Overview of the Hungarian Baking Industry in 2023 – Why did the Price of Bread Double?

Abstract

Between 2020-2022, two crises hit humanity: the pandemic, and the Russian-Ukrainian war, which escalated a kind of food crisis over time. The global economy has barely fell out of the initial demand, then supply deficit crisis caused by COVID-19, when Russia attacked Ukraine on 24.02.22. First, economists thought that war will only slow down post-COVID economic recovery. However, this was rapidly refuted as serious negative social and food economic impacts could have been observed. These include macroeconomic trends such as record food inflation, real purchasing power decline, high interest rates, high energy prices and recession prospects. The baking industry is a segment of national economies that produces essential consumer goods. At the same time, Hungarian businesses have been extremely affected by the experienceable baking industry-specific economic situation in recent years. In 2015, there were 1274 bakery enterprises, this number decreased to 891 by 2020. The number of workers in the baking industry decreased by more than 5200 people in 5 years. In this manuscript I was looking for the answer for the following question: which factors increased the price of the bakery products so drastically between the beginning and the end of 2022. Extremely high raw material, fuel and energy prices can be considered. In an industry sector such as the baking industry, where the profitability index is very low, the demand for manual labour and raw material cost ratio are high, processes like wage growth dynamics not followed by efficiency, state intervention-induced panic purchases, uncertainty of forint-euro exchange rate, price-profit spiral of energy and raw material suppliers placed the companies in front of survival and rentability challenges. In general, the revenue of bakeries stagnated but many companies were able to grow and invest even during the crisis as they took the opportunity and replaced foreign import products from the shelves of multinational chains, which have lost their competitiveness due to supply chain disruptions and rising costs. The Hungarian baking industry is saturated, also its capacities are not fully utilized. Due to this, there is an extremely intense competition between the economic actors. In the past years the market growth of quick-frozen, pre-baked products has continued. Anti-inflation resilience of Hungary would be worth to improve by actions such as reducing the proportion of imported goods, financing investments that increase efficiency, vertical cooperation between the agribusiness and the food industry, and increasing the share of higher value-added products. Because of these aspects, it is very important that this structural selection process in the industry, what kind of vision is set for the bakery businesses.