Turkey's government seeking to consolidate growth and boost exports in the agricultural sector

Substantial winter and spring rainfalls, coupled with heavy snow in many regions, broke the drought that blighted Turkey’s agriculture sector in 2013-14, with farmers looking forward to improved yields and higher earnings, rebounding from a lean year that saw one of the region’s leading agricultural producers having to import grain and other foodstuffs.

One of Europe’s largest grain producers, Turkey was forced to import wheat in 2014, and the drought also restricted its ability to take advantage of a number of export opportunities that presented themselves. Russia’s banning of many EU produce imports, a response to the bloc’s sanctions over Moscow’s actions in the Crimea and Ukraine, opened a door for increased Turkish exports to its Black Sea neighbour. Shortfalls in fruit and vegetable production, however, along with the weakening of the Russian currency, meant the Turkish agriculture sector accrued only limited benefits from the opening left in the market by the closing out of the EU. Similarly, Turkey was not able to boost output to meet increased demand for foodstuffs from other Mediterranean countries that had their own farming production dried up by the drought.

Down the Line

It was not just export earnings that were hit by the extended dry spell. The high price of many basic foodstuffs, particularly vegetables, was cited by the central bank as one of the factors behind rising inflation in 2014 and early into the next year. With better prospects for the agriculture sector in 2015 – combined with lower fuel costs that will help farmers – food’s input into inflation can be expected to ease once the harvest season begins in summer.

Despite short-term events such as the 2013-14 drought and the longer-term shift away from rural production towards industrialisation and the services sector, agriculture makes an important contribution to the economy. Though having eased from accounting for 12.1% of GDP in 1998 to just 7.2% in 2013, the last year for which full data was available, agriculture’s value input has expanded annually in an economy that has grown strongly over that period. In the fourth quarter of 2014, agriculture’s value added grew by 8.1% year-on-year (y-o-y), reaching TL125.18bn ($44.07bn) at current prices, according to the state statistics agency TurkStat.

For a country still trying to rein in unemployment, agriculture provides jobs for around a quarter of the national workforce, a figure that rises further when the value-added component of processing and agribusiness is factored in. Self-sufficient in many products, Turkey is also a major agricultural powerhouse internationally. Turkey is ranked first in Europe in terms of agriculture output and seventh globally. According to the Ministry of Food, Agriculture and Livestock (MFAL), Turkey is the top producer of seven crops and is in the top five for 35 others. Nearly 24m ha of farmland blanket Turkey, or 30% of its landmass.

Fragmentation

Yet obstacles to investment persist, primarily Turkey’s fragmented landholding structure. As Turkey’s rural population grows, agricultural land is split successively into smaller farms. The average parcel in Turkey is 5.9 ha, compared with 12 ha in the EU and 180 ha in the US. All together, Turkey has 3m agricultural land holdings, and the average farm size is just under 6 ha, according to the MFAL.

Small farms are more difficult to irrigate and mechanise; only half of Turkish farms have access to irrigation and transport networks, according to the World Bank. Economies of scale are increasingly coming into play, with many smallholdings becoming only marginally viable. This has promoted successive governments to encourage consolidation, a process that began in the 1980s. In 2005 a law set minimum parcel sizes, empowering the government to merge holdings. Between 2002 and 2011, 1.3m ha of land was merged, with another 1.8m ha under way. Turkey seeks to consolidate another 8m ha of land by 2020.

Government Support

The plight of the small landholder means the government must provide financial aid. Support for the sector amounted to TL9.7bn ($3.41bn) in 2014, according to MFAL data. Direct income support and subsidised fuel and fertiliser are the main sources of assistance, but the state also offers premiums for crops deemed low in supply, help for livestock and feed production, low-interest loans and irrigation equipment.

The private sector has also stepped in to lend to farmers. İş Bankası, Turkey’s biggest non-state bank, loaned farmers almost TL2bn ($704.2m) in 2013, with small operators alone borrowing TL850m ($299.28m), according to a statement from the bank. Other major non-state lenders with large agricultural credit in their portfolios are Şekerbank and TEB. However, the 2013-14 drought and poor returns for the sector are expected to have increased the ratio of non-performing loans, with lending to agricultural enterprises already accounting for 3.6% of all inactive loans on banks’ books as of early 2014, according to the OECD.

Exports

Turkey exports 1663 different agricultural products to 188 nations. Exports jumped from $4bn in 2002 to $17.7bn in 2013, according to the MFAL. Exports have picked up in part because of Turkish efforts to meet EU criteria, such as food safety, to supply one of its biggest markets. The EU lifted testing requirements for some Turkish produce in 2013, in particular for tomatoes, as a result of improved food safety standards and a marked reduction in the incidence of pesticide residue.

Fruit & Veg

The country is among the world’s top producers of figs, apricots, cherries and hazelnuts, the latter of which accounts for nearly two-thirds of global production. It is among the top five producers for leeks, watermelons, peanuts, cucumbers, peppers, apples, walnuts, tea and aubergines, according to the MFAL’s General Directorate of Vegetative Production. Turkey is also a leading producer of tomatoes, devoting a total of 328,000 ha to tomato growing, with industrial-scale production dating back to the early 1980s. Today Turkey raises about 11m tonnes of the fruit each year, triple what Mediterranean rival Spain does, according to UN Food and Agriculture Organisation data. A third of the crop goes to European markets, and tomatoes are the biggest organically raised crop in Turkey, according to the Scientific and Technological Research Council of Turkey.

