NEWS ARTICLE        25/02/2019

The Sorry State of the Agriculture Sector in Turkey

Turkey’s soaring food inflation is expected to be an important factor which will influence the outcome of the local elections on March 31st, 2019. The ruling Justice and Development Party (AKP) is aware of the public’s indignation about the mounting cost of basic foodstuffs, and has introduced a number of palliative, short-term and sensationalist measures to restrain price increases, while ignoring the core of the problem, that is the overall and long-term decline in the agriculture sector.  


The government has shown that it is prepared to use coercion in order to achieve its goal of reducing prices. Its first target were the middlemen responsible for bringing the produce from the farmers to the markets and shops, who were portrayed as evil profiteers.


Much publicity has been made of raided foodstuff depots. Such extreme measures had little success and were more for political gain. Hoarders were blamed for the surging price of onions, a key staple ingredient of Turkish cuisine. Raids of onion depots conducted by the authorities, at the behest of President Recep Tayyip Erdogan, failed to bring down prices, and ultimately, the government had to eliminate tariffs on onions to cheapen imports.


Retail outlets were the next target of the government. Erdogan lashed out at groceries and supermarkets over fruit and vegetable prices as some of them reached unprecedented levels. “Interest rates and inflation have declined, but the prices of fruits and vegetables at grocery stores continue to rise,” he said on January 21st, 2019. “If grocery stores continue to try to exploit my people, it is our duty to hold them to account and we will.”


Accordingly much publicised inspections were carried out at supermarkets. Interestingly, out of fear of reprisals from the government, supermarket chains chose to do away with some products, including eggplants and green peppers, instead of selling them at the soaring prices and risking the wrath of the government.


With its eyes on the fast looming local elections, the government had become somewhat desperate to control vegetable and fruit prices. It finally recoursed to opening subsidised vegetable sales at tents and stalls in Istanbul and Ankara, the country’s two biggest cities. Since the vegetables are being sold at the price they were purchased at from producers, this operation has been organised at great cost to the government, but a necessary gimmick to play for time until the elections. It has nevertheless temporarily achieved its goal and some supermarket chains have themselves set aside a few shelves selling vegetables at the marked down government prices. The markets however did not lose the opportunity to post notices above these shelves explaining the loss they were making on such sales.


The Turkish government nevertheless continued its policy to harass retailers. At the beginning of March, Turkey's antitrust agency the Competition Authority launched an investigation into 23 grocery chain stores operating in retail food sales. According to an announcement released on the website of the Competition Authority yesterday, the investigation will determine whether grocery stores are violating the competition law while setting prices for bottled water, fresh fruits and vegetables.


The companies subject to investigation include BİM, Şok, Migros, Hakmar, UCZ Mağazacılık, Carrefoursa, Makro Market, Adese, Özen, Yunus Market, Yeni Çağdaş, Mopaş, Ersan, Altunbilekler, Soykan, Başgimpa, Gimsa, Çağrı Gıda, Bildirici, Turgut Seyhan ve Kardeşleri Gıda, Şafak Gıda, and Metro Grosmarket.


A more genuine reason for recent soaring food inflation are the storms that in January 2019 hit the greenhouses in Turkey’s fruit and vegetable growing areas, which are largely concentrated in the Mediterranean and south Aegean coastal regions. The bad weather had an adverse effect on produce at the most critical time and caused vegetable and fruit prices to rise significantly. Indeed, the Turkish Statistical Institute (TÜIK – TurkStat)) recorded consumer inflation as rising 1.1% in January from the previous month and 20.4% on an annual basis. Of this, food and non-alcoholic drinks sector was the highest contributor with a 6.43% increase in January and a 30.97% increase on an annual basis. 


Blaming middle-men and bad climate conditions do not however explain away the underlying problems prevalent in Turkey’s agricultural sector, which are currently the high inflation rate in the Turkish economy as a whole and the long-term decline in agricultural output. Rising cost of inputs such as fertilisers, pesticides and fodder, lack of government support, inefficient supply chains, and lack of investment have over the years taken their toll on output. The sector has been neglected by the government for decades, largely overlooked while the industrial and construction sectors are given priority in planning and budgeting. Indeed, agriculture has been in decline ever since 1980 when central government started to cut its support for the sector.    


The decline in agricultural output has had a detrimental effect on the agro-industries, especially the food and beverage sector that relies on vegetative and animal products. Furthermore, those industries supplying materials and products to agriculture such as fodder, fertilizer, pesticide and tractor manufacturers will also have seen a turn down in business. According to the Turkish Association of Agricultural Machinery and Equipment Manufacturers, tractor sales dropped 54% last year. Rising food prices will also put wage-cost pressure on industrial and service sectors as a whole as concerns increase about the ability of workers to meet their basic food costs. Food and beverages account for about 20% of the consumption expenditures of Turkish households, second only to housing,


According to statistics prepared by the Risk Centre of Turkey’s Bank’s Association as of December 2018, TL 96 billion, some 5% of all trade loans, relates to the agricultural sector. The sector has non-performing loans of 3.9% which is close to Turkey’s overall rate of 4.2%. The amount of loans to the agricultural sector which may be considered risky is likely to be much higher. In the second half of 2018, several leading sectoral companies have applied for concordato and bankruptcy protection, including poultry and egg producer Keskinoğlu, dairy producer Yorsan, fish breeder and feed producer Agromey, and stockbreeder and dairy producer Saray Tarım.


