Identifier
Created
Classification
Origin
09BUDAPEST357
2009-05-13 14:46:00
CONFIDENTIAL
Embassy Budapest
Cable title:
HUNGARY: ETHICAL CODEX ENCOURAGES FOOD STORES TO
how-toVZCZCXRO3319 RR RUEHAG RUEHBZ RUEHKW RUEHMR RUEHPA RUEHPB RUEHROV RUEHSR DE RUEHUP #0357/01 1331446 ZNY CCCCC ZZH R 131446Z MAY 09 FM AMEMBASSY BUDAPEST TO RUEHC/SECSTATE WASHDC 4161 INFO RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE RUCNMEM/EU MEMBER STATES COLLECTIVE RUCNWTO/WORLD TRADE ORGANIZATION COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000357
SIPDIS
STATE PASS JLAMORE, COMMERCE PASS SSAVICH, ITA/TRADE
COMPLIANCE CENTER
E.O. 12958: DECL: 05/13/2014
TAGS: BTIO ETRD EAID ECON EU HU
SUBJECT: HUNGARY: ETHICAL CODEX ENCOURAGES FOOD STORES TO
STOCK HUNGARIAN PRODUCTS
Classified By: Acting P/E counselor Jon Martinson, reasons 1.4 (b,d)
C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000357
SIPDIS
STATE PASS JLAMORE, COMMERCE PASS SSAVICH, ITA/TRADE
COMPLIANCE CENTER
E.O. 12958: DECL: 05/13/2014
TAGS: BTIO ETRD EAID ECON EU HU
SUBJECT: HUNGARY: ETHICAL CODEX ENCOURAGES FOOD STORES TO
STOCK HUNGARIAN PRODUCTS
Classified By: Acting P/E counselor Jon Martinson, reasons 1.4 (b,d)
1. (U) Summary: On April 9 2009, representatives of major
supermarket chains, food producers and processors signed a
voluntary ethical codex that "requires" 80 percent of shelf
items to be Hungarian products. Although portrayed as a
symbol of good faith, international retailers such as Tesco
(UK) and Auchan (France) say they signed the codex under
threats of forcing legislation. As the Hungarian food market
is providing all it can produce, experts do not foresee major
trade implications at this point. End summary.
--------------
BACKGROUND-- NOT PLAYING NICE
--------------
2. (U) While farmers and processors complain about high shelf
fees and expensive in-store advertising costs, the stores
counter that farmers are quick to break contracts in search
of higher profits abroad. When milk demand in Italy
skyrocketed, Hungarian dairy farmers broke their contracts
with local stores to export milk to Italian markets.
Hungarian stores had to import milk from Slovakia. These and
other actions led to demonstrations and protests. Last
summer, farmers threw watermelons at grocery storefronts, and
poured milk down the store aisle to show dissatisfaction with
business agreements.
3. (U) In response, the Minister of Agriculture (MOA),Joszef
Graf, called the parties to negotiate an agreement last
autumn. The resulting ethical codex is couched as a
Q gentleman's agreementQ, and does not have the force of law.
However, Minister Graf used the threat of possible future
legislation to force some parties to the table. A number of
expertsQ, claim that the Q 80 percent HungarianQ, requirement
is politically motivated and protectionist in nature.
However, for farmers, Minister Graf is a hero.
-------------- --------------
REALISTIC IMPACT OF 80 PERCENT HUNGARIAN PRODUCT REQUIREMENT
-------------- --------------
4. (SBU) There is a large foreign company presence in the
Hungarian food market. Additionally, many ingredients are
imported to process food domestically. With international
involvement in every step of the Hungarian food chain, from
growing to processing, it is extremely difficult to define
what is a "Hungarian" product. Accordingly, the codex does
not.
5. (SBU) In conversation with Pol/Econoff on April 29, Laszlo
Varkonyi, Director General of the Trade Policy Department in
the Ministry of Economy (MOE),stated that, "This is a form
of Q soft persuasion,Q, and will not change business
arrangements. It is unrealistic to think that the Hungarian
market could provide each category of food." Many experts
believe that the Hungarian product requirement is more of a
public relations exercise in support of the produce, dairy,
poultry and pork sectors. The codex states that, Q if the
quality, quantity and the price is rightQ,, consider stocking
Hungarian products. Varkonyi estimates
that stores already stock 75 percent of these Hungarian
products.
6. (U) The current Prime Minister and former Minister of
Economy, Gordon Bajnai, has said it is impossible to stock
the shelves with 80 percent Hungarian products. The Hungarian
food supply chain simply cannot meet the demand.
--------------
INTERNATIONAL CONCERNS AND TRADE AGREEMENTS
--------------
7. (U) According to Minister Graf, this voluntary agreement
between the stakeholders is better than a new law, as
legislation would have required negotiations with Brussels.
Also, the current form of the codex complies with the
existing EU trade rules as it is voluntary in nature.
8. (C) Representatives from Tesco and Auchan believe that the
codex is inconsistent with EU rules and Hungary's commitments
under the WTO, as well as G-20 commitments not to undertake
protectionist trade measures. The UK Foreign Commercial
AttachQ stated, "This is a cunning weave by the Minister Graf
to promise farmers something he cannot
deliver." She explained that retailers were concerned about
BUDAPEST 00000357 002 OF 002
signing. France, Germany, the Netherlands, and the UK agreed
it is not a good idea and impedes business opportunities, but
are even more concerned about potential for future fines
should Hungary give these 'voluntary commitments' the force
of law. Tesco signed via the Retail Association.
