RE:TCP/TUR/4552 TECHNICAL COOPERATION PROGRAMME ASSISTANCE FOR AGRICULTURAL POLICY REFORM IN TURKEY RELATING TO GATT AND EU AGREEMENTS TURKEY Terminal Statement the Food and Agriculture Organization of the United Nations Rome, 1998 |
RE:TCP/TUR/4552 TECHNICAL COOPERATION PROGRAMME ASSISTANCE FOR AGRICULTURAL POLICY REFORM IN TURKEY RELATING TO GATT AND EU AGREEMENTS TURKEY Terminal Statement the Food and Agriculture Organization of the United Nations Rome, 1998 |
2.1 Agricultural policy issues
2.2 Sanitary and phytosanitary measures and technical barriers to trade
3.1 Agricultural policy issues
3.2 Sanitary and phytosanitary measures and technical barriers to trade
Appendix DOCUMENTS PREPARED DURING THE PROJECT
Agriculture plays a major role in the economy of Turkey. Although the sector provides less than 15% of the gross domestic product (GDP), over 40% of the country's population lives in rural areas and is heavily dependent on agriculture. Government intervention in the agricultural sector, in the form of mechanisms such as output price support and input subsidies, absorbed 50% of agricultural GDP in 1992, with only a fraction of support payments reaching the intended beneficiary. The Government is now committed to a free-market economy with minimal state interference and has taken steps to liberalize agricultural markets and reduce agricultural subsidies. However, it faces pressures that slow the pace and change the direction of reforms, delaying the full adjustment of agricultural policy.
The project represents a further step in an ongoing programme of assistance by FAO to Turkey in the area of agricultural policy formulation and delivery. It was preceded by project TCP/TUR/4551, "Planning Commodity Exchanges", which terminated in December 1994 and led to a follow-up World Bank/FAO Agricultural Commodities Market Development Project Preparation Report in 1996.
The Project Agreement for this Technical Cooperation Programme project, TCP/TUR/4552, "Assistance for Agricultural Policy Reform in Turkey Relating to GATT and EU Agreements," was signed by FAO and the Government in October 1995, with a budget of $US 324 000. It began in May 1996 and ended in November 1997. The Ministry of Agriculture and Rural Affairs (MARA) was designated the government agency responsible for project implementation.
The Project Advisory Committee comprised representatives of MARA, the State Planning Organization, the Under-secretariat of Foreign Trade, the Under-secretariat of the Treasury, the State Institute of Statistics, the Ministry of Industry and Trade and the Chamber of Agricultural Unions. The project team included 18 consultants (seven international and 11 national) with expertise in agricultural and trade policy, economics/econometrics, statistics, institutions, law, food control and training. Two senior international experts in trade policy and modelling/econometrics assisted national and international consultants and a background report on institutional aspects of agricultural policy formulation process in the EU was prepared by a senior international expert.
The main objective was to assist the Government to develop an agricultural sector policy and the instruments required to fulfil its international obligations and commitments in relation to the agricultural and technical agreements of the European Union (EU) Customs Union (CU), EU agreements and the World Trade Organization (WTO). The project had three basic tasks: to produce an analysis of trade-related policies and policy reforms focusing on the economic impacts of policy changes, modalities of policy implementation and agencies and institutions; to assist in national capacity building (for policy formulation, analysis and implementation); and to assess the current food control system. Specific analyses were planned in order to advise the Government on whether or not to pursue harmonization of Turkish support with the EU Common Agricultural Policy (CAP) and the extension of the CU to agriculture.
The expected project outputs were to include a critical review of current agricultural support for major products in the light of WTO and EU commitments, a critical review of the institutional framework for policy formulation and delivery and the identification of constraints and policy options.
Capacity building, in addition to holding workshops and providing on-the-job training, was expected to generate plans for future capacity enhancement, particularly with respect to statistical indicators, analytical tools and training in policy analysis.
The main analytical work was divided into two phases, each concluding in a workshop, the first in September 1996 and the second in June 1997. Phase I examined the implications of the trade agreements signed by the Government and WTO and the Government and the EU, described the current situation regarding domestic agricultural and related policies and broadly identified agricultural policy options during the forthcoming decade. In Phase II, four alternative future policy scenarios were the subject of analysis, with more emphasis being placed on developing an adequate methodology to contribute to MARA's needs. The main results of the analysis and its policy implications were presented and discussed at the second workshop in June 1997.
