FOOD AND AGRICULTURE IN TURKEY: Developments in the Framework of EU Accession Erol H. ÇAKMAK...

FOOD AND AGRICULTURE IN FOOD AND AGRICULTURE IN TURKEY: TURKEY:

Developments in the Framework of Developments in the Framework of EU AccessionEU Accession

Erol H. ÇAKMAKErol H. ÇAKMAK

Department of EconomicsDepartment of EconomicsMiddle East Technical UniversityMiddle East Technical University ((METUMETU)), , AnkaraAnkara

15. East-West Agricultural 15. East-West Agricultural Forum Forum January 18, 2008 - BerlinJanuary 18, 2008 - Berlin 22/26/26

Policies and PerformPolicies and Performaancence– Domestic support and trade policiesDomestic support and trade policies– Ag. Value added and tradeAg. Value added and trade

Impact assessment of EU on TurkeyImpact assessment of EU on Turkey– Model & ScenariosModel & Scenarios– ResultsResults

Concluding RemarksConcluding Remarks– Ag cost of Turkey?Ag cost of Turkey?


Support to AgricultureSupport to Agriculture

Breaking point in 2001 due to macro crisisBreaking point in 2001 due to macro crisisIntention: shift from price distortionary to Intention: shift from price distortionary to market friendly intrumentsmarket friendly intrumentsCould not last longCould not last longNo significant change in the overall No significant change in the overall structure: Predatory policies has started to structure: Predatory policies has started to emergeemergeHowever, still better than before 2001However, still better than before 2001Transparency big +Transparency big +


TSE/GDPTSE/GDP


Percent PSEPercent PSE


Share of market price support in PSEShare of market price support in PSE


Bound and Applied Tariffs,Bound and Applied Tariffs, 200 20077

0

50

100

150

200

250

01 01 01 02 02 02 02 02 04 04 04 04 05 06 07 07 07 08 08 08 08 08 09 10 11 11 12 12 12 13 15 15 15 15 16 16 17 17 19 19 20 20 20 20 20 20 20 20 21 22 22 22 22 23 23 24 33 41 41 43 51 51 53

HS 2 (original HS 12)

(percent)

Bound rate Applied-06WTO-Bound Average: 65 %Applied Average in 2006: 50 %Overhang: 24 %


Ag. Value-added, 1968-2007Ag. Value-added, 1968-2007


Agro-Food TradeAgro-Food Trade, 1999-2005, 1999-2005


Trade in raw and processed agro-food products, 99-05Trade in raw and processed agro-food products, 99-05


Accession implies competition-1/2Accession implies competition-1/2EU-Turkey price relations 2006

EU=100

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Whea

t

Mai

ze

Sunflow

ers

Potato

es

Sugar b

eetM

ilk

Beef a

nd vea

l

Sheep m

eat

Poultry

EU price level

Source: calculated from OECD by Hauer & Bauer, 2007


Accession implies competition-2/2Accession implies competition-2/2EU Turkey price relations "Mediterranean Products" 2004

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Tomatoes Cotton Tobacco Peaches Table Olives Melons

EU price level

Source: calculated from OECD by Hauer & Bauer, 2007


Turkey and the EUTurkey and the EU

TurkeyTurkey’s journey to EU started ’s journey to EU started in 1963. in 1963. MMembershipembership, , if it ever happensif it ever happens,, will involve will involve full liberalization of trade in agricultural full liberalization of trade in agricultural products with EU. products with EU. IImpact of liberalization mpact of liberalization on Turkish agriculture on Turkish agriculture depends ondepends on::– the path of agricultural policies in Turkey and EU, the path of agricultural policies in Turkey and EU,

and also on accession negotiations.and also on accession negotiations.– EU’s MED policiesEU’s MED policies– Multilateral negotiationsMultilateral negotiations


MMODELODELModelModel maximizes the maximizes the sum of sum of consumers' and producers' consumers' and producers' surplussurplus

– Output pricesOutput prices are are endogeneousendogeneous to the model. to the model.

Partial equilibriumPartial equilibrium static optimizationstatic optimization modelmodel. Non-ag . Non-ag treated exogenouslytreated exogenously

Almost all ag products coveredAlmost all ag products covered

4 regions4 regions

Crop and Livestock sectors linkedCrop and Livestock sectors linked


I/O Structure in Production-4 regionsI/O Structure in Production-4 regions

covers 95% of agriculture (96.3%); Crcovers 95% of agriculture (96.3%); Cropop and and livestocklivestock sub-sectors are integrated sub-sectors are integrated endogenouslyendogenously200 activities to produce 55 commodities with 200 activities to produce 55 commodities with ~~250 equations and 350 variables250 equations and 350 variables


Demand and Supply InteractionsDemand and Supply Interactions

TradeTrade is allowed in is allowed in rawraw and in and in raw equivalentraw equivalent form for processed products form for processed products.. Foreign tradeForeign trade is differentiated for is differentiated for EUEU,, USAUSA and and RROW.OW.


