Turkey Agribusiness Report Q4 2009

BMI 'sTurkey Agribusiness Report Q409 continues on the themes touched upon in previous reports .

Turkey is one of the world's top agricultural producers and the industry is extremely vital to political, as well as social and economic, wellbeing. This report looks at the fundamentals and dynamics across the main farmed goods in Turkey, while the Business Environment Overview section casts a broad gaze over the entire industry .

Since 2007, the country has been ravaged by one of the worst droughts in its history, which has piled considerable pressure on domestic water resources, even more so considering the high percentage of agricultural output reliant on irrigated farming. Furthermore, neighbouring countries similarly affected - mainly Iraq and Syria - are putting pressure on Turkey to increase water flows from the Euphrates river, one of the main water sources in the region. The drought risk remains throughout the outlook period, threatening to undermine efforts to increase productivity across the sector .

In addition to the drought, the global recession has taken a particularly hard toll on exports. The Turkish Exporters' Assembly (TIM) reported how year-on-year shipments in June 2009 fell by nearly 33%, with agricultural exports contracting by 6.55% for the same period, although on a month-on-month basis there has been a slight uptick in export growth. This is not to detract, however, from the poor macroeconomic outlook for the country for the remainder of 2009, although BMI is very positive regarding the macroeconomic fundamentals once the recessionary dynamics fade .

Some success has been achieved on the foreign direct investment front. The European Bank for Reconstruction and Development (EBRD) has agreed to provide finance to the tune of US$193mn for agribusiness and small business development. The figure is reported to rise to US$300mn in 2010 and could be used to marked effect in developing infrastructure. More recently, a group consisting of various Arab investment houses signalled its intention to facilitate substantial capital flows into Turkey; a development which the government has used as a public relations tool to highlight investor optimism in local farming .

According to Agricultural Minister Mehmet Mehdi Eker Turkey's food sales earn the country around US$57bn per year, while overall agricultural production is estimated at US$57bn, highlighting the importance of the sector, not just for domestic socio-economic wellbeing, but for the numerous international markets served by Turkish exports. EU accession draws ever closer, and as it does, BMI expects to see a continued commitment to the agricultural reforms that have been so earnestly pursued by the government .

Turkey is a world leading nation when it comes to agricultural processing. According to Eker, the country is ranked seventh in grains and cereals processing, while it is unsurpassed in adding value in the fruits and vegetables subsector. The potential to build significantly on this position is notable as investment flows in, encouraged by the state's increasingly receptive stance, along with a solid banking sector, which should recover relatively quickly once the economy rebounds .

Grains will continue to show strong output growth with Barley and corn both forecast sharper trajectories against the main crop, wheat. With wheat output forecast at 17.5mn tonnes by year-end 2013, Turkey will still be one of the main grains players in Europe, although Kazakhstan is poised to overtake its position as Europe's top flour exporter. Turkish wheat harvests look unlikely to repeat the yields recorded before the drought (in the three years to 2007, harvests of over 20,000 tonnes were recorded), so it would make sense that value-added processing receives increasing attention .

Although the government has been slowly extracting itself from grain marketing since the 1990s in line with its objectives of market liberalisation and privatisation, farmers still continue to receive government support through input subsidies, as well as below-market interest rates for loans and fertiliser. While most wheat is now traded privately, the market is still regulated through the Turkish Grain Board (TMO), which announces the annual procurement prices for all grains. The TMO then buys grains at these prices from producers who are unable to obtain a higher price on the open market. Through its position the TMO monopolises the import of certain key commodities which it uses as a mechanism to help control domestic prices. Turkey's EU accession ambitions makes this type of intervention increasingly untenable and we can expect an easing of such measures as we progress through to 2013 .

With regards to the growing sentiment for organic produce among consumers in the developed world, Eker says that his country has roughly 1mn hectares available for organic farming, which will lend itself well to said method of farming as the global recession dissipates .