Report No. 4204-TU Turkey L Agricultural Development Alternatives for Growth with Exports (In Three Volumes) Volume III: Annexes 5-11 June 30, 1983 Europe, Middle East and North Africa Projects Department FOR OFFICIAL USE ONLY U Document of the Wotid Bank This document has a restricted distribution and ray be used by recipients only in the performance of their offical duties Its contents may not otherwise be chsclosed without World Bank authorization CURRENCY EQUIVALENTS US$1 = Turkish lira (TL) 21411 TL I US$0.005 TL 1,000,000 = US$4,673 WEIGHTS AND MEASURES 1 kilogram (kg) = 2.20 pounds 1 metric ton = 1,000 kilograms 1 metric ton = 0.98 long ton I meter (m) = 1.09 yards 1 kilometer (km) = 0.62 mile I hectare (na) = 10,000 m2 2.47 acres I decare = 0.1 ha = 0.25 acre 1 square kilometer (km2) = 0.386 square mile 1 liter (1) = 0.264 gallon ABBREVIATIONS AI - Artificial Insemination CBT - Central Bank of Turkey CGE - Computable General Equilibrium Model DSI - State Hydraulic Works agency within the Ministry of Energy EBK - Meat and Fish Organization, an SEE GDAA - General Directorate of Agricultural Affairs of MAF GDPPQ - General Directorate of Plant Protection and Quarantine of MAF GDSF - General Directorate of State Farms of MAF GDVA - General Directorate of Veterinary Affairs of MAF Hara - Animal Breeding State Farm, under the GDVA MAF - Ministry of Agriculture and Forestry ORKOY - Directorate of Forest Villages of MAF SEE - State Economic Enterprise SEKER - Turkish Sugar Factories, an SEE SIS - State Institute of Statistics SPO - State Planning Organization TASM - Turkey Agricultural Sector Model T&V - Training and Visit System of Agricultural Extension TCZB - Agricultural Bank of Turkey TEKEL - Tea & Tobacco Monopoly, a Parastatal TMO - Soil Products Office, an SEE TOPRAKSU - Land and Water Development agency of the Ministry of Village Affairs TSEK - Milk Industries Organization, an SEE TUBITAK - Turkish Scientific Research Council TYT - Wool and Mohair Corporation, an SEE TZ - The Provincial Extension Services of GDAA TZDK - Agricultural Supply Organization, an SEE YEM - Turkish Feed Industries, an SEE YSE - General Directorate of Rural Infrastructure of the Ministry of Village Affairs FISCAL YEAR Government of Turkey - January I to December 31 SEEs and TCZB - January 1 to December 31 1/ Exchange rate as of June 1, 1983. FOR OFFICIAL USE ONLY TURKEY AGRICULTURAL DEVELOPMENT ALTERNATIVES FOR GROWTH WITH EXPORTS Volume III: Annexes 5-11 Table of Contents Page No. Annex 5 Agricultural Production, Consumption and Trade Possibilities 1 Annex 6 Macroeconomic Consequences of Sectoral Performance 83 Annex 7 Resource Potential and Technological Possibilities in the Medium Term 98 Annex 8 Supporting Services to Farmers 1l1 Annex 9 Agricultural Credit and Agroindustries Financing 146 Annex 10 Price Stabilization and Food Security Policies in Grains 194 Annex 11 Agricultural Incentives Policies 247 Note: The annexes are based on information available to the study team as of June 1982. 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. ANNEX 5 TURKEY AGRICULTURAL DEVELOPMENT ALTERNATIVES FOR GROWTH WITH EXPORTS Agricultural Production, Consumption and Trade Possibilities I. Introduction 1. In the following Annex, relationships between performance in the agricultural and food processing sectors and performance in the rest of the economy have been explored within a framework of projections over the medium term (1981-1990). This analysis has been undertaken at a high level of aggregation, however, and can provide only limited insights into changes which could occur within the agriculture and food processing sectors. The purpose of this Annex, therefore, is to consider in much greater detail, i.e. at the sub-sectoral and individual commodity level, future patterns of agricultural development. The focus is on resource allocation and market behavior at the primary, i.e. "farmgate", level. Assumptions regarding linkages between the agricultural and agricultural product processing sub-sectors are explicit in the analysis, but for more detailed discussion of this area the reader is referred to Annex 4 which deals with agro-industries. 2. As earlier, the concern here in general terms is to determine the potential contribution of Turkey's agriculture sector to overall growth in the economy during the 1980s (particularly in terms of GDP and international trade balances), how government policies may affect the realization of this poten- tial and what the implications are for capital investment requirements in agriculture. Given any set of assumptions about policy objectives, the external environment of the Turkish economy and the state of technology, the fundamental question for the agricultural sector is what commodities should farmers be encouraged to produce? A serious answer requires taking account of likely changes in Turkey's foreign markets for agricultural commodities and imports, judgement regarding the nature, direction and causes of technological shifts in agriculture and estimation of any trade-offs between the goals of sectoral development strategies aimed, for example, at high rates of growth in total output and exports and strategies more concerned with such objectives as self-reliance in basic food supplies, employment and income distribution. 3. The discussion which follows represents an extension of previous Bank work on the agricultural economy of Turkey, particularly the Agricultural Sector Survey, published in 1978 (Report No. 1684-TU) and the report on Industrialization and Trade Strategy (ITS), published in early 1982 (Report No. 3641-TU). The sector survey mission examined the resource base and tech- nological factors affecting the productive potential of Turkish agriculture in some detail. The ITS mission made a careful examination of export market prospects for Turkish agricultural produce and also explored in depth the economic implications of policies which restricted foreign trade in agricul- - 2 - tural products. The analysis here differs from the other studies in its use of more recent data in some cases and in its selection of particular topics for detailed investigation. Methodologically, the present study is similar to the ITS analysis, using a disaggregated and more comprehensive version of the Bank's behavioral model of the Turkish agricultural sector. 4. Preparations for the Fifth Five-Year Plan (1983-87) are underway in Turkey and the mission obtained some indications of current government thinking regarding the likely Plan position on some issues. It is fairly apparent, for example, that the recent liberalization of the foreign trade regime will be maintained, as will measures aimed at the progressive removal of subsidies on agricultural inputs. The government is in any case committed to supporting several major agricultural projects and programs with specified targets for resource use and production which will take some years to reach full development. These represent constraints limiting the real choices available to policy makers and have to be considered in an analysis of what is feasible as well as desirable. II. The Turkey Agricultural Sector Model (TASM) The Nature of TASM Solutions 5. The analysis in this annex is based on results obtained from a linear programming (LP) model of the Turkish agricultural sector. Details of the construction and operation of this model are described in the final report for the Bank research program's project number RPO 672-78 (Agricultural Pricing Policies in Turkey). TASM represents a further development of the LP model used by the ITS mission, the major difference being greater disaggregation of commodity groups (TASM distinguishes 55 separate farm products and another seven processed products). Input-output relationships have been re-specified for certain production activities, a new set of crop rotations incorporated and different estimates of base year production and utilization used in the cases of some key commodities. One version of TASM provides a breakdown of resource use and production into five regions; another represents the livestock/feed sub-sector in greater detail and attempts to portray more realistically the possibilities for technological choice. 6. The maximand in TASM is the sum of producers' and consumers' surpluses in domestic markets (equivalent to the space between commodity demand and supply curves to the left of their point of intersection) and net revenue from foreign trade transactions in both raw and processed commodi- ties. All production costs for both final and intermediate (e.g. forage crops) goods are deducted. Product prices are adjusted for marketing/ processing margins as appropriate. In the solution procedure, the model searches for that combination of production, consumption, import and export levels in raw or processed form (where applicable) for each commodity which, when aggregated for all commodities, produces the highest value of the objective function. Domestic demand curves and quantitative restrictions which may be in force limiting exports and imports are specified exogenously. - 3 - Import and export prices, adjusted to parity at farmgate, are also assumed. Commodity prices on domestic markets, however, are generated endogenously as part of the model solution, representing the points of intersection of the endogenously-determined supply curves with the exogenously-specified demand curves. Input prices except for intermediate inputs such as fodder crops, animal power and raw materials for processing are exogenously specified, but consumption of inputs is endogenously determined given by the equilibrium levels of production solved for each commodity and the technology (input-output relations) assumed. 