Report No. 1684-TU Turkey Agricultural Sector Survey (In Two Volumes) Volume 1: General Report and Appendixes June 23, 1978 Projects Department Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS- DECEMBER 1976 L US$1.00 = 16.5 Turkish Lira (LT) LT 1.00 = us$o.o6 WEIGHTS AND MEASURES Metric System British/US System 1 kilogram (kg) = 2.2 pounds 1 metric ton (ton) = 2,205 pounds 1 millimeter (mm) = 0.04 inch 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 mile 1 hectare (ha)=10 deca es (da) = 2.47 acre 1 square kilometer (km) = 0.386 square mile 1 liter (1) = 0.264 gallon 1 cubic meter (3) = 35.28 cubic feet 1 million cubic meters (Mm3) 810.7 acre feet 1 liter per second (1/sec) = 0.04 cubic feet per second GLOSSARY OF ABBREVIATIONS DSI - Ministry of Energy and Natural Resources' General Directorate of State Hydraulic Works EBK - Meat and Fish Organization FFYP - First Five-Year Plan (1963-1967) LRO - Land Reform Organization MA - Ministry of Food, Agriculture and Livestock MF - Ministry of Forestry MVA - Ministry of Village Affairs SEE - State Economic Enterprise SFYP - Second Five-Year Plan (1968-1972) SIS - State Institute of Statistics SPO - State Planning Organization TCZB - Agricultural Bank TEK - Turkish Electricity Authority TFYP - Third Five-Year Plan (1973-1977) TMO - Soil Products Office TOPRAKSU- MVA's General Directorate of Land and Water Resources Development TSEK - Milk Organization TSF - Turkish Sugar Factories Corporation TZDK - Agricultural Supply Organization GOVERNMENT OF TURKEY FISCAL YEAR March 1 - February 28 LI At the time of the mission's visit to Turkey, On March 31, 1978, the exchange rate was US$1.00 = 25.25 LT, FOR OFFICIAL USE ONLY TURKEY AGRICULTURAL SECTOR SURVEY VOLUME I - GENERAL REPORT AND APPENDICES TABLE OF CONTENTS Page No. PREFACE ...............................................i SUMMARYY ................................................ ii I. ROLE AND PERFORMANCE OF AGRICULTURE .....................1 A. Agriculture's Role in the Economy ..................1 B. Growth in Agricultural Output ......................2 C. Agricultural Trade ........ ......................... 3 D. Population and Employment .. E....................... 4 E. Labor Productivity and Income ..................... S 5 F. Regional Growth and Income Disparities .............6 G. Land Use, Productivity and Consumption of Agricultural Output ............................ 6 II. IMPACT OF GOVERNMENT POLICIES ON THE STRUCTURE AND PERFORMANCE OF AGRICULTURE 8 ........................... 8 A. Investment Policy 8 ................................. 8 B. Prices and Subsidies Policies ......................12 C. Agricultural Credit Policies ...................... 15 D. Land Policy ........................................ 18 E. Rural Development ................................. 21 F. Income Distribution ...................... 24 III. PUBLIC INSTITUTIONS IN AGRICULTURE: AN ASSESSMENT 27 A. The Institutional Framework ........................27 B. Agricultural Planning and Policy Coordination 28 C. Policy and Program Implementation ..................29 IV. COMMODITY OUTLOOK AND AGRICULTURAL DEVELOPMENT STRATEGY. 32 A. Demand and Production Prospects of Major Commodities .................................... 32 B. Implications for Agricultural Development Strategy. 36 V. MAJOR SECTOR ISSUES .................................... 38 A. Policy and Program Coordination ....................38 B. Small Farmers' AMcess to Institutional Credit 40 C. Cost Recovery i?n'ublic Investment Projects , 41 This document has a msricted distributlom a may be used by rcipients only in the perforncrwe of their offica dutli. Its cntents may n owmwlsg be disclosd without Word Dnk authorization. Table of Contents (Continued) Page No. VI. PROJECT POSSIBILITIES AND PROPOSED SECTOR WORK PROGRAM . 43 A. Project Possibilities ........................... . .43 B. Proposed Sector Work Program ...................... 45 APPENDIX: PROJECT POSSIBILITIES ................................. 48 STATISTICAL APPENDIX ............................................. 61 MAP: IBRD 12914R - General Features and Village Population Density TURKEY AGRICULTURAL SECTOR SURVEY PREFACE This report presents the findings of a mission which visited Turkey in November-December 1976 to review the performance and structure of the agri- cultural sector and to provide a framework for future Bank lending to agri- culture. 1/ ii. Under its general terms of reference, the mission's functions were to assess: (a) the long-term trends of agriculture's contribution to the national economy; (b) the structure of the sector in terms of its resource base, allocation of resources, composition and technology of pro- duction, socio-economic organization in rural areas, and the distribution of the benefits of agricultural growth; (c) the strategy, policies and programs of the government affecting the agricultural sector, particularly those which influence the intersectoral and interregional allo- cation of resources, the level and distribution of income and employment, productivity and trade; (d) the structure and performance of the public institutions and enterprises in the agricultural sector; and (e) the possibilities for future external financing in the sector. iii. Prior to the mission's departure, the Bank had supplied the Turkish authorities with a preparation note and a list of data and other information required by the sector mission. Most of this information and additional data requested by mission members in the field were supplied by the government. As a result of constraints on the State Planning Organization at that time to meet with the mission, only limited information was obtained on recent sectoral performance, projections for the Fourth Five-Year Development Plan 1/ The mission consisted of Messrs. H. van Wersch (Chief of Mission), N. Worker (Livestock Specialist), H. Floyd (Agricuilturalist), S. Faruqi (General Economist) and Ms. S. Fukuda-Parr (Agricultural Economist/ Anthropologist), Bank staff, and Messrs. R. Christensen (Agricultural Economist), T. Daves (Agricultural Economist), J. Gerring (Veterinar- ian) and J. Robins (Irrigation Engineer), consultants. Mr. R. Wilson, consultant, estimated the demand and supply trends for agricultural commodities, and Ms. G. Larouche provided statistical assistance. period were unavailable, and discussions regarding future policy orientations could not be held with them. iv. Therefore, the report's treatment of recent sectoral performance, demand and supply projections, future government strategy, policies and programs and most of the project possibilities identified reflect the limita- tions mentioned above. They should therefore be viewed with some circumspec- tion, especially since the new government, which came into power only in January 1978, is in the process of formulating new strategies and targets for the Fourth Five-Year Development Plan to be finalized by late 1978. v. For all purposes, therefore, this report represents the view of the sector and its potential based on limited information available only up to late 1976. To the extent that some of the approaches, policies or strategies have been or are in the process of being modified by the new government, which could have an impact on the sector's current contribution to the economy and its future potential, this could not be reflected in this report without an extensive updating mission and discussions. Hence, these have, to the extent possible, only been touched on cursorily. vi. The report consists of a relatively short main text, which focuses on issues, an appendix listing possible projects identified by the mission, and a statistical appendix, all in Volume I, and eight self-contained annexes supporting the analysis in the main text with descriptive and analytical details on subsectors, key policies and institutions, in Volume II. SUMMARY i. Turkish agriculture has considerable potential for development. However, the government's development strategy, particularly since the early 1960's, has leaned heavily toward industrial development, with agriculture given a supporting role to play. Still, agriculture's declining contribution to total GDP, which fell from 38% in 1963 to 25% in 1975, can only in part be attributed to the sector's reduced share in public investments, since the latter was more than offset by a sharp increase in private investments. A major factor in the reduction of agriculture's contribution to economic growth is believed to be its relatively low productivity, in terms of both public and private resources. ii. From 1963-65 to 1973-75, total GDP rose 88% while agricultural GDP rose 28%, representing average annual compound growth rates of 6.5% and 2.5%, respectively. Agricultural output growth over the period 1963-75 has fallen substantially short of Plan targets and has not kept pace with the demand for food products, per caput availability of which has actually declined by an estimated 0.5% p.a. In sharp contrast to this stands the dependence on agriculture of 56% of the country's labor force and 63% of its population and the important contribution of the sector to total export earnings, both directly and through its role as a major supplier of export industries. iii. In the early 1960's, the expansion of cropland, which had been the major source of agricultural output growth, slowed down but overall produc- tivity increased only 1.5% p.a. over 1963-75, mostly from yield increases in industrial crops. Labor productivity has increased faster in agriculture than in other sectors; this, together with the decline in agricultural employ- ment, suggests a reduction in underemployment in the sector. Still, both agricultural labor productivity and income levels remain at only about one- fifth of those outside agriculture, despite high price supports and sub- sidies to farmers. iv. Considerable increases in agricultural growth could probably be realized without major increases in public expenditures, if these were more efficiently allocated and if a number of institutional reforms and structural measures were undertaken that could greatly increase resource productivity. The productivity of public investments could be raised by giving priority to projects with short gestation periods and expected high returns. One implica- tion of this would be that some major irrigation projects would have to be rescheduled. More attention should also be given to policies that could orient private investments more toward socially productive purposes. v. While the vast and costly agricultural price support policy has been successful in stabilizing market prices of crops, its limited direct effect on productivity and resource use and its adverse effect on income distribution in rural areas raise serious questions about the justification