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Agricultural production planning and its effect on hlour industry

28 March 20249 min reading

İbrahim Oğuz
Frankfurt School of Finance Management

Since wheat is a product that can be produced both in dry and irrigated conditions, its effect on production planning is not expected to be high compared to other products. If the planning is designed and operated correctly, positive effects are expected for the milling sector in the medium and long term. One of these effects is the increase in wheat production in the country. The increase in wheat production will allow sustainable product supply from the domestic market to be more resilient and the accessibility of raw material supply in the domestic market during periods of global crisis will strengthen the sector.  

In September 2023, the Ministry of Agriculture and Forestry passed an omnibus law in the Turkish Grand National Assembly stating that the Agricultural Production Planning model would be adopted. The law is important in terms of signaling that the Ministry of Agriculture has made a major policy change in the coming period. According to the statements of Mr. İbrahim Yumaklı, Minister of Agriculture and Forestry reflected in the press, the Ministry of Agriculture and Forestry aims to plan 17 strategic products in the first stage and indicates that a sustainable water resources-oriented planning will be carried out.

When this article was written, there was no detailed official announcement on how production planning would be done. For this reason, the subject of this article is to show the difficulties of planning, to shed light on the question of how we can plan and to reveal the possible effects of planning on the Flour Industrialists.

Focus on the Challenges of Agricultural Production Planning!

It is foreseen that the agricultural production planning model that Türkiye has been talking about for years will not be easy. Because it should be expected that trying to create common grounds in a sector where the economic interests of multiple stakeholders related to each other overlap, serious resistance problems may be encountered between the stakeholders. It is important to recognise that all stakeholders of the sector have different expectations when planning agricultural production. While producers want to earn more with planning, industrialists expect cheaper and higher quality raw materials. While the consumer expects affordable food, the economic bureaucracy wants the agricultural sector to reduce the burden on the national Treasury and to be a lever in the fight against inflation. While the public expects the effective use of resources (water, soil, human resources, etc.) and the expansion of production, non-governmental organizations want to play a more active role in planning. In summary, the expectations of the stakeholders from planning differ in terms of the activities they carry out.

Throughout the world, planning of agricultural production is seen as an important lever for the correct and effective use of resources such as land, water, human, input and finance. On the other hand, different outputs are expected from planning.  These are: establishing a supply-demand balance in food supply, keeping price stability and inflation under control, determining total factor productivity, keeping the agricultural census up-to-date and being a support tool in the creation of an early warning system in the breakdowns that may occur in food supply. What is important here is how the planning will be carried out, the correct determination of its objectives, how the existing tools and models will be developed for planning, and the actions to be taken on data health. Supporting the groups that will be affected by the planning and creating trust in the model to be developed will determine the success of the planning.

Table 1: How Turkish Farmers Determine their Sowing Preference

Under the conditions of our country, it is technically not easy to plan both crop, animal and aquaculture production. Attempting to manage a line of business that concerns the income of approximately 3 million producers, where there are 7 climates, 30 main basins and approximately 23 million hectares of agricultural land, 37 million parcels of land and a GNP of 45 billion dollars is produced, with centralised planning involves great risks. The evolution of the intended agricultural production planning to a point where the will to produce is taken from the hands of the farmer and transferred to the will of the public (bureaucracy) can never be sustainable, as past experience shows in countries where land ownership is in individuals.  Indeed, as can be seen in Table 1, the results of the survey in which farmers are asked what they pay attention to when choosing products in the will to produce, as can be understood from the Agricultural Outlook of Türkiye survey regularly conducted by the Credit Registration Bureau every year, clearly reveal the difficulty.

In the survey questions, the farmer is given the right to tick five different options and thus, how the farmer’s will to produce can be realized is examined. According to the results of the survey, the first preference of the farmer is “to produce the product he/she knows”.  This result is expected.  Other factors affecting the decision-making process are price, market conditions, animal feed and sales/marketing features. The preference for contracted production, which is introduced by the regulation, can only enter the 10% group. The rate of producers who prefer products by taking into account government supports is 2%, and the rate of those who say that they prefer products with recommendation is measured as 1.5%. Based on the results of the survey, taking the decision-making power away from the producers and handing it over to the public sector or commissions leads us to the point: “overegging the pudding”

What kind of planning could we implement?

