Focus on Turkey

by Meyer Sosland
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Agriculture plays major role in Turkey’s rebounding economy

by Mario Sequeira

Turkey’s agriculture sector has historically played a big role in the economy. In the 1960s, agriculture employed 75% of the workforce and contributed about 50% to Gross Domestic Product (GDP).

Since then, the Turkish economy has evolved, modernizing and diversifying to keep pace with the rest of the world. In 2005, agriculture contributed 12% to GDP. The services sector accounted for 58% and industry 30%. But agriculture is still a large employer, absorbing 36% of the workforce, compared to 41% by services and 23% by industry.

Turkey has fertile soil, a variety of climates and adequate rainfall — from 250 millimeters (mm) in the central and southeastern regions to 2,500 mm on the Black Sea coast — that permit cultivation of a broad range of crops.

Cropping is the major agricultural occupation. The major crops are grain, sugar beet, cotton, tobacco, grapes, sunflower, pulses and dried and fresh fruit. Wheat takes up 75% of cropping land, followed by barley. During the past decade, annual wheat production has averaged 17 million tonnes and barley 7 million tonnes. Land under irrigation has been increasing over the years. Of about 8.5 million hectares of agricultural land with potential perennial irrigation, more than half is irrigated.

The giant U.S.$32 billion Southeastern Anatolia Project, or GAP, conceived in the 1970s and making steady progress, aims to construct 22 dams and irrigate an additional 1.7 million hectares in the area by 2015. By 2005, 222,617 hectares had been brought under irrigation, according to the project manager, GAP Regional Development Administration.

Turkey has about 3.7 million farmers operating in a highly fragmented landscape, as farmers traditionally divided land among heirs over generations. Farming is therefore inefficient relative to large-scale production.

A 2004 World Bank report cited a field survey revealing that Turkish farmers cultivated an average 8 to 30 plots. About 65% of these holdings are small (0.1- to 5 hectares).

Turkey has been liberalizing its economy since 1980. Agriculture had been tightly controlled to meet policy objectives, which included maintaining stable grain prices, increasing yields and production, developing exports, expanding the irrigation infrastructure and promoting modern techniques.

To this end, the government created agencies, including the State Economic Enterprises (SEE) and Agricultural Sales Cooperative Unions (ACSU), to procure commodities at support prices, maintain stocks, execute exports, issue export licenses and provide input subsidies.

The Turkish Grain Board (Toprak Mahsullei Ofisi), or TMO, which oversees grains and pulses, is the largest SEE still playing a significant, though diminishing, role.

TMO’s role is to make intervention cereal purchases to maintain price stability and hold intervention stocks. Procurement prices are set in late May or early June and revised during the year because of Turkey’s chronic high inflation and frequent currency devaluation.

In most years, market prices are higher, resulting in most farmers selling to traders and millers. But TMO remains the residual buyer, taking poorer quality grain that private traders reject.

TMO also regulates grain imports and exports through strict licensing conditions, but this role is being phased out in favor of more private involvement.

In 2001, the government adopted major agricultural reforms following a financial crisis that caused the Turkish lira to collapse. Working with the World Bank, which will lend U.S.$600 million to help implement the 2001-07 reforms, Turkey agreed to replace subsidies based on agricultural inputs and production with direct income support to farmers.

It also agreed to phase in privatization of SEE and transform ACSU into autonomous bodies.

In 2004, the government adopted more reform to be carried out from 2006-10. These include stepping up farm registrations, consolidating fragmented land holdings, setting up demanddriven, small-scale processing, marketing and other off-farm businesses in provinces with 50% grants, rebuilding rural infrastructure, building stronger farmer organizations and encouraging environmentally sustainable practices by providing grants. By 2004, nearly 90% of farmers had registered for direct income support. The World Bank report states that the government spent U.S.$700 million on subsidies in 2003, cutting its subsidy and price support bill by U.S.$5.4 billion.

Turkey passed legislation last year establishing a warehouse receipt system for wheat, barley, rye and oats. ASCU and the TMO are expected to set up warehouses to store products. Farmers can use receipts they are issued as collateral to obtain credit from 14 financial institutions. This is seen as the first step toward establishing a futures market.

But Turkey continues to protect its domestic industry from competition. Last August, it raised import duties on wheat to 130%, on durum wheat to 100%, on barley to 100% and on maize to 130%.

Turkey began long-awaited membership talks with the E.U. last October. As with previous accession negotiations, they are expected to take time.

WHEAT AND FLOUR MILLING

Ample rainfall during the fall of 2005 has led to a 2005-06 wheat harvest estimate of 18 million tonnes, slightly lower than 2004-05’s 18.5 million tonnes.

Turkey is a significant wheat flour and pasta exporter. The International Grains Council (IGC) pegged 2004-05 wheat flour exports at 1.2 million tonnes and pasta exports to 150,000 tonnes. Iraq (600,000 tonnes), Libya (160,000 tonnes) and Sri Lanka (115,000 tonnes) were the major flour importers.

The IGC expects Turkey’s 2005-06 exports to decline to 1.4 million tonnes, but it will still account for a 16% share of the world’s 8.6 million-tonne flour market, second to the E.U.’s 27% share.

With wheat bread a staple in the Turkish diet – its per-capita consumption of about 210 kilograms (kg) per year is among the world’s highest – Turkey has a well-established flour milling industry.

The industry’s lobbying body, the Turkish Flour Millers Association, has about 270 millers, traders, machinery and equipment manufacturers and academic representatives as members.

Of the flour produced, 55% is used for bread production and the rest for pasta, confectionary, flat bread and other wheat products.

With a population growing at just over 1% a year and rising consumer incomes underpinning bread demand, mills are expected to enjoy growth.

LIVESTOCK AND FEED

The cattle industry has been declining for years. High feed costs are to blame. In 2005, the national herd was put at 14 million dairy, beef and calf animals. However, inadequate supply has caused high beef prices and attracted investment in dairy and feedlot operations in Western Turkey.

The government enacts a strict protectionist import policy. Producers can only import dairy and beef cattle to breed.

Last year, the government announced a 10-year plan for the beef industry aimed at helping boost herd sizes, beef production, producer incomes and create jobs. The government offers subsidies for fodder production, artificial insemination, purchase of quality animals, improvements on dairy farms to raise milk quality, heavier slaughter cattle and identification and registration, vaccination and food safety programs.

The government budgeted U.S.$500 million for the programs in 2005.

Three-quarters of dairy and beef farms are small, averaging six hectares with five cows. But a growing population and increasing tourism are creating increased demand for beef and dairy products.

Turkey’s commercial poultry flock is estimated at 150 million birds, 120 million broilers and 30 million layers. Since the Oct. 2005 bird flu outbreak, broiler demand has plummeted 75%, the poultry industry estimates, and hopes of a recovery were dashed by a new outbreak.

Barley, maize and soybean meal are the major ingredients in livestock feed. Barley production in 2005 is estimated at 7.4 million tonnes, of which 90% is feed barley.

Turkey produces two maize crops a year, with production in 2005 estimated at 3.5 million tonnes.

Maize and soybean meal are major ingredients in poultry feed. In 2004, soybean and soybean meal imports hit a record 1.13 million tonnes and 685,000 tonnes, respectively, as importers raced to beat import tariff increases taking effect in August 2005. The U.S. supplied 40% of the soybeans and 48% of the meal.

Up to half the soybean supply may go to livestock industries. In 2005, an estimated 1 million tonnes of soybeans and 500,000 million tonnes of soybean meal were imported.

Soybean meal is increasingly accounting for greater portions of poultry and cattle feed rations.

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