Parallel to the largely quantitative core economic analysis undertaken in these two phases, complementary work was undertaken by national and international experts in other areas. The first to be completed was the joint report of the two food control consultants, whose main findings were presented and discussed at the first workshop. The one-month consultancies of the two legal experts followed and their joint report was submitted in November 1996. The reports by national and international consultants on statistics were completed in February and March 1997, respectively, while one international and two national institutions specialists prepared a joint report, finalized in May 1997. Unfortunately, delays in the core quantitative economic and policy analysis work, caused by the resignation of the two national consultants involved in the economic analysis, meant that the results of that analysis were not available to the statistics, institutions and legal consultants prior to the completion of their reports. As a result, the envisaged analytical plans had to be revised, the economic impact analysis had to be taken over by the existing core team of international consultants and the completion of the project was delayed.
Training of MARA counterpart staff, through formal instruction sessions and involvement in consultants' activities, was the other main project component. Additional training was provided during the project to a core group of MARA staff identified as project counterparts. This included a series of 20 formal lectures and seminars, the assignment of particular project-related tasks to counterparts, considerable involvement in the consultants' investigative activities and exposure to ongoing project activities through attendance at all project team meetings. The project made a significant contribution, at MARA's request, by providing an electronic database for agricultural policy analysis purposes. A series of introduction, demonstration and practice sessions enabled MARA staff to become acquainted with the database.
In June 1997, a four-day "technology transfer" course and training session was conducted to hand over the analytical tools developed by the project to the Government.
The project report provided an overview of the place and performance of agriculture against a background of national economic development, including structural and income changes in agriculture, agricultural trade and self-sufficiency and productivity.
The results of the analysis suggest that the significant increase in budgetary expenditures was not generating commensurate additional benefits to farmers. The low average efficiency ratios for all the years examined demonstrated considerable wastage and inefficiency in agricultural programmes. A need for more discipline and longer-term strategic thinking in the annual choice of price support levels was ascertained.
The project recognized a number of constraints within which agricultural policy had to be conducted. It reviewed the key policy choices and outlined options for policy makers, following discussions on three clusters of emerging policy issues. These concerned the use of agricultural policy as a means of rural income support and rural employment maintenance, the shift from market price support to direct payment support and whether it should be offered on a commodity-by-commodity basis or by means of non-commodity-specific, decoupled forms of direct payments and, finally, the provision of market price support through tariffs alone or through intervention purchases combined with tariffs. Other policy options were analysed, such as regional compensation for losses produced by the phasing out of pan-territorial pricing, inward processing, modes of market price support, ways to remove the remaining protection on farm input industries and reducing farm credit subsidies, livestock industry protection, policies addressing the agricultural land market, land prices, farm consolidation and the welfare effects of policy changes. The schedule of national commitments under the terms of the WTO Agreement on Agriculture was reviewed, including limits on tariff and export subsidy levels, limits on the level of domestic agricultural support using non-exempt types of policies and programmes and market access commitments.
Market access commitments were revealed to be transparent and simple, confined to gradually declining tariff bindings that, for most agricultural products, were above the currently applied rates of both Turkey and the EU. As the applied tariffs must not exceed the bound levels, the upper limits were regarded as being unlikely to have a great effect on Turkey's levels of applied agricultural tariffs in the coming years. In fact, the EU schedule of tariff bindings proved to be more constraining to future Turkish agricultural policy decisions than its own.
It is possible, though not likely, that major declines in world market price levels in some product areas could encourage Turkey to raise applied tariffs to the maximum allowable level, in order to provide some degree of stability to domestic price levels. Only in this unlikely situation would these tariff bindings be policy-constraining.
Regarding export subsidies and the quantities of subsidized exports, export subsidy limits are expected to be the most policy-constraining of all WTO commitments. The consequences of several theoretical options to reduce the total volume of subsidised exports were considered, as were the two main types of export subsidies which are, in Turkey's case, subject to WTO limits: direct (payments to private sector exporters based on the level of exports) and indirect ("duty losses" on exports incurred by State Economic Enterprises - SEEs - involved in support purchases of exported products, later reimbursed by the Treasury).
