tepav The Economic Policy Research Foundation of Turkey Deepening Turkish US relations: Role of Agriculture, Opportunities and Challenges Necdet Budak September 28, 2015 Washington, D.C.
2 Framework n Overview of TEPAV and FAPRI n Some notes on the background for Turkey è Changing playground (TTIP) and enhancing Customs Union with the EU è Problem in agriculture: lagging productivity and stagnant growth è Policy framework designed for a rural society. Today, conditions changed (+70% urban, rising middle class) but the old paradigm remains. n How to look into the future? Meaning of enhanced cooperation with the US in agriculture è Where are the low hanging fruits? è Investment integration? è Possible programs
Slide 3 TEPAV and agriculture: n TEPAV was established in 2004 with support of TOBB è FAPRI was founded as an institute in September 2012 n Close collaboration with FAPRI-MU from the beginning n Celebrating 200 Years of Turkish-U.S Agricultural Trade Relations Historical and Future Perspectives on Feb 27, 2013 with the US Embassy n Current and prospective projects include è Increasing regional exports through policy recommendations (Konya and Edirne regions) è In depth value chain analyses for red meat and meat products milk and dairy products, sugar è Increasing competitiveness in the Turkish seeds sector è Current situation and needs analysis in the Turkish feed sector
Slide 4 Turkey s economic transformation is not yet complete. Agriculture will continue to change. Distribution of employment and GDP across main industries Turkey United States 100% % of Employment 35% 32% 40% 20% 21% 24% 45% 47% 36% 50% 26% 24% 69% 71% 74% 81% 28% 26% 23% 17% 3% 3% 3% 2% 1985 1990 2000 2010 1985 1990 2000 2010 Services Industry Agriculture 1% 1% 100% % of GDP 53% 57% 61% 64% 65% 75% 76% 77% 79% 78% 32% 31% 28% 26% 27% 15% 11% 11% 9% 8% 24% 23% 22% 20% 21% 1% 1% 1% 1997 2000 2005 2010 2013 1997 2000 2005 2010 2013 Source: World Bank World Development Indicators
5 Our starting point: we have a deep problem in agriculture (1) Average annual growth rates for value added between 1980 and 2010 for agriculture, industry and services (constant 2000 $) 14.0% 12.0% 11.7% 10.0% 8.2% 8.0% 6.0% 4.0% 2.0% 1.4% 1.5% 5.7% 1.3% 2.3% 3.4% 4.7% 0.0% Agriculture Industry Services Source: World Bank World Development Indicators European Union Turkey United States
Slide 6 Land per capita is decreasing. But why is productivity not increasing enough? What lessons from the US? Agricultural land per capita, 1000 hectare per capita, 1961 2050 Agricultural value added per worker, constant 2005 USD, 1997 2013 1000 hectare 2.5 2.0 Decreased at rate of 52% since 1961 Even there would not be any further detorotiain in land, 25% of agricultural land per capita is expected to decrease till 2050. 80,000 70,000 60,000 USA 1.5 50,000 40,000 1.0 USA 30,000 0.5 World Turkey 20,000 10,000 Turkey 0.0 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 World 0 1997 2000 2003 2006 2009 2012 Source: FAO, World Bank World Development Indicators
Slide 7 A sad overview: Productivity is low and slow. Inputs are expensive. Result: Output is getting more expensive. Growth rate of agriculture value added per worker,1997-2013, % Consumer Price Index, food, 2010=100, 1990-2014 3.4 5.1 7.1 7.3 8.8 9.9 10.4 160 140 Turkey Turkey USA Korea, Rep. Croatia Belarus Agriculture value added per worker, 2013 Puerto Rico Slovenia 120 100 80 United States Real cost of gassoline, USD per gallon, 2015 2.74 7.71 7.18 6.67 Gasoline Prices Norway Holland Turkey USA Rank for unaffordability of gasoline, 2015 6 52 39 57 60 40 20 0 1990 1994 1998 2002 2006 2010 2014 Source: OECD, Bloomberg Note: Unaffordability is calculated as the porsion of a day wage s needed to buy a gallon of gas with rank among 61 countries.
Slide 8 Meaning of cooperation with the US: catching up with new trends. Particularly in biotech corps. Distribution of arable area, 2000-2013, % Global area of biotech crops in 2010 by country 3% 4% 4% 5% 6% 6% 7% 8% 9% 10% 11% 12% 100% Biotech Crops 12% Organic agriculture 97% 96% 96% 95% 94% 94% 93% 92% 91% 90% 89% 88% 88% Conventional agriculture USA Brazil Argentina India 6% Canada 6% China 2% Paraguay 2% Pakistan 2% 2% South Africa 45% 17% 16% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Biotech crop area as of global area, million hectares, 2014 184 111 18% 70% Convential 25% 36 37 82% 75% 32% 30% Biotech 68% Canola Cotton Soybean Maize Source: FAO, James, C. 2014. Global Status of Commercialized Biotech/GM Crops: 2014. ISAAA Brief No. 49. ISAAA: Ithaca, NY.
Current presence of Turkish agricultural products in the USA market: 0,5 % share and it s not changing Volume and share of agricultural exports of Turkey, 1995-2013 Slide 9 300 200 100 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 USA's forecasted agricultural imports from the world, billion USD, (left axis) Turkey's share in USA's agricultural imports (right axis) 1.0% 0.0% Source: BACI, TEPAV calculations at HS 1992 4 digit level Note: Under HS 1992 2 digit level classificaiton, goods are taken as agrofood between 1-22. Goods which USA exports less than 100 million USD are excluded. Note: USA a agricultural imports from the world for the period between 2014 and 2013 is forecasted with the least square method. Turkey s market share in the USA agricultural import basket is 0.49% in 2013, it is assumed that it would gradually reach a point where its share is 1.21% in 2023, 1.21% equals to its agricultural export market share in 2013 in the world.