of this policy in its present form. Consideration should be given to use government price supports and subsidies more effectively for improving com- petitiveness, equity and productivity in agriculture which may at th.e same - iv - time permit a reduction in their cost to the Treasury. It is understood that the new government, which came into power only in Janaury 1978, is aware of this problem and is considering ways of using price policies more effectively. vi. Resources allocated to farmer support services are insufficient and agricultural credit funds are not fully achieving their purposes. Even at present resource levels, productivity of these services could be significantly increased if certain institutional bottlenecks were overcome. vii. Although they are manifested in numerous ways, the institutional constraints on agricultural development can all be related to the inability of the public institutions to formulate and implement a coherent set of policies for the agricultural sector. This condition is attributed to the diffused responsibility for agricultural planning and policymaking both among and within agencies; to the limited staff capacity to analyze planning and policy options; and to insufficient coordination, among and within agencies, in imple- menting programs and policies. Recommendations to overcome this fundamental constraint are offered, but it is realized that these cannot be implemented quickly and simultaneously. However, a piecemeal approach to institutional reform, linked to the introduction of high-priority programs and projects, appears feasible. viii. Prioritv should be given to removing those institutional obstacles that stand in the way of a reorientation of investment priorities towards quick-yielding projects, strenigthening of technical and financial support services, and providing a sharper development focus to price support and subsidies policies. ix. The medium- to long-term commodity outlook, to the limited extent it could be ascertained in view of the constraints outlined in the Preface, reveals major shifts in the composition of production and trade. Self- sufficiency in foodgrains appears within reach, with exportable surpluses in good crop years; cotton and sugar export surpluses would increase substan- tially; but the country would become heavily dependent on imports to meet the fast-rising demand for livestock products and, to a minor extent, even for vegetables. Whether or not the government expects these changes to take place, in either case it will have to examine the sector implications and adjust sector policies accordingly. x. In line with the report's conclusions, a number of project possi- bilities have been identified which, together with the proposed sector work program, could prompt the initiation and/or assist the implementation of the most important policy and institutional changes. I. ROLE AND PERFORMANCE OF AGRICULTURE A. Agriculture's Role in the Economy 1.01 The structure of the Turkish economy has undergone a substantial transformation due to its rapid growth and industrialization since the estab- lishment of the Republic in 1923, and more particularly after the introduction of state economic planning in the early 1960's. Turkish development strategy has reflected the belief that economic development must be based primarily on industrial development, with agriculture playing a supporting, but nevertheless substantial, role. Agriculture's role was essentially to meet the growing domestic requirements for food and fiber and to earn foreign exchange needed for heavy imports of industrial equipment. Agriculture's Share in the National Economy (percent) 1963 1968 1972 1975 GDP 38.1 30.7 28.2 24.7 Population (rural) 71.6 66.6 63.5 62.6 Civilian Employment 76.9 69.1 64.4 60.8 Fixed Investment 13.8 15.1 11.0 11.0 of which Public 16.1 17.7 9.3 9.1 Exports 77.7 81.9 68.6 56.6 Imports 15.8 8.3 11.2 8.6 Source: Tables 1.1, 1.6, 1.7, 1.8, 1.10, 1.13. 1.02 Agriculture's secondary role in Turkish development strategy is reflected in several ways. The share of the sector in total GDP has con- tinuously declined from 38.1% in 1963 to 24.7% in 1975. Agriculture's share in public investment has fallen from a relatively low 16.1% in 1963 to 9.1% in 1975, in line with a 2.9% average annual real increase in public investments for agriculture versus a 19.2% average annual real increase for manufacturing over the period 1963-75. However, private investment in agriculture has in- creased at an average annual rate of 13.6% over this period, enlargina its share in total agricultural investments from 36.3% in 1963-65 to 60.6% in 1973-75 (Table 1.6). 1.03 In spite of its subordinate role in the development strategy, the agricultural sector remains predominant as an employer of 55.8% of the labor force (down from 74.7% in 1963) and as a source of export earnings, 56.6% in 1975 as compared with 77.7% in 1963. The sector also provides an important share of the raw materials required by domestic industrial production, thus contributing significantly to the output and export performance of the in- dustrial sector. This prominence of the agricultural sector is expected to persist in the medium run, a continuing emphasis on industrialization notwithstanding. -2 1.04 Given the basic development strategy -- and agriculture's poor record of response to past public investments -- the investment balance be- tween agriculture and industry has probably been fair. As will become clear in the following sections it is more the allocation of resources within the sector than the total level of expenditures in agriculture that is critical as long as the sector's capacity to absorb a higher level of public investments remains constrained by the present institutional bottlenecks. B. Growth in Agricultural Output 1.05 The long-term performance of the agricultural sector has been disappointing. Annual Real Growth Rates, 1963-65 to 1973-75 (%) Total Agric./Rural Other Sectors Population 2.5 1.4 4.9 Civilian employment 1.4 -0.7 6.1 GDP (in 1968 prices) Total 6.5 2.5 8.3 Per rural person/l n.a 1.2 3.1 Per agricultural worker/I n.a 3.1 2.0 /1 Reflecting the shifts between rural and urban population and between agricultural and non-agricultural employment. With constant population and employment, these growth rates are the same as those of total GDP. Source: Tables 1.10, 1.13, 1.14, 1.15. Agricultural GDP has increased at a compound annual rate of only 2.5% during 1963-75, compared with Plan target rates of 4.2% for the FFYP (1963-67), 4.1% for the SFYP (1968-72) and 3.8% for the TFYP (1973-77). Total GDP growth of 6.5% p.a. has come much closer to attaining the targets of 6.9%, 6.8% and 8% of the FFYP, SFYP and TFYP, respectively. The gross value of agricultural production, similarly, grew only 2.4% per year over the same period. Agri- cultural output has not increased rapidly enough to meet the growing demand for food products resulting from population and income growth (Table 1.5). Population has increased at an annual rate of 2.5% and GDP per caput at a rate of 3.9%, so domestic demand for food has risen between 4 and 5% per annum. However, food production has only increased by 1.9% per annum and actually declined by 0.5% per annum on a per caput basis. Rising relative prices for livestock products and edible oils in recent years reflect the failure of production to keep pace with rising demand for these products. In contrast, export crops have performed substantially better, particularly during the 1970's, showing an average annual growth rate of 4.5% over the period 1963-75. -3- C. Agricultural Trade 1.06 Agricultural exports make up more than one-half of Turkey's foreign exchange earnings from merchandise exports (Table 1.7). Industrial crops, notably cotton and tobacco, and nuts, fruits and vegetables are the main items, together accounting for 85% of agricultural exports. With the exception of tobacco, exports of these items have grown faster than total agricultural exports over the period 1962-75. During this period agricultural exports increased 9.7% per annum in current value terms as compared to a 12.7% p.a. increase in total exports. Agriculture's declining share is due primarily to the rapid growth of industrial exports of 18.9% p.a. 1.07 The competitive position of Turkey's agricultural exports, espe- cially cotton and tobacco, depends partly on subsidies such as through price support and irrigation cost recovery policies. The 1970 devaluation of the Turkish lira and, since then, periodic exchange rate adjustments have served to adjust domestic to international price structures and thus maintain the competitiveness of exports in world markets. These adjustments, however, seem to have been insufficient to boost agricultural exports which face a rather weak demand with important year-to-year price fluctuations. Long-term price developments for agricultural export commodities have been less favorable than those of manufactured goods, thus leading to an erosion of the terms of trade. 1.08 Tentative 1/ data on agricultural imports show that agricultural imports increased 14% p.a. over the period 1962-75, with most of the increase occurring after 1971 when imports more than tripled owing to rapidly expanding imports of agricultural inputs and machinery (excluding fuel) and substantial imports of cereals in 1974 and 1975 due to the grain crop failure of 1973. Traditionally, imports of agricultural commodities have consisted of essen- tial food items needed to tide the courntry over the year-to-year fluctuations in domestic production, as evidenced by the sharp variations in importation of cereals and fats and oils over the past 15 years. With the exception of a few bad crop years and a few commodities such as coffee and spices, agricul- tural imports have been at best marginal to the cotal domestic food require- ments (Table 1.8). 1.09 Imports of agricultural production factors are sizeable and have been growing faster than total agricultural imports. Fertilizer imports in- creased almost 28% p.a. and tractors 23% p.a. over the period 1962-75. These reflect the trend of increasing capital intensity and rising capital/labor ratio of agriculture consistent with rapid industrialization and i2ighly capital-intensive investment in the economy as a whole. Despite increasing domestic production of some types of fertilizer, the country continues to depend on the importation of others. 1/ Because of the nature of statistical reporting of imports and limitations on data available to the mission. -4- 1.10 Total agricultural imports, however, remain a relatively small pro- portion of the total import bill. Their average share of total imports was 13.4% in 1962-64 and continuously declined to 9.9% in 1973-75 in spite of the surge in the import of cereals during 1974 and 1975. 