The problem in the animal breeding sector can be solved with a policy that guides the firms

Signs started to emerge in December. First Banvit and than Koç Holding declared that they would stop breeding for red meat production. What this means is that the Ministry of Agriculture and Animal Breeding has once again taken the wrong path with respect to its animal breeding policy. The problem originated due to the wrong animal feed policy. This time the ill-designed carcass meat importation policy was to blame. Turkey, which is going through a process of deindustrialization, does not perform well in the animal breeding sector, either. Recently, Minister Mehdi Eke successfully explained why we are way off base. His statement had two parts, each of which conflicted with the other.

The Minister first said: "Firms calculate and pursue their own profits." It is a good thing if you have an idea about how the market mechanism works. This part proves that Mr. Eker does. But then he went on to say, "Our duty is to ensure that our citizens and consumers have access to cheap meat." If the honorable Minister wants to make sure that citizens have access to cheap meat in the medium term, he has to implement a meat importation policy that will not destroy the domestic breeding sector.

How can this be done? The managers of the firms that have decided to exit the sector have been explaining how to achieve this for days. Even I have got it, The administrators of Turkey, however, do not seem to understand. In the animal breeding sector the output is the milk or the meat of the animal. Animals are fed for these outputs. To produce red meat, you purchase an animal and provide shelter, feed and water. Finally, you slaughter it and sell the meat. These are the phases of the value chain of red meat production. Then, the problem should be traced to one of the above phases.

The producers argue, "We cannot compete with imported carcass meat. The price they charge is lower than our cost." Given that they have closed down the business, they must be right. Why have they failed to compete? Some parts of the production inputs we use should be more costly. It cannot be payments for the interest on start-up loans since they could have benefited from zero interest loans. What is left? The unit opportunity cost of animal shelters might be high; but this is not possible unless if you build the shelters in city centers. Then, it should be either the drinking water or the animal feed. The producers state that "Feed prices are higher in Turkey." What must a government that allows the importation of meat so that its citizens can eat cheap meat do in order not to demolish the animal breeding sector? To begin with, it must subsidize feed prices. But is does not, as far as I am know. So firms exit the sector.

A vicious circle

In order to meet the rising production costs, the producer has to slaughter more and more animals; not only those allocated for red meat production, but also those allocated for milk production. He has to slaughter more animals to finance the rising cash outflow. Then what? Then, both red meat prices and milk prices are expected to rise. In accordance with the current policy of the government, the importation of red meat must be increased, but since feed prices are not controlled, a vicious circle prevails. In the mean time, the animal breeding sector has collapsed on a national scale, which certainly is not good.

The trick is to design an animal breeding policy that will guide the firms "who calculate and pursue their own profits." This does require knowledge in state-of-the-art technologies.

It is said that "no wise man enters the industrial sector in this milieu"; no wise man enters the animal breeding sector, either. It is not the fault of the firms; it is the fault of the administrators who fail to devise the correct incentives to guide the firms.

I have spoken and saved my soul.

This commentary was published in the Radikal daily on 14.01.2011