Results / Local products (2nd milestone – 2017)

The study (Local products) prepared in the frames of this subproject can be downloaded by clicking on the picture below (in Hungarian).

Results of the subproject were summarized in the following points. Click on the text for details.

During the 2016 project, Legal Accessibility, the issue of cross-border trade of local products was identified as a priority topic, since this question, which has a complex legal background, appeared at numerous stakeholder-workshops. Subsequently, during the 2017 project design, the topic of local products and cross-border supply chains received special emphasis.

The aim of the subproject was to reveal the legal background of the specific issue in details and to formulate suggestions in order to remove the existing obstacles. Revealing of the legal background and formulation of suggestions took place with the help of external experts and with the help of a working group on the other hand. We wanted to achieve

  • to alleviate the disadvantageous situation of people in border areas, caused by the territorial scope of the Hungarian legislation on local markets, through extension of the 40 km zone, which appears in the Hungarian market regulation, into the areas beyond the border;
  • to contribute that people who live along the border are supplied by healthy food and to improve their quality of life;
  • to start and to increase the interaction of the previously organically linked cultural landscapes, which are fragmented by borders, and to weaken the separating effect of the borders through creation of a unifying economic space;
  • to widen the market opportunities for the small-scale producers through mutual opening of sale opportunities of the neighbouring states towards each other.

Although, the subproject did not bring the expected results, thus we had to leave the idea to harmonize legislation, and we formulated alternative suggestions in order to meet the original objectives.

Leader of the subproject was the Secretary General, Gyula Ocskay, the working plan was completed on 10th of May.

In the framework of this subproject, a comprehensive study was written about the legal and policy context of local products in cross-border trade. The study was developed between July and December 2017.

In order to involve the appropriate experts, CESCI requested a tender from three legal experts on 20th of June 2017. The tender offers were received on 23rd of June. On 26th of June, the committee, set up by the Association, accepted the offer that was given by Dr. Ágnes Major. The chosen service provider involved two other experts into the study, namely Andrea Szabadkai, the Director of the Kislépték Egyesület (Kisléptékű Termékelőállítók és Szolgáltatók Országos Érdekképviseletének Egyesülete; in English: National Association of Interest Representations for Small-scale producers and service providers), as well as János Horváth, a tax expert, who is the board member of the Association. The three member team prepared the first version of the study by the end of September, then the study was finalised by the end of November on the basis of the expert group´s comments. Subsequently, CESCI did further amendments in the document, thus achieving the final form of the study by the end of the year.

An expert team was set up to support the preparation of the study. The first meeting of the team took place in the office of CESCI on 20th of June, 2017. At this meeting, Dr. Márta Torda, who is the Head of the General Department of International and the Carpathian Basin Relations at the Ministry of Agriculture, offered that she will announce the initiative within the Ministry and among the partner organizations, and she expressed that they provide space for further meetings of the working group. Since then, the meetings took place in the building of the Ministry of Agriculture, located on the Kossuth Square.

The following experts were involved within the work of the working group, except the appointed experts and the CESCI members (Dr. Norbert Jankai, Gyula Ocskay):

  • Ágota Balázs, Referent: Ministry of Agriculture, General Department of Food Chain Management
  • Ferenc Deák, Ministry of Agriculture, Deputy Head of General Department of Food Chain Management
  • Szabolcs Hancsók, Referent: Ministry of Agriculture, General Department of International and the Carpathian Basin Relations
  • Annamária Jakab, Referent: Ministry of Agriculture, General Department of International and the Carpathian Basin Relations
  • Katalin Kujáni, Research Manager: Discovery Research and Development Center
  • Gergely Lantos, Head of General Department: Ministry of Agriculture, General Department of Agricultural Development and Rural Strategy
  • Matus László, Referent: Ministry of Agriculture, General Department of Agricultural Development and Rural Strategy
  • Mihály Szalay, Rural Development and Advisory Directorate of the Hungarian Chamber of Agriculture
  • Erika Székely, Director: Rural Development and Advisory Directorate of the Hungarian Chamber of Agriculture
  • Edina Szomi, Referent: Rural Development and Advisory Directorate of the Hungarian Chamber of Agriculture
  • Márta Torda, Head of General Department: Ministry of Agriculture, General Department of International and the Carpathian Basin Relations
  • Orsolya Tószegi, REL-Referent: Prime Ministers’ Office, Strategic Department of European Agricultural Fund for Rural Development

The working group had four meetings altogether: on 20th of June, 4th of July, 2nd of October and 28th of November

At the first meeting of the group, experts were identified who should be involved in the work. Beforehand, CESCI prepared a summary about the results of the project in the previous year in order to summarize the issue.

