Value chain length and territorial concentration in the food industry

Released: 14 July 2025

Present experimental statistics continues the series analysing the activity, economic weight, value chain length, territorial concentration of certain sections and divisions. Experimental statistical studies about industry, construction, vehicle production have been published up until now. At present we study the food industry, within manufacturing.

Food industry¹ is one of the longest standing Hungarian industrial divisions, certain activities, enterprises going back even 150-200 years. At the same time the division is still playing a significant role in production, external trade and the food supply of Hungary, being one of the key divisions of the Hungarian economy. Food industry gave 11% of the value added within manufacturing in the EU, this value in Hungary was 10%. I our country, as in the majority of the member states food industry was one of the three largest weight representing manufacturing fields.

Its territorial concentration is lower than the average, there are no counties in Hungary without major food industry enterprises. Territorial concentration lessened in the past years, the central region continues to stand out in the comparison of the counties (the joint weight of the capital, Pest and Bács-Kiskun counties being about 30%) in spite of the fact that certain western counties’ importance lessened while that of Szabolcs-Szatmár-Bereg and of Bács-Kiskun grew.

Food industry is among the few manufacturing fields producing mainly for the domestic market. (Sales revenue in 2024 originated in a proportion of 57% from domestic sales.) The food industry business structure is different than the average, small and medium size businesses having a relatively larger role, 14% of production being realised by organisations with less than 50 employees, further 31% by units with 50-249 people. The division is sensitive to changes in internal demand and the trends behind these. The 2023 setback in food industry is an example: the growing trend going on since 2010 came to a stop due to the demand reducing effect of food prices inflation, significantly decreasing the food industry’s output.

The proportion of gross value added to output in the food industry (21% in 2023) in Hungary is low, compared to manufacturing as a whole (46%). The value chain length shows a decreasing trend, as does considering the EU average. High intermediate consumption stands basically behind this process, meaning the increase in work and inputs’ relative proportion, partly due to high import demand and difficulties in competitiveness. The short value chain calls essentially for the necessity of modernisation within the division. Work productivity and energy efficiency indices in the food industry is considered to be low in regional comparison, holding back the value-added crating capacity of the division and through it of the economy, on the other hand exposes the division to the impact of external shocks.

State of the food industry

Food industry is a great weight representing subsection of Hungary’s manufacturing section. Its share in the production value, gross value-added and staff number of manufacturing was 10-15% in the last years². The performance of the food industry has an outstanding importance not only due to its economic weight, but also for its role in the safe food supply of the country and its impact on food prices.

The output of the food industry was close to 7 thousand billion HUF in 2023, its gross value-added much lower, 1.4 thousand billion HUF. Among the subsection of manufacturing it has one of the lowest (usually about 20%) value-added ratio to output. This is owing to the nature of its activity: food production is based on raw materials coming from other divisions (especially from agriculture) as well as from import, among these on processing animal and vegetable products.

Food industry is a significant division in the European Union as a whole not only in Hungary: based on available most recent, detailed data 11%³ of the EU manufacturing’s value-added came from this field. Food industry was among the three largest weight representing subsections in the majority of member states. Among the countries contribution the most to the industrial performance of the EU the manufacturing value-added of food industry was 16-19% in Spain, France and Netherland, 14% and 10% in Poland and Italy. At the same time in Germany with its highest industrial potential – alongside the dominance of machine industry – this ratio was only 6.8%. Even so, considering gross value-added, 19% of the EU1s food industry was concentrated in Germany: the share of France, Italy and Spain being individually between 11-16%. The 1.1% share of Hungary is basically identical with the economic weight of the country within the EU.

The Hungarian food production volume⁴ went through a decreasing trend between the turn of the millennium and 2010, followed by a growing one afterwards. This growth was halted in 2023 by a significant, 12% setback, still, from 2024 production intensified once again. (Domestic demand and a shrinking export both played a part in the 2023 change, linked to growing food prices.) In parallel with the domestic lessening in the first decade of the 2000s, food industry grew in the EU as a whole. Our disadvantage of that time disappeared by 2022, thank to a dynamic volume growth in Hungary starting from 2010, significantly surpassing the EU average. The 2023 change was a very significant setback in the Hungarian food industry.

