sales of the food industry Production value (current prices) Annual volume change of production value Domestic sales (current prices) Annual volume change of domestic sales Export sales (current prices) Annual volume change of export sales Total sales (current prices) Annual volume change of total sales 2012 2013 2014 2015 2016 2012 2016 change 2 527,3 2 615,3 2 737,0 2 831,4 2 880,1 352,8 +4,6 1,0 +4,4 +4,3 +1,4 +9,3 1 592,2 1 612,8 1 678,6 1 681,2 1 713,3 121,1 +1,2 2,8 +4,5 +1,1 +1,6 +4,3 913,0 1 012,2 1 046,8 1 147,6 1 167,1 254,1 +11 +5,4 +2,0 +10,3 +1,2 +20,0 2 505,2 2 625,0 2 725,4 2 828,7 2 880,4 375,2 +4,6 +0,2 +3,5 +4,7 +1,4 +10,1 Data source: Hungarian Central Statistical Office 30

figure 17: Volume change of the production value of the food industry 120 114 108 103,4 107,8 109,3 102 100 99 96 90 2012 2013 2014 2015 2016 Source: based on Hungarian Central Statistical Office The favourable performance of the food sector in 2016 was supported from the input side by the increasing animal husbandry production, a record harvest of field crops, low raw material and energy prices, as well as low interest rates on the credit markets. From the demand side perspective, food industry production was driven by the growing activity of external markets, and the expanding domestic markets (due to the increases in employment and real wages). The sector has been producing mainly for the domestic market (about 60 percent of the sales are domestic); however, in a multi-annual perspective the significance of the export markets has increased considerably. figure 18: Shares of domestic and export sales in the total sales of food industry percent 100 80 Export sales 60 40 Domestic sales 20 0 2012 2013 2014 2015 2016 Source: based on Hungarian Central Statistical Office 31

Food industry production is moderately concentrated: in 2016 the share of the TOP5 branches reached more than 40 percent, while the TOP10 branches accounted for more than 70 percent of the total production value. The three branches of the meat sector accounted for 24.9 percent of the total production value of the food industry in 2016. Processing and preserving of poultry meat took over the lead from the branch of processing and preserving of meat in 2014, thus becoming the biggest branch in the food sector. In 2016 it accounted for about 10 percent of the total production value. table 9: Share of the main food industry branches in the total production value (%) 2012 2013 2014 2015 2016 Processing and preserving of meat 10.1 10.5 8.8 8.4 8.4 Processing and preserving of poultry meat 9.4 9.1 9.4 9.7 10.1 Production of meat and poultry meat products 6.3 6.1 6.1 6.2 6.4 Manufacture of fruit and vegetable juice 0.9 0.9 0.7 0.6 1.3 Other processing and preserving of fruit and vegetables 7.4 6.9 7.7 7.0 7.3 Manufacture of oils and fats 6.8 6.2 5.9 6.2 5.8 Operation of dairies and cheese making 8.8 8.6 9.2 8.3 8.7 Manufacture of ice cream 0.2 0.2 0.2 0.2 0.2 Manufacture of grain mill products 3.4 3.4 3.0 3.2 2.7 Manufacture of bread; manufacture of fresh pastry goods and cakes 4.3 4.1 4.0 3.9 3.8 Manufacture of rusks and biscuits; manufacture of preserved pastry goods and cakes 2.8 2.7 2.7 2.6 2.9 Manufacture of macaroni, noodles, couscous and similar farinaceous products 1.1 1.0 1.3 1.2 1.2 Manufacture of cocoa, chocolate and sugar confectionery 1.5 1.7 1.7 1.9 2.2 Processing of tea and coffee 3.9 3.5 3.5 3.5 0.2 Manufacture of condiments and seasonings 1.0 1.1 1.3 1.4 1.2 Manufacture of prepared meals and dishes 0.5 0.6 0.6 0.6 0.7 Manufacture of homogenised food preparations and dietetic food 0.3 0.4 0.4 0.5 0.5 Manufacture of other food products 1.9 2.9 3.7 4.2 3.9 Manufacture of prepared feeds for farm animals 6.4 6.0 6.4 6.5 6.2 Manufacture of prepared pet foods 2.8 3.2 3.4 3.6 6.5 Distilling, rectifying and blending of spirits 1.0 0.9 1.3 1.3 1.2 Manufacture of wine from grape 2.1 2.6 2.7 2.9 2.7 Manufacture of beer 3.4 3.2 3.0 3.0 3.2 Manufacture of soft drinks; production of mineral waters and other bottled water 6.4 6.7 6.7 7.2 6.8 Manufacture of tobacco products 1.0 1.1 1.1 1.0 1.0 Other 6.2 6.4 5.0 4.7 4.9 Data source: Hungarian Central Statistical Office 32

