2013-12-14 12:05:29 - New Food research report from Business Monitor International is now available from Fast Market Research
We favour the sugar sector in Turkey because of the strong growth potential of the country's confectionery industry. We see little growth potential for the grain, dairy, livestock 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 Biskuvi Sanayi AS as an example of this dynamic.
* Wheat production growth to 2016/17: 1.1% to 19.0mn tonnes. We expect the country to remain a large importer over the medium term and believe production growth
will lag consumption growth. Indeed, we expect the country to switch plantings to corn and soybean, as these crops face more restrictive import policies as part of the country's biotech laws.
* Sugar consumption growth to 2017: 3.7% 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.
* 2013 real GDP growth: 2.8%, up from 2.2% in 2012.
* Consumer price inflation: 7.3% on average in 2013, down from 8.9% on average in 2012.
* BMI universe agribusiness market value: 8.3% year-on-year decrease to US$19.7bn in 2012/13, forecast to increase by an annual average of 1.1% between 2012/13 and 2016/17.
Full Report Details at
- www.fastmr.com/prod/723627_turkey_agribusiness_report_q1_2014.as ..
Key Revisions To Our Forecasts
* 2013/14 wheat production: revised up from 17.5mn tonnes to 18.0mn tonnes on the back of better-than-expected yields.
* 2013/14 corn production: revised down from 6.4mn tonnes to 5.2mn tonnes in line with the latest output estimates.
* 2013/14 barley production: revised up from 7.0mn tonnes to 7.3mn tonnes on the back of better weather conditions and higher-than-expected yields.
* 2012/13 beef production: revised up from 700,000 tonnes to 850,000, as latest production estimates indicate an increase in output higher.
Turkey's confectionery industry is among Europe's most exciting, with great opportunities for growth. This largely explains why Turkey-based Yildiz was confident enough in October 2013 to sell a major share of its confectionery business Ulker at a time when investors have generally been pursuing emerging market equities more cautiously. Confidence in Turkish markets and the lira (which has been selling off of late) have been affected by the prospect of the US tapering off its quantitative easing programme. It is therefore a reflection of the confidence in Ulker's business, as well as the company's fundamental growth prospects and that of the sector it operates in (confectionery), that the secondary share offer was three times oversubscribed, according to the Financial Times. Indeed, the company was able to raise about US$430mn.
We have revised up our estimate for Turkish wheat production in 2013/14 on the back of strong yield growth, despite area planted remaining subdued. We now expect production to reach 18.0mn tonnes in 2013/14, compared with 17.5mn tonnes previously. We expect stronger yields in the country's main producing regions, especially Central Anatolia, which produces around 37.0% of the country's wheat. The region is estimated to have wheat yields around 2.3 tonnes/ha, compared with 1-2 tonnes/ha on average over recent years. Overall, the US Department of Agriculture (USDA) estimates Turkish wheat yields at 2.3 tonnes/ha, compared with the 10-year average of 2.0 tonnes/ha. The area dedicated to wheat in the country is still around 7.7mn ha, compared with 8.6mn ha in 2004/05, as the area traditionally dedicated to wheat has been diverted to corn and soybean.
However, we maintain that local meat companies' margins remain very vulnerable in the medium term. Pinar Et, Turkey's largest beef producer, has seen its margins fluctuate in recent years on the back of changes in local grain and livestock prices. The company's share price is correlated to the S&P GSCI Grains and Livestock indices. Moreover, Pinar Et's move to increase revenues from its frozen ready-meal and delicatessen segments (which already represent 85% of the company's sales) has not been effective in stabilising margins. This is because the country's delicatessen market is particularly competitive, with Pinar Et holding a 16%-38% market share, making it difficult for the company to pass input cost changes onto consumers.
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