Food industry is among the few manufacturing fields where the majority of sales revenue (57% in 2024) originates from domestic sales. In consequence this division is relatively sensitive to changes in domestic demand and the trends behind these, its performance is impacted by the presence of foreign competition and the absorbing capacity of external markets. Small and medium size businesses have a relatively more significant in the food industry than in the machine or chemical industry for example, with a significant large enterprises dominance. Output in the food industry has been produced by enterprises with less than 50 employees in a proportion of 14%, by businesses with 50-249 people gave 31%, and 55% by enterprises with more than 250 people⁵.

Spatial concentration of the food industry in Hungary

The territorial concentration of the food industry in Hungary is overall less significant than that of the manufacture of transport equipment, as shown in Figure 3, with the value of the Herfindahl-Hirschman index (HHI) on a growing path between 2000-2005, and decreasing ever since. In territorial comparison Pest and Bács-Kiskun counties as well as Budapest stand somewhat out, giving overall one-third of value-added.

Figure 4 also shows the changes in territorial concentration of the food industry’s the value-added in 2005 (when reached its peak) and in 2023, using the Lorenz curve⁶.

Figure 5 shows the significant differences among the divisions of the food industry, tobacco production is very concentrated (only 2 larger tobacco factories are still producing in Hungary, the one in Pécs and in Sátoraljaújhely⁷. Beverage industry is moderately concentrated considering manufacturing divisions, while the dominant food industry’s concentration is one of the lowest. Maps of Figures 6-7 display the counties’ percentage changes considering the value-added of the food industry between 2005 and 2023.  Based on the maps it may be concluded that concentration was not significant in 2005, and further lessened by 2023. (The Gini index⁸ value was 0.45 in 2005 and 0.37 in 2023).

The majority of the counties contributed to the gross value-added of the country’s food industry, perhaps Nógrád county being the only one with its share under 1%, playing a smaller role in this industry. The role of Budapest, Pest and Bács-Kiskun counties, highlighted in Figure 3, too, is the most significant. Budapest was in the top 3 in 2023, too, in the ranking of the capital and the counties, losing, however, significantly in its weight compared to 2005 (from 23.8% to 10.7% in the value-added related weight), beside the share of Győr-Moson-Sopron county decreased notably as well (from 6.5% to 4.1%). The winners are Bács-Kiskun and Szabolcs-Szatmár-Bereg counties, appreciably gaining in their proportion within the country (the former from 7.8% to 12.1%, the latter from 3.8% to 7.2%)⁹.

Value chains in the food industry in Hungary and the neighbouring countries

In regional comparison the ratio of value-added to output in Hungary is low among the region’s countries. The EU average is about the region’s value mainly owing to the higher indices of Slovakia and Czechia (Figure 8). The value chain length of the food industry, meaning the embeddedness of the division in the economy is extremely low compared to manufacturing as a whole. The ratio of value-added to output was 21% in 2023, while this index was 46% in manufacturing.

The value-added and output ration in the food industry shows a decreasing trend in Hungary, meaning the shortening of the value chain. The same trend is valid for Poland and the EU average, while the index for Czechia and Slovakia is stable or slightly growing. High intermediate consumption: the increase of the relative ratio between labour and inputs stands behind the decreasing index-phenomenon, partly owing to high import demand and competitiveness problems.

In regard to the import demand it must be emphasized that that enterprises in the food industry are more dependent on natural gas and electric energy that foreign companies. One Hungarian enterprise uses about twice as much energy for producing the same value-added than a Slovak, Czech or Polish company. This means that Hungary’s exposure to world market price changes is much higher than that of the regional competitors. Beside energy efficiency problems the labour productivity index of the division is also considered to be low in regional comparison.

The value chain’s shortness points at basic structural problems – according to the mentioned factors – in fact calls to the necessity of modernising the division. Out of date machinery and work procedures need more human labour and higher energy consumption, holding the value-added creating capacity of the division and in consequence of the economy back, on the other hand increases the division’s exposure to external shocks.

