My visit to Turkey

During a recent (Dec 2012) visit to Turkey one of their top economists explained to me the effects of privatization on the Turkish farmers.

Before reading this it is worthwhile to first read the chapter on the role of the IMF in Turkey.

The economist explained to me:

Turkish tobacco has a harsher taste than Virginia tobacco – think of Camel cigarettes. At the same time the Turkish tobacco is much hardier than Virginia, growing in places that Viginia will not grow. In fact it grows in places that other crops do not grow. A major benefit of Turkish tobacco is that it requires much less irrigation than Virginia – a big benefit in an arid country like Turkey.

TEKEL, the state owned monopoly, guaranteed farmers that they will buy the whole crop. A a large part of the crop is exported (to make Camel cigarettes etc.) and the remainder is used to make cigarettes for Turkish consumption. This arrangement was of great benefit to farmers in arid regions. They could make a living by planting tobacco on hillsides and soil that could not be used for other crops.

Underlying this whole economic arrangement was an import ban on tobacco. In Turkey you only smoked Turkish made cigarettes – made by TEKEL.

Of course, wherever there is a ban there is smuggling.

My economist friend told me that people literally walked in the Turkish heat with rain-coats. Like the comedy cliches they would flash the inside of their coat displaying a selection of cartons of western cigarettes brands. Even Camels.

I did not ask him, but, since selling smuggled cigarettes were illegal, one can assume that this involved jail sentences. (Like “Midnight Express”?)

The IMF insisted, as a condition for their emergency loan to Turkey that the borders be opened for – legal – cigarette imports and that TEKEL be privatized. I described the effect of the privatization in another chapter.

The effect of opening the borders to legal imports of brands (from Philip Morris and BAT, of course) had a more far reaching effect than the job losses incurred by the privatization of TEKEL.

Some simple economics (not even Freakonomics) came into play.

The price of legally imported western brands is much lower than the price of illegally smuggled western brands, and the western brands had an ‘image’. So western brands gained market share. The market itself did not increase. The loser was Turkish brands.

The exports of Turkish tobacco remained unchanged.

Because TEKEL could not guarantee to the farmers that they will buy the whole crop the obvious losers were the Turkish farmers – in the rural arid regions.

The farmers were on border-line income areas supplementing their income by producing tobacco leave on the hills.

My economist friend came from one of these areas and told me that the hardships suffered by the farmers in these regions were massive! But then, why would the shareholders in Philip Morris and BAT care about this? Why would the IMF and World Bank care?

After all, it is just another Muslim country getting screwed over.

 

HERE IS SOME FURTHER RESEARCH:

  1. Whilst researching this section I discovered that the WHO wants to ban blended cigarettes.

I discuss the economic implications here.

Here is a long quote from the news item which demonstrates much of what I said above:

“Sibel Devrim, an authority from the East Anatolia Development Agency, or DAKA’s, Muş branch, said some 30 percent of the village made its living off tobacco farming, adding that the quota practice which was abolished after the privatization Turkey’s former alcohol and tobacco monopoly caused the harvests to remain unsold.

“After privatization, not only was the quota abolished, but also the private companies started to purchase harvests from farmers with cash. Now there are three private companies buying from our farmers and two of them are American. We hope more private companies will come to our city to buy tobacco.”

On the other hand, the chairman of a local tobacco cultivators’ federation, Şehmus Solgun, said these companies adopted a contract-based purchase method, which only allowed the farmers on contract with these companies to be able to sell their yield, thus badly affecting employment. “But we have no other choice,” he said.

Solgun complained that tobacco producers were left alone for too long, and “although Muş was capable of cultivating high quality tobacco equal to a second-quality Virginia tobacco, we are importing 80,000 tons of tobacco every year.” 

He said that following privatization, although the Tobacco High Council could supervise tobacco purchasing companies it could not regulate prices. “It is true that we cannot get the price we want. Ideally, tobacco should be 10 lira per kilo. But we sell it at 3 or 5 liras per kilo and America turns it into Marlboro and sells it back to us at 350 liras per kilo.”

Solgun also said cultivators were not supported properly and although they had no alternative to tobacco cultivation, it was impeded by the state.

“In Muş, the land is under snow for six months. And when there is no more tobacco cultivation the already high unemployment rate will rocket.”

Solgun said the 78 percent tax on the good prevented tobacco cultivation, adding they could not sell their harvest under the current circumstances.”

So, what he says is that the purchase system that came in the place of the state owned TEKEL buying all the production is actually just a duopoly (or, triploly?) where three companies (USA based) accredit farmers to buy from.

Pssibly the most important piece of the quote isBut we sell it at 3 or 5 liras per kilo and America turns it into Marlboro and sells it back to us at 350 liras per kilo.”. This is what this whole website is about!!!

 

Here is a website that gives more economic facts about Tobacco in Turkey:

Some interesting numbers that they give to support the story about the plight of the Turkish Tobacco farmer:

“Turkey’s tobacco production constitutes 4 percent of global production of 7 million tonnes, placing Turkey fifth after China, India, United States of America and Brazil. The world cigarette market is in general based on blended cigarettes, which include a certain amount of oriental-type tobacco. About 65 percent of oriental tobacco is produced in Turkey, 25 percent in Greece and 10 percent in Bulgaria and the former Yugoslavia. Production of Virginia and Burley tobacco amounts to little more than 3 percent (8 000 tonne) of total tobacco production in Turkey.”

So, if the WHO bans blended cigarettes then this will affect Turkey, Greece and Bulgaria, NOT USA.

 

In the USA the number of farmers affected by changes in world prices etc. are very few and include big automated farms like those of Barnes (and these are subsidized when they canno0t produce at world market prices.)

In turkey we are not talking about just a few people affected:

“Being one of the most labour intensive agricultural production activities, tobacco production is an important source of employment. Most of its labour requirements are met through family labour. With approximately 600 000 tobacco growers in Turkey, and assuming the involvement of 2.5 persons per family, tobacco production employs some 1.5 million persons. More are employed in other tobacco-related activities, like transportation, storage, trade and cigarette manufacturing.

Between 1990 and 1999, both the average farm size and production per farmer fell, the latter also partly as a result of lower yields. The largest reduction in farm size and yields of nearly half were in the east and southeast. The only region registering an increase in farm size and yield was Thrace.”

 

and the economic reliance of these people on tobacco is not insignificant:

“A survey was conducted among 33 tobacco producers in six villages of the Akhisar district of Manisa province, the district and province representing the most important tobacco producing subregion in Turkey. Manisa Province accounts for 23 percent of the nation’s tobacco output and value.

Tobacco provides 67 to 86 percent of average annual household income in the six sample villages.

Some 92 ha of cultivated land was under five crops: tobacco, cotton, wheat, olive and grape. Tobacco accounted for 44 percent of the area, followed by cotton, with 26 percent, olives with 15 percent and wheat with 12 percent. Olives were produced in addition to tobacco by one third of the producers, 24 percent of the farmers produced cotton as well as tobacco, while the same percentage supplemented tobacco with wheat (Table 6.2).”

 

 

 

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