1.11 On balance, despite its favorable performance, agricultural trade has not been able to temper much the dramatic increase in the balance of trade deficit that developed during the 1970's (Table 1.9). Further erosion of agriculture's share in total exports can be expected in the future. The level of the agricultural trade surplus will depend largely on whether or not the government permits a continuation of the present commodity trends (see Chapter IV). D. Population and Employment 1.12 Development strategy has been to rely heavily on industrial growth to provide employment orDortunities for the growing labor force. But new jobs have not been created rapidly enough to absorb the growth in the labor force from the rural as well as the urban population causing unemployment and under- employment rates to remain high. In spite of the principal role given to industry in the development plans, agriculture remains the main source of income of 62.6% o,' the population. From 1963 to 1975, the proportion of the population emnloyed in agriculture declined by 21% while the proportion of the population living in rural areas decreased by only 13% (Tables 1.10 and 1.13). 1.13 Economic pressure on rural people to find ways to improve their incomes has encouraged three kinds of migration: (a) migration to cities to find temporary or permanent jobs outside of agriculture, (b) seasonal migration to exploit agricultural labor shortages in other regions during peak seasons, and (c) migration to foreign jobs. The latter two types of migration have been economically desirable but the first type has caused serious problems in urban areas due to limited growth of employment opportunities and lack of housing and related amenities. 1.14 Table 1.11 provides an estimate of rural-urban migration over the period 1965-75. Based on an estimated natural population growth of 2.1% p.a. in urban areas, the table shows that the rural areas lost about one-half of their natural increase in population to migration. Conversely, migration caused the urban population to grow by some 3,536,000 persons or 62% of the actual increase in urban growth. Net rural population growth was about 1.4% p.a. over this period. Rural population densities, measured in terms of village population densities 1/, were 26.2 and 30.5 persons/km2 in 1965 and 1975, respectively. The regional distribution of rural population shows the highest densities in the Marmara and Black Sea regions, 51-52 persons/km2, and the lowest in the three eastern regions, 18-21 persons/km2 (Table 1.12 and Map IBRD 12914). 1/ Village population is about 7-8% less than rural population as defined at present (inhabitants of localities of 10,000 or less). Only village population numbers were available by region. -5- 1.15 The rural labor force is estimated at 9.8 million in 1975 of which about 90%, or 8.7 million, are engaged in agriculture. Surplus labor in agri- culture at the peak employment season has been estimated at 750,000 persons in 1975, or 8.6% of-the agricultural and 5.2% of the total civilian labor force (Table 1.13). Agricultural surplus labor has been declining from a 910,000 peak in 1967 and is expected to continue this trend. The labor- displacing effect of rapid mechanization in recent years is believed to have been offset by labor migration both to the cities and until recently to foreign countries. Employment in non-agricultural sectors has increased by an estimated 5.8% per year over the period 1965-75, but this rate would have to increase to more than 8% p.a. to absorb the projected increase in the total labor force over the next decade. This points to the need to place more emphasis on creating employment opportunities in rural areas. E. Labor Productivity and Income 1.16 With the actual employment levels reflecting migration from agricul- tural to non-agricultural occupations, overall productivity per worker rose faster than productivity per worker in either the agricultural or non-agricul- tural sectors, as labor shifted from lower-productivity to higher productivity rises. GDP Per Worker, 1963-75 1963-65 1973-75 Growth 1963-65 to 1973-75 With Constant With Actual Constant Actual 1963 Employ- 1973-75 Employment Employment ment Level Employment Total Average Total Average Level p.a. p.a. ---------------- LT ----------------------------- % ----------- Total 6,393 11,978 10,379 87.4 6.5 62.3 5.0 Agricultural 3,047 3,889 4,148 27.6 2.5 36.1 3.1 Non-agricultural 16,915 37,517 20,629 121.8 8.3 22.0 2.0 Source: Tables 1.13 and 1.14. Labor productivity as measured by GDP per worker has improved slightly more in agriculture than in non-agricultural sectors, 3.1% versus 2.0% p.a. in real terms over the period 1963/65 to 1973/75. The difference can at least in part be explained by the decline in agricultural employment over the same period. However, labor productivity still averages almost five times as high in non- agricultural sectors as in agriculture without any significant change in this ratio for the past ten years (Table 1.14). 1.17 Income levels as measured by GDP per person in current prices have increased at virtually the same rate for the agricultural and the non-agricul- tural population over the period 1963/65 to 1973/75 (Table 1.15). Incomes -6- continue to average well over five times as high in the non-agricultural as in the agricultural sector. In fact, over the same period the ratio has deteriorated by about i7% in favor of non-agricultural incomes, when measured in real terms (Table 1.16). 1.18 Improvement of productivity and income levels in the agricultural sector depend on the success of measures to accelerate growth of agricultural output. Opportunities for doing so exist because of favorable domestic markets for commodities such as livestock products, oilseeds and vegetables, and because of Turkey's advantage in export markets stemming from its low opportunity cost of labor. F. Regional Growth and Income Disparities 1.19 The regional distribution of agricultural production, rural popu- lation and productivity levels suggest important regional characteristics (Tables 1.12, 1.17, 1.18 and 1.19). Real growth rates by regions for value of agricultural production, rural population and value of agricultural produc- tion per rural person for the period 1963-74 provide approximate measures of gain in agricultural production, productivity and income levels (Table 1.19). Over the period 1963-74, regional disparity is indicated by annual rates of growth ranging from -0.5% to 5.1% for agricultural production, from 0.7% to 2.5% for rural population, and from -2.0% to 3.1% fcr agricultural production per rural person. The peripheral regions, Mediterranean, Aegean, Marmara, Black Sea and Southeast, stand out as having the fastest growXth in total agricultural output during the period 1963-74. The pattern of growth in agricultural production per rural person differs somewhat from that of total production. Because of differential rural population growth rates, higher in the Marmara and Southeast than elsewhere due to lower rural-urban migration rates from these regions, these regions show markedly lower increases on a per caput basis. The three Central Anatolian regions had the lowest rates of growth in both total and per caput output even though their rural popula- tion growth rates were among the lowest. Indeed, along with the poor resource base low income growth has probably been a major determinant of the rate of out-migration from these regions. 1.20 In addition to income disparities among regions, considerable variation exists in the degree of income distribution within regions due to variability in physical resource endowment, land ownership and landholding patterns, degree of commercialization and access to credit and farmer services (para 2.47). - G. Land Use, Productivity and Composition of Agricultural Output 1.21 Over the past 50 years total crop area has more than tripled, in response to increasing population pressures. Much of this expansion in crop land occurred during the 1930's and 1950's, when crop area per rural person increased. Since about 1960, the average annual rate of increase in crop land is only about one-half of that of rural population, indicating that the -7- possibilities for expansion are becoming exhausted. The more recent additions to the cropped area have a much lower productivity in crop use than the land coniverted earlier. The increase in crop area has been achieved at the expense of village common lands and land under state ownership both formerly used as grazing lands. This has led to extensive plowing of steep hillsides, severe over-grazing of the remaining grazing lands and destruction of vegetation on large tracts of previously forested land. While these land use shifts so far have had a positive effect on food supply, it is becoming increasingly clear that with the rapid deterioration of soil resources resulting from the increase in crop area and the development of yield-increasing technology which gives more favorable responses on the better lands, production of annual crops on these marginal crop lands should be discouraged (Annex 6). 1.22 According to a government study, more than 17 million ha of the total land area of 78 million ha are used inappropriately. Land misuse in rainfed areas is most serious; fully 55% of the land in rainfed crops should be shifted to other uses. The major effect of the present land misuse is the loss of potential production and income, the latter affecting particularly the lower-income farmers. Land misuse and inappropriate cultivation, grazing and conservation practices have given rise to a serious erosion problem. One government agency estimates that 54% of the total land area is subject to severe erosion, of which 17% is classified as very severe. 1.23 Productivity, defined as the gross value of production per unit of crop land, actually decreased during the 1950's as crop land increased by about 50% compared with an increase in agricultural output of 35%. In the early 1960's this situation had changed as the expansion of the cultivated area slowed down. Still, productivity over the period 1963-75 increased only about 16% or 1.5% per year. Productivity growth has been highest in indus- trial crops, notably cotton and sugarbeets. Food crops have shown only small productivity increases while livestock productivity as a whole has declined. 