1. IMPACTS OF EU INTEGRATION ON TURKISH AGRICULTURE
Erol H. CAKMAK
H. Ozan ERUYGUR
Middle East Technical University (METU)
Department of Economics
Ankara/Turkey
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

2. EU-MED AGPOL PARIS MEETING
Research Questions
What are the potential impacts of the following paths on Turkish agricultural production, consumption and trade in 2015?
Current policy “status quo”,
A new WTO agreement in 2015,
Turkey’s EU membership in 2015.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

3. EU-MED AGPOL PARIS MEETING
Model Structure
Model maximizes the sum of consumers' and producers' surplus, hence output prices are endogeneous to the model.
A single period static optimization model.
A non-linear programming model.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

4. EU-MED AGPOL PARIS MEETING
Model Structure
Crop and livestock sub-sectors are integrated endogenously:
Livestock sub-sector gets inputs from crop production.
Foreign trade is allowed in raw and in raw equivalent form for processed products.
Foreign trade is differentiated for EU, USA and ROW.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

5. EU-MED AGPOL PARIS MEETING
SCENARIOS & RESULTS
Two sets of scenarios are defined and analyzed for their impacts in the year 2015.
Non-EU Scenarios
EU-OUT (Baseline scenario)
WTO (15 % decrease in WTO binding tariff commitments of Turkey)
EU Scenarios
EU-CU (Customs Union with the EU is extended to agricultural products)
EU-IN1 (Turkey is a member of EU)
EU-IN2 (Turkey is a member of EU, double yield growth until 2015)
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

6. First Set: NON-EU Scenarios
EU-OUT
Baseline scenario
The tariff and protection levels of Turkey are different from that of EU
There are tariffs and import subsidies for EU-Turkey agricultural trade.
There are deficiency payments.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

7. Model calibrated to base period values and 2004 policy parameters
Baseline Scenario
Projection of the model to a predetermined period assuming that that there is no change in the current agricultural policy.
Projection is done imposing plausible changes in exogenous parameters such as population, income, import and export prices, input prices, yields and resource endowments.
Apart from the base period, it provides an additional benchmark for the evaluation of the changing policy environment.
Base Period
Model
( )
2004 Policies
(Status Quo)
Year: 2004
Model calibrated to base period values and 2004 policy parameters
Baseline
Model
(2015)
2004 Policies
(Status Quo)
Year: 2015
Model projected
to 2015
Projection to 2015
Impose estimated changes in population, income, import and export prices, input prices, yields and resource endowments until 2015
GME-OLS 2-step estimation process to forecast the values of these parameters in 2015
Policy Change
Scenarios in 2015
Reduction in WTO
binding tariffs
in 2015
Turkey integrates
with the EU
IMPACTS
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

8. Common Assumptions for Scenarios (2015 Projection Assumptions)
1.4 percent population growth per year
Population growth rate is determined from FAOSTAT estimates
1.3 percent net per capita income growth per year.
GDP per capita with 1987 prices (real) serie of CBRT is used, a linear trend is regressed.
210,000 ha increase in irrigated area; of which 150,000 ha come from GAP region and 60,000 ha come from rest of the Turkey.
Prices are adjusted to 2015 using FAPRI (2005) price projections and FAO export unit values data ( ).
Yield Increases until 2015 included. The yield growths are estimated using last 10 years data with GME taken last 45 years data estimates with OLS as support vector center points, i.e., a priori information. However, all simulations (except EU-IN2) are performed following a “conservative” attitude in which only the half of the estimated yield growths until 2015 are used.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

9. First Set: NON-EU Scenarios
WTO
Same as Baseline Scenario (EU-OUT) except
It assumes that there will be 15 percent decrease in Turkey’s binding WTO tariff commitments in 2015.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

10. General Results (WTO Simulation)
Total surplus is not affected
Negligible decrease in producers’ surplus
Consumers’ surplus increases by 1%
Impact on production volume is small
Overall price level falls by 2% with 4% decrease in livestock product prices
4 % increase in the volume of livestock consumption with relatively negligible expansion in the consumption expenditures.
Net imports of livestock products increase by USD 250 million
Net exports of crop products are not affected

11. General Results (WTO Simulation)
Turkish crop sector does not seem to be affected.
Impacts on crop production, consumption, net exports and prices are negligible.
Livestock sector can be affected to a limited extent.
Prices fall 4%, net imports expand 53%, consumption volume increases 4% and production revenue decreases by 5%.