At the second meeting (the chosen expert prepared another preparatory material), various aspects of the necessary legislative and policy environment were investigated, and the theoretical framework of the study was accepted. Moreover, a decision was made at the meeting to launch a questionnaire, because the present members of the working group articulated their fears that changes in the contemporary regulatory regime might be disadvantageous for the producers in the border area. Thus, the experts thought that it is important to ask the opinion of the local producers about the draft, too. The questionnaire was compiled by the experts. Publication of the questionnaire, as well as processing of the results (including the digitalization of the hand-filled questionnaires) were undertaken by CESCI. The link of the questionnaire was disseminated by the working group experts through their own professional networks.

On 2nd of October, the first draft of the study was discussed. Members of the working group formulated minimal proposals for modification. Beside of the study, the results of the questionnaire were also discussed. The low number of filled questionnaires resulted in a decision that the questionnaires were extended with the help of the Hungarian Chamber of Agriculture and we started to accept answers in paper version, too.

On 28th of November, the finalised form of the study, the questionnaire results were presented and the outcomes were acknowledged by the members.

The questionnaire activity was implemented between 3rd of August and 20th of November. Two questionnaires were prepared: one questionnaire identified the consumers, while the second questionnaire identified the producers as the main objects of the questionnaire. The first deadline was the end of September. Until the end of September, 94 consumer questionnaires and 34 producer questionnaires were received. However, the number of filled questionnaires was significantly increased by the help of the Hungarian Chamber of Agriculture, and 452 consumer questionnaires and 341 producer questionnaires were processed until 20th of November. The analysis of the results were included in the final version of the study which was completed in December.

The starting point of the subproject

The starting point was represented by the study of CESCI from 2016. The main arguments were the followings:

1) The constitutional rights of those people who live in border regions are violated because of the current Hungarian legislation. The Fundamental Law of Hungary declares that

“Article XX, paragraph (1) Everyone shall have the right to physical and mental health.
(2) Hungary shall promote the effective application of the right referred to in Paragraph (1) by an agriculture free of genetically modified organisms, by ensuring access to healthy food and drinking water, by organising safety at work and healthcare provision, by supporting sports and regular physical exercise, as well as by ensuring the protection of the environment.” (highlighted by us – the editor)

At the same time, the Government Decree 55/2009. (III. 13.) on fairs, markets and shopping centres identifies the local producer market in a way that only those Hungarian small producers can sell their own products who are from the given county, or in case that the local market is located in the peripheral part of the county, then the local producers may arrive from 40 km area. (Budapest is an exception, any Hungarian small-scale producer can sell his/her products here because of its easy accession). The territorial discrimination is embodied by the fact that in case of a market in the city of Szentes, small producers may arrive from Csongrád County and from a further 40 km radius area, thus small producers may arrive from Jász-Nagykun-Szolnok, Békés and Bács-Kiskun counties. Nevertheless, in case of Esztergom there is only a half circle area from where the producers may arrive, or the case of Sopron is even narrower. Argumentation of CESCI was built on the notion that if the citizens of the latter cities cannot access to healthy food from a similar area, their constitutional rights are violated.

2) The above mentioned discrimination might be overcome if the 40 km territorial scope does not end at the border, but the local producers may arrive to the Hungarian markets from the areas beyond the borders. The European Union’s legal order which guarantees the free movement of persons, services and goods could be the basis for this. At the same time, the actual legal background assures that the domain of local products and the regulation of local producers’ sales, including food safety and tax issues, are situated within the level of national power. Subsequently, if the local producers want to sell their products in Hungary the contemporary legal constellation creates a particularly disadvantageous situation for the small producers in the neighbouring EU countries. Because of administrative and logistical burden, they can offer and sell their products with a much higher price in comparison with the Hungarian producers and this generates that their appearance is irrational from economic point of view on the Hungarian side.

