ideas of value added.<sup>14</sup> In the late 1980s, about a third of Turkish exports consisted of unprocessed or lightly processed goods, like cotton, olive oil, or animal hides. With time, the share of this category of exports fell and the share of goods with a higher value-added content, such as wheat flour, cheese, tomato paste, and prepared juices, increased. The share of trade in highly perishables (mostly fresh fruit and vegetables) also grew, crops which are high-valued because the places with the agro-climatic conditions required to produce them are limited, and because of the costs associated with maintaining the quality of perishables and managing associated food hazards. The composition of trade by destination has changed as well. Figure 5 shows that the share of value has Turkey’s agricultural exports from one that was strictly focused on the EU, to one in which MENA has become a secondary center of trade.<sup>15</sup> The next figure reports data on trade in agricultural manufactured goods using data from Turkish exporting firms. The left panel of Figure 6 shows firm activity by product type to Europe, while the right side of the figure shows comparable data on to MENA.<sup>16</sup> The numbers in the table were constructed using information from firm censuses, matched with customs data, to count the number of firms exporting a particular type of agricultural good. The term “firm activity” is used in the table to indicate that the reported categories are not mutually exclusive and that there is double counting; for example, firms that ship to the EU might also ship to MENA and firms that ship fresh fruit might also ship prepared fruit.

As with the data on export shares, the data point to the relative stability of firm activity centered on Europe and the rise of new trade activity with firms and governments in MENA. The composition of the trading activity includes both primary agriculture of the kind excluded from the Customs Union and “manufactured” food items. Although it is hard to discern from the graphs, the value of exports for the representative firm exporting to the EU is higher than for other firms. Overall, the graphs indicate that the growth in export activities is focused on high-valued fruits and vegetables and on processed agricultural goods.

# **What would closer alignment of Turkish and EU policies entail?**

As discussed, the Ankara Agreement institutions provided an ongoing mechanism that prompted Turkey and the EU to align their agricultural trade policies, and the Association Committee frequently exhorted both sides to align domestic agricultural policies as well. As the Agreement institutions give way to the Accession institutions, the remaining differences in domestic policies take on greater importance. As an EU member state, Turkey would be obliged to fully align its tariffs for agricultural goods with those of the EU, a task made more complex due to the recent proliferation of bilateral agreements. As a practical matter, this obligation is equivalent to bringing agriculture into the Customs Union. More significantly, under EU membership, Turkey would adopt the EU’s Common Agricultural Policy (CAP), implying changes to current domestic policies that would not be required under an expanded Customs Union.

# _Agricultural policies in Turkey_

During the closing decades of the 20th century, the Government of Turkey intervened to manage the prices for key commodities through government purchases and sales. Farm inputs, including credit, were subsidized, and the government invested heavily in irrigation and other types of infrastructure. Institutions created to administer this complex set of instruments included State Economic Enterprises (SEEs); the Agricultural Sales Cooperative Unions (ASCUs); and the state-owned banks. An OECD evaluation concluded that “financial losses due to intervention purchasing by ASCUs, the Turkish Grain Board, the State-owned Tobacco Enterprise and the state-owned Sugar Enterprise, coupled with borrowing by the SEE from

> 14 The full taxonomy used to generate the table is given in Annex Table 1.

> 15 The increased importance of the MENA region for Turkish exports is reflected in other sectors as well. See World Bank (2014b).

> 16 The original data is classified HS2002, sectors 01-24.

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