1.24 The composition of agricultural output over the period 1963-75 is summarized below. -8- Commodity Composition of Gross Value of Production, 1963-75 (in 1968 prices) (Percent) Change 1963-65/ 1963 1964 1965 1970 1973 1974 1975 1973-75 Total Crops 70.3 68.1 67.3 68.7 65.8 71.1 66.6 24.9 Cereals 36.6 30.5 33.0 26.3 19.1 24.4 25.2 -12.8 Pulses 2.1 2.2 2.1 1.8 2.0 2.1 1.9 18.0 Industrial crops 19.2 21.2 19.3 19.2 19.6 20.2 18.0 22.2 Fruits and nuts 12.4 14.3 12.9 158 14.7 15.1 14.6 41.3 Vegetables n.a. n.a. n.a. 5.6 10.4 9.3 6.9 n.a. Total Livestock Products 29.7 31.9 32.7 31.3 34.2 28.9 33.4 28.6 Red meat 12.3 13.4 14.2 14.4 18.1 13.5 9.7 27.4 Milk 13.9 14.8 14.6 12.8 11.3 10.3 10.7 -6.3 Poultry 0.7 0.8 0.9 1.0 1.2 1.0 2.1 119.5 Wool, mohair, hair 1.3 1.5 1.6 1.2 1.4 1.3 1.2 11.3 Other 1.5 1.4 1.4 1.9 2.2 2.8 9.7 /I - /1 Grand Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 26.0 /1 Items included in this category differ substantially between 1975 and previous years; therefore growth rate is not meaningful. Source: Table 1.3. The ratio between crop production and livestock production has been around two tQ one, with a slightly higher growth in total livestock production over the period. The share of cereals production has decreased substantially while that of industrial crops and fruits and nuts has increased. Within livestock pro- duction milk output has decreased significantly while poultry output more than doubled. The table also shows the fluctuations over time in the composition of output which are particularly marked for cereals and red meat. II. IMPACT OF GOVERNMENT POLICIES ON THE STRUCTURE AN-D PERFORMANCE OF AGRICULTURE A. Investment Policy 2.01 The allocation of public investment resources has been the principal instrumenit of the government in pursuing its development strategy. Investment policy therefore reflects the government's traditional emphasis on industrial development as can be seen from the following table: -9- Sectoral Distribution of Public Investments by Plan Period, 1963-77 (Percent) Average Annual FFYP SFYP TFYP 2 Increase Sector (1963-67) - (1968-72) (1973-77)/ 1963-75'' 1963-65/1973-75i1 Agriculture 15.3 11.8 11.7 13.1 2.9 Industry 31.3 37.7 45.4 39.3 14.8 Other 53.4 50.0 42.9 47.6 9.6 Total 100.0 100.0 100.0 100.0 10.6 /1 Actual. /2 Planned. Source: SPO. Over the period 1963-75, industry received three times as much public invest- merlts as agriculture and agriculture's share of public investments decreased while industry's share increased at the expense of "both agriculture and other sectors. The realization rate of planned investments in agriculture has slipped from 86% during the FFYP to 78% during the SFYP and 70% during the first three years of the TFYP, indicating persistent implementation constraints. Despite its modest share in the public investment budget, agricultural growth appears to be less constrained by the total public investments provided to the sector than by the allocation of these investments among subsectoral categories and the structural and institutional problems that reduce the efficiency of these investments. 2.02 The allocation of public investments in agriculture has been heavily biased toward irrigation development which accounts for about two-thirds of the total (Table 2.1). While the targeted share of total irrigation invest- ments is smaller in the TFYP (43%) than in the previous plan periods (51%), the renewed emphasis on public irrigation development in the 1976 and 1977 annual investment budgets on the one hand, and the continuing institutional bottlenecks affecting most other agricultural investment categories, on the other, suggest that the share of irrigation in total realized investments is unlikely to have declined. Consequently, insufficient attention has been, and is being, paid to develop the policies and strengthen the institutions that must provide the supporting services which are required to obtain adequate returns from the massive public investments in major infrastructure. 2.03 So far, little has been done to increase the flow of public invest- ments to the lower income farmers and to the more backward regions. The first concerted attempts are reprsented by the Bank-financed rural development proj- ect in the poor Corum and Cankiri provinces, and the new government's decision to foster similar development in Erzurum province and, in the future, in other low-income provinces. New major public irrigation schemes have been concen- trated in the most advanced farming regions, with about 60% of the newly developed irrigation area in the Aegean and Mediterranean regions. This regional concentration has almost certainly contributed to a widening of - 10 - income inequalities among farmers, aggravated by the extremely generous cost recovery practices for public investments (paras 5.16-5.24). Similarly, public investments in irrigation infrastructure have accentuated the uneven regional distribution of agricultural employment opportunities to the point where large-scale seasonal labor movements have developed from southeastern and central Turkey to the Mediterranean and Aegean regions. 2.04 Virtually no information is available in Turkey on the impact of public investments on agricultural output and productivity. There are strong indications, however, that the economic returns on investments in the public irrigation schemes have been considerably below the levels anticipated. This is due to the delays in completion of on-farm irrigation works together with the inadequate levels of supporting services provided to irrigation farmers. 1/ These problems are discussed in detail in Annex 1. To date, the command area of public irrigation schemes comprises about 1.5 million ha, an estimated 1 million ha is under irrigated crops, but only about 500,000 ha is believed to be cropped to its full development potential. A tentative estimate of the impact of public investments in irrigation on agricultural output indicates that in 1975 the irrigable areas in public schemes, constituting about 5% of total crop land, contributed only about 13% to total crop production. Despite the government's awareness of this problem, reflected in the SFYP and TFYP documents, attempts at increasing the efficiency of existing infrastructure by providing greater budget allocations for completion and rehabilitation projects and on-farm development work have not altered the situation. Indeed, at the present rates of construction of new works by the State Hydraulics Works (DSI) and of on-farm development by both the Land and Water Resources Development Agency (TOPRAKSU) and private farmers, the area in public irriga- tion schemes awaiting on-farm development is expected to increase from 540,000 ha in 1976 to 850,000 ha in 1982. 2.05 High-level attention is required to reverse this trend. One pos- sible strategy would be to require beneficiaries of TOPRAKSU's on-farm develop- ment to repay the costs of land improvement while simultaneously providing increased credit resources and facilitating lending to finance private on-farm development with the use of private contractors. Since farmers would pay for land improvement services irrespective of who provides them, they would be encouraged to take the first opportunity to improve their lands. This stra- tegy would ensure that both in areas where private contractors will meet the demand for on-farm works and in those where TOPRAKSU will have to be relied on, farmers' chances for being serviced are equalized and that in both cases farmers would pay the same. The advantages to the national economy of the proposed strategy are inter alia: (a) higher economic returns on public irrigation investments; (b) a reduction in the burden on the government budget; 1/ One study found that in the Eskisehir region only 25% of the irrigable area in public irrigation projects was irrigated within 10 years of the initiation of the project. (c) a reduction in the real cost of land development, as land development by contractors has been found to be cheaper; and (d) a reduction in the dependence on foreign equipment, as private land development is carried out with implements that are partly or wholly made in Turkey. 2.06 The main source of capital formation in agriculture has been the private sector (Table 1.6). Private investment increased more than three-fold in real terms over the period 1963-75 while the level of public investments grew by about 30%. Private capital formation has been concentrated on mechanization with the number of tractors increasing by 14% p.a. over the same period, and by 18% p.a. since 1970. On the basis of 75 ha cultivated land per tractor, the government estimates that about two-thirds of the cropland is now cultivated by tractors compared with 16% in 1963. On the basis of this norm a total of 334,000 tractors would be sufficient to cover all arable land, about one-third of which is currently in non-cultivated fallow. The number of tractors was estimated at about 315,000 in 1976 and is expected to reach 400,000 by the end of 1977. The government's stated objec- tive is to have a tractor park of between 1.0 and 1.5 million units in the mid-1980's. This implies a continuous growth of at least 14% p.a. which is to be achieved by a major expansion of domestic tractor production by adding a new 80,000-unit per year plant to the current 35,000-tractors p.a. capacity of six smaller producers, on the assumption that the long-term annual replacement demand will be about 120,000 units. 2.07 The rapid increase in tractors was largely facilitated by direct price and credit policies favoring the sale of tractors and by the income effect of price and subsidies policies in general as well as the inflow of foreign earnings by migrant workers. While the widespread use of tractors has increased productivity of both land and labor, especially through more timely seedbed preparation for field crops, its effect on productivity is likely to be overestimated. Field observations suggest that a certain degree of under- utilization of capacity already exists as witnessed by the considerable competition among providers of machine custom services and the common use of tractors for local transportation of both goods and persons. The policy of underpricing tractors relative to labor may therefore lead to a rate of labor displacement that exceeds the rate of departure of labor from the agricultural sector with the consequent undesirable effects on rural employment and incomes. Although, under present conditions, tractors may be the only feasible mode of local transportation from the viewpoint of many rural people, there may be lower-cost solutions from the national economic viewpoint. Separation of transport and agricultural uses of tractors may encourage greater differentia- tion in tractor size leading to reduced investment and operating costs on smaller farms as well as savings in energy. In summary, the role of the tractor and government policies favoring its further expansion need to be carefully reviewed in the light of (a) the absorptive capacity of agriculture for mechanical cultivation, using efficiency considerations, and (b) alterna- tive ways of providing transportation in rural areas. - 12 - 2.08 Shifts in policy for both public and private investment are required if (a) the economic returns on these investments, and thereby the sectoral growth rate is to be raised, and (b) more attention is to be paid to social development objectives. In order to raise the productivity of public invest- ments, especially in the difficult economic situation in which Turkey is cur- rently placed, it appears advisable for the new government to give priority to projects with short gestation periods and demonstrably high returns. Such projects may be found in the strengthening of public support services to farmers, completion and rehabilitation of existing public irrigation schemes, groundwater and other small-scale irrigation development, integrated feed- livestock development, and intensification of rainfed cropping. Efforts should be multiplied to identify opportunities for productive investments in the hitherto neglected regions paying special attention in project design to factors such as employment and income distribution. 