8 External trade of Hungary In 2016, the trade balance of the Hungarian national economy was EUR 9.9 billion, out of which the balance of agricultural and food products was EUR 2.9 billion. The latter has been increasing since 2006 and reached its highest value, EUR 3.6 billion, in both 2012 and 2013. In 2014 the balance fell to EUR 3.0 billion, and remained at this level in 2015. In 2016, the exports of agricultural and food products were worth EUR 8.0 billion, an increase of 1.6 percent from the previous year. The imports were valued at EUR 5.16 billion and increased by 6.3 percent. The share of agricultural products in the total exports of the national economy was 8.6 percent. The share of agricultural products in total imports was 6.2 percent.. figure 19: External trade turnover of agricultural and food products in Hungary (2012 2016) 10 Balance 8 6 Import 4 Export 2 0 2012 2013 2014 Data source: Hungarian Central Statistical Office 2015 2016 33

Az agrárexport értékének négyötödét, az import In 2016 four fifths of the value of agricultural exports and two thirds of the value of agricultural imports were accounted for by ten chapters. The five largest chapters in terms of export value were cereals, meat and offal, animal feed, beverages, spirits, and vinegar and oilseeds, which together accounted for 52 percent of all agricultural exports. The five largest chapters in terms of import value were miscellaneous other edible preparations, animal feed, meat and offal, dairy products, eggs, honey, and confectionery, which together accounted for 39 percent of all agricultural imports. Hungarian external trade has remained Europe-oriented: figure 20: Export and import structure of agriculture and food industry by chapters, 2016 EXPORT 21% 15% 13% 10% 7% 7% 7% 6% 6% 5% 4% Others Cereals Meat and offal Prepared animal feed, food industry residues Beverages, spirits, vinegar Oil seeds Miscellaneous other edible preparations Preparation of vegetables, fruits, nuts Animal fats, vegetable oils, waxes Dairy products eggs, honey Live animals IMPORT 36% 9% 8% 8% 7% 6% 6% 5% 5% 5% 4% Others Miscellaneous other edible preparations Prepared animal feed, food industry residues Meat and offal Dairy products eggs, honey Preparations based on cereals, flour, starch or milk pastries Oil seeds Beverages, spirits, vinegar Fruits Cocoa and cocoa preparations Animal fats, vegetable oils, waxes Data source: Hungarian Central Statistical Office 34

figure 21: Breakdown of the value of exports by country in 2016 15% GERMANY 12% ROMANIA 9% ITALY 9% AUSTRIA 6% SLOVAKIA 5% POLAND 5% THE NETHERLANDS Source: Hungarian Central Statistical Office 4% 3% EXPORT CZECH REPUBLIC FRANCE 3% UNITED KINGDOM 29% OTHERS 0 5 10 15 20 25 30 94 percent of the turnover was with European countries in 2016. Agricultural trade with the EU Member States accounted for 87 percent of all agricultural trade, of which the EU15 had 52 percent and new member states had 35 percent. The value of agricultural exports to EU Member States remained at the level of the previous year while imports increased by 6 percent, and the balance in 2016 of EUR 1.9 billion was 12 percent down on the previous year. From 2013 the economic surplus has declined each year. In 2016 the value of agricultural exports with non-eu countries increased by 10 percent and the value of imports rose by 15 percent compared to 2015, while the economic surplus increased by 8 percent. Exports to Asian countries increased by 14 percent, primarily owing to expansion of trade with China and Taiwan. 35

