Turkey Premium poultry products - FGS, Inc Premium 11.pdf · pork and poultry industries” of three EU countries (Italy, Poland and the United Kingdom) and six non-EU countries (Egypt,

Please address comments and inquiries to:Investment Centre DivisionFood and Agriculture Organization of the United Nations (FAO)Viale delle Terme di Caracalla – 00153 Rome, Italy [email protected]/investment/en

Report No.28 – September 2016

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Turkey

Premium poultry productsWillingness-to-pay and investment opportunities

I7467EN/1/06.17

ISBN 978-92-5-109810-3

9 7 8 9 2 5 1 0 9 8 1 0 3

Food and agriculture organization oF the united nationsrome, 2017

turkey


Carl-Johan Lagerkvistagricultural economist, head of department of economics,swedish university of agricultural sciences

Sebastian Hessagricultural economist, christian-albrechts university Kiel

Nuno Santos economist, investment centre division, Fao

with contributions from:

Arianna Caritaeconomist, investment centre division, Fao

Harun Uçakeconomist

Genevieve Theodorakis economist, investment centre division, Fao

country highlightsprepared under the Fao/eBrd cooperation

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) or the European Bank for Reconstruction and Development (EBRD) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO or EBRD in preference to others of a similar nature that are not mentioned.

The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO or EBRD.

ISBN 978-92-5-109810-3 (FAO)

© FAO 2016

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Cover photo: © Dreamstime | Roy Mattappallil Thomas

TABLE OF CONTENTS

Foreword v

acknowledgements viii

acronyms and abbreviations ix

executive summary xi

1 introduction 1

2 overview of turkey’s poultry industry and its production systems 4

3 trends in quality poultry meat and egg products in turkey 20

4 institutional environment for poultry meat and egg sector premium products 34

5 consumers’ willingness-to-pay for improved quality/animal welfare poultry products 46

6 supply chain costs for developing improved quality/animal welfare products 85

7 Potential returns from investing in improved poultry products 118

8 conclusions 133

references 144

annex 1 details on qualitative research 149

annex 2 the design of the adaptive choice experiment 151

annex 3 egg market simulations 164

annex 4 Broiler meat market simulations 167

annex 5 duties of the turkish general directorate of Food and control 173

annex 6 details of willingness-to-pay analysis 175

annex 7 competitiveness of improved attribute egg and broiler meat products 179

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FOrEwOrd

The Investment Centre Division of the Food and Agriculture Organization of the United Nations (FAO) has been working in collaboration with the European Bank for Reconstruction and Development (EBRD) toward a shared goal of enhancing food quality and safety along food supply chains of member countries. Through these activities, they intend to safeguard human health and well-being while facilitating access to domestic, regional and international markets.

Over many years, FAO, in accordance with its strategic objectives, has promoted efficient and inclusive food and agriculture systems that emphasise the development of food quality and safety standards. This includes a range of activities: facilitating dialogue and collaborative action between governments and the private sector; providing scientific advice and technical support; fostering capacity development; disseminating information and knowledge; and developing and promoting international and regional agreements, regulations and other frameworks that uphold international food standards for food safety and quality. The EBRD supports agribusiness companies as they move towards improved food safety and quality standards and tap into advanced markets through specific investment and technical assistance programmes.

Both FAO and EBRD have recognised that there is large scope for quality improvements in the livestock sector, which is under pressure to meet the dual demands of growing consumption and higher consumer product standards. This is particularly true in transition countries, where in recent years rising incomes have often been associated with increasing demand for higher-quality livestock items like milk, meat, eggs and by-products.

While the domestic demand for animal products that meet higher animal welfare standards is still relatively low in the EBRD’s countries of operation, animal welfare is becoming a value-added feature in international trade and is thus increasingly relevant to export-oriented agribusiness companies in the region. Moreover, consumers’ growing interest in the welfare of farm animals has led to changes at the policy level, including the development of specific legislation. However, despite growing recognition by producers, retailers and other food chain actors that mainstreaming animal welfare practices could be profitably incorporated in their commercial strategies, few companies have actually succeeded in identifying and scaling efficient business models. Although there seems to be a good business case for investing in higher quality products with different attributes, in many instances, there is still a lack of information on which product attributes are the most valued, have the largest

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potential market size and attract the greatest price premia. There is also a need to understand any cost implications of investing in such new product lines in order to evaluate potential returns to investment in premium products.

This study is part of a broader series of FAO/EBRD joint knowledge products on food safety and quality standards and seeks to provide useful analysis on the key information gaps mentioned above. It focuses on premium poultry products in the Turkish context and, in particular, addresses the issue of willingness-to-pay for poultry meat and egg product attributes. It builds on earlier analytical and technical work carried out over the course of 2013-2014 by FAO/EBRD published as a “Review of animal welfare legislation in the beef, pork and poultry industries” of three EU countries (Italy, Poland and the United Kingdom) and six non-EU countries (Egypt, Morocco, Russian Federation, Ukraine, Serbia and Turkey).

The main objectives of the study are to: (i) inform policy dialogue on themes needing special attention to support premium poultry market development; and (ii) evaluate returns to investment in premium poultry products in Turkey as well as the attributes that would be most relevant for the development of dedicated market lines. Using more than 800 respondents for each of the egg and the chicken meat surveys, the study provides a detailed assessment of the average Turkish consumer’s willingness-to-pay for different quality attributes of meat and egg products, including for higher animal welfare standards. It also provides an initial assessment of potential investment and operating cost implications for selected Turkish producers associated with the implementation of different quality and welfare standards (both for potential export and local markets), and with meeting higher quality and welfare requirements. In addition, the study examines potential institutional/regulatory obstacles to the development of higher quality products in the poultry sector.

The Turkish poultry meat and eggs sector offered a particularly interesting case for analysis. According to FAOSTAT, between 1992 and 2012, Turkey’s aggregate meat sector increased by 156 percent to around 2.9 million tonnes, with the poultry meat sector representing 74 percent of the registered growth in tonnes. Today, poultry meat represents around 60 percent of total tonnes of meat produced in Turkey (versus around 38 percent in 1992). Egg production has also increased dramatically by 127 percent in the same period to around 0.9 million tonnes. Moreover, egg production in Turkey has already seen the arrival of some organic labels (as also indicated above in this document) and there seems to be growing interest from the industry in adjusting production systems. However, awareness regarding product quality attributes (including animal welfare practices and standards) is still in its early stages, with national policies and standards set at lower levels relative to the EU. This is despite the potential benefits of such policies, including increased domestic and foreign

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consumer demand for products that are compliant with a more “humane” treatment of animals.

Key results indicate that despite being overall quite price sensitive, Turkish consumers have an interest in certain attributes of premium products, particularly those related to human health. In particular, the brand name is recognised to be the most important factor when choosing poultry products. From the brand, consumers feel they better understand the quality of the meat, as well as the reliability of the product and adherence to safety and hygienic regulations, among other factors. However, unlike European consumers, animal welfare is not a major consideration in poultry product purchases in Turkey. Although Turkish consumers feel that healthier animals create healthier products, most consumers were found to not be willing to pay higher prices for animal welfare-friendly products. The main findings also suggest that assorted portfolios of egg and broiler meat products that take different combinations of premium quality features appeal differently to market segments based on income, areas of living and household size. These aspects could be considered in product optimisation to make the products appeal to different groups of customers. Besides the business case analysis, there are also a number of public policy conclusions for Turkey, namely on rationale for different types of labelling systems, as well as regulatory and governance issues regarding EU accession and sector development.

Daniel Gustafson,Deputy Director General

(Programmes),Food and Agriculture

Organization of the United Nations

Gilles Mettetal, Director,Agribusiness, European Bank for Reconstruction

and Development

Yuriko Shoji, Subregional Coordinator for Central Asia and FAO Representative in

Turkey

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ACkNOwLEdgEmENTS

This study was implemented in the context of the cooperation between FAO and the EBRD. It was financed by FAO and the EBRD’s Shareholder Special Fund.

The analysis was carried out by FAO’s Investment Centre, under the supervision of Nuno Santos, Economist, Europe, Central Asia, Near East, North Africa, Latin America and the Caribbean Service (TCIC). The main authors of the study are Carl-Johan Lagerkvist, Agricultural Economist, Head of Departmentof Economics, Swedish University of Agricultural Sciences, and SebastianHess, Agricultural Economist, Christian-Albrechts University Kiel, and Nuno Santos, Investment Centre Division, FAO. Genevieve Theodorakis and Arianna Carita, Economists, FAO, also contributed to the study and provided overall support with project management activities. The adaptive test software programme for the menu-based conjoint analysis was developed by NORM in close consultation with the authors. The computer assisted in-person survey work in Turkey was implemented by TNS Global.

A kind thank you also is due to Aysegul Akin, Assistant FAO Representative, Regional Office for Central Asia, FAO, and Yuriko Shoji, Subregional Coordinator for Central Asia, FAO, for their support. Harun Uçak, Economist, provided valuable inputs to general research and data gathering and analysis. Aytac Yilmaz, Poultry Industry Expert, supported the assessment of investment and operating cost implications for local Turkish producers.

Nadia Petkova, Regional Head of Agribusiness at EBRD’s Resident Office in Istanbul and Iride Ceccacci, Principal Economist, EBRD, provided leadership, coordination and substantial comments on the design and final results of the study. The final document also benefited from comments by Dmitry Prikhodko, Agribusiness Economist, FAO.

The authors are grateful for the guidance, comments and suggestions provided by Emmanuel Hidier, Senior Economist, FAO. The authors would like to thank Mohamed Manssouri, Chief, TCIC, FAO, for the overall support and guidance provided during the course of the assignment. Sarah Mercadante, Project and Communications Officer, FAO, provided support in the publication process. Thanks are also extended to the entire TCIC General Service team for their assistance during the implementation of the study.

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ACrONymS ANd ABBrEviATiONS

ACBE adaptive choice-based experimentBESD-BİR Breeding Poultry AssociationCAPI computer assisted in-person surveyEBRD European Bank for Reconstruction and DevelopmentEU European UnionFAO Food and Agriculture Organization of the United NationsGDP gross Domestic ProductGMO genetically modified organismHB Hierarchical BayesianNPV net present valueNRCA normalised revealed comparative advantage SES socio-economic statusWTP willingness-to-payUSDA United States Department of AgricultureUSD United States dollarsTL Turkish liraYUM-BİR Turkish Egg Producers Association

Turkey - Premium poultry products

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ExECuTivE SummAry

Poultry production in Turkey: a dynamic industry

Agriculture remains an important source of employment in Turkey, providing jobs to 6 million people -- over 20 percent of the Turkish workforce -- in 2013, and contributing 8 percent to gross domestic product (GDP) in 20141. The industry also generates considerable export growth: with a value of over USD 16 billion in 2013, Turkey’s agricultural exports have more than tripled in value between 2002 and 2013. Its export growth rates are close to three of the fastest growing agricultural exporters in the world, India, China and Ukraine2. By 2023, Turkey aspires to break into the ranks of the top five largest agricultural producers in the world3.

Within the agricultural sector, animal production is a driver of economic growth, with production valued at TL 106.8 billion in 2014, up 8.9 percent from 2013. In particular, the production of poultry products has expanded considerably over the last decades and provides employment to an estimated 2 million people4. Between 2005 and 2013, poultry meat production increased 87.7 percent from 936 697 tonnes to 1 758 363 tonnes, while egg production expanded 36.9 percent from over 12 billion to nearly 16.5 billion eggs5. These figures ranked Turkey as the tenth largest producer of chicken meat and hen eggs in 20136.

According to TURKSTAT data, in 2014, poultry production was the third largest livestock sector in Turkey, valued at TL 3.7 billion, up from an annual value of TL 3.3 billion in 2012. In this regard, poultry production values are lower than bovine animals and sheep and goats, worth TL 40.6 billion and TL 17.9 billion

1 Taken from the Turkey: Water along the food chain report available from the FAO Investment Centre.2 Source: USDA, GTA. For more information, see: http://www.fas.usda.gov/data/turkish-agricultural-

exports-continue-surge.3 http://www.invest.gov.tr/en-US/infocenter/publications/Documents/FOOD.AND.AGRICULTURE.

INDUSTRY.pdf.4 According to BES-BiR approximately 2 million people (including producers, farmers, tradesmen,

feed industry, transportation, medicine and subsidiary industry, marketing) make their living in the poultry sector. For more information, see: www.besd-bir.org/assets/documents/sectorInformation/Poultry_Producers_in_Turkey_1.pdf, 2014.

5 Source: TURKSTAT. For more information, see: http://www.thepoultrysite.com/reports/?id=4060.6 According to FAOSTAT data, Turkey produced nearly 2 percent of the world’s chicken meat and

around 1 percent of the world’s hen eggs in 2013.

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in 2014, respectively. Egg production is also expanding and was valued at TL 4.4 billion in 20147, up from TL 4.2 billion in 20128.

The industry’s rapid expansion is exemplified by the development of exports: from 2007 to 2013, broiler meat exports increased from around 25 thousand tonnes to slightly over 300 thousand tonnes, representing an increase of over 1 000 percent9. By international standards, Turkey is a competitive exporter of poultry products, particularly for its Middle Eastern neighbours. Moreover, growth in exports and domestic demand is likely to expand, given that poultry meat production is projected to roughly double by 2023, while egg production is expected to reach 30 billion eggs, or roughly 2 to 3 percent of the world’s aggregate egg production. However, Turkey relies on the countries of the Middle East for exports, particularly Iraq. This reliance on one dominant export partner, especially in a region with increasing levels of political instability, may pose substantial risks to the Turkish poultry industry. In addition, recent increases in customs meat taxes from Iraq – the largest recipient of Turkish poultry exports between 2010 and 2014 – have already begun to impede export flows.

