Factors shaping the development of the
Turkish sugar sector – privatisation against a
backdrop of EU sugar reform
29 September 2005
Andy Duff
Food & Agribusiness Research & Advisory, Rabobank International
Food & Agribusiness Research
Future EU membership implies a major
change in Turkey’s market prices
Price comparison
 Today, the price of sugar in
Turkey is higher than the
1,000
 Reform proposals imply
that EU market prices will
fall by 40% or more
 Thus, if Turkey eventually
joins the EU, Turkish sugar
Euro per mt sugar
EU market price
800
600
400
200
producers will have to
survive at prices much
lower than current levels
2
Turkey
today
EU today
EU after
reform
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At the same time, privatisation of Turkseker
is on the cards
Distribution of industry capacity*
 Turkseker is the country’s
11th largest company by
sales (ISO)
Private
sector
28%
 Turkey’s private sector
sugar players have been
making significant
investments
Turkseker
72%
 The sugar & sweetener
market in Turkey has
considerable potential for
* Basis 2004/05 capacity plus Cumra
3
further growth
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To exploit the opportunities ahead, players
(old & new) have to address the challenge
+
-
Beet
cost
Revenue
Revenue
Process
cost
Today
4
? EU membership
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Investor perspective:
1. Key success factors for beet sugar
5
Secure beet supply
Beet supply usually reliable if local beet production is
highly profitable versus alternative crops
Industrial efficiency
Minimise sucrose losses between harvest and
processing; maximise recovery of sucrose from beet
Capacity utilisation
Campaign should be as long as possible; daily
utilisation of capacity should be as high as possible
Economies of scale
Larger factories have greater scope to exploit
economies of scale in capital & labour
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Investor perspective:
2. Beet supply
 When beet prices are high,
Turkey: threshold beet prices by factory region
farmers are very willing to
70
 If sugar prices decline,
beet prices also fall
 If beet prices decline,
there comes a point at
which other crops become
more attractive than beet
 This ‘threshold price’
illustrates the beet price
below which other crops
become more attractive
for growers
6
Threshold beet price (EUR/mt)
grow beet
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Factory region
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Investor perspective:
3. Processing
 Declining sugar prices
Factory processing capacity (mt beet per day)
imply declining processing
14,000
prices decline at the same
12,000
rate as sugar prices
 Processing costs therefore
have to be reduced.
Common approaches are:
– Better exploit economies
of scale in capital and
labour
– Make more intensive use
of installed capacity (e.g.,
longer campaign)
7
Processing capacity (tbd)
margins, even if beet
10,000
8,000
6,000
4,000
2,000
EU 15
Turkey
average
Turkey best
practice
(C umra)
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To respond to the challenge, investors
require confidence
The sugar
industry is
highly capital
intensive
8
A long period is
required for
recovery of
investments
Long term
visibility on
sugar policy
encourages
strategic
investors to
take interest in
privatisation
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To respond to the challenge, investors
require scope to act
Strategic investor
knowledge &
capital
Economic &
political union,
regional trade
agreements,
WTO
Declining levels
of protection,
increased
competition
Restructuring
essential for
less competitive
players to have
a long term
future
Conditions to
safeguard other
stakeholders
9
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The experience of sugar privatisation in
other countries
Czech Rep
Poland
Full (via debt
financing); mills
sold in dispersed
portfolio groups
Full, by
coupon
distribution
Partial
Limited; gov’t
repossessed 27
mills 10 yrs
later
Dramatic
restructuring
&
consolidation
Mexico
Transfer of
assets via
privatisation
Extent of
restructuring
& new
investment
Efficiency &
competitiveness
gains
10
Limited
Significant
Considerable
investment in
privatised co’s
only
Significant
only for
privatised
co’s
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Conclusions: privatisation & industry
development in the light of EU reform
Favourable outcome
Sugar policy
outlook
Clear & equitable
plan, encouraging for
local & foreign
strategic investors
Unfavourable outcome
Unclear or lack of
level playing field;
discourages strategic
investors
Initial
success of
privatisation
Full privatisation of Turkseker;
scope for investors to act;
other stakeholders’ interests
considered
Only partial privatisation of
Turkseker, &/or investors
opportunistic rather than
strategic
Developments
following
privatisation
Privatised entities begin to
invest & restructure in order to
boost competitiveness
Limited/no investment by
privatised entities; little/no
gain in competitiveness
11
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