7. Farmers are assumed to allocate resources among different production activities so as to maximize net income, subject to rotational constraints due to agronomic considerations. The hypothesis of net income maximization, taking into account the costs of risk and alternative production opportuni- ties, by farmers in their allocation of the resources available to them is an interpretation of the solution procedure consistent with other aspects of model behavior. A reservation wage is assumed for family labor (i.e. it is not treated as costless even when its marginal product in agriculture could be considered zero). Production possibilities are represented by allowing different input-output relationships for the same crop (e.g. irrigated wheat as opposed to rainfed wheat) and different crop rotations (e.g. rainfed wheat/fallow as opposed to rainfed wheat/pulses) to be selected in the solution. A choice can also be made between using animal or tractor draft power in production, between importing and exporting and between marketing in raw or processed form in some cases. Resource availabilities are modelled by specifying upper limits on the amounts of land, labor, tractor power and animal inventories (but not fertilizer) which can be used in production. Prices received by farmers for all products thus depend on supply and demand forces in the market and the opportunity cost of resources used. Some key features of TASM including summary crop activities, input intensities and risk coefficients, resource and farm inputs availability, demand parameters, and projection assumptions are contained in Appendix 1. Data 8. With certain important exceptions, official estimates of production, international trade and prices in 1979 are used to define base year values for these variables. The exceptions relate to wheat, pulses and livestock. As discussed in Annex 1 of this report, a high degree of uncertainty is attached to much of the official data in Turkish agriculture. (See the various estimates of per capita food consumption, land use and capabilities and crop and livestock production and productivity in Appendix 2.) Evidence from a number of sources, for example, point to a consistent and substantial over- estimation of wheat production in the SIS statistics. Similarly, there is reason to believe that the same data sources underestimate the quantity of pulses being produced in Turkey, and it is well known that the official figures for livestock production are very unreliable. Alternative estimates to those of SIS were therefore used in TASM for the above commodities. (See Table 1 of Appendix 2 for details.) -4- Base Solution 9. In the base solution, resource levels, technology and consumption levels (domestic and foreign) are specified so as to represent actual 1979 conditions. The model then solves for production, foreign trade and domestic price levels for each commodity. Comparison of production and trade solutions with actual levels provides an indication of the model's predictive capabilities. Table 1 shows this comparison in terms of output levels for the major subsectors. Model simulations at two exchange rates are shown, corresponding to the official rates prevailing at the beginning and middle of 1979. Except in the case of the grains groups, TASM over-predicts production, by up to 3% in aggregate, and under-predicts prices, by up to 30%, for the base year, when actual quantity and price weights are used.l/ There is little difference when the figures are weighted by simulated quantities and prices, as can be seen below: Quantity Index Price Index ER47 ER35 ER47 ER35 POQl PlQO POQO: 103e3 102.5 pOQ0 74.9 71.7 PlQl pIQO 11t2 o 3 101 . 2 pOQl; 73.9 70.5 Where PO, P1 are actual and simulated prices, respectively. QO, Ql are actual and simulated quantities, respectively. ER47, 35 refer to exchange rates of Turkish Liras to US dollars. The simulated breakdown of the total gross value of agricultural production, excluding processed products, into the main commodity groups, is close to the actual breakdown at both exchange rates (Table 1). Since TASM incorporates no constraints on the production levels of crop and livestock activities generated in the base solution, the only constraints being on levels of resources available for use in these activities, these results are encouraging. The stability of the base solution with respect to changes in key parameters was tested by halving and doubling, respectively, the price elasticities of demand assumed for the grain commodities. (See Table 3 of Appendix 1 for the elasticities used in the standard TASM runs.) This had very little effect on simulated production and consumption levels of any commodity. Thus TASM appears to provide a reasonable basis for the systematic analysis of the impact of policies and other external factors on agricultural sector performance. Base solutions for agricultural land use and labor employed are shown in Table 2. 1/ The endogenous prices represent shadow prices in that they indicate the maximum which would be paid for an extra unit of the commodity concerned. Thus, under-prediction of these prices in the base solution suggests that farmers may be prevented for reasons unspecified from responding fully to the prices prevailing. 5- Comparative Statics and Projections 10. Since TASM solutions represent market equilibria, it is implicitly assumed that sufficient time elapses between the base year and the period corresponding to any non-base year solution for all necessary resource reallocations to be fully worked out. Since in reality such adjustments cannot occur instantaneously, model simulations representing a departure from the base year situation with respect to one particular exogenous variable, say a policy instrument such as quotas on international trade or the official exchange rate, also require all other exogenous variables to be re-set at new levels representing the assumed changes which would occur (e.g. expansion of aggregate consumption due to growth of population and non-agricultural sector income) during the period of adjustment to the new setting of the policy instrument. In the terminology of project appraisal, the problem is to define adequately the "without-project" situation, Experiments (simulations) with a model like TASM which essentially involve changing values of exogenous variables (and parameters) one at a time should therefore be interpreted with caution in terms of the implications for real world behavior. Nevertheless, such experiments can provide useful indications of the likely directions and relative magnitudes of changes which can be expected in the system modelled, if not of their absolute magnitudes. Simulations reported below which assume base period structures of consumer demand and farm production possibilities fall into this category. The merit of such simulations is that cause-and- effect can be relatively easily traced since most exogenous variable settings remain at their familiar, actually observed values. 11. Using TASM to explore the medium term is done here by re-setting exogenous variables to the values assumed to represent the state of affairs in 1990. Again, the model solution is in equilibrium, with all adjustments within the system to alterations in its external environment fully worked out. If the time period between the base and projection year is long enough, simulations for the projection year are intrinsically more plausible than counterfactual results for the base year. On the other hand, since many more exogenous variables are simultaneously being assigned new values, it is less easy to keep track of causal processes within the system. III. The Effects of Foreign Trade Restrictions on the Agricultural Sector 12. Government intervention in Turkey's markets for agricultural produce and inputs has been substantial. Until the recently-announced economic reforms, the government's policy was to control foreign trade principally in order to protect domestic producers in certain sub-sectors and to restrain consumer price increases in others. Combined with the various measures operating in domestic markets (e.g. overvalued exchange rates, high support prices, input subsidies), the result has been a structure of producer prices at variance with the structure of border prices and a physical blocking of opportunities for producers to exploit their comparative advantages as suppliers to markets abroad. Since 1980, restrictions on private sector -6- involvement in agricultural foreign trade have been partially lifted, and it appears that the export response has already been considerable (see Annex 2). It can be expected that in those commodities where FOB prices most exceed domestic consumer prices, after taking account of the relevant marketing margins between the farmgate and the border and between the farmgate and internal retail outlets, production expansion for export will be strongest. A point of interest is the extent to which such export-oriented growth will reduce domestic consumption of the commodities concerned due to rising internal prices. This has been a major worry of the government in the past and the main reason, for example, it had until recently banned private sector exports of wheat. The result depends on the strength and price elasticity of demand, and the cost of increasing production at the margin. The latter in turn depends partly on the extent to which the commodity in question competes for resources with other commodities which are also encountering profitable markets. Table 3 compares export parity prices at the farmgate with the corresponding shadow prices generated by TASM in the base solution for 1979 which represent the equilibrium prices on domestic markets. Simulations of Trade Policies 13. Subject to the aforementioned methodological qualifications, the impact of different types of trade policy is assessed by resetting variables and parameters to represent different market conditions from those modelled in the base solution. Thus, in the agricultural trade policy experiments, the following adjustments are made: Policy I Unlimited export demand at base period real FOB prices is assumed, i.e. the internal restrictions on exports which were actually in force during the base period are assumed to be completely lifted, and there are no external limitations on the quantities which can be marketed abroad, but restrictions on the commodity composition of imports remain. The only constraints placed on the model solution are that production levels for arable crops and livestock products cannot exceed twice or decline to less than half their base solution levels and in the case of tree crops, production cannot exceed the level obtainable from harvesting an area which is 25% higher than the base solution area or decline by more than 25% of this area. These constraints are imposed to reflect 'structural' rigidities in the sector which would prevent