figure 22: Breakdown of the value of imports by country in 2016 19% GERMANY 11% POLAND 10% SLOVAKIA 8% AUSTRIA 8% THE NETHERLANDS 6% ITALY 6% CZECH REPUBLIC Source: Hungarian Central Statistical Office 5% IMPORT 4% 3% 20% 0 5 10 15 20 25 30 ROMANIA FRANCE SPAIN OTHERS Of the agricultural imports came from the EU, the share of the EU15 and new member states was 56 and 37 percent respectively. Imports from EU Member States increased by 6 percent in 2016. Imports from non-eu European countries increased by 27 percent while there was a 6 percent increase in imports both from Asia and the Americas. In 2016 the five largest export markets were Germany, Romania, Italy, Austria and Slovakia, together accounting for 51 percent of all agricultural exports. Four fifths of agricultural imports came from ten EU Member States. The five most important partners have a share of 57 percent of total agricultural imports, namely: Germany EUR 996 million, Poland EUR 583 million, Slovakia EUR 493 million, Austria EUR 413 million and the Netherlands EUR 410 million. 36

9 Agricultural, rural development and fisheries subsidies in 2016 Subsidies on agriculture, rural development and fisheries totalled approximately HUF 654.1 billion in 2016, of which 80 percent came from EU funds, most notably from the European Agricultural Guarantee Fund (EAGF). This amount was supplemented by an additional HUF 27.4 billion of excise duty refund on fuel oil used in agriculture 9.1. SUBSIDIES FINANCED BY THE EUROPEAN UNION 9.1.1. Direct subsidies The support system introduced in 2015 includes basic support (single area payment scheme or SAPS), greening, payment for young farmers, coupled support and simplified support schemes for small farms. The level of coupled support increased from 3.5 percent of the direct EU support budget to its current 15 percent. The titles announced in Hungary are suckler cow, fattened bull, dairy cow, sheep, rice, sugar beet, vegetable crops, industrial vegetables, fruit plantations and berries, protein crops, grain crops and fibre crops. As in previous years, in 2016 Hungary has lived with the possibility of paying advance payments or partial payments for several items for the year. Final payments are made every year until 30 June of the year following the reference year. Within the framework of direct payments, HUF 486.8 billion was disbursed. Within this, the former SAPS accounted for HUF 251.1 billion, with HUF 154.4 billion for greening, HUF 4.5 billion for payments to young farmers, HUF 59.9 billion for coupled support, and HUF 9.3 billion for simplified support for small farms. In addition, the refund due to the use of financial discipline was HUF 4.3 billion, while the temporary and extraordinary milk premium amounted to another HUF 3 billion. The ruminant restructuring support paid disbursement of previous years amounted to HUF 320.3 million. 37

