Reforming Agriculture

Turkey

Economic News

22 Jul 2010
Text size +-
Recommend
With a 2007 deadline looming on the horizon, the Turkish government is desperately trying to overhaul the agricultural sector in time to receive structural funds from the EU. By 2007, the EU candidate country is expected to have a system in place to disburse some 9-10bn euros ($11.4-12.66bn) to both farmers and state agencies involved in agriculture. Efforts to transform the sector, however, are likely to have far-reaching and potentially serious consequences for Turkey, as agriculture continues to account for around one-third of employment and is particularly important in often-impoverished rural areas with little else in the way of industry.



According to the most recently released figures from the Turkish Statistics Institute, 6.77m workers, or 29.3% of the total Turkish workforce, were employed in the agricultural sector as of June 2006. Perhaps even more troubling, however, is the small size of Turkish farms, which limits productivity: 65% of farms are 0-5ha, while 94% are smaller than 20ha, making Turkish farms significantly smaller than those in EU member states. The smaller the plot of land, the harder it is to justify the expense of new equipment and technology, making modernisation difficult.



Wages in the sector, however, are rising, albeit from a low base, with the average daily wages of a seasonal agricultural labourer increasing to YTL13.62 ($9.02) for women, up 14.26% year-on-year, and YTL18.06 ($11.96) for men, up 16.82%. Permanent workers in the sector have also seen a salary hike of late, with the average monthly wage now at YTL314.41 ($207.93) for women, up 9.89% year-on-year, and YTL403.49 ($266.74) for men, up 11.39%.



Much of the agricultural sector is made up of subsistence and semi-subsistence farming. While these sorts of farms tend to be characterised by high hidden unemployment, low productivity and low competitiveness, they remain a vital economic lifeline in many poorer areas of the country, providing income security and a modest livelihood to millions of Turkish citizens.



Government efforts to harmonise the local agricultural sector in line with EU standards could upset this system, sparking a large increase in rural unemployment and forcing millions of farm labourers to head to cities in search of jobs. According to some independent estimates, the agricultural reforms could cut the industry by as much as 40%, leaving roughly 2.5m people jobless.



The knock-on effect of reforming agriculture will likely be a wave of urban migration, straining employment, housing and social services in Turkey's already crowded urban centres. With a national unemployment rate of 8.8% as of June 2006, rising to 11.2% in urban areas, it is unclear where these largely unskilled and poorly educated workers will find jobs.



As part of the reform effort, the government has taken aim at the overproduction of particular crops, especially hazelnuts, by introducing quotas. Turkey is the world's largest producer of hazelnuts, accounting for some 70% of total production. With backing from the World Bank, the state has tried to reduce the area under hazelnut cultivation by 100,000ha through cash incentives, though the project has so far been less than a success: to date, only 885ha have been converted to other crops.



Hazelnut production is the most significant economic enterprise in Turkey's Black Sea region, and as many as 400,000 growers are estimated to be involved in the sector directly. Massive overproduction this year has exacerbated problems, with growers hauling in some 650,000 tonnes of hazelnuts, a figure well in excess of domestic consumption (70,000 tonnes per year) and exports (400,000-450,000 tonnes per year). This has depressed world prices for hazelnuts, sparking unrest among hard-hit local producers and forcing the government to borrow some $400m from foreign banks to purchase the surplus.



The government is also working to curtail the practice of farmers' divvying up land among their children, which has resulted in ever-smaller plot sizes, limiting productivity and modernisation. In order to raise the average size of Turkish farms, the government is now pushing farmers to consolidate fragmented family holdings, making it a requirement for EU funding. While this may spur consolidation, the government is also running a risk, as farmers who refuse to merge their holdings - likely the worst-off farmers most in need of funds - will be barred from receiving EU money.



Already, state subsidies on seeds, fertiliser and fuel are being cut, with total subsidies scheduled to fall from $6bn to $2bn a year. While these cuts will in theory be more than made up for by funds from Brussels, farmers will first have to qualify in order to receive EU money, a process which may create problems.



While agricultural reform is a necessity for the government, both to harmonise with EU standards and qualify for funding from Brussels by 2007, the process will be far from easy and will likely have far-reaching consequences for Turkish society.

Read Next:

In Turkey

Turkey’s electoral results show uptick in confidence

The return to single-party government and a commitment to fast track economic reforms have boosted investor confidence in Turkey, though rising inflation and low growth rates could hamper the...

Latest

Loh Boon Chye, CEO, Singapore Exchange (SGX)

As regional exchanges become more mature, which factors make SGX a standout proposition for Asian companies seeking to list?