a very high degree of commodity concentration in production and/or foreign trade from emerging in practice. Policy II Restrictions on both imports and exports are lifted so that a policy of free trade is in force with domestic markets fully responsive to the conditions prevailing on the markets of Turkey's trading partners. Otherwise, assumptions are as in Policy I above. .7- Policy III In this third type of simulation, an attempt is made to portray more realistically the likely absorptive capacity of foreign markets for Turkish produce. There are no policy restrictions on imports or exports, but export demand is no longer assumed infinite at base period FOB prices. In the case of grains, it is assumed that marginal export revenues decline sharply once a certain volume of exports has been reached--a crude representation of rising marketing costs. In the case of other commodities, including those for which the large country assumption would apply, it is assumed that there is a ceiling on the amount which can be disposed of in foreign markets at the quality and price specified. In each case, two variants are run corresponding to the two base year exchange rates of TL35 and TL47 to the US dollar. Simulation Results: Policies I & II 14. Production. The lifting of export restrictions, Policy I, is simulated in TASM in having a substantial impact on production levels. Devaluation of the currency further magnifies this as supply responds to the differential between export parity and domestic market prices at the farm- gate. Results for the main commodity groups are shown in Table 4. The kind of change which takes place in the model solution process as a result of these adjustments to foreign trade variables is illustrated in Table 3. The lifting of restrictions on exports opens up opportunities for production to be dis- posed of at higher prices in the case of most commodities. Production thus flows into exports until the equilibrium price on domestic markets is driven up to the level of the export parity price. For example, under the restricted export conditions of the base period, the domestic price of barley is $89/mt compared with the export parity price of $141/mt. When exports are allowed, an enormous increase in barley production and exports occurs and the new domestic price equals the export price. Pulses and vegetable production also expand, as do oil crops and livestock, though expansion of the latter two is less so in proportionate terms. It is again emphasized that too much atten- tion should not be given to the absolute levels of output shown in Table 4 since in several cases, e.g. certain vegetables, they reflect unrealistic assumptions about the potential size of foreign markets for Turkish produce. The main effect of lifting restrictions on imports of agricultural produce as well as on exports, i.e. Policy II, is to decrease the production of oil crops (due to substitution by imported supplies). This is shown in Table 5. Simulated changes in the relative sub-sectoral contributions to total agricultural output are shown in Table 6. 15. Consumption. An expansion of exports, given the market conditions, technologies and resource levels prevailing in the base year, would imply decreases in domestic consumption. Model simulations show that this applies not only to the commodities exported, but also to other commodities which compete for the same inputs and become more costly to produce. The simulated effects on consumption of lifting export restrictions (Policy I) are shown in Table 7 for the two exchange rates used in the base solution. This table shows that the consumption of all commodity groups is affected by a sectoral shift into exports, with substantial declines in the consumption of pulses, oil crops, industrial crops and livestock products. Allowing in imports (Policy II - Table 8) reverses the consumption decline in oil crops and results in greater consumption of livestock products, but has little effect-- as far as offsetting consumption falls is concerned--on the other commodity groups. 16. Foreign Trade. The simulated effects of Policies I and II on exports of raw agricultural produce are shown in Table 9, and on both imports and exports of raw produce at the two exchange rates in Tables 10 and 11, Apart from the general increase in export-led output noted earlier, the main effects of policies freeing foreign trade for the agricultural sector are; (a) the release of a large export production potential for barley; wheat exports change little but barley (and rye) exports increase substantially; (b) substitution of part of the domestic production of oil crops (sunflower, olives, groundnuts) and sugarbeet by imported supplies--of vegetable oil and sugar, respectively. About half of the total consumption of groundnut is imported at both exchange rates, whereas only under the TL35 rate is sunflower imported, accounting for nearly 30% of total consumption. The impact is in the opposite direction for sugarbeet; about 15% of consumption is imported at the TL35 rate and nearly half at the TL47 rate; (c) exports of sheep and goat meat (and live animals, by implication) increase considerably under both trade Policies I and II. A weaker response of beef (and live cattle) under Policy II is magnified into a stronger response with currency devaluation. 17. Employment. The lifting of foreign trade restrictions on the agricultural sector increases employment during the peak-employment quarter of the year (the third quarter) by around 20% according to the TASM simulations (see Table 12). However, if the numbers employed during this part of the year are assumed to be dependent on this source of livelihood to the same extent for the rest of the year, then those workers are under-employed during the other three quarters. The effects of free trade policies on the total hours worked in agriculture throughout the year are, thus, smaller--around 12% according to the results shown in Table 12. The commodity shift within the sector due to the export-led production increases in response to the lifting of trade restrictions is reflected in increased value-added per worker under Policies I and II compared with the base solution. Depending on whether the higher or lower numbers for the increase in employment is taken, value-added per worker increases by up to 9%. -9- Simulation Results: Policy III 18. The quantities of exports simulated in Tables 3, 9, 10 and 11 appear excessively high in the cases of some commodities and commodity groups in relation to expected market requirements and competition from other suppliers. Hence the experiments designated as Policy III. The assumption being made here is that there is a level of export sales for most commodities beyond which Turkey could not go without facing declining marginal revenues due to increased marketing costs and/or demand inelasticity. These levels are clearly very difficult to assess but are undoubtedly lower, in most cases, than those allowed under Policies I and II. Under the particular conditions assumed for export markets, the impact of this policy on agricultural produc- tion and consumption is shown in Table 13. Total production is simulated as increasing by 9-10%, depending on the exchange rate prevailing. Aggregate consumption, in contrast to the results of the simulations reported above, does not decline, though there are falls in some commodity groups. 19. Details of the quantities of each commodity exported are set out in Table 14, which compares the results with those of Policy II simulations for products in both raw and processed form. It appears that the limits imposed on the amount of any commodity which can be absorbed in export markets for a given price and quality has very little effect on the composition of agricul- tural exports and imports. IV. Projections_of the Agricultural Economy in 1990 Projection Method 20. Projection with TASM involves re-setting variables/parameters to take values representing conditions in the projection year and then solving for the new equilibrium. Adjustments are made in three main areas: (a) Changes in resource availability reflecting increased investment. This assumes that as a result of both private and public sector investment (actual or potential) during the period 1979-1990, there will, or could, be more irrigated land available, a larger area allocated to permanent tree crops, and growth in animal herd size. (b) Changes in technology. The input-output relationships for crop and livestock production activities in TASM are adjusted for the projection simulations to reflect anticipated changes due to the adaption of improved technical packages (new technologies) and/or changes in choice of technique with technologies already in use. For each main group of crop and livestock activities, and in some cases for individual activities, a certain increase in produc- tivity per hectare or per animal is projected with a corresponding increase in factor input per hectare or per animal. It should also be noted that, through restrictions placed on the amount of - 10 - draft power available from the animal herds in the model, the projection year solutions tend to use a proportionately greater amount of tractor power than the base year solutions. (c) Changes in total demand. The effect on product markets of growth in population and disposable income per capita is simulated in TASM by relocating the demand curves in the price/quantity space to positions corresponding to higher levels of consumption in the projection year. The amount by which the demand curve for a particular commodity is shifted to the right in this manner for a given change in total disposable income depends on the Engel elasticities assumed. It should be noted that the model generates a solution which is consistent with the economy-wide assumption about growth in total disposable income by adjusting for the consumption effects of the endogenously-determined agricultural sector net income through use of an agricultural GDP/total GDP multiplier. In line with the population growth assumptions, a corresponding change in the upper limit set on the availability of labor from the rural workforce for agricultural employment is made in the projection simulations. Details of the assumptions made with regard to the above three main types of adjustments