Currently, poultry and eggs are considered the most developed part of the Turkish livestock industry due to the sophistication of public regulatory measures for the sector and the establishment of private quality assurance standards. The prevalence of packed and labelled poultry products over generic products amongst consumers reflects the relatively high standards of the industry, which were set following the food safety crisis from the avian influenza epidemic in 2006. Although the crisis incurred significant losses for the sector, the experience heightened consumer concerns over the safety and quality of poultry meat and egg products, leading private and public sector participants to improve their production practices and increase industry regulation.

Premium poultry products still at an early stage

With the 17th largest economy in the world, Turkey has become one of the largest upper middle-income countries, with an average GDP per capita of over USD 10 500 per year (in current USD) as of 2014. Over the last decade, rapid economic development and political stability have facilitated changing consumption and dietary patterns, translating into an increase of 68 percent in per capita egg consumption and 41 percent in per capita poultry meat consumption between 2004 and 2014. This rise brought yearly consumption of

7 For statistics from TURKSTAT 2014, please refer to: http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=18695.


9 Source: USDA, authors’ calculations. For more information, please see: http://www.fas.usda.gov/data/us-facing-competition-turkey-middle-east-broiler-meat-markets.


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eggs per capita up to around 193 units in 2014. Similarly, average poultry meat consumption reached 16.1 kg per capita in 2014, out of an average total meat consumption of 28.2 kg per year in Turkey (OECD-FAO)10. However, Turkey’s per capita annual poultry consumption is still lower than the EU average (21.6 kg) and other upper middle-income countries such as Brazil and Mexico, where annual consumption is estimated at 38.7 and 24.9 kg during the same year, respectively. Despite rising incomes, Turkey’s poultry consumption is expected to remain below the averages of other upper middle-income countries in 2024 according to projections from the OECD-FAO Agricultural Outlook. Although Turkey’s annual poultry consumption is projected to increase faster than Mexico or Brazil’s (reaching 18.86 kg per capita by 2024), Mexico and Brazil are still expected to stay at higher per capita consumption levels (respectively 28 kg and 42.3 kg).

Currently, the consumption of organic poultry products is on the rise, though the market share remains minimal at 0.29 percent for organic eggs and 0.09 percent for organic meat as of 2013. This trend may be accounted for in part by the relatively high price of organic premium products: organic eggs are sold at 2-3 times the price of standard eggs, while chicken meat is 4-5 times more expensive. As a result, the average Turkish consumer is likely unable to buy organic poultry products on a regular basis. In fact, a 2012 survey on egg consumption suggested that the market for organic eggs could increase only if organic egg prices were closer to conventional eggs11.

The low market share of organic poultry products is also the result of consumer uncertainty regarding the credibility of the premium poultry market. At the moment, consumers lack a clear idea of what organic products are. Additionally, despite the existence of organic certification agencies, labelling is not well regulated, allowing some producers to falsely advertise their products as organic. For example, an estimated 5-10 percent of eggs in the open market are sold as organic though they do not fulfil these conditions. In reality, only around 350 000 layers are under truly organic production (out of around 90 million in the country), the majority of which are located in eastern Turkey and under cage systems. As a result, although official government sources estimate that the market shares for organic poultry meat and egg products are both under 1 percent, the actual market share of organic poultry products (under both genuine and false labelling) being sold is higher. Producers of false organic poultry products generally charge slightly higher premiums for their goods than conventional egg market prices, enabling them to garner extra income. At the

10 This figure is the sum of average per capita consumption of beef, veal, poultry and sheep meat. Pig meat consumption is negligible at 0.03 kg per capita due to cultural reasons. Source: OECD-FAO Agricultural Outlook 2015.

11 Of the households that are aware of organic eggs (72.42 percent of respondents), 37.62 percent stated they are willing to pay 10 percent more for organic eggs, while 35.58 percent noted that they would pay 20 percent more and 17.82 percent said they would pay 50 percent more. However, 18.98 percent replied that they would not pay a higher price. For more information, see Mizrak et al. 2012.

same time, a lack of standardisation in today’s production also diminishes the image of the sector in the eyes of consumers12.

Despite these barriers, a premium market does exist for known and trusted brands. The growth of the premium market is inherently tied to increased consumer concerns about food safety and quality, which stems from the avian bird flu epidemic13. As a result, according to interviewed industry experts, retailers and producers, consumers have strong associations with brand names because they tend to trust specific brands for food quality and safety. Experts consider brand names the strongest attribute in determining broiler meat purchases, followed by date of expiry, undamaged pack, and colour and smell. Similarly, brand names played the largest role in determining egg purchases, followed by the cleanness of the eggs and the colour. At the same time, experts have noted that animal welfare does not appear to strongly factor into consumer preferences for premium poultry product purchases. Although consumers were found to have negative associations with current production practices and high concerns for over-crowding, they were not generally willing to pay more for improved animal housing. For example, respondents in Denizil expressed more concerns about production standards and conditions for farm workers as opposed to the animals.

An improved institutional environment with a lack of reliable organic labels

Turkey’s poultry sector is characterised by strong government involvement, particularly in the implementation and control of quality regulations. Following the outbreak of avian bird flu, the state stepped up efforts to implement legislation in line with EU regulations on issues such as laying hens and battery cages. The influenza epidemic was also a determining factor in the restructuring of the poultry sector, which is currently organised along the lines of two producer associations that control significant shares of the egg and white meat industries: the Turkish Egg Producers Association (YUM-BİR) and the Breeding Poultry Association (BESD-BİR).

Finally, the crisis was instrumental in spurring the development of local organic certification agencies. Specifically, private agencies follow EU certification schemes, ensuring that the organic production systems of accredited Turkish firms are in line with EU norms. More broadly, new private quality assurance schemes have been introduced to improve traceability, notably the ISO 9001 Quality Management system and the ISO 22000 Food Safety System Certificate, while some producers enjoy the accreditation of the Certificate of Pre-Permit

12 According to a 2012 survey of Turkish consumers, 67.11 percent of the participants believed public inspection of poultry meat production to be inadequate, versus only 23.87 percent who considered it adequate. For more information, see Durmus et al. 2012.

13 According to the study by Durmus et al. 2012, 41 percent of Turkish poultry meat consumers do not purchase poultry meat during disease outbreaks, and for a prolonged period after the outbreak is over.


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Export to the European Union. Rising standards and adherence to EU regulations have translated into increased competitiveness for Turkish egg exports to the EU, particularly as costs for Turkish egg farms are generally lower than their EU competitors. However, thus far the roll-out of these systems has not translated into reliable enforcement of free-range and organic labelling, which has dampened the development of the premium product market in Turkey.

EU regulations also inspired the adoption of Law No. 5199 in June 2004, which aimed to establish a parallel institutional framework on the protection of animal welfare and health to the corresponding EU Directives. However, industry representatives asserted that while animal protection and welfare regulations exist, adherence to the laws is not always achieved in practice as enforcement in this area is also weak.

Government regulation of the sector has improved over the last several years as authorities have worked to bring national legislation up to EU standards, and early warning, rapid diagnosis and intervention mechanisms have been established for avian bird flu14. However, several EU Food and Veterinary Office inspection missions conducted in recent years found that there was room for improvement in the implementation of control measures following the outbreak of avian influenza and Newcastle disease15. Additionally, industry experts reported that there is no national system to monitor and reimburse industry members in the event of a major outbreak of animal diseases. As a result, producers may prefer to hide cases of infected animals in their flocks due to uncertainty over whether they would be compensated for their losses.

In sum, there are a number of regulatory issues that may slow the development of the premium poultry products industry. In particular, producers hesitate from undertaking these investments because false organic labelling by conventional products could render investments in premium production unprofitable.

Consumers’ preferences for poultry products in Turkey diverge from trends in Europe

To estimate the willingness-to-pay (WTP) for premium poultry products amongst Turkish consumers, the authors used a mixed methods approach combining qualitative elements (interviews with sector experts and industry representatives, as well as consumer focus group discussions) and quantitative data collection through a WTP survey.

14 Republic of Turkey Ministry of Food, Agriculture and Livestock (2013), “Structural changes and reforms on Turkish Agriculture: 2003-2013”, p. 33.

15 European Parliament Directorate General for Internal Policies (2011), “Food Safety and Public Health Situation in Turkey”, pp. 22-24.

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consumer focus group discussions. A total of eight qualitative consumer focus group discussions were held in Istanbul and Denizli to represent metropolitan areas and smaller provinces. The focus group discussions suggested there is a perception amongst consumers that organic products provide higher nutritional benefits and carry lower health risks. Related to this is a growing societal understanding through the media of the health risks associated with poultry consumption, which has in turn encouraged some segments of the population to prefer organic products.

The discussions also highlighted that brand name was the most important factor when choosing poultry products. From the brand, consumers feel they better understand the quality of the meat, as well as the reliability of the product and adherence to safety and hygienic regulations, among other factors. Another finding of the discussions was that consumers want to better understand the sanitary conditions of the animals they consume, which could indicate a growing interest in organic products.

However, unlike European consumers, animal welfare is not a major consideration in poultry product purchases in Turkey. Although Turkish consumers feel that healthier animals create healthier products, most respondents were not willing to pay higher prices for animal welfare-friendly products.

Willingness-to-pay survey results indicate importance of brand name over animal housing attributes. The study included a market research survey to develop an understanding of consumer WTP for premium poultry products with data from March-May 2015. Respondents were sampled based on socio-economic status (SES) from residential areas within the seven regions of Adana, Bursa, Erzurum, Gantep, Konya, Manisa, and Samsun, and the three metropolitan provinces of Istanbul, Ankara, and Ismir. The target of the survey was adults aged 18-65 that are responsible for at least 50 percent of the household purchases of eggs or chicken meat (maximum one per household). With a total of 813 respondents for the egg survey and 804 for the chicken meat survey, participants took part in a computer assisted in-person survey (CAPI) based on an adaptive choice experiment interview flow. In this way, interviewers were able to benefit from more engaging, relevant interviews that directly incorporated non-compensatory decision-making, and could obtain strong individual-level estimates, among other benefits.

The WTP for premium poultry products was calculated using a Hierarchical Bayesian (HB) approach. The calculations were made using cluster membership variables related to animal welfare attitudes, SES, and geographical location (metropolitan areas vs regional), and were tested as categorical covariates in the HB model to allow for the identification of market segments.


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The cluster analysis identified four groups of respondents for chicken meat and three groups for eggs. For the results on the WTP for premium eggs, the strongest preference was revealed for the preferred brand. Other relatively strong preferences included:

• a label certifying the feed to be free from hormones, antibiotics and slaughter by-products

• sealed packages allowing for eggs to be visible through the package

• verification of regular controls

• access to a web-based system to allow traceability and accessing quality certificates

• pasteurisation and omega-3 enrichment

However, the WTP for enriched cages16 and the free-range housing alternatives was found to be negative, indicating that animal housing and associated welfare seems to be a relatively low priority for surveyed consumers making egg purchases.

The results for premium poultry meat were similar to eggs in that the preferred brand and the verification of food safety controls were the main drivers behind the WTP. There were also moderate levels of preference for:

• a label certifying the feed to be free from hormones, antibiotics and slaughter by-products

• certification of proper handling of animals during loading and unloading

Within this, only clustering by animal welfare attitude for the chicken survey significantly improved the fit of the HB model. Consequently, the authors found that amongst surveyed consumers, animal welfare concerns generally only influence the WTP for purchases of chicken meat, as opposed to eggs. More broadly, based on the findings of the HB model, it was concluded that it is unlikely that the WTP will differ considerably between SES classes and geographical location.

Market simulations confirm WtP findings, with particularly strong brand preference for broiler meat. For the purpose of predicting market choices, the estimated part-worth utilities for each respondent was calculated from the HB estimations in order to construct “market simulators” for eggs and poultry meat. This allowed for the prediction of relative choice outcomes for product concepts17 as well as for competitive scenarios18.

In this study, the market simulators were used for three strategic purposes: (i) to generate relative demand curves for each improved attribute level, (ii) to

16 See Annex 2 for details of this and other animal welfare-related terms. 17 A specified configuration of certain product attributes, including price level.18 For example, comparing the preference predictions for two or more alternative configurations.

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examine the competitiveness of each product attribute, and therefore how the product can be modified to capture more demand, and (iii) to examine which portfolio of the product could be offered to different market segments to maximise the probability of the market choice of product attributes.

The market simulation on eggs determined that the market is very price sensitive, which suggests that the price premiums are currently too high to attract a substantial share of consumers. In the view of the authors, these results are reasonable, given the relatively low average income of the Turkish population and the relatively high share of food expenditures19.

The presence of a preferred brand is the most important factor in consumer purchase decisions at the lower end of the product price range (TL 2.45-4 per 10 eggs). Within this price range, 55-60 percent of the respondents would opt to buy eggs with the preferred brand instead of eggs with no premium attributes.20. For higher prices, the importance of the preferred brand becomes less substantial but it is still the strongest influence on the predictions of market choice. However, according to the simulations, as prices for the preferred brand egg product increase, individuals become more likely to select the base product (i.e. the product with no premium attributes) at the lowest price. Additionally, when assessing demand for animal welfare attributes21, the results show higher demand for free-range housing systems in the lower price range, followed by a reversal in preferences at higher prices, albeit marginally. Consequently, respondents did not generally express an interest in paying for animal welfare attributes at higher price levels. Indeed, it was found that introducing only hormone-free feed, while keeping production in basic cages, would attract almost as much demand as a broader combination of animal welfare attributes.