2.09 Private investments may also be guided, more than has been the case in the past, toward socially productive purposes, principally through adjustments in credit and pricing policies which currently encourage mis- allocation of scarce credit resources as well as farmers' savings. A case in point is the policy for TOPRAKSU to provide free on-farm development works to farmers in public irrigation schemes. This constitutes a powerful disincen- tive fcr farmers to contract for land improvement works with private firms. As a result, many farmers prefer to wait their turn for TOPRAKSU's free services while in the interim they and the national economy forego the full benefits of the public investments already made in major infrastructure. 2.10 Past performance of the sector, particularly in regard to the impact of public investments, has shown the crucial importance of structural and institutional factors in ei.ther facilitating or obstructing development (2.29, 2.31-2.32, 3.04-3.06). Increased attention must be given to take these factors into account and solve basic problems related to them, both at the general level of central planning and policy coordination and at the level of preparation and implementation of specific projects. B. Prices and Subsidies Policies 2.11 Questions with respect to the cost, effectiveness and efficiency of government intervention in the marketing and pricing of agricultural commodi- ties and inputs in Turkey have become increasingly urgent in recent years (Annex 2). The scope of intervention has expanded gradually until now it affects almost all farm-level transactions. Among important commodities, only fresh fruits and vegetables are not subject to some degree of direct market control. All modern inputs are subject to price control, with sub- sidies available for most of them. The levels of commodity support prices have increased dramatically in the 1970s, more than 30% p.a., after a long period of relative stability (Table 2.2), giving a major boost to farm incomes (Table 1.15). Total annual net cost to the government of the commodity price support programs and credit losses through credit and sales cooperatives alone is now more than 6% of the gross value of agricultural production, about - 13 - three times as high, in relative terms, as it was in the period 1950-1970 1/. Perhaps the most compelling reason for an objective assessment now is the danger that the segmented and often conflicting institutions, mechanisms and expectations for price policy that have evolved recently will become locked in by political-economic vested interests. 2.12 Official support prices are set by the Council of Ministers. These are based largely on production cost estimates prepared by the various agen- cies with price support implementation responsibilities, which involve in turn farmers, through their Chambers of Agriculture in the cost estimation process. While laudable in that it involves farmers directly into policy making, this process also generates considerable pressure to guarantee to farmers as a minimum, recovery of total production costs, relegating factors such as demand/supply relationships and program costs to a secondary role, and it has led to a system of cost-plus pricing. The process of support price determina- tion might be improved if the role of farmers and other self-interested groups, including the support agencies, were reduced in the analytical phase of determining the price recommendation. An agency such as SPO or MA's General Directorate of Planning, Research and Coordination could insure con- sistent estimation procedures and objective consideration of all important factors, taking into account the findings of ongoing price policy analysis. 2.13 An accomplishment of agricultural support policies appears to have been their effectiveness in stabilizing market prices of crops, although for a number of commodities, notably wheat, the government purchases relatively small amounts of total production. Price policy, particularly input price subsidies, has been used to encourage private investment and purchased iilput use in agriculture and it has been effective in this respect. However, sup- port policies appear to have had only a limited direct influence on either resource use or productivity. Moreover, the responsiveness of producers to price changes is now even less than before. This phenomenon might be explained by the end to the relatively easy expansion of agricultural produc- tion from intensifying land use -- and decreasing returns on certain marginal lands -- and by the adoption of modern technology. Also, generally, high net returns per hectare for farmers with economic-sized farms have reduced the pressure for rapid intensification of resource use or allocation responses to price increases. This implies that morc effort has to be devoted to non-price measures and incentives to foster further increases in production and produc- tivity and commodity mix adjustments made necessary by changing domestic and foreign demand conditions. 2.14 There is a considerable doubt about the validity of the justifica- tion for the large annual support price increases, particularly since 1970. Such justification has been couched in terms of increasing production costs and a need to insure farmers' parity purchasing power in the face of general inflation at similar rates. Cash costs of production for most farmers have 1/ A more complete accounting would include the cost of the high subsidies for irrigation and soil conservation development for which data were not available. - 14 - not risen at the same rate as inflation or the increase in agricultural commodity prices. Cash costs of farmers using modern inputs have been held down by input subsidies. Farmers not in the modern sector use few purchased inputs. A substantial portion of the increase in production costs consists of rising land and labor costs. Increases in these costs, however, do not affect current net cash returns nor do they reflect increases in real costs of production. Finally, the need to raise agricultural support prices as fast as the general price level to assure maintenance of farmers' purchasing power can be questioned on the ground that a substantial proportion of farmers produces primarily for home consumption, relying on off-farm income or worker remittances for all or part of their cash expenses. 2.15 Despite the overall favorable effect of price and subsidies poli- cies on farm and rural incomes, an analysis of this effect shows that these interventions have adversely affected the distribution of income by their failure to raise the absolute income from farming for most farmers to adequate family support levels or to achieve even a modest degree of income equality among farmers. Continued reliance on price supports as the prime instrument for income support will have little effect on the incomes of the poorest one-half of Turkey's farmers. Furthermore, income gaps between farm-size classes will widen as a result. 2.16 Other serious doubts about the advisability of continued rapid price increases are raised by the inflationary effects of such a policy, by a decline in the nominal competitive position of Turkish farming in international markets and by the increasing burden on the national budget, to the extent that losses incurred as a result of support policy are covered by budgetary allocations (Table 2.6). 2.17 The non-discriminating character of current price policy, whereby price support levels are relatively insensitive to either surpluses or to quality differences, results in inefficient allocation of resources among alternative crops and varieties and causes difficulties in the disposal of commodities purchased by the price support agencies. Examples of this are tobacco, tea, cotton and wheat. It is understood that the new government is aware of these problems and is considering ways of using price policies and mechanisms more effectively, for the benefit of the whole economy. 2.18 A precipitous termination of all or even part of the current price supports is clearly impossible, for political and economic reasons. However, a slowdown or reversal of recent trends might be achieved relatively easily. If, as evidence suggests, price policy has generally favored the rich and helped the poor little, and if most resources now in agriculture would not - be affected by a lowering of commodity prices relative to the general price level, the following recommendations could help improve competitiveness, equity and productivity in agriculture while at the same time resulting in lower costs to the government. 2.19 First, if price policies are maintained in their present form, they should be seen primarily as an instrument for encouraging resource shifts from production of commodities in surplus to those in deficit. This implies elimination of cost-plus support levels and the need for detailed analysis of price responsiveness of supply for particular crops and of the relationships - 15 - among crops to allow a consistent set of price supports. Second, initiation of any major changes in pricing policies should therefore be preceded by an in-depth analysis of effects and costs of the present system of price supports and subsidies. 2.20 Third, in the interim, price supports could be maintained at current levels with minor increases for a few deficit commodities such as barley and other feeds, while both resource use and production are carefully monitored to see if and when shifts in resource use or a decline in total production begins to occur. Adjustments would then be made if necessary. Fourth, price stability could be achieved by maintaining support prices at a proportion of parity, possibly in the 50%-80% range according to crop. Fiftht price support activities could be handled more efficiently than is the case at present by two or three nationwide agencies that are centrally controlled and coordinated, rather than by the multitude of organizatiops currently involved. 