Eating well: The domestic market is projecting significant growth

The expanding population, at about 1.3% per year, and changing demographics have helped Turkey’s food and beverage sector outpace global growth and make it a key market for investment. According to state statistics, a quarter of household spending goes to food, drinks and tobacco. Worldwide, the food and beverage market is estimated to be growing at about 3% a year, but the forecasted rate in Turkey is much higher, at around 6%, according to a report by Deloitte. Supported by the Turkish agriculture sector and its many crops, total food and beverage production and processing reached TL8.8bn (€3.8bn) in 2009, accounting for about 1% of GDP. Meat products, baked goods, dairy, oils, alcoholic and non-alcoholic drinks, ready-made food and baby food are amongst the important sub-sectors.

“Turkey has traditional eating habits that remain stable in the majority of the population. However, the Turkish food sector is becoming more elaborate as retailers require higher standards from food manufacturers, mass grocery retailers gain a widespread presence and disposable incomes continue to rise,” Deloitte stated, adding that food consumption is likely to rise to more than TL100bn (€43.2bn) in 2014.

New Growth

Business Monitor International (BMI) calls Turkey “one the few genuinely exciting long-term growth markets within European retail,” and that is largely due to the food and beverage industry. BMI forecasts per-capita sales of food rising 6.8%, alcoholic drinks up 10.5%, soft drinks climbing 12.7% and grocery retail 12% higher throughout 2013. The Scientific and Technological Research Council of Turkey, (TÜBITAK) reports that the added value of the food sector is estimated to be €45bn per annum, representing one-fifth of the manufacturing sector’s total output.

Potential for sustained growth in the sector is strong. A young and sophisticated domestic market is bolstered by substantial additional revenue from tourists. Recent increases in the number of women in the workforce is also boosting production. “The number of women employed full time has led to more interest in packaged and processed food, such as ready-to-eat meals and frozen food,” according to the Investment Support and Promotion Agency website.

Milk & Bread

The food business brought in $4bn in foreign direct investment over the past decade, according to the investment agency. Key products set to attract more money include the basic staples. Turkey is one of the highest per-capita bread consumers in the world. The average Turk eats almost 150 kg of bread per year, yet only about 1% is pre-packaged.

Dairy is also an obvious target for investment, since milk, yoghurt, cheese, kefir and ayran (a local yoghurt-based drink) have historically been produced by small dairies, even though Turkey ranks 12th among world milk producers, according to the International Farm Comparison Network. In fact, small and medium-sized enterprises (SMEs) constitute 90% of the food and beverage sector, says TÜBITAK, so there is clearly room for additional sector consolidation.

Soft drinks and fruit juice make up more than a third of the beverage industry’s capacity. “Food and beverage demand has dramatically increased in Turkey amid population growth and economic expansion,” Demir Şarman, chief executive of Anadolu ETAP, the largest fruit grower in Turkey and a major food processor. “This is reflected by the increase in juice consumption per capita, from 2 litres to 10 litres over the past decade.”

Alcoholic Drinks

According to Euromonitor, alcohol consumption is on the rise in Turkey from 18.3 litres per person in 2005 to 20.5 litres in 2010. This comes despite government attempts to rein in drinking with taxes and other restrictions, such as efforts to raise the legal drinking age and ban alcohol from certain city districts. The top four alcoholic beverages are beer, the aniseed-flavoured national spirit rakı, wine and vodka. Although beer dominates, making up 90% of total alcohol production, wine is the fastest-growing segment, jumping 50% in the first half of 2010, according to figures from the Tobacco and Alcohol Market Regulatory Authority. Turkey prides itself on being the birthplace of wine: the Bible contains an account of Noah planting a vineyard near Mount Ararat, an area in eastern Turkey where the varietal Buzbağ is still produced today.

Religious prohibitions have helped to limit overall alcohol consumption and this is perhaps most obvious in the case of wine, where per-capita consumption is less than half a litre annually, compared to 46 litres in France, according to the Wine Institute. Yet Turkey has the world’s fourth-highest acreage devoted to grape growing, trailing only Spain, Italy and France. The sector appears well-positioned for growth, especially in exports. A handful of large producers and some 300 small-sized winemakers (located mainly in central and western Turkey) have total annual capacity of 120m litres. Of that, Turkey exported only 3.6m litres, mainly to Belgium, northern Cyprus and Germany.

Istanbul-based Anadolu Efes is the Middle East’s largest brewer. A market player since 1969, the company cited the currently high taxes – the world’s second-highest tax rate on beer at 21% – as the cause of recent declines in domestic beer sales, a decline of 1.6% in the fourth quarter of 2012 compared to 2011. This has compelled the company to set its sights on expansion into foreign markets. It now exports $80m worth of beer to 85 countries, Chief Executive Alejandro Jimenez told Milliyetnewspaper in 2012, with a quarter of Efes sales going to the domestic market.

Mediterranean Mainstay

Another traditional sector set to expand rapidly is olive oil after the number of farmable olive trees nearly doubled in the decade leading up to 2012. With an estimated capacity of 170m olive trees, Turkey is the world’s fourth-largest producer of olive oil, accounting for about 10% of global production. Despite this capacity, domestic consumption lags behind Mediterranean peers, according to the Olive Oil Promotion Committee (OOPC).

Turkey consumes 1 kg of olive oil per person annually, compared to 25 kg in Greece and 10 kg in Italy and Spain. OOPC Chairman Metin Olken explained that Turks are beginning to eat more olive oil, as awareness of its health benefits over other oils rises. This could raise consumption to 1.5 kg per person in the coming years.

As the olive trees planted over the last decade begin to bear fruit, “Turkey’s olive oil crop will grow two- to three-fold, so we will need to lift our exports and our domestic consumption,” Olken said, according to the OOPC website. Producers target $3.8bn of exports by 2023, up from just $155m in 2012, with demand coming from new markets in China, Japan and South Korea, according to the Turkish Exporters Assembly (TIM).

Overall, food and beverages accounted for about 7.8% of the country’s total exports of $152bn in 2012, a record according to TIM. New efficiencies in the country’s massive agricultural sector mean more ingredients for the domestic processing industry and more export opportunities. The trade balance of processed food and beverages will continue to be in the country’s favour, even as Turks seek out a world of new tastes.

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The Report: Turkey 2013

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