CHAPTER 2
PROTECTION MEASURES FOR LIVESTOCK SECTOR

With the wide array of policy measures used in the Turkish livestock sector, it is difficult to generalize the average level of protection received by Turkish livestock producers. The objective of this chapter is to provide several measures of protection to gain a greater understanding of the total impact of the policies described in the last chapter. Four measures are discussed: the nominal protection coefficient and ratio (NPC and NPR), real protection coefficient and ratio (RPC and RPR), producer subsidy equivalent (PSE), and consumer subsidy equivalent (CSE). In addition, profitability of livestock production in Turkey is compared to profitability in other countries using output-input price ratio comparisons.

The simplest measures of protection for livestock products are the nominal protection coefficient and real protection coefficient¹. These measures compare the domestic price of a commodity to the border or reference price. Both prices are converted into U.S. dollars using the official exchange rate, which is often overvalued in the developing countries. The border prices used in this study were obtained from the Ministry of Agriculture and Rural Affairs. MARA uses the same reference prices for its calculation of producer and consumer subsidy equivalents for the Organization for Economic Cooperation and Development (OECD). Since the NPC does not reflect the real protection on the commodities due to an over- or undervalued official exchange rate, the real protection coefficient (RPC) is also calculated in this study. The RPC uses the real exchange rate that is adjusted using the real exchange rate index computed by the State Planning Organization in Turkey (SPO). The NPC and RPC can be greater, less than, or equal to 1.0. If it is greater than 1.0, then producers are protected and consumers are taxed. The opposite is true if the measure is less than 1.0. If the NPC or RPC is equal to 1.0, there is no protection for either producer or consumer. The NPC and RPC for Turkey's crop and livestock sector are given in Table 2.1-2.4.

Although several policies have been in place to support producer prices, both the NPC and RPC in Tables 2.1 and 2.2 indicate that producers have been taxed in several years of the period considered. For instance, the producer price of beef was lower than the border price in 1994 and 1996. The RPC indicates that the real sheep meat price was below the border price during the 1994-1998 periods. Except in 1998, feed grain prices were lower than their respective reference prices during the 1994-1998 period. However, the RPC for the sunflower producer price was well above the border price during the 1986-1998 period, except in 1998 and 1993. Price comparisons, however, do not account for all types of support provided to producers.

Producer and consumer subsidy equivalents are another measure of protection. The PSE accounts for all of the transfers that occur from consumers and taxpayers to producers, rather than simply comparing prices. Likewise, the CSE indicates how much the consumer is taxed or subsidized via existing support and protection policies in comparison to what they would have paid without such distorting policies. According to PSE and CSE measures given in Table 2.5, livestock producers were subsidized and consumers were taxed over the 1986-1999 period. Beef in 1994 and sheep meat in 1996 and 1997 are exceptions to this result. Milk consumers paid 15 to 60 percent more than they would have paid without policies protecting producers.

More advanced protection measures are available, such as effective protection measures; however, in addition to prices, these measures require data to calculate input cost shares for each commodity. We did not calculate the effective protection measures due to a lack of appropriate cost data for the commodities studied.

Nevertheless, feed costs are most often the largest variable cost in livestock production, so the output-feed price ratio is a basic indicator of gross profitability in the livestock sector. The impact of policies in the livestock and crop sectors can be gauged by comparing the output-feed price ratio in Turkey to the same ratio using international prices. Table 2.6 displays the output-feed price ratio for major livestock products and feeds in Turkey. Table 2.7 displays the beef/corn, beef/barley, and broiler/corn price ratio using international prices, providing a basis for comparison to the ratios for Turkey shown in Table 2.6.

A comparison reveals that the beef-corn and broiler-corn ratios in Turkey have been consistently below international levels. The exception is 1996, when international corn prices peaked. This may suggest that the profitability of feeding corn to cattle and chickens in Turkey is lower than in other countries. On the contrary, the beef-barley ratio in Turkey is above international levels 8 of 13 years. Consequently, cattle producers in Turkey find it more profitable to feed barley, which is cheaper and more readily available than corn.

Table 2.1. Nominal and Real Protection Coefficients for Livestock Sub-sector in Turkey

Source: Authors' calculation.

Table 2.2. Nominal and Reel Protection Ratio for Livestock Products in Turkey (%)

Source: Authors' calculation.

Table 2.3. Nominal and Real Protection Coefficients for Grains and Oilseeds in Turkey

Source: Authors' calculation.

Table 2.4. Nominal and Real Protection Ratio for Grains and Oilseeds in Turkey (%)

Source: Authors' calculation.

Table 2.5. Producer and Consumer Subsidy Equivalent Measures for Livestock Products in Turkey (%)

Source: MARA (APK).

Table 2.6. Livestock Products / Grain Price Parity

W, B, and C is wheat, barley, and corn, respectively.

Table 2.7. International Livestock Products / Grain Price Parity Comparison

International prices are the Australian export price (FOB), U.S. Golf price (FOB), Pacific Northwest Price (FOB), U.S12 City Wholesale price for beef, corn, barley, and broilers, respectively.

1 Interested readers can find the formulae for the calculation of the protection measures in elementary level policy text books such as "Quantitative Development Policy Analysis" of Sadoulet and Janvry (1995).