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.

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Frank
Guest
It has been a not-so-secret that Fidesz wants to repeat the game with alcohol. And such monopolisation and restriction would not unheard of, it’s pretty usual in the US or in Sweden, of course in better places the licenses are not distributed based on party-loyalty, but, hey, these are just rumours, we only copy the US system and want to protect the youngsters from the alcohol, whatever. Voters still love Fidesz. Although the alcohol biz is different (more complex) because much of the legit alcohol is produced by Hungarian small producers (both wine and newly trendy snaps) and as much as these producers hate Tesco or Auchan, the hipermarkets cannot be substituted by CBA (the indigenous grocery chain, which is also a huge Fidesz campiagn contributor). Fidesz is actively grabbing markets and redistributes them — and only to those who already expressed 100% loyalty (like in Tapolca, West-Hungary where all 8 licenses were given to a local printer who prints Fidesz’ campaign posters) or are otherwise controlled (with some embarracing info for example). And of course the licensees will (have to) contribute to the campaign with money and with other services requested. Part of the deal. Fidesz knows who to… Read more »
Ms KKA
Guest

First we read that “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 then we’re told “…no tobacco product can be sold to a customer as long as there is an underage (18 years) child in the shop.”, so Mom better have her babysitter all lined up, I guess!!
If this isn’t a testament to, and incontrovertible proof of, the f*)_$#^ed up dealings of the current government, I don’t know what is.

Gabor
Guest

When I lived in Washington I could buy alcohol only in state-ran stores. Now I read that as of last year they are privatized http://en.wikipedia.org/wiki/Alcoholic_beverage_control_state#State_listing

Gabor
Guest

For Hungarian readers I recommend the brand new http://trafikmutyi.cafeblog.hu/ blog to follow who got the concessions in various locales.

tappanch
Guest

Request for the opening of a monitoring procedure in respect
of Hungary by the Council of Europe

http://www.assembly.coe.int/Communication/amondoc08_2013.pdf

Vándorló
Guest

It appears that Fidesz’s goal is not so much a display of largesse to party lackeys, but direct munificence bestowed on themselves: http://index.hu/video/2013/04/25/hallo_kell_a_trafikom/

Many of the winners seem to be simple ’employees’ and not in a position to make decisions themselves about what to do with their newly won concessions.

Member

Vándorló :
It appears that Fidesz’s goal is not so much a display of largesse to party lackeys, but direct munificence bestowed on themselves: http://index.hu/video/2013/04/25/hallo_kell_a_trafikom/
Many of the winners seem to be simple ‘employees’ and not in a position to make decisions themselves about what to do with their newly won concessions.

Right. Strawmen.

The new “winners”, actually their “bosses”, already started to call the original owners, who were running the little stores until now. I guess they offer them employment in their own business and take their profit. Disgusting.

LorryandFamaka
Guest
MSZP is the only party that says that if they get to power they will cancel these “mutyi” contracts. First, remember it was Fidesz’ effective stlye to scare everbody away from doing any business with the Socialist goverments, as Fidesz immediately announced that they will cancel the particular agreement or policy, so MSZP is right to do the same, although noone gets scared of MSZP as they are not credibly tough enough. Even the words tough and MSZP in the same sentence is a joke. More problematic is that without 2/3s one cannot cancel the agreements as the constitutional court (now with 12 conservatives, out of which 8 are solidly Fidesz-loyal appointees, against 3 moderates) will protect the licensees. And they will do so in the name of the rule of law, which they will fiercly protect if it was about the interests of Fidesz, after all, the judges got a job to do at the court. Fidesz made even taxation into a 2/3s law, so even a special tax cannot be levied on these licensees. MSZP is not in an easy situation, first because no threat from MSZP is believable (everybody assumes that they can lobby something out with… Read more »
Guest

Power has its own logic. Power elicits behaviour which makes preservation of power essential. Very few people who gain power can resist the temptation of using their power for personal gain if they think they can get away with it. The more confidence they have in the durability of their power the more they think they can get away with. The glaring transparency of the Fidesz land grab and now the tobacco grab shows that the confidence of the Fideszers is very high. They don’t bother to hide their corruption. They are convinced that they have done away with democracy for good and cannot be unseated from power and brought to justice. This implies that in an emergency they are ready to do whatever necessary to protect their power base, their money machine and themselves.

csaba
Guest

Jean P: correct.

Fidesz owns the prosecuton, the courts and the constitutional court. In all three branches ther were serious personnel changes,not just at the top, but way down to the bottom levels. Fidesz owns them.

How can anyone seriously expect that Fidesz politicians and their helpers can be brought to justice?? It will never happen.

Fidesz is a fraternity, a family (or a mafia if you like) of lawyers and they know how a legal system, including that of the EU, works. It is unlike any political movement in Europe.

They cannot be cought and punished. They are free and sovereign. Hungary is for their taking.

Guest

Yes, just as Lord Acton said more than a hundred years ago:

“Power tends to corrupt and absolute power corrupts absolutely.”

It’s really frightening – will Hungarians en masse ever wake up to this ? Or will those who care just continue “voting with their feet” ?

