tobacco companies

Hungary’s “national tobacco shops.” Who are the happy recipients of the concessions?

In February 2012 I wrote a post on “Fidesz, the tobacco monopoly, and the tobacco industry’s lobby.” That was when the Hungarian parliament voted to make tobacco a state monopoly. Since then there have been several amendments to the bill, which originally stipulated that the newly established National Tobacco Shops could sell only tobacco products. The changes were necessary because it soon became evident that, since the profit margin on tobacco products is thin, the people who successfully bid to open such a store couldn’t make a living solely from selling cigarettes. Bit by bit other products were added to the list: alcoholic and non-alcoholic beverages, energy drinks, lottery tickets, and newspapers. But even with the added product lines there were not too many takers, especially in smaller villages.

According to the law one tobacco shop is supposed to serve 2,000 inhabitants. Currently around 40,000 stores sell cigarettes, but because of the above restriction there will only be about 7,000 stores where people can buy tobacco products. Last February I wrote that when I first heard about this scheme “I envisaged 7,000 pro-Fidesz Hungarians as the lucky recipients of these concessions.” Well, not quite. Second-tier party members and their families will be able to establish a number of stores in areas where the financial benefits of the concessions are more or less guaranteed. Meanwhile, in 1,400 smaller communities there were no applicants. Come July, there might not be a single tobacco shop in places like Herend (pop. 520).

by ur1336 / Flickr

by ur1336 / Flickr

The original justification for the establishment of these tobacco shops was that they would assist large families, would give young mothers just returning from maternity leave some extra income, and would provide a living for some of the otherwise unemployed. The final list of recipients tells a very different story.

Doctors who are supposed to tell people about the deadly results of smoking are eagerly participating in this new business opportunity. On paper one person can have only five stores, but there are many cases in which members of the same family applied for and won concessions. In Esztergom, out of the possible sixteen tobacco shops, ten went to one family, judging from the family name that is not exactly common, Sóron. Ádám Sóron received four, Tibor Sóron one, Mrs. Tibor György Sóron five! For the time being we don’t know what the connection is between Fidesz and the Sórons, but I think it is only a question of time before all will be clear.

Another alleged reason for establishing these tobacco shops was the government’s desire to decrease the number of smokers in Hungary. The bill that was passed last year stipulates that no tobacco product can be sold to a customer as long as there is an underage (18 years) child  in the shop. (Let’s not go into how stupid that idea is!) But then, what do I read? The nineteen-year-old Bence Hídvégi, son of the Fidesz mayor of Fonyód, received permission to operate three tobacco shops, two in Fonyód and one in Balatonfegyves. One day his presence in a tobacco shop would have brought business to a screeching halt; the next day he can run the show.

And while we are on the topic of teenage smoking and the number of retailers, it seems that there is no direct correlation between the two. Austria is a prime example. The highest number of teenage smokers in all of Europe can be found there, and the owners of Austria’s 8,000 tobacco shops are the leading lobbyists against any kind of anti-smoking legislation. Moreover, Austria’s overall standing in Europe as far as tobacco consumption is concerned doesn’t support the notion that fewer tobacco shops will result in lower figures. In Hungary the percentage of smokers in the population as a whole is 38%;  in Austria, 34%. Not a huge difference. Moreover, in both countries the numbers are growing.

The real reason for making tobacco a state monopoly was to help domestic tobacco companies. János Lázár, who came up with the idea of national tobacco shops, relied heavily on the “advice” of Continental Zrt. Continental has only about a 10-15% share of the very large tobacco market. The legislation was most likely written with a view to giving an advantage to Continental and discriminating against foreign companies like Philip Morris, British American Tobacco, and Imperial Tobacco. With tobacco as a state monopoly the Hungarian state could decide which products it would stock, and presumably the price of these products, in the tobacco shops.

The Orbán government used Austria as its model, but the Austrian model was flawed–not only in terms of public policy but also with respect to the state monopoly issue. Austria had its own troubles when European Union requirements changed in 1998 and Austria was forced to partially privatize Austria Tabak, the state monopoly that had dominated the Austrian tobacco industry until then. Something quite similar could befall Hungary.

And what has happened to the owners of Hungary’s private tobacco specialty shops? I read about a place, “Ági trafik” in Budakalász, whose owner has had his shop since 1972. His grandfather’s tobacco shop was nationalized in 1950, but twenty-two years later he began anew. He has a sister who is paralyzed. Now he is ruined. He put in an application but didn’t receive a concession. According to some estimates, practically all of the private tobacco shop owners were dispossessed. One owner was approached by two different men who asked him to rent his shop to them. You can imagine how he feels.

Fidesz managed to kill two birds with one stone. They are helping the Hungarian-owned Continental Zrt. carve out a larger share of a lucrative market and, by setting up tobacco shops as state concessions, they are spreading government largess among their followers. Multinational companies and Hungarian private enterprise will once again suffer; Orbán will further extend his economic reach.