Slovakia: New structures

In the past, artisan and industrial operators in the Slovakian bakery sector were organized into four different associations. On the initiative of a few major companies, all have now combined to form a single federation. We talked to Ing. Vladislav

Slovakia, who helped initiate this development.

+bbi: Mr. Baričák, as CEO of Penam Slovakia, you manage one of the biggest bakery companies in the Republic of Slovakia where, on your initiative in particular, you have just combined four previous associations into a single federation. There are between 450 and 500 bakery businesses in the Slovakian Republic, so why were there four associations in the first place, and what were the differences between them?

+ Baričák: The origin must be sought in history when there was even more bakery in Slovakia than it is today. The bakers were also joined by confectioners and pasta producers, or bakeries were also focused at the same time on confectionery production. Consequently, companies were more associated with the region, as they "had the closest to each other". That is why, for example, the Guild of Bakers and Confectioners of Eastern Slovakia and the Guild of Bakers and Confectioners of Western Slovakia were established in Slovakia. The youngest organization that was established in 2015 is the Union of Industrial Bakers of the Slovak Republic, which aimed to bring together the largest industrial bakeries in Slovakia. However, the oldest association on our territory was and still is the Slovak Union of Bakers, Confectioners and pasta producers. The fragmentation of bakers in different organizations was probably also related to the fact that we ceased to be aware of coherence and did not think that a unified organization could solve the problems of our sector comprehensively – ie. solve the problems of small, medium and large bakers. But over time, history has been right and if we are united, we can do more together. That is why we have begun to fight for a really strong organization to represent the vast majority of bakers in Slovakia. We started a recruitment campaign in the oldest association – the Slovak Association of Bakers, Confectioners and Pasta producers, and it was successful. In the past and this year, the vast majority of bakers who have been working in other professional organizations, or none at all, have become members of the association. While, for example, in 2018 the Slovak Union defended the interests of bakery companies with 5,000 employees, this year it will be 2,000 more people. This means that the unified organization of the Slovak Association of Bakers, Confectioners and pasta producers will represent 7,000 employees in the sector out of a total of 11,000. The remaining 3 professional organizations have also joined the Slovak Association of Bakers, Confectioners and pasta producers as collective members.

+ bbi: To allow the situation regarding baked products manufacturers in Slovakia to be put into perspective – could

, CEO of you please give us a brief overview of how many companies produce on an industrial scale and how many large and small artisan businesses there are, and what proportion of the sale of baked goods in Slovakia is in the hands of the food retail?

+ Baričák: As the Statistical Office of the Slovak Republic does not have all the operations in the bakery and confectionery sector, the data on the number of companies are only a professional estimate. There are approximately 500 bakery and confectionery production facilities in Slovakia. Large industrial bakeries are about 30, while these supply about 60% of the market. The remaining 40% of the market is supplied by large and small craft businesses, but they also have machinery technology to increase production process automation. At the same time, the share of these domestic producers in the grocery stores is estimated at 60%, while the remaining 40% is imported from neighboring countries, and this negative trend continues and is increasing. To

The Slovakian Market

The core of the problem in the Slovakian baked products market is the market power of foreign retail groups like Tesco, Lidl, Billa and Kaufland, whose combined market share and thus purchasing power is estimated to be 45%, whereas smaller domestic retail groups with considerably more locations amount to a total of 30%, and artisans and regional chain stores account for the remaining 25% share of the baked goods market.

Like in Austria, many artisans and chain store operators also supply the retail at the same time. Price-sensitive key articles on the baked products shelf, like a 1 kg mixed illustrate: 10 years ago, about 90% of domestic bakery and pastry products were on Slovak bars and 10% were imported.

+ bbi: What are the most important problems facing baked products manufacturers, what aims is the new federation pursuing, how does it plan to achieve these aims?

+ Baričák: There are several problems. The key is that the traditional bakery is gradually losing its value, and that is why many bakeries disappear. It is also related to the fact that the economic power of a nation is not strong enough and, as a result, local patriotism is not developed in Slovaks, such as in Germans or Austrians. Still the main factor in our choice remains the price, and foreign trade chains have built their policy, not just in our country. In the last ten years, when the chains were very strong in our country, bakers have begun to lose a lot of money. The dominant strength of foreign merchants caused them to have the power to push suppliers, in our case of bakers, at such low economic prices, which in many cases do not even cover production costs. And bakers often attempted to save and maintain large volumes of sales. This led us to significant economic difficulties, when several bakeries were forced to close, some bakeries were sold, others ended up in red. The aim of the association of companies in the Slovak Association of Bakers, Confectioners and Pasta producers is to be a joint effort to correct the covered market or to fight for better and enforceable legislative conditions contained in the laws. Recently, we have succeeded in changing the law on the law on prices (it should apply from the beginning of May 2019) or inadequate business conditions to help foreign networks not apply their predatory pricing

+ bbi: The Slovakian government has just adopted a legislative package designed to limit the market power of the big trading groups. In your opinion, which aspects of this package are likely to have positive effects for baked goods producers?

+ Baričák: I have to say that bakers appreciate the amendment of two key laws - the Unfair Commercial Terms and Prices Act. While the first one sets a number of positive changes, such as shortening the maturity of 15 days invoices, eliminating hidden fees, which often reduce the profits of bakers, tightening wheat bread (70:30) or the the typical rolls rožky (in Czech language rohlíky), are frequently sold as customer magnets for 1 Euro and less than 5 Euro cents respectively. Persistent overcapacity is another of the reasons. Insiders estimate an overcapacity of 40% for rožky (rohlíky) alone. controls on vendors, whether the customer can request a reduction in the purchase price from the supplier only if goods are actually sold to consumers in the stock price. Of course, the most positive in it is the sale ban below economically justifiable costs (production costs), ie. the customer will not be able to demand the sale of the products below the cost of production of the supplier, which is a common practice in business relations in the long term. On the contrary, the second amendment to the Act – the Act on Prices – stipulates that the determination of economically justifiable costs will be the responsibility of the Ministry of Agriculture and Rural Development of the Slovak Republic as an independent body, while the law requires regular updating of economically justifiable costs for the current situation.

