Agricultural Economics

1. Agricultural Economics Lecture 6: Agricultural Policy Tools in Turkey

2. Goals of Policy • From the social goal of saving family farm to the “economic goal of providing tools by which farm business can reduce risk” • From the goal of adjusting production to market to the “goal of expanding demand, remaining competitive, and achieving open markets internationally” • From the goal of soil conservation to the goal of “sustainable production in the utilizaton of land, air and water”. • From the goal of maintaining adequate food reserves into the goal of “food security, food safety, and homeland security”. • From the goal of domestic demand expansion into “eating wisely and in moderation”. • From the goal of expanding the use of agriculture’s production capacity to “help meet energy needs”.

3. Goals of Policy Analysis • Reducing uncertainty and providing information for decision makers in the public arena. • Systematic evaluation of the technical and economic feasibility and political viability of alternative policies.

4. Policy Analysis Process • approach to problems that is logical, structured, valid, and replicable • generation of feasible courses of action • a search for information and evidence of benefits and other consequences of courses of action • COSTS! BENEFITS! • in order to help policy makers choose the most advantageous policy action.

5. Evaluating Alternative Policies or Programs

6. Ex-Ante (rational model) Ex-Post (program evaluation) Policy Analysis Process

7. Evaluating Alternative Policies or Programs • Ex-ante evaluation: projecting future states with and without policy or program

8. Evaluating Alternative Policies or Programs • Ex-post evaluation: • Did policy or program achieve its objective? • Was policy or program efficient, equitable, and politically acceptable?

9. Turkish Agricultural Policies

10. Turkish agricultural policy dates back to 1930s. Protectionist policy. • In certain periods, in 1980-1984 and again in 2001, there has been strong reduction in support and protection. • Since 2001, mainly under pressure from IMF and WB, some important changes have been introduced. ARIP project • Also, policies dealing with food safety and quality. • Rural development policies: Structural policies

11. Policy process: • Interest groups: • Government and leading party. • Granted market power to SMEs and the cooperative unions. • MARA; Ziraat Bank; ASCs • Number of state owned enterprieses s. e.g. Türkşeker, TMO nearly full market power • Agricultural sales cooperatives (ASCs). • Chambers of Agriculture; semi public institutions

12. Functioning of Agricultural Policies • Closed and domestically oriented sector • Policy was strongly supportive to agriculture via price supports and input subsidies • Gradual increase of real budget outlatys • Strong protectionist policy – however declining trend in output and GVA of agriculture. • Price support • Input subsidies were two important parts of Turkish ag. Policy.

13. The development of rural areas and agriculture has been impeded by heavy government intervention in the sector – often counterproductive. • Trade controls, government procurement, strong government involvement in marketing, input subsidies and heavy investment in irrigation structure on a fully subsidised basis have created a net inflow of resources from the government to agriculture.. • State budget, and implicit transfers from consumers.

14. ASC/ASCU • Law to implement ASCUs for government programs rather than member owned cooperatives. • Dominance of government control prevented the ASCUs from developing as organisations providing services for their members. • Inefficient system for the ASCs.

15. ARIP • IMF and World Bank promoted major change in macroeconomic and agricultural policies as part of recovery package. • Reduction of Price support • Restructring state owned enterprieses and ASCUs • Decrease input subsidies • Introduction of direct income support • Restructuring agricultural production • Observibg effects of policy changes in a household survey

16. Reduction of Price Support • Phasing out of price support. Linking up to world market prices and reducing import tariffs. • Procurement payments have been reduced. Some reduction in export tariffs. Not all export subsidies were abolished. • Price supports are short term. Easier than institutional changes.

17. Restructuring • SEEs. Complete restructuring of SEEs by either privatisation or discontinuation. • State owned organisations still exist and many restructuring steps still remain to be taken. • Water, seed, and pesticide subsidy still exist.

18. Decrease Input Subsidies • Abolution of fertilizer subsidy, reduce seed pesticide and water subsidy. Reduce credit subsidies. • Fertilizer subsidies reduced.. • Water, seed, and pesticide subsidy still exist.

19. Introduction of Direct Income Support • Small delay due to land registration problems • Slow payments due to delays in registration system.

20. Restructuring Agricutural Production • Relocating hazelnut and tobacco production. • However, not successful. • Destroying capital goods for financial compensation is difficult with high inflation rates and free rider behavior.

21. Notes from: SCREENING CHAPTER 11 AGRICULTURE and RURAL DEVELOPMENT AGENDA ITEM 1: TURKISH AGRICULTURAL POLICY (January 23-26, 2006).

22. Some Major Policy Documents: – Five-Year Development Plans; – Annual Programs – Government Programs – 2000; Agricultural Reform Implementation Program (ARIP); market orientation – Agricultural Strategy Paper (2006 – 2010); EU Accessionand WTO Reform Process further market orientation

23. Policy Making Bodies: 1) Ministry of Agriculture and Rural Affairs (MARA) 2) State Planning Organization (SPO) a) High Planning Council b) Money-Credit Coordination Council 3) Undersecretariat of Foreign Trade 4) Undersecretariat of Treasury 5) Committee on Restructuring and Support inAgriculture

24. Some Policy Tools and Instruments • Market based policies • Market Regulation; ASC’s • Agricultural Insurance • Support Schemes • Rural Development Activities • Structural Measures (e.g. LandConsolidation) • Research and Extension Programs • Foreign Trade Mechanisms • Producer Organizations

25. Traditional Policy • Objectives; a) self-sufficiency b) import substitution c) rural development d) nutritional level e) raw material supply forindustry

26. Instruments • a) market stabilizationintervention(1932 – 2001) • b) input supply • c) credit supply

27. Agricultural Reform Program - 2000 • 1-Abolition of administered prices • 2-Abolition of input and credit subsidies • 3-Restructuring of agricultural SEE’s and agricultural • sales cooperatives • 4-Introduction of DIS Scheme • 5-Restructuring of agricultural production Basic Objective: Market Orientation

28. 2006-2010 Agricultural Strategy Paper: • Objectives and Priorities (in line with theEU Accession and WTO-AA): 1. Sustainable development, product quality 2. Food security and safety 3. Competitiveness of agricultural holdings 4. Agricultural markets and marketing 5. Rural development 6. Producers’ organizations

29. Support Schemes in the Strategy • 1) Direct Income Support • 2) Deficiency payments • 3) Livestock supports • 4) Rural development supports • 5) Alternative crop support • 6) Crop insurance premium supports • 7) Environmentally based agricultural land protection • support (ÇATAK) • 8) Other supports

30. Common Elements in CAP Reforms andPolicy Change in Turkish Agriculture • a) Basic reasons; External: WTO Reform Process Internal : Efficiency, Taxpayer and ConsumerConcerns • b) Overall Sectoral Change; Market Orientation, Higher Competitiveness • c) New Objectives; food safety, environment, rural development • d) Procedural; Registration and Control Mechanisms