Turkey treats hazelnuts as currency

The price of hazelnuts has increased by 10% in the last two weeks after the Turkish government intervened to support prices for the first time in eight years. Turkish public authorities act in this market so that the sector, on which some 4 million people in the country depend, maintains some stability.

At the end of April the government of Ankara began buying hazelnuts through the public Turkish Grain Board Institution (TMO) to stabilize prices, which historically have been very volatile. The operation is similar to that made by central banks in the currency markets when they want to stabilize the exchange rate of a currency.

In other words, one could say that the hazelnut is under the influence of a dirty float, a term used for those currencies that have an exchange rate that fluctuates based on supply and demand, but where the central bank intervenes by buying or selling foreign exchange to stabilize the currency and achieve certain economic objectives.

The Government of Ankara takes this sector very seriously. Turkey produces 75% of all the hazelnuts in the world. Authorities try to impose a cohesive strategy, which isn't easy, as much of the production comes from small independent farmers distributed along the Black Sea. Meanwhile, Spain is the sixth largest producer of hazelnuts, behind Azerbaijan, the US, Georgia, and Italy.

A wayward crop

According to the Financial Times, the price of hazelnuts is very volatile since this crop depends greatly on climatic conditions and the intensity of production demanded from the Hazel tree.

Hazelnut production tends to alternate its production intensity as there are very active years with excellent harvests and passive years in which the trees receive certain care to recover their productivity for subsequent years.

In addition, producers of this type of nut do not have a futures market, which ensures that producers can get minimum prices and can carry out investments based on a minimum income.

In the early months of 2017, hazelnut prices had fallen by 10%, to $ 5.99 dollars a kilo. However, the intervention of the Turkish TMO is boosting prices again.

This body is getting rid of the market's supply excess. Hazelnuts can be stored for more than a year without the fruit losing its properties, and the TMO takes advantage of this to sell part of its reserves when prices soar. One could say that Turkey acts as a central bank for the hazelnut market, unfortunately for them they don't have the monopoly on hazelnut production.

Source: eleconomista.es