Agricultural Economics

Lecture 4: The Institutional Framework of Turkish Agriculture

Institutions

Humanly devised constraints that shape human interaction, and provide the structure of formal and informal economic, political and social behavioral rules.

Institutional environment: Values and basic ground rules of the society, such as traditions, norms and religion; political, social and legal rules that form the basis of production and exchange.

Institutional arrangements: Formal and informal rules of conduct for specific types of interaction.

Organisations: Formal and informal entities that rule the governance process

Agricultural Economic Impacts of Atatürk’s Reforms Izmir Economics Congress (1923) suggested protectionist

development stratey with cautious promotion of private sector. Recognized the critical role of agriculture in economic

development. 1925, a heavy tax on peasants was removed. 1927, the law on Industrial promotion led in the growth of the

sugar, cotton, flour milling, coal, iron and gasoline industries. 1930, marks the year when Sümerbank and Etibank were

established. Law of land reform Ziraat Bank

Evolution of Interest Groups and Formal Institutions Gained momentum in 1950s. Labor Unions (1947) Merchants’ and industrialists’ associations

started to grow, including the Turkish exporters’ association (İhracatçı Birlikleri), the Union of Chambers and Commerce and Industry (TOBB), the Turkish Confederation of Employers’ unions (TİSK), Turkish Industrialist and Businessman Association (TÜSİAD)

A Chronology of Policy and Institutional Developments in Turkey Period / Motivation: 1923-1945 / Catching up with West Economic/ Trade/ Agricultural Policies• Closed economy• Import-substitution policy• Agriculture for food selfsufficiency Institutional EnvironmentStrong nationalism, etatism and secularism; single party politics;

strong military; advanced women’s rights and gender equality; limited social dialogue; strong property rights and law enforcement (tangible); moderate state aid to initiate the private sector; strong industrial research-education and supporting institutions; strong agricultural education extension and supporting institutions; moderate land tenure institutions but weak enforcement;

Period / Motivation: 1946-1960s / Collaborating with West, adopting Western institutions (participation & democratisation)

Economic/ Trade/ Agricultural Policies• Partially open economy• Import substitution policy• Agriculture supports industry & trade Institutional EnvironmentModerate nationalism; intermittent etatism; moderate secularism;

strong military control; multi-party politics; strong property rights and law enforcement (tangible); moderate state aid to the private sector; enhanced institutions for industrial and agricultural development; strong social dialogue; improved research and education; weak land institutions;

Period / Motivation: 1970-1980 Establishing social stability by modifying the institutions adopted earlier

Economic/ Trade/ Agricultural Policies• Partially open economy• Import substitution policy Institutional EnvironmentWeak nationalism and etatism; moderate secularism; strong

military control; multi-party politics; strong property rights and law enforcement (tangible); moderate state aid to the private sector; poor institutions for industrial and agricultural development; weak social dialogue; weak land institutions and enforcement; preparations for a competition framework started;

Period / Motivation: 1980-present Integrating with and competing in international markets

Economic/ Trade/ Agricultural Policies• Open economy (except agriculture)• Export promotion policy• Customs Union completed, process of EU application speeded up Institutional Environment

Moderate privatisation, competition and secularism; strong military control; multi-party politics; strong property rights and law enforcement (tangible); moderate state aid to the private sector; improved institutions for industry; subsidised agriculture with old institutions; limited social dialogue; moderate national innovation policy and institutions; establishment of Scientific and Technical Research Council; more religious content in primary education; IPR institutions in place but weak enforcement; Act on the Protection of Competition adopted in 1994.

Competition Rules

Early 1980s: Structural adjustment programs with WB and IMF.

Economic role of the state was substantially restricted

Over the 25 years, various laws and regulations have been adopted to support and promote competition.

Institutional Environment: The Ottomans1. Ruled by religion and traditions;

2. Ottomanism – Multinational Empire;

3. Millet system – separation of non- Muslim from Muslim & religious freedom to non-Muslim

4. Elite’s rule – mixture of bureaucrats from minorities in all spheres of life

5. Minimal scope for change due to traditional and religious institutions

6. Religion an essential part of governance of the Empire

Institutional Environment: Kemalist Principles (1923-1950)1. Parliamentary democracy; Kemalist principles in the constitution

Nationalism – strong state sovereignty2. Republicanism - sovereignty vested in the nation3. Populism - all people in Turkey are equal and all of them are

Turkish citizens 4. Etatism – state to regulate economic activity and engage in

areas where private enterprise is inadequate5. Reformism – radical means to replace traditional with modern

institutions6. Secularism – separation of state and religion; of religion from

cultural, educational and legal affairs; independence of institutions from religion & religious institutions

Institutional Environment:Republic of Turkey (1950-present)1. Parliamentary democracy; the Kemalist principles in the

constitution Somewhat weakening state sovereignty2. Sovereignty interrupted by military interventions3. Some rights of minorities recognised only recently4. Weakening etatism – strengthening market economy,

privatisation of state monopolies after 19805. Significant economic reforms after 1980 but in some aspects a

stagnant society6. Weakening secularism – state often used to support religious

thought and institutions for political purposes

Institutional Environment:EU

1. Multi-level government; EU-level Commission, Council, Parliament, Court; Basic philosophy: mixture of supranational and intergovernmental