are given in Tables 4 and 5 of Appendix 1. All projection simulations assume an exchange rate of TL47=US$l at 1979 constant prices. Trade Policies 21. In the projection simulations, the effects of Policies II and III assumed for the base year simulations, are also tested i.e. unrestricted free trade with no limits on external market demand for exported commodities (Policy II) and unrestricted free trade again but with some limitation assumed for demand in export markets (Policy III). A policy which seeks to maintain levels of consumption 'n 1990 at their per capita levels in 1979 by means of consumer subsidies, is also tested. This is referred to as Policy IV. 22. All the projection simulations referred to above--Policies II, III and IV--assume the same price relatives for the projection year as in the base year. An additional experiment is carried out with TASM to determine what effect price changes (in real terms) projected for major agricultural commod- ities and fertilizers on world markets would have on the model solutions for 1990. The current set of Bank commodity price projections is used. These simulations are referred to as Policy V; details of the data used are given in Appendix 1, Table 6. Projections of Production, Consumption and Commodity Trade 23, The levels projected for 1990 for agricultural production (products in raw form only), consumption, imports and exports are shown in Table 15. Results of simulations assuming market conditions consistent with Policies II, III, and V in the projection year are compared with the Base Solution. The implied rates of compound growth during the period 1979-90 are also shown. - 11 - 24. Production of all main commodity groups except oil crops increases, giving growth rates of 3.6% p.a. and 2.8% p.a. in total production value and value-added, respectively, under the unlimited export demand assumption (Policy II), and of 2.3% p.a. and 1.6% p.a., correspondingly, under the limited export demand assumption (Policy III). Under Policy V, limited exports with relative price changes, the corresponding growth is 2.3% p.a. and 1.5% p.a., which differs only slightly from the projection results under Policy II. However, there is considerable variation in the commodity composi- tion of production. Grain production in particular declines in importance under all three projections, due to a minimal increase in wheat (0.8% p.a. under all three simulations). The simulated growth of grains production is due mainly to a rapid expansion of barley production in response to export opportunities which cause "other grains" to increase as a proportion of total grain production from about one-third in the base year to nearly half under the free trade projection (Policy II). The production of oil crops declines considerably from an already low base under all three trade policies, and substantial imports are required. This appears to be another manifestation of the expansion of barley, which replaces wheat on good rainfed lands, causing some substitution of the latter for oils in irrigated areas (discussed in para. 29 below). The model shows a strong production response for pulses and industrial crops, moderately above average for livestock products, and fruit and nuts except under the free trade projection (Policy II) where it is strong, and below average for vegetables except again under Policy II where it is strong. These findings suggest that the production response of fruit and vegetables having the largest overall export potential, is also the most sensitive to foreign market conditions. Thus production could fluctuate considerably from period to period in response to changing export opportunities. 25. Consumption. Aggregate consumption of agricultural produce is projected as remaining constant in per capita terms: the 1979-90 growth rate under either the limited or unlimited export demand scenarios (Policies II and III, respectively) is the same as that for total population - 2.1% p.a. (The slower rate of increase in commodity prices assumed under Policy V slightly increases aggregate consumption above base year per capita levels.) However, considerable changes take place within the agricultural consumption bundle with large falls in grain consumption per capita, some decrease in pulses, vegetables, fruit and nuts and industrial crops, a small increase in oil crops consumption and a substantial increase in livestock products. Lacking reliable consumer-expenditure survey data, it is not possible to specify demand functions for different income groups in TASM to determine the income distributive effect of a changing composition of consumption. The decline in grain consumption per capita, however, and increase in livestock products is probably relative to the wealthier consumer groups, since the literature indicates that the Engel's elasticities for grains decline with higher per capita income, whereas for livestock products (as a group) these increase with income or at best are constant. - 12 - 26. Trade. The export growth rates associated with two simulations (Policies II and III) are 14% p.a. and 11% p.a., respectively. Under the limited export simulation with changing price ratios (Policy V), growth is 10%. Thus a good marketing response is simulated across all commodity groups to the assumed trade policies, with the strongest manifested by vegetables, and fruit and nuts, followed by grains (barley). Although the growth of pulses and industrial crops exports are projected to be below average, pulses moderately so, this is because the model simulates the export of nearly 50% of their 1990 production, suggesting that the sector's capacity to produce for substantial further export of these crops will become limiting by 1990.1/ It should be noted that these percentages refer to increases from the relatively low base for agricultural exports of 1979; already the US$ value of exports has increased at an average rate of 32% p.a. between 1979-81. Details of projected quantity exports and imports are shown in Table 16. Barley, as well as wheat, is shown as being exported in quantity. Pulses, vegetables, fruit and nuts, cotton and tobacco continue to be exported as in the base year, though there are some changes among individual commodities within these groups. Sunflower, groundnuts and olives (in oil form) are shown as being imported as in the base year free trade policy simulations, but sugarbeet (in sugar form) is not imported in the projections--in contrast to the corresponding base year simulation results (compare Tables 14 and 16). With regard to livestock products, very little mutton and lamb (and live sheep) are shown as being exported in 1990 but beef exports (and live cattle) expand considerably. Assumption of the 'more realistic' export demand limits (Policy TII) results in some small changes in the export commodity mix, but the general pattern changes little. Similarly, adjustment of FOB and CIF prices to reflect expected changes in price relatives between 1979 and 1990 makes little difference - the main result is that beef exports drop in response to a lower real FOB price. Projections of exports of processed agricultural produce are shown in Table 17. They are compared with the corresponding results for the same trade policies simulated under base year conditions. Tomato paste, tea, raisins and shelled hazelnuts are all shown as having good export potential in terms of their price competitiveness; however, wheat flour and olive oil exports are shown as ceasing altogether with every departure from the restricted trade policies of the base year. Projected Impact on Sectoral Foreign Exchange Flows 27. As the simulation results for commodity trade show, the value of agricultural exports substantially exceeds the value of agricultural imports under all types of foreign trade policies assumed, whether for the base year or projection year. To get an indication of the overall net foreign exchange earning/saving capacity of the agricultural sector, however, these figures need to be adjusted to reflect expenditure on imported inputs used in agriculture, whether directly or indirectly. In TASM, the inputs concerned are fertilizers, tractor power and other working capital items for certain 1/ Due to the interaction of technical production considerations and domestic demand. - 13 - crops. (As noted earlier, changes in fixed asset investment in agriculture are not modelled in the financial flows.) The net foreign exchange flows, valued at 1979 border prices, calculated on this basis are shown in Table 18. The main point to note is that the greater intensity of input use in agricultural production assumed for 1990, compared with the situation in 1979, results in much lower net foreign exchange inflow under the conditions associated with the 'limited' export demand scenarios (Policies III and V). The magnitude of this sharp reduction diminishes only when it is assumed that foreign markets could absorb as much produce as Turkey could produce (Policy II). These results do not take account of value added in processed production and trade, which increases substantially. Projected Changes in the Agricultural Terms of Trade 28. The TASM solutions for the projection year assumptions indicate that the barter terms of trade move in the agricultural sector's favor between 1979 and 1990. Since the prices of all factors in the model except for the endogenously-determined prices in commodity markets are held constant at their base year values (except under Policy V - see below), changes in these output prices relative to their base solution values can be interpreted as movements in the sectoral terms of trade to the extent that the prices held constant are prices for inputs such as seed, fertilizer, tractor power, labor and other working capital items. Results are shown in-Table 19, calculated using both base year and future year quantity weights in the aggregate price index. The effect of introducing projected changes in price relatives on world markets, which affects the border prices of both inputs and outputs, is to reduce the rate of increase in domestic agricultural prices relative to non-agricultural prices. Projected Changes in Land Use and Input Utilization 29. Land Use. The projected growth rates of agricultural value-added of 2.8% p.a. (Policy II) and 1.6% p.a. (Policy