Expert Group Meeting 2005, Jeddah

1. Cotton Production And Consumption:an Evaluation About Turkey Expert Group Meeting 2005, Jeddah Hamdi BAGCI CEO

2. CONTENTS World Cotton Statistics • Production • IDB Members’ Share In Cotton Production • IDB Members’ Share In Cotton Consumption • Consumption • Exports • IDB Members’ Share In Exports • Imports • IDB Members’ Share In Imports Turkey Key Indicators & Cotton Statistics • Key Indicators • Production Areas • South-Eastern Anatolia Development Project (GAP) • Production • Consumption • Exports • Imports • Principles of WTO • Developing Countries In WTO • Turkey Exports In Textile Sector • Turkey Imports In Textile Sector Cotton Trading Platform In Turkey • Spot Market • Major Institutions In Cotton Sector • ITB Trading Volume • Cotton Spot Prices • State Incentives • Raisin Export Prices • Cotton Standardization In Turkey • Cotton Standardization In The USA • Futures Market • Cotton Futures • A New Market for Cotton

3. WORLD COTTON STATISTICS

4. Leading Countries In Cotton Production(1,000 tones) (*) CIS: Comonwealth of Independent States :Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan Source: Cotton World Statistics, September 2003 Cotton: Review of the World Situation, March-April 2004

5. Leading Countries In Cotton Production Source: Cotton World StatisticsSeptember 2003 Cotton: Review of the World Situation, March-April 2004 (*) Prediction

6. (*)IDB Members’ Share In Cotton Production Source: Cotton World Statistics,September 2003 Cotton: Review of the World Situation, March-April 2004 (*) IDB members: Azerbaijan, Egypt, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan, Uzbekistan All IDB Members: Afghanistan, Albania, Algeria, Azerbaijan, Bahrain, Bangladesh, Benin, Brunei-Darusssallam, Burkina-Faso, Cameroon, Chad, Union of Comoros, Djibouti, Egypt, Gabon, Gambia, Guinea, Guinea-Bissau,Indonesia, Iran, Iraq, Jordan,Kazakhstan, Kuwait, Kyrghyz, Lebanon, Libyan Arab Jamahiriya, Malaysia, Maldives, Mali, Mauritania, Morocco,Mozambique, Niger, Nigeria, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Suriname, Syrian, Tajikistan, Togo, Tunisia, Turkey, Turkmenistan, Uganda, United Arab Emirates, Uzbekistan, Yemen

7. Leading Countries In Cotton Yield(Kg/Ha) (*) CIS: Commonwealth of Independent States :Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan Source: Cotton World Statistics,September 2003 Cotton: Review of the World Situation, March-April 2004

8. Leading Countries In Cotton Consumption (1,000 tones) (*) CIS: Commonwealth of Independent States :Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan Source: Cotton World Statistics,September 2003 Cotton: Review of the World Situation, March-April 2004

9. Leading Countries In Cotton Consumption Source: Cotton World Statistics, September 2003 Cotton: Review of the World Situation, March-April 2004 (*) Prediction

10. (*)IDB Members’ Share In Cotton Consumption Source: Cotton World Statistics,September 2003 Cotton: Review of the World Situation, March-April 2004 (*) IDBmembers: Azerbaijan, Egypt, Kazakhstan, Kyrgyzstan, Mali, Pakistan, Syria, Tajikistan, Turkey, Turkmenistan, Uzbekistan All IDB Members: Afghanistan, Albania, Algeria, Azerbaijan, Bahrain, Bangladesh, Benin, Brunei-Darusssallam, Burkina-Faso, Cameroon, Chad, Union of Comoros, Djibouti, Egypt, Gabon, Gambia, Guinea, Guinea-Bissau, Indonesia, Iran, Iraq, Jordan,Kazakhstan, Kuwait, Kyrghyz, Lebanon, Libyan Arab Jamahiriya, Malaysia, Maldives, Mali, Mauritania, Morocco,Mozambique, Niger, Nigeria, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Suriname, Syrian, Tajikistan, Togo, Tunisia, Turkey, Turkmenistan, Uganda, United Arab Emirates, Uzbekistan, Yemen

11. Leading Cotton Exporters Source: Cotton: Review of the World Situation, March-April 2004 CIS: Azerbaijan, Kazakhstan, Kyrghyz,Tajikistan, Turkmenistan, Uzbekistan (*) Prediction