Illustrating of territorial discrimination on a map

Subsequently, CESCI proposed legislative changes within the text of the existing regulations, as well as it made a proposal for a bilateral agreement that might enable the Hungarian Government and the governments of the neighbouring countries to agree on mutual recognition of cross-border sales of local producers.

Consumers’ and producers’ views – the results of the questionnaire

On the basis of the initiative of the expert group, we asked the opinions of the Hungarian consumers and the small producers of the counties, located near to the borders, about their opinion that local producers beyond the border could sell their products on the domestic markets which are located near to the borders.

The consumers’ questionnaire was filled in by 464 people, while we could not include 12 filled questionnaires since those questionnaires were filled either by a private person beyond the border or by a person who does not live in a county that is located near to the border (e.g. Tolna). Most respondents arrived from the counties of Békés and Komárom-Esztergom. The respondents of these two counties accounted for three quarter of all the respondents.

The distribution of the answers to each question is visible in the following table below.

The results of the questionnaire show that the consumers do not want to experience that the producers beyond the border could generate a market concurrency for the Hungarian producers. At the same time, they could accept their appearance with certain conditions – for example on the basis of mutuality.

The producers’ questionnaire was filled in by 355 people, but we could not include 14 filled questionnaires because of the above mentioned reasons. Most of the respondents arrived from the counties of Békés and Komárom-Esztergom, too.

The fear of competition is stronger among the producers than among the consumers, but it is fully understandable. This is the reason that most of the questions proved to be significantly divisive: the supporters and the opponents of the relief appeared in half and half proportions. However, the producers might accept the proposal easier if these changes do not generate any competitive advantage for the sellers beyond the borders. It is especially true if the liberalisation are based on mutuality with the neighbouring countries.

The results of the questionnaire show that the consumers and the producers are more likely to support liberalization than to reject it – mainly, if the liberalisation is based on reciprocity.

Results of the consumers’ questionnaire research

QuestionSupporter[1]AgainstRefrained, without answer
How would you be affected if the foreign local producers, from a range of 40 km, could arrive to Hungary with the aim to sell their own produced products on the market near to the borders, events?I would be happy because more products enrich the assortment of products and it attracts more consumers.68%32%0%
If the seller is a registered producer, I would be happy.74%26%0%
I would be happy if there could be a label, description about the product in Hungarian language (or the seller speaks Hungarian language).80%19%1%
I trust the market organizer that he allows to sell only those producers, who do not pose any risk to the consumers.76%23%1%
I am not happy, I am afraid of food safety risks.59%40%1%
I am not happy, it generates a concurrency for the domestic producers.45%54%1%
I could accept it in the case if the Hungarian producers could sell in neighbouring countries, too.73%26%1%

 

Results of the producers’ questionnaire research

QuestionSupporterAgainstRefrained, without answer
How would you be affected if the foreign local producers, from a range of 40 km, could arrive to Hungary with the aim to sell their own produced products on the market near to the borders, events?I would be happy because more products enrich the range of products and it attracts more consumers.47%50%3%
It does not disturb me, I do not feel it as a concurrency.47%50%3%
I trust the market organizer that he allows to sell only those producers whose products do not mean concurrency.54%44%2%
I accept it, if the seller complies the quantity for the small producers.66%31%3%

I accept it, if the products are taxed with the same measures as my products.

66%30%4%
I accept it, if I can enter (on the basis of reciprocity) to their market/event.68%29%3%
It is a concurrency, producers beyond the border should not come to the markets, events located near to the border.44%53%3%

 

 

Contribution of the expert working group

The contribution of the expert working group to the final document proved to be extremely useful, namely the experts significantly influenced the formulation of the preparatory concept through the expertise of their professional specialization’s regulatory background.

1) Topic of healthy food. The most powerful part of CESCI’s argumentation was the reference to the constitutional right to have an access to healthy food. Experts of the working group emphasised that recently there was an attempt by the Minister of Agriculture to define the concept of ‘healthy food’ by a working group – the attempt was unsuccessful. Nevertheless, if the concept of ‘healthy food’ was defined it would not result any concrete measures. Further problem is that the locally produced food is not guaranteed to be healthier as the food in stores.