In the 1986-88 base period all product aggregate measures of support (AMS) were found to be below 10% of the production value of each respective product, while the "non-product-specific" AMS was below 10% of the total farm production value, implying that the country's total AMS was zero. Consequently, Turkey's ongoing commitment is to keep its total AMS at zero. This was found to be a stringent requirement, giving Turkey less flexibility for increasing support in chosen product areas than most countries enjoy under their WTO domestic support commitments. Two alternative ways to calculate trade-distorting support for an individual product, that is, Aggregate Measures of Support (AMS) and Equivalent Measure of Support (EMS), and the consequences of using both methods in the Turkish context, were discussed extensively. The WTO domestic support commitment was considered unlikely to imply the need for any policy changes over the coming decade.
The basic analytical work undertaken related to the issue of whether or not to pursue the harmonization of Turkish support with the CAP and the extension of the CU to agriculture. It sought to provide information that would be useful to the Government in making its policy choices by focusing on four possible scenarios for 2005. Some important conclusions arising from the quantitative analysis performed for these policy scenarios were reached.
Under all scenarios, owing to high population and income growth rates, net imports of animal products and cereals would increase when compared to the base period. Turkey's overall level of food self-sufficiency was expected to decline and agricultural trade deficit to increase. Bringing agriculture into the CU would result in lower product prices than currently observed in Turkey for most products concerned and for agricultural products as a whole. Some product prices would be little affected by decisions to adapt Turkish support to CAP levels or to liberalize agricultural trade fully and unilaterally. Producer prices for most farm products would be lower in 2005 if Turkish support were adjusted to CAP levels in the interim. The livestock sector would be the most affected by a decision to extend the CU to agriculture or a decision to pursue trade liberalization unilaterally. In general, the price declines for fruit and vegetables expected under liberalization would be modest and these sectors would be much less affected in terms of income and production. The inclusion of agricultural products in the CU would not result in direct economic gains for Turkey. Finally, the liberalization of agricultural markets would lead to considerable welfare gains for Turkey compared to a situation in which the currently applied policies were maintained.
The distribution of potential benefits from longer-term liberalization proved to be very important. It appeared that overall net benefits reflected large net gains to consumers (including the processing sector), outweighing the accompanying large net losses to farmers.
Turkey's obligations under two agreements on the application of sanitary and phytosanitary measures and on technical barriers to trade were examined, and uniformity with its current agricultural import regime assessed, as a means of determining further measures to meet these obligations.
The project's food control consultants found nothing to suggest that Turkey was in violation of the substance or spirit of these agreements. However, the Government was advised to undertake a thorough comparison of the standards and associated regulations with those in the internationally agreed standards, and, in cases where the former were more stringent than the latter, to consider whether an adequate scientific or risk assessment-based justification existed.
It was recognized that preferential access to the EU market following the Association Agreement and progressively less restrictive access to many markets as a result of the liberalization achieved in the Uruguay Round, created even better opportunities for Turkish agricultural product exports. However, lower foreign tariffs were not found to be sufficient to encourage more trade as Turkish exporters must also be able to provide a product which not only satisfies the statutory technical, health and safety requirements of the importing country, but also the often more demanding specifications of importing firms in that country.
The project examined several WTO legal issues deemed to be of particular importance for Turkey. One was the rule concerning the formation of customs unions among member countries. In this context, given the exclusion of agricultural products at present, the legality of the EU/Turkey CU was drawn into question. In the opinion of the project, the special treatment of agriculture in the Turkey/EU CU was consistent with the special rules on interim agreements necessary for the formation of a CU.
Another important provision regarded the procedure to be followed when a member forming a CU proposes an increase of the duty for an item above its bound level. It was felt that, in the event of the CU being extended to cover agricultural products, Turkey would have to raise its tariffs on these products above their WTO-bound levels. In addition, the special provisions of the WTO for developing countries were found to be of particular importance for Turkey.
The functioning of Turkey's Agricultural Sales Cooperative Unions was carefully examined in the context of the WTO agreement. A legal scrutiny of Turkey's domestic support commitments confirmed that the use of an AMS to measure support may have been "practicable" for at least some products, implying that Turkey's use of an EMS for all products, rather than an AMS, might not have been justifiable. The project also concluded that the special provision for developing countries which exempts farm input subsidies, generally available to low-income or resource-poor farmers, from being counted in the AMS (or EMS) might not have covered Turkey's more-widely-available input subsidies.
