The Consumer Co-operative Movement in Hungary (1996)

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         January 1996


               **********************************
               The consumer co-operative movement
                         in Hungary
               **********************************


1.   Name of the organisation:
*****************************

     CO-OP HUNGARY National Federation of Consumer
     Co-operatives in Hungarian AFEOSZ

2.   Address:
*************

     CO-OP HUNGARY
     H-1054 Budapest
     Szabadsag ter 14.
     Phone:    (361)-1310-985, (361)-1115-036     
     Fax:      (361)-1311-548, (361)-1113-647
     Telex:    22-4862   


3.   Elected officials:
***********************
     President:          Pal BARTUS  (member of ICA Audit and
                         Controll Committee, of ICA European
                         Council and of Inter-coop)
     Vice-Presidents:    Dr. Zoltan ZS. SZOKE (legal matters,
                         co-op policy, representation of
                         interest) - Co-op Network member
                         Laszlo MURANYI (trade) - Intergroup

     Contact person:     International Relations:
                         Zsuzsanna PUSKAS

4.   The History of the Co-operatives
*************************************

In the middle of the last century our country, with its
underdeveloped social system of feudalism, was characterized
by the hunger for capital, leading to the establishment of
credit co-operations first. These first sparks helped the
formation and development of the consumer co-operatives,
mainly of those with trading activities.

The first important consumer co-operative was founded in 1863
under the name of the First Consumer Co-operative of
Pest-Buda, followed by the Consumer Co-operative of Budapest
in 1877, the Konsum Consumer and Savings Co-operative of the
Employees of the Hungarian Kingdom in 1883, the Christian
Benefit and Consumer  Co-operative in 1885 and the Consumer
Co-operative of the Hungarian Civil Servants in 1892.

The most important, the HANGYA (Ant) Production, Trade and
Consumer Co-operative was founded in 1898 by count Sandor
KAROLYI, the "apostle of co-operation". The General Consumer
Co-operative (AFOSZ), founded in 1904, was popular among
workers, mainly in Budapest and in bigger cities. The first
Hungarian Student Co-operative (founded in 1911) was also
important. Between the World Wars, co-operatives of traders
for buying and selling products, as well as milk-selling,
corn-selling, fruit-selling, distillery and cellar
co-operatives, were strong in number. 
     
The entrepreneurial skill of HANGYA can be proven by the fact
that they founded the HANGYA Industrial Share Company,
co-founded the FUTURA Share Company (Trading Share Company of
Hungarian Co-operative Centres) with the Central National
Credit Co-operative and founded the Elizabeth Hospital for the
Co-opereratives.

After World Ward II, consumer co-operatives started to
reorganize themselves under the name of people's co-operatives
and peasants' co-operatives, while HANGYA co-operatives were
still active. The latter became merged into the peasants'
co-operatives. The figures show the development of these
co-operatives: 270 in 1945, 2584 in 1948 and 3365 in 1950.

Under political pressure, the government decided to construct
a uniform co-operative system in 1949, destroying HANGYA,
credit housing and student co-operatives together with their
central organizations. In the same year, the National
Federation of  Co-operatives /SZOVOSZ/ was founded, enjoying
ministerial authority until 1956. Peasants' co-operatives
played a major role in rural trade and supply for the country,
though they were forced to carry out such thankless activities
as organizing compulsory product delivery to the state before
1956. It soon became obvious that the principle of "one
village - one co-operative" was inviable and the mergers of
peasants' co-operatives started. This was the only way for
them to survive and to modernize their network. While in 1950
there were 3,356 co-operatives with 40,000 employees and a
turnover of 3,000 million Forints from 6,020 shops /mainly
grocery shops/, in 1965 this amounted to 27,000 million
Forints from 15,500 shops run by 61,000 employees in 600
co-operatives. Of these shops, 26 were department stores,
6,743 food stores /500 of them modern food shops/, with
self-service gaining ground. Catering also underwent a major
development: 70 restaurants and 1,925 pubs in 1950, in
contrast with 568 restaurants, 780 confectioneries, 483
buffet-bars and 4,777 pubs in 1965.

Peasants' co-operatives assumed the name General Consumer and
Marketing Co-operatives /AFESZ/ in 1968, showing their
versatility in trading, industrial services, buying-up,
marketing, processing of agricultural produces, transport and
construction activities; even in social and cultural
activities like running youth clubs, amateur folk music and
dance groups, sports clubs and school co-operatives. The
evolution of the co-operatives was helped by SZOVOSZ. It is
worth mentioning that citcumstances forced the re-introduction
of savings co-operatives in 1957 and of housing co-operatives
in 1970. In 1971, SZOVOSZ while retaining the well-known
abbreviation - changed its name to the National Council of
Consumer Co-operatives and became a national federation of
AFESZ, together with the savings and housing co-operatives. It
is only in April 1990, when those co-operatives formed their
own federations.