9. (SBU) The codex will enter into force on July 1, 2009. The
MOA established a board to observe and evaluate the results
of the codex through the end of this year. After this, if
necessary, MOA is committed to put forward a law, based on
parliamentary consensus, to regulate the market. Meanwhile,
sources suggest that the European Commission and the
Hungarian Competition Advocate Office are both reviewing the
legality of the codex.
10. (C) Comment: Competing with old Europe in food chain
efficiency is daunting for Hungary, but protectionist
measures will not incentivize innovation or efficiency. Most
experts agree that the 80 percent Hungarian product
requirement is neither sustainable, nor enforceable.
Nonetheless, we will continue to monitor the developments of
the codex for potential market access barriers for U.S.
products or for violations of Hungary's international trade
commitments. End comment.
Levine
SIPDIS
STATE PASS JLAMORE, COMMERCE PASS SSAVICH, ITA/TRADE
COMPLIANCE CENTER
E.O. 12958: DECL: 05/13/2014
TAGS: BTIO ETRD EAID ECON EU HU
SUBJECT: HUNGARY: ETHICAL CODEX ENCOURAGES FOOD STORES TO
STOCK HUNGARIAN PRODUCTS
Classified By: Acting P/E counselor Jon Martinson, reasons 1.4 (b,d)
1. (U) Summary: On April 9 2009, representatives of major
supermarket chains, food producers and processors signed a
voluntary ethical codex that "requires" 80 percent of shelf
items to be Hungarian products. Although portrayed as a
symbol of good faith, international retailers such as Tesco
(UK) and Auchan (France) say they signed the codex under
threats of forcing legislation. As the Hungarian food market
is providing all it can produce, experts do not foresee major
trade implications at this point. End summary.
--------------
BACKGROUND-- NOT PLAYING NICE
--------------
2. (U) While farmers and processors complain about high shelf
fees and expensive in-store advertising costs, the stores
counter that farmers are quick to break contracts in search
of higher profits abroad. When milk demand in Italy
skyrocketed, Hungarian dairy farmers broke their contracts
with local stores to export milk to Italian markets.
Hungarian stores had to import milk from Slovakia. These and
other actions led to demonstrations and protests. Last
summer, farmers threw watermelons at grocery storefronts, and
poured milk down the store aisle to show dissatisfaction with
business agreements.
3. (U) In response, the Minister of Agriculture (MOA),Joszef
Graf, called the parties to negotiate an agreement last
autumn. The resulting ethical codex is couched as a
Q gentleman's agreementQ, and does not have the force of law.
However, Minister Graf used the threat of possible future
legislation to force some parties to the table. A number of
expertsQ, claim that the Q 80 percent HungarianQ, requirement
is politically motivated and protectionist in nature.
However, for farmers, Minister Graf is a hero.
-------------- --------------
REALISTIC IMPACT OF 80 PERCENT HUNGARIAN PRODUCT REQUIREMENT
-------------- --------------
4. (SBU) There is a large foreign company presence in the
Hungarian food market. Additionally, many ingredients are
imported to process food domestically. With international
involvement in every step of the Hungarian food chain, from
growing to processing, it is extremely difficult to define
what is a "Hungarian" product. Accordingly, the codex does
not.
5. (SBU) In conversation with Pol/Econoff on April 29, Laszlo
Varkonyi, Director General of the Trade Policy Department in
the Ministry of Economy (MOE),stated that, "This is a form
of Q soft persuasion,Q, and will not change business
arrangements. It is unrealistic to think that the Hungarian
market could provide each category of food." Many experts
believe that the Hungarian product requirement is more of a
public relations exercise in support of the produce, dairy,
poultry and pork sectors. The codex states that, Q if the
quality, quantity and the price is rightQ,, consider stocking
Hungarian products. Varkonyi estimates
that stores already stock 75 percent of these Hungarian
products.
6. (U) The current Prime Minister and former Minister of
Economy, Gordon Bajnai, has said it is impossible to stock
the shelves with 80 percent Hungarian products. The Hungarian
food supply chain simply cannot meet the demand.
--------------
INTERNATIONAL CONCERNS AND TRADE AGREEMENTS
--------------
7. (U) According to Minister Graf, this voluntary agreement
between the stakeholders is better than a new law, as
legislation would have required negotiations with Brussels.
Also, the current form of the codex complies with the
existing EU trade rules as it is voluntary in nature.
8. (C) Representatives from Tesco and Auchan believe that the
codex is inconsistent with EU rules and Hungary's commitments
under the WTO, as well as G-20 commitments not to undertake
protectionist trade measures. The UK Foreign Commercial
AttachQ stated, "This is a cunning weave by the Minister Graf
to promise farmers something he cannot
deliver." She explained that retailers were concerned about
BUDAPEST 00000357 002 OF 002
signing. France, Germany, the Netherlands, and the UK agreed
it is not a good idea and impedes business opportunities, but
are even more concerned about potential for future fines
should Hungary give these 'voluntary commitments' the force
of law. Tesco signed via the Retail Association.
9. (SBU) The codex will enter into force on July 1, 2009. The
MOA established a board to observe and evaluate the results
of the codex through the end of this year. After this, if
necessary, MOA is committed to put forward a law, based on
parliamentary consensus, to regulate the market. Meanwhile,
sources suggest that the European Commission and the
Hungarian Competition Advocate Office are both reviewing the
legality of the codex.
10. (C) Comment: Competing with old Europe in food chain
efficiency is daunting for Hungary, but protectionist
measures will not incentivize innovation or efficiency. Most
experts agree that the 80 percent Hungarian product
requirement is neither sustainable, nor enforceable.
Nonetheless, we will continue to monitor the developments of
the codex for potential market access barriers for U.S.
products or for violations of Hungary's international trade
commitments. End comment.
Levine