Scenarios: EU-OUT, EU-CU, EU-INScenarios: EU-OUT, EU-CU, EU-IN

Base Period Model

(2002-04)

2004 Policies(Status Quo)

Year: 2004

Model calibrated to base period values

and 2004 policy parameters

BaselineScenarioEU-OUT

2015

2004 Policies(Status Quo)

Year: 2015

Model projected

to 2015

Projection to 2015

Impose estimated changes inImpose estimated changes in populationpopulation, , incomeincome, , import and import and

export pricesexport prices, , input pricesinput prices, , yields andyields and resource resource

endowmentsendowments until 2015until 2015

GME-OLS 2-step estimation GME-OLS 2-step estimation process to forecast the values process to forecast the values of these parameters in 2015of these parameters in 2015

Policy changein 2015

Integrationwith the EU

EU-CU and EU-IN2015

IMPACTS


Projection Assumptions to 2015Projection Assumptions to 2015

1.1.44 percent population growthpercent population growth per year per year– Population growth rate is determined from FAOSTATPopulation growth rate is determined from FAOSTAT

11..33 percent percent net net per capitaper capita income income growthgrowth per year. per year. – GDP GDP per capita in 1987 prices (linear trend) per capita in 1987 prices (linear trend)

210,000 ha increase in irrigated210,000 ha increase in irrigated area area ( (150,000 ha 150,000 ha in GAPin GAP and and 60,000 ha 60,000 ha in ROT)in ROT) Prices are adjusted to 201Prices are adjusted to 20155 using using FAPRI FAPRI (2005) price projections(2005) price projections and and FAOFAO export unit values data export unit values data ((1961-20041961-2004).).

Yield Increases until 2015:Yield Increases until 2015: The yield growths are estimated using The yield growths are estimated using last 10 years data with last 10 years data with GMEGME taken last 45 years data estimates taken last 45 years data estimates with with OLSOLS as support vector center points, i.e., as support vector center points, i.e., a prioria priori informationinformation..


to 2015...to 2015...

EU-EU-OUTOUT: Baseline: Baseline

EU-CU: CU extended to agro-food productsEU-CU: CU extended to agro-food products

EU-IN: CU+EU-IN: CU+– Intervention purchasesIntervention purchases– Compensatory payments (cereals, oilseeds and Compensatory payments (cereals, oilseeds and

protein crops and set-aside) protein crops and set-aside) – Other supports (durum, olive oil, coton, milk, beef, Other supports (durum, olive oil, coton, milk, beef,

mutton)mutton)


2002-04 2015

Change from EU-OUT (%)

BASE EU-OUT EU-CU EU-IN EU-CU EU-IN Total Surplus (Index) 100.0 105.1 105.2 105.2 0.1 0.1 with CAP Support - - - 107.1 1.9 Producers’ Surplus 100.0 101.7 100.8 100.8 -0.9 -0.9 with CAP Support - - - 102.9 1.1 Consumers’ Surplus 100.0 141.6 153.0 153.1 8.0 8.1 Total Production Volume a 33,997 42,951 40,795 40,461 -5.0 -5.8

Value 33,997 43,343 37,696 37,739 -13.0 -12.9 Crop Production Volume a 23,191 29,536 27,941 27,616 -5.4 -6.5

Value 23,191 28,152 26,121 26,172 -7.2 -7.0 Livestock Production Volume a 10,806 13,415 12,854 12,845 -4.2 -4.2

Value 10,806 15,192 11,575 11,568 -23.8 -23.9 Total Consumption Volume a 29,441 37,376 40,335 40,276 7.9 7.8

Value 29,441 37,870 36,222 36,079 -4.4 -4.7 Crop Consumption Volume a 18,368 23,713 23,849 23,790 0.6 0.3

Value 18,368 22,366 21,873 21,730 -2.2 -2.8 Livestock Consumption Volume a 11,073 13,663 16,486 16,486 20.7 20.7

Value 11,073 15,505 14,349 14,349 -7.5 -7.5 Net Exports 2,264 3,564 77 -306 -97.8 -108.6 Crop Products 2,537 3,909 2,889 2,633 -26.1 -35.7 Livestock Products -273 -346 -2,811 -2,818 713.6 715.6 Price Index (Laspeyres) 100.0 102.0 91.3 91.3 -10.5 -10.5 Crop Products 100.0 94.6 92.1 92.0 -2.7 -2.7 Livestock Products 100.0 114.3 90.1 90.1 -21.2 -21.2

General Results - 1/2General Results - 1/2Almost no change in total welfare

Without CAP slight reduction in producers’ welfare

Significant increase in the consumers’ surplus

Limited impact on total productionMembership brings 11% decrease in pricesSignificant decrease in the prices of livestock prodcuts

Slight increase with CAP

With CAP it increases by 2 %.