III) correspond to a 4.9% increase in area sown or planted to orchards in the first-instance and an 8.6% decrease in the second, when these are compared with the base solution (see Table 20). The projected changes in land use also contain changes in the allocation of land among crops, though grains as a percentage of the total remains predominant in 1990 as it was in 1979, occupying 62.5% and 63.1% of the "icropped" area respectively under trade Policies II and III. Within the grains category, however, a marked reallocation of area from wheat to other grains occurs (mostly to barley), which partially demonstrates the effect of permitting barley exports under the assumed trade policies.l/ There also occurs a shift of wheat production from rainfed to irrigated areas as a result of its being replaced by barley in rainfed areas, and a corresponding decrease 1/ It also reflects the effects of the production assumptions made for the forward projections. - 14 - in the number of rainfed rotations within which wheat appears, offset by an increase in the irrigated rotations (depicted in Table 21). This indicates that the model is selecting barley (principally for export) in lieu of hard wheat (another potentially high valued export) which is generally grown under rainfed conditions in Turkey, and allowing the production of bread (i.e. soft) wheat (whose export prospects are limited) to expand in irrigated areas, but under progressively marginal conditions insofar as returns to farmers are concerned because a larger number of irrigated rotations entered the solution for wheat. The other significant changes are the increased area devoted to the cultivation of fruit and nuts and vegetables under free trade conditions but the contraction of these when exports are limited (Policy III), and, under either trade regime, the increased plantings of industrial crops and the marked contraction of area planted to oils. 30. Input Utilization. Under the TASM projections to 1990, the utilization of fertilizers and mechanical power increases considerably (Table 22 refers). A large part of the increased fertilizer consumption is caused by an expansion of production and the changes in input-output relationships associated with the model's technology assumptions. However Table 22 also indicates that levels of fertilizer consumption are related to trade policy and performance. Under the limited export assumption (Policy III), fertilizer consumption in 1990 is projected to increase by about 75% above the amount used in 1979, whereas under the free trade situation (Policy II), consumption would almost double. This reflects the increased fertilizer requirement to expand production of fruit and vegetables for export and for industrial crops. The requirement for mechanical power in 1990 also nearly doubles though the magnitudes should be interpreted with care because of the indexing employed to illustrate this simulation. The relative effect of the trade policies is less on the utilization of tractor power than on fertilizer consumption, suggesting that the technology and scale assumptions in TASM explain most of the increased tractor utilization, which may not be especially influenced by the commodity composition of output. Table 23 indicates that mechanical power is not a binding constraint on the model solutions for 1990, nor is employment. However, most kinds of land are binding, as is the supply of animal power (not shown). Thus the increased requirement for power would probably be used to supplement the limited animal power expected to be available for those farm operations which exceed the capability (or willingness) of farm labor to carry out without additional power. These probably would entail the increased land preparation and harvesting tasks required by the intensified cultivation which the model simulates for 1990. Projected Employment and Changes in Labor Productivity 31. The projected growth rates of agricultural value-added of 1.6% p.a. ('limited' export demand, Policy III) and 2.8% p.a. (unlimited export demand, Policy II) are associated with increases in employment of 0.6% p.a. and 1.7% p.a., respectively, when employment is measured as the number of hours worked during the peak quarter of the year, and with increases of 0.3% p.a. and 1.1% p.a., respectively, when employment is measured as the total number of hours - 15 - worked in all quarters (see Table 24). The higher employment impact of Policy II is due to the greater preponderance of the relatively labor-intensive fruit and vegetable crops in the output mix under the assumption of unlimited export demand. Depending on the employment definition used, about 55-80% of agricultural value-added growth during 1979-90 is thus accounted for by increases in labor productivity (the rest being due to the increase in labor input) under the 'limited' export demand assumptions and about 40-60% under the unlimited export demand assumptions. Table 24 shows that the labor content of total costs in agriculture is projected as declining considerably. If labor costs are included in the definition of net income, then a small decrease in labor's share of net income is projected. V. Growth Possibilities for Turkish Agriculture Causes of Change 32. The trade policy experiments (Policies I-III under base year conditions) clearly suggest that substantial production increases would be stimulated by lifting restrictions on foreign trade in agricultural commodities and opening up domestic markets to foreign market influences, and by allowing the currency to be exchanged against other currencies at rates approximating the free-market or shadow rate. Estimates of the ratio of domestic resource costs (DRC) to net value-added at border prices (Table 25) indicate that Turkey has a comparative advantage as an exporter in the case of most agricultural commodities. Adoption of a 'free trade' policy would thus contribute positively to commodity trade balances in particular and to agricultural growth in general. 33. Agricultural growth will also occur as a result of investments which increase resource availability and raise productivity through irrigation development, the development and uptake of improved production technologies, and from growth in domestic demand which sustains real price levels. These factors were incorporated in policy experiments under projection year conditions as discussed in the previous section. Overall growth can thus be depicted as coming from two sources: changes of a structural nature in resource availabilities, states of technology, aggregate demand levels; and changes which represent producer response to alterations in market conditions due, for example, to the introduction of new trade policies. By simulating trade policy changes under both base year and projection year conditions in TASM, the relative contributions of these two sources of growth to total growth between the base year and projection year can be identified. This is done for total growth in production, consumption, imports and exports during 1979-90 in Table 26 and for employment and value-added per worker in Table 27. 34. Production, consumption and commodity trade. The assumptions built into the TASM projection year simulations and the solutions obtained for these imply that a growth rate of 3.6% p.a. during 1979-90 can be considered possible for total agricultural production under Policy II, or 2.3% p.a. under - 16 - the more feasible constrained exports regime (Policy III). The corresponding rates of growth of value-added in agriculture would be 2.8% p.a. and 1.6% p.a. (see Table 15). The relative contribution of the structural and response effects (or 'growtht and 'policy' effects as they are termed in Table 26) to overall growth simulated is as follows:l/ Under the limited export trade assumption (Policy III), the policy itself, i.e. lifting restrictions on imports and exports, accounts for 36% of the projected growth in production during 1979-90 while the 'growth' processes account for the remainder. If unlimited export demand is assumed (Policy II), then the response effect is proportionately greater (58%) because more of the production response is accounted for by increasing exports from the same resource base and less from an expansion of that resource base. With regard to domestic consumption, the sources of change are quite different. Virtually all the increase in consumption during 1979-90 which is projected is due to the growth processes i.e. increasing population and income per capita create an increased demand for agricultural produce. In fact, the effect of a strong export orientation is to raise prices in the domestic market and reduce consumption. The reverse reflection of this process can be read in the export figures in Table 26. In this case, growth works 'against' the policy effect on exports since increasing domestic demand competes for available supplies. Finally, it may be noted that virtually all the increase in imports is accounted for by the growth process and very little (or none in the case of Policy II) by trade policy. 35. Employment. Agricultural production growth would thus be marginally faster than total population growth (projected at 2.1% p.a.