Regarding the broiler meat simulations, it was found that the preferred brand attribute drew even higher relative demand than for egg products, meaning that the importance of the brand is more important for product differentiation in poultry meat purchases for surveyed respondents. Additionally, the attribute for the verification of regular governmental controls was distinct from the remaining attributes as the second most important attribute to predict product preferences. Beyond that, there is little distinction between the remaining attributes, including housing options for chickens and short transport times. On the subject of animal welfare, it was therefore found that feed free from

19 Additionally, evidence from more established organic markets such as Sweden suggests that as the organic product market evolves, prices for premium products will decline and become more economically competitive.

20 The premium attributes considered are: feed free from hormones; traceability; preferred brand; sealed package; product visibility; verification of control; pasteurisation; enrichment with Omega-3; free-range (no outdoor area), free-range (with outdoor area); large eggs, jumbo, yellow (brown) color; indication of egg laying date and expiry date.

21 The three attributes associated with animal welfare were: the use of free-range production with an outdoor area, the use of enriched changes, and the use of feed free of hormones.


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hormones and the certification of proper handling had the largest impact on demand.

However, it was found that for both eggs and broiler meat, a product configuration that included all attribute levels with positive WTP had a substantial potential to increase market demand. Taken together with the results of the WTP and consumer discussions, the findings suggest that there is potential for product optimisation that takes different combinations of premium quality features into account, and a possibility to establish a range of product feature combinations that should appeal to a broader base of consumers than the current market. The results also suggest that different portfolios of egg and broiler meat products appeal differently to market segments based on income, areas of living and household size. These aspects could be considered in product optimisation to make the products appeal to different groups of respondents.

Supply chain costs for improved quality and animal welfare standards limit producer expansion into organic production

In order to assess supply chain costs associated with developing new premium poultry products, this study includes the results of a series of in-depth interviews with technical experts and executive managers in the poultry industry. Interviews were held with six selected commercial egg and poultry meat producing companies in Izmir, Bandirma, Inegöl, Ankara and Çorum through contacts established through sales representatives of the poultry equipment firm Big Dutchman. Held over a period of 2-3 hours, the objective of the interviews was to generate relevant case studies of poultry product producers engaged in industry best practices. Firms were therefore asked a number of questions related to supply chain costs and market opportunities to develop an understanding of the profitability of premium poultry products.

Findings from the interviews highlighted that it is difficult to establish detailed assessments of the fixed cost structure of premium poultry investments in Turkey for two reasons. First, the actual cost for buildings and land may differ according to the geographical site and firm specific conditions. Second, most participants in the sector have little practical experience in implementing premium poultry product attributes, such as free-range and organic production.

According to the data collected, the supply chain for both large- and medium-scale producers is highly fragmented, further complicating estimates for potential production costs. However, a primary difference in the cost structure of medium- and large-scale producers is that the largest firms place a disproportionate amount of resources into developing their own brand labels for premium eggs. In contrast, medium-sized egg producers tend to market eggs through wholesalers or cooperative arrangements, signalling that there are substantial fixed costs involved in brand name development.

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As a result of these factors, larger firms are able to benefit more from perceived growth in the production and marketing of premium egg products. Larger firms will also be much more likely to benefit from EU market access, which would serve as a key market for organic egg producers due to the price premium in the EU for organic eggs. In contrast, smaller firms do not see the EU as a relevant market in the future owing to their size.

During the interviews, experts defined “organic” broiler meat as meat from an animal fed with no genetically-modified organism (GMO) feed, no growth hormones, and very little pesticide treatment in the cereals used for feed. Currently, it is difficult to purchase certified organic feed in Turkey, obliging producers of organic broiler meat to produce their own feed on the farm, which reduces the feasibility of large-scale commercial organic broiler production schemes.

The profitability of organic poultry is further reduced by less efficient feed conversion ratios of chickens that receive organic feed. Additionally, as of January 2016, a ban on the use of slaughter by-products in feed was expected to come into effect, which was projected to incur losses of USD 240 million to the Turkish economy from elevated costs of feed imports and environmental constraints, according to sector representatives interviewed in a 2015 report by the USDA. Although the ban has been postponed until January 2017 and may take at least five years to fully implement, operating costs for both poultry and egg production will increase an expected 3-4 percent as a result of this regulation.

The ban on the use of slaughter by-products and the difficulties in producing organic feed relate to the broader challenge of feed costs. Feed costs constitute between 50-80 percent of total operating costs in both egg and poultry meat production in Turkey, regardless of whether it is conventional or organic. Consequently, feed-related issues represent a primary obstacle to the profitability of organic poultry products.

Finally, both egg and poultry meat producers face constraints for organic production through the cost of veterinarians. Only the largest firms are able to afford their own veterinarians to perform the required routine check-ups and monitor biosecurity conditions, therefore smaller firm are obliged to share veterinarians with other producers, reducing the frequency of visits.

As a result of these factors, firms engaged in poultry meat exports are not as focused on trying to attract organic product consumers in EU markets. Rather, they are considering export opportunities in emerging markets for conventional broiler production under a low-cost scenario.

Taking these factors into consideration, large-scale poultry meat producers are not currently considering expansion into organic production due to the extra costs involved and the limited profits. Although organic egg production is more


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profitable relative to organic broiler production, both systems face a number of constraints, including feed costs and the difficulty of obtaining organic feed, higher costs for land, and limited regulation of organic product markets.

Returns from investing in improved poultry products further dampen appeal for organic production

This study outlines a number of possible investment scenarios for Turkish poultry and egg producers based on conventional and organic methods of production. For each scenario the investment in a new production house was modelled with the following characteristics: (i) layers in conventional cages, (ii) layers in enriched cages, (iii) layers in organic and free-range production, (iv) broilers in a conventional open floor system and (v) broilers in organic open floor production system. Different options for feed costs and prices were also factored into these scenarios, both for organic and conventional producers, considering that organic producers would be obliged to produce their own organic feed.

under uncertain market conditions, investments in conventional layer production offer the lowest risk. Regarding the first three scenarios considered (layers), the results show that all of the different poultry production types have the potential to generate positive net present values (NPVs). However, profitability varies considerably for each type of poultry production, depending on the egg prices and cost of feed.Under the ‘layers in conventional cages’ scenario, it was found that returns for conventional production can be quite substantial, provided that sales prices do not remain low. The results show that egg producers may very well achieve positive NPVs, provided that the 20-year average of feed prices stays below approximately TL 850 per tonne, or the 20-year average egg price is set at around TL 0.27 per egg or higher. Under enriched cages, an investment would likely deliver lower returns than in conventional cages option because of the higher initial investment costs. If egg prices remained low at TL 0.21 per egg -- and using the 11.5 percent discount rate -- production would only be profitable if feed prices also remained below TL 700 per tonne. Although returns would be notably better at egg prices around TL 0.25 per egg, production would not be profitable if feed prices reached over TL 950 per tonne. Nevertheless, overall production under enriched cage production can still theoretically be profitable with a combination of moderate egg prices and moderate to low feed prices.

Potential returns on investment are the lowest in the organic and free range egg production, due to the high costs associated with organic and free-range production and the relatively low number of birds that can be kept in one building compared to conventional cage production. Indeed, the organic system is only able to house around 20 percent of the birds housed in conventional cages. Based on the authors’ calculations, organic egg production can only be profitable under high egg prices of TL 0.6 per egg. Additionally, organic feed

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costs must remain at around TL 1 700 per tonne or below to remain profitable. In contrast, assuming egg prices of TL 0.4 per egg, producers would face negative returns, even at feed costs of only TL 1 000 per tonne. This supports the findings from the WTP survey that the costs associated with organic and free-range production may not necessarily be met by the prices that consumers are willing to pay.

returns on organic broiler production investments will not likely entice producers. The results for broiler production are similar to those of egg production. Under market conditions characterised by low meat prices, a conventional broiler producer investing in a new production house would experience difficulties in covering the full cost of production, particularly if feed prices reached TL 1 050 per tonne. For organic producers, a positive NPV can only be achieved at TL 15 per bird if feed costs remain fixed at TL 1 800 per tonne. As a result, it is unlikely that producers would invest in organic production facilities because the overall profitability is considerably lower than conventional production systems. This supports the findings of the WTP, wherein consumers exhibited a relatively low preference for improved housing for chickens. In summary, the scenarios suggest that conventional cage production or enriched cage production may provide by far the highest return to investment, especially if additional price premiums can be achieved, as possible through the development of premium brands, for example. Further investment towards improved conditions for broilers or laying hens, especially in terms of access to outdoor areas, would likely imply a significant rise in production fixed costs and has at the same time only very limited, if any market potential among consumers.

Thus, according to the results presented in this study, it is questionable whether Turkish poultry producers should undertake investment towards organic production with outdoor access, as is mandatory in the EU. Instead, investments towards the development of premium brand labels, based for example on the attributes of quality assured feed free from hormones, antibiotics and slaughter by products, appear to be most appreciated by consumers. However, there is currently no market in Turkey for certified organic feed, and no regular world market, which may slow the development of this category of premium poultry products. If Turkey were to establish regional markets for organic feed, for instance through contractual agreements between poultry producers and organic crop farmers, it might be feasible to decrease the feed cost significantly. This could very well provide an interesting investment opportunity for the establishment of premium poultry brands.


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Chapter 1 – introduction

This report examines the Turkish poultry meat and egg production industry and trends in production and trade. In particular, the study focuses on the development of premium poultry products and explores opportunities for greater market penetration of high quality poultry meat and egg products (especially animal welfare-friendly products) in Turkey. Through a detailed study on consumers in metropolitan and urbanised areas and on producers in the poultry meat and egg sectors, this study has a two-fold aim:

First, the business case for developing higher quality products with different attributes is examined through a consumer-oriented approach. This approach was taken because it is still unclear from the empirical evidence which premium product attributes are most important to Turkish consumers and what the market size and price premiums would potentially be for them. The successful commercialisation of competitive domestic products is likely to impact domestic market conditions. This study seeks to address an important knowledge gap by assessing the business case for developing higher quality products in the poultry meat and egg sectors in Turkey, and aims to provide lessons for other transition countries. This type of analysis has not previously been available and the results of this study are therefore relevant to the existing literature.

The results of this study are intended to assist the European Bank for Reconstruction and Development (EBRD) in its approach to assessing investment projects for the development of higher quality products (including animal welfare attributes) for selected food industries in transition countries. The report outlines the costs and expected returns from investing in new product lines and looks at the potential returns on investment for new production technology and premium products. This information is important because the adoption of improved quality practices and standards normally requires new investments and potentially higher costs for producers (due to lower production intensification, for example). These higher costs can be an obstacle for producers to invest in these practices in the first place. In the specific case of animal welfare, however, some of the existing literature has indicated the opposite: higher animal welfare practices have not necessarily resulted in higher operating costs for producers. In sum, it is important to understand the drivers behind the adoption of higher quality standards for specific producers through a comprehensive consumer preference and cost benefit analysis. The results support an eventual engagement in policy dialogue on potential improvements to the business environment that could facilitate investments in higher quality meat and egg products (including those with improved animal welfare practices) in Turkey, with possible lessons for other EBRD countries of operation.

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Secondly, there is a need for specific country-level studies because of differences in the development stage of various food chains, regional customs and industry characteristics. This study therefore allows for a detailed analysis of the preferences and economic prospects of premium livestock products and specific investment opportunities, while identifying particular transition challenges at the country level. Among the EBRD countries of operation, Turkey and its poultry meat and eggs sectors offer an interesting case for analysis. In Turkey, as with other transition countries, awareness regarding product quality attributes (including animal welfare practices and standards) was expected to still be immature, with national standards set at lower levels relative to the European Union (EU). However, previous studies on Turkey focusing on organic food and different consumer categories have identified promising willingness-to-pay (WTP) levels. Moreover, egg production in Turkey has already seen the arrival of some organic labels and there seems to be growing interest from the industry to adjust production systems. Besides the business case analysis, the results from this study include considerable public policy conclusions for Turkey, namely on rationale for different types of labelling systems, as well as regulatory issues regarding EU accession and sector development.

The report is structured as follows:

Chapter 2 provides an overview of Turkey’s poultry industry and production systems, which is followed by a discussion of trends in poultry meat and egg consumption in the country in Chapter 3.

Chapter 4 provides insight into the regulation of the poultry product sector, including for premium poultry products, and explores relevant regulatory improvements and constraints to sector development.

Chapter 5 draws on survey work, cluster analyses and market simulations to understand consumer purchasing habits and preferences and analyse WTP for different premium poultry product attributes, including animal welfare friendly attributes. These findings provide suggestions for consumer preferences in particular premium poultry attributes that could be useful in guiding the development of such products.

In Chapter 6, the prospective costs of developing and implementing premium poultry products into Turkish poultry meat and eggs supply chains are evaluated based on in-depth interviews with technical experts and executive managers of selected commercial egg and poultry meat producing companies in Turkey that reflect best industry practices.

Chapter 7 presents calculations of potential returns from investing in improved quality/animal welfare products. Based on the results and data collected under previous sections, potential investment and operating cost implications


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associated with compliance with different quality and welfare standards (both for potential export and local markets) are assessed. Next, the sensitivity of these calculations is assessed with respect to key parameters, namely output price premiums and feed cost. In addition, further investment risks are presented and discussed for different investment alternatives.

Finally, Chapter 8 concludes with a discussion on market prospects and governance and their implications for producers and investments, as well as premium market development and related policy issues and recommendations.