2.21 Sixth, the process of support price determination could be improved if the role of farmer organizations and price support agencies were reduced in the analytical phase of price establishment. This could be accomplished by establishing a specialized agency, independent of the powerful interest groups, with the sole responsibility for formulating pricing recommendations. This would ensure that in the final decision-making stage at the cabinet level objective information is clearly separated from the considerations of special interest groups. C. Agricultural Credit Policies 2.22 The bulk of official lending resources available to the agricultural sector is used to finance the extensive system of government price supports and input subsidies. Funds for government purchases of commodities under the price support programs come either directly or indirectly from the Central Bank (Table 2.8). If the purchasing agency is a State Economic Enterprise (SEE) and its financial requirements exceed its retained earnings, funds are provided by the Central Bank; the same applies if the purchasing agency is a sales cooperative, loans are extended by the Agricultural Bank of Turkey (TCZB) which may then discount its loan at the Central Bank. 2.23 Institutional credit provides for a reported 65% of total agri- cultural credit disbursed in 1975. Non-institutional sources, including merchants, large farmers and moneylenders supply the balance, at interest rates reportedly ranging from 25% to 50% per annum. TCZB is by far the largest supplier of agricultural credit to agriculture. It is also the largest credit institution in Turkey with more than 870 branches throughout the country and carries out a full range of banking activities. 1/ 1/ A full review of TCZB's structure and performance can be found in World Bank, Appraisal of an Agricultural Credit and Agroindustries Project, Turkey. Report No. 987-TU, April 12, 1976. Annex 2. - 16 - 2.24 Total volume of agricultural loans by TCZB soared at an average annual rate of 40% over the period 1971-75, with most of the portfolio increase in loans to agricultural sales cooperatives and in the supervised credit program (Table 2.9). Arrears increased at a slower rate than outstand- ing loans, except for the agricultural sales cooperatives where they remained at a constant level of about 20% of loans. Arrears on loans to agricultural credit cooperatives have been inadequately documented throughout the period. It is known, however, that in 1971 and 1972 they accounted for about 41% and 36%, respectively, of outstanding loans to these cooperatives. In 1975 TCZB's portfolio consisted mainly of loans to sales cooperatives (59%), to agricul- tural credit cooperatives (7%) and to individual farmers for annual produc- tion loans (9%). Altogether, short-term loans made up 79% of its agricultural lending, virtually unchanged since 1971. As the bulk of short-term lending is for seasonal operating costs of inputs and labor, TCZB's operations do not contribute much to the expansion of agricultural output capacity. Indeed, the virtual automatic renewal of the short-term loans to agricultural sales and credit cooperatives and their small size in relation to costs of production encourages misuse of these credits by cooperative members who do not take them very seriously. Except through its supervised credit program, TCZB's short- term credits do not appear to have had much effect on the expansion of the use of new inputs. 2.25 Interest rates for all sectors of the economy, including agriculture, are centrally fixed by the Government. This is done from the viewpoint of stimulating the development of sectors or subsectors to predetermined levels, rather than from that of reflecting market conditions or resource mobilization and allocation needs. TCZB's basic interest rate structure is therefore deter- mined centrally (Table 2.10). Despite some increases made in March 1978, as part of the stabilization package agreed with the International Monetary Fund, TCZB's deposit rates remain unattractive, both relatLve to lending rates and to the return on capital in alternative uses. Lending rates, because of the explicit interest rate subsidy of 3% to TCZB on agricultural loans and because of the implicit subsidies due to their relationship to the inflation level play only a minor allocative role, if at all, and aggravate the insufficiency of TCZB's resources. Credit resources are allocated to branch offices on the basis of the branch managers' annual reports about current and expected crop production and credit requirements. Branch managers ration credit by the use of standard credit limits for specific crops applied to the area of land that the loan applicant proposes to devote to each crop, generally covering only a fraction of actual production costs. 1/ Members of agricutltural sales coopera- tives and of agricultural credit cooperatives are almost guaranteed seasonal production loans. These require the bulk of the Bank's resources, particularly because of the relatively low turnover of these funds due to slow repayment. The underpricing of credit as well as the practice to reserve most of it for routine financing of recurrent costs, and the overemphasis on security require- ments in making investment loans, lead to inefficient use of TCZB's resources. 1/ Except for loans under the Supervised Credit Program and TOPRAKSU loans which are based on an appraisal of farm projects and actual costs. - 17 - 2.26 The differences between regions in TCZB lending levels (Table 2.11) can be explained only in part by different levels of cropping intensity and hence credit requirements per ha. Since the Aegean, Mediterranean, Black Sea and Central North regions together had almost 83% of TCZB's outstanding loans at the end of 1974, it seems obvious that other factors, especially actual access to credit, must play an important role. This appears to be corroborated by Table 2.12 which shows that the Aegean, Marmara and Mediterranean regions which together have 43% of the country's farmers and 37% of crop land had a 59% share of TCZB's outstanding loans, whereas the Central and Eastern Anatolia regions, comprising 37% of the farmers and 51% of crop land, only had a 25% share of TCZB's outstanding loans. 2.27 The Law on the Establishment of the Agricultural Bank of June 12, 1937 specifies that small farmers should be favored in the distribution of credit and that the necessary administrative facilities should be provided to serve small farmers. However, as a result of TCZB's inadequate resources and its usually strict application of extensive security requirements, 1/ it is believed that less than half of Turkey's 3.1 million farmers have access to bank credit. As a result, agencies focusing on the needs of small farmers such as MVA and MF have established their own farmer credit programs. An effort to adapt TCZB's security requirements to facilitate lending to small farmers, however, has been made by the new government in connection with the recent Livestock IV project for which a loan has been provided by the Bank. 2.28 Often as a result of TCZB's lack of responsiveness to the need for expanding development credit in certain subsectors, or to the needs of partic- ular types of farmers, other agencies have instituted their own credit facil- ities with the result that access to credit for certain types of investments and activities has been eased. EBK provides credit for livestock fattening; TSF for sugarbeet production, machinery and also for livestock fattening. TZDK sells its tractors and other machinery on credit; and TSEK has annoutnced a program of loans for equipment, cattle and feedstuffs to dairy farmers. The Ministry of Forestry's General Directorate of Forest Villages provides low- interest loans for such purposes as intensive dairy, poultry and beekeeping. These credit arrangements have created further complications in the already complex centrally-administered interest rate structure, because of various degrees of subsidization compared to 'ICZB loans for similar purposes. Along with the price and marketing policies of the agencies which sponsor them, these subsidies increase the financial burden on the Treasury and encourage inefficient allocation of resources. Finally, they complicate any attempts at rational implementation of agricultural development policies and programs. On balance, however, the multiplicity of credit channels has increased agricul- tural incomes, but no evidence is available to show that, with the exception of the credits made to forest villages, these credit lines have measurably benefited the lower income farmers for whom these had been intended. 1/ Small farmers often have no valid title to their land, nor can they easily find individuals to act as co-signers and TCZB normally does not accept chattel mortgages from them. - 18 - 2.29 Present agricultural credit policies, both through the subsidy implied in the lending rates and the bias towards least-risk borrowers. rein- force the negative effects of the agricultural price and subsidies policies and exert also by themselves an influence on agricultural structure and per- formance which is not wholly in line with Turkey's development strategy. They tend to result in inefficient resource use by favoring use of capital-intensive technology and by not requiring credit to be used exclusively for introduction of improved technology. They have benefited above all the medium- and larger- sized, i.e., commercial, farmers and have therefore not played a positive role in equalizing the distribution of income. 