The value chain length may also be impacted, beside volume and price changes, by the composition effect. In case production shifts toward lower or higher value-added content divisions, no actual change is occurring in the average value chain length of the food industry as a whole, rather the composition effect is manifesting itself. There are three divisions within food industry: food production, Manufacture of beverages and manufacturing of tobacco products. Food production is the dominant one, as shown 83% of total value-added is originating from this particular division. At the same time the value-added content greatly differs in the divisions. The decisive food production shows the lowest ratio. The value-added content in Manufacture of beverages is higher, but this difference changes over time. In the first decade of the 2000s continuously surpassed the Manufacture of beverages value-added content that of the food industry by 8-10 percentage points, this difference lessened at first to 5-7 percentage points, then in the last years to 2-4 percentage points. Excepting two years, the value chain length in tobacco production is the highest, growing steeply and coming close to 50% in the 2020s.

Composition effect plays a role in explaining the value-added content fluctuation around the trend (Figure 9). Figure 11 shows the changes in original and standard (supposing unchanged gross output) ratio.

Price ratio changes¹⁰ had an important role in the 2021-2022 significant value-added content lessening in industry. The intermediate consumption’s price level grew in a larger degree in the food industry (as in the industry as a whole) than that of the value-added¹¹ in 2021 and 2022. This is why the value chain length calculated based on current prices decreased due to price changes, too. This trend changed direction in 2023 as the intermediate consumption’s price level grew in a lesser degree than that of value-added. The output volume index surpassed the added-value one in the last two years, meaning the material intensity of production increased.

The Balance of divisions' connections (IOM¹²) is the adequate tool for value chain analysis, presenting, beside direct consumption, the cumulative (the sum of direct and – due to ripple effects - cumulative impacts) consumptions as well.

Table 3 presents basic indices of the food industry, manufacturing and the national economy as a whole. The co-called multiplier shows that considering ripple effects, too, how much domestic output is generated by producing 1 HUF of value-added. Basically, two factors impact this occurrence: the import demand of production (the higher the import demand, the lower the generated domestic output) and the value-added content (the higher the value-added content, the lower the intermediate consumption rate and the ripple effect). Both factors (import demand, value-added content) appear as ripple effect (directly and indirectly), too. Both import and value-added contents are lower in the case of food industry than in manufacturing as a whole, as such the ripple effect is much higher than in total manufacturing (where is, overall, identical with the national economy’s average).

The direct and cumulative import content, necessary for producing output, is important and interesting by itself. Import content is high in total manufacturing, the direct import content of 1 HUF output being 0.47 HUF, ripple effects adding an extra 0.1 HUF to it, meaning that import material- utilisation is entering in a larger proportion directly into the value of products within manufacturing. Direct import content is lower in the food industry than in manufacturing as a whole, 1 HUF output showing 0.28 HUF import content, the indirect import ratio represents an extra 0.14 HUF, similarly to manufacturing total. Overall, the cumulative import content of the food industry is below of that of manufacturing.

Food industry is not among the largest export-oriented division, the export rate being 30.5% of output, below the manufacturing average. It is worth analysing the import demand of the food industry’s export. So-called content indices may be calculated by using IOM, among these the cumulative import content of the export may be of interest (the import necessary for 1HUF export). Below figure presents, based on IOM, the specific import content of export in case of manufacturing divisions. It shows that the import content of the food industry’s export is among the lower values within manufacturing.

Based on most recent available data from sources and utilisation tables the food industry purchased from supplier divisions worth of 5600 billion HUF for intermediate consumption.

The food industry’s supplier chain is made up, beside actors from the division, of organisations from other divisions, too. the most significant supplier, naturally, is agriculture (with its intermediate consumption share of 39%). Food production is another important supplier. The two divisions combined represent more than 60% of the intermediate consumption. Wholesale, the manufacture of chemicals, transportation, energy, with their 3% or higher share are other significant players. There are specificities in the divisions, e.g. the manufacture of tobacco products has a higher demand for paper industry and chemical industry products and it is more energy consuming than the other two divisions.  

Table 4 presents the import proportion of the intermediate consumption. Overall the import demand is 37.2%, way below the average (which is 68% in manufacturing total and 78% in vehicle production). There are extremely outstanding ratios, e.g. the total agricultural purchase of the tobacco industry is basically coming from import, however the import ratio of mining products, chemicals, machinery as well as construction materials is also very high.

When analysing older source or utilisation tables there is an outstanding occurrence: the share of import grew in a significant number of supplying divisions. Agricultural products’ import share is the most striking phenomenon, its 27.8% ratio of 2022 was only 10% in 2010, as shown in Table 4.