The others might return to Orbán’s “society of production”, doing low-paid jobs and raising pigs to survive …

spectator
Guest

wolfi :
The others might return to Orbán’s “society of production”, doing low-paid jobs and raising pigs to survive …

– Only if those pigs will keep the tradition, and join to Fidesz, will they have chance to roll in mud and manure at their leisure – looks pretty likely…

NWO
Guest

The level of cynicism by FIDESZ has reached new heights. As I understand what happened, the tender rules specified that one had to state the margin one proposed to make on cigarettes with a max. of 4%. Practically speaking, it was hard to make a business case work below 4%. The “winners” all bid at 1% or below margin. Financial suicide-correct? No, because after the winners were announced, a bill has been introduced in Parliament (or will be) to allow margins on cigarettes up to 10% regardless of what one bid.

Guest

csaba: “Fidesz is a fraternity, a family (or a mafia if you like) of lawyers and they know how a legal system, including that of the EU, works. It is unlike any political movement in Europe.
They cannot be caught and punished. They are free and sovereign. Hungary is for their taking.”

The new political system in Hungary that has been planned by lawyers is certainly unlike anything in Europe and probably unlike anything in history. Exactly because it has been planned by lawyers it has a fundamental weakness. It rests on the assumption that everybody else than Fidesz will play according to the laws, rules and directives. The dissenters still do but they will not go on doing it forever.

Protozoa
Guest

Jean, the problem is that the EU always plays by the rules and will force and expect any new government after Fidesz to play by the rules, that is by the rules and people set by Fidesz.

And that, in itself, will make any new government fail. But more important still is that Bajnai as well as the MSZP-people are fundamentally conformist people, as the modern left is.

So they will not even dare to carry out fundamental changes, even if they could as a matter of formal law (which is not possible without a 2/3). The left is afraid of big changes, of being decisive and they don’t even see the problems. Too many problems why they will not change the Orbán-system.

The current Hungarian right is much more radical and at its fundament revolutionary if you will and visionary as regards what it wants to acheieve.

So am I pessimistic that the current Orbán-system can be changed. Only a radical and visionary leader could do it, but there isn’t such politician on the scene.

Guest

Most countries have consumer protection laws which sets limits to how much misinformation in the shape of lies or concealment of facts can be tolerated in advertisements of goods. The voters have no similar protection against lies and concealments in political campaigns. This is supposed to be unnecessary because the voters can throw out politicians who won on lies and concealment of intentions at the next election. Except when the concealed intention was to change the election laws so that they cannot be thrown out again. Such is the situation in Hungary. The present government did not gain power as a result of a revolution at the ballot box as they claim. It was a coup d’etat carried out by false promises, character assassination of opponents and concealment of intentions. The laws made by such a government deserve no respect. A unified opposition should say so, and begin drafting a new constitution. This is my personal opinion, and I write it because I think that the Hungarian people should be helped out of the trap a soon as possible.

An
Guest

@Protozoa: That’s why the opposition should start questioning the legitimacy of this legislative amok, starting with the new constitution. The new constitution should be declared invalid and I am sure legal ground can be found for that (how about Fidesz just changed the 4/5 rule that was needed to change the constitution in the first place), and the new government should go from there. Anything less and Fidesz makes the country ungovernable. It is important that both the opposition parties and the EU recognizes this.
It’s good that the EU is putting Hungary under investigation for keeping democratic norms… and they do need to take a tough stance on that. The danger is that if they go on letting Orban get away with superficial modifications, they legitimize Orban’s legal trickery and that would make the job of any future government practically impossible.

spectator
Guest

Unfortunately I have to agree with Protozoa regarding ” … the problem is that the EU always plays by the rules …” part.

Take an example:
During the debate in Brussels Hannes Swoboda asked József Szájer, how comes, that Orbán hasn’t yet condemned publicly the shameful Jewish-labelling action happened on the ELTE university, when Szájer, – a lawmaker, bending the rules what they were agreed upon previously,- smiling smugly asked back, if Swoboda even heard of Orbán’s latest, the stopping of the so called ‘National Bikers’ demonstration..?
And of course, the civilised European answered to the question dutifully, unprepared to this kind of brazen behaviour. That’s the way today among the Hungarian political “elite”, you see, cheating, lying, and so on.

Often I feel embarrassed having the same nationality as these… well, them.

When a government doesn’t even keep it’s own rules, overstepping the law at will, reacting arrogantly to every warning, advice, criticism, there is some serious trouble brewing.
It’s only question of time when it blows the lid and everything goes haywire. Either by having reached the tolerance-treshold of the EU, or exhausted the patience of the local population, or both, the outcome won’t be pretty.

tappanch
Guest

Local Fidesz party leaders decided who would get tobacco selling licenses for 20 years.

http://hvg.hu/itthon/20130426_Trafikmutyi_Fidesz_valasztokeruleti_elnok

LwiiH
Guest

Ms KKA :
First we read that “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 then we’re told “…no tobacco product can be sold to a customer as long as there is an underage (18 years) child in the shop.”, so Mom better have her babysitter all lined up, I guess!!
If this isn’t a testament to, and incontrovertible proof of, the f*)_$#^ed up dealings of the current government, I don’t know what is.

lets just stop at the mothers and maternity leave and extra income bit… that is the most ridiculous argument I’ve every heard in my life.

e cigarette
Guest

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