N122 : Global Business : Political Environment

As a developing country, agriculture sector of the Turkey play important role in the economy of the country. In context of making the necessary contribution towards the economic development, agriculture sector of the Turkey ensures strong structure for itself.  It can be said that with the help of strong structure, this sector provides support and improve the agribusiness of the country in terms of the present dynamics.

It must be noted that, grape treated as the basic raw material for producing the wine, and quantity of the grape production will be considered as the main indicators in the wine production. In Turkey, raisins play the important role in the exports of the agriculture. Because of these reasons, it can be said that wine play important role in the agriculture industry development of the Country. Favourable climate and strong territorial conditions, Turkey is considered as the wine producing country from the ancient times. In Turkey, wine is considered as the favourite drinks from that time period. In this framework, existence of the high quality grape varieties of the few regions plays important part in the production of the wine (Gumus & Gumus, 2008).

This report mainly discusses the risk and opportunities of the business environment of the Turkey, in context of the agribusiness and wine industry. Structure of this report includes the components related to the political environment and international cooperation. Further, this report states whether consists attractive market in terms of establishing the business for producing wines. At the end, brief conclusion is stated to analyse all the key components of this report.

Discussion:

From the ancient era, Turkey is recognized as the wine producing country and this happens because of the favorable climatic and territorial conditions for grape cultivation. It must be noted that, existence of the high quality varieties of the grapes in few regions play most important role in the production of the wine. In this country, cultivation of the grapes for wine has been conducted mainly in the 9 regions, as some of these grapes are foreign originated grape varieties and some of these are the varieties of the local Turkish region.

Risks and opportunities:

In Turkey, fall of communism is considered as the political situation which affected the wine industry of the Turkey (Azabagaoglu & Aysu Ozay, 2006). In 2013, government controlled by the Justice and Development (AK) party pushed the controversial law which directly cause harm to the alcoholic beverage industry. Taxes in context of this industry increased drastically, advertising in context of alcoholic beverages were banned, and those restaurants which were established near mosques were forbidden to sell the alcohol. All these political situations cause serious issues for the wineries, and there is clear fear that these issues getting worse in future. As stated by the Ali Basman, who holds the position of the managing director of the leading Turkish wine company Kavaklidere, they are not going to make any new investment until these political issues are resolved. Further,  Mr. Jancis Robinson’s stated that all these issues also affects the date and grape producers in the agriculture sector.

Unfortunately, concerns of the wine makers extend far beyond the government regulations. There is outward hostility in the domestic retail environment of the wines. Therefore, these are the political risks which are faced by wine producers and also by the grape and dates producers in the agriculture sector (Barnes, 2015).

It must be noted that, political situation in Turkey is not stable especially in some particular regions. Usually, demonstration events are rising and some of these incidents turned violent. In 2016, United States Department of States issued the travel warning for the individuals traveling to the Turkey. As all these incidents impose bad effect on the tourism sector of the Country, as these political situations ultimately decrease the tourist in the country. These things affect all the sectors of the country, and especially to the wine industry (Celements, 2018).

On the other hand, this industry provides number of opportunities also. These distressing political situations of the country states that wine industry of the country reaches the critical point, and now this is the time when wine makers need to identify the measures for boosting their sales effectively. These political situations of the country are deemed as issues, but they also provide number of opportunities for the wine makers of the country. As these situations forces the country to refocus on the high quality wines (Jeffreys, 2016).

Wine industry of the Turkey is floating in nature, as it is considered as the undiscriminating industry in context of the tourist market. Instead of all these things, things there are number of tourist which visit the Turkey even after know about the political instability of the country. Numbers of tourist were down by 41% as compared to the last year. As stated by the World travel and tourism council, almost 13 months are required to make the things normal after the tourists attacks occurred in Turkey. Current government of the Turkey imposes number of difficulties for the Wine industry of the Turkey, but recently support is extended by the Ministry of the Economy supports Wines of Turkey. Presently, Turkey only exports 5% of its production and ministry focus on enhancing this number of percentage. Turkey produce large number of grapes in their country, but maximum grapes is used to made raisins. Wine production in the country is small, as only 68 million liters a year. This can be considered as great opportunity for the foreign firms to enter into the market of turkey and conduct their activities in the Wine industry of the Turkey (pitel, 2015).