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Chapter 2 – Overview of Turkey’s poultry industry and its production systems

Summary

• In 2013, agriculture accounted for almost one-fourth of Turkey’s total employment, while its share to GDP was 7.4 percent. Poultry production ranks as the third largest livestock sector in Turkey and around 2 million people make their living in the poultry sector.

• The majority of the Turkish broiler meat and egg (in shell) production is supplied by modern enterprises. Commercial broiler and turkey facilities account for 93 percent of total production.

• Producers import genetic material, which has had an important impact on the development of poultry-related industry branches, cage building and equipment, vaccine/drug manufacturing, etc. Today’s poultry production is therefore technically equivalent to that of leading European producers.

• The Turkish poultry sector underwent re-structuring following the food safety crises that resulted from the avian influence epidemic in 2006. Public regulatory measures for food safety were taken to promote structural changes in the sector; and private quality assurance standards, including product traceability systems, were enacted.

• Currently, feeding costs account for 50-80 percent of total production costs in poultry farming. Therefore, feed quality and its price level has a direct impact on production costs, and in turn, an indirect impact on export and consumption levels.

• In Turkey, the production of poultry meat has increased 670 percent since 1995, while the increase in cattle meat has tripled. Lower prices of broiler meat in relation to red meat have contributed to this development.

• Turkey’s exports of broiler meat and eggs have quadrupled from 2010-2014. Turkey has been unable to export meat and egg products to the European Union because most of its products do not meet the relevant animal health standards. Instead, the Turkish poultry meat exports are concentrated in the Middle East region and to Iraq in particular. However, in the last few years, a few large-scale Turkish egg producers have obtained licenses to export to the EU.


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The Turkish agricultural sector and livestock production

From the late 1960s to 2014, the share of agriculture in Turkey’s GDP declined from 40 percent to 8 percent, reflecting growth in other economic sectors and the relative reduction in agricultural value added. Despite this fact, agriculture remains an important source of employment in Turkey, providing jobs to over 20 percent of the Turkish workforce, or 6 million people in 201322. The industry also generates considerable export growth: with a value of over USD 16 billion in 2013, Turkey’s agricultural exports have more than tripled in value between 2002 and 2013, posting export growth rates close to three of the fastest growing agricultural exporters in the world: India, China and Ukraine23. By 2023, Turkey aspires to become one of the five largest agricultural producers in the world24.

The poultry sector in Turkey

Within the agricultural sector, animal production is a driver of economic growth, with production valued at TL 106.8 billion in 2014, up 8.9 percent from 2013. In particular, the production of poultry products has expanded considerably over the last decades and provides employment to an estimated 2 million people25. Between 2005 and 2013, poultry meat production increased 87.7 percent from 936 697 tonnes to 1 758 363 tonnes, while egg production expanded 36.9 percent from over 12 billion to nearly 16.5 billion eggs (see Figures 1 and 2)26. These figures placed Turkey as the tenth largest global producer of chicken meat and hen eggs in 201327.

22 Taken from the Turkey: Water along the food chain report available from the FAO Investment Centre.23 Source: USDA, GTA. For more information, see: http://www.fas.usda.gov/data/turkish-agricultural-

exports-continue-surge.24 http://www.invest.gov.tr/en-US/infocenter/publications/Documents/FOOD.AND.AGRICULTURE.

INDUSTRY.pdf.25 According to BES-BiR approximately 2 million people (including producers, farmers, tradesmen,

feed industry, transportation, medicine and subsidiary industry, marketing) make their living in the poultry sector. For more information, see: www.besd-bir.org/assets/documents/sectorInformation/Poultry_Producers_in_Turkey_1.pdf,2014.

26 Source: TURKSTAT. For more information, see: http://www.thepoultrysite.com/reports/?id=4060.27 According to FAOSTAT data, Turkey produced nearly 2 percent of the world’s chicken meat and around

1 percent of the world’s hen eggs in 2013. Source: Author’s calculations based on FAOSTAT data.

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Figure 1: Chicken meat production in Turkey, 2005-2013

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2 000 000

2005 2007 2009 2011 2013

tonn

es

Source: TURKSTAT, USDA.

Figure 2: Egg production in Turkey, 2005-2013

0

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

14 000 000

16 000 000

18 000 000

2005 2007 2009 2011 2013

thou

sand

s

Source: TURKSTAT, USDA.


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According to TURKSTAT data, in 2014, poultry production ranked as the third largest livestock sector in Turkey, valued at TL 3.7 billion, up from an annual value of TL 3.3 billion in 2012. In this regard, poultry production values are lower than bovine animals and sheep and goats, worth TL 40.6 billion and TL 17.9 billion in 2014, respectively. Egg production is also expanding and was valued at TL 4.4 billion in 201428, up from TL 4.2 billion in 201229.

The transformation of the Turkish poultry industry

The establishment of the Central Poultry Research Institute in 1930 was the first step in the development of a Turkish poultry industry. There were, however, few developments in the industry until 1952 when chickens of pure pedigree races such as New Hampshire, Plymouth Rock and Leghorn started to be imported by affiliates of the Ministry of Agriculture from the United States. Following the establishment of YEM Sanayi T.A.Ş, the Turkish Feed Industry Corporation, in 1956, rational feeding conditions for the imported breeds became available (Akbay et al., 2000) and genetic culture studies on those breeds then made it possible to obtain higher productivity levels within Turkish poultry production.

The import of hybrid adults in 1963 was an important additional step in developing a viable production industry. Import of adult birds was then permitted in 1980. Providing new genetic material via import also had an important impact on the development of poultry-related industry branches, cage building and equipment, vaccine/drug manufacturing, etc. On the other hand, cultural refining studies on domestic hybrid races became emphasised as of 1968 for avoiding import dependence in poultry farming. As a result of those studies, domestic white and brown coloured egg-laying and broiler breeds were developed. However, the domestic breeds were not considered competitive breeds against foreign-based genetic material in terms of productivity (Akbay et al., 2000).

The accelerated development of Turkey’s poultry industry was encouraged in part by the reorganisation of production practices over the last few decades. Poultry farming has been a progressive production branch within the Turkish livestock business since the early 1970s. Although poultry production at that time was performed by small family businesses with high levels of unit costs, the establishment of integrated facilities shifted the sector towards contractual production in the 1980s. The numbers of modern production facilities and their capacities increased rapidly in the 1990s. The average annual growth rate of poultry production was as high as 14.4 percent between the 1990-2000 (Çiçek ve Tandoğan, 2007). According to BES-BiR30, approximately 2 million



30 www.besd-bir.org/assets/documents/sectorInformation/Poultry_Producers_in_Turkey_1.pdf,2014.

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people (including producers, farmers, tradesmen, and members of the feed, transportation, marketing, medicine and subsidiary industries) make their living in the poultry sector.

Table 1 shows the structure of Turkish poultry production in terms of number of registered enterprises and building units. In the last nine years, the number of registered enterprises has decreased by 20 percent. However, the number of building units for breeding and broilers has increased, following a trend of increasing concentration of layer production into larger building facilities. Furthermore, the poultry sector is the most developed part of the Turkish livestock industry and the emerging large-scale integrated structure has been recognised as an important factor to overcome production and price fluctuations (Ünlüsot et al., 2010).


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Table 1: Structure of poultry production, 2006-2014

Year hatchery Breeding commercial broiler

commercial layers total

2006 Number of holdings 82 238 8 899 1 304 10 523

Number of

production units (PU) - 1 445 11 020 3 284 15 749


Number of PU - 1 507 11 263 3 289 16 059


Number of PU - 1 548 11 543 3 059 16 150


Number of PU - 1 586 11 350 3 120 16 056


Number of PU - 1 657 11 623 3 162 16 442


Number of PU - 1 769 12 227 3 044 17 040


Number of PU - 1 949 12 852 3 243 18 044

2013 Number of holdings 80 322 9 444 944 10 840

Number of PU - 2 086 13 505 3 103 18 694


Number of PU - 2 086 14 360 3 141 19 378

Source: Ministry of Food, Agriculture and Livestock.

Figure 3 shows the monthly production of chicken meat since 2010. Poultry meat (broiler) production in Turkey exhibits seasonal dependence with the highest levels of demand during summer seasons due to lifestyle reasons (broiler meat is a popular component of barbecues). In addition, the intensive tourist season during that period is another factor that accounts for this increase. Lower prices of broiler meat in relation to red meat have also contributed to increased demand. Poultry meat demand typically decreases in October and November due to consumption substitution with red meat during the Eid al-Adha festivities. The results show an increase in production over the five-year period, independent of seasonal variations.

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Figure 3: Monthly production of chicken meat, 2010-2014

Source: TURKSTAT.

Today, broiler production in Turkey is concentrated in the north-western and western regions (Figure 4), while egg production is primarily based in the west and central-south (Figure 5). This is due to the close proximity to consumers and to seaports from where raw materials for feed come. Climate conditions also play an important role: the mountainous eastern region and hotter south-eastern region of the country are not suitable for poultry farming. However, most of the provinces located in Central Anatolia have favourable conditions for the production and a limited number of farms have been observed.31

31 ipard.tarim.gov.tr/Ayarlar/mevzuat/IPARDProgram.doc.


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Figure 4: Main locations and quantity of broiler production firms and bird density in Turkey

Source: YUMBİR.

Figure 5: Main locations and quantity of layer egg production firms and bird density in Turkey

Source: YUMBİR.

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As a result of the reorganisation of the sector in the 1980s and 1990s, the majority of the Turkish broiler meat and egg production is supplied by modern enterprises. Commercial broiler and turkey facilities account for 93 percent of the total production in terms of quantity. The 29 member companies of the Breeding Poultry Association (BESD-BİR) supply 91 percent of the total production of chicken and turkey meat, hatching broiler eggs and day-old chicks in Turkey. While most of the villagers in rural areas (35 percent of the total population) keep backyard poultry (around 20 million birds or 3 percent of the total poultry population), they primarily produce for family consumption, and their products are narrowly marketed in the main consumer outlets.

Figure 6 shows the production of hen eggs per year since 1995 in Turkey. Even though egg production has generally enjoyed a considerable growth rate in Turkey, it temporarily declined during the economic crisis experienced in 2001 and the global avian influenza epidemic in 2006.

Figure 6: Number of eggs produced in Turkey, 1995-2014

Source: TURKSTAT.

Note: Egg production in villages is excluded starting from 2010.

Figure 7 shows the annual production of poultry meat since 1995. Poultry meat production trends reveal a substantial increase in quantity, reaching a level of nearly 1.8 million tonnes as of 2013, rising from 282 000 tonnes in 1995. Similar to the developments in the egg sector, meat production experienced slight


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decreases in 2001 as well as in 2006. The post-2006 development of the sector should be understood in light of changes introduced following the food safety crisis caused by avian influenza. Public regulatory measures for food safety were taken to promote structural changes in the sector and private quality assurance standards including product traceability systems were enacted. Even though the disease caused huge losses for the sector, it led to higher consumer awareness towards packed and labelled products of integrated facilities. Although generic poultry products saw growth in the pre-avian influenza period, market shares declined after the crisis, as packed and labelled poultry products gained market dominance and sales volumes of integrated facilities dramatically increased.

Figure 7: Production quantity of poultry meat, 1995-2013

Source: TURKSTAT.

Currently, feed costs account for 50-80 percent of total production costs in poultry farming. Feed costs have increased more than egg prices over the last seven years (egg prices increased by 42.3 percent, while feed costs increased by 84 percent)32. Feed quality and price level have a direct impact on production costs, and in turn, an indirect impact on export and consumption levels. Turkey is one of the countries where poultry feed costs are the highest as it is highly dependent upon imports of raw materials such as corn, soy pulp, fish powder, etc. for manufacturing poultry feed (Akbay et al., 2000). The world market increase in prices of soy, corn and other raw materials in 2012 therefore led to economic losses in the Turkish poultry sector (Şenköylü ve Karakuş, 2014).

In Turkey, like in the rest of the world, poultry meat is a good source of animal protein at a relatively low price. From 1995 to present, the production of poultry meat has increased more rapidly than the production of other meat types such

32 http://www.yum-bir.org/UserFiles/File/yumurta-verileri2013.pdf.

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as cattle, sheep and goat. The relative developments of meat production in Turkey are shown in Figure 8. The annual production of poultry has increased more than six times from the base year in 1995 to 2013.

Figure 8: Meat production index, 1995-2014

Source: Authors’ calculations based on TURKSTAT.

Note: 1995=100. The increase in cattle meat production after 2010 is due to a change in the estimation method used by TURKSTAT (home slaughter is accounted for after 2010).

Foreign trade 33

The industry’s rapid expansion is exemplified by the development of exports: from 2007- 2013, broiler meat exports increased from around 25 thousand tonnes to slightly over 300 thousand tonnes, representing an increase of over 1 000 percent 34. By international standards, Turkey is a competitive exporter of poultry products and its export improvement is significant in comparison to other major exporters (Table 3). According to a USDA (2014) report, the Middle East remains the world’s largest regional

33 Exports of poultry products from Turkey are promoted by the poultry advertising group Turkey, KTG (www.turkishpoultry.com). KTG is financed through an export tax that consists of a small percentage of total export value. This fee is currently below 1 percent of export sales. The group frequently invites poultry producers from Turkey to travel to current or prospective destinations for exports in order to see what the markets in export destination countries looks like, and what the buyers there expect. KTG is a governmental institution that is staffed with representatives of the poultry industry.

34 Source: USDA, authors’ calculations. For more information, please see: http://www.fas.usda.gov/data/us-facing-competition-turkey-middle-east-broiler meat-markets.


