Turkey & Global 2030

The Changing Face of Global Agriculture, Food Security & Trade Policy

McLarty Associates: Who We AreFounded in 1998 by Thomas “Mack” McLarty.

President Clinton’s Chief of Staff.An international strategic advisory firm.

We counsel investors, corporations & non-profits:Strategic planning.Government issues and advocacy.Mergers and acquisitions.Political and economic risk issues.

Assist with high-level commercial and political negotiations, including market access requests.

Presentation Summary

World Agricultural Megatrends.The Transatlantic Trade & Investment Partnership (T-TIP).Possible T-TIP Effects on Turkey.Possible T-TIP Adaption Strategies.

World Agricultural Megatrends

Major changes affecting world agriculture between now and 2030.

One: Shifting Production.Two: Rising Food Security Concerns.Three: Growing Global Middle Class.Four: Changing Rich Country Consumption.Five: The Changing Environment.Six: Continuing Science Anxiety.Seven: Rising Non-Trade Concerns.Eight: The Energy Issue. Nine: Moving Beyond the WTO.

One: Shifting ProductionIncreasingly globalized supply chain.

China will increase production but can’t keep up.Concentration in Brazil, US, Europe, Russia/CIS and Africa. Increasing trade flows & murkier national origins.

New technology.Intensification such as hydroponics.Nano, biotech and in-vitro meat production.More use of IT in production and logistics.

People move off the land, increasing farm size.Future 2030: New technology and more dependence on Brazil, US, Europe and Russia.Action Items:

More trade liberalization.Firmer embrace of technology.Land tenure reform.

One: Shifting Production

Sub Saharan Africa45%

Latin America28%

CIS12%

E & S Asia3%

ME & N Africa1%

Other12%

Land Availability

Where the Uncultivated Land is…

Two: Food Security ConcernsLinks of food and national security.

Rising competition for resources such as land & water.Increasing land & input prices.Could affect military priorities.

More defensive moves in export & imports.Market access a concern in export dependent countries.Protecting local production in many markets.Reducing price and supply volatility.More SPS issues

Future 2030: More use of safeguards, SPS and anti-dumping. Attempts to secure resources and local production.Action Items:

Reduce trade barriers.Embrace new producers – we need them.Support training and technology.Need to allow scale to develop in agriculture.

Two: Food Security Concerns

Russia

United St

ates EU

Brazil

Turkey

Iran

Nigeria

Mexic

o

Ethiopia

India

Pakist

an

IndonesiaChina

Vietnam

Philippines

Banga

deshJap

an0

0.10.20.30.40.50.60.70.80.9

Arable Land (ha/person)

Low Land Availability in Growth Markets.

Three: Rising Global Middle ClassIncreasing demand in developing countries.

China, India, Brazil, Indonesia, Russia and Africa.Middle class will increase by 104% by 2020 in poor & middle income countries versus 9% in rich countries.Increasing population – to 9 billion.Eating out & meat consumption to increase sharply.

Modernized distribution spreading.Cold chain and logistics to cut waste, reduce consumer prices and increase farm prices.More sales through modern retail formats.

Future 2030: Continued strong increases in food demand could press resource limits & strain transport.Action Items:

Improve logistics to facilitate trade.Reduce trade barriers to control prices. Finding way to distribute to poor.

Three: Rising Global Middle Class

Egypt

Indonesia

Mexico

Brazil

Russia

India

China

0 100 200 300 400 500 600

20112021

Middle Class to Increase by 83% to 2012.

Note: Households with real PPP incomes greater than $20,000

Four: Rich Country Consumption Demand for ag products has been flat.

Pressure on portion sizes.Move away from red meat.Exception: Increasing inward migration.

Consumption shifting.Obesity affects 500 million. Local, organic & health food in rich countries.Nutrition, allergens and new concerns to arise.

Future 2030: Exports will likely drive future growth & food characteristics will become more important. Action Items:

Need exports to grow.Change products to meet demand.Increasing information content & big ag data. How to feed the world with more demands on ag sector?

