An inefficient agricultural industry is blamed for prices that are much higher than what most of the rest of the world pays
ISTANBUL, Turkey (Reuters) — Standing amid a jumble of food stalls in an Istanbul market, 61-year-old Gulsen Yuce wonders how she can stretch an already tight budget to make ends meet as food prices rise week after week.
Inflation has become Turkey’s biggest economic challenge, hitting the pockets of ordinary people even as president Tayyip Erdogan and the ruling party have built their reputation largely on economic growth and stability.
“A head of lettuce is five lira and I have difficulty paying that much for it. I live on my own, I get by on fish or poultry instead of red meat,” said Yuce, one of the 10 million Turks who scrape by on pensions as low as 1,000 lira ($330) a month.
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Global food prices have fallen to their lowest in nearly seven years, but Turkey has struggled with food costs overshooting headline inflation — at a rate that has at times outpaced other emerging markets.
Ankara’s inability to cool the rise has fuelled a blame game among food producers and retailers, with each accusing the other of hiking prices.
Industry officials and economists say there are deeper structural problems, from the lack of a long-term agricultural policy to a supply chain hindered by middlemen and arcane bureaucracy.
“Turkey sticks out like a sore thumb among the major emerging markets whose inflation rates are significantly above target,” said Nicholas Spiro of Lauressa Advisory, an economics and property consultancy.
“There’s little indication that monetary policy will be tightened sufficiently any time soon to curb inflationary pressures, which are particularly prevalent in food despite the sharp decline in global food prices.”
Annual inflation hit 9.58 percent in January, the highest since the middle of 2014, fuelled by an 11.69 percent rise in food prices, data showed this week. The central bank has hiked its food inflation estimate for this year to nine percent, from eight percent.
By contrast, South African food prices rose 5.9 percent last year, just a touch more than the overall inflation rate of 5.2 percent. Turkey also outpaced Russia, where the food price increase was 1.1 percent greater than overall inflation.
Central Bank governor Erdem Basci has cited the surging cost of bread and red meat as the main culprit and asked a government-run food committee to take measures to limit the impact on overall inflation, but it remains unclear what the committee can do. Food and beverages account for the largest portion of Turkey’s inflation basket, at 24 percent.
The price of a loaf of bread increased in Istanbul by 25 percent at the beginning of this year, while the annual increase in red meat averaged 21 percent nationally last year.
The economy minister has said Ankara will allow more red meat imports to keep prices down. But Turkey has already imported about $4 billion in meat and livestock over the last decade and that has done little to fight inflation.
Industry officials and analysts said boosting imports would be a short-term remedy at best. The bigger problem, they say, lies with scattered farm ownership that prevents large-scale farming, outdated agricultural technology and unpredictable harvests borne of poor planning.
Both the head of the red meat producers association, Bulent Tunc, and the chairman of the bakers association cited a web of middlemen as a major cause of price pressure.
“There is a problem in the supply chain,” Tunc said.
In Turkey, the food business is riddled with intermediaries. Farmers’ costs include bureaucratic formalities such as imposts, pesticide tests and quality certification, all of which are usually handled by informal middlemen.
To reduce the impact of middlemen, the government enacted a law in 2012 to remove some informal intermediaries and give farmers direct access to retailers. That helped lower wholesale prices by almost 20 percent, but had little impact on retail prices, a central bank study found in 2015.
“The power of big retailers to set prices seems to be the reason for that gap,” the study concluded.
Retailers dismiss the idea that they have vast pricing power.
“That’s an urban legend,” said Nihat Ozdemir, chair of Turkey’s main association of food retailers, citing stiff competition in fresh produce. “There isn’t a single retailer who can say they profit from fresh food.”
They argue that they are saddled with high transport, distribution and wastage costs for fresh food, while profit margins are razor-thin.
Mehmet Nane, the chief executive officer of Carrefoursa, one of Turkey’s largest supermarket chains, blamed speculators for driving up the price of grains and meat, and said the government-run food committee should take action.
Food expenditures account for nearly 22 percent of the budget of the poorest fifth of the population, official data shows.
Food inflation has blunted the positive impact of a recent minimum wage hike for the poor, said Muammer Komurcuoglu, economist with Istanbul based Is Invest.
That argument resonates with Yuce, the pensioner.
“We are paid with a spoon and they take from us with a ladle,” she said.