2. National identities respected 3. Respect for human rights and fundamental

freedoms of minorities4. Multi-level government, limited role for state5. Economic integration as a driver of integration in

other policy areas6. Separation of state and “church,” though

differences exist between member states

Intended Functions of Institutional Environment: Institutions function among the following three

areas:

1. Agricultural resources

2. Agricultural research

3. Agricultural production

Agricultural Resources: Institutions

Intended Functions of Institutional Arrangements Related to Agricultural Resources To organize agricultural resources:

Land (ownership, renting, inheritence) Labor (contracts, social security) Water (use and distribution) Environment (soil, water, air)

Administrative and Implementing Organizations for agricultural resources Land, Labour, Water, Environment Directorate of State Hydraulic Works, Water

Users’ Org, Ministries of Agriculture & Rural Affairs (MARA) and Environment-Forest; Social Security Inst; Public Retirement Pension, Turkish Emp. Org, Labour & Employer Unions, BAGKUR (union for self-employed in agriculture), Public Minimum Wage-setting Comm, High Accreditation Council

Agricultural Research: Institutions

Intended Functions of Institutional Arrangements Related to Agricultural Research To organise agricultural research, technology

and innovation NARS, Agricultural knowledge and information

system, R&D partnership Science and Innovation activities Technology and generation transfer

Administrative and Implementing Organizations for agricultural research Research, Technology, and Innovation Scientific & Tech Research Council,

Undersecretariats of Treasury & Foreign Trade, State Planning Org, Council of Higher Education, Ministries of Education, Health, Env.-Forest; Universities; MARA; Agr. Research Orgs, Provincial Ext. Adm, Chambers of Agr., Farmers’ orgs, NGOs, Development Orgs;

Agricultural Production: Institutions

Intended Functions of Institutional Arrangements Related to Agricultural Production To organize agricultural production, markets

and trade Agricultural product markets and trade Seeds, agr. Chemicals, livestock,

credits&technology markets Farming Marketing contracts

Administrative and Implementing Organizations for agricultural production, markets and trade Production, Markets and Trade Turkish Competition Authority, Chambers of

International Trade, High Accreditation Council, Ministry of Foreign Trade, Ministry of Trade and Industry, State Planning Organisation, the Court of Appeals, the Council of State, the Inter-University Board; Agricultural Banks, Agricultural Sales Cooperatives, Agricultural Credit Cooperatives

Resource Institutions: Land

Rand-related reasons for declining productivity

Contributing factors: Land fragmentation, land inheritence, large-scale water resource development unsuitable to the needs of small farms and underdeveloped water rights

Cadastral work Land consolidation by the authorities

Resource Institutions: Labor

Ministry of labor and security Social Insurence Organization (SSK) Minimum wage Union law Arrangements regarding part-time, flexible

work, workplace safety, children’s work conditions

ILO standards

Resource Institutions: Water

Legislation on water rights and and ownership is complex

General Direcorate of Rural Services DSI

Resource Institutions: Environment 1983 Environmental Law Polluter pays principle Large number of regulations endorsed since

then in support of the law, spcify emission and discharge standards, and require pollutants to obtain discharge permits

Erosion, residues, water pollution

Technology Institutions

Agricultural Research Policy TÜBITAK, MARA, SPO and the Ministries that

control the state-enterprise research organisations. National Agricultural Research System (NARS) National extension system considerable national and international effort has

gone into building up the national extension system. Yet there is dissatisfaction at all levels with its performance.

MARA organises the national extension services. MARA’s effectiveness, however, in coordinating the

contributions of the universities, its own directorates and research units, and their links with the extension services has been strongly criticised

Market Institutions

Competition and agricultural markets Ensure stable income and living standards for

rural population Often in conflict with the aim of competition

policies to ensure maximum welfare for the sociaty as a whole

Competition rules and agricultural market institutions do not often go hand in hand

Market Institutions in the Context of Adjusting Turkish Agriculture to the EU The EU’s common agricultural policy (CAP) places

each agricultural product under a common set of market rules throughout the Union.

Institutional prices are being gradually reduced towards the world market levels, and being replaced by direct aids as the basic support mechanism for Community farming.

The effective implementation of the acquis requires that intervention agencies are capable of performing tasks such as regular market and price monitoring, public storage, and sales and stock control. The acquis further specifies precise rules for producer organisations

The unsustainable fiscal, economic and social costs of agricultural policies led Turkey to reform the agricultural subsidy system in 2000 to contribute fiscal stabilization and to promote allocative efficiency. The reform named as “Agricultural Reform Implementation Project” (ARIP) focused on three main themes:

The first was to phase out the government intervention in the output, credit and fertilizer markets and the introduction of direct income support (DIS) for farmers through per hectare payment independent from the crop choice.

The second theme, closely related to the output price support of the first theme, has been the commercialization and privatization of SEE’s, including TURKSEKER (Turkish Sugar Company) and TEKEL (Turkish Alcohol and Tobacco Company); restructuring of TMO (Soil Products Office) and quasi-governmental Agricultural Sales Cooperative Unions (ASCUs) which in the past intervened to support certain commodity prices on behalf of the government.

One-time alternative crop payments formed the third theme. It provided grants to farmers who require assistance in switching out of surplus crops to net imported products. The program was intended to cover the costs of shifting from producing hazelnuts, tobacco and hazelnut to the production of oilseed, feed crops and corn.