Political Environment:

Turkey is deemed as the overwhelming Muslim country in which alcohol is considered as haram under the Islam. As there are number of persons who did not even the touch the drop of the wine in their whole live. Still this country is blessed with the suitable climate of the grape cultivation and also had the historic wine making tradition. Following are the political scenarios of the wine industry of this country-

Limited production

As stated by the International Organisation of Vine and Wine (OIV), Turkey holds the 5^th largest area of vineyards under the production in throughout the world. Maximum cultivation of the grapes is used for eating or for dried fruit. Turkey only contributes 0.05 % of world wine production and 0.06% of consumption. Maximum cultivated grapes in Turkey are used for other type of reasons and this happen because of the religious reasons. This limited production of grapes also affects the export of Wine in other countries and this reduces the profitability of the Wine industry. As stated by the economy ministry, biggest abroad market of Turkish wine is Belgium, and because of this limited production, it becomes difficult for the country to enhance its scope in other markets.

However, recently situation has been changed, government extend their support in context of exporting the Turkish wine to the markets of other countries (FAS, 2015 Felzenstei, Hibbert, Vong 2004).

Taxes and regulations

In Turkey, government impose high taxes on the wine industry, and this makes the things difficult for the wine producers. As Turkish government implement the special consumption tax (SCT), as this tax introduced on 1^st August 2002. In Turkey tax on Wine industry is increased by the current government and this impose trade barrier in front of the wine industry producers. As this barrier slow down the growth of wine industry in Turkey, and also cause huge loss to the industry.

Some other barriers are also their which impose restrictions on the foreign traders to expand their business activities in the Wine Industry of turkey. These barriers are classified in the form of tariff and non-tariff barriers. As Tariff on imports in context of non-European countries is almost 3% more than the rates of the European Union, but these changes on the basis of the product. Turkey also applied the Value Added Tax (VAT), and this tax is applied irrespective of the country of origin. In context of the agriculture products VAT ranges from almost 1-8% and in context of the processed products it reach up to 18% (ATIC, n.d..

Government of Turkey adopts the EU's common external trade standards, and because of this customs tariffs and duties are similar to the EUs rate.

In Turkey, weighted rate of protection in context of imports of the non-sensitive industrial products is zero for those items which are creating in the countries of EU and European Free Trade Association (EFTA). In this context rates related to other countries like Australia will reduced by almost 4.1% on maximum items.

There are number of agriculture products which are protected by the steep tariffs, and when EU implement the  Uruguay Round reductions, then average rates of Turkey in terms of the third countries will reduced by 3.5%. Instead of this EU alliance, Turkey maintains the different tariff and non-tariff barriers on continuous basis for controlling and restricting the import’s, and this mainly includes the agricultural products which also includes wine (AITC, n.d. ).

Negative Influence

All types of alcohol advertisements are banned in Turkey and this similar thing happen with the wine produced in Turkey. In case alcohol advertisement is displayed at the time of TV report then it is completely blurred. Producers need to choose social media for advertising their products, and through this way they counter the ban.

Government of Turkey also banned the order of alcohol through the internet, but these products are available in the supermarkets. It must be noted that ban on advertisements and internet sales cause negative impact on the wine industry and this also restricts the expansion of wine culture in the country (France24, 2017). One more barrier for producers is also there as special consumption tax (OTV) is imposed and additionally 18% VAT is imposed on the purchase of Wines (Ozdemir, 2015).

International Market

In 2016 volume sales of Wine in turkey is declined in significant manner, and all these things happens because of the macroeconomic conditions of the country. As these conditions include terrorist attacks and a military coup attempt, all these things reduce the tourist frequency and also make the Turkish people hesitant to go out for eat and drink. However, in year 2017, tourism and peoples frequency to go out for eat and drink is increased. Following are the important components of the international environment of Turkish Wine Industry-

On-trade sales decrease the shares to the off-trade channel- It is necessary to understand for the foreign investors that on-trade volume share in terms of wine is decreased over the period of review. As maximum volume of wine in Turkey is consumed by the foreign tourists, and the drop of tourism in the European countries and Russia impacted the wine industry and international market of Turkey in negative manner.

Domination of the red wine- Red wine is deemed as most established and popular wine in context of the grape wine, as this wine receives the maximum investment from the international and big market layers. However, small and domestic wine producers also focus on red wine, as this down the demand of other wines and affect them in negative manner.

Threat of domestic wines- As there are number of domestic wines which becomes strong threat for the grape wines, as they are gaining big market share in the Turkey. In 2017, local wines become successful in dominating their positions and this happen because of the changes occurred in the preferences of the consumers. Preferences of the consumers are changing because of the low prices of these products. Increase occurred in the excise taxes results in the increase in the high unit Price of the foreign wine brands, and because of this demand of these wines decreased automatically, as these wines are only affordable by the highly income customers.