Organic farming more than doubled between 2009 and 2014, and organic food now accounts for about 1% of the total food market in Turkey. Exports are worth an estimated $400m, according to Ekonomist magazine, with total output of more than 1.6m tonnes from more than 200 different crops under cultivation. The MFAL is also stepping up efforts to encourage organic farming, and is mid-way through a five-year plan to expand the segment. State-provided assistance for organic growers includes low-interest loans, fuel and fertiliser subsidies, and training programmes.

Food Processing

Though flooding in some regions in early 2015 may impact plantings and harvests for some crops, Turkey is still among the top 10 global producers of fruit and vegetables, which gives it a competitive advantage for processed foods. Tomato sauce and paste, fruit juices, and frozen and canned vegetables and fruit are the leading sub-sectors. Fruit juice consumption has risen rapidly over the past decade from around 2 litres per capita in 2002 to around 13 litres, and while only half that of the EU average, it is likely to rise, offering increased opportunities.

Though much of Turkey’s landmass is still devoted to agriculture, plantings of some key crops have decreased over the past two decades. In 2004, 9.3m ha of land were planted for wheat, 1.4m ha more than in 2014, when it fell to 7.9m ha, while the total coverage for all grain crops was 15.7m ha in 2014, down from 17.96m ha 10 years ago. Despite the reduction in area under production, wheat production has remained constant at around 20m tonnes annually – though the total output from 2014 was well below this as poor rainfall led to output dropping 13.8% y-o-y.

Turkey produces some 1m tonnes of pulses, half of its production of 2m tonnes 20 years ago, yet it remains the world’s third-largest producer of lentils. Production of millet, oats, spelt and barley is also down over the past decade. Rice paddy production hovers at 850,000 tonnes, which comes to about 500,000 tonnes of rice. Since Turkish consumption averages just under 600,000 tonnes, it must import rice each year to cover the gap. Turkey mainly imports rice from the US and Italy and, to a lesser degree, from India and Thailand. Although Turkish annual paddy rice production has jumped 130% in the last decade to cover domestic demand, the lower costs of these major international producers acts as a disincentive for local growers, as it can be difficult to compete with cheaper imports.

Feed & Livestock

Turkey is a major feed producer, ranking ninth worldwide and accounting for almost 2% of global production. It exports a half million tonnes of animal feed and its top buyer is neighbouring Iraq, though this market has been dented by the upsurge in violence in the region.

According to data from the state statistics office, there was a sharp decline in the number of beef cattle on Turkish farms, with the 2014 year-end total of 14.24m, down some 288,000 heads from the figure for 2013. The fall was in part due to higher fodder costs, along with rising meat prices, which promoted some farmers to sell off stock. Offsetting the drop in cattle numbers was a rise in both sheep and goat herds, with sheep up from 29.28m in 2013 to 31.11m in 2014 and goat numbers climbing from 9.22m to 10.35m over the same period. Despite the reduction in cattle, milk production edged up to 18.5m tonnes in 2014 from 18.2m tonnes in 2013. The government has also eased restrictions on cattle for breeding purposes, though high costs and the requirement that farmers maintain at least 60% domestically raised stock may limit efforts to boost production in the medium term and bring down meat prices in Turkey.

Fisheries & Forests

Fisheries and forest products account for 7% of agricultural output. One out of four fish consumed in Europe is Turkish, according to the Fishery and Animal Products Exporters’ Assembly. In 2013 fisheries output, which takes into account saltwater catches, aquaculture and freshwater production, was just over 600,000 tonnes, with aquaculture making an increasingly large contribution, accounting for a third of the total, up from less than 10% in 2002.

Some 28% of the country, or nearly 22m ha, is covered in forest, most of it close to or along coastal areas, according to the Ministry of Forestry and Water Affairs. Turkey aims to increase its forestland to 30% by 2023. As part of its strategy to deal with climate change, the government has said it wants to expand agricultural activities in forests. An example of a forest product is honey, which rose 7.9% to 102,486 tonnes y-o-y in 2014, TurkStat reported.

But degradation poses a constant risk. Turkey’s Mediterranean region and other areas are mostly under semi-arid climatic conditions. Over-utilisation, poor forest management, land ownership problems, converting forestland to farms or housing developments are the main culprits, as are perennial forest fires. Some 60% of forests are at risk of wildfires each summer, with about 12.5m ha located in high-risk areas, primarily the Aegean, Mediterranean and Marmara coastal regions, according to government data.

Machinery

Turkey produces 130 different types of agricultural machinery and parts, exporting to 120 countries for a total value of $734.15m, according to the Turkish Association of Agricultural Machinery and Equipment Manufacturers. Of that, tractors accounted for $434.24m, while equipment was $299.91m. According to the association, output of tractors rose by 14.07% in 2014, from 56,407 in 2013 to 64,342.

Outlook

Further automation will increase agricultural productivity, which has lagged behind most other sectors in the economy. But for that to occur, land consolidation must also take place. The government has said it wants to unify the rest of Turkey’s fragmented farms and bring water to all irrigable areas by 2020. This will help the country meet its 2023 target of gross harvests worth $150bn. It will also lure investment to an already attractive destination situated between Europe and the Middle East. The risks posed again in 2014 by adverse weather conditions, such as drought, flood and frost, is a reminder that Turkey needs strategic policies to maintain food security.

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The Report: Turkey 2015

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