12. IDB Members’ Share In Exports Source: ICAC Cotton World Statistics IDB Members: Afghanistan, Albania, Algeria, Azerbaijan, Bahrain, Bangladesh, Benin, Brunei-Darusssallam, Burkina-Faso, Cameroon, Chad, Union of Comoros, Djibouti, Egypt, Gabon, Gambia, Guinea, Guinea-Bissau, Indonesia, Iran, Iraq, Jordan,Kazakhstan, Kuwait, Kyrghyz, Lebanon, Libyan Arab Jamahiriya, Malaysia, Maldives, Mali, Mauritania, Morocco,Mozambique, Niger, Nigeria, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Suriname, Syrian, Tajikistan, Togo, Tunisia, Turkey, Turkmenistan, Uganda, United Arab Emirates, Uzbekistan, Yemen

13. Leading Cotton Importers Source: Cotton World Statistics,September 2003 Cotton: Review of the World Situation, March-April 2004 (*) Prediction

14. IDB Members’ Share In Imports Source: ICAC Cotton World Statistics IDB Members: Afghanistan, Albania, Algeria, Azerbaijan, Bahrain, Bangladesh, Benin, Brunei-Darusssallam, Burkina-Faso, Cameroon, Chad, Union of Comoros, Djibouti, Egypt, Gabon, Gambia, Guinea, Guinea-Bissau, Guyana, Indonesia, Iran, Iraq, Jordan,Kazakhstan, Kuwait, Kyrghyz, Lebanon, Libyan Arab Jamahiriya, Malaysia, Maldives, Mali, Mauritania, Morocco,Mozambique, Niger, Nigeria, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Suriname, Syrian, Tajikistan, Togo, Tunisia, Turkey, Turkmenistan, Uganda, United Arab Emirates, Uzbekistan, Yemen, Cote d’Ivoire

15. TURKEY KEY INDICATORS & COTTON STATISTICS

16. Key Indicators(2003) Source: Turkish Treasury World Bank

17. Cotton Production Areas Aegean South East Anatolia Cukurova Antalya

18. Production Areas By Regions(thousands of hectares) Source: Izmir Mercantile Exchange

19. South-Eastern Anatolia Regional Development Project( GAP ) • GAP covers 9 cities: • Its master plan prepared in 1989

20. South-Eastern AnatoliaRegional Development Project( GAP ) • The area has 1.7 millions ha irrigation potential (20 percent of total area which is irrigated in Turkey). • Total cost of the project : $32 billion • The projection of this project: • 22 Dams • 19 hydroelectric power station • 27 billion kwh electric per year Source: GAP- Regional Development Institution

21. The Prediction: South-Eastern Anatolia Cotton Production In 2010 • In 2002/2003 season total production area : 377,647 ha 321,000 ha allocated to cotton production in South-Eastern Anatolia (85%) Cotton production: 434,868 tones Cotton yield: 1,388 kg/ha • The projection for 2010; The total area which is irrigated will be 1,276,000 ha 1,084,600 ha will be allocated to cotton production in South-Eastern Anatolia (85%) The average of change in yield by year: +5% (1996-2004) Cotton yield in 2010: 1,953 kg/ha Cotton production: 2,118,224 tones Source: Izmir Mercantile Exchange GAP- Regional Development Institution

22. The Prediction:South-Eastern Anatolia Cotton Production In 2010 *If South-Eastern Anatolia Development Project continues, the production amount in 2010 will be 5 times bigger than that of in 2003.

23. Turkey Cotton Production Source: Izmir Mercantile Exchange (*) Prediction

24. Regions’ Share In Cotton Production Source: Izmir Mercantile Exchange (*) Prediction

25. Cotton Exports Source: Prime Ministry For Foreign Trade

26. Exports By Countries Source: Prime Ministry For Foreign Trade

27. Cotton Imports Source: Prime Ministry For Foreign Trade

28. Imports By Countries Source: Prime Ministry For Foreign Trade

29. Exporting Countries’ Shares Source: Prime Ministry For Foreign Trade

30. Importing Countries’ Shares Source: Prime Ministry For Foreign Trade

31. Why Do Turkey Import Cotton From USA & Europe? • GSM Credits • Secure Trading Platform • Existence of Transparent Market Structure • Information Dissemination • The Quality Standards

32. The Reasons of Undeveloped Cooperation With IDB Members? • Insufficient Information &data • Restrictions on foreign trade • Non-existence of institutional market structure