Subsequently, the final document put the emphasis of the argumentation on the termination of territorial discrimination, on competitiveness of the rural areas, as well as on the environmental importance of short supply chains

2) Food safety. The greatest risk of the initiative is that control mechanism is unable to control whether the seller beyond the border sells its own product and whether the food hygiene conditions were fulfilled during the production. To assure the traceability of food could be implemented by a common database with the neighbouring countries, or to share the already existing database between each other – in a language that is understandable to each other.

Accordingly, the articulated proposals in the study, separately deal with the issues of food safety and with the aims to avoid risks.

3) The question of concurrency. The key aspect to define local products is that they reflect specialties of a particular region (local tradition, traditional raw materials and special producing processes). This regional uniqueness assures that the producers have demand for their products. However, if sellers with similar products arrive from areas beyond the border then this endangers the living of local traditions (see the disputes around the title “Tokaji”, or the problems around the origin protection of the chimney cake).

Therefore, the study addresses the question of mutuality with special emphasis, which appeared as one of the most important conclusion of the questionnaire research.

4) Administration of freight transport of goods. In the past few years, the rules on freight transport of goods became stricter in Hungary, especially with the aim to improve tax discipline and to fight against illegal trade in goods. Although, the administration of records has a rationality in case of large volumes. These records do not involve the small-scale sales of local producers, but the weight limit is low, hence it is easy to get under the scope (500 kg). Moreover, goods that arrive from the area beyond the border are obliged to report at the first place of their entry (the local producer market in this case). If this does not happen, then the market organizer bears the consequences. Furthermore, the foreign producer has an obligation to register a tax number and he does not have a possibility to receive tax exemption because he is outside of the Hungarian territory. Nevertheless, if the goods are taxed then the foreign small produces is in competitive disadvantage in comparison with the Hungarian producers and sellers, who have a legal possibility to have tax exemption until 8 million of goods turnover.

Although, the above mentioned problems are beyond the reach of the study. The legislative rules limit each other, hence if we relieve one legislative limitation, we find another one. The attempts of the Government to “whiten” the Hungarian economy have been successful and they have generated higher public tax revenue, thus it cannot be expected that such a successful legislative package will be amended because of small producers. However, the experts of the working group articulated some other alternative possibilities that were accepted by the authors of the study.

5) Pragmatic considerations. The working group proposed that there is a need to narrow down the focus of the study. With regard to the extremely complex harmonization structure with third countries, our research was limited to the neighbouring countries since the frames of the Union are already given in this case. The proposals should focus on the range of 40 km territorial area, thus the regulation on local production and producers does not have to be modified. Harmonisation of legislation should not be the aim of the study, since the five EU neighbours of Hungary have different legal frameworks for local producer markets, but the aim is the amendment of the Hungarian legislation which can serve the basis for negotiation processes with the neighbours.

It can be comprehensively stated that the expert working group criticized the original concept at numerous points, but this criticism supported the development of a more pragmatic proposal.

The main findings and suggestions of the study

The expert study can be divided into three major parts.

The authors sum up the theoretical frameworks of cross-border local product sales in the first part. They address the latest developments in the field of legal harmonization, the DG Regio Cross-Border Review project, as well as the statement of the Commission on the basis of the project and its expected consequences. The launched program on the EU level aims to remove the existing legal-administrative obstacles, the study also draws attention to other initiatives at the level of bigger region and at national level. Besides, it emphasizes the country-specific recommendation on the reduction of economic bureaucracy in the Hungarian Partnership Agreement.

The authors present the latest developments on local products in the EU policy and they draw attention to cross-border aspects. They mention several attempts, when the EU members took initiatives to make cross-border integration of local markets or to facilitate the possibilities of the small producers to sell their products beyond the borders. Although, these experiments have not achieved any spectacular success and most of them failed.

Finally, they underline the specificity of the Central European region, emphasizing that opening of the borders, structured in the 20th century and which were formerly impermeable, generate that old and organically related territorial ties reoccur and they create opportunity for development of economic cooperation.

The second part introduces the activities that were implemented within the frame of the subproject: results of CESCI project from 2016, the questionnaire process and the work of the working group (their description see above).

Finally, the third part includes the comprehensive legal analysis that deduces the need for a harmonization from the Union’s pillar of free movement of goods and services. From this point of view, the authors see the Directive 2006/123/EC on services in the internal market as the starting point. The Directive assesses that the provider who arrives from the area that is beyond the border (with exception of so called “regulated professions”, identified within the Directive) does not need any specific permission, or he does not have any separate obligation for registration: the provider can be obliged to obtain those permissions, as well as registration, which are obliged for the domestic provider, too. On the basis of the prohibition of discrimination, no specific restrictions could be imposed on a producer who arrives beyond the border.

