MOSCOW: Russia’s import ban on Turkish fresh fruit and vegetables is likely to leave Turkey with a supply glut that could push down prices and, economists say, shave half a percentage point off the inflation rate.
Moscow has approved a raft of sanctions in retaliation for Turkey’s downing of one of its warplanes over Syria late last month, banning imports of everything from tomatoes and apricots to chicken products and salt.
Turkey’s agricultural exports to Russia amount to $1.27 billion annually, with food accounting for $764 million of that, Agriculture Minister Faruk Celik said on Wednesday.
Companies are looking for alternative markets but representatives in the sector don’t expect to find any soon. Already there are reports of falling tomato prices at wholesalers. At a Friday market in the working-class neighbourhood of Gultepe in Istanbul, some sellers said they were starting to see an impact even though Russia’s food sanctions don’t take effect until Jan 1.
“Prices have decreased a little bit,” said 42-year-old Hasan as he sliced off pieces of tomato to offer to passers-by. “It will be good because we have so many poor people and they need cheaper prices.”
Most of the sellers in the market were selling tomatoes for around 4 lira ($1.38) a kilogramme. One, 31-year-old Vedat Mut, said he believed tomato prices could fall back to where they were earlier this year around 1.5 lira a kilogramme.
Turkish shoppers are used to steady price hikes, thanks to an inflation rate that is running at about 8 percent year-on-year. Price falls are far rarer. Economists say a lasting fall in prices could reduce the inflation rate by as much as 0.5 percentage point on an annual basis in the coming months.
That may be welcome news for the central bank, which has been fighting to rein in the inflationary effect of the chronic slide in the currency. Yuksel Tavsan, chairman of the TURKHAL Turkish federation of wholesale food markets, said Russia accounts for almost half of Turkey’s fresh fruit and vegetable exports.
“With the Russian sanctions decision we are experiencing two important problems. Firstly, Russia is of itself a very important market,” he said.
“For some fruits and vegetables, such as citrus fruits and vine tomatoes, this comes just at the time when they are being readied for export, so we don’t have time to make contacts for alternative markets.”
Fruit and vegetable prices have almost a 3 percent weighting in the inflation basket, said Muammer Komurcuoglu, an economist at Is Investment. “The impact on inflation of the Russian crisis depends on how long the fruit and vegetable ban remains in place. In the short term it may have more of a positive impact,” he said.
“If the sanctions last through the year and we estimate that on average this brings the prices of products down by 20 percent, it may have a positive impact on annual inflation next year of up to 0.5 percentage points,” he added.
ALB Forex analyst Enver Erkan saw a more immediate effect. “We can expect a fall in food inflation in December,” he said. TURKHAL’s Tavsan said Russia’s move was pushing more and more products onto the domestic market, and may do so for a while to come.