Turkey grains import tax cut likely to be extended
Turkey's tariff suspension on imported grains could be extended until the end of the 2020-21 marketing year, agricultural brokerage and consulting firm Grains Brokers International (GBI) has said.
But the benefits of the tax holiday for Turkish grains importers have been largely offset so far by the lira's weakness against the US dollar, which has lifted the relative cost of purchases and limited traded volumes.
The Turkish government late last month suspended tariffs on wheat, corn and barley to support its domestic flour milling market amid rising international prices and concerns around local food security.
The suspension is scheduled to end at the start of the 2021 calendar year. But with the Covid-19 pandemic continuing to threaten domestic supplies, it appears likely that the import tariff will remain lifted until at least the end of the current agricultural year, to 30 June, GBI commodity broker Erdem Ulusoy told Argus.
"The main aim of the tax is to reduce food [price] inflation, so it would make sense for the government to continue supporting the market, particularly in the context of a global pandemic, when food security concerns are more pronounced," Ulusoy said.
Prolonging the tax cut into next year may give importers more time to reap the benefits of the move, with the depreciation of the Turkish lira's value — driven by inflation and ongoing recessionary concerns from Covid-19 — having actually hiked the costs of international wheat supplies for Turkish buyers in recent weeks.
Weak lira, strong domestic demand
The Turkish lira weakened to TL7.93:$1 on 22 October, following the decision of the country's Central Bank to keep interest rates unchanged at 10.25pc, amid rising inflation.
Lira values have continued to tumble since then, reaching record lows of TL8.53:$1 on 3 November.
The steeper import costs have deterred buyers from seeking international supplies, despite thin local availability and the absence of any import levies, Ulusoy said.
"The import market actually became more expensive the day after Turkey's tax suspension because of the falling exchange rate, which continued to drop every day, with the Central Bank keeping lira interest rates unchanged," he said. "Wheat supply shortages in Turkey are inflating local flour and food prices, so demand for imported wheat remains strong. The only issue is that buyers are unable to rush to the international market when prices are this elevated."
Steady Turkish demand has materialised from state-run grains buyer TMO across October and November to shore up domestic supply and contribute to more stable flour prices.
But a lack of co-ordination between TMO and the ministry of agriculture meant that the tax suspension was declared before the buyer closed its October purchase tender for 175,000t of wheat, GBI said. This resulted in higher prices for TMO, with minimum offers already nearly $20/t firmer than the agency's previous purchase.
Nevertheless, TMO is far from the main sourcing agent of millers in Turkey, with private importers making up 80-85pc of the sourcing market, it said.
Food security, tighter global supply
Turkey is not alone in seeking higher levels of wheat imports this year in response to the effects brought about by Covid-19 on grain stocks availability.
The pandemic limited sowing activities earlier this year across a large number of traditionally self-sufficient nations, while governments have ramped up food procurement programmes to ensure supply security during the winter months.
Pakistan — which typically relies on domestic supply — has secured up to 1.47mnt this year and agreed in October a government-to-government supply arrangement for Russian wheat to boost its inventory. And in Algeria, state-run grains buyer OAIC reduced its insect tolerance for 12.5pc wheat cargoes to attract more Black Sea offers owing to insufficient availability elsewhere.
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