10 What if Turkey gradually gets to a point in 2023 where it exports agricultural products to the USA market at least as its modest market share in the world in 2013 (+1%) 300 200 100 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 USA's forecasted agricultural imports from the world, billion USD, (left axis) 1.5% 1.0% 0.5% 0.0% Turkey's share in USA's agricultural imports (right axis) = 2.4 billion USD possible increase in Turkey s agricultural export to the USA market. Source: BACI, TEPAV calculations at HS 1992 4 digit level Note: Under HS 1992 2 digit level classificaiton, goods are taken as agrofood between 1-22. Goods which USA exports less than 100 million USD are excluded. Note: USA a agricultural imports from the world for the period between 2014 and 2013 is forecasted with the least square method. Turkey s market share in the USA agricultural import basket is 0.49% in 2013, it is assumed that it would gradually reach a point where its share is 1.21% in 2023, 1.21% equals to its agricultural export market share in 2013 in the world.
Slide 11 Which products could we focus on as low hanging fruits? A preliminary analysis. Growing Demand in USA Filter High Prodouction Capacity of Turkey Filter Relatively Less Penetration Filter Sectoral import of USA grows faster than its total agricultural import. Turkey has expertise and production capacity in the sector. Turkey could not penetrate to the USA market 0 188 89 99 67 16 32 16 Source: BACI, TEPAV calculations at HS 1992 4 digit level Note: Under HS 1992 2 digit level classificaiton, goods are taken as agrofood between 1-22. Note: Growth is calculated for the period between 2003 and 2013 with CAGR. CAGR of USA s agricultural import is 7.2 %. Note: Production capacity is assumed as exist in the case of RCA score higher than 1. Note: Market penetration for a spesific product is assumed as exist in the case of TII score of product between two economies is greater than TII score of total trade between two economies. Turkey s penetration to USA is 0.34 for 2013.
Slide 12 Potential agrifood sectors for Turkey to tap into the USA market Turkey's total export, million USD USA s total import, million USD Turkey's export to USA, million USD, 2013 CAGR of USA's import, 2003-2013, % Average import distance of USA, thousand km, 2013 Fruit, nuts etc prepared 889 2389 26 10% 8.98 Bread, pastry cakes 841 3470 10.5 8% 3.88 Dates, figs, etc. 265 2179 17 13% 4.04 Yeasts 218 280 1.2 8% 4.43 Margarine, edible mixtures etc. 186 208 0.1 20% 2.03 Vegetables, fresh 141 2742 0.2 9% 3.38 Jams, fruit jellies etc, cooked 139 238 3.4 11% 5.68 Foods prep by swell cereal 131 607 2.2 8% 2.42 Sugars nesoi,etc. 129 497 0.5 11% 4.05 Oil seeds & oleag. Fruits 103 386 1.5 14% 7.86 Soups, broths 74 307 0.3 9% 2.99 Buttermilk, yogurt, kephir etc 67 75 0 16% 4.56 Cereal groats 64 128 0.2 12% 1.34 Fixed veg fats & oils 49 338 0.7 8% 8.12 Locust beans 27 195 0.2 14% 8.84 Cereal grains 26 171 0.1 11% 1.37 Source: BACI, TEPAV calculations at HS 1992 4 digit level Note: Under HS 1992 2 digit level classificaiton, goods are taken as agrofood between 1-22. Distances are calculated following the great circle formula, which uses latitudes and longitudes of the most important cities/agglomerations (in terms of population). Between USA and Turkey, it is calcuated as 8.07 thousand km.
Slide 13 Another critical opportunity: the organic product imports of the US USA's organic product import from the world, 2011-2014, million USD 1500 1377 1281 1000 500 668 496 0 2011 2012 2013 2014 Turkey s organic product export to USA, thousand USD Turkey s organic product exports to USA, cumulative 2011-2014, thousand USD 25000 20000 15000 10000 5000 0 19307 7423 62 178 2011 2012 2013 2014 Product Organic Soybeans Except Seed 12208 Organic Olive Oil 7882 Organic Yellow Dent Corn, Except Seed 6797 Organic Coffee Rst Nd <2Kg Ret 58 Organic Durum Wheat Not Seed 10 Organic Blk Tea Ferm Bag<3Kg 8 Organic Coffee Rst Nd Other 7 Source: USDA GATS, TEPAV calculations
Slide 14 How about increasing investment integration between the two sides? Food, beverages and tobacco ODI of USA, cumulative, 2003-2014 USA's total food and tobacco FDI Turkey's total food and tobacco FDI USA's food and tobacco FDI in Turkey Turkey's food and tobacco FDI in USA Cumulative FDI, 2003-2014, USD 35 billion 675 million 152 million 14 million Food, beverages and tobacco ODI of Turkey, cumulative, 2003-2014 China Brazil 8% Canada 8% UK 7% Russia 6% Mexico 6% Romania 4% France 3% India 3% Poland 3% Argentina 3% Italy 2% Singapore 2% Ukraine 2% Philippines 2% Netherlands 2% Malaysia 2% 13% Romania Russia Gabon Libya Georgia Serbia Ukraine Macedonia FYR Belgium Germany Syria Iran United States 9% 9% 7% 5% 4% 3% 3% 2% 2% 2% 2% 16% 30% Source: fdimarkets, TEPAV calculations
Slide 15 Project ideas for further collaboration between Turkish and American SMEs in agriculture n Matching SMEs with larger retailers and their distribution networks n Contract farming n Policy dialogue for innovation in agriculture n Identify and celebrate the innovative companies and create platforms for them to network with each other and their Turkish counterparts n Joint marketing for organic products n Alignment in the standards of the products