While it is predicted that there would be inflation in food prices, Turkey is expected to provide subsided/low-cost raw materials through agencies to feed and flour sectors to use these for domestic markets and recede price hike. Following the tenders for the total of 500 thousand tons of wheat and barley, the government is expected to announce a tender for maize. High prices at the international market, the pressure of food inflation, and high-interest rate over companies’ shoulder hint that Turkish food sector can get smaller in the forthcoming periods.
As Turkish lira lost value against US dollar by forty percent, the concerns about the Turkish economy have risen. It seems that this wave that was shaped as a result of uneasiness, particularly regarding the commitment of the private sector in the foreign currency, will widen by including the agriculture sector and will affect the entire economy. At the beginning of August, the parity of USD/TL was 7 Turkish Liras and now it is around 6-6.5 Turkish Liras.
In Turkey, the price of a product in the domestic market is higher than the international market in general whereas local companies are protected with high customs duties and local companies complain about structural problems and high costs. However, following the devaluation of Turkish Lira, the price of many local products particularly cereals and pulses became lower than international prices. Exporters tried to take advantage of this, while the prices of local products are adjusted to the new prices.
For example, the price of wheat was 1000 TL / MT at the end of July in Turkey, and following the devaluation, its price increased by around ten percent. However, it was very cheap with its USD170 / MT price tag vis-à-vis Russian wheat of which price was USD 215 / MT. Similarly, the price of maize and barley and cereal products remained relatively cheaper.
The fact that the Producer Price Index was declared as 32%, which is a record, made it inevitable to take precautions especially on the food safety and food inflation. Turkey took some measures against the devaluation and the ongoing high food inflation.
Firstly, the Turkish Grain Board – the state’s regulatory body of the cereal market - was authorized to import 2.25 MMT. According to the decision published in the official gazette on 15 August, the board was tasked with importing wheat, barley, maize, and rice with no customs duties in order to ensure the price stability. Acting urgently, the board announced international bidding for wheat and barley during September. In that way, the government aimed to block the price hike, particularly for bread and feed.
The Ministry of Commerce limited the export of some feed products through a declaration on 1 September 2018. With this declaration, it is aimed to prevent relatively cheap local products from being exported and to cushion the inflation pressure.
During the last two months, the most important issue in the country was the price hike in flour. Since the bread is the most important staple food for Turkish people, it has a special importance psychologically. The state intervened to block any price hike in bread. In this respect, the state limited the export of flour produced with relatively cheap local wheat. Turkish flour producers substituted the local wheat with the imported wheat. In other words, they produced flour with local wheat and later imported the same amount of wheat at the end of export. They completed the operation in this fashion. With the latest regulation, the state obliged companies to import the wheat in advance for the production of the flour to be exported. In this way, it is aimed to keep the relatively cheap wheat in the country.
This step caught the flour exporters off guard as this step was taken without the participation of the sector. Unable to use the local wheat in their stocks, the exporters waited 2-3 weeks for the imported wheat. The sectoral sources pointed out that many facilities in the Southeastern Anatolia - the biggest flour exporter region of the country - recessed their productions. Besides, the authorities did not allow the flour produced with the local wheat being exported although these flours were dispatched the border gates before the state’s declaration. The neighboring countries were informed that there would be a solution for the flour export that was halted for a while. One of the most important outputs of flour sector is the wheat bran that is undoubtedly an important input for the feed sector. The halt in the flour production immediately affected the price of the bran.
Turkish Grain Board announced that the flour companies that use wheat for local markets can buy wheat at 1100 TL / $166 per ton. There are approximately 3.5 MMT of wheat in the flour warehouse of the board.
Just like the common flour, there are concerns about the inflation regarding other staple foods. The state is looking for ways to sell products such as feed raw materials, milk, and meat at a more affordable price. Meanwhile, the export of some pulses products is going on and the firms having debt with foreign currency try to close their debts through export. However, Turkey is not self-sufficient at many products. Because of the high exchange rate risk, the market began to make use of the local stocks. Thus, with the new year, the current exchange rates will be reflected on the prices in the domestic market. Another problem for the agricultural sector is interest rates that are three percent monthly and fourth percent annually. In the coming period, we can witness the hand-over or closure of companies due to liquidity problems.
According to the Turkey Statistical Institute’s (TURKSTAT) data, one can get information on Turkey’s self-sufficiency at basic agricultural products by looking at the table below. Although Turkey has self-sufficiency rates at products such as wheat, maize, barley, and chickpea, it is foreign-dependent on soybean and its products used in the white meat sector.
Although many heard about steps being taken by the government in response to the current economic crisis during August and September, the food inflation will be certain since the devaluation of Turkish Lira was not fully reflected on the raw materials and the export of some products is going on despite the limited import. At this point, the Turkish state is expected to provide subsided/low-cost raw materials through agencies to the feed and flour sectors to use these in domestic markets and postpone the price hike. Following the tenders of 500 thousand tons of wheat and barley in total, the government is expected to announce a tender for maize, too. The high prices at the international market, the pressure of the food inflation, and high-interest rates over companies’ shoulder hint that Turkish food sector can get smaller in the forthcoming periods.