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Cablegate: What Drives Investment in Turkey's Ag Sector?

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 004475

SIPDIS


SENSITIVE


STATE FOR EUR/SE, EB/EPD, AND EB/TPP/ABT
DEPT PLEASE PASS USTR FOR NOVELLI, LERRION
USDA FOR FAS FOR ITP/MEYER, HANSEN;
CMP FOR ALL COMMODITY DIVISIONS
USDOC FOR DEFALCO
VIENNA FOR APHIS/SLITER


E.O. 12958: N/A
TAGS: ETRD EAGR KPAO TU
SUBJECT: What Drives Investment in Turkey's Ag Sector?

Sensitive but Unclassified. Not for Internet Distribution.


1. (SBU) Summary. Despite a low level of direct foreign
investment and foreign companies who are discouraged by the
investment climate, local Turkish business are continuously
seeking the next investment opportunity - even in Turkey's
agriculture sector. The cattle sector is a prime example.
Recently there has been a lot of interest in the beef and
dairy cattle sectors that has resulted in recent sales of
U.S. breeding cattle to Turkey, despite high prices and high
shipping costs. Many companies seem to be closely watching
their competitors in order not to miss an opportunity. The
danger of course, is that all this interest will eventually
lead to overproduction, falling prices and bankruptcies
since many investments are not always based on sound
financial plans. End Summary.


----------------------------------
Cattle - The Next Big Opportunity?
----------------------------------


2. (SBU) During the past 12 months interest in the cattle
industry has increased dramatically in Turkey. Cattle
inventories have dropped dramatically since the 1970s when
inventories reached over 16 million head. Today, total
cattle inventories in Turkey are about 11 million head.
Prices for beef have increased sharply since Turkey does not
permit any legal imports of beef or any other meat for that
matter. In the past, Turkey imported large numbers of
cattle for fattening, particularly from Germany. However,
after the BSE crisis in Europe, all imports were banned.
Turkish officials realized that with most cattle imports
stopped, better genetics would be needed.


3. (SBU) The United States and Turkey negotiated an
agreement allowing imports of breeding cattle in 1998. Some
shipments did ensue. Beginning in 2002 and continuing today
breeding cattle imports for both dairy and beef operations
have dramatically increased. We know of several recent
sales totaling over 1200 head. Moreover, interest in this
industry reads like a Who's Who in Turkey. Koc, Sabanci,
Dogan and Yasar families have either imported or expressed
interest in breeding cattle. During a recent trip to
Istanbul, AgCounselor met with the distributor of DELL
computers who expressed interest in this industry.


-----------------------
Why Cattle and Why Now?
-----------------------


4. (SBU) Investment in the beef and beef sectors makes
sense financially. Beef prices are high and tourism has
picked up along with the demand for high-quality beef in
hotels and restaurants. The situation may also be a good
indication of the Turkish business mentality. Turkey seems
to resemble a small village at times where competitors know
each other like neighbors, and try to outdo one another or,
at the very least, keep pace with one another.


5. (SBU) All of the richest Turkish families have interest
in the food processing and agriculture sectors which are
second tier industries after banking, media and
construction. When one company gets involved - they all
tend to follow. Of course, the level of expertise is not
always as good as it should be. For example, we have been
approached by a number of Turkish companies including the
distributor of DELL computers in Turkey to buy livestock
from the United States. One is sometimes amazed at their
lack of knowledge about animal diseases, feed and livestock
management. Moreover, they seem to have little interest in
Turkish or international import regulations. Two companies
were unaware that Turkey has Food and Mouth Disease (FMD)
and, as a result, is prohibited from shipping beef to the
European Union. A second representative declared
emphatically that Turkey could be declared free of FMD
disease within a year, which to say the least, is highly
unlikely.


--------------------------------------
Foreign Companies Shy Away from Turkey
--------------------------------------


6. (SBU) U.S. companies have had a number of problems
stemming from weaknesses in the Turkish investment climate.
Turkey's agriculture sector is overly regulated with little
transparency. In addition, as a result of some high-profile
investment issues like Cargill's glucose facility, many U.S.
companies are less inclined to invest in Turkey. On the
other hand, Turkish companies seem to have a lot of money
and are often looking for the next investment opportunities
sometimes without thoroughly thinking through the entire
process.


---------------
What, Me Worry?
---------------


7. (SBU) The danger in the Turkish approach in the
agriculture sector is that it can often have disastrous
consequences. In the mid-1990s, investment in the poultry
sector increased dramatically leading both to modernization
and overproduction. As a result, poultry and egg prices
dropped precipitously and many companies were forced into
bankruptcy. The same danger could face the livestock sector
with investment leading to overproduction and falling
prices. Of course, the situation is not limited to
livestock. A U.S. cotton consultant recently commented that
Turkish firms are looking to invest in new and expensive
spinning machinery. While the new machinery will be more
efficient, it will also lead to higher production. No
thought has been given to where this production can be sold.


--------------------------------------------- ---
Comment: Ag Investment - A Contradictory Picture
--------------------------------------------- ---


8. (SBU) On the one hand, foreign companies continue to
shy away from investment in Turkey mainly due to legal and
regulatory problems and despite the recognized potential.
On the other hand, Turkish investors are always looking for
new investment opportunities. It appears that these
investments are sometimes a matter of prestige as well as
competition among families rather than being purely driven
by the profit motive. While Turkish companies are looking
to establish ties with their Western counterparts, it is a
good sign that Turkish companies have the money to invest
and are willing to invest in Turkey. Sometimes these
investments are made with little thought, which in turn may
lead to overproduction, falling prices and failing
companies.


Pearson

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