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importer and Turkey’s broiler exports have increased due to greater demand from this region, at the expense of exports from Brazil, the EU, and the United States. In addition, the supply of halal meat from Turkey is desired or essential in many of the Middle Eastern markets. Moreover, growth in exports and domestic demand is likely to expand, given that poultry meat production is projected to roughly double by 2023, while egg production is expected to reach 30 billion eggs, or roughly 2 to 3 percent of the world’s aggregate egg production.

Box 1: The normalised revealed comparative advantage index

Since the introduction of the Balassa index, several attempts have been made to develop a revealed comparative advantage index that would revolve around a stable mean with a symmetrical distribution across products, countries and time. Recently, the normalised revealed comparative advantage (NRCA) index has been suggested by Yu et al. (2009) to serve this purpose. The NRCA index is computed according to the following equation:

In this index, country i’s export of commodity k is given by

. The total world export of all commodities combined is Xwt. The total export of country i is defined as . The total world export of commodity k is

. Dividing the NRCA index further by a

constant of 0.25 transforms the index into a range from -1 to 1, where 0 indicates the comparative advantage neutral reference point and index values >0 and <0 correspond to a comparative advantage and disadvantage, respectively.

The mean and sum in the NRCA of a country or a commodity are constant and equal to zero respectively. The logic of the index is that a country can gain comparative advantage in some commodities only by losing comparative advantages in other commodities, and each country or each commodity (considered at world trade level) are comparative-advantage-neutral, while no country can have a comparative advantage or a comparative disadvantage in all its traded commodities (Yu et al., 2009, pp. 271-272).

Given that the index is based on observed trade flows, it implicitly incorporates all existing trade barriers, subsidies, non-tariff measures and other trade costs. The index thus provides a realistic assessment of the relative competitiveness of industries from different countries over time. However, it is not possible with this methodology to assess how any of these trade barriers may have influenced the comparative advantage of a country’s industry.

The normalised revealed comparative advantage index (NRCA) is a measure of the degree to which the export of a commodity from a country deviates from its comparative advantage-neutral level relative to the world export market. A positive number indicates that they export is higher than the comparative advantage neutral level. Figure 9 shows the NRCA index by product categories. According to the NRCA index, Turkey has a projected comparative advantage in the export of poultry meat and eggs. There are presently no databases available to allow for a country comparison of NRCA indices.

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Figure 9: NRCA trends projected for Turkey in 2015 based on 2007-2014

-0,04 -0,02 0,00 0,02 0,04 0,06 0,08 0,10 0,12

Food wastes and prepared animal feedSheep, live

Residues of starch manufactureMeat of bovine animals, frozen

Poultry, live (i.e. fowls)Meat of sheep, fresh/chilled

Meat of goats, fresh, chilled/frozenHay and fodder, green or dry

Coffee, tea, cocoa, spicesGoats, live

Cheese and curdBovine animals, live

Butter and other fats and oilsMeat of bovine animals, fresh or chilled

Fruit juices (including grape must)Live animals, n.e.s.

Edible offal of bovine animals, frozenBeverages and tobacco

Bran, sharps and other residuesMeat and edible meat offal, fresh

Meat and edible meat offal, preparedMilk and cream and milk products

Sugars, sugar preparations and honeyFruit, preserved, and fruit preps

Birds' eggs, in shell, fresh, preservedFish (not marine mammals), crustace

Meat and edible offal of the poultryVegetables, roots and tubers, prepared

Vegetables, fresh, chilled, frozenMiscellaneous edible products

Cereals and cereal preparationsFruit and nuts (not including oil)

Source: Authors’ compilation based on HS rev. 4 nomenclature.

Note: All products are abbreviated categories or sub categories of this nomenclature and do not overlap. The following HS categories for which the NRCA index is zero are not displayed: birds’ eggs, not in shell, and egg; edible offal of bovine animals, fresh; meat and edible meat offal, salted; oil-cake and other solid residues; egg albumin; meat of sheep, frozen; edible offal of sheep, goats, horse; flours, meals and pellets, of meat; horses, asses, mules & hinnies; edible offal of sheep, goats, horse. n.e.s.=not elsewhere specified.

As a result of Turkey’s comparative advantage in poultry product production, the USDA estimates that Turkey’s broiler meat exports will reach 618 thousand tonnes by 2023 (USDA ERS International Baseline Data).


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Table 2: Worldwide broiler meat export, thousand tonnes

countries 2010 2011 2012 2013 2014*

Brazil 3 272 3 443 3 508 3 482 3 625

European Union 934 1 044 1 094 1 083 1 105

Thailand 432 467 538 504 580

turkey 110 206 285 362 440

China 379 423 411 420 415

Argentina 214 224 291 324 355

Ukraine 23 43 76 141 170

Canada 147 143 141 150 155

Belarus 38 74 105 100 115

Chile 79 90 93 88 91

United States 3 067 3 161 3 300 3 340 3 425

Others 173 219 248 243 289

Total 8 868 9 537 10 090 10 237 10 765

Source: USDA (2014).

Note: 2014 data is expected data. Chicken feet are excluded.

Turkish exports of poultry meat are concentrated in the Middle East, and Iraq in Particular (Table 3). Over the last five years, China, the Russian Federation and Syria have become more important countries for exports, while the share of exports to Iran and the Turkic countries such as Azerbaijan have decreased. Although Iraq was the largest recipient of Turkish poultry exports between 2010 and 2014, a recent customs tax in Iraq poses a substantial risk to Turkish broiler meat exports. The new tax was enforced in northern Iraq at the end of February 2015, and obliges Turkish exporters to pay USD 290 per tonne of exported chicken meat, replacing the earlier tax of USD 35 per tonne. This may lead Turkish producers to diversify away from exports to Iraq.

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Table 3: Share of Turkish export of poultry meata to main exporter countries, 2010-2014

Year 2010 2011 2012 2013 2014

Iraq 0.591 0.639 0.666 0.705 0.647

China, Hong Kong SAR 0 0.052 0.029 0.054 0.082

Russian Federation 0 0.001 0.001 0.005 0.036

Syria 0 0.001 0.002 0.036 0.034

Libya N.A. 0.053 0.053 0.036 0.033

Iran 0.045 0.047 0.081 0.018 0.003

Turkic countriesb 0.057 0.039 0.028 0.02 0.016

Others 0.307 0.168 0.14 0.126 0.149

Source: UN Comtrade Database.

a Meat, edible offal of domestic poultry. HS 0207 (as reported) commodity code.b Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan.

Turkey is also ranked among the largest egg exporting countries (in value terms) in the world (Table 4). According to data from YUM-BiR in 2013, the share of exports in total production reached 26.4 percent in 2014, up from 11.8 percent in 2008.

Table 4: Value of egg exports among main egga exporter countries, 2010-2014, USD millions

countries 2010 2011 2012 2013 2014

Netherlands 811.2 826.0 914.5 1 002.0 975.7

USA 245.9 290.3 343.6 461.9 472.1

Turkey 156.2 284.1 350.5 406.2 402.0

Germany 231.8 246.5 275.8 272.7 328.3

Poland 189.8 205.9 301.1 283.8 276.5

France 194.5 163.3 176.8 174.6 193.7

China 127.1 157.9 155.6 156.2 173.2

Spain 170.7 137.7 154.3 175.9 171.7

Belgium 132.2 117.2 141.5 158.4 159.7

United Kingdom 62.3 65.8 76.3 124.3 145.7

Malaysia 103.4 126.8 134.2 136.8 145.4


a Eggs, in the shell, fresh, preserved or cooked. HS 0407 (as reported) commodity codes.


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The Turkish export of eggs is even more concentrated to the neighbouring region and to Iraq in particular than the export of poultry meat (Table 5). Over the last five years, exports to Syria have been volatile.

Table 5: Share of Turkish egg exports to main egga exporter countries, 2010-2014

Year 2010 2011 2012 2013 2014

Iraq 0.696 0.746 0.920 0.887 0.809

Syria 0.194 0.022 0.003 0.029 0.083

Israel 0.046 0.021 0.021 0.025 0.046

Azerbaijan 0.030 0.039 0.023 0.023 0.035

Others 0.034 0.172 0.033 0.036 0.027


a Eggs, in the shell, fresh, preserved or cooked. HS 0407 (as reported) commodity codes.

Turkey has been unable to export meat products to the EU for many years. Under EU rules, third-party exporters must fulfil the relevant animal health standards in order to export food products to EU Member States. However, approval of Turkey’s residue monitoring program has paved the way for Class B and liquid egg exports to EU countries, with Greece being the first EU country to receive Class B egg exports (Pala, 2012).

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Chapter 3 – Trends in quality poultry meat and egg products in Turkey

Summary

• Per capita poultry meat and egg consumption in Turkey has increased substantially from 2004 to 2014, although poultry meat consumption per capita is still low when compared with the OCED or EU country averages.

• Interviews with experts from poultry meat and eggs industry associations, retailers and/or producers revealed that the concept of premium products refers only to egg size or to organic and free-range on the production side. From a food processing perspective, the following attributes defined premium products: hygiene, packaging and ensuring an unbroken cold-chain distribution, and government approval of products.

• The product range available in supermarkets and grocery stores is wide and spans from the most basic meat and egg products to distinctively differentiated products (organic, natural, low cholesterol, omega-3 enriched, etc.). There are substantial price premiums for more differentiated products with the highest mark-ups noted for organic products. The market share for organic products is however very low.

• At present there is a race-to-the-bottom for production costs due to strong market concentration, and the fact that the majority of production is within large-scale production systems.

• There is a lack of sufficiently documented, controlled and verified stages of production and a lack of transparency leading to low trust and misconceptions about modern production systems. Still, the current governmental system for production and food safety control has contributed to promoting product quality.

• Interviews with consumers indicated which product attributes are determinant in eggs or broiler meat purchases. The findings include: – Meeting the Halal criteria is an overarching requirement; – The concept of organic poultry products is not widely known and the concept of animal welfare is mainly understood in relation to a natural environment leading to healthier products and human well-being. Hence, there is apparently little concern about the conditions for the animals;

– Consumers seem to place great importance on food safety issues and do not always trust producers, production systems and enforcement of regulations. In such a context consumers tend to stick to brands they trust;


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– Consumers revealed strong support for national egg and broiler meat, and perceived domestic producers to be more reliable, maintaining higher feed quality, and offering higher levels of product freshness.

This section provides a short sector overview of poultry product consumption trends including key labels and product types, as well as the evolution of the organic market segment. It also provides a review of findings from qualitative research with consumers, retailers and producers of key trends and issues in the Turkish poultry sector with a particular focus on identifying trends in demand for specific product attributes.

Brief overview of poultry product demand in Turkey

Poultry meat and egg consumption

In Turkey, rapid economic development together with political stability over the last decade has led to changing consumption and dietary patterns (Yavuz et al., 2013). Per capita meat consumption, particularly in poultry meat, has increased substantially: between 2004-2014, poultry meat consumption increased by 62.3 percent, bringing annual consumption to an average of 16.1 kg per capita in 2014 (which compares to a 27.5 kg per year average for OECD countries [OECD-FAO Agricultural Outlook, 2015]). Similarly, per capita egg consumption in Turkey increased by 168 percent between 2004 and 2014 and was estimated to be around 193 units per capita in 2014 (including village eggs) (Yum-Bir). In this regard, Turkish per capita egg consumption is higher than a number of European countries: in 2012 an average of 175 eggs (in shell) were consumed per capita in Sweden, while per capita consumption was 120 eggs in France. This can be attributed to a number of factors, including a decline in domestic egg production and the fact that higher incomes may facilitate access to a diet with more diverse sources of protein.

In contrast, Table 6 shows that despite the strong increase in meat consumption per capita in Turkey, intake remains lower than that of developed countries in general and the EU average. In fact, Turkey’s poultry meat consumption per capita does not reach 60 percent of the OECD country average (with similar trends for beef and veal). Moreover, total per capita meat consumption is even lower, at around 43 percent of the OECD and EU averages. However, poultry meat in Turkey is more important than total meat consumption given the absence of pork meat in the Turkish market: the poultry meat share in total per capita consumption in 2014 was 57 percent of total meat consumption, relative to an average of only 33 percent in EU countries. In Turkey, other sources of meat are also important, namely lamb, mutton and goat, which account for 14 percent of total per capita annual meat consumption.

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Table 6: Average meat consumption per capita (kilograms) in selected countries and Turkey, 2014

country Beef and veal Pork Poultry other

Argentina 41.6 8.7 35.1 1.2

Australia 21.6 20.1 39.6 9.0

Brazil 27.0 11.9 38.7 0.4

Canada 18.0 17.1 33.1 0.9

China 3.6 32.0 11.4 2.8

Egypt 10.8 0.4 10.8 1.5

EU (28) 10.5 30.9 21.6 1.9

Iran 3.5 0 22.4 3.4

New Zealand 14.5 16.4 36.3 5.5

OECD-total 14.0 21.9 27.5 1.4

Russian Federation 12.9 20.2 26.6 1.2

turkey 8.3 0 16.1 3.8

Ukraine 7.0 15.5 23.4 0.4

United States 24.5 20.7 44.5 0.4

Vietnam 9.6 28.8 12.7 0.1

Source: OECD-FAO Agricultural Outlook 2015.

High levels of broiler meat consumption are also understood to be a result of elevated red meat prices in recent years, which are above the world average according to FAO data. Figure 10 shows the development of consumer prices in real terms for meat and eggs in Turkey and highlights the large price differences between poultry meat and red meat35. While other red meat sources can be important, beef is likely to continue to be the main source of red meat in Turkey - and with expected per capita income increases, domestic demand should continue to increase (Yavuz et al., 2013).

