Being the largest producer and exporter of hazelnuts in the world is something of a double-edged sword for Turkey. On the one hand, it means international market dominance and good returns when excess production is low, demand is up and prices are high. On the other hand, it implies greater vulnerability when excess production significantly outstrips local and international demand, pushing prices down. The vulnerability of the agricultural sector is reflected in the fact that hazelnuts constitute 25% of all agricultural exports.
Turkey clearly faces a serious challenge when it comes to overproduction. "Although the global demand for hazelnuts has grown rapidly in recent years, there still is excess supply in Turkey," Mustafa Sever, the chairman of the Hazelnut Promotion Group (FTG) told OBG. "If the total production of hazelnuts is 750,000 tonnes for the 2006-2007 season, there will be a 200,000 tonne carryover of hazelnuts."
The reasons for this oversupply are clear. Low yields translated into high prices for the nut over two years ago. While hazelnut producers are more than aware of the correlation between high production and resulting lower prices, they still opt for the crop. "Because of the low production and high price in the last years, producers are reluctant to shift away from hazelnut production," said Sever.
Last year was particularly tough, with prices dropping from TL6 to TL2.5 per kg, leading to losses of $2.5bn, according to insiders. Between 100,000 and 150,000 protesters marched the streets in Ordu on the Black Sea - the hazelnut heartland of North East Turkey - to protest the lack of government financial support in July. Street clashes followed. Much of the disgruntlement revolved around the fact that Fiskobirlik, Turkey's producing union of 70 cooperatives, was unable to repay its debts to hazelnut producers, with the government loath to foot the bill. That is in line with IMF-required fiscal belt-tightening. But a change from the days when the government used to shoulder Fiskobirlik's debts, placed at an average of $100m per year. While the government in the end decided to cover part of the debt by buying surplus production in 2006, overproduction remains a real dilemma in 2007.
In accordance with the Agricultural Reform Implementation Project, the ministry of agriculture and rural affairs has gradually phased out the old system of price support and input subsidies, replacing it with a system of direct income payment for hazelnut producers. The government compensates farmers who substitute hazelnut production for other crops, paying $2000 per ha in Turkey's flat areas. This comes as an effort to reduce the overall size of the sector.
"The government has given financial independence and administrative autonomy to the Union of Hazelnut Sales Cooperatives. However, the reform programme was not expected to provide a complete solution to the problems currently affecting the hazelnut market," acknowledged Sever.
The problem is nothing to shrug at, with 2m Turkish citizens directly employed in hazelnut production and another 8m indirectly employed thanks to the nut.
Overproduction was one of the main reasons for the establishment of FTG, mandated as it is to promote hazelnuts in Turkey and abroad under the slogan "a handful of hazelnuts everyday." Focusing on the health benefits of the nut (reducing cholesterol, healthy skin and an energy source) has helped increase exports and local consumption. Ten years ago local consumption was at roughly 40,000 tonnes per year, whereas in 2006 it stood at 60,000 tonnes. Still, overproduction in Turkey remains a difficult situation to solve.