We are proud that the feed industry has been developing rapidly, but this development should be managed carefully. Both the state and the sector, as well as the relevant institutions, organizations and NGOs have to be in longer-term planning on the sector-related decisions. It is necessary to be more sensitive about making the appropriate tax and legal regulations through meeting the players of the sector.

İbrahim ERTEKİN Vice Chairman and Partner Birlik Tarım Sanayi Ve Ticaret A.Ş.

Turkey has gathered speed during the last fifteen years in the production of mixed feed, and the total production of mixed feed has increased from five million tons to twenty-three million tons. Increasing population and GNP per capita has triggered the quality nutrition and protein consumption habits in Turkey just like in the world. The fact that the sector is growing with such great speed has also brought a number of problems.

Particularly procurement of feed raw material, planning, and logistic require professional management. In the last fifteen years, local agricultural production has not been at the level of meeting raw material requirement for production of mixed feed. Especially in the soybean, the most basic raw material of poultry feed production, domestic production does not exceed 5 percent of total consumption. Unfortunately, we have become dependent on imported raw materials for the protein and starch sources that form the basis of mixed feed production.

Total imports of bran group, pulp group and starch and alcohol industry wastes, which are the main inputs of feed production, were amounted to USD 1,246 billion dollars at the end of 2017 while it was USD 148 million in 2003. In other words, while the mixed feed sector has grown four times in the last fifteen years, the growth in imports of these three main types has been 8.5 times. In order to stem inflation in nutrition, customs tariff on the import of raw materials has been lowered recently and even zeroed for some products. Despite these efforts, price has increased within supply/demand balance, and there has not been any change to lower expenses for producers. Discounts in customs tariff has turned into price surge and profit for abroad producers and exporters although these taxes should have been added to the state’s budget.

While producers in Europe prepare long-term planning in sales and raw materials, producers in Turkey have to prepare short-term planning because of various reasons. In Turkey, producers have to deal not only with exchange rates but also with various factors such as rapidly changing customs taxes, interference appetite of the Agricultural Products Bureau (TMO). Therefore, producers are inclined to meet their demands for short-term raw materials by taking into account exchange risk, tax risk, TMO factor instead of carrying out raw material planning. Indeed, similar to previous years, TMO, which sets sales prices by ignoring foreign and domestic prices, has made it unclear what producers and importers will do. Of course, it is not realistic to expect to have solutions instantly for a sector whose 85-percent of production cost is dependent on raw materials while the volume has reached substantially. However, the sector can grow healthier through mid-term planning and implementation.

SOYBEAN AND CONTRACTED AGRICULTURE Firstly, a number of regulations and incentives related to domestic production are needed to reduce the dependence on external sources of raw materials. Consumption of the soybeans is around 3 million tons, but domestic production has not been able to exceed 200 thousand tons for years. Although soybean is the most important and the greatest source of protein, the fact that we are mostly dependent – 90 percent - on imported soybean for years showed how the state, producers and the sector remained indifferent to this reality.

Our country is convenient for soybean production as far as soil structure and climate are considered. As it is not realistic to expect from the state to produce soybeans, this duty is rest on the shoulder of big players in this sector. Especially after the regulations on GMOs in recent years, you are aware that there is a crisis of raw material caused by GMO legislation. Even though the industry cannot tolerate a lack of raw materials even for a month, due to GMO-related problems, the sector has struggled against limited raw material access and fancy prices. Even today, the soybeans containing unpermitted gene are waiting at the seaports for the last 4 months. Unfortunately, the sector uses soybeans over premiums that these soybeans are rated. The best approach to this problem is to support and encourage farmers to produce soybeans. Even though the state tried to support the production of soybeans through contributions and biodiesel incentives, the desired production cannot be achieved because of faulty agricultural implementation and wrong selection of seeds. The only solution is to increase output through contracted agriculture by cooperation in the sector.

In order to change farmers’ habit in production selection, there should be wide-ranging campaigns, trainings. Through medium-term campaigns, it should be underlined that farmers will be better off and will not face any difficulty in sale. Contracted agriculture in production of industrial potatoes by US-based companies and success stories can guide the sector. Besides, Ukraine is another success story. In the beginning of 2000s, the total production of soybeans was around 100,000 tons, but this has increased to four million tons recently. Increasing domestic soybean production will ease both soybean supply and logistics planning and will reduce the crises experienced by the sector due to GMOs.