Difficulties in promoting their products- As foreign producers of the Wine face number of difficulties in the Turkey in promoting their products, and the biggest reason behind this less established culture of wines in turkey. There are number of regulations in the Turkey which restrict the promotions of wines, and this had negative impact on the sales of the wines (Euromonitor International Limited, 2018).

Recommendation:

On the basis of the above facts, it is clear that political situation in the Turkey is not well, as this   country faces number of political challenges. All these political changes affect the wine industry of the country in very negative manner. It is not advisable to the Australia business producer to expand their business activities in the Turkey in context of selling wines of the high quality. As stated, Turkey itself is the wine hub of domestic wines, and this give tough competition to the foreign wines imported in the Turkey. As there are number of   reasons because of which this advice is given to the client-

• As macroeconomics condition of the Turkey is not good, continuous number of terrorist attacks results in the downfall of the number of the tourist which ultimately reduces the demand of wine.
• High tax and regulations are another reason because of which it is advisable to not expand their business in turkey.

Conclusion:

Turkey is recognized as the wine producing country and this happens because of the favorable climatic and territorial conditions for grape cultivation. It must be noted that, existence of the high quality varieties of the grapes in few regions play most important role in the production of the wine. Volume sales of Wine in turkey are declined in significant manner and all these things happens because of the macroeconomic conditions of the country. As these conditions include terrorist attacks and a military coup attempt, all these things reduce the tourist frequency and also make the Turkish people hesitant to go out for eat and drink. In Turkey, government impose high taxes on the wine industry, and this makes the things difficult for the wine producers. As Turkish government implement the special consumption tax (SCT). In Turkey tax on Wine industry is increased by the current government and this impose trade barrier in front of the wine industry producers. As this barrier slow down the growth of wine industry in Turkey, and also cause huge loss to the industry.

References:

ATIC. Tariffs and Regulations. Retrieved from: https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/Turkey/Doing-business/Tariffs-and-regulations.

Azabagaoglu , M. & Aysu Ozay, A. (2006). Examining the Turkish wine industry: Marketing effectiveness and recommendations for increasing its competitive performance, New Zealand Journal of Crop and Horticultural Science, Volume 34(3), 257-268.

Barnes, C. (2015). The political troubles and the incredible potential of turkish wine. Retrieved from: https://grapecollective.com/articles/the-political-troubles-and-great-potential-of-turkish-wine.

Celements, (2018). Turkey Risk Assessment Country Guide. Retrieved from: https://www.clements.com/resources/risk-guide/asia-middle-east/turkey.

Euromonitor International Limited, (2018). Wine in Turkey. Retrieved from: https://www.euromonitor.com/wine-in-turkey/report.

FAS. (2015). Alcohol Legislation and Taxes in Turkey. Retrieved from: https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Alcohol%20Legislation%20and%20Taxes%20in%20Turkey_Ankara_Turkey_9-7-2015.pdf.

Felzenstein C. Hibbert S. Vong G. (2004). Is the country of origin the fifth element in the marketing mix of imported wine: a critical review of the literature, Journal of Food Products Marketing Volume 10(4): 73-84.

France24, (2017). Despite strains, Turkey's wine industry refuses to wither. Retrieved from: https://www.france24.com/en/20171011-despite-strains-turkeys-wine-industry-refuses-wither,.

Gumus, A. & Gumus, S. (2008). The wine sector in turkey: survey on 42 wineries, Bulgarian Journal of Agricultural Science, Volume 14(6), PP 549-556.

IHC, (2018). Viticulture in Turkey. Retrieved from: https://www.ihc2018.org/files/downloads/Vol56-N02.pdf.  

Jeffreys, H. (2016). In Turkey, Wine Producers Face a Turning Point. Retrieved from: https://www.foodandwine.com/wine-regions/turkey-wine-future.

Ozdemir, D. (2015). The demand for Turkish wine: estimates of the wine price elasticities, Applied Economics Letters, Volume 22(17).

Ozerkan, F. (2017). Despite strains, Turkey's wine industry refuses to wither. Retrieved from: https://phys.org/news/2017-10-strains-turkey-wine-industry-wither.html.

pitel, L. 2015. Turkey wine-making tradition under threat from islamic-rooted government's new alcohol laws. Retrieved from: https://www.independent.co.uk/life-style/food-and-drink/news/turkey-wine-making-tradition-under-threat-from-islamic-rooted-governments-new-alcohol-laws-a6786201.html.