How can we develop a planned production model when the difficulties of planning are obvious? In order to answer this question, it may be guiding to lay down some principles in advance. Our suggestions as the principles of agricultural production planning are as follows: Soft Planning, Incentive elements, transparent, trust-based system, participatory, market-oriented, dynamic, reducing bureaucratic burden, encouraging registration, based on numerical data, aiming resource efficiency, including projections/modelling, digital/accessible Decision Support System, early warning mechanisms, and the system’s ties with foreign trade can be listed as an organisation that we will call as a whole of systems.

Crop production is the most complex and difficult to plan in terms of its characteristics. Because crop production is chaotic in terms of product/soil/water/climate/human/input diversity. Planning of production is most needed in this area, since resource inefficiency and sustainable supply-demand imbalance are more common in crop production. In addition, crop production planning is also strategic for livestock planning as it is an input for animal husbandry. For this reason, in order to design the planning correctly and to achieve lasting results in the long term, there will be a need for accurate data, planning experts with a multi-disciplinary approach, and participatory/pluralistic and soft planning models and approaches that work “from the field to the centre; from the centre to the field”.

The aim of soft planning is to guide the decision-making process of the producer about the product and to show the alternatives while making decisions and to strengthen it with decision supports that will help in the processes (feeding, irrigation, disease pest control, etc.) during production as well as the right variety preferences will increase the belief in the system and registration.  Since the results to be obtained from decision support systems will predict the supply surplus or supply deficits long before the harvest, foreign trade policies will be able to provide sustainable food supply within the country with the right amount and timely actions. On the other hand, while properly designed agricultural production planning results in resource efficiency, price fluctuations can also be prevented.

Possible effects of agricultural production planning on flour industry

Wheat is one of the most strategic products for our country. For this reason, there is no doubt that wheat will be included in the scope of planning at the first stage in plant production. Since wheat is a product that can be produced both in dry and irrigated conditions, its effect on production planning is not expected to be high compared to other products. However, in regions such as the Konya plain, which is affected by climate change and where wheat is produced with deep water resources, serious restrictions are likely to come with the planning. If the planning is designed and operated correctly, positive effects are expected for the milling sector in the medium and long term. One of these effects is the increase in wheat production in the country. The increase in wheat production will allow sustainable product supply from the domestic market to be more resilient and the accessibility of raw material supply in the domestic market during periods of global crisis will strengthen the sector.  On the other hand, with the measures to be developed to increase product quality, the sector’s expectations for quality flour will be met.

The introduction of a regulation on contracted production as a basis for production planning is perceived as the integration of planning with contracts. Here, the question is whether it is possible for the Turkish Grain Board (TGB), which has become the main wheat buyer, to enter into contracts with farmers all over Türkiye?

TGB does not have the human resources to fulfil this contractual duty. For this reason, there is a possibility that agricultural production planning may turn into a game changer for the flour industry in terms of raw material supply. Especially for flour mills that do not process qualified raw materials and procure their raw materials from various sources, it will be expected by the public that the supply of raw materials will be linked to contracted production.  For the sustainability of the planning in wheat production, the fact that the Ministry or TGB is demanding from the Flour Industrialists may lead to an uncertainty at first. Contracted wheat production will bring operational costs for the industrialists and additional financing costs for supplies such as seeds and fertilizers that may be required for contracted production. Time will tell whether the costs of this process will be reflected on product purchase prices or flour sales prices. In case of such a request, it will be inevitable for flour industrialists to request additional support from the Ministry.

For now, we are not able to know too many details about how the people who are in the preparation of the planning will follow a path to solve all the problems mentioned above. We hope that the production planning will have the desired features and we can create a resilient Agriculture and Food ecosystem that uses resources effectively by giving a great impetus to our sector.

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