2.30 The above analysis suggests the need for the following changes in policy. First, closer coordination is required of agricultural credit poli- cies, those of TCZB as well as of other agencies, and the overall priorities of Turkey's agricultural and rural development policies and programs. The studies currently underway of Turkey's financial sector and of TCZB's poli- cies, financing and organization, may be the first steps toward implementing such changes. Second, the lending policies of TCZB should be revised to (a) increase the velocity of circulation of loans made to agricultural credit and sales cooperatives; (b) achieve a substantial shift in lending from routine financing of annual production costs to financing introduction of new inputs and technology; (c) increase the proportion of investment, i.e., longer-term credit; and (d) assure that the start made through the Livestock IV project is built on so that maore credit gets into the hands of qualified small farmers. TCZB's Supervised Credit Program, if appropriately strengthened, could play a major role in implementing these changes in lending policy. Third, following the measures advocated above, the overall requirements for agricultural credit should be estimated taking into account any adjustments in deposit and lending rates of interest, and in credit policies, as well as the additional needs for credit generated by possible strengthening of technical farmer services and other productivity-increasing measures. If the estimated credit requirements would exceed the available resources, the latter could be increased by: (a) requiring cooperatives to increase their own membership capital so as to carry a larger responsibility for financing their members' credit requirements, (b) establishing through the agricultural credit coop- eratives a deposit facility that would mobilize more rural savings, and (c) further adjusting the interest rate structure. D. Land Policy 2.31 The pattern of land use and ownership has major implications for the structure of agricultural production and institutions. Owing to an absence of reliable up-to-date statistics, the land tenure situation cannot be precisely quantified. However, most authorities agree on the major charac- teristics of the land tenure situation which are the following: (a) significantly uneven distribution of land which contributes to widespread poverty among the landless and the farmers on extremely small holdings; - 19 - (b) extreme fragmentation of holdings and the prevalence of joint ownership arising from the Muslim inheritance rules; (c) coexistence of small-holder peasant agriculture with a structure of absentee landlordism, tenancy and sharecropping, as well as the increasing importance of the larger units using modern technology and hired labor; (d) high incidence of disputes over land which is still an important basis of social relations; and (e) inefficient system of land registry. 2.32 These conditions have prevailed for many years and their negative effects on income distribution (a and c), and on efficiency (b, c, d, and e) have long been recognized. However, little has been accomplished to improve the situation as efforts to introduce land reform legislation by successive governments since the founding of the Republic led to passage of a few limited laws which were then not vigorously implemented. A relatively comprehensive legislation was enacted in July 1973, but this law was cancelled in May 1977 by a decision of the Constitutional Court on technical grounds, after a long period of political debate. The cancellation will not take effect until May 1978, one year after the decision was taken, to enable the work already ini- tiated in Urfa province to be completed and for an alternative legislation to be proposed. 2.33 Although short-lived, the 1973 law is significant as the only attempt made in modern Turkey to implement a land reform program. Provisions under this law included a ceiling on the size of holdings, expropriation, distribu- tion, consolidation, establishment and support of land reform cooperatives, regulation of tenancy and sharecropping contracts, and the establishment of the Land Reform Organization (LRO) under the Prime Ministry to implement the program which is to proceed region by region. Implementation has been limited to the province of Urfa where it has been slow, partly due to the technical difficulties posed by lack of experience and by the complex tenure system. 1/ It has also been poorly planned particularly in providing for support services, and the cooperatives have effectively becom-e state farms. These questions are fully discussed in Annex 3. The law has not had a significant impact on the national structure of land tenure as it has only been applied in Urfa. But, even in Urfa the impact would be limited; only about 11% of the agricultural land would be expropriated, and if the distribution of this and other state land were completed before the expiration of the law, which is questionable 2/, the number of beneficiaries would reach about 18,000 families at the most, representing less than a third of qualified applicants or a fifth of the rural population in the province. 1/ While the notification of legal expropriation has been completed, the actual transfer of land to the state has not. 2/ Less than 10% of the areas expropriated were distributed by November 1976. - 20 - 2.34 These experiences in Urfa underscore the fact that redistribution of land cannot be relied upon to solve the problems of rural poverty, but it could make an important contribution. On a national scale, about 3.5 million ha have been roughly estimated to be available for distribution, about a third of which would be expropriated under the provisions of the 1973 lew. This might benefit a quarter of a million families or more than a million people. 1/ The effect on agricultural structure would be more significant if the size of holdings distributed were lowered from the levels set in the Law, which range respectively from 8 to 34 ha for rainfed or 3 to 11 ha for irrigated land, and if the ceiling on ownership were lowered from 50 to 200 ha for rainfed and 30 to 100 ha for irrigated land. However, without a long-term commitment to achieve and maintain a desirable tenure policy, effective reform would be impossible to realize. Furthermore, as land still represents one of the most secure safeguards for accumulated wealth against inflation, the economic forces of concentration of holdings continue to operate and a rever- sion to the pre-land reform situation is likely. In this regard, a permanent ceilinag and a floor on agricultural land holdings should be considered in future land reform legislation. 2.35 Measures should be devised to increase productivity, particularly on the larger holdings which are let to tenants or sharecroppers, often by absentee landlords. In 1965, about a quarter of farm units or about 570,000 were operated by tenants or sharecroppers. 2/ Much of this includes small- holders letting parcels to neighbors in an attempt at consolidation or to relatives during temporary absence. The large landowners who sometimes own entire villages and maintain political power over the tenants usually take little interest in the operation of their holdings, left in the hands of sharecroppers who do not always have security of long-term tenure and thus have neither the incentive nor the means, including access to credit, to practice intensive cultivation. With the concentration of attention to redistribution, security of tenancy and other instruments of land use and tenure policy have been largely neglected. The very limited provisions in the 1973 law which ensure various working conditions including the security of tenancy through leases for up to four years have not beern applied. 2.36 Another aspect of land policy which has been given even less atten- tion is consolidation. Even in public irrigation schemes consolidation is not compulsory and no major attempts are made to encourage it as it is well known to create an important degree of local opposition. Under the 1973 law, consolidation can be imposed only in areas of land distribution. Elsewhere, the consent of owners of half the la.nd involved is necessary. Implementation has been limited. At the end of 1976, land consolidation has been carried 1/ With the statistics available, a reliable estimate of the number of people with insufficient land to make a living in agriculture cannot be made. However, a partial reporting of the 1970 agricultural census shows about 2 million holdings (72% of total) of less than 5 ha. 2/ SIS figure quoted in SFYP document (English version), p. 266. - 21 out on 42,000 ha under state irrigation schemes covering an irrigable area of 1.5 million ha. A stronger measure is clearly necessary to increase the productive efficiency of fragmented holdings, particularly in the utilization of irrigation and other land improvements. 2.37 A land problem which inhibits productivity but has been almost ignored is the special problem of common grazing land owned by most villages and the grazing rights of transhumant populations. There has been almost no attempt to deal with the pressures to plow up grazing land unsuitable for crops or to improve village pastures. The transhumants, who are believed to control a considerable share of the livestock in the East, face a special problem of securing adequate grazing in face of population pressure and the related rapid changes in land use. Their numbers are decreasing but their conflicts with the farming communities have increased and become extremely violent. 2.38 Thus, little has been done to intervene in systems of land use and tenure in order to improve social justice, distribution of income and pro- ductive efficiency. The efforts which were made under the 1973 law would have some impact on the structure of agriculture in Urfa, but even this may be negated by the repeal of the law. The weaknesses underlying the govern- ment's actions include not only the inability to reach a political consensus on redistribution policy but the neglect of other instruments of land policy such as consolidation and taxation, the slow progress of redistribution and other aspects of implementation described in Annex 3. A policy of gradual implementation, region by region, also has the effect of allowing individuals to make provisions to escape expropriation. While a simultaneous nationwide reform would be impractical, measures such as freezing of land transactions and the enactment of nationally applicable ceilings and floors would also partly overcome this difficulty. Perhaps the most important obstacle to the formulation and implementation of a land policy has been the absence of a well-organized land registry system. Even where the cadaster has been com- pleted, accurate statistics on the land ownership situation is not available partly because the survey and registry are carried out by parcel of land rather than by owner and some land rights are overlooked. Moreover, no measures are taken for continued updating of the registry. A measure of the lack of commitment to deal with this situation may be that the state does not even have a clear record of its own holdings. Thus, the formulation of a coherent land policy to meet the objectives of increasing efficiency and equalizing income would be both aided by and would induce a closer monitoring of the basic data. E. Rural Development 2.39 Important national objectives stated in the Turkish Constitution as well as the SFYP and the TFYP include the redistribution of income and improv- ing the standard of living. Rural development has an indispensable place in meeting these objectives as the rural sector comprises about 63% of the population and a larger proportion of the poor. By rural development is meant a strategy composed of institutional reforms and inve'tmenits in productive and - 22 - social infrastructure which help to create a more socially just as well as a dynamic rural society. 