Turkey’s Hazelnut Monopoly Would Thwart Trade Sanctions

Turkey became US President Trump’s latest target for trade sanctions after that country launched a deadly military assault against the Kurds in northeast Syria. And bipartisan sanctions bills against Turkey have also been proposed in both houses of the US Congress.

But Turkey’s trade flows with the US, accounting for only about 5% of Turkey’s overall trade value, pale next to those of the EU, with which Turkey conducts about 50% of its trade. Smaller still are US imports of Turkish agricultural products, which totaled $1.0 billion in 2018, about 10% of all US imports from that country, according to the Office of the US Trade Representative. These included processed fruit and vegetables, tobacco, snack foods, vegetable oils, and juices. Non-agricultural goods consisted mainly of machinery, vehicles, carpets, and steel.

Agricultural products represent about 10% of all Turkish exports to the United States. The bars show the growth in agricultural sales in recent years. The colors on the bars break down the sales by categories. 

US agricultural exports to Turkey totaled $1.4 billion in 2018, about 14% of total US exports to that country. Cotton is the highest value of the crops. Data from USDA GATS shows that roughly 390,000 tonnes of cotton were exported to Turkey in 2018, worth $682 million. Other agricultural goods exports include distillers grains (used as feed), tree nuts (mainly walnuts and pistachios), and soybeans.

Given the relatively small agricultural trade relations between the two countries, the US should have little trouble finding alternative sources for most of the imported food products, with the exception of one—hazelnuts. Global commercial hazelnut production is overwhelmingly concentrated on the northern shore of Turkey, where roughly 70% of world supplies are sourced. Confectionery companies including Nestlé, Godiva, and Ferrero have historically relied on Turkey’s hazelnuts for use in popular chocolate products like Nutella as well as in liqueurs and pralines. But sourcing a niche commodity like hazelnuts from a small, confined area comes with challenges.

The Ordu province on the Black Sea produces roughly a third of Turkey’s crop in an area only slightly larger than the US state of Delaware. When frost knocked back the crop in 2013 and 2014, thousands of Turkish farmers with no fallback options were forced to migrate to find work, and global hazelnut prices peaked as companies sought to fill demand elsewhere.

Geopolitical instability, inadequate labor laws, and climate fluctuations contribute to hazelnut production volatility. Over the past five years, hazelnut production has fluctuated an average of 35% year to year. That in turn drives hazelnut price volatility globally. For example, an 18% decline in Turkey’s hazelnut production in 2014 from the previous year drove producer price increases of 67% and 34% in Italy and the United States, respectively. The depreciating Turkish lira has exacerbated the problems, as many farmers now struggle to turn a profit, and invest in greater efficiencies, on their hazelnut crop.

Most of Turkey’s hazelnut production comes from some 600,000 small farms that average a mere four acres in size. These fragmented farms are often too small to meet the requirements for regulatory assistance and protections dictated by Turkey’s Labor Code, which requires at least 50 employees to qualify as an agricultural business. Frequently, the labor at these farms is provided by displaced people, including Syrian refugees, whom Turkish President Tayyip Erdogan has talked about returning to their native country.

Hazelnut price volatility has prompted food companies to look elsewhere for future sources of hazelnuts. Companies like Ferrero have begun to invest in diversification strategies in places like Canada, Chile, and Australia. In the US, Oregon produces a significant amount of hazelnuts; Eastern hazelnut blight disease has kept cultivation from taking root in other parts of the country. However, blight-resistant varieties are becoming increasingly available, and hazelnut production is gaining appeal in the United States.

Turkey produces about 70% of the world’s hazelnuts (green bar in this chart), followed by Italy (blue bar). Production can vary sharply from year to year, as does the price of the tree nut. The lines in the chart show producer prices, or the average price per tonne paid to hazelnut farmers in the two countries (purple line for Turkey, red line for Italy).