No major inconsistencies were found between WTO commitments and EU association commitments, although it was noted that Turkey had much more flexibility under WTO rules to take certain derogation (e.g., safeguard) measures. This conclusion drew attention to privileges enjoyed by Turkey under the WTO, associated with its "developing country" status, which may have to be foregone in the event of extending the CU to cover agricultural products and which would certainly be lost in the event of full EU membership.
With respect to EU association commitments on primary products, Turkey was found to have a legal obligation to adopt certain CAP measures. This would be a prerequisite to bringing such products into the CU. However, as no time schedule was specified, Turkey would have to decide whether to adopt such measures quickly or over an extended period. In the former case, it would be advisable for Turkey to consult with the Council of Association (CA) before deciding which measures to adopt. A weak legal obligation on both sides to progressively improve the existing preferential arrangements on a mutually advantageous basis was pointed out.
With respect to processed agricultural products, the situation was found to be entirely different since all the provisions of the 1995 Decision on CU apply to these products. These provisions came into effect on or before 1 January 1996 and Turkey was found to have a legal obligation to take action to comply with them.
Three main issues related to the agricultural statistical system were examined. The first was the scope and quality of the current set of agricultural data, in particular the extent to which it met current and future needs for agricultural policy formulation. The second regarded the data requirements for monitoring Turkey's WTO commitments and any changes to Turkish agricultural statistics which would follow from its decision to include agricultural products in the Custom Union with EU. Finally, the project examined the rationale for, and present extent of, data storing on Turkish agriculture and other relevant data on electronic databases and the access to international databases by relevant persons and institutions in Turkey.
A comparison of the Turkish agricultural statistics system with the European model was carried out in order to identify areas in which the Turkish system may have to be strengthened as part of the process of making Turkish agricultural policy "CAP-compatible". Reasonably consistent conclusions were reached about the major existing gaps between the availability of agricultural statistics and the requirements for policy analysis purposes.
The project found a number of statistical deficiencies which appeared to hinder the monitoring of agricultural policies. Another finding referred to Turkish price statistics. The rapid rate of inflation and a lack of adequate methodology for price collection in Turkey was found to compound problems associated with price statistics. The current system of price collection was shown to be unable to explain differences that existed between internal and border prices, or between prices reported for different regions. With high degrees of unexplained differences between provincial averages, the meaningfulness of the calculated national average price was put into question. A paucity of farm-level income data and the absence of certain aggregate agricultural income measures were found to make the analysis of farm level impacts of price, cost or other changes on typical producers of particular commodities difficult.
The project found that more structural information than is currently available would be useful for policy purposes.
Turkey's agricultural policy delivery system was carefully examined. It was found to be very complex, involving a large number of public institutions. Depending on government decisions regarding the future direction of agricultural policies, the agricultural policy delivery system would need to be adjusted.
The role of the MARA as the leading agricultural institution was found to have been gradually undermined with only basic agricultural production activities left under its responsibility. Furthermore, the present framework of public agricultural institutions, with policy implementation responsibilities dispersed in different units and a decoupling of responsibilities for policy implementation and control of funds allocated to these policies, was found to burden the delivery system with transaction costs, creating unnecessary bureaucracy and tension among competent institutions. It was felt that the institutional set-up in its present form also complicated the monitoring of the impact of policies and subsequent feedback, thus contributing to the blurring of main policy objectives.
Deficiencies in the capacity of MARA staff were an important reason for the inability to provide a desirable level of leadership and coordination of agricultural policy. Little effort seemed to be made at ministry-level for the planning, coordination and evaluation of staff training activities. To strengthen MARA's analytical capacities in the field of a quantitative agricultural policy analysis, a review of econometric models used worldwide and suitable for agriculture and trade policy analysis was provided.
On the basis of the conclusions of the quantitative analysis, it is recommended that the Government:
1. Make a choice about basic agricultural policy options it wishes to pursue over the next decade, and that it make that decision clearly known to all involved in or with the Turkish agri-food industry. The basic options are: i) status quo: only minimal changes to existing policies as required by international obligations; ii) alignment with EU/CAP and extension of CU to agriculture; and iii) unilateral liberalization.