12. Second Set: EU Scenarios
EU-CU represents the customs union scenario.
Customs union agreement between EU and Turkey is extended to cover the agricultural products,
There is EU intervention purchases,
The protection and import subsidy levels of Turkey are at the same levels as EU.
Tariffs and import subsidies are removed for EU-Turkey trade in agricultural products.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

13. Second Set: EU Scenarios
EU-IN1 represents the first membership scenario.
There is EU intervention purchases,
The compensatory direct payments for cereals, oilseeds and protein crops and compulsory set-aside regulations of EU apply fully to Turkey.
Turkey is also eligible for other subsidies implemented in the EU, i.e. payments for durum wheat, tobacco, olive oil, cotton, milk, beef and sheep meat.
The protection and import subsidy levels of Turkey are at the same levels as EU.
Tariffs and import subsidies are removed for EU-Turkey trade in agricultural products.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

14. Second Set: EU Scenarios
EU-IN2 represents the second membership scenario.
Policy framework for EU-IN2 is the same as EU-IN1.
Only difference is the fact that the EU-IN2 scenario is the optimistic version of EU-IN1:
Exact estimated values for yield growth rates are used in this simulation
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

15. General Results for EU Integration Scenarios
Impact on total surplus is small.
But, with full CAP payments, it increases by 2%
Without full CAP supports, producers’ surplus declines slightly.
With Full CAP supports, producers’ surplus increases, 1%.
Consumers’ surplus increases significantly in membership (12%)
Impact on total production volume is limited: it posts 6% decrease
With membership, overall price level goes down by 14%
Livestock product prices fall sharply by about 25%
Volume of total consumption increases (11%) but the expenditure on total consumption declines (6%). Hence relatively high consumption levels are achieved at much lower costs under EU scenarios.
This pattern is observed more significantly in the consumption of livestock products.

16. General Results for EU Integration Scenarios
Under EU scenarios, Turkey seems to become net importer of agricultural products since Turkey’s net exports of crop products will not be able to compensate the boom in the net imports of livestock products.
Under membership, obligatory set-aside regulations of CAP (for cereals and oil-seeds) affect the production volume and trade.
However, with higher yield growth performances, volume of net imports may decline significantly. This shows the effectiveness of technological improvement.

17. Apart from livestock products, net imports of cereal and oilseeds can record large expansions under membership or customs union. Particularly, corn and wheat net imports expand.
Impacts on Net Exports

18. On the other hand, net exports of Pulses, Vegetables and Fruits & Nuts expand under membership or customs union. Particularly, chickpeas (pulses), peppers, tomatos, cucumbers (veg.) and hazelnut, apples, apricot and citrus (Fruits & Nuts).
Net Exports (USD million)
TOTAL
USA EU
ROW
CROP PRODUCTS
2537
-604
2610
1330
3336
-611
1477
1363
2228
CEREALS
-240
-233
-81
-8.0
-322
-1199 42
-1390
PULSES
190
1.4 45
237
1.5 51
202
255
INDUSTRIAL CROPS
615 69
551
103
724
523
113
705
OILSEEDS
-747
-632
2.9
-293
-922
-190
-1115
TUBERS 55
0.0
4.1 79 83 76 80
VEGETABLES
598 59
354
451
864 58
407
430
895
FRUITS AND NUTS
2064
132
1734
807
2672
125
1882
791
2798
LIVESTOCK & POUL.
-273
7.4
-249
-235
-476
-3479
-3704
MEAT 11
1.8 2
-2168
-2157
MILK
-14
0.5 20 21
-899 23
-876
HIDE, WOOL & HAIR
-290
7.0
-250
-275
-517
6.9
-248
-287
-528
POULTRY 19
-164
-144
2264
-596
2361
1095
2860
-2002
1130
-1476
EU-OUT (2015)
EU-CU (2015)

19. EU-MED AGPOL PARIS MEETING
CONCLUSION
Non-EU simulations’ results point out some remarks.
Under status quo (EU-OUT), model projects significant price increases for livestock products, particularly for meat and milk, in 2015.
15 percent reduction in Turkey’s WTO tariff rate commitments will be beneficial to consumers with a small negative impact on the welfare of producers (WTO simulation).
Net imports increase by about USD 250 million (due to the expansion in meat imports).
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

20. EU-MED AGPOL PARIS MEETING
CONCLUSION
Results for the EU scenarios may be summarized briefly as follows.
Overall welfare affect is small.
Consumers will definitely benefit from EU integration due to declining prices.
Increased consumption will be realized with a lower level of expenditure.
CAP supports are effective for the welfare of producers.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

21. EU-MED AGPOL PARIS MEETING
CONCLUSION
Livestock products will not be competitive. However, last 5 years’ increasing yield trends in livestock products shows better performances than before (TASM-EU).
Net exports of crop products will be far from compensating the increase in the net imports of livestock products.
Technological improvement is important.
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

22. EU-MED AGPOL PARIS MEETING
Thank you
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

23. CAP Payment Estimates (EU-IN1)
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING

24. CAP Payment Estimates (EU-IN2)
EROL H. CAKMAK
EU-MED AGPOL PARIS MEETING