US embassy cable - 03ANKARA3016

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 003016 
 
SIPDIS 
 
 
STATE FOR P, E, EUR/SE AND EB/TPP 
NSC FOR QUANRUD AND BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
USDA FOR FAS FOR ITP/MACKRE MEYER 
TREASURY FOR OASIA 
 
 
E.O. 12958: DECL: 05/07/2013 
TAGS: ECON, PGOV, EAGR, TU 
SUBJECT: ERDOGAN ADVISOR BENEFITS FROM GOT GENEROSITY TO 
HAZELNUT FARMERS 
 
 
(U) Classified by DCM Robert Deutsch.  Reason: 1.5 (b,d). 
 
 
1.  (C) Summary:  Unable to fulfill his campaign pledge to 
raise support prices for Turkey's hazelnut farmers, Prime 
Minister Erdogan instead announced in February that the 
government would provide additional direct income support to 
this politically-powerful group.  One of the beneficiaries of 
this decision was Erdogan confidant Cuneyd Zapsu, whose 
company is one of Turkey's largest exporters of hazelnuts. 
There is much speculation, although no proof, that Zapsu in 
fact was the force behind Erdogan's initial campaign pledge 
and subsequent decision to increase direct payments to 
hazelnut farmers.  End Summary. 
 
 
2.  (SBU) Turkey is the world's leading producer of 
hazelnuts, accounting for 70 percent of world supply and 80 
percent of global exports.  Hazelnut production is one of the 
most important economic sector in the Black Sea region. 
There are about 400,000 hazelnut growers in Turkey, many of 
which have small (10-15 hectares) land holdings.  As a 
result, the hazelnut lobby wields considerable political 
clout domestically. 
 
 
3.  (SBU) Over the years, government support programs, mostly 
in the form of support prices, have led to overproduction and 
the accumulation of large hazelnut inventories.  To reduce 
this perennial glut, previous Turkish governments tried to 
encourage farmers to shift into other commodities. 
Unfortunately, these programs were inadequately funded and 
met with limited success.  In fact, continued high support 
prices attracted new producers into the market. 
 
 
4.  (SBU) Since 2000, the IMF has pressed the GOT to reduce 
government spending and overproduction in the agricultural 
sector, while the World Bank has provided support for a 
direct payment program for Turkish farmers that is not 
related to production.  As a result, support prices gradually 
dropped.  Just prior to last Fall's elections, the Ecevit 
government announced a support price of TL 1.615 million TL 
per kilo, significantly lower than in previous years.  During 
a campaign stop in the Black Sea region, AK leader Tayyip 
Erdogan promised to provide additional support for hazelnut 
producers.  (Note:  Then-economic advisor Ali Babacan 
admitted to us then that this had been a "mistake.") 
 
 
5.  (SBU) After the election, however, the AK Government was 
restricted by IMF commitments and therefore was unable to 
increase hazelnut support prices.  Instead, the government 
announced in February 2003 a TL 25 million per decare 
(one-tenth of a hectare) increase in direct income payments 
exclusively for hazelnut producers.  This is on top of the TL 
13 million per decare all farmers receive under the World 
Bank's direct payment program.  As a result, when combined 
with the TL 1.615/kilo support price, hazelnut producers will 
receive approximately TL 2 million per kilo. 
 
 
6.  (C) One of the beneficiaries of this government largess 
is Cuneyd Zapsu, a top advisor to PM Erdogan.  Zapsu is 
founder and partner of Balsu, one of the world's leading 
hazlenut processing companies and supplier of 18 percent of 
Turkey's annual hazelnut exports (according to the website of 
Azizler Holding, Balsu's parent company).  Industry sources 
tell us that Zapsu was an even bigger player 4-5 years ago, 
at which time Balsu had an office in the United States 
promoting hazelnut exports.   An Istanbul banker who lives 
near Zapsu told us that Zapsu and his brother, Aziz (who runs 
the family holding's other main business, supermarket chain 
BIM) are worth billions of dollars. 
 
 
7.  (C) There is much speculation that Zapsu was the force 
behind Erdogan's initial pledge to increase support for 
hazelnuts, as well as the AK government's subsequent decision 
to increase direct payments.  We have not been able to 
confirm this, though Zapsu clearly has both strong ties to 
Erdogan and a strong interest in support for the hazelnut 
industry. 
 
 
8.  (C) Comment:  The situation in the hazelnut sector is not 
unique to Turkish agriculture and politics, nor is GOT 
support for it unique to AK.  High support prices and 
protection -- based on political pressures and ties -- are 
generally the rule in Turkish agriculture, as sugar, tobacco, 
wheat and oilseeds all benefit from government prices and/or 
protection.  Nonetheless, these policies hurt the Turkish 
Treasury, Turkish consumers, and the competitiveness of 
Turkish industry.  AK's approach to the hazelnut industry 
suggests political ties and protection continue to overwhelm 
any desire for efficiency and market economics. 
PEARSON