2. Rethink its position on "self-sufficiency" and "food security", recognizing that:
- expected rapid growth in Turkish domestic demand for most products is going to outstrip growth in supply;
- in 2005, Turkey will almost certainly be in a net import position for many commodities, including wheat, maize, rice, sunflower, dairy products, beef, sheep meat and poultry and for agricultural products on aggregate;
- the list of products for which Turkey will retain a clear export surplus is rather limited, but would include tea, tobacco, hazelnuts, sultanas, tomato paste, olive oil and lemons;
- under free trade conditions, producer prices for a given farm product will be higher if Turkey is in a net import position than if it has an export surplus of that product;
- for "borderline" products, which probably include fresh tomatoes, apples, oranges, melons, cucumbers, peppers, grapes, table olives and barley, efforts to stimulate faster production in order to create a net export situation may, aside from any fiscal cost, be counterproductive in terms of farm income, although such a situation would be beneficial to the export competitiveness of the Turkish processors of such products;
- international trade agreements and rules are a means to ensure secure access to food imports.
3. Move away, ultimately, from all forms of commodity price support (support purchases, export subsidies, tariffs) and agricultural input and credit subsidies as a means of farmer income support.
4. Eliminate all remaining support prices and intervention purchases within the next two or three years.
5. Privatize the remaining commodity SEEs (TMO, SEKER, TEKEL, CAYKUR) over the next two or three years.
6. Eliminate all farm input and credit subsidies over the next two or three years.
7. Begin, in about the year 2000, a scheduled unilateral phasing down and out of tariff protection for all agricultural products, to be completed in a five-year period.
8. Simultaneous with the phasing out of tariffs, phase in a new product-neutral, targeted, direct-payment farm income support programme.
In order to compensate for the large net losses incurred by farmers by means of a direct income support payment programme, a reduction of the present losses sustained by the Turkish Agricultural Bank (TCZB) on agriculture is suggested as a way of increasing fiscal efficiency. An additional opportunity for fiscal savings would be provided by the privatization of the SEEs and the subsequent elimination of credit subsidies of the TCZB, particularly to non-farmer clients.
It is recommended that a body of trained and specialized inspectors be created, to be located within the proposed General Directorate of Protection and Control in the MARA, and that a system of food analysis laboratories be established at export and import centres under the centralized control of the Directorate. Training programmes for the Turkish food industry should also be set up.
Turkey is in a transitional phase, with the first comprehensive food law, passed in 1995, not yet fully implemented. There are two areas in which food control regulations should be strengthened. First, the Government should have the power to prohibit food export under certain conditions. Second, inspectors and other authorized persons should be given the authority to enter food establishments, seize the product and stop production. In addition, export food control would be more efficient if it were carried out by an autonomous food control agency or by the Ministry of Agriculture.
Although a significant part of the Turkish food industry already meets EU food safety standards, a cooperative government/industry effort should be made to raise the quality performance of all Turkish food manufacturing establishments to EU standards.
Regarding processed agricultural products, the necessary action should be taken in the areas of competition policy, state aid rules, state monopolies, anti-dumping measures and the harmonization of laws.
It is recommended that the formulation, implementation and assessment of agricultural and fisheries policies be concentrated in a single ministry, which, to distinguish it from the current MARA, from which it should evolve, should be referred to as the Ministry of Agriculture, Fisheries and Food.
It is recommended that a more comprehensive study of training activities and needs in the MARA be undertaken. With less emphasis in the future on foreign training, the funds available should be used mainly for training not available in Turkey, as well as for the preparation of a comprehensive training plan including a clearly defined policy component. It is also recommended that project counterpart staff undertake further quantitative analysis with the models developed, which should be maintained, updated as necessary and drawn on consistently for future economic analysis. Future custody of the electronic database developed by the project should be clearly identified. The MARA should develop and maintain supply-utilization tables for all important farm product processing sectors and make more use of the Organization for Economic Cooperation and Development Producer and Consumer Subsidy Equivalents calculations and related database for its own policy purposes, devoting more effort to monitoring EMS levels.
Findings and Conclusions. Ministry of Agriculture and Rural Affairs of Turkey/FAO. D. McClatchy. November 1997.
