US embassy cable - 03ANKARA4475

UNCLAS SECTION 01 OF 02 ANKARA 004475 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR EUR/SE, EB/EPD, AND EB/TPP/ABT 
DEPT PLEASE PASS USTR FOR NOVELLI, LERRION 
USDA FOR FAS FOR ITP/MEYER, HANSEN; 
CMP FOR ALL COMMODITY DIVISIONS 
USDOC FOR DEFALCO 
VIENNA FOR APHIS/SLITER 
 
 
E.O. 12958: N/A 
TAGS: ETRD, EAGR, KPAO, TU 
SUBJECT: What Drives Investment in Turkey's Ag Sector? 
 
Sensitive but Unclassified.  Not for Internet Distribution. 
 
 
1.  (SBU)  Summary.  Despite a low level of direct foreign 
investment and foreign companies who are discouraged by the 
investment climate, local Turkish business are continuously 
seeking the next investment opportunity - even in Turkey's 
agriculture sector.  The cattle sector is a prime example. 
Recently there has been a lot of interest in the beef and 
dairy cattle sectors that has resulted in recent sales of 
U.S. breeding cattle to Turkey, despite high prices and high 
shipping costs.  Many companies seem to be closely watching 
their competitors in order not to miss an opportunity. The 
danger of course, is that all this interest will eventually 
lead to overproduction, falling prices and bankruptcies 
since many investments are not always based on sound 
financial plans.  End Summary. 
 
 
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Cattle - The Next Big Opportunity? 
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2.  (SBU) During the past 12 months interest in the cattle 
industry has increased dramatically in Turkey.  Cattle 
inventories have dropped dramatically since the 1970s when 
inventories reached over 16 million head.  Today, total 
cattle inventories in Turkey are about 11 million head. 
Prices for beef have increased sharply since Turkey does not 
permit any legal imports of beef or any other meat for that 
matter.  In the past, Turkey imported large numbers of 
cattle for fattening, particularly from Germany.  However, 
after the BSE crisis in Europe, all imports were banned. 
Turkish officials realized that with most cattle imports 
stopped, better genetics would be needed. 
 
 
3.  (SBU)  The United States and Turkey negotiated an 
agreement allowing imports of breeding cattle in 1998.  Some 
shipments did ensue.  Beginning in 2002 and continuing today 
breeding cattle imports for both dairy and beef operations 
have dramatically increased.  We know of several recent 
sales totaling over 1200 head.  Moreover, interest in this 
industry reads like a Who's Who in Turkey.  Koc, Sabanci, 
Dogan and Yasar families have either imported or expressed 
interest in breeding cattle.  During a recent trip to 
Istanbul, AgCounselor met with the distributor of DELL 
computers who expressed interest in this industry. 
 
 
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Why Cattle and Why Now? 
----------------------- 
 
 
4.  (SBU) Investment in the beef and beef sectors makes 
sense financially.  Beef prices are high and tourism has 
picked up along with the demand for high-quality beef in 
hotels and restaurants.  The situation may also be a good 
indication of the Turkish business mentality.  Turkey seems 
to resemble a small village at times where competitors know 
each other like neighbors, and try to outdo one another or, 
at the very least, keep pace with one another. 
 
 
5.  (SBU)  All of the richest Turkish families have interest 
in the food processing and agriculture sectors which are 
second tier industries after banking, media and 
construction.  When one company gets involved - they all 
tend to follow.  Of course, the level of expertise is not 
always as good as it should be.  For example, we have been 
approached by a number of Turkish companies including the 
distributor of DELL computers in Turkey to buy livestock 
from the United States.  One is sometimes amazed at their 
lack of knowledge about animal diseases, feed and livestock 
management.  Moreover, they seem to have little interest in 
Turkish or international import regulations.  Two companies 
were unaware that Turkey has Food and Mouth Disease (FMD) 
and, as a result, is prohibited from shipping beef to the 
European Union.  A second representative declared 
emphatically that Turkey could be declared free of FMD 
disease within a year, which to say the least, is highly 
unlikely. 
 
 
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Foreign Companies Shy Away from Turkey 
-------------------------------------- 
 
 
6.  (SBU)  U.S. companies have had a number of problems 
stemming from weaknesses in the Turkish investment climate. 
Turkey's agriculture sector is overly regulated with little 
transparency.  In addition, as a result of some high-profile 
investment issues like Cargill's glucose facility, many U.S. 
companies are less inclined to invest in Turkey.  On the 
other hand, Turkish companies seem to have a lot of money 
and are often looking for the next investment opportunities 
sometimes without thoroughly thinking through the entire 
process. 
 
 
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What, Me Worry? 
--------------- 
 
 
7. (SBU) The danger in the Turkish approach in the 
agriculture sector is that it can often have disastrous 
consequences.  In the mid-1990s, investment in the poultry 
sector increased dramatically leading both to modernization 
and overproduction.  As a result, poultry and egg prices 
dropped precipitously and many companies were forced into 
bankruptcy.  The same danger could face the livestock sector 
with investment leading to overproduction and falling 
prices.  Of course, the situation is not limited to 
livestock.  A U.S. cotton consultant recently commented that 
Turkish firms are looking to invest in new and expensive 
spinning machinery.  While the new machinery will be more 
efficient, it will also lead to higher production.  No 
thought has been given to where this production can be sold. 
 
 
 
 
 
 
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Comment: Ag Investment - A Contradictory Picture 
--------------------------------------------- --- 
 
 
8.  (SBU)  On the one hand, foreign companies continue to 
shy away from investment in Turkey mainly due to legal and 
regulatory problems and despite the recognized potential. 
On the other hand, Turkish investors are always looking for 
new investment opportunities.  It appears that these 
investments are sometimes a matter of prestige as well as 
competition among families rather than being purely driven 
by the profit motive.  While Turkish companies are looking 
to establish ties with their Western counterparts, it is a 
good sign that Turkish companies have the money to invest 
and are willing to invest in Turkey.  Sometimes these 
investments are made with little thought, which in turn may 
lead to overproduction, falling prices and failing 
companies. 
 
 
Pearson