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Cablegate: New Quota System Not Solution for Rice Ban

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

121552Z May 04

UNCLAS SECTION 01 OF 02 ANKARA 002686

SIPDIS


SENSITIVE


STATE FOR EUR/SE, EB/EPD, AND EB/TPP/ABT
DEPT PLEASE PASS USTR FOR CNOVELLI, JHOFEMEISTER, LERRION
USDA FOR FAS FOR ITP/BERTSCH, MACKE, POMEROY, HANSEN,
FLEMMING
USDOC FOR DEFALCO


E.O. 12958: N/A
TAGS: ETRD EAGR KPAO TU
SUBJECT: NEW QUOTA SYSTEM NOT SOLUTION FOR RICE BAN


Sensitive but Unclassified. Not for Internet Distribution.


1. (SBU) Summary. On April 27, TMO announced the creation
of a quota system intended to liquidate their stocks and
allow limited rice imports. Rice importers who purchase TMO
stocks will be allowed to import an equivalent (paddy
equivalent) quantity. Since August of 2003, the Turkish
Ministry of Agriculture has refused to issue import licenses
for rice. As a result of high procurement prices, the
Turkish Grain Board (TMO) purchased 148,000 MT of domestic
paddy rice in 2003, which was approximately 35 percent of
the domestic crop. The rice import ban remains in place
because TMO has not been able to resell its rice at such
high prices. End Summary.


2. Under the announced quota system, TMO will allow
approximately 70,000 MT of milled rice equivalent imports.
It is important to note that there is already significantly
more rice held in bonded warehouses that has not been able
to clear customs due to the ban. Those importers who
purchase TMO stocks in order to import rice will be simply
clearing rice from their own stocks, which are currently in
bonded warehouses. Since the amount that they will be
allowed to bring in from their bonded warehouses is limited,
these companies will likely import their milled rice first.
Note: Traditionally, the United States exports
predominantly paddy rice to Turkey. End Note. Thus, in the
current marketing year, no opportunities will exist for U.S.
paddy rice to enter the market. As a result of TMO actions
and resulting high domestic prices, rice consumption in
Turkey is forecast to decline by approximately 15 percent in
the current year.


3. According to trade sources, the importers proposing to
purchase TMO stocks have also requested that TMO keep the
market closed so that they have protection to sell their
rice. The market is not expected to be reopened for
commercial imports until early in 2005 at the earliest.


4. During the last week of April and first week of May,
Agriculture Attache met with officials at the Turkish Under
Secretariat of Foreign Trade, Agreements Branch (USFT), and

SIPDIS
the Director General of the Turkish Grain Board (TMO) and
the Under Secretariat of Foreign Trade, Imports Branch. The
meetings were quite informative, although neither office
appears concerned that the current import regime is
violating WTO commitments. On one hand, TMO clearly
indicated that the ban would be in place into early 2005.
Officials at the Under Secretariat of Foreign Trade,
however, actually denied there was a ban, and indicated that
anyone could import rice, as long as they met the import
license requirements (which they indicated were plant health-
related). Foreign Trade claims that Turkey has not violated
any of its WTO commitments. Note: Foreign Trade officials,
who have a better understanding of WTO commitments, have
made this denial in recent years as well. They have, and
will continue to argue that the import license is actually a
plant health control certificate, and unrelated to
quantitative import control measures. Technically, this may
be true, but the Ministry of Agriculture abuses this system
to control imports of a variety of products. End Note.


-------------------
A Long History
-------------------


5. For the past four years, as early as August, Turkey's
Ministry of Agriculture has stopped issuing import licenses
for paddy rice. Generally, this import ban lasts until
January, thereby compelling Turkish millers to buy rice
exclusively from Turkish farmers, and thus supporting the
price of rice during harvest season. By February, Turkish
importers (largely rice millers) are usually granted import
permits. Importers in Turkey and their U.S. suppliers have
traditionally adjusted their marketing plans to accommodate
the annual import ban and shortened import season.


6. The situation in 2003/04 is quite different. The
import ban, as expected, went into effect in August 2003.
To date, the GOT continues to restrict imports due to large
stocks held by the Turkish Grain Board (TMO). TMO
purchased about 35 percent of the 2003 domestic crop, or
approximately 148,000 MT of paddy rice. According to TMO,
they are required to purchase any domestic crop, at their
announced prices, that is not purchased by the private
sector. According to TMO, large commercial imports during
the Sept 2002 to Aug 2003 marketing year resulted in
relatively high commercially held domestic stocks and
reluctance on the part of local millers to purchase Turkish
rice. TMO, and USFT have each indicated that this is a
sensitive domestic issue.


7. To date, no rice imports from the 2003 U.S. crop have
entered the Turkish market. Several shipments from the
United States have been canceled altogether. Exports of
U.S. rice to Turkey in Sept 2003 to Feb 2004 were 39,300
tons, 71 percent below the same period in 2002/2003. None
of this rice has actually entered the Turkish market for
consumption, since the rice is being held in bonded
warehouses (in Turkey) pending the issuance of import
permits. As this is paddy rice, and milled rice is expected
to clear customs first under the quota system, it is
unlikely that any U.S. rice will enter Turkey until 2005.


-----------------------
A Circular Problem
-----------------------


8. It is easy to see how the actions of TMO actually
precipitated this crisis. Traders have reacted to the
predictable and short import season by procuring more rice
than needed, as they did in 2002. Large commercial stocks
resulted in limited domestic procurement, which was
subsequently done by TMO. Now the millers and importers are
being forced to purchase the rice at prices set by TMO. As
a result of high prices, domestic consumption of rice is
forecast to be lower by approximately fifteen percent. Even
if the quotas were lifted today, the stocks held in bonded
warehouses are sufficient to meet domestic demand. There is
also speculation that Egyptian rice would benefit most from
the current market conditions if all quotas were lifted.


--------------------------------------------- -
Equal Treatment for Wheat and Corn?
--------------------------------------------- -


9. The Ministry of Agriculture and Rural Affairs, under
the guidance of TMO, and with the objective of supporting
domestic producers, controls the imports of wheat and corn
in a similar manner. For wheat, import licenses are only
granted for about 300,000 MT of wheat under a bilateral
quota system with the EU, or against exports of wheat
products such as flour or pasta. No import licenses have
been issued for U.S. wheat in several years. For corn,
Turkey uses very high tariffs (currently eighty percent) to
seasonally control imports and guarantee that domestic
production is procured first at higher-than-world prices.
This creates a short import season, and much uncertainty for
local feed millers and poultry producers. As with rice,
once the import window opens, corn traders and end-users
rush to cover their needs well into the future.


EDELMAN

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