--see Appendix 1, Table 4). However, the expansion of employment in agriculture may or may not exceed the projected increase in the agricultural labor force. Table 24 shows simulated growth in agricultural employment under the free trade scenario-- 1/ It is important to note here that the structural changes labeled as the 'growth effect' in Tables 26 and 27 refer to factors internal to the Turkish economy only. Thus shifts in domestic demand at constant base year prices due to growth of population and disposable income per capita in Turkey are built into the projections but shifts in external (export) demand are not; i.e. the upper limits allowed on export quantities in the 'Policy' III experiments (the point is irrelevant in the Policy I and II cases) are the same for the base year and projection year simulations. Thus the partition of 1990 outcomes into that part due to trade policy effects and that part due to growth effects is done as follows. With reference to Table 26, for a given set of trade policy assumptions (in this case Policy II or III), the 1979 solutions for the variables of interest are subtracted from the 1990 solutions for the same variables. This gives the magnitude of the growth effect, shown in columns (ii) and (v), as defined above. The 1979 base solution is then subtracted from the 1979 policy experiment solutions to give the magnitude of the trade policy effect, shown in columns (i) and (iv). The two types of effect--growth and trade policy--sum to give the magnitude of total change between base year 1979 conditions and projection year 1990 conditions, shown in columns (iii) and (vi). - 17 - Policy 1I--at rates 1.71% and 1.07% p.a. depending on the definitions of employment used. The corresponding rates of growth which were simulated under the limited export scenario--Policy III--are 0.63% and 0.32% p.a. This compares with an assumed rate of increase of 1% p.a. in the availability of agricultural labor (Appendix 1, Table 4). The analysis indicates that the policy effect accounts totally for projected increases in employment under free trade conditions (Policy II), and more than offsets a slightly negative growth effect induced by mechanization and other factors (Table 27). The sources of growth in value-added per worker are somewhat mixed, however, depending upon whether employment is scaled with respect to peak season requirements or "quarterly average" employment. In the former case, 98% of the increased value-added per worker in constant 1979 farmgate prices is attributed to the growth effect and only 2% to the policy effect, suggesting that aggregate employment would be expanded in fairly constant proportion to the utilization of other production inputs as a result of the assumed relaxation of trade restrictions in these simulations, but that a tendency to substitute for labor would occur--at least in value terms--as a result of the structural changes giving rise to the growth effect. When labor is scaled on a quarterly average basis, the sources of growth in value-added per worker are more evenly divided between the trade policy and growth effects. VI. Summary and Conclusions Trade-offs Between-Policy Objectives 36. In terms of future export led growth potential, the impact of changes in trade policies aimed at promoting growth in agricultural exports are considered here in relation to the following areas which are also of central importance in any formulation of agricultural development strategy: (a) growth of agricultural production, income and employment; (b) trade balances; (c) per capita levels of domestic consumption; (d) inter-sectoral terms of trade. 37. Production, income and employment. Continuation of moves already begun to adopt what is essentially a 'free trade' regime will have a substantial positive effect on agricultural production growth. As already noted, about one-third of projected growth between 1979 and 1990 would be attributable to a freeing up of international trade in agricultural commodities. If there were not marketing constraints on the amounts which Turkey could export, growth of production and value-added could be 3.6% and 2.8% p.a., respectively, compared with the 'feasible' projections of 2.3% and 1.6% p.a. (see Table 15). The relative contributions of structural and response factors in total growth would be reversed (see Table 27), given the - 18 - same assumptions regarding structural changes (increases in resource availabilities, technological changes and domestic demand shifts), and the policy effect would assume greater importance. 38. The intensity of purchased input use in agriculture is projected to increase--this follows largely from the assumptions made about incremental input-output relations for individual commodities (see Appendix 1, Table 5 for details) and the relative availability of animal and tractor draft power. Thus value-added in agriculture is-projected by TASM to grow at a slower rate than production (Table 15). Most of the value-added projected is accounted for by increased productivity per worker, whether hired or family labor. Table 24 also shows, though, that the greater the importance of export growth in overall production growth, the greater is the demand for labor. Thus the employment/value-added elasticity is 0.2-0.4 under Policy III (limited export demand) but increases to 0.4-0.6 under Policy II (unlimited export demand), the ranges representing the alternative definitions of employment. This is mainly a consequence of the higher proportion of labor-intensive commodities in sectoral output under conditions of unlimited export opportunities, e.g. the incremental value of fruit, nuts and vegetables in incremental total output over base solution 1979 is 59% under Policy II compared with 41% under Policy III. Indexes of the relative input (including labor)--intensiveness of different crops are given in Appendix 1, Table 2. Table 27 shows that the projected increase in agricultural employment is entirely due to the trade policy/response effect--indeed the growth/structural effect works in the opposite direction. Thus there is a complementarity between export promotion and employment creation, though, unfortunately, the areas in which Turkey looks like being able to find it 'easiest' to export, namely cereals, is the least labor-intensive subsector in agriculture. 1/ Growth in worker produc- tivity, on the basis of hours actually worked throughout all quarters of the year rather than the number of people required during the peak quarter, is due more or less equally to trade policy/response and structural/growth effects. 39. Value-added in agriculture is shared between landowners, tenant farmers and landless farm workers. However, TASM only distinguishes between labor and non-labor income and does not separate the earnings of the self-employed from those working for a wage. Table 24 shows that the labor content of net agricultural income (value-added) is projected to decline slightly--at constant base year prices--indicating a small shift in relative factor earnings away from labor. 1/ It is worth noting that TASM does not model employment in agro-industries, which could be expected to expand as a result of expansion of production in the agricultural sector, some of which would be marketed in processed form. Thus, as a result of production linkages with the manufacturing sector, the economy-wide employment creation could be considerably larger than indicated by the projections, though relative importance of the structural response effects as a source of employment growth may not change in view of existing and substantial overcapacity in many agroindustries. - 19 - 40. Trade balances. Policy adjustments consistent with a freer trade philosophy not unexpectedly have a substantial positive impact on agricultural commodity trade balances. The 'feasible' set of projections (Policy III) indicate an increase in the size of the net surplus of exports over imports of nearly three times between 1979 and 1990 (Table 15), despite a rapid rise in imports. Net exports of processed agricultural products are also projected to increase considerably (Table 17). Virtually all the increase in imports is due to the growth/structural effect and very little due to the trade policy/response effect whereas the opposite is true for exports. Here domestic consumption growth substitutes for part of the contribution of export demand to total production growth (see Table 26). 41. Consumption. The greater the export content of incremental output, the more is consumption eroded (Tables 7, 8 and 26) as prices rise on internal markets. Thus, a strong drive towards export growth is likely to be achieved at the expense of domestic consumption. This could be serious for low income households in view of the evidence on the existing incidence of malnutrition discussed in Annex 3. Measures to maintain consumption levels will mean some sacrifice of export potential but are not likely to make much difference to the rate of growth in overall agricultural value-added. The impact of export-led growth on consumption varies between and within commodity groups, and while total consumption of agricultural products in 1990 would be roughly maintained at base year (1979) levels in per capita terms, this would not be true for most individual commodities (see Table 15). A policy which had the effect of ensuring a minimum level of consumption for all commodities equal to base year per capita levels (e.g. through consumer subsidies) would reduce the potential for export growth. The results of such a policy experiment, referred to as Policy IV, are shown in Table 28. Apart from the minimum consumption constraint, this experiment is the same as Policy III, i.e. imports and exports of agricultural products are not restricted in any way by policy barriers, but export demand is assumed to have finite limits. Table 28 shows that under Policy IV conditions export growth during 1979-90 would be cut from 10.7% to 8.7% p.a.. Thus the potential 1990 trade surplus for the sector would be considerably eroded, from $2,062 million under Policy III to $l,662 million under Policy IV at 1979 prices. Wheat, for example, would not be exported at all, while the growth in imports--responsive mainly to the growth effect--would hardly decline. Value-added in agriculture grows slightly faster under the minimum consumption/lower export policy than when no interventions are made to maintain per capita consumption levels. 