“Member States may obstruct, limit the right to provide services on their own territory only on the basis of the principles of necessity and proportionality, namely they may describe only such – proportional – eligibility criteria that may be necessary due to public policy, public security, public health, the protection of the environment and the protection of the consumer” (ed. English translation by the authors) [2]

The problem is that selling of food beyond the borders always raise food hygiene question, thus the issue of public health risk – this is true even in a case of short supply chain, in our case it is a small volume sale to the end user.

The Member States of the European Union have to follow the Community law in the domain of food safety and food hygiene, where the issue of traceability is the most important aspect. As a rule of thumb, it is acceptable that those products whose production is in agreement with the relevant EU regulations are considered as safe and they can be placed on the market without restriction – theoretically, they can be introduced at the market also beyond the border. This measure requires that the producer registers himself in his own country, thus ensuring a control mechanism for the authorities. The EU Regulation (EC) No 853/2004[3] reflects the possibility of potential cross-border sales.

EU food law was incorporated into the Hungarian legislation by the Act XLVI of 2008 on the food chain and the official supervision. According to the law, safety of food is a responsible of the Hungarian distributor.

For the traceability of the liability system, the Hungarian small scale producer has to register himself that he is engaged in commercial activity. It is important to underline that this has to be done in Hungarian language and the registration number has to be indicated. However, the small producer beyond the border may not necessarily speak Hungarian language and his registration number is not compatible with the Hungarian system. These problems can be handled with small modifications (e.g. official blanks are accessible in the language of the neighbouring countries, as well as establishing of interoperability with the foreign registration databases).

At the same time, according to the Hungarian Commercial Law, only those local small-scale producers can sell on a local market who comply with the Hungarian law. In the case of producers from the EU Member States, the legislation allows the sale of goods if the producers comply with the Hungarian tax and accounting rules and if they fulfilled the required obligations for registration. That means that they have to apply for a Hungarian tax number, but this automatically includes the producer, because of his foreign establishment (“intra-community acquisition of goods”), within the tax system. The Hungarian producers can apply for a VAT exemption under 8 million HUF annual turnover, but this exemption is not available for the foreign producers. The Hungarian VAT rate is the highest in the EU (27%), then the foreign producers, even under the same conditions, can sell their products with 27% higher prices in Hungary than their economic competitors. Moreover, the inclusion in the VAT circle obligation entails much greater administrative burden. In the case of a foreign seller, the issuance of internal invoice is also mandatory – all this has to be done in Hungarian language.

Even bigger problem is generated by the regulations that aim to “whiten” the Hungarian economy:

  • Decree No. 3/2010 (VII. 5.) of the Ministry of Rural Development on data reporting and traceability relating to food production and sale,
  • Decree No. 82/2004 (V. 11.) of the Minister of Agriculture and Regional Development on inspection of fruit and vegetables,
  • Decree No. 5/2015 (II. 27.) of the Minister of National Economy on the function of the Electronic Public Road Trade Control system,
  • Decree No. 51/2014 (XII. 31.) of the Ministry for National Economy Defining Hazardous Goods in Relation to the operation of the Electronic Public Road Trade Control System.

According to the Decree No. 3/2010 (VII. 5.), notification obligation appears to the market organizer even in case of selling 2 bottles of foreign jams (in many cases the notification obligation has to happen 2-3 days in advance, namely to notify who will sold what kind of products in the market). In the case of goods that exceed 500 kg or they have a value above 1 million HUF, it is necessary to register the risky products (including food) in the Electronic Public Road Trade Control System. The consignee is obliged to register (it is the market organizer in our case).

It can be seen from the above described conditions that sale of foreign local products in Hungary includes such administrative burden which directly questions whether it is worth to legally bring small amounts of locally produced food or not. The contemporary legislation is more favourable for the illegal moves, because the volume of the sold food is negligible in comparison to the administrative burden. This argument was repeated several times at the debates of the working group.