The National Federation of Consumer Co-operatives, "CO-OP
HUNGARY" /in Hungarian AFEOSZ/ was founded by 279 AFESZ
co-operatives by free will in April 1990 Godollo, during the
first congress of AFESZ co-operatives. The new CO-OP HUNGARY
aims at more efficient help for the co-operatives in realizing
their economic and movemental objectives.

In 1992 the second congress of CO-OP HUNGARY  was held when
the main principles required for the transition from a planned
economy to the market economy was determined and approved by
the delegates. The following  major objectives and tasks
necessary for the survival and development were set by the
congress:


5. The Principal Development Trends Adopted by the 2nd
Congress of the Consumer Co-operatives held in 1992
**************************************************************
*

To maintain the competivity among the conditions of the market
economy and  to improve the economic efficiency.

To serve the interests of the owner-members, to grant them
advantages and discounts based on the results achieved by
business activities.

To be adapted to the changed market situation, to change the
structures, to sell the excessive means, to liquidate the
losses and to rearrange the resources.

To modernize the inner governing system, to concentrate the
commercial, economic work within the co-operative and to
create to that end the information background.

To improve the level of management and guidance, to train and
retrain the management in order to dispose of up-to-date
enterpreneurial skills.

To ensure that the foodstuffs and goods of daily necessity
present the decisive part of the co-operative retail trade.

To develop the network of co-operative food shops
(supermarkets), to introduce a standardization and integration
into a unified system.

To make the collaboration between the medium and big size
department stores dealing with industrial commodities an
organized one, through national integration.

To shape a unified image for the co-operative shop network and
co-operative trade in the external appearance, in the
technology and publicity. 

To establish the county-level regional wholesale system, to
create with them a national purchasing center.

To organize the national purchasing center within the frame of
CO-OP HUNGARY activities for economic interest representation,
in the fields of commodities' supply and of international
economic relations.

To represent more efficiently the economic and social
interests of the co-operatives through CO-OP HUNGARY vis-`-vis
the government and legislative authorities. 


6. Significant personality
**************************

Count Sandor Karolyi /1831-1906/, pioneer of the Hungarian
co-operative movement, member of ICA Board /Executive
Committee/


7. Loi No C de l'annee 1994 concernant la modification de la
loi No I de l'annee 1992 sur les cooperatives
**************************************************************
**

Article (1er)
L'Article 21 de la loi No I de l'annee 1992 (LC par la suite)
sera completee par un paragraphe (4) selon ce qui suit: "(4)
Les titulaires representant au moins une dixieme de la valeur
des parts peuvent proposer en ecrite, avant la reunion de
l'Assemblee generale annuelle, [paragraphe (1er)] l'insertion
obligatoire de n'importe quel sujet a l'ordre du jour de
l'Assemblee generale annuelle." 

Article 2. 
(1er) Le texte du paragraphe (1er) de l'article 22 de la LC
sera supprime et remplace par les dispositions suivantes:
"(1er) L'Assemblee generale n'aura le quorum que dans le cas
ou la moitie du nombre total des membres y sera presente. Au
cas ou l'Assemblee generale n'aurait pas le quorum,
l'Assemblee generale reunie de nouveau pour cette raison dans
les deux semaines avec le meme ordre du jour, devra etre
consideree comme ayant atteint le quorom, au sujet des
questions figurant a l'ordre du jour original, nonobstant le
nombre des membres presents, a l'exception des cas ou 
a) il s'agirait de la prise de decision sur l'union, la
fusion, la scission, la transformation et la cession de la
cooperative, ainsi que
b) si la loi ou les Statuts de la cooperative disposent
autrement.
(2) L'Article 22 de la LC sera complete par un nouveau
paragraphe (2) et en meme temps, le numerotage des paragraphes
(2) et (3) actuels changeront au (3) et (4). Le texte du
paragraphe (4) selon le nouveau numerotage sera supprime et
remplace par les dispositions suivantes:
"(2) L'Assemblee generale nouvellement convoquee pourra
prendre des decisions sur l'union (la fusion) des cooperatives
de credit."
"(4) A l'Assemblee generale - sous reserve des exceptions
prevues par l'Article 94 et le paragraphe (2) de l'Article 107
- chaque membre dispose d'une voix."