42. Terms of trade. Under 'freer trade' policies, the intersectoral terms of trade are projected by TASM to move in agriculture's favor--at about 0.75% p.a. if non-agricultural prices are equated with agricultural input prices. The greater the impact of export trade on production, the faster the rise in agricultural relative to non-agricultural prices (see Table 19). However, these results refer to changes in the price index due to changes in its commodity composition only. If projected changes in world market prices, adjusted to import/export parity at the farmgate, are taken into account also, - 20 - the change in the terms of trade is considerably smaller--more like 0.5% p.a. (see last two columns of Table 19). This projection takes into account changes in fertilizer prices between 1979 and 1990 but not oil-based fuel prices. The latter would further diminish the extent of change in sectoral price relatives. Changes in Patterns of Production and Resource Use 43. Responses to trade policy. The TASM simulations show that a lifting of restrictions on agricultural exports triggers the biggest response, in proportionate terms, in the pulses and vegetables subsectors, followed by the grains and fruit/nut subsectors (see Table 4). Within these subsectors, production and export changes vary widely from commodity to commodity, e.g. barley accounts for nearly all the increase in the grains, lentils leads in the pulses, big increases in exports of potatoes, peppers and melons more than offset decreases in onions and tomatoes, citrus exports expand but grape exports cease. Similarly, within the industrial crop subsector the opening up of access to export markets stimulates increased exports of tobacco, stops exports of cotton and has no effect on sugar. Sheep and goat meat exports (including live animal equivalents) expand substantially but not beef and buffalo meat exports. In processed products trade, exports of tomato paste and dried tea are strongly stimulated, a weaker response is registered by hazelnuts, and olive oil exports cease. These changes are detailed in Table 3. 44. The main effect of lifting restrictions on agricultural imports (as well as on exports) is to replace part of the domestic production of oil crops (sunflower, groundnut and olive) and sugar beet with imported supplies. Devaluation of the exchange rate on top of this reduces oil crop imports but greatly increases sugar imports. The reason for the latter is to be found in the changed export/import profitability of various crops with which sugar beet is linked via rotational constraints. These responses are detailed in Table 14 and summarized by commodity group/subsector in Tables 9 through 11. Comparison of Table 14 with Table 3 shows that a policy of unrestricted imports affects exports: cotton and beef and buffalo meat are simulated as being exported under Policy II( free exports and imports) whereas there are no exports of these commodities under Policy I (free exports only). Again, the reasons lie in the altered opportunity costs of agricultural resources caused by changes in sources of supply for different commodities competing for these resources. 45. The impact of altering the opportunities for profitable disposal or procurement of commodities on the composition of exports is also illustrated in Table 14 where results of Policy II and Policy III (unrestricted imports, limited export demand) are compared. By imposing ceilings on the potential size of export markets assumed in TASM--in an attempt to portray a more realistic trading environment--exports are diversified. Thus, at the TL35=US$l exchange rate, four 'new' commodities (rye, onion, tomato and grape) appear on the export list under 'Policy' III which were not there under - 21 - Policy II. This effect is less apparent at the TL47=US$l exchange rate: only two commodities are added to the export list when limits on export demand for all commodities are imposed. 46. The amount of land available, both irrigated and rainfed, would constrain the response of agricultural production to increased foreign trade possibilities if this resource remained fixed at its base year level (see Table 23). The supply of agricultural labor is not a limiting factor except to a small extent (non-zero but low shadow price) in the extreme case where unlimited export demand is assumed. Tractor power is not an apparent constraint either, though the indexing problem noted in para. 30 above suggests that this finding should be treated with care. Herd size is a serious constraint in the sense that it would still be profitable to produce output fron a larger livestock propulation at the same level of productivity per animal. Note that this is not the same as saying that it would pay to invest (i.e. reduce current output) in herd increases in order to produce higher output at a future point in time. TASM is not addressed to this question. The alternative livestock version of TASM (referred to hereafter as TASM-ALV), which is detailed in Appendix 3 to this annex, suggests that the herd size constraint is not universal but depends on the particular livestock husbandry system concerned. Table 5 of Appendix 3 shows that when high input-high output systems are distinguished in TASM-ALV from low input-low output systems for sheep and cattle, it is only in the former systems that animal numbers remain a constraint on production, i.e. it is only in these systems that an extra animal would contribute positively to value-added. Again it should be noted that the cost of increasing herd size is not taken into account in these solutions. The lower productivities of livestock production overall assumed in TASM-ALV compared with TASM cuts exports to less than half in the trade policy simulations (compare Table 5 of Appendix 3 with Table 9). 47. Effect of structural change, 1979-90. In the projection simulations, the availability of irrigated land in 1990 is set 27% higher than in the base year simulations, the supply of agricultural labor 12% higher and sheep, cattle and poultry numbers 6% higher. Crop and animal yields are assumed to have increased in most cases, ranging from 0% (olives and citrus) to 40% (fodder crops) and from 10% (sheep and goats) to 70% (poultry), with corresponding and proportionately greater increases in inputs of power and fertilizer. Total consumption of all goods and services in the economy is projected to increase by 62% (4.5% p.a.), due to a 2.1% p.a. growth in population and a 2.4% p.a. growth in total consumption per capita. Details are given in Appendix 1, Tables 4 and 5. These changes, which re-define market conditions, can be interpreted as representing the effects of investment, 'autonomous' technological change and growth in the whole economy. 1/ 1/ TASM includes a mechanism whereby the growth in total consumption initially assumed for any projection simulation is made consistent with the consumption arising out of the model's own solution for agricultural income. - 22 - 48. The imposition of these changes in TASM modify the responses to trade policy adjustments obtained under base period conditions. For example, wheat appears as a major export item, along with barley, under Policies II and III, while lentils and potatoes are not exported at all. All sugar consumption is supplied from domestic production of beet. In the livestock subsector, beef and buffalo meat replaces sheep and goat meat as the leading exports. Table 16 gives details. The principal effect of modifying Policy III by ensuring domestic consumption is maintained at base year per capita levels (Policy IV) is to stop wheat exports again and reduce exports of livestock and livestock products (compare the last two columns in Table 28). The increased availability of irrigated land under the projection assumption makes wheat production more profitable if export opportunities can be exploited. Table 21 shows the extent to which the irrigated wheat area is projected to increase relative to the rainfed wheat area. Under base period technologies and with less irrigated land available, barley production is more profitable than wheat. Irrigated land remains as the only resource (in the terms in which TASM defines resource availability) limiting agricultural production in 1990 under the 'more realistic' assumption about export demand (see Table 23). Table 1: Turkey Agricultural Sector Model Base Solution: Comparison of Actual 1979 Gross Production Values /a With Model Results for Same Year _Exchange Rate: TL 35 = US$1 Exchange Rate: TL 47 = US$1 TL 35=US$l TL 47=US$l Actual Prod. TASM Prod. TASMs Actual Prod. TASH Prod. TASM/ Actual Prod. TASM Prod. TASM Prod. Value 1979 Value 1979 Actual Value 1979 Value 1979 Actual Mix 1979 Mix 1979 Mix 1979 Grains 3,104 2,888 93.0 2,311 2,277 98.5 17.4 15.8 16.6 of which Wheat 1,992 1,866 93.7 1,483 1,502 101.3 (64.2) (66.0) (64.6) Other 1,112 1,022 91.9 828 775 93.6 (35.8) (34.0) (35.4) Pulses 418 473 113.2 311 349 112.2 2.3 2.6 2.5 Vegetables 3,500 3,687 105.3 2,580 2,851 110.5 19.7 20.2 20.0 Fruit & nuts 3,500 3,687 105.3 2,607 2,745 105.3 19.7 20.2 20.0 Oil crops 644 681 105.7 480 499 104.0 3.6 3.7 3.6 Industrial crops 1,543 1,543 100.0 1,149 1,153 100.4 8.7 8.5 8.4 Livestock 5,135 5,143 100.1 3,824 3,827 100.1 28.8 28.2 27.9 Total 17,809 18,249 102.5 13,262 13,701 103.3 100.0 100.0 100.0 /a All values at actual 1979 farmgate prices. - 24 - Table 2: Turkey Agricultural Sector Model: Simulated Use of Land and Labor in the Base Solution At Exchange Rate TL35=US$l TLT7=US1 Land ('000 ha) Cultivated area /a 17,953 19,012 Of which: Sown b/ (12,007) (12,586) Fallow (5,946) (6,426) Under tree crops 2,280 2,279 Pasture 19,795 20,377 Labor /c ('000 persons) 5,489 5,617 /a When comparing these figures with SIS published figures for land use in 1979, it should be noted that the input data for TASM assume the actual level of wheat production in 1979 was 25% lower than the official estimates (Appendix 2, Table 1). /b Net sown area i.e. double-cropped land is counted only once. /c These figures represent the numbers employed during the peak quarter of the year in terms of male adult full-time equivalents. It is assumed that six hours a day are spent actually in the fields working and 300 days a year are worked. Table 3: Turkey Agriculture Sector Model: Comparison of Export Parity Prices and Model-Generated Equilibrium Prices (Exchange Rate: TL 35 = US$1) Base Solution Unrestricted Exports (Policy I) Parity Shadow Consump- Shadow Consump- Price Price Exports tion /b Price Exports tion /b ($/ mt) ($/mt) ('000 mt) ('000 mt) ('00 m t) T Y ('000 mt) Products in Raw Form /a Wheat 125.6 125.6 661 11,036 125.6 659 10,984 Rye 130.0 127.9 10 402 130.0 65 400 Barley 141.1 88.8 1 1,119 141.1 5,908 999 Chickpea 589.1 389.3 50 278 589.1 319 251 Dry bean 832.6 505.4 0 75 832.6 70 68 Lentil 396.7 358.7 108 213 396.7 357 213 Potato 171.4 152.3 13 3,109 171.4 2,631 3,109 Onion 94.7 93.5 77 1,032 104.3 0 1,000 Green pepper 497.1 175.2 0 590 497.1 611 479 Tomato 117.8 87.5 26 3,778 120.9 0 3,663 Melon 86.9 87.5 23 5,806 86.9 808 5,806 Groundnut 709.6 620.2 1 61 709.6 57 57 Olive 680.0 639.9 5 283 680.0 184 283 Cotton 1,751.2 1,686.7 151 301 1,867.4 0 298 U_ Tobacco 1,908.3 1,642.3 70 140 1,908.3 280 133 1 Citrus 187.7 265.6 8 3,372 187.7 492 1,104 Grape 276.6 265.6 8 3,372 291.1 0 3,372 Apple 