FLOUR AND IMPLICATIONS OF OIL INDUSTRY There are similar problems in other protein and starch resources apart from soybeans. Protein and starch resources are not the main products for oil facilities and flour/ starch/ ethanol facilities. They are hardly by-product and even become waste products. Considering that only about one-fourth of the nominal capacity of the oil and flour industry can be filled, imports of bran / pulp to our country will be reduced if these plants are operated with a higher volume. At this stage, breaking facilities and mills are required to work at higher volume through tax regulations by the government and export incentives. Recently, oil mills experienced an export loss, and there has been reduction in breaking tons. Additionally, as a result of adulteration problems in the oil industry, import tariffs on many oilseeds have been raised, and these products cannot be imported and cannot be broken.

In Turkey, the oil flower seeds are the most broken oil seeds following the soybean. Through tax regulations in the import of sun flower seed and sun flower raw oils in the past, it has become advantageous and even gone hand-in-hand to directly import the raw sun flower oil instead of importing sunflower seed, and producing residue by breaking these seeds at facilities. In any case, if Turkey wants to close the gap of the sunflower seed with import, it should be done in a way to leave the value added to Turkey through seed imports, and thus, there should be tax regulations to prevent excess import of residue by the feed sector. For the flour industry, imports are usually export-listed and export incentives should be provided to ensure that the capacities are used at a higher level. In the early years of 2010, there has been a great deal of exports to Southeast Asian countries, but in recent years there has been a decline in our exports to this region due to international political reasons such as country quotas and anti-dumping laws. In recent years, our flour export has become dependent to Iraq, Syria and African countries; our export volume has decreased. It is necessary for the state to bring political development to increase the exports of flour and to provide guidance and support in the pursuit for new market by exporters. In this way, as a result of increase in oil and flour production, the production of residue and bran has increased; foreign-source dependency has decreased and the access to the product has been eased.

LONG-TERM PLANNING For the feed industry to overcome the periodic raw material problems, it is necessary to make longer-term plans. The best solution here is to focus on the logistics and production activities only after long term pricing of the product and raw material. Of course, it should be acknowledged that long-term planning cannot be so easy when we consider that sales are realized in Turkish liras while raw material imports are indexed to the foreign currency, and fluctuations in currency and rise are so high. While it is possible to manage the risk of the soybean group through the stock market to a large extent, this cannot be said for other raw materials. If it is considered that the sector is exposed to seasonal factors in raw material supply and product sales, it is inevitable that a very professional management should be showed.

SUPPLY FROM SOURCE Even though the feed industry has reached such a high volume and professional production ration, it has not yet reached the required professionalism in supply. For most of the time, due to logistic and financial factors, [people] accept products delivered to their facilities. Especially at imported raw materials, products are delivered from facility to exporter, from exporter to importer in Turkey, from intermediary trader and eventually to a feed facility. In this trade, the final customer cannot have control over this process, and there will be important difference in cost. On imported raw materials, instead of facility delivery, the feed industry should be able to CIF, FOB and even, if possible, delivery from facility (EXW). Of course, in this case, scale economy enters into picture. Taking into scales, producers should be able to position themselves ‘supply from source’ instead of ‘delivery to facility’ to have advantage on the cost and the control.

LONG-TERM TAX IMPLEMENTATION In order to prevent inflation in food, particularly in red meat, customs tax on many products have been changed, decreased or zeroed. This reality has created positive/negative results for farmers, traders, importer and most importantly feed producers. The producer attaches importance to being sustainable and predictable rather than positive and negative. Customs tariff on wheat, barley, and corn has decreased to 25-45 percent from 130 percent, and tariff on barley has been zeroed and later on increased to 35 percent. Now, there has been expectation to zero customs tariff on corn, and buyers-sellers are unable to move because of this expectation. Even with this speculation, imported corn prices have increased by about 30 USD/tons, and Russian/Ukrainian exporters have been pleased. Feed industrialists and importers cannot make plan because of the constant shift in the customs tariff and cannot forecast.

TMO FACTOR The official mission of TMO is to regulate the market of agricultural products and to take precautions to protect the producers and customers and to keep stocks for extraordinary situations. However, unfortunately, TMO acts as a trader because of food inflation and similar reasons, and it can set sale price thanks to the state without taking the prices into account in local and international markets. The feed industry cannot make a plan for raw materials because of expectation that TMO would interfere, and the industry faces with artificial price hike and experiences difficulty in raw materials because of faulty management.

As a conclusion, we are proud that the feed industry has been developing rapidly, but this development should be managed carefully. Both the state and the sector, as well as the relevant institutions, organizations and NGOs have to be in longer-term planning on the sector-related decisions. It is necessary to be more sensitive about making the appropriate tax and legal regulations through meeting the players of the sector.