US embassy cable - 05ANKARA1300

UNCLAS SECTION 01 OF 02 ANKARA 001300 
 
SIPDIS 
 
DEPT PASS USTR FOR LERRION 
TREASURY FOR OASIA - PLANTIER 
USDOC/ITA/MAC/DAVID DEFALCO 
DEPT PASS EXIM FOR MARGARET KOSTIC 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAGR, EINV, BEXP, TU 
SUBJECT:  Update on Cargill and Sugar Industry Issues 
 
 
Summary 
------- 
 
1. (SBU) The GOT is considering legislation on Turkey's 
sugar and high fructose corn syrup (HFCS) quota system which 
would provide an amnesty to companies, including Ulker's 
Cola Turka, rumored to have invested in unauthorized corn 
syrup production that violates the quota laws.  Coca Cola 
and Pepsi have applied for permission to invest in HFCS 
production for internal use, but the authorities have turned 
down their application.  Cargill told us it opposes an 
amnesty, despite the fact that it has partnered with Ulker 
in at least one starch facility.  Changes in the quota 
system could pit U.S. producing and consuming companies 
against one another.  The USG will need to consider these 
competing U.S. interests in the event that one or the other 
side requests our advocacy with respect to this legislation. 
End Summary. 
 
2. (SBU) The Ministry of Industry and Commerce is reportedly 
considering legislation which would legalize investments in 
corn syrup production capacity made in violation of Turkey's 
sugar quota system.  Mustafa Sayinatac, Cargill's Director 
for Corporate Affairs and a member of the quota- 
administering Sugar Board, also expressed concern that the 
legislation would subordinate the Board to the Minister. 
Turkish Daily Referans and Sayinatac reported that Cola 
Turka, which belongs to the Ulker Group, is expected to 
benefit from the amnesty provisions in the bill, while Coca 
Cola and Pepsi Cola, which had applied for permission to 
invest in similar production techniques, had been turned 
down by the GOT.  Sayinatac told us that Cargill might 
request USG advocacy against the draft legislation if it 
moves closer toward enactment in its current form.  Pepsi 
has also registered with the Embassy its concern about the 
amnesty. 
 
3. (U) Under the quota system in place since 2001, a Sugar 
Board with representatives of both the sugar and corn syrup 
industries establishes annual production quotas to deal with 
overcapacity in the industry.  Companies must seek the 
Board's permission prior to making new investments in sugar 
or corn syrup production capacity, even for internal use in 
a vertically integrated production process.  At the same 
time, illegal investment is motivated by Turkish domestic 
prices for sugar which are now about four times those in 
global markets.  According to the press, Cola Turka has 
realized a fifteen percent cost advantage over its 
competitors through illegal in-house sugar production.  Cola 
Turka issued a press statement denying allegations of 
unlicensed fructose production.  Cola Turka claimed that the 
law requires licensing only for sales to the market and not 
for internal use. 
 
4. (SBU) Interestingly, Referans also reported that Ulker 
and Cargill are partners in a company called Pendik Starch 
Industry Inc., which is reportedly also being investigated 
for unlicensed fructose production.  Commenting on the 
article, Sayinatac confirmed that Cargill and Ulker are 
partners in this company, but he maintained that Pendik is 
"technically" not violating the quota system.  Pendik's 
product is starch slurry, which can be used as an input in 
HFCS production, but the quota system does not regulate this 
material. 
 
5. (SBU) Sayinatac also noted the GOT's decision in early 
2005 to abolish the Sugar Authority, the body staffing the 
Board.  He said the reasons for the decision were not clear. 
Referans speculated that the abolition of the Authority is 
somehow linked to an investigation of Cola Turka/Ulker over 
quota violations, and noted the Prime Minister's former 
shareholding in a large Ulker distributor. 
 
Comment/Recommendation 
---------------------- 
 
6. (SBU) We note that Cargill, as an HFCS producer with a 
share of Turkey's sugar quota, is faced with the tradeoff of 
limits on how much it can produce alongside high prices for 
its output as a direct result of those limits.  However, its 
partnership with Ulker presumably means it also has some 
equities on the HFCS-consuming side.  Coca Cola and Pepsi 
might not object as strenuously to an amnesty if they could 
also gain permission to produce their own corn syrup as part 
of a vertically-integrated plant.  These U.S. companies may 
have mutually-conflicting commercial interests arising from 
sugar quota system.  We will have to take these factors, 
along with our long-run interest in a transparent, rule- 
based investment climate and a liberalized sugar sector in 
Turkey, into account in deciding whether to advocate for any 
of the American players involved in this issue. 
Edelman