35 The significant price difference between poultry meat and red meat can be accounted for by a number of factors, including relatively high red meat domestic production costs and customs tariff levels for live cattle and red meat as compared to live chickens and poultry meat. For example, in 2014, Turkish customs tariffs for live cattle, cattle meat, live chicken and poultry meat were 150 percent, 250 percent, 75 percent and 100 percent, respectively. For more information on red meat production costs in Turkey, please see the Turkey: Water along the food chain report available from the FAO Investment Centre.


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Figure 10: Consumer prices for meat and eggs, 2005-2014

Source: TURKSTAT, agricultural structure.

Note: Prices for chicken meat are not available for 2013-2014. Prices are in real terms (deflated using the consumer price index) with 2005 as base. 16 eggs=1 kg.

Despite rising incomes, Turkey’s poultry consumption is expected to remain below the averages of other upper-middle income countries in 2024 according to projections from the OECD-FAO Agricultural Outlook. Although Turkey’s annual poultry consumption is projected to increase faster than Mexico or Brazil’s (reaching 18.86 kg per capita by 2024), Mexico and Brazil are still expected to stay at higher per capita consumption levels (respectively 28 kg and 42.3 kg).

Evolution of the organic market

With an annual production of 40 million eggs, the organic eggs market has expanded considerably in Turkey over the last several years. Between 2010 and 2013, the market share of organic eggs doubled, though it remains small at 0.29 percent. The market share for organic meat also increased 33 percent during the same period, rising to 0.09 percent of the market by 2013.

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Figure 11: Organic egg production and market share, 2010-2013


Figure 12: Organic chicken meat production and market share, 2010-2013


All organic poultry production and processing operations, including slaughter plants and egg handling facilities, must be certified based on an accreditation from certification agencies working under authorisation from the Ministry of Food, Agriculture and Livestock. Certification schemes are the same as in the EU, and checks take place by private certification agents in a similar manner to the EU.

Despite the existence of these certification agencies, it is estimated that 5-10 percent of eggs in the open market (mainly rural-based markets)36 are falsely sold as organic (Ceylan, 2015). Interviews with industry representatives suggest that village eggs, and to a lesser extent poultry meat, are sold in

36 Organic egg and chicken meats are, however, mainly sold through modern sales channels, namely hypermarket and supermarkets, as well as gourmet stores.


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local bazaars as organic products. A driving force behind this is the perception among some consumers that village eggs or poultry meat are healthier and are qualified to be labelled as organic. Consequently, all egg producing firms interviewed shared concerns about the weak enforcement of organic labels on eggs and poultry products.

This misconception reflects a wider problem within the sector about the characteristics of organic products. Based on six in-depth interviews with experts from poultry meat and eggs industry associations, retailers and producers (see Annex 1 for details), it was concluded that there is currently no clear unified definition of a premium product in the Turkey market. Moreover, the existing controls are insufficient to enforce regulations of organic poultry products. According to the industry experts, the main premium product definitions used by the industry relate to:

• organic and free-range products

• packaged products

• products that produced in government officials approved facilities

• products that are hygienically produced and distributed within the cold chain

• XL/jumbo size for eggs

These definitions are not well understood by consumers, thus posing an additional obstacle for the development of certified organic eggs. In reality, only about 350 000 layers are currently produced under truly organic conditions, all of which are located in eastern Turkey. This organic production still takes place in conventional cages, though by the year 2023, all cages will be obliged by law to be converted to enriched cages. Excluding the use of conventional cages, however, production and sanitary regulations for organic eggs in Turkey are otherwise close, though not identical, to EU standards (Sungur, 2015).

Poultry product typologies and pricing

Figure 13 illustrates that there is a rather extensive variety of packed egg products at grocery stores in Turkey. The development of the sector can be demonstrated by the variety of packaging and products offered in the market.

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Figure 13: Typical egg products available in grocery stores

Source: Migros, Carrefour.

Figure 14 shows the types of poultry products available in grocery stores. Organic and Free-range chicken meat was considered as premium products by the interviewees. Additional products found in the grocery stores but not shown in Figure 13 were “baby chicken”, “free-range chicken”, and “bio chicken (without antibiotics)”.


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Figure 14: Types of poultry products available in grocery stores

Source: Migros, Carrefour.

Turkey has more than 100 percent self-sufficiency in poultry products and therefore the market price for eggs is determined through exports, with the egg exchange market functioning as the main price determiner for standard eggs in the country.

Table 7 shows egg prices observed in grocery stores in July 2014. There were substantial differences in prices according to product characteristics, with mark-ups for organic eggs being as high as 2.9 times the price of the most basic product. Indeed, prices for organic eggs are generally 2-3 times higher than conventional eggs from caged systems. According to the interviewed industry experts, known and trusted company names and brands of eggs are imperative for generating price premiums. Currently, the main organic egg and chicken meat producers are Umut Tavukculuk (its brands are Flotty, Dogalım and Green ranch), Keskinoglu, Ay-bir (brand name is Yeşil Küre) and CityFarm.

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Table 7: Prices of premium eggs in grocery stores

type Brand Price for 10 pcs

Standard Kumbasar 10’lu Yumurta, 53-62 gr TL 3.75

Classic jumbo Keskinoğlu Süper Yumurta 10’lu, 63-72gr TL 4.75

Free-range Green Ranch M Boy Yumurta 10’lu, 53-62 gr TL 4.95

Natural with selenium Kumbasar Selenyumlu Yumurta 10’lu, 53-62gr TL 4.99

Natural Carrefour 10’lu Doğal Besi M, 53-62gr TL 5.00

Omega-3 Kumbasar 10’lu Omega 3 Yumurta, 53-62 gr TL 5.25

Natural Köylüm 10’lu Doğal Yum, 63-72 gr TL 6.85

Natural Aybar Doğal Yumurta 10’lu, 53-62 gr TL 7.50

Super jumbo Aybar Jumbo 10’lu Yumurta, 70 gr TL 7.50

Organic Keskinoğlu Organik Yumurta 10’lu, 53-62 gr TL 9.30

Organic Sade Organik Yumurta 10’lu, 53-62 gr TL 10.90

Organic City Farm Organik Yumurta 10’lu, 53-62 gr TL 10.90

Source: Migros, Carrefour price list, July 2014.

Note: EUR 1 = TL 2.72.

Table 8 presents a comparison of representative average prices in the years 2014 and 2015, expressed in euro per egg. For the prices initially expressed in Turkish currency, exchange rates for the months of February 2015 were applied.

Table 8: Average producer prices for eggs, 2014-2015

Turkey European Union (for comparison)

Conventional EUR 0.08-0.14/eggCages, conventional or enrichable

EUR 0.05-0.08/eggCages or indoor free-range

Omega-3 enriched EUR 0.10-0.16/egg

Free-range, outdoor, conventional feed Not existing as a product category. EUR 0.06-0.09/egg

Organic

EUR 0.22-0.29/eggOrganic feed, partly cages or

enriched cages. Very few free-range production systems.

EUR 0.12-0.17/eggFree-range, access to

outdoor areas, organic feed

Source: Authors’ compilation based on Sungur, 2015; Ceylan, 2015; EU Commission, 2015.


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Table 9 shows prices for chicken meat observed in grocery stores in July 2014. Organic chicken meat price is 4-5 times more expensive (TL 18–26/kg) than standard (classic) chicken meat price.

Table 9: Prices of chicken meat (breast fillet) in grocery stores

type Brand Price/kg

Classic Beypiliç Poşetli Bütün Piliç TL 5.75

Classic Şenpiliç Poşet Bütün Piliç TL 6.90

Classic C.P Poşetli Bütün Piliç TL 7.90

Classic Keskinoğlu Poşetli Bütün Piliç TL 7.75

Gourmet Mudurnu Gurme Poşetli Piliç TL 8.90

Natural Mudurnu Doğal Piliç TL 12.90

Organic Keskinoğlu Organik Bütün Piliç TL 17.90

Organic Orvital Organik Bütün Piliç TL 22.90

Organic/Free-range Damii Organik Tavuk (Bütün) TL 26.00

Source: Carrefour, Migros and Eko-organic store price list, July 2014.

Note: EUR 1 = TL 2.72.

In 2005, one of the leading companies in the poultry industry established the “Healthy Chicken Information Platform”, which has facilitated an increase in the sale of packaged chicken. The platform has conducted research studies in order to identify the expectations of households through the periodic Chicken Purchasing and Usage Habits Survey. According to the survey results, consumers first pay attention to expiration date when buying chicken meat, followed by the brand, price, packaging, and skin colour. The survey results showed that approximately 80 percent of people consuming chicken meat do not change their initial brand preference despite the existence of another lower-priced brand.

Key trends and issues based on qualitative findings and secondary evidence

This subsection presents results from a series of eight focus group discussions with Turkish consumers and in-depth interviews with key industry experts. The overall objective was to understand and detail the most important, relevant processes and product quality attributes for consumers in Turkey regarding broiler and egg production and products. Details for the focus group discussions are provided in Annex 1. More specifically, the purpose of the interviews was to understand: (i) what influences consumers in their purchases

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of poultry products; (ii) which associations consumers have with regard to poultry production; (iii) how improvements of current production conditions are envisaged; (iv) how consumers perceive the concept of animal welfare; (v) how communication around animal welfare should be directed with regards to broiler meat and eggs; and finally (vi) the reasons Turkish consumers choose domestically produced poultry meat and eggs.

Government is committed to promoting the poultry sector, but key regulatory issues remain

The government has taken significant measures in recent years to regulate the sector and raise safety and quality standards. This is reflected in the sophistication of the poultry product sector relative to other livestock industries in Turkey. Indeed, local experts are of the opinion that the current quality of Turkish poultry products is already high and that the modern state of production facilities is a reflection of the sector’s transformation after the 2006 avian influenza epidemic. Experts were also of the opinion that the current governmental system for production and food safety control worked to promote product quality.

The expansion of the sector and the organic market share is expected to continue

Poultry products are a key element in daily Turkish diets and both consumer opinions and international forecasts (such as FAO/OECD) expect consumption per capita to continue increasing. In addition, consumers in the discussion groups confirmed their preference for broiler meat to other types of meat because of the more economical price of poultry meat and its perceived healthy benefits. Eggs were also considered an indispensable element of breakfast, to be typically consumed on a daily basis.

Concerning organic production, experts were of the opinion that the current rate of market expansion will continue and may even be somewhat more accentuated. The recent trend towards organic production is thought to reflect a shift in consumer preferences. In particular, food safety concerns as well as distrust in food quality among consumers were mentioned as drivers for this development.

Continued importance of the media for promoting sector growth

The media has played an important role over the last few years and is expected to continue being key in both marketing poultry products and educating the public about the sector, particularly after the avian influenza epidemic. For example, the experts asserted that television shows, news and government support are important for the poultry and egg sectors to eradicate rumours and erroneous information. This statement is solidified by testimony from consumers, who stated that they receive the majority of their information


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on poultry meat from packages and labels as well as television commercials. Experts were also of the opinion that members of the public are sensitive to negative information regarding product or production features and are prone to adapt their consumption behaviour in consequence, which could have positive implications for the growth of the organic sector.

In relation to animal welfare issues, participants also asserted that information from television was highly effective in increasing awareness about animal welfare with a focus on human health, particularly public service announcements.

Concerns about a lack of transparency in the production system

Both experts and participants agreed that they wanted more information about poultry products. On the side of the interviewed industry experts, it was articulated that despite notable improvements in the quality and safety of production practices, there are still issues that are in need of further standardisation. A lack of sufficiently documented, controlled and verified stages of production, for example, leads to limited transparency. Meanwhile, during discussions on poultry meat in particular, participants cited concerns that there was false information on the market about organic products, thereby reducing consumer trust in the benefits of organic production.

Lack of knowledge and misconceptions surrounding organic products

Alongside the issue of potentially false information, participant discussions in particular underlined a limited understanding of organic products. Consumers had difficulty defining organic products for both eggs and chicken meat, while some had no knowledge of the concept of organic chicken meat. For example, organic broiler meat was perceived as the meat of freely moving chickens raised in a completely natural environment, in open air, eating natural feed. Meanwhile, organic eggs were typically associated with having a different colour – darker yellow – as well as a different odour in comparison to standard (non-organic) eggs. Organic eggs were also believed to be the product of chickens raised in their natural environment (i.e. outdoor farms, eating natural feed), and not in production facilities. Some of the participants stated that an organic egg is purchased from villages, and organic eggs sold in supermarkets are not reliable. The opinion was voiced that the mark-up of organic products in supermarkets is merely a marketing ploy to generate higher prices.

Overall, organic products were perceived to be better quality for the major brands, but were also perceived to be expensive and not widely accessible, particularly for broiler chicken.

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Importance of a well-known brand name

Participants cited brand name as the most important determining factor guiding both poultry meat and egg purchases in Turkey. According to consumers, a favoured brand name indicated the reliability, safety and quality of the product. Consumers also tend to consume the broiler meat of the same brand, such as Keskinoğlu and Erpiliç, hence satisfaction with one of the products has an impact on the purchase decision of the other.

Concrete concerns for food safety

Despite the importance of affordability in determining purchases, food safety and consumer health were both deemed essential components of any purchase decision. Indeed, the importance of brand names relates directly to the reliability and safety of the product, as previously mentioned. To highlight this point, according to the participants in the focus group discussions, health and food safety (and their association with a brand) were considered more important than price and promotions. Participants stated that they only noticed the price when the product brand was within their consideration set.