Four: Rich Country Consumption

South

Asia

SE Asia CIS

S Americ

aChina

E Asia (e

x China)

N America EU

0

10

20

30

40

50

60

70

80

Meat Consumption, 2002-2012

Example: Slow Meat Consumption Change

Five: The Changing EnvironmentChanging weather patterns.

Erratic waterfall and limited availability.Increasing water stress conditions.Emerging disease issues.

More need for sustainability.Soil and biodiversity issues.Reducing waste in production and inputs.

Falling arable land.Urbanization & need to supply in Asia/Africa.Offset by increases in Africa and elsewhere.

Future 2030: Likely falling returns to scale because of environmental constraints. How to utilize waste?Action Items:

Focus on water, land & other resource sustainability.Reduce land use for other purposes.Define property rights more clearly (land/water).

Six: Science AnxietyLoss of faith in regulators.

BSE, Dioxin-chicken in Europe.May happen in America and elsewhere.Rise of traceability and private standards.

Consumer questions about biotech.North America, Latin American and China.Resistance in Europe.Africa caught in the middle.

Could affect support for research and development.Undermine emerging technologies?

Future 2030: Persistent science skepticism could drive need to improve system with traceability and improved regulation. More private standards for customers.Action Items:

More pro-science policy on biotech and other tech.Support agricultural extension, research and development.

Six: Science Anxiety

Seven: Non-Trade Concerns These NTC include:

Child labor & rights.Vegetarian & vegan.Human rights.Animal welfare.Religious issues – Halal.Aging & health issues.Other issues will be driven by media.

Rising activity of NGO & Social Media.Mixed motivations (fundraising v. legitimate issues).

Future 2030: Trade increasingly affected by NTC but may split along class lines. Social license increasingly important. Multifunctionality is spreading. Action Items:

More technology to support consumer choice.More effective risk communication.

Eight: The Energy IssueWorldwide biofuels production increasing.

Already diverts 30% of US corn, oils, sugar.Put pressure on food and feed prices.

Global Energy Revolution.North American & other energy production. Next generation biofuels on the horizon.

Future 2030: Energy prices affected by biofuels and new energy production. Action Items:

Prepare for disruptive technologies.Need to balance resource (land/water) use.Changes in production and consumer prices.

Nine: Beyond the WTOWTO has limited effectiveness.

Doha too many actors and demands unanimity.Gridlock defining “sound science” (Codex).Dispute Settlement often not effective (EU-US ag).

Countries moving to FTA and other agreements.More than 600 bilateral or regional trade agreements in place by 2010.Increasing FTAs could complicate sourcing rules of origin.Most agreements not likely WTO consistent.

Future 2030: WTO pushed aside by FTAs and other agreements.Action Items:

Negotiate FTAs aggressively.Strong enforcement mechanisms needed.Better SPS/TBT disciplines.

Nine: Beyond the WTO: TTIP

Based on German Marshall Fund paper

Nine: Beyond the WTO: TTIPTransatlantic Trade & Investment Partnership (TTIP).

Agriculture is one of the most challenging issues.Successful conclusion is not assured.

Major Issues & Possible Resolutions.Duties – Zero for Zero.

Likely to be phased in over time with safeguards.Liberalize “substantially all trade” to align with WTO.Largest welfare gain with major effects on trade flows.

SPS/Biotech – Follow science with labeling & risk communication.

Follow international standards and WTO agreements.Establish scientific dialogue on new technologies. Harmonization and mutual recognition of standards. Increase transparency & advance notice.Could de facto set international standards.

Nine: Beyond the WTO: TTIPMajor Issues & Possible Resolutions.

Geographical Indications (GIs) – Mutual recognition of GIs.

Define which products should remain generic.Use long transition periods. Consistency with the existing WTO TRIPS.

Non-Trade Concerns – Defining scope and policies. Agreement on desired policies consistent with trade liberalization.Consistency with the existing WTO agreements.

Export Subsidies – Zero for zero. Almost already in place.