9.1.2. Support for market and veterinary measures In 2016, market support from EU funds totalled HUF 15.9 billion, supplemented by HUF 10.7 billion in EU co-financed measures. Among the domestic subsidies, the support for the vine and wine sector (HUF 9.4 billion) is outstanding, whose measures will be implemented within the framework of a five-year national support programme based on the EU s common market organization. Its expenditure is fully covered by the EAGF. EU-co-financed market measures play a prominent role in the Hungarian support system. In the 2015/1016 school year, 557,792 children in 2184 schools benefited from the School Fruit and School Vegetable Scheme, and 95.5 percent of children studying in grades 1-6 obtained fruit and vegetables and fruit juice for 24-29 weeks. Children attending kindergartens, primary school pupils and secondary and vocational school pupils could participate in the School Milk Scheme. In the last six years, the number of children covered by the scheme has almost tripled to about 440,000. As in previous years, in 2016 there was also a significant demand for the support of the Hungarian Apiculture National Programme aimed at increasing the efficiency of apiculture, and the support of certain special alliances helped the establishment and maintenance of fruit and vegetable producer groups. In addition, EU funds were available for the eradication, control and surveillance of certain animal diseases (e.g. salmonella, swine fever and avian influenza) 9.2. RURAL DEVELOPMENT AID With the co-financing of the European Agricultural Fund for Rural Development (EAFRD), rural development subsidies for different purposes are disbursed. The aid intensity typically does not reach 100 percent, which means that own resources are sufficient. Rural development subsidies amounted to HUF 34.9 billion in 2016, and fisheries subsidies to HUF 1.9 billion. 9.3. NATIONAL SUBSIDIES In the case of grants funded purely from national sources, payments of HUF 103.9 billion were realized in 2016. A substantial share (HUF 39.7 billion) was fulfilled through the transitional national support (APA) related to the single area payment associated with the small amount subsidies. Within the framework of the APA, primarily the milk, fattened bull, bovine extensification, ewe keeping and tobacco sectors have been financed. The pig and poultry sector does not benefit from EU funds; it is wholly subsidized from domestic budgets, mainly through animal welfare measures. For pig farmers in 2016, HUF 9.4 billion could be paid for pigs, HUF 7.8 billion for breeding sows, while poultry holders could use HUF 12 billion. The pig industry was also supported by the HUF 1.6 billion programme of the pig strategy. Veterinary measures amounted to HUF 12.5 billion. Subsidies for field watch services, interest rate, guarantee and cost subsidies for various agricultural loan schemes, as well as a small amount of support schemes related to animal husbandry and crop production in certain special sectors (peppers, breeding rabbits, beekeeping), were funded from national sources. 38

The Agrarian Damage Compensation System (ADCS) is based on the common risk and burden of producers and the state. The compensation of the ADCS prompted by adverse weather events is the basis of the annual payments made by producers and the equivalent amount of state resources. Producers are compensated for damage caused by drought, inland water, downpour, hail, agricultural flood, spring frost, autumn frost, winter frost or storm, under statutory conditions. In 2016, payments totalling HUF 6 billion were made for damage caused in 2015 by drought, hail, inland water, storm, spring frost and downpour. Within the framework of animal and plant compensation, HUF 3.5 billion was disbursed. The Farmstead Development Programme, operating in tender form, in 2016 supported the renewal and revitalization of farm management, the improvement of the quality of life of the people living on farms and the remaining of young people in rural areas to a total of HUF 1.8 billion. 39

10 RDI and education Research, innovation and education are areas that, by their nature, do not affect the present but rather the future. The performance of national agriculture depends to a great extent on the results of knowledge production and knowledge sharing between actors in the ever-increasing international competition. There are 221 organisations in the field of agricultural sciences, where the number of entrepreneurial and higher education research sites exceeds one hundred. There are only seven research and development institutes and other research sites, but there are also umbrella organisations which combine several institutes of the sector. In 2014 the National Agricultural Research and Innovation Centre, (NARIC) was founded as the single largest Hungarian agricultural institute, as an umbrella organisation. The central budgetary institution employs nearly 700 employees, including 300 researchers, and consequently has a very broad profile incorporating all major areas of Hungarian agriculture, including fisheries, arable crop, ornamentals and vegetable production, viticulture and enology research, animal breeding, reproduction and nutrition, aquaculture, agricultural engineering, forest research and management, agricultural biotechnology, food science and agroenvironmental research and technologies. Furthermore, in 2016, with the pursuit and development of the Researchers Recruitment Programme, NARIC strengthened his staff with 19 young researchers, which is a significant step in the long-term development of agricultural research. The Hungarian Intellectual Property Office has been in charge of the certification of R&D activities in addition to industrial property rights since 2012. Patent applications affecting agricultural land account for 11 percent of all national patent applications. For R&D certification applications this figure is 12 percent and for trademark applications over 25 percent. 40