Implications of Turkey's Commitments under the WTO and Possible Impacts of a Potential Extension of the Customs Union with the EU to Include Agricultural Products. Ministry of Agriculture and Rural Affairs of Turkey/FAO. H. Grethe. Ankara. November 1997.
Implications of Policy Reform on Agricultural Institutions in Turkey. Ministry of Agriculture and Rural Affairs of Turkey/FAO. C. Ertugrul, I. Yalcin and F. Mombiela. Ankara. November 1997.
Institutional Aspects of Agricultural Policy Formulation Process in the European Union. K.J. Thomson, P.J. Snowdon and J.M. Egdell. Aberdeen. September 1996.
Implications of Policy Reform on Agricultural Statistics in Turkey. Ministry of Agriculture and Rural Affairs of Turkey/FAO. P.J. Lund. Ankara. March 1997.
Implications of Policy Reform on Food Control. Ministry of Agriculture and Rural Affairs of Turkey/FAO. W.C.K. Hammer and M. Pala. Ankara. September 1996.
Legal Implications of Policy Reform in Turkey. Ministry of Agriculture and Rural Affairs of Turkey/FAO. G. Oz and A. Mencik von Zebinsky. Ankara. November 1997.
Consultancy on Agricultural Trade. Ministry of Agriculture and Rural Affairs of Turkey/FAO. A.H. Akder. Ankara. January 1997.
Review of Economic Models of the Agricultural Sectors of Turkey and Other Countries. Ministry of Agriculture and Rural Affairs of Turkey/FAO. J.C. Beghin. Ankara. May 1997.
Analysis of Turkish Agricultural and Related Sectors' Databases and Designing a Functional Database Model for Policy Analysis for MARA. Ministry of Agriculture and Rural Affairs of Turkey/FAO. S. Cagatay. Ankara. January 1997.
Agricultural Policy in Turkey: Recent Developments and New Direct Payment Options. Ministry of Agriculture and Rural Affairs of Turkey/FAO. H. Esin and R. Yeni. Ankara. Undated.
Consultant Report on Training Activities. Ministry of Agriculture and Rural Affairs of Turkey/FAO. G. Eraktan. Ankara. December 1996.
GATT Agreement and Turkish Agriculture. Paper prepared for Project Workshop. H. Akder. Ankara. September 1996. 3 pp. and tables.
Review of Econometric Estimates of Supply and Demand Elasticities and a Consumption Projection Model for Turkey. Mimeo. J.C. Beghin. May 1997. 31 pp.
Analysis of Turkish and Related Sectors' Databases and Formation of a Functional Database for APK in MARA. Background paper prepared for Project Workshop. S. Cagatay. Ankara. September 1996. 23 pp.
Multi-Regional Agricultural Sector Model for Turkey. Paper prepared for Project Workshop. E.H. Cakmak. Ankara. September 1996. 10 pp.
Relations Between EU and Turkey in the Field of Agriculture. Background paper prepared for Project Workshop. C. Ertugrul. Ankara. September 1996. 4 pp.
Consultancies on Institutions: Interim joint report. C. Ertugrul and I. Yalcin. Ankara. October 1996. 84 pp.
The Customs Union between EU and Turkey, Current State and Implications of an Extension to Include Agricultural Products. Background paper prepared for Project Workshop. H. Grethe. Ankara. September 1996. 10 pp. and appendices.
Report on Modelling Methods for Sectoral Trade Analysis in Turkey. Mimeo. R.E. Howitt. September 1996. 4 pp.
Turkish Agriculture: Resources, Institutions and Policy, 1960-1995. Background paper prepared for Project Workshop. H. Kasnakoglu. Ankara. September 1996. 46 pp.
Export/Import Food Control in Turkey. Background paper prepared for Project Workshop. M. Pala and K. Hammer. Ankara. September 1996. 6 pp.
Comments on Project Results. Background paper prepared for Project Workshop, S. Tangermann. Ankara. June 1997. 4 pp.
Background Paper for Agricultural Institutions. Background paper prepared for Project Workshop. I. Yalcin. Ankara. September 1996. 6 pp.
Issues and Options for Turkey in Meeting WTO Commitments and Preparing for Future Negotiations in Agriculture. Supplementary and confidential report. D. McClatchy. Forthcoming.