Beverage Prices to Rise Due to Deposit Return System: Costs May Exceed the 50 Forint Deposit Fee
The implementation of the mandatory deposit return system (DRS) will incur additional costs for manufacturers and retailers, significantly affecting beverage prices beyond the 50 forint deposit fee.
Manufacturers have criticized MOL MOHU and the Energy Office for the opaque cost structure of fees, allowing arbitrary pricing decisions.
Since January this year, Hungary has introduced a nationwide mandatory deposit return system (DRS) for domestic beverage packaging between 0.1 and 3 liters, including plastic and glass bottles, and metal cans. Stores with a sales area over 400 square meters and selling food are required to operate return vending machines, with an estimated installation of 5-6 thousand machines nationwide. Smaller stores will offer manual return services.
MOL MOHU Waste Management Ltd., a subsidiary of MOL Nyrt., provides the operation and machines for the DRS, following a 35-year concession granted last year by the Hungarian state to the oil company for much of the domestic waste market.
Although the installation of return machines in larger stores has begun, the system will officially launch on July 1, allowing manufacturers a six-month preparation period to label returnable packaging properly. New refundable bottles arriving in stores by April will entail a mandatory 50 forint deposit fee for consumers, refundable via voucher upon returning the intact bottle.
NOT JUST A 50 FORINT INCREASE
The 50 forint consumer deposit fee is not based on cost but aims to encourage returns. However, the reality involves additional charges for producers, including a connection fee payable over five years to finance the purchase of return machines, costing over 50 billion forints in total. This fee adds a 1-8 forint cost per item depending on the packaging type, according to Miklós Nagy, Secretary-General of the National Association of Packaging and Material Handling (CSAOSZ).
Moreover, manufacturers must cover a service fee funding waste collection, sorting, and utilization by MOHU, matching the extended producer responsibility (EPR) system rates paid by companies not involved in the DRS. Depending on packaging type, this fee could range from 10-20 forints per item. These costs, exceeding the 50 forint deposit fee, are likely to be incorporated into product prices if retailers agree, Nagy added.
The DRS system's estimated annual cost is around 25 billion forints, a significant increase compared to the approximately 6 billion forints in environmental product fees paid before the DRS's introduction.
ADDITIONAL MANUFACTURER COSTS
Manufacturers also need to front the initial 50 forint deposit fee per bottle. However, it's unclear how the concession company will manage these funds, especially during the system's ramp-up period when many deposits may not be returned.
BURDEN ALSO ON RETAILERS
MOHU has set a standardized handling fee for operators of the DRS system: 7.5 forints + VAT per bottle for machine-operated sites, and 5 forints + VAT per bottle for manual return sites. Retailers may seek to adjust margins to compensate for these additional costs.
PRICE INCREASES ALREADY UNDER WAY?
Following the obligation to pay the EPR fee since last October, the system's costs were expected to gradually reflect in consumer prices. However, the inclusion of the DRS charges may further impact product price inflation.
CALLS FOR TRANSPARENCY
Criticism has been directed towards the MOL MOHU-managed new waste management system, particularly concerning its operational costs compared to other EU countries. MOHU, a profit-oriented company established by a stock market-listed corporation, operates the system, contrasting with the typical state or non-profit organizations managing waste in the EU.
MOHU responded by highlighting that the EPR and DRS fees are determined by the Ministry of Energy, with calculations done by the Hungarian Energy and Public Utility Regulatory Authority based on detailed methodologies to support fee proposals.
With manufacturers and retailers bracing for the financial impact, concerns about the system's transparency and cost-effectiveness persist, emphasizing the need for clear guidelines and fair practices in managing Hungary's shift towards a circular economy.