33. Turkey Exports In Textile & Ready-Made Sectors • 17 percent of the biggest 500 firms in Turkey belongs to Textile sector. Source: The General Secretarıat of Istanbul Textıle & Apparel Exporters' Assocıatıons Source: Istanbul Chamber of Industry

34. Textile & Ready-Made Sector’s Share In Exports Source: Prime Ministry For Foreign Trade

35. Turkey Imports In Textile & Ready-Made Sectors Source: the general secretarıat of istanbul textıle & apparel exporters' assocıatıons

36. Cotton Trading PlatformIn Turkey

37. Spot Market • Cotton pricesdetermined at regional exchanges in accordance with free trade rules. • No-state intervention on cotton prices • Cotton import & export free • No trade barriers exist • Izmir Mercantile Exchange is the most active cotton trading platform since 1891 • Spot prices disseminate via data vendors.

38. Market Participants In Cotton spot Market • Cotton producers • Producers can sell their cotton to ginners or Agricultural Sales Cooperatives • Producers can sell their cotton directly to the ginners in cash or deliver their cotton & fix prices later • Ginners • Ginners are very active players in Cotton spot market. They buy from producers & sell companies via Mercantile Exchanges) • Agricultural Sales cooperatives • There are three sales cooperatives in Turkey & their share is 20% in cotton market. • Agents & Brokers at Izmir Mercantile Exchange • Agent & brokers buy & sale cotton on behalf of Ginners or Companies • Textile Companies

39. Prospective Developments • Licensed Warehouse Law Accepted By The Parliament • Product Specialized Exchange Law Accepted. • According to these laws private sector can establish licensed warehouses & a new exchange which operates national or regional basis. • These developments will effects commodity markets positively.

40. Cotton Research & Cotton Seeds • Nazilli Cotton Investigation Institute: The main function of the institute is to collect data, make strategic investigation about cotton for Aegean and The Mediterranean Regions and rehabilitation of seeds. Institute observed 16 different cotton species (Nazilli-84). Institute produced green, brown cotton. It tries to produce black cotton which is suitable for textile sector. • In private sector, the cotton seeds with Bayer patent are produced by utilizing highest technology in the world.

41. ITB Trading Volume Source: Izmir Mercantile Exchange

42. Cotton Spot & Futures Prices • The correlation between world and Turkey cotton prices is high Source: Izmir Mercantile Exchange

43. State Incentives • There are three types of incentives in Turkey; • Direct Income Payments • Incentives payments for cotton producers per /kg. (0,20 USD/Kg for 2004/2005 season) • Sell cheaper diesel oil for farmers

44. Seed & Plant Farmers can freely choose • Seed • Production areas

45. Cotton StandardizationIn Turkey • In Turkey grade and calibration standards of cotton developed by Turkish Standards Institution (TSE) • Standards of cotton which will be export audited by Undersecretariat of the Prime Ministry for Foreign Trade • Several fiber testing methods are used to select cotton standards. (HVI, specialist investigation…)

46. Cotton StandardizationIn Turkey Cotton In Turkey separated into three basic classes: • Cotton with short staple (domestic): Staple length is shorter than 19.05 mm • Cotton with medium staple (Upland): Staple length is between 19.05 mm and 34.48 mm • Cotton with short staple: Staple length is longer than 30.48 mm Source: Prime Ministry For Foreign Trade

47. Cotton StandardizationIn Turkey The grade and sub-types of these three cotton classes determined based on; • Color • Micronaire • Durability • Uniformity • Staple elasticity Source: Prime Ministry For Foreign Trade

48. Cotton StandardizationIn Turkey • The great percent of cotton in Turkey belong to Upland class. Upland class separated into sub-classes: - White -Light spotted -Colored • Aegean Standard 1 cotton which is underlying instrument of cotton futures at TurkDex belongs to medium staple and white classes.

49. Market Structure • Turkish Experience: • No government intervention to prices, seed selection, land allocation for cotton producing, • Both national and international cotton trade is free, • Low taxes, • Government involvement is limited in price determination, • Direct income subsidy for farmer, • Transparent and efficient spot and futures markets for cotton • Ongoing processes: establishment of warehouses and national spot markets for agricultural products • Current structure seems to be good for everyone: government, farmer and textile industry

50. Need for efficient price discovery • For whole region, a central cotton trading platform may help to attain efficient price discovery and liquidity, • If prices freely float, there will be need for hedge (an efficient derivatives contract for the region).