Product appearance

The appearance of the eggs was also cited as a major factor in determining purchases. However, there was no consensus amongst participants of whether it is better to have a clean egg or not, or whether it is better to have a white colour or a non-white colour.

For poultry meat purchases, respondents stated that an undamaged pack is the third most essential factor for selecting products, while the colour and smell of the product came in fourth place due to the importance of consuming fresh products.

Animal welfare

Although consumers did not articulate many positive views about the production processes for eggs and chicken meat, according to the experts, animal welfare is not an attribute that consumers care about when buying poultry products. Broiler meat is typically referred to as cheap protein by consumers and this is the perceived main reason for purchase.

This statement was supported by discussions with consumers. While participants articulated that they are concerned about the health of the animal because it could relate directly back to their own well-being, consumer purchase decisions surrounding animal welfare would depend on the product price. If affordable, they would prefer a pro-animal welfare product without hesitation. If, however, the product was too expensive, they would buy it once or twice and then most likely switch back to a standard product. Some participants,


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especially those without children, stated that they would decrease their consumption to be able to afford products with higher levels of animal welfare.

Animal welfare issues are also interpreted differently in Turkey compared to European societies. For example, modern production facilities using cages were perceived as cleaner than free-range production because they allow for the controlled use of feed in comparison with outdoor production, translating into a healthier final product.

Strong preference for Turkish products

Consumers have a strong preference for domestically produced food, which is possibly a sector strength. The participants also indicated that they considered Turkish producers to be more reliable and that the use of additives in feed is more prevalent abroad. Other concerns about and barriers to purchasing foreign products were related to a lack of freshness from long-distance transports, a lack of knowledge about production conditions and uncertainty related to halal production.

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Chapter 4 – institutional environment for poultry meat and egg sector premium products

Summary

• Government is very active and plays an important regulatory role in Turkey’s poultry sector, and the sector is well-organised in comparison with other agricultural subsectors in the country. Dialogue between the government and industry representatives, as well as the organisational structure of the producers’ associations could be improved, however, in order to support long-term competitiveness of the sector, especially in export markets.

• For organic products, a system of independent private quality approval, assurance, certification and auditing is in place and a set of different logos are used to identify certified organic products. However, the requirements for organic products in Turkey do not fully match corresponding principles used in European countries. Moreover, there is no functioning market for certified organic poultry feed from domestic sources.

• The legal regulation of animal welfare in Turkey has been developed to match the minimum requirements of the European Union and most large-scale producers in Turkey adhere to these regulations. However, a lack of public enforcement has made the compliance to the regulations on animal welfare and health a problem. Moreover, government biosecurity intervention systems could be improved, which poses an important threat to the industry.

• Representatives of the poultry industry suggested that the current system for food safety inspections should be improved. Specifically, the interviewees suggested that the producers were unclear about what parts of the process are controlled and when these checks are performed. Furthermore, a lack of proper infrastructure for laboratory controls impedes the efficiency of compliance controls. However, large-scale producers have recently obtained accreditation and pre-permits for exports to the EU and the Russian Federation market, suggesting potential opportunities for Turkish export diversification in the sector.

• For poultry producers, the most important type of regulation that restricts the development of their business is related to planning and building new production facilities. Lack of coordination among authorities at the regional and local levels and requirements in relation to environmental impact assessments hinder business development.


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• From a policy viewpoint, five pertinent areas were identified: – The lack of transparent and reliable enforcement of product/production control hampers the development of premium products because of asymmetric information. Consumers are not fully able to discern product quality and may not trust product quality labels.

– Exports of premium eggs to the EU necessitate the implementation of enriched cages, which will reduce sector profitability based on current cost structures.

– From 2017, the use of rendering products in feed will be forbidden for the egg and poultry sector in Turkey, and this change will entail new economic and environmental constraints for producers.

– Disposal of manure and potential biosecurity risks for manure when used as fertilisers are of concern.

The general institutional set-up

Turkey’s poultry sector is still subject to strong involvement from the government, especially regarding the implementation and control of quality regulations. In Turkey, there are several laws and regulations regarding preparation, processing, labelling, conservation, storage, transportation and product marketing within the poultry industry. The Turkish Food Codex Communiqués provide the most central legal regulations for food distribution and marketing and contain two separate chapters for eggs and meat (including poultry)37, while sector-related articles on issues such as hygiene, organic products, and animal health are included in various specific regulations.

The regulations on food and agricultural products are generally prepared and published by the Ministry of Food, Agriculture and Livestock, in addition to other ministries (such as the Ministry of Finance and Ministry of Health). Currently, the main target of Turkish food and agriculture policy is to harmonise the related laws and regulations with the EU acquis communitaire. However, the same regulations can be applied inconsistently by different provincial directorates and at different times.

In accordance with its objective to harmonise Turkish laws with the EU, the Turkish government has implemented a number of laws similar to the EU. For example, the Law on Veterinary Services, Plant Health, Food and Feed (Law No: 5996) is one of the 15 laws related to agriculture38, and shares similarities to the EU General Farm Animals Directive and EU regulations on the welfare of animals during transport. Although there is no subject-specific legislation on slaughter

37 http://www.tarim.gov.tr/GKGM/Menus/81/Turkish-Food-Codex-Legislation.38 The Regulations and the Communiqués published by MARA can be accessed from the link http://

www.tarim.gov.tr/Sayfalar/EN/Mevzuat.aspx?OgeId=14.

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in Turkey, the government is currently in the process of drafting a regulation on the issue of animal welfare during slaughter39. Issues pertaining to food safety and industry controls are dealt with in large part by the Turkish Ministry of Food, Agriculture and Livestock through the General Directorate of Food and Control40.

The evolution of sector organisation

The Turkish poultry sector was restructured following the crises inflicted by the consumer responses to the global avian influenza outbreaks in 2006, when sales fell by around 25 percent. The crisis was a major determining factor in the restructuring of the poultry sector in Turkey, the implementation of new regulations, and the development of quality standards. It was a driving force in raising the standards of the poultry industry and has led to the accelerated development of product and production regulations. Industry standards have been raised further by the expansion of the integrated manufacturing system as one of the most effective ways to fight against avian influenza. Finally, a traceability system became mandatory by law after the 2006 crisis.

The poultry sector is now well-organised in comparison to other agricultural subsectors in Turkey. The sector is organised into two producer union associations: the Turkish Egg Producers Association (YUM-BİR) and the Breeding Poultry Association (BESD-BİR). These associations control significant shares of the egg and white meat sectors.

The Turkish Egg Producers Association was established in 2006 and approved by the Ministry of Food, Agriculture and Livestock. The association represents 14 egg producer unions from across Turkey that incorporate a total of 3 740 producers, or 85 percent of Turkish egg producers. In addition to promoting sector development and the safety and interests of its members and consumers, Yum-Bir contributes to draft legislation and proposes amendments to regulations41. As an example, among Yum-Bir’s current key thematic priorities are EU market access, use or ban of rendering products and government policies and strategy for handling chicken manure.

As a member of the Agriculture Council in Turkey, the BESD-BİR also promotes sector development by working with relevant stakeholders on issues related to the association. BESD-BIR works to present opinions related to the laws, bylaws and regulations legislated by governmental bodies that concern the

39 Source: http://www.fao.org/3/a-i4002e.pdf, p. 28.40 For a list of the duties of the General Directorate of Food and Control, please see Annex 5. 41 Source: http://infovetdergi.com/wp-content/themes/infovet/pdf/infovet-viv.pdf pp. 18-19.


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sector and plays a critical role through its contributions related to the legislation of applicable regulations42.

Despite the relative economic strength of the Turkish poultry sector in terms of production volume and output, industry representatives are looking to increase their contributions to sector discussions with the government. During interviews, industry representatives voiced the opinion that there is limited dialogue between the state and sector participants, thereby constraining the industry’s voice in policymaking initiatives. One explanation for this might be that, despite the presence of large poultry producers, many sector participants have experienced rapid growth only in recent years, leaving few firms with long-term experience in successful lobbying strategies.

Organic production and certification

In order to be considered organic, a product must be produced in accordance with the Regulation on the Principles of Organic Farming and their Implementation (FAOLEX No: LEX-FAOC052835)43, and must be certified by organisations authorised by the Ministry. Organic product labels therefore include the certification number, the name of the certification body and the “Organic Agriculture” logo of the Ministry. Figure 15 shows three product label logos that verify that the product is certified organic according to public regulation.

Figure 15: Logos for certified organic products


42 Furthermore, the association was involved in the work of the Special Commission for the preparation of the 10th Development Plan (2014-2018) on macroeconomic, sectoral and regional issues (http://www.mod.gov.tr/Lists/RecentPublications/Attachments/75/The%20Tenth%20Development%20Plan%20(2014-2018).pdf). In particular, BESD-BİR participated in the work with the Livestock Special Commission Report. Furthermore, BESD-BİR takes part in many studies of The Ministry of Food, Agriculture and Livestock, including in the Specialized Sub-Commission for Meat and Meat Products.

43 This regulation was published by the Ministry of Food, Agriculture and Livestock in 2005.

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Figure 16 shows the organisation of the public system for approval, certification and control of organic production. Control and certification bodies defined by the regulation for organic products must be independent and not engaged in production and marketing activities or business consulting services. As of 2015, there were 30 national/international certification bodies in operation fulfilling the conditions laid down in law which were given the authority to control by the Ministry of Food, Agriculture and Livestock44.

Figure 16: Flowchart of the Turkish organic certification and control system


Figure 16 shows that the Ministry oversees authorised companies in order to control the organic sector. This public-private control system has been motivated by the existing farm structure of numerous small farms. The regulation stipulates the use of the public logo (Figure 15) but retailers and producers are then free to use their own labels to sustain claims related to product quality certification and control. Figure 17 shows examples of such labels. Private standards for organic production primarily follow EU certification schemes, meaning that local certification companies have adopted EU principles and organic production is certified according to EU norms.

44 http://www.tarim.gov.tr/konular/bitkisel-uretim/organik-t/Authorized-Institutions-KSK.


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Figure 17: Private labels to sustain claims related to product quality certification and control


According to public regulations, the auditing activities on organic farming are to be performed by the staff of an organic farming unit recommended by the Provincial Directorate of Agriculture. Farms are then given identification upon completion of the audit by the Ministry. Annual inspections of entrepreneurs and businesses are carried out by a random selection process among those registered in the Organic Farming Information System (OTBİS).

As discussed in Chapter 3, despite the presence of a formal organic certification process, there remain gaps in enforcement, while the certification of organically produced cereals is difficult and largely non-existent in Turkey, partly due to a lack of suitable laboratories. Consequently, there is no functioning market for certified organic poultry feed from domestic sources, obliging organic producers to make their own organic feed as well. (Ceylan, 2015).

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Other major certification schemes

The most important private label in Turkey is for Halal slaughter. Although there are many different certifiers, the differentiation of labels does not segment the market very strongly, meaning that most consumers seem to substitute different labels quite flexibly.

A number of private quality assurance schemes have been developed as well in recent years, including on-line systems for traceability of products to place and producer of origin, the ISO 9001 Quality Management system, as well as the ISO 22000 Food Safety System Certificate. These standards have been increasingly adopted and requested by supermarkets in Turkey. This trend stems from the fact that supermarket chains are increasingly interested in sourcing their products locally, therefore they request that additional standards be implemented in production chains.

Certain producers (e.g. Şenpiliç Sogutlu Slaughterhouse) have also been accredited with the Certificate of Pre-Permit Export to the European Union and the HACCP 13001 Certificate awarded by the Turkish Standards Institute (TSE)45. Senpiliç has also obtained the GOST-R certificate required for all retail and wholesale goods traded within the borders of the Russian Federation46.

Governance of animal welfare and health

Although laws on animal health date back to 1986, a significant number of animal rights and welfare regulations were initiated in the 2000s with the aim of establishing a parallel institutional framework to the corresponding EU Directives amidst negotiations on EU accession47. A major step was taken with the passing of the law for the protection of animals (Law No. 5199) in June 2004, followed by the passage of laws on the welfare and protection of animals

45 http://www.tse.org.tr/en.46 http://en.senpilic.com.tr/en/kurumsal-icerik/gida.47 For more information on laws: Animal health was first regulated in the Law No. 3285 on livestock

health from 1986. After the law 5199 came into force in 2004, Turkey signed the law numbered 87, European Agreement of the Protected Animals, Raised with the Aim of Upbringing, in 2007. Then the law numbered 102, European Agreement of Protection of Animals during the Cutting Process signed also in 2007. In 2011, the Ministry for Food, Agriculture and Livestock enacted further regulations related to welfare of livestock to determine minimum standards for breeding and maintenance conditions of farm animals by considering their physiological/ethological needs and behaviours.


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during transport as well as official controls of animal food and feed in 2011 (Official Journal No. 28152, 24/12/2011; 28145, 17/12/ 2011)48.

As a result of these initiatives, industry representatives were of the opinion that existing regulations for animal welfare and health do not constitute bottlenecks because they are in line with international standards, and most large-scale producers in Turkey already follow these guidelines49. However, representatives also indicated that while animal protection and welfare regulations exist, adherence to these regulations is relatively low as offenders in general do not get prosecuted in case of violations. Although laws and regulations regarding the appropriate treatment of animals exist in Turkey, their overall enforcement is rather limited.