Data emanating from TurkStat is not very encouraging. The industrial output index points to significant production drops in the food industry and other agro-industries in the fourth quarter of 2018. The share of agriculture in gross domestic product shrank to 6% in 2017 and 5.7% in the third quarter of 2018, down from 10% in 1998. It is also evident that despite the soaring prices in the supermarkets, agricultural producers were only able to obtain a 16% price increase in 2018 compared with a 34% increase in industry as a whole. Faced with much higher costs in input, it is not surprising that farmers are leaving the sector out of frustration. As of November 2018, 5 million people, that is 17.7% of the total workforce was recorded as employed in the agricultural sector, compared with 19.6% in the same month of the previous year. This is down from 36% in 2000.


The Turkish agriculture sector is largely focused on domestic consumption. However, the food sector, along with agriculture, is one of the few areas in which Turkey has a claim at being a net exporter. In the 2010-2017 period, exports of vegetable and animal products and food and beverages accounted for 10.4% of Turkey’s total exports, while imports in the same category represented 4.7% of total imports. According to figures prepared by the Turkish Exporters Assembly (TIM), in 2018, the agriculture sector’s exports (plantal and animal products) increased by 5.1% to USD 17,631 million, representing 10.5% of total exports. 


According to figures prepared by TurkStat, agricultural producers increased their prices by 16% in 2018, while the prices of industrial products rose nearly 34%. The 18-point gap points to a sharp trend of decoupling after 15 years of largely parallel trends in the two sectors. It means that Turkey’s already ailing agriculture could shrink further as more producers lose hope in the sector and quit.


The Turkish government’s efforts to discipline prices through imports, instead of confronting the core of the problem, which is the shortage in agricultural supply, have failed miserably. The import measures served nothing but to further discourage producers, who have been already quitting the sector. The share of agriculture in gross domestic product shrank to 6% in 2017 and 5.7% in the third quarter last year, down from 10% in 1998.


Turkey, which has major potential for agriculture and husbandry, has seen its agriculture decline since the 1980s, when Ankara began cutting support for the sector. Public enterprises that significantly propped up the sector prior to 1980 were privatized for being a burden on the treasury. While all European Union countries maintained and occasionally even boosted support for agriculture, Turkey moved in the opposite direction in the name of fiscal discipline. In April 2006, a new agriculture law ostensibly guaranteed support to farmers, stipulating that budget funds allocated to that purpose should amount to at least 1% of GDP. Yet, according to Turkey’s Agricultural Chambers Union, the figure has hit as low as 0.56% of GDP.


Last year, primary expenditures rose nearly 22%, while agricultural supports increased only 14%, accounting for less than 2% of budget expenditures, although the agricultural sector provides nearly 19% of all jobs in the country.


The waning support has driven many producers away. As of October 2018, the share of agricultural jobs in overall employment was 18.4%, down from nearly 36% in 2000, according to official figures. The data show that 2.4 million people quit the sector in that period, bringing agricultural employment down to 5.3 million people.


Standing out here is the migration of young rural generations to urban areas without trying their hand at agriculture at all. According to Agriculture Ministry estimates, the average age of farmers is 55. Projects aimed at raising “young farmers” appear far from yielding results as they remain limited to handing out grants of 30,000 Turkish liras (now less than USD 6,000) to young people.


The ageing population of rural areas and the flight from the sector have left large swaths of agricultural land uncultivated, while many fields close to urban centres have become plots for construction. According to TurkStat data, the country’s agricultural lands amounted to 38 million hectares in 2017, shrinking by an alarming 7.3% from 41 million hectares in 2001. Inadequate irrigation infrastructure is another problem, with only a third of agricultural lands irrigated.


Stockbreeding is in a decline as well amid shrinking pasture areas and low grass yields. As a result of policies promoting stockbreeding reliant on industrial fodder, more than 50% of raw materials used to make fodder have become dependent on imports. Due to the sharp depreciation of the Turkish lira and the resulting increase in the cost of imports, fodder prices have shot up, dealing another blow to stockbreeding. In terms of barley and corn, two key inputs for the fodder industry, the country’s self-sufficiency rates stand at 89% and 88%, respectively, necessitating imports for fodder.


The exodus of farmers must be halted if the agricultural sector is to recover. The average age of farmers has been given as 55, and the migration of young rural generations to urban areas without trying their hand at agriculture at all is now commonplace. The ageing population of rural areas and the flight from the sector have left large swaths of agricultural land uncultivated, while many fields close to urban centres have become plots for construction. According to TurkStat data, the country’s agricultural lands amounted to 38 million hectares in 2017, shrinking by an alarming 7.3% from 41 million hectares in 2001. Inadequate irrigation infrastructure is another problem, with only a third of agricultural lands irrigated. 


In sum, the steep increase in foreign exchange prices has aggravated the structural problems of agriculture, leading to fresh hardships that discourage farmers from persevering. What needs to be done is to outline a thorough approach with reliable and extensive data from ground upwards and draw up solutions to chronic problems, primarily the high input prices, the demotivation of farmers, the rising average age of farmers and drawbacks in the marketing chain that push prices up until they reach the consumer. Other important issues that need to be addressed include output losses, disasters stemming from climate change, the negative impact of imports and the poor organization of producers.


The Turkish Central Bank referred to the issue in an inflation report last year, saying, “Occasional supply shortages in unprocessed food products in Turkey that lead to sudden and sharp price increases mainly stem from structural factors. Here, the inability to make an efficient and dynamic agricultural production plan is considered to be a significant structural problem. Developing a production plan requires strengthening of agricultural statistics, yield estimation and early warning system infrastructure.”


Once a comprehensive agriculture policy which encompasses all the difficulties and challenges facing the sector has been prepared, it should be seen and accepted by the Turkish government as a pressing major structural problem of Turkey which needs to be urgently addressed. The implementation of this policy must be supported with the preparation and analysis of sound  agricultural statistics, yield estimation, and early warning system infrastructure. Above all, there must be a determined effort to ensure its successful implementation by all concerned.

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