2.40 To meet these objectives, the TFYP relies on two instruments, land reform for redistribution of income and "Central Villages" for provision of social infrastructure. The implementation of both programs has been extremely limited. The experience of land reform is fully described in paragraph 2.31 and in Annex 3 while the creation of "Central Villages" is not apparent in any investment activities except in the land reform region of Urfa. 2.41 Although not stated explicitly as instruments of rural development, the TFYP provides for numerous activities in this field. Social infrastructure is developed through national budgetary allocations: to the MVA for roads, electricity, housing and water supply; to the Ministry of Health for clinics and hospitals; and the Ministry of Education for schools. However, while the regional imbalances in the provision of these facilities is noted, the Plan does not specify measures nor set goals to correct them. The government has made efforts to increase productivity in the rural areas through the provision of agricultural research, extension, education (Annex 4), credit and other services. It also has programs aimed at raising incomes of the poorest rural people. The most important among these is the MVA's Village Development Cooperatives' Program. Cooperatives have a long history in Turkey (Annex 5); they are used as a means of mobilizing local resources, including remittances from workers abroad, and channelling the government's funds and technical aid to the rural poor by helping them set up profitable investments in fields such as agro-industries, livestock fattening, etc. Under this impetus, many cooperatives were set up but a large number became dominated by a few powerful people or were financial failures. In recognition of these problems, they are given less national emphasis under the Third Plan. However, they remain an important part of the activities of the MVA, which has 41 regional offices and an annual budget of almost LT 400 million to support about 170 cooperatives throughout the country. The Ministry of Forestry has recently started a similar program of providing the forest populations low-interest loans and helping to organize a wide-range of small-scale projects. Unlike the MVA's program, assistance is given on an individual basis and, so far, the response and the repayment rates have been excellent but the coverage has also been extremely limited, e.g., to 80 out of 2,000 villages in one of the more active regions. The MVA and other agencies have a number of other smaller programs to raise incomes of the rural people, e.g., handicraft training, home economics programs, etc. 2.42 Because of their limited size and success rate, these endeavors have had little impact on improving the standard of living and the distribution of income in rural areas. Conditions of rural life have changed rapidly in the past decade. But this is more attributable to the market forces which in- creased the market orientation of production, the reliance on hired labor, and the high rate of migration to the urban/i.ndustrial sector. The rural poor have not benefited from these changes. Factors which have contributed to limit the effectiveness of official actions include: (a) the preoccupation with the redistribution of land; (b) the lack of a coherent and continued national strategy for rural development: (c) the lack of a coordinated devel- opment nrogram aimed to meet the needs and utilize the resource potential of - 23 - the villages; (d) the national priority given to industrialization; and (e) the charity rather than the development orientation of rural development activities. 2.43 Both public discussion and development planning in Turkey have almost exclusively focused on redistribution of land as the key to rural development. This has reduced the importance attached to other rural development activities. Moreover, failure to re2ch a political consensus on a land reform program could be interpreted, in the Turkish context, as a failure to reach a consensus on a rural development strategy. 2.44 Although the MVA has the primary responsibility for rural develop- ment, it does not set national policy nor coordinate the activities of the many organizations involved, which are described in Annex 5. Consequently, there is no clearly defined policy, nor a strategy for promoting social and economic change in the rural sector to ensure that it both contributes to and benefits from economic growth. This has in turn led to a piecemeal approach to rural development, with a number of organizations attempting to fill gaps without the benefit of an overview needed to identify priorities. This meant resources and efforts were not expended in mutually supportive directions. Thus, even the set of programs of the MVA represent a miscellany of activities each of extremely limited scope, e.g., housing and resettlement, handicraft training, etc. In these circumstances, it is very difficult to carry out the institutional reforms required to meet the critical need of the rural poor for a link with the outside world and a security of income. This probably contri- buted much to the difficulties encountered by the cooperative movement. Many cooperatives threatened the position of powerful rural elements, particularly the middlemen who often control the marketing, employment and credit channels of the poor. 2-45 Without a national strategy, activities at the local level are also poorly coordinated, which has also meant that there is no overview of the local conditions necessary for effective planning (para 3.14). The various agents of rural development, teacher, extension agent, home economist, doctor, credit agent, etc., work independently implementing centrally conceived work programs which are often irrelevant to local conditions. For example, the prolific handicraft projects aimed at creating employment and raising incomes usually add to the already heavy work load of women while not much is done to improve basic food processing technologies used in the home. A notable excep- tion to this general rule is the planning of development in forest villages by the MF which are based on an intimate knowledge of the villages and the people, and which also effectively enforce interagency cooperation. This situation arose partly due to the lack of interest of agencies other than the MF, which has both close contact with the people who provide labor and has an incentive to keep them happy and cooperative. 2.46 Because of the national priority given to the urban/industrial sector in the allocation of resources, neither qualified personnel nor the rural people themselves see financial or social incentives to work for rural development. Thus, rural development is perceived more as an instrument of securing the "peasants" their due share of national income than a means of creating a productive developmental base and government activities have taken 24 - a charity orientation which has not encouraged the rural people to take action themselves to exploit more fully their o-n resources and view official assis- tance as an aid in realizing their own development efforts. Indeed, whereas communities used to organize mutual assistance, road construction, etc. in the past, they now increasingly wait for the government to intervene. More- over, the many failures in rural development activities and the lack of con- tinued commitment to official programs have had negative effects on the rural people's willingness to work with the government. However, the new government's perspectives appear to be in the direction of making a concerted effort at integrated rural development. This objective deserves strong support. It is hoped that a rural development project, now being formulated by the government for Bank financing, will be followed by similar efforts in the future. 2.47 Thus, separation of the emotional issue of reform from other instru- ments of rural development, reforms in the institutional structure towards one more responsive to local needs, aspirations and resources, a shift from wel- fare to development approach to rural development through a reorientation of national values, would bring diverse programs to reinforce one another, to provide an agent of contact with the outside world in whom the people could trust, would do much to envigorate the rural development effort. Successful efforts at institutional reform would not only help to create a climate for alleviating inequalities in income distribution but would go far to provide a more constructive base from which the rural people could more actively partic- ipate in development. F. Income Distribution 2.48 Among the major countries in the world, Turkey has one of the most skewed income distributions, along with Mexico and Brazil. 1/ A study based on 1973 data shows a Gini coefficient for size distribution pf income of 0.51. 2/ This study also refers to the results of an income distribution survey in 1968 which gave a Gini coefficient of 0.56. This indicates an improvement in the general distribution of household income which appears to be supported by the change in relative income shares of occupation groups shown below. 1/ Based on comparable measures compilated in Shail Jain, Size Distribution of Income. The World Bank, 1975. Basis of comparison is the Gini co- efficient, a measure of concentration with a value ranging from 0 to 1; 0 indicating perfect equality and 1 indicating absolute concentration or perfect inequality. Compared with a Gini coefficient of 0.56-0.57 for Turkey (1968), Mexico's income distribution was measured by various studies as having a Gini coefficient of 0.52 (1967-68 study), 0.61 (1968 study) and 0.58 (1969); Brazil 0.57 and 0.61 (1970); Egypt 0.43 (1964-65); India 0.48 (1967-68); Korea 0.30 (1968) and 0.37 (1970); Pakistan 0.34 (1968-69); U.S.A. 0.40 (1966) and 0.42 (1972); U.K. 0.34 (1968); Federal Republic of Germany 0.39 (1968 and 1970). 2/ Gelir Dagilimi 1973. SPO, 1976. - 25 - Changes in Income Distribution by Occupation Group, 1968-73 Change in Population Change in Income Occupation Group Share 1968-73 Share 1968-73 Farmers and farm laborers -14.7 + 6.1 Technicians, skilled and semi-skilled workers +21.7 + 7.0 Civil servants +42.5 +19.5 Self-emp
World Bank Group · Pre-2003 Economic or Sector Report
Turkey - Agricultural sector survey (Vol. 1 of 2) : General report and annexes
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World Bank Group
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Pre-2003 Economic or Sector Report
Country
Türkiye
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World Bank