ERDOGAN ADVISOR BENEFITS FROM GOT GENEROSITY TO

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