Article 3. 
Le texte du paragraphe (4) de l'Article 77 de la LC sera
supprime et remplace par les dispositions suivantes:
"(4) C'est a l'Assemblee generale preparatoire que les membres
de la cooperative font leur declaration sur leur intention
concernant la scission de la cooperative, et ensuite, - au cas
ou les deux tiers des membres presents seraient d'accord
concernant la scission de la cooperative - chacun des membres
et les titulaires des parts cooperatives-non-membres de la
cooperatives se declarent sur ce que de quelle des
cooperatives-successeurs ils desirent devenir membres, ou des
parts de quelle de ces cooperatives-successeurs ils desirent
devenir titulaires. A partir de la date de l'Assemblee
generale preparatoire jusqu'a la terminaison de la scission,
aucune nouvelle demande concernant la scission de la
cooperative ne pourra etre presentee. La Direction est tenue
d'inviter dans les huits jours qui suivent la date de
l'Assemblee generale preparatoire, chacun des membres qui
etaient absents a la reunion preparatoire et aussi les
titulaires des parts cooperatives non-membres, de se declarer
dans les quinze jours en ecrite sur leur intention de
s'appartenir a l'une des cooperatives-successeurs. Il devra
etre indique dans cette invitation qu'a defaut de telle
declaration ecrite, ce sera la decision de l'Assemblee
generale qui servira de gouvergne dans la question de
l'appartenance. L'invitation sera emise conformement a la
disposition prevue dans les Statuts pour la convocation de
l'Assemblee generale ."

Article 4. 
(1er) La presente loi entrera en vigueur le 8e jour suivant sa
promulguation. 
(2) En meme temps que l'entree en vigueur de la presente loi,
les textes suivants seront caducs:
a) les paragraphes (3) et (5) de l'Article 77 de la LC;
b) le Chapitre XI de la LC, son titre et les Articles 112-115
de la LC, ainsi qu'en meme temps, le numerotage du Chapitre
XII de la LC changera a XI, et le numerotage des Articles
ll6-ll8 changera a 112-114;
c) la partie du texte de l'Article 10 de la loi No XLIV de
l'annee 1994 portant la modification de la LC, fixant les
paragraphes (3) et (5) de l'Article 77 de la LC, et enfin,
l'Article 12 de cette loi d'amendement.
(3) Les cooperatives sont tenues d'adopter la modification de
leurs Statuts, necessaire par suite de la modification de la
LC par la loi No XLIV de l'annee 1994 avant le 30 juin 1995. 
(4) Au cas ou la cooperative a decide, avant l'entree en
vigueur de la presente loi, lors d'une reunion (preparatoire)
de l'Assemblee generale sur l'union ou de la scission de la
cooperative sur la base des dispositions modifiees par la loi
No XLIV de l'annee 1994 de la LC, ou bien s'agissant d'une
cooperative agricole, c'est l'Assemblee generale partielle,
tenue a la localite concernee, qui a decide sur l'union ou la
scission de la cooperative, le changement organisationnel
s'effectuera conformement aux dispositions qui ont ete en
vigueur a la date de la prise de decision y relative.

(La loi a ete adoptee a la session du 27 decembre 1994 du
Parlement)

8.   Statistics
****************

a./ Member consumer co-ops of CO-OP HUNGARY

- number                                               273
- number of members in thousand                        721
- total value of shares purchased by members of 
   cooperatives in HUF million                         780
- all property, HUF billion                             38
  of this:
          member shares and value of
          personified business parts                    26
          undistributed property                        12
- educational institutes
     * Vocational secondary school, Kecskemet
     * Co-operative Educational Centre Joint Company,
        Budapest

b./ Return from sales of consumer co-ops by activities, HUF
million

     wholesale trade                         3.607
     buying up of agricultural produces      2.889
     shop retail trade                      98.593
     catering                                  769
     industrial activity                     4.560
     others (different  services)           11.935
 
      TOTAL                                122.353





9.   Development projects
*************************

1. Forming the Pro-Coop system

One of the decisions of great importance of the Congress was
that consumer co-operatives should form in every county or
regionally (comprising several counties) wholesale purchasing
and distributing organizations. 
The reason for this decision was first of all that co-op
stores could only obtain the bigger part of products they sold
from state-owned wholesale companies. These wholesalers traded
by an almost 20 % margin; while consumer co-operatives were
only able to reach a 15 % margin. The other decisive factor in
forming the distributing system was that if several consumer
co-operatives act together as buyers on the market they can
reach more favourable conditions in price, terms of delivery
and payment, etc.