Ag support – Not really a bilateral issue.

Nine: Beyond the WTO: TTIPThe TTIP will be very difficult to negotiate. Future 2030: If implemented, TTIP could have a major effect on global ag trade.Action Items:

Completing the negotiation. Synching with other agreements such as TPP.Securing domestic political support.Resolving enforcement challenges.Adding new parties:

Canada/Mexico.Eastern Europe (Ukraine).Turkey.

Possible TTIP ChallengesChange in EU biotech policies may change field crop cultivation competitiveness.

Possible opportunities in GMO-free marketing. More competition in the EU from US exports.

Reduced duties.SPS and standards harmonization. Could put pressure on some sectors:

Field crops – Wheat.Livestock – Poultry (future market).Processed Food – EU-origin products made with cheaper US inputs.

Possible TTIP ChallengesHighlight – Fruit Sector.

Turkish Fruit – Mostly enters the EU under a 0 percent plus specific duty based on price.US Fruit – Mostly enters the EU under a higher duties plus specific duty based on price.

US Import Duties, excluding specific levies:Grapes – 8 to 17.6%.Cherries – 6 to 12%. Apples – 0 to 11.2%.Tangerines, Lemons, Grapefruit – 6.4 to 16%.

Lower TTIP duties on US product could change market shares.

Possible TTIP OpportunitiesFood ingredients for processed food exports to the United States.

Increased EU exports to the United States may fuel demand for Turkish ingredients by reducing US high duties on:

Dairy products (>100%).Beverages (22-23%).Food preparations (19-21%).

Specific sectors could include:Field Crops – Beans, Peas, Chick Peas & Lentils.Processed Foods – Processed Fruit (Cherries).Dairy – Milk.

Possible TTIP OpportunitiesIncreased EU exports may fuel demand for Turkish ingredients. Example – Hazelnuts.

Turkey is the world’s largest producer.Used heavily in confectionary products such as pralines or in combination with chocolate, for chocolate truffles. EU confectionary no longer face 12-13% duty.

Possible TTIP OpportunitiesMore EU exports to the United States may open markets for Turkish imports.

New openings caused by displacement of EU product. Possible products include:

Fruit – Raisins, Apples, Citrus.Vegetables – Tomatoes. Other Products – Olives, Olive Oil.

Few TTIP Changes ExpectedSome sectors will likely see little change:

Turkey is competitive.Lower transportation costs because of proximity. Lower cost of production.

EU market is already open to US exports: Field Crops – Oilseeds such as sunflower.Fruit – Apricots, Citrus.Tree Nuts – Walnuts, Almonds.Processed Foods – Wheat Flour.Other Products – Melons, Sugar Beet.

Possible StrategiesTrade Liberalization to stabilize import markets.

Reduces price volatility in inputs.Modernize most competitive sectors.

Strong tree nuts, food processing sector.Top 1-3 producer of hazelnuts, apricots, figs, cherries, sour cherries, quinces, raisins, poppy seeds, melons, watermelons, strawberries, leek, lentils, apples, cucumbers, green beans, green peppers, chestnuts, pistachios, pickles, tomato paste, potatoes, fruit and vegetable juices, canned fruits and vegetables.

Possible StrategiesModernize most competitive sectors.

Pro-science ag policy. Support training and technologyReduce duties/restrictions on ag inputs.Logistics investments: cold chain, ports and roads.

Negotiate FTA’s/Market Access.Doha is almost dead.Boosting access to key markets is critical.

Possible StrategiesStrategic Marketing.

Define value chain by moving up or down to avoid US and EU products based on market principles.

NTC concerns: Focus on artisanal, traceable, organic, or pro-biotic dairy.Example: Build up cherry processing to boost demand.

Expand exports to new markets such as China, South Asia, Africa or Middle East.

This is where the consumers of tomorrow are.

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Thank you!

Acknowledgements/Sources: USDA/Foreign Agricultural Service (FAS), Economic Research Service (ERS), World Bank