Who wins and who loses as crude oil prices plunge?
Mustafa Sönmez – Hürriyet Daily News, December 8 2014 With the crude oil barrel price…
MUSTAFA SÖNMEZ – Hürriyet Daily News, December/15/2014
Inflation is continuing to be a major issue for Turkey; consumer inflation at the end of 2014 will be between the 9 and 10 percent band. The biggest headache in inflation is food inflation, with steep hikes in food prices being the biggest complaint of the low and middle income classes, which constitute the predominant segment of the population. The reason for this is that kitchen expenditures constitute 35-40 percent of the total budget of this segment.
Also with the onset of a drought this year, the prices of certain vegetables and fruits have become non-affordable. It is an accepted opinion that agriculture is being neglected and adequate support is not being provided for agriculture from the general budget. As a result, Turkey, which used to boast that it was self-sufficient, is rapidly becoming a food-agriculture importer. It is experiencing “food supply insecurity,” alongside energy insecurity.
Turkey has a significant and major agricultural potential. According to Turkish Statistical Institute (TÜİK) data, as of end of 2013, there was 38.4 million hectares of agricultural land, 14.6 million hectares of which grassland, with the remaining 23.8 million hectares being used for agricultural production. There is still an important agricultural potential in Turkey despite the rapid loss of farm land in favor of residential and industrial developments. However, the agriculture sector, where 20 percent of the active population works, has not been modernized. The agriculture sector’s growth rate in 2013 was 3.5 percent; its share in gross domestic product was 7.4 percent. In 2014, there will be no growth in agriculture; instead, there will be a shrinkage – albeit of 1 percent, meaning agriculture’s share in the national income could even stay at around 7 percent.
Although the agriculture potential is so high, food in Turkey is among a number of hard-to-obtain goods, as some food products have seen some of the highest price rises. The food sector stands out in consumer inflation; as of November, their annual price hikes reached 14 percent, while the “producer prices” of industrialists in the food sector have increased nearly 19 percent. This also means there will be new price hikes in the coming days for the consumer in food.
The prices of fruit and vegetables, especially the prices of legumes, has followed a very high course together with the effect of a dry season. Industrialists who process fruit and vegetables and produce such products as tomato paste, jam, canned goods and packaged legumes have increased their prices nearly 57 percent in the past 12 months.
Similarly, the monthly price hikes of those firms selling salami, sausages and packaged meat goods are close to 17 percent in the past 12 months.
Dairy producers who produce products such as milk, yogurt, butter and cheese, on the other hand, have raised their prices more than 14 percent in the past 12 months, exceeding the producer price index (ppi) by six points. While the flour industry and vegetable/animal fat producers increased the price of the fat they have been producing by around 9 percent, not going below the average ppi, it is also seen that the price hikes of bakery goods have also remained above the average.
One of the most important reasons for the high price increases in agriculture is the extreme abuse of prices by middlemen between the producer and the consumer. The extensive differences between the prices in the field and the prices on the counter never decrease, and public authorities cannot introduce an effective control/regulation over them.
There are major differences between the producer prices of agricultural products in October 2014, as TÜİK has monitored, and particularly the prices the consumer pays, which TÜİK also monitors as part of its Consumer Price Index. According to this, in agricultural products, especially ones that have low supply, in other words low production because of the drought, the price difference between the field and the counter varies between 150 and 200 percent.
According to TÜİK findings, this difference has reached 200 percent in citrus fruits. For instance, one kilogram of lemons in the orchard is 1 Turkish Lira but when it reaches the counter, this price becomes 3.5 liras, making the difference in between almost 257 percent. Mandarin oranges, which are 70 kuruş in the orchard, are being sold to consumers at 2 liras, a difference that exceeds 200 percent. While locally grown bananas are sold for lower than 2 liras in the orchard, its counter price is 5 liras, a 180 percent difference.
One of the most consumed vegetables, the tomatoes had the producer price of 1.2 liras in October 2014, while it was sold at the counter for a price of 2.5 liras, a 110 percent difference.
When the food supply is inadequate, naturally, prices climb and food inflation pulls the general consumer inflation upward, and it looks as if fighting it is not so easy. One way to counter this is – even though its cost is not low – is importation. With the resort to vegetable and animal product imports, officials are increasing supply in an attempt to curb inflation. While it once boasted that it was self-sufficient, Turkey has now become a food importer in recent years with its food importation in the first nine months of 2014; during the January-September period, the figure neared $11 billion. While in the first nine months of 2013, $9.9 billion in food imports were conducted, this year’s exports exceeded $10.6 billion. Despite the dollar exchange rate climbing more than 20 percent in one year, the fact that food imports rose 6 percent instead of decreasing highlights the dependency in food.
The most important factor in the increasing dependency on food imports is the negligence of the food and animal husbandry sector.
For example, agriculture experts have drawn attention to the fact that animals in Turkey have fallen from 85 million to 41 million in 30 years. With the effect of policies downgrading animal husbandry, the extraordinary hike in meat prices which started in 2010 cannot be curbed.
The Justice and Development Party (AKP) government that decided to control the hike in meat prices with imports, subsequently decided on April 30, 2010, to allow the import of live animals and meat. The import of red meat, which was banned as of 1996, has restarted. After the permit to import, almost 4 million cattle, sheep and goats entered the country, with the bill in foreign currency exceeding $4 billion.
Livestock processors such as Banvit and Koç stopped production on grounds that there was no opportunity left for locally produced meat to compete with imported meat, thus making the animal husbandry sector further dependent on imports.
Several studies and analyses show that one of the most strategic sectors of this century is agriculture and will continue to be so. Once more, the crucial importance of agriculture politics for countries has been proven. To meet the food needs of the world population, which is expected to exceed 9 billion by 2050, current agricultural production should be doubled. In the past decade, even though demand for food increased 20 percent, food production capacity only increased 8 percent. Obviously, food supply is not meeting the increase in food demand, resulting in the growth of the food supply problem.
Turkey’s population has increased 30 million in the past 30 years. It will be 85 million in 2023, 100 million in 2050. Turkey’s agricultural policies should be reviewed and shaped. For this, more protection for agriculture is needed, such as the support it deserves from the general budget, but the reality if just the opposite.
The share of agricultural support payments should be a minimum of 1 percent of the national income, according to a law from 2006. But in practice, this was not applied. Transfers from the budget to support agriculture were around 0.5 percent and 0.6 percent. In the 2015 program, the amount allocated for agricultural support was 10 billion liras. This is 5/1000th of the gross national product – a woefully inadequate amount.
If the law had been applied since 2007, the resources allocated for agriculture would have neared 100 billion liras in the 2007-2014 period. It did not happen. Agricultural support in these years remained at 55 billion liras. Thus, about 45 billion liras have not been channeled to agriculture, despite the law. The consequence of the support that was not allocated has come back to bite in the form of a decrease in production, erosion in agriculture and dependency on imports.