Economy 26 May 2025, 9:37am

Hungarian shops urge gov't to phase out margin cap on food this week

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Hungary's National Trade Association (OKSZ), which comprises the country's s largest retailers, has called for the margin cap to be phased out by the end of May as originally planned, arguing that the longer the measure remains in place, the greater the economic damage will be, and has voluntarily submitted alternative proposals to the government.

OKSZ commissioned think tank GKI to carry out an impact study on the effects of the margin cap, which was sent to the government and published on the organisation's website. The study concludes that

the margin cap has side effects that are not good for consumers, harm GDP growth prospects and are generally contrary to the long-term interests of the national economy.

They also found that the longer the system is in place, the more severe these side effects become. The risks of maintaining a margin cap are:

As a result of falling prices from large chains, 18% of smaller operators, who account for 48% of food retailers, are preparing to close shops/stores, further worsening security of supply.
The retail sector's ability to invest is declining, which is reflected in a fall in customer spending, a deterioration or no improvement in service quality and a reduction in retail employment, and does not support development at the level of the national economy.
Product chains are distorted, which has an import-boosting effect that can reduce food industry output, net exports, and thus GDP. These distortions can take years to correct.
Marketing at an operating loss dries up development and investment resources, does nothing to resolve regional supply uncertainties and worsens the consumer experience.
The consequence of administrative pricing of the products concerned is that the conditions for the previous market-based pricing at the supply chain level are no longer in place, with the result that all economic operators concerned suffer losses in an inflationary environment for raw materials that would otherwise play a role in production. Price regulation in its current form is counterproductive in terms of economic growth.
The system of price regulation makes it impossible to negotiate supplier-dealer relations on the basis of what used to be market logic, and it blocks the functioning of market mechanisms.
The low price elasticity of the food products concerned means that there is no significant additional consumption. Surprising, ad hoc price measures and their communication tend to fuel mistrust in the business sector, which in turn reinforces inflation expectations.

Overall,

the margin cap is masking growing tensions within supply chains, degrading consumer experience and quality, and adversely affecting the economy as a whole.

With this in mind, the OKSZ continues to insist that

the margin squeeze should end at the end of May, in accordance with the original plans and current legislation.

At the same time, the OKSZ asked GKI not only to assess the economic and other consequences of the margin cap, but also to come up with alternative proposals in case the government decided to take a cautious approach due to the hidden tensions in the pricing system.

Three proposals have been made in this regard:

To avoid negative impacts and further damage, the food margin cap should be phased out on 31 May 2025.
On the basis of a voluntary commitment, retailers will limit their margins on the entry-level (cheapest) products in the food categories covered by the margin freeze to a maximum of 10% until 31 August 2025. This solution can help the most vulnerable groups in society by ensuring that all affected product categories are represented.
Phasing out: from 1 June, the first 10 largest product categories will be phased out; from 1 July, the second 10 largest product categories will be phased out; from 1 August, the remaining product categories will be phased out.