The Slovakian government introduced a series of legislative initiatives in late 2018 and early 2019, partly already implemented and partly got underway. The aim is to reduce the dominance of big retail groups, mostly foreign, on the Slovakian food market, and to open up more opportunities for other players in the market.

+ bbi: Mass market products such as wheat mixed bread or rožky (rohlíky) are a serious problem in the Slovakian baked goods industry. The food retail offers them as loss leaders at extremely low prices. According to our information, a law is being prepared to limit the retail trade’s margin and to ban purchases below production costs. Do you hope this will ease the price pressure on manufacturers in the mass market products business?

+ Baričák: We believe in it. The price of a traditional white roll has not changed in Slovakia for years, the price of a classic 1-kilo bread has even dropped, but there is no economic reason for it. The price of raw materials and the price of labor for the last grew rapidly. For comparison only, the price of flour increased by 20-30% in the last year, the price of poppy increased by 102%, potato flour by 34%, salt by 64%, greaves by 101%, energy by 20%, but also the price of fuel substances. However, the largest item was fast-growing salaries, where average wages climbed by almost 10 percent.

+ bbi: A few weeks ago, the government significantly increased extra pay for night-time and public holiday working. However, bread factories cannot operate without night-time and public holiday working. How will the wage increases affect you?

+ Baričák: Significantly. According to statistics, up to 80% of the working time of bakers is burdened with extra charges for weekend work, public holidays, and night work, known as the government's social package, and the Slovak bakers are most likely to pay for it. The first wave of social package started in May 2018, the second wave of the social package will start this May, which means that surcharges will increase again from last year's wages and will be deducted from the minimum wage. It has also increased since the new year (from EUR 480 in 2018 to EUR 520 in 2019). Wages currently account for an average of up to 38% of total production costs. While in 2017 the average monthly wage was 677 euros, in 2018 it was 731 euros, an increase of almost 10%. In May of this year, the second wave of the social package, which will represent a further rise in labor costs, will come into force, with wages exceeding 40% of total production costs.

+ bbi: The association’s tasks also include targeted public relations work in the country. What exactly do you do, and what effect do you hope you will have?

+ Baričák: Yes. In March of this year, the Slovak Association of Bakers, Confectioners and Pasta producers distributed the Fair Trade Award. It was acquired by those traders who adhere to fair trade relations and do not push suppliers to disproportionately low prices, which are predominantly focused on selling Slovak products or those who do not work with hidden fees, often at the expense of suppliers. This year, Labaš, p. r. o., MILK-AGRO, s.r.o., CBA Slovakia Lučenec, a.s., Makos, a.s., DEKORT, s.r.o., COOP Jednota Slovakia and CBA Slovakia, a.s. The award was given to the companies by the Deputy Prime Minister and Minister of Agriculture and Rural Development of the Slovak Republic, Gabriela Matečná, at the historically largest General Assembly of the Slovak Association of Bakers, Confectioners and pasta producers. We want to pass this award every year, and we want to show it to consumers and educate them a bit about how Slovak food goes to the shop shelves and what process it is. At the same time, the Fair Trade initiative aims to show the public who is fair to their suppliers and is willing to bear the risks stemming from the rise in raw material prices and other inputs, on the basis of which bakers objectively ask for higher sales prices. In addition to this initiative, we have been intensively communicating our visions, problems and the state of the sector for three years, as well as plans for the future for the media. Through them we try to move our link to lay and professional public, what we are doing. At the same time, we organized a joint exhibition – Bakery Court – at the biggest gastronomic event for the general and professional public Danubius Gastro, where visitors could learn about products based on Slovak bakeries and news that they are just preparing (eg. Loin bread).

+ bbi: Have the country’s politicians already responded to the new federation?

+ Baričák: Certainly resonated. In the media, we regularly communicate the steps of the government that we do not like, as well as those for which we are grateful to help us. We are certainly also more active in communication with the agricultural sector or the Slovak Government and have a stronger voice, thanks to the wide representation of bakers in the association.

At the same time, the agricultural sector has begun to notice our struggle to save the industry and stand by us eg. at the Fair Trade Initiative. We again have to admit that we appreciate the ministry's activities in fighting for domestic products and promoting local patriotism.

+ bbi: Will this new federation collaborate with other national associations at a European level, or does such collaboration already exist?

+ Baričák: European bakers' cooperation has already begun last year. In the summer of 2018, we signed a Memorandum of Fair Trade on the Slovak level with representatives of the Trade Union of the Slovak Republic (which brings together Slovak retailers), on the basis of which the Fair Trade initiative was created. In autumn 2018, we also signed a Memorandum of Cooperation in the Bakery Industry in Munich together with other bakery organizations from the Czech Republic, Hungary, Poland and Romania. Our common goal is to fight for better conditions for bakers in the market, to fight against predatory pricing of foreign chains and to exchange information on steps that have a positive or negative impact on the bakery sector. This memorandum was signed in the presence of Antonio Aries from Mexico, President of the World Union of Bakers and Confectioners UIBC (International Union of Bakers and Confectioners) and Fernandez Villaverde of Spain, General Secretary of UIBC.

+ bbi: Mr. Baričák, thank you for the discussion. +++ with this master baker mindset, like our modular AMF Den Boer Tunnel Ovens, which allow us to engineer the most optimal baking solutions for today while preparing your bakery for future growth.

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