The Hungarian Canning Industry Association says its industry, with an estimated value of more than €475 million, could be cut by half if the EU decides to adopt Commission proposals to reduce customs duties by 3.5 per cent on a variety of products including Thai canned sweet corn.
The problem, according to association secretary József Galambos, is that corn canning makes up 50 per cent of the domestic industry, leaving it dangerously exposed to Thai imports, which are between 30 per cent and 50 per cent cheaper. He said this was mainly due to cheaper labour costs in Thailand and a more favourable exchange rate for Thai producers, who trade in dollars and not euros.
The Commission plans to cut duties in July next year if its plans are endorsed by member states and the European Parliament. The move is part of the EU's Generalised System of Trade Preferences which was described by Klauspeter Schmallenbach, head of the Commission's delegation to Thailand, as a "key instrument to help developing countries stimulate their exports to the EU".
Galambos said the Hungarian industry, which had worked hard to restructure itself after the collapse of Soviet domination, was now in a "critical condition" and "we fear that we will have to close a lot of plants if more Thai corn comes in". Other canning industries, including that of France, Europe's largest, have also voiced concerns.
In truth, smaller Hungarian canning businesses have been in a precarious situation for some time without sufficient local demand or a good enough distribution network to expand and offset rising electricity and steel prices.
Hungary's accession to the EU in May has also meant the end of Hungarian state subsidies in agriculture, pressuring canners further by pushing up vegetable prices. Earlier this year, Hungarian News Digest forecast that 100 canning companies - out of a total 300 - would soon face closure because of this.
Now, Galambos fears the onset of Thai imports may not only push smaller firms over the edge, but also impact larger companies at home and abroad. He said that discount German hypermarket chain Lidl, which recently moved into Hungary, had already begun using Thai canned corn to lower its costs. A similar problem may occur in Germany, where Hungarian canning firms have an 11 per cent market share, second only to French companies.
Cheaper Thai corn could even squeeze Hungary's flagship international canning company, Globus, which would obviously find it harder to pass on higher raw materials costs to customers. The firm recently announced that higher domestic vegetable prices had contributed significantly to an 86 per cent drop in profits, to €1 million, after the first nine months of 2004, despite a 23 per cent increase in domestic sales in the third quarter.
But it is not all doom and gloom. Although Galambos said Hungary's larger canners need their German markets, the bulk of the industry's exports, about €75.5 million worth, still go to Russia and other former Soviet states which are outside of the EU - providing a decent buffer for now.
Even within the EU, the impact of cheaper canned corn from Thailand will depend on whether that country can improve industry-wide standards when traditionally it has struggled to meet tight EU regulations, occasionally leading to whole shipments getting rejected at great cost to Thai producers.
Versatility will also play a role, and Hungarian canning companies of all sizes may have to adapt their businesses to reduce their reliance on corn. Globus said that most of its third quarter domestic sales increase actually came from a consumer trend towards higher added-value products such as canned meat and quick-frozen vegetables.
Bigger companies clearly have more room to adapt in this way, however, and 2005 could be a crucial year for the industry. Globus has already committed itself to serious cost-cutting, including potential job-losses next year.