Turkey - Commodities Market Development Project

Report No. PID5953 Project Name Turkey-Commodities Market Development ... Project (Learning and Innovation Loan) Region Europe and Central Asia Sector: Agriculture Project ID TRPE48851 Borrower Treasury Implementing Agency Ministry of Industry and Trade Mr. Naci Sulkalar General Director of Domestic Trade Telephone: 90 - 312 - 284.2863 Fax: 90 - 312 - 284.2865 Date this PID prepared 1/24/1998 Projected appraisal date 2/23/1998 Projected Board date 5/18/1998 Country and Sector Background Most observers agree that Turkey has tremendous potential for rural growth, but this has gone largely unrealized. In the 20-year period 1975-96, while overall GNP was growing at around 3.4 percent per year, agriculture grew at a rate of about a third that figure. As a result, the sector shrank as a share of the whole economy from 36 percent to 15 percent over that period. The importance of rural development is amplified by the relative poverty of the sector as a whole and the fact that many of the poorest live in rural areas. Project Objectives The objective is to (a) increase the marketing efficiency of grains and cotton through selected commodities exchanges by introducing improved systems of price discovery, dematerialized trade, and regulatory oversight; and (b) demonstrate the benefits resulting from increased private commodity marketing. Project Description The following three components would be implemented under the project financed under a Learning and Innovation Loan (LIL): (a) investment support to a modernization program for selected exchanges; (b) strengthening of regulatory institutions; and (c) monitoring and evaluation. Investment support to exchanges would be provided by facilitating the financing of a range ('menu') of investments on a cost recovery basis ranging from installation of electronic communication network, over laboratory equipment to monitor the use of new quality standards, to limited investments in civil work for warehouses (if justified); and training and technical assistance to acquire the  skills and knowledge to operate, and benefit from, systems of improved price discovery and dematerialized trade. The decision on the part of selected exchanges (i.e. Izmir, Adana, Stanliurfa, Polatli, Konya, Eskishir, and Edirne) to borrow under the project for these investments is, of course, voluntary based on the choice of investments provided within a framework or 'menu' of investments. The investments supported under the project should enhance the business opportunities of the exchanges and allow them to provide enhanced services in the future. Strengthening of the regulatory institutions would consist of training and technical assistance to (a) introduce uniform, internationally compatible quality standards for cotton and grains; (b) design and initiate the implementation of a warehouse receipt system; (c) improve market surveillance and supervision of commodity exchanges; and (d) assist in the establishment of a communication network linking commodity exchanges; (e) increase the general awareness of the opportunities and limits of exchange-based marketing; and (f) the establishment of a small PIU. The development of new quality standards acceptable to the industry; the introduction of a warehouse receipt system acceptable by the private sector; and the development of a meaningful electronic network will require a broad and systematic consultation process of all relevant private and public participants. A task force approach has been suggested that would bring together the interests of the various stakeholders. Managing this process will require leadership skills within Turkey as well as considerable international expertise, both of which would be mobilized under the project. Monitoring and evaluation of project implementation and impact will be essential to learn the lessons critical for further market development and policy reform. It would also contribute to the on- going sector dialogue between the Government and the Bank. Monitoring activities would cover for instance (a) baseline and ex- post survey of major existing users of exchange services, including indicators of increased usage and improved efficiency of operation at the level of the exchanges; and (b) monitoring of market integration amongst participating exchanges and between participating and non-participating exchanges. While the responsibility for these activities would be with the MIT, it is suggested that these monitoring functions be outsourced to university departments, consulting firms, or other qualified institutions. Project Financing Financing plan (US$m): Source Local Foreign Total Government 0.7 0 0.7 Participating Exchanges 1.3 1.0 2.3 IBRD (*) 0 4.0 4.0 Total 2.0 5.0 7.0 (*) under a Learning and Innovation Loan (LIL) - 2 -  Project Implementation Overall responsibility for implementation lies with the Ministry of Industry and Trade. The investment support component would be implemented as follows: the Bank's loan would be provided to Turkey through Treasury who would onlend funds to exchanges through an intermediary, yet to be determined. The strengthening of the regulatory institutions component would be implemented under the initiative of MIT and the PIU; the development of new grain and cotton standards, as well as the development of the warehouse receipt system will require the presence of some long term TA; electronic networking would be implemented with the support of TOBB which currently operates a commodity information databank. The monitoring and evaluation component: the responsibility for these activities would be with the MIT; however, it is likely that these monitoring functions be outsourced to university departments, consulting firms, or other qualified institutions. Poverty Category This project do not fall under any explicit poverty category. Environmental Aspects The environmental category is yet to be determined. As no environmental impact is anticipated - neither negative nor positive - a category "C" rating is anticipated. Program Objective Categories Economic Management Contact Point: Severin Kodderitzsch, Task Manager The World Bank 1818 H-Street, NW Washington, D.C. 20433 Telephone: (202) 458-2164 Fax: (202) 522-1164 Note: This is information on an evolving project. Cetain activities and/or components may not necessarily be included in the final project. Processed by the InfoShop week ending January 30, 1998. - 3 -