Total consumption volume increase by 8%, but the expenditure declines by 5%

More amplified in the case of livestock prodcuts


2002-04 2015

Change from EU-OUT (%)

BASE EU-OUT EU-CU EU-IN EU-CU EU-IN Total Surplus (Index) 100.0 105.1 105.2 105.2 0.1 0.1 with CAP Support - - - 107.1 1.9 Producers’ Surplus 100.0 101.7 100.8 100.8 -0.9 -0.9 with CAP Support - - - 102.9 1.1 Consumers’ Surplus 100.0 141.6 153.0 153.1 8.0 8.1 Total Production Volume a 33,997 42,951 40,795 40,461 -5.0 -5.8

Value 33,997 43,343 37,696 37,739 -13.0 -12.9 Crop Production Volume a 23,191 29,536 27,941 27,616 -5.4 -6.5

Value 23,191 28,152 26,121 26,172 -7.2 -7.0 Livestock Production Volume a 10,806 13,415 12,854 12,845 -4.2 -4.2

Value 10,806 15,192 11,575 11,568 -23.8 -23.9 Total Consumption Volume a 29,441 37,376 40,335 40,276 7.9 7.8

Value 29,441 37,870 36,222 36,079 -4.4 -4.7 Crop Consumption Volume a 18,368 23,713 23,849 23,790 0.6 0.3

Value 18,368 22,366 21,873 21,730 -2.2 -2.8 Livestock Consumption Volume a 11,073 13,663 16,486 16,486 20.7 20.7

Value 11,073 15,505 14,349 14,349 -7.5 -7.5 Net Exports 2,264 3,564 77 -306 -97.8 -108.6 Crop Products 2,537 3,909 2,889 2,633 -26.1 -35.7 Livestock Products -273 -346 -2,811 -2,818 713.6 715.6 Price Index (Laspeyres) 100.0 102.0 91.3 91.3 -10.5 -10.5 Crop Products 100.0 94.6 92.1 92.0 -2.7 -2.7 Livestock Products 100.0 114.3 90.1 90.1 -21.2 -21.2

General Results - 2/2General Results - 2/2

Membership makes Turkey net importer in agricultural products

Boom in the imports of livestock products can not be compensated by the increase in the exports of crop products

Membership changes the volume of production and trade


Impact on Net ExportsImpact on Net Exports

Apart from livestock products, net imports of cereals and oilseeds go up in CU or membership – wheat and maize


On the other hand, net exports of pulses, fruits and vegetables increase – chickpeas, peppers, tomatoes, cucumbers, hazelnuts, apples, apricots and citrus


CONCLUSIONS - 1/2CONCLUSIONS - 1/2

Overall welfare Overall welfare eeffect is small. ffect is small.

Consumers Consumers will definitely will definitely benefit from benefit from EU EU integration due to integration due to declining prices. declining prices.

Increased consumption will be realized Increased consumption will be realized with a lower level of expenditurewith a lower level of expenditure. .

CAP supports are CAP supports are importantimportant for the welfare for the welfare of producersof producers..


CONCLUSIONS - 2/2CONCLUSIONS - 2/2

Customs UnionCustoms Union without CAP supports can without CAP supports can be more problematicbe more problematic for some producers. for some producers. Livestock products will not be competitive. Livestock products will not be competitive. However, recent increase in the livestock However, recent increase in the livestock productivity improved the performance of productivity improved the performance of the sectorthe sectorNNet exports of crop products will be et exports of crop products will be far far from compensatingfrom compensating the change in the net the change in the net imports of livestock products.imports of livestock products.


Agricultural Cost Estimate of Turkey to EUAgricultural Cost Estimate of Turkey to EU

EUR million (at 2004 prices)2015 Full 2015, 25% 2025 2015 Full 2015, 25% 2025

Total Crop Payments 4,416 1,104 3,844 3,159 790 1,967Compensatory Area Pay. 2,130 532 1,854 1,523 381 948

Cereals 1,963 491 1,708 1,404 351 874Oilseeds 62 16 54 44 11 28Protein Crops 105 26 91 75 19 47

Other Direct Crop Pay. 2,287 572 1,990 1,636 409 1,018Durum Wheat 274 69 239 196 49 122Hazelnut 33 8 28 23 6 15Tobacco 298 75 260 213 53 133Olive Oil 191 48 166 137 34 85Cotton 1,490 372 1,297 1,066 266 664

Total Livestock Payments* 1,456 364 1,267 1,042 260 649Beef Payments 601 150 523 430 107 268Sheep Meat Payments 492 123 429 352 88 219Milk Payments 363 91 316 260 65 162

TOTAL 5,873 1,468 5,111 4,201 1,050 2,615

Reduction in Direct PaymentsCurrent Policies

FOOD AND AGRICULTURE IN TURKEY: Developments in the Framework of EU Accession Erol H. ÇAKMAK...

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