Boston, MA -- (ReleaseWire) -- 06/02/2014 -- We favour the sugar sector in Turkey because of the strong growth potential of the country's confectionery industry, and see upside potential in the livestock sector, as the government's supply of discounted credit has aided growth in recent years. However, we see little growth potential for the grain, dairy and rice sectors, as we believe the country's production growth in these segments will be hampered by high domestic production and input costs. In line with these views, we believe domestic confectionery companies will outperform, as they will benefit from growing domestic sugar production capacity as well as a strong consumer story. We highlight Ulker as an example of this dynamic.
- Wheat production growth to 2017/18: 25.5% to 19.4mn tonnes. We expect the country to remain a large importer over the medium term. The country is likely to switch plantings towards corn and soybean, as these crops face more restrictive import policies as part of the country's biotech laws.
- Sugar consumption growth to 2018: 3.8% to 2.4mn tonnes. This will be in line with strong growth in the confectionery industry as a whole as well as a positive consumer outlook.
- 2014 real GDP growth: 1.5%, down from 3.6% in 2013.
- Consumer price inflation: 7.9% on average in 2014, up from 7.5% on average in 2013.
- BMI universe agribusiness market value: 0.1% year-on-year (y-o-y) increase to USD17.9bn in 2013/14, forecast to increase by an annual average of 6.6% between 2012/13 and 2017/18.
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We maintain our estimate for Turkish wheat production of 18.0mn tonnes in 2013/14, in line with strong growth in yields in the country's main producing regions, especially Central Anatolia, which produces around 37.0% of the country's wheat. However, we highlight significant downside risks to production following dry weather in the first few months of the year. Lack of rainfall has particularly affected the Central Anatolia and Cukurova regions, though rainfalls in March and a better forecast ahead will have the most significant effects.
Over the medium term, we believe subdued growth will remain the rule, as wheat prices are likely to remain below previous records in the coming five years. Wheat production growth in the country will continue to average only about 1-2% annually out to 2016/17. By 2017/18, we forecast wheat production to rise to 19.4mn tonnes.
Turkey is the largest sugar producer in the Middle East and one of the world's largest sugar beet producers. In 2013/14, we forecast production to reach 2.3mn tonnes, with the total sugar quota for the year projected to be around 2.5mn tonnes. This will keep the amount of area harvested around the same level, but better weather during plantings is likely to take yields higher.
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