Because of the above described difficulties, the authors of the study do not recommend amendment of the legislation. Instead, the following suggestions were formulated:

1) “It is easier to sell goods deriving from other Member State if the concerned parties establish joint ventures in Hungary, or a Hungarian enterprise, organisation is involved within the sale. In this case, tax liability risk is minimal, clear and not complicated economic and financial conditions are present. Furthermore, the small producer beyond the border may choose the subject of tax exemption, the 8 million HUF annual revenues. In this case, the Hungarian site will be the recipient, but some disadvantages still remain, namely the company has to fulfil the storage and notification obligation on the basis of the Government Decree No. 3/2010 and if the transported goods reach the weight or value threshold, it is necessary to request a number in the Electronic Public Road Trade Control System.”[4]

2) Issuing of a cross-border producer card could include the small producers from the area beyond the border within the Hungarian register and legislative rules, which are applied in the case of Hungarian small producers, hence the same possibilities could be given to them. Nevertheless, this step does not guarantee that the seller, who arrives from the area that is beyond the border, will sell his own products. Subsequently, the further task is to establish the interoperability of the registers between the neighbouring countries. Moreover, the authors consider that the concepts of local sales should be defined in the context of bilateral agreements – on the basis of common nomenclature. The Hungarian side would prefer the range of 40 km zone.

3) There is a need to make amendments in the Act CLXIV of 2005 on Trade (2.§ 5a):

“A market, where a small-scale producer, or a producer who is registered in a bordering EU country, within a county on the basis of location of the market, or in a 40 km area from the market, or in the case of a market based in Budapest, producers, operating anywhere in the country, of agricultural and food products may sell their products.” (ed. English translation by the authors)

4) The current restrictions can be circumvented in a way that the local producer markets are held at the same time on both sides of the border, hence the local consumers can access to the products at the same time and in one place. This procedure is especially recommended in those border regions, where the border is legally free to cross and the two markets can be easily formed in a way that crossing the border is not a physical difficulty.

5) In order to achieve easier administration, it would be useful to make the blank forms available in the official languages of the neighbouring countries. The same structure would allow that the Hungarian administrator can understand the content of the data sheets that are filled on the other side of the border.

As it is visible, the study rather contains policy and practical advices and suggestions instead of legal ones. However, a half-year work cannot be regarded as unsuccessful, since every aspect of the given question was analysed with sufficient depth.

[1] Supporters are those respondents who expressed their opinion to the given question that they could accept the appearence of producers beyond the borders at domestic markets.

[2] Szabadkai Andrea – dr. Major Ágnes – Horváth János – CESCI (2017): Határon átnyúló helyitermék-értékesítés. Tanulmány és jogalkotói javaslatok, 36.

[3] Regulation (EC) No 853/2004 of the European Parliament and of the Council of 29 April 2004 laying down specific hygiene rules for on the hygiene of foodstuffs down specific hygiene rules for food of animal origin

[4] Szabadkai et alii: i.m. 55.

Name of the indicator

Required

Fulfiled

Local Products Working Group

1 working group

1 working group

Number of invited experts into the Local Products Working Group

10 persons

15 persons

Number of meetings of the Local Products Working Group

4 meetings

4 meetings

A comprehensive policy and legal recommendation that helps the cross-border integration of small producers

1 comprehensive policy and legal recommendation

1 comprehensive policy and legal recommendation

On the basis of the formulated proposals and the identified difficulties, the following continuation option is feasible.

1) It would be appropriate to examine the question of issuing small producer card within the framework of the Hungarian Chamber of Agriculture and to examine the conditions of its introduction.

2) To initiate a harmonization of the registers of the neighbouring countries, as well as establishment of a common nomenclature.

3) To make that official blanks, which are needed for registration and for the Hungarian selling activity, are accessible in the official language of the neighbouring countries.

4) It would be useful to make a compilation of the relevant legislation of the Hungarian and the neighbouring countries and to compare them, as well as to formulate a certain guide for the case if someone wants to sell the products on the other side of the border.

5) There is a need to draw the attention of to the EU legislators about the obstacles arising from national regulations. Although cross-border sales of local products do not represent a significant weight within the national economies of the countries, but on the overall European level it is added and it reaches a symbolic significance. It is not expected that the issue will have an EU level solution, but the European institutions may articulate recommendations for the member states and this might catalyse the Hungarian legislative process, too.