At the end of 1992 'Pro-Coop' wholesale purchase centres began
to form in different counties of Hungary, using the existing
real estate assets and money raised by co-operatives. These
organizations covered almost all the country by the end of
1993; supplemented by those formerly state-owned wholesale
companies that consumer co-operatives purchased in the process
of privatization. Presently there are 17 such Pro-Coop
organizations working in the country. In the beginning these
wholesale purchasing centres distributed only some hundreds of
articles; some of them are able to forward over four thousand
kinds of goods to co-op stores. Consumer co-operatives operate
these organizations on a non-profit basis; they cannot gain
any profit, they only add their actual expenses to the price
of the goods purchased by them when they pass them on to the
co-op stores. These expenses only amount to 4 % of the price
of goods at present. A significant improvement in market
position could be reached compared to the former method of
each store purchasing the goods sold by them, when county or
regional Pro-Coops began their joint purchasing.

The bigger part of the surplus margin gets to consumer
co-operatives, improving their competitiveness in the market,
their ability to meet expenses and their profitability. By
joint purchase co-operatives gained an average 4 to 15 %
surplus margin. This situation was mainly due to the fact that
Pro-Coops formed in different counties worked together from
the beginning - with the co-ordination of the National
Federation - in purchasing, entering into contracts with large
producing and suppliers. Their co-operation developed to the
level that recently they have formed a business association by
the name 'Pro-Coop Alliance', which provides the legal
framework to their former looser co-operation.

The manager of this new business association is CO-OP HUNGARY.
In the framework of this system there are not only internal,
but also import purchases. CO-OP HUNGARY is a member of
Inter-Coop; and through this organization a part of the joint
international purchase system of European trade co-operatives.

2. Forming the Coop store chain

Another important decision of the Congress was that co-op
stores should be operated as a chain, with a uniform look and
inner standards, in order to take full advantage of all
benefits of this system.

At the end of 1994 consumer co-operatives accepted the system
of requirements by the help of which co-op stores can be
organized into a chain; and they also decided to give the name
'Coop' to this system. The National Federation was charged
with this task, too. According to the decisions made the
organization of co-op stores into the chain has already begun;
by the result of which by the end of 1995 about 200 stores
will be part of the system, and in about two years 600 more
stores will join the integration.

Co-operatives have founded chain-managements on a regional,
usually county basis, which organize co-operation in the
region; and, as a centralised organization of regional
chain-managements, the National Retail Council operates
controlled by CO-OP HUNGARY.

Since the change of regime in 1990 the huge multinational
companies have appeared first in the field of trade, and begun
chain-like activities at once. The appearance of companies
with great experience of market economy and with a lot of
capital force co-operatives, too, to organize their stores
into a chain that can be promoted jointly, that appears with a
uniform look, with the same prices and same goods. The forming
of this system has just begun, but we consider an important
element of it the introduction of a computer network that also
operates the bar-code checkout system through the
goods-registering system. Our long-term plan is that these
computer networks be connected to the centres of consumer
co-operatives, Pro-Coops and the national centre, too.


3. Forming the controlling structure in co-operatives

In the last years of the socialist era the co-operative trade
introduced new operational methods that gave a great level of
independence to managers of shops. This independence could be
seen in the freedom of purchasing goods, forming prices and in
many cases in exercising employer rights over workers. The
operation of the centralized system described above, which
serves the interest of consumer co-operatives in the first
place, and where individual interest is not so important, made
it essential that the internal operational system of
co-operatives be changed. This meant first of all that the
independence of managers of shops and department stores became
less; and that the consumer co-operative centre decides what
kind of goods can be purchased, at what price and where from,
and also that what price the goods can be sold at.

This might be the most fragile element of this new system;
since presidents of consumer co-operatives meet strong
resistance in forming the new controlling structures, in
eroding former privileges. Without this element, however, the
system is disfunctional and is not able to produce
effectiveness. Leaders of co-operatives have realized that the
only chance to recover from the economic problems is to
accomplish their common goals working together. Maybe the
greatest achievement of the transitional period is this; and
it directly led to the consequence that co-operatives managed
to move from the deepest point of 1992, when the 280 consumer
co-operatives closed the year with a total loss of nearly one
thousand million Forints.


10.  Co-operative magazine:   AFESZ magazin -     biweekly