274.2 188.2 30 1,401 224.2 391 1,402 Peach 210.1 187.9 1 238 210.1 56 238 Quince 184.9 158.6 0 49 184.9 13 49 Strawberry 830.3 764.7 0 23 830.3 4 23 Pistachio 3,760.0 3,529.8 1 19 3,760.0 5 19 Hazelnut 1,115.9 1,035.4 7 11 1,214.7 0 10 Sheep meat 2,220.0 1,056.7 31 307 2,220.0 124 214 Goat meat 2,220.0 1,306.4 3 101 2,220.0 35 69 Angora goat meat 2,220.0 1,855.4 0 5 2,220.0 1 4 Products in Processed Form Tomato paste 19 667 Olive oil 30 0 Dried tea 6 54 Raisins 76 308 Shelled hazelnuts 127 165 /a Only those commodities for which the unrestricted export simulations give different results from the base solution are included. /b Consumption is defined as all uses (including seed, waste and loss) apart from animal feed and exports. Table 4: Turkey Agricultural Sector Model: Simulation of Effects on the Gross Value of Agricultural Production of Lifting Restrictions on Exports Under Base Period Conditions (Policy I) (US$ million) /a Exchange Rate: TL35 = US$1 Exchange Rate: TL47 = US$1 Base Free Trade Base Free Trade Solution /b Solution % Change Solution /b Solution % Change Grains 2,888 3,669 +27.0 2,277 2,830 +24.3 Of which Wheat 1,866 1,858 -0.4 1,502 1,413 -5.9 Othier 1,022 1,811 +77.2 775 1,417 +82.8 Pulses 473 837 +76.9 349 623 +78.5 Vegetables 3,834 5,668 +47.8 2,851 4,952 +73.7 Fruit and nuts 3,687 4,563 +23.8 2,745 3,396 +23.7 Oil crops 681 746 +9.5 499 545 +9.2 Industrial crops 1,543 1,745 +13.1 1,153 1,307 +13.4 Livestock products 5,143 5,225 +1.6 3,827 3,809 -0.5 Total 18,249 22,453 +23.0 13,701 17,462 +27.5 /a All values at actual 1979 farmgate prices. /b From Table 1. Notes: 1. Maximum production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quaKltities which can be exported. Table 5: Turkey Agricultural Sector Model: Simulation of Effects on the Gross Value of Agricultural Production of Lifting Restrictions on Exports and Imports Under Base Period Conditions (Policy II) (Us$ Million) /a Exchange Rate: TL35 US$1 Exchange Rate: TL47 = US$1 Base Free Trade Base Free Trade Solution/b Solution % Change Solution/b Solution % Change Grains 2,888 3,654 +26.5 2,277 2,861 +25.6 of which Wheat 1,866 1,852 -0.7 1,502 1,439 -4.2 Other 1,022 1,802 +76.3 775 1,422 +83.5 Pulses 473 837 +76.9 349. 623 +78.5 Vegetables 3,834 6,077 +58.5 2,851 4,964 +74.1 Fruit and nuts 3,687 4,563 +23.8 2,745 3,397 +23.7 Oil crops 681 505 -25.9 499 420 -15.8 Industrial crops 1,543 1,749 +13.3 1,153 1,314 +14.0 Livestock products 5,143 5,219 +1.5 3,827 3,887 +1.6 Total 18,249 22,604 +23.9 13,701 17,466 +27.5 /a All values at actual 1979 farmgate prices. /b From Table 1. Notes: 1. Maximum production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. - 28 - Table 6: Turkey Agricultural Sector Model: Simulated Effects on the Composition of Production of Lifting Restrictions on Exports and Imports Under Base Period Conditions Free Export and Base Solution Free Export Trade rt Trade (Policy I) (Policy II) TL 35 TL 47 TL 35 TL 47 TL 35 TL 47 =US$1 =US$1 =US$1 =US$i =US$1 =US$1 Grains 15.8 16.6 16.3 16.5 16.2 16.4 Of which Wheat (64.6) (66.0) (50.6) (49.9) (50.7 (50.3) Other (35.4) (34.0) (44.4) (50.1) (49.3) (49.7) Pulses 2.6 2.5 3.7 3.6 3.7 3.6 Vegetables 21.0 20.8 25.4 28.4 26.9 28.4 Fruit and nuts 20.2 20.0 20.3 19.4 20.2 19.9 Oils crops 3.7 3.6 3.3 3.1 2.2 2.4 Industrial crops 8.5 8.4 7.8 7.5 7.7 7.5 Livestock products 28.2 27.9 23.3 21.8 23.1 22.3 Total /a 100.0 100.0 100.0 100.0 100.0 100.0 /a Columns may not sum exactly to 100 due to rounding. Notes: 1. Maximum possible production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. - 29 - Table 7: Turkey Agricultural Sector Model: Simulation of Effects on Domestic Consumption /a of Agricultural Produce of Lifting Restrictions on Exports Under Base Period Conditions (Policy I) Exchange Rate: TL35 = US$1 Exchange Rate: TL47 = US$1 A B C D E F Base Unrestricted % Change Base Unrestricted % Change Solution Exports /a from Base Solution Exports /a frmn Base ($M /b ($M) ()($M) Grains 2,117 2,087 -1.4 1,612 1,547 -4.0 of which Wheat 1,665 1,657 -0.5 1,281 1,252 -2.3 Other 452 430 -4.9 331 295 -10.9 Pulses 381 355 -6.8 280 244 -12.9 Vegetables 3,780 3,712 -1.8 2,805 2,679 -4.5 Fruits and Nuts 3,141 3,129 -0.3 2,336 2,296 -1.7 Oil crops 558 550 -5.2 407 360 -11.5 Industrial crops 1,197 1,141 -4.7 882 750 -15.0 Livestock products 4,511 4,321 -4.2 3,332 2,995 -10.1 Total 15,685 15,295 -2.5 11,654 10,871 -6.7 /a Domestic consumption is defined as all uses (including seed, waste and loss) apart from animal feed and exports. /b All values at 1979 actual farmngate prices. Notes: 1. Maximum production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. 551Z p 47 - 30 - Table 8: Turkey Agricultural Sector Model: Similation of Effects on Domestic Consumption /a of Lifting Restrictions on Exports and Imports Under Base Period Conditions (Policy II) (us$ million) /b Exchange Rate: TL35 = US$1 Exchange Rate: TL47 = US$ 1 Base Free Trade Base Free Trade Solution Solution % Change Solution Solution % Change Grains 2,117 2,085 -1.5 1,612 1,571 -2.5 of which ibeat 1,665 1,657 -0.5 1,281 1,269 -0.9 Other 452 428 -5.3 331 302 -8.8 Pulses 381 355 -6.8 280 244 -12.9 Vegetables 3,780 3,713 -1.8 2,805 2,677 -4.6 Fruit and nuts 3,141 3,129 -0.4 2,236 2,259 -3.3 Oil crops 558 596 +6.8 407 431 +5.9 Industrial crops 1,197 1,137 -5.0 882 753 -14.6 Livestock products 4,511 4,954 +9.8 3,332 3,434 +3.1 Total 15,685 15,969 +1.8 11,654 11,369 -2.5 /a Domestic consumption is defined as all uses (including seed, waste and loss) apart from animal feed and exports. /b All values at actual 1979 farmgate prices. Notes; 1. MAxiinm production in these sinulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade siTmlations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. Table 9: Turkey Agricultural Sector Model: Simulation of Effects on Exports of Lifting Restrictions on Exports and Imports Under Base Period Conditions (USS Million) /a Exchange Rate: TL35 = US$1 Exchange Rate: TL47 US$1 A B C D E F G H IJ Base Free Export Free Export Base Free Export Free Export Solution Trade B/A 6 Import Trade D/A Solution Trade G/F 6 Import Trade I/F (Policy I) (Policy II) (Policy I) (Policy II) Products in Raw Form Grains 84.3 924.8 11.0 913.4 10.8 156.0 1,054.4 6.8 1,056.3 6.8 Of which Wheat 83.0 82.7 1.0 78.0 0.9. 154.6 94.8 0.6 103.7 0.7 Other 1.3 842.1 647.8 835.4 642.6 1.4 959.6 685.4 952.6 680.4 Pulses 77.3 388.0 5.3 388.0 5.3 72.5 411.4 5.7 411.4 5.7 Vegetables 14.7 825.2 56.1 971.9 66.1 14.7 1,234.7 .84.0 1,244.7 84.7 Fruit and nuts 43.7 215.7 4.9 215.7 4.9 43.7 253.9 5.8 253.9 5.8 Oil crops 4.7 165.7 32.3 0 0 4.7 189.6 40.3 4.06 0.9 Industrial crops 396.5 534.5 1.3 593.9 1.5 396.5 632.6 1.6 806.3 2.0 Livestock products 75.5 354.7 4.7 412.9 5.5 77.5 582.3 7.5 806.4 10.4 Total 691.9 3,408.6 4.9 3,496.1 5.0 765.6 4,358.9 5.7 4,583.1 6.0 /a All values at actual 1979 farmgate prices. Notes: 1. Maximum production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. - 32 - Table 10: Turkey Agricultural Sector Model: Sinulation of Effects on Commodity Trade of Lifting Restrictions on Exports and Imports under Base Period Conditions Exchange Rate: TL35 = US$l (US$ million) /a Export and Import Export Restrictions Restrictions Lifted Base Solution Lifted (Policy I) (Policy II) Imports Exports Net Imports Exports Net Imports Exports Net Grains 0 84.3 84.3 0 924.8 924.8 0 913.4 913.4 Of which lWheat 83.0 83.0 82.7 82.7 78.0 78.0 Other 1.3 1.3 842.1 842.1 835.4 835.4 Pulses 0 72.5 72.5 0 388.0 388.0 0 388.0 388.0 Vegetables 0 14.7 14.7 0 825.2 825.2 0 971.9 971.9 Fruit and nuts 0 43.7 43.7 0 215.7 215.7 0 215.7 215.7 Oil crops 0 4.7 4.7 0 165.7 165.7 53.6 0 -53.6 Industrial crops 0 396.5 396.5 0 534.5 534.5 52.2 593.9 541.7 Livestock products 25.9 75.5 49.6 30.1 334.7 334.7 32.7 412.9 380.2 Total 25.9 691.9 666.0 30.1 3,408.6 3,378.5 138.5 3,496.1 3,357.3 /a All values at 1979 actual fanmgate import/export parity prices. Notes: 1. Maximum production in these sirmlations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 tines the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade sinulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. Table 11: Turkey Agricultural Sector Model: Simulation of Effects on Commodity Trade of Lifting Restrictions on Exports and Imports Under Base Period Conditions Exchange Rate: TL47 = US$1 /a (US$ million) Export Restrictions Export and Import Restrictions Base Solution Lifted (Policy I) Lifted (Policy II) Imports Exports Net Imports Exports Net Imports Exports Net Grains 0 156.0 156.0 0 1,054.4 1,054.4 0 1,056.3 1,056.3 Of which Wheat 154.6 154.6 94.8 94.8 103.7 103.7 Other 1.4 1.4 959.6 959.6 952.6 952.6 Pulses 0 72.5 72.5 0 411.4 411.4 0 411.4 411.4 Vegetables 0 14.7 14.7 0 1,234.7 1,234.7 0 1,244.7 1,244.7 Fruit and nuts 0 43.7 43.7 0 253.9 253.9 0 253.9 253.9 Oil crops 0 4.7 4.7 0 189.6 189.6 13.5 4.06 -9.44 Industrial crops 0 396.5 396.5 0 622.6 622.6 166.9 806.3 639.4 Livestock products 9.8 77.5 67.7 9.8 582.3 572.5 11.8 806.4 794.6 Total 9.8 765.6 755.9 9.8 4,358.9 4,349.1 192.2 4,583.1 4,390.9 /a All values at 1979 actual farmgate import/export parity prices. Notes: 1. Maximum production in these simulations is limited to twice 1979 actual levels in case of arable crops and livestock products, and to production from 1.25 times the actual 1979 area in the case of tree crops. 2. It is assumed in the Free Trade simulations that export demand is perfectly elastic with respect to price and that there are no restrictions on the quantities which can be exported. Table 12: Turkey Agricultural Sector Model: Employment Aspects of Simulations of Free Trade Policies under Base Period Conditions A B C D E F Free Exports Exchange Rate Free Export Trade and Imports Base Solution (Policy I) (Policy II) TL 35 = US$1 TL 47 = US$1 TL 35 TL 47 TL 35 TL 47 TL 35 TL 47 C/A E/A D/B F/B =US$1 =US$1 =US$l =Us$i =US$i =US$l -------
Groupe de la Banque mondiale · Pre-2003 Economic or Sector Report
Turkey - Agricultural development alternatives for growth with exports (Vol. 3 of 3) : Annexes 5-11
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Groupe de la Banque mondiale
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Pre-2003 Economic or Sector Report
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Turquie
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Banque mondiale