Food producers in foreign lands

Related tags Investment

A €91 million sugar-substitute plant in western Turkey represents
the biggest greenfield investment made outside the US by Cargill,
the Minnesota-based food producer. Yet the problems faced by
Cargill in Turkey since the factory started up two years ago
illustrate flaws in Turkish efforts to attract foreign investment
as well as the minefield of challenges facing global food producers
trying to set up production facilities in new markets, according to
a report by ft.com.

A €91 million sugar-substitute plant in western Turkey represents the biggest greenfield investment made outside the US by Cargill, the Minnesota-based food producer. Yet the problems faced by Cargill in Turkey since the factory started up two years ago illustrate flaws in Turkish efforts to attract foreign investment as well as the minefield of challenges facing global food producers trying to set up production facilities in new markets, according to a report by ft.com.

Local Cargill management is currently distracted by lawsuits against the Turkish authorities who gave building permission. In theory, the plant could be forced to close down although Andrew Glass, Cargill's country manager, believes this is unlikely. Separately, the operation's profitability is threatened by a sugar industry law due to take effect in September.

However, Turkish policy towards foreign investors faces its most serious reform in half a century. Legislation about to be approved by parliament is designed to simplify regulations that daunt Turkish and foreign investors alike. For instance, the law, replacing a statute from 1956, removes the need for foreign investors to seek permission to invest. The reform may reduce pressure for the government to cut corners to get round an antiquated legal environment.

A case in point was Ankara's intervention to secure a site for Cargill. Its new Turkish venture required proximity to agricultural producers and sources of clean water. The government gave it permission to build on prime agricultural land, which, according to the constitution, can only be used for farming.

"Everybody in the government signed the permits,"​ recalls one observer. "The company made the investment, and started producing. Then all of a sudden somebody noticed this was against the constitution, and judicial proceedings started."

Turkey's motivation for a new start is simple. It desperately needs to attract foreign direct investment. In addition, Turkish companies are screaming for capital after last year enduring the worst economic crisis in Turkey's postwar history. Gross National Product shrank 10 per cent following devaluation in February 2001.

As Hasan Ersel, chief economist at Yapi Kredi, a leading Turkish commercial bank, puts it: "In the past foreign direct investment did not come to Turkey because we did not want it. This has changed dramatically, with the private sector seriously seeking foreign investment."

In Turkey's poorly coordinated reform programme, however, Cargill faces another threat in the form of a law to liberalise the state-dominated sugar industry.

The company is concerned about a provision to cap its output of glucose and fructose at levels below current demand. The quotas, which go into effect on September 1, are supposed to protect the domestic sugar industry as it is privatised. But Mr Glass notes that no other sugar law in the world includes glucose in such quotas. "We hope these technical oversights will be addressed soon,"​ he said.

Cargill's experience in Turkey reflect the numerous bureaucratic and cultural challenges presented by setting up a business in such a market. Perseverance and a good legal representation are often as not the main means of ensuring survival.

Related topics Market trends

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