figure 23: The number of patent applications in the agri-food business in 2016 1,5% 7,1% 6,4% R&D certification applications Plant species protection 94,2% Trademark applications Patent applications Data source: Hungarian Intellectual Property Office, 2017 The Ministry of Agriculture (hereinafter: MoAH) in cooperation with the Research Institute of Agricultural Economics (AKI) and the Chamber of Agriculture, Food and Rural Development (NAK) makes efforts to boost innovation in agriculture and provides professional support for the development of the European Innovation Partnership Agricultural Productivity and Sustainability (EIP-AGRI) within the framework of the Rural Development Programme, aiming to realise innovation that responds to farmers needs. The EIP-AGRI is working to establish partnerships and to link the various actors and organisations with professional backgrounds through Operational Groups in the EIP-AGRI network. Different actors in innovation and agriculture farmers, advisors, researchers, agricultural enterprises, NGOs and other stakeholders work together and share ideas to develop innovative solutions and research results that can be applied in practice. One of the main tools for the sharing of knowledge, skills and good practices as well as the encouraging of dialogue between farmers and researchers is the Hungarian EIP-AGRI website (eip. fm.gov.hu). Apart from the general introduction, the website offers an opportunity to share information about interesting projects and research needs, and it serves as a virtual meeting point where it is possible to choose between funding opportunities, project ideas and the demands of practitioners. Besides the national ambitions, in order to strengthen the international relationships in the field of agricultural research and innovation, the MoAH - in cooperation with AKI and NAK - launched the BI- OEAST initiative in 2015 as a Central and Eastern European Initiative for Knowledge-based Agriculture, Aquaculture and Forestry in the Bioeconomy. BIOEAST aims to establish a multi-stakeholder network, map the specific research challenges, increase the visibility of the macro-region, improve skills and develop strategies. In the last year and a half, fact-finding and organisational work has been undertaken with the active involvement of stakeholders, and many successful national and international events have been organised during which highly relevant and important topics and challenges specific to the macro-region were identified. Moreover, we have started to become more actively involved in the policy work at EU level. For more information about the BIOEAST initiative, also visit the website eip.fm.gov.hu. 10.1 EDUCATION Currently, the MoAH participates in the system of the professional education as the second largest operator of institutions and, as such, controls 80 percent of agricultural education. Over the past years, our institutions have been developed into a com- 41

plex agricultural educational system that operates upon stable and single principles. Currently, the MoAH operates 47 schools in 62 different locations across the country. Fifteen institutions belong to three major Regional Integrated Educational Centres. In total, 22,000 students participate in the above network of institutions, 55 percent of them in technical schools, 42 percent in vocational high schools and 3 percent in regular high schools. The agricultural educational institutions also participate in the national programmes aimed at equal opportunities and talent management (e.g. Arany János College Programme, BRIDGE Programmes, talent management programmes), based on which there is the opportunity to help handicapped students, to compensate them for their underprivileged social circumstances, to help them to complete their high school studies successfully and to manage exceptional talent. In addition, they participate in several professional competitions, on which the students of the MoAH agricultural educational institutions demonstrate high performance. The educational institutions operated by the MoAH have excellent international relationships. In 2016, the Network of Agricultural Schools participated in international projects within the frameworks of the Erasmus + programme. Almost every agricultural school operated by the MoAH was granted the title of Eco School or Eternal Eco School. 42

11 European Union and International Agro-diplomatic Events, Hungarian Engagement in the European Union 11.1. EUROPEAN UNION AGRO-DIPLOMATIC EVENTS OF THE MOAH IN 2016 Concerning the relevant areas of EU legislation, the Ministry of Agriculture of Hungary has been actively involved in the development and implementation of the agricultural and environmental policies, as well as in the preparation of new EU regulations that are mandatory at national level. Last year the working groups of the Council of the EU that belong to the MoAH had, approximately 370 sessions. Representatives of the MoAH took part in 18 Ministerial Councils and four Informal Ministers Councils. 11.2. CO-OPERATION WITH THE FOOD AND AGRICULTURE ORGANIZATION OF THE UNI- TED NATIONS In the frame of the Agreement signed between FAO and Hungary, the scholarship programme for students coming from developing countries continued in 2016. By the end of 2016 a total of 250 students had received grant support for agricultural MSc studies. The FAO offices provided jobs for about 200 employees and experts, mostly Hungarian workers. Thanks to the good co-operation, the FAO offices are constantly expanding. In the frame of the project financing obligation, the implementation of the project on organic farming in Serbia was completed, and three other projects financed by Hungary were started, as follows: a project on irrigation in Moldova, a rural development project in Bosnia and Herzegovina, and a project against lumpy skin disease in the Balkans. The MoAH hosted, among others, the following FAO events in 2016: Bioenergy Week, Agroecological Regional Symposium, a professional day organised during the International Year of Pulses; and Minister Sándor Fazekas met Mr. José Graziano da Silva, the Director General of FAO. 43

11.3. EU-FUNDED PROJECTS: TWINNING AND TAIEX These institutional development projects support the pre-eu accession countries and the EU partner countries. During 2016 the MoAH started to implement four Twinning projects of 24 months duration in Serbia, Turkey, Azerbaijan and Georgia, concerning animal health and forestry. In addition to the Twinning projects the MoAH also participated in eight TAIEX programmes. The topics were mainly concerned with rural development, animal health, producer groups and paying agencies. Beneficiary countries were as follows: Ukraine, Turkey, Moldova, Montenegro and Macedonia. 11.4. SOUTH-SOUTH CO-OPERATION PROJECT: The South-South Co-operation Office (UNOSSC) is a UN body that invited Hungary to participate in a four-year project that started in 2015. In this project eight African and Asian countries share their experiences and good practices on topics including biotechnology, producer organisations, sustainable water management and aquaculture. Hungary organised a biotechnology workshop and a one-week training course attended by experts from six countries. The project will continue in 2017-2018. 44

12 Ministry of Agriculture Attachés of Agriculture and Environment FEDERAL REPUBLIC OF GERMANY (Berlin) Mr. Nándor Béki phone: +49-30-203-10-210 fax: +49-30-224-87-207 cell: +49-173-6238-712 address: Embassy of Hungary 10117 Berlin, Unter den Linden 76 e-mail: NBeki@mfa.gov.hu ITALIAN REPUBLIC (Rome) Mr. Zoltán Kálmán phone: +39 06 44 231 952 fax: +39 06 83 700 393 cell: +39 342 543 1003 address: Permanent Representation of Hungary to the United Nations Food and Agriculture Agencies in Rome (FAO, WFP, IFAD) 00161 Rome, Via dei Villini 16 e-mail: Zoltan.Kalman@mfa.gov.hu FRENCH REPUBLIC (Paris) Mrs. Marianna Nesuta Gresóné phone: +33 1 45 00 94 97 fax: +33 1 44 05 07 37 cell: +33 762 49 80 36 address: Embassy of Hungary 5, square de l Avenue Foch 75116 Paris e-mail: marianna.nesuta@mfa.gov.hu SPAIN (Madrid) Mr. Miklós Maácz phone: +34/91 4137 011 phone: +34/91 7000 132 (direct) fax: +34/91 4134 138 cell: +34/696 876 898 address: Embassy of Hungary C/Fortuny 6, Piso 4. 28010 Madrid e-mail: MMaacz@mfa.gov.hu THE UNITED STATES OF AMERICA (Washington) Dr. Ákos Horváth phone: +1 202-362-6730 fax: +1 202-966-8135 cell: +1 202-386-2710 address: Embassy of Hungary 3910 Shoemaker Street, NW., Washington D.C. 20008 e-mail: akos.horvath@mfa.gov.hu ROMANIA (Bucarest) Dr. Sándor Tibor László phone: +40-21-208-2978 fax: +40-21-312-0467 cell: +40 727 811 072 address: Embassy of Hungary Str. Jean-Louis Calderon 63-65. 70202, Bucuresti e-mail: tibor.sandor@mfa.gov.hu 45