Government regulation of the sector has improved over the last several years as authorities have worked to bring national legislation up to EU standards, and early warning, rapid diagnosis and intervention mechanisms have been established for avian bird flu50. However, several EU Food and Veterinary Office inspection missions conducted in recent years found that there was room for improvement in the implementation of control measures following the outbreak of avian influenza and Newcastle disease51. Additionally, industry experts reported that there is no national system to monitor and reimburse industry members in the event of a major outbreak of animal diseases. As a result, producers may prefer to hide cases of infected animals in their flocks due to uncertainty over whether they would be compensated for their losses.

The limitations of the systems for animal disease prevention also pose an important biosecurity threat to the industry. Specifically, a lack of planning for governmental support and interventions during major animal disease outbreaks may be another reason that farmers hide infected animals. Some industry

48 The 2011 regulatory measures have obtained further compliance with the EU standards. The 2011 regulation is valid for poultry farms with a minimum of 350 animals and the competent authority (provincial directorates of agriculture) has jurisdiction to enforce inspections in order to ensure that statutes of this regulation are followed. In addition, the competent authority is entitled to prepare an annual report from the information and to notify the Ministry. The regulation for the welfare of farm livestock contains provisions relating to the protection of laying hens in section 3. In general, the poultry sector has had an advantage with the compliance to the 2011 regulation in comparison with other livestock sectors due to the highly concentrated production structure.

49 An exemption was opinioned for the transport regulation regarding the cooling chain for eggs. According to this regulation, eggs have to be kept in refrigerators, which was said to cause more quality problems than it solves.

50 Republic of Turkey Ministry of Food, Agriculture and Livestock. “Structural changes and reforms on Turkish Agriculture: 2003-2013”. p. 33. Accessed at: http://www.tarim.gov.tr/Belgeler/ENG/changes_reforms.pdf.

51 European Parliament Directorate General for Internal Policies. “Food Safety and Public Health Situation in Turkey”. p. 22-24. Accessed at: http://www.europarl.europa.eu/document/activities/cont/201111/20111111ATT31265/20111111ATT31265EN.pdf.

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experts also questioned how quickly the government could respond in the event of a disease outbreak52.

Official controls

According to industry representatives, little is known about how frequently poultry farms are visited by control authorities. During interviews, industry representatives asserted that the personnel that conduct controls on farms do not have a standardised education, but seem to proceed according to general checklists or other routines and protocols that are not widely known to poultry producers. It is also unknown how frequent and in which regions governmental controls on farms take place, and if production facilities are checked at all; or if not, whether papers and documentation are checked.

Supermarkets are increasingly introducing their own checks according to private standards in line with EU standard practice. However, for certain tests, Turkey lacks sufficiently equipped laboratories and therefore several tests that supermarkets have requested in the past from poultry producers or the poultry industry turned out to be infeasible.

Key policy topics related to the poultry industry in Turkey53

Certification and labelling issues

One of the primary issues obstructing the development of the premium poultry market in Turkey is the limited enforcement of labels for organic and other premium poultry attributes. For example, for food enrichment, such as use of omega-3 to enhance the composition of fatty acids in eggs, there is no license necessary and no control system in place to verify such claims on the product. Consequently, as discussed in Chapter 3, there is a notable problem of false organic products on the market, which creates asymmetric information amongst consumers about the quality of products with organic labels, leading to missing markets for true premium products (Sungur, 2015). According to the Yum-Bir Association, tighter controls would be highly desirable in order to remedy this issue among Turkish egg producers and align the sector more closely with EU regulations. Although experts from Yum-Bir asserted that it would be possible to implement a private labelling system similar to that of Germany, there is limited experience within both the private and public sector on these issues, thereby slowing the implementation of adequate enforcement mechanisms.

52 During industry interviews, respondents suggested that in case of a major outbreak, the government should quickly establish districts in zones where health problems occur, rather than placing bans on the entire country. This would reduce economic losses, for instance in export markets, while health problems could be targeted more effectively in the designated problem zones.

53 The content of this chapter was gathered in large part from industry interviews, particularly with the producers association, Yum-Bir.


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Housing-related constraints for animal production

For poultry producers, another major regulatory obstacle is related to the planning and construction of new production facilities such as barns for chickens or layers. In principle, the institutional set-up in Turkey functions similarly to the EU in this respect, with new buildings requiring approval from several authorities at the regional level. However, these authorities do not necessarily work together, and producers have voiced concerns that authorities could be more transparent about the regulatory control process and involve the industry more in the process. Additionally, it is now common in Turkey to have environmental impact assessments before a new building is approved through the local authorities. In addition, neighbours and other potentially affected groups can have a say on a planned project. As a result, it is not uncommon that planned buildings do not get approval during this process, and poultry farmers frequently report that they perceive this process as arbitrary and nontransparent.

Regarding the housing of animals, the introduction of a new regulation on cages is expected to create economic challenges for many producers. By the year 2023, all cages must be converted from conventional to enriched cages. This conversion process is seen as a necessity if Turkish premium egg producers wish to export to the EU. Although tighter controls on labelling and organic production would facilitate investments in enriched cages, many farms face financial constraints that hinder this conversion process. According to interviews conducted with selected companies, several medium-sized firms foresee difficulties in their ability to comply with the new regulation in light of the long-term investment costs for cages. As a result, this regulation will likely complicate the ability of smaller firms to compete against large producers who are better equipped to shoulder the investment costs.

Export promotion

The Turkish egg industry could effectively compete for exports to the EU market due to the larger average farm size in Turkey as well as lower labour costs relative to their European counterparts. Although export standards to Israel are even stricter than the EU, the most efficient and largest of Turkey’s egg producers already meet these standards, paving the way for the expansion of Turkish egg exports to developed markets. However, some regulatory barriers remain that may hinder the development of Turkish exports. For further EU market access, Turkey is obliged to develop and launch a national residue plan; as of early 2015, this plan was still not in place.

Nevertheless, improvements have been made to meet the requirements for EU exports. For example, the Turkish government has begun to systematically analyse residues of antibiotics and pesticides in feed, and a system of penalties for the case of violations has been established, with regular routine checks conducted frequently. However, these elements of the residue plan

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are currently only sufficient for industrial (“class B”) eggs, necessitating the expansion of the programme. Furthermore, all farms that export will also need salmonella approval, which requires the implementation of a Turkish salmonella programme – a programme that the EU has yet to accept.

During industry interviews, respondents mentioned that the government should step up its efforts to gain wider access to EU markets for poultry products, and that the policy should distinguish free-range production from organic production.

Use of slaughter by-products/rendering

From the year 2017 onwards, the use of rendering products in feed will be forbidden for the egg and poultry sector in Turkey. This regulation will increase feed costs for producers by taking out a key source of protein in animal feed and potentially create problems with the disposal of by-products (for more information regarding the potential economic and environmental costs, see Chapter 6).

However, if deployed responsibly, the system could introduce a number of beneficial elements for the sector. For instance, Germany has a mandatory public insurance scheme within which animal producing farms and meat processing firms have to be registered. Publicly-supported fees then keep collection and removal costs low for firms and remove incentives to dispose of rendering products or dead animals through other channels. Among other effects, the implementation of such a system may also contribute to the early detection of diseases because a growing number of dead animals in a certain region or on a specific farm cannot easily be hidden from public monitoring. At the same time, farmers are aware of both fines for irregular activities and compensation schemes in case of disease outbreaks, and therefore typically have no incentive to hide disease outbreaks.

Poultry product producers are also somewhat cushioned from the effects of high international feed prices, thereby reducing operating costs. There is a refund system for imported grain in place that pays TL 30 for every 1 000 exported eggs, which ensures that it is currently possible to export Turkish eggs effectively tariff-free.

Manure management

The disposal of chicken manure is a major problem, especially for small farms. It is difficult to either dry or compost manure, and a market for chicken manure as a fertiliser in crop production does not widely exist in Turkey. Technical solutions to process chicken manure are well-known to the industry, but are perceived as being expensive and are therefore often not feasible for small farms. At the same time, the composting of chicken manure may lead to valuable further processing because it could contribute to the improvement of soil fertility in


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Turkey, while also fostering a more sustainable agricultural sector. However, the nutritional value of chicken manure is largely unknown to Turkish crop farmers and therefore no market exists. Furthermore, technologies to dry or compost chicken manure, despite being standard in livestock-intensive regions of the EU, are not widely adopted in Turkey due to financial constraints and a lack of experience with or knowledge of these technologies. It would also be necessary to train Turkish crop farmers who lack knowledge about how to use manure-based fertilisers. Finally, potential biosecurity risks are anticipated if compacted or dried manure were to be traded across Turkish regions.

Market power in the retail sector

There are currently ten large supermarket chains in the country, while 65 percent of the egg producers are considered “small”, owning fewer than 100 000 birds. The retailers are perceived by industry representatives to possess a mild degree of market power, however, no scientific studies were found to develop an understanding of retail market power.

Traditionally, wholesalers sell to supermarkets. However, Carrefour has recently begun to establish ten different brands for eggs in different price segments. Through this strategy, Carrefour is increasingly trying to bypass wholesalers. At the same time, most wholesaler businesses are rather small, even though wholesalers receive about 65 percent of all eggs sold in the supermarkets. Only 30 percent to 35 percent of the eggs are sold directly from the producer to the retail market, likely due to the fact that the advantage of selling from the producer directly to the retail market is estimated to be rather small.

Meanwhile, producer cooperatives do not play a role in the marketing of eggs or poultry products. According to interviews with industry experts, egg marketing cooperatives did not turn out to be a competitive model during the past few decades and have therefore largely disappeared. This could be explained in part by the rise of large poultry and egg producing firms that are not exposed to high marketing transaction costs, thereby eliminating the need for cooperatives. In early 2015, only one cooperative was marketing eggs in Turkey, and only two firms marketed eggs on behalf of farmers. However, further research would be necessary in order to determine to what extent the promotion of egg producer cooperatives could be a suitable model for small-scale village type production.

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Chapter 5 – Consumers’ willingness-to-pay for improved quality/animal welfare poultry products

Summary

An adaptive choice-based experiment was used to estimate consumers’ WTP for egg and chicken meat quality/animal welfare attributes. This is an advanced system for choice analysis that is based on an interactive experience, customised to the preferences and opinions of each individual respondent. According to the findings, the quantity purchased and spent on eggs and meat differed by household size and area, while there were no such differences by SES. The quantities of broiler meat consumed were higher in metropolitan areas as compared to non-metropolitan areas. The reverse relationship was found for eggs.

For the purpose of the study, a specific section of the survey was used to examine consumer perceptions of animal welfare in relation to egg and broiler meat production. Cluster analyses identified four separate consumer segments for broiler production and three segments for egg production with distinctly different perceptions in relation to four areas of animal welfare. There was more heterogeneity among consumers for broiler production than egg production, and the results support the case for product differentiation based on animal welfare because of its potential to appeal to large consumer groups.For the egg survey, product brand was the most distinctive product quality attribute. On average, consumers revealed:

• Strong preference/WTP for: – a label certifying the feed to be free from hormones, antibiotics and slaughter by-products

– sealed packages allowing for eggs to be visible through the package – verification of regular controls showed relatively strong support

• Moderate preference/WTP for: – access to a web-based system to allow traceability – access to quality certificates – pasteurisation and omega-3 enrichment

• Lack of preference/WTP for: – animal welfare-related housing alternatives – addition of the egg-laying date to the mandatory requirement of expiration date

– yellow shell colour – larger-sized eggs


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For the broiler meat survey, product brand was the most distinctive product quality attribute, followed by verification of regular controls. Consumers revealed:

• Moderate preference/WTP for: – a label certifying the feed to be free from hormones, antibiotics and slaughter by-products

– certification of proper handling of animals during loading and unloading

• Low levels of preference/WTP for: – steam scalding, dry plucking – slower growing breeds – a web-based system to allow traceability and access to quality certificates – full product visibility through the package – animal welfare-related housing alternatives – shorter transportation distances – additional information about packaging date

Market simulators were developed based on individual choice data to predict expected market choices. The presence of a preferred brand was a decisive predictor of product preference at the lower price range for both eggs and broiler meat and it also had the strongest influence on market choice at higher prices. For broiler meat, improved verification of regular government controls also increased demand.

The addition of attributes related to improved farm animal welfare within egg production had little effect on relative demand, and there was little complementarity between animal welfare-related attributes. Introducing improved feed free from hormones, antibiotics and by-products while keeping production in basic cages would attract almost as much demand.

For broiler meat production, using feed free from hormones, etc. together with certification of proper handling were the animal welfare attributes with the most notable effect on demand. The combined complementarity effect on demand for a product including all five animal welfare-related attributes was larger at prices above TL 15 per kg. However, no complementary effect existed at the lower price range. This suggests that a certification scheme for proper handling of animals during transport, or alternatively a mandatory requirement of feed quality, could serve as public goods.

Regarding attribute competiveness for eggs, presence of a preferred brand, feed free from hormones, sealed packaging, full product visibility, verification of regular control, and to some extent, traceability can be used to modify the base level product to capture more demand54.

54 The base level product has no premium attributes.

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For broiler meat, the results showed that the attributes: preferred brand; verification of regular control; certification of proper handling of animals; the dry plucking; feed free from hormones etc.; and to a minor extent steam-scalding can be used to modify the base level product to capture more demand. For both eggs and broiler meat, a product configuration that included all attribute levels for which the WTP was positive had a substantial potential to increase market demand.

The results suggest that different portfolios of egg and broiler meat products appeal differently to market segments based on income, areas of living and household size. These aspects could be considered in product optimisation to make the products appeal to different groups of respondents.

Existing research on developing higher quality poultry meat and egg products

In Turkey, changing dietary patterns, increasing urbanisation, and rising import competition are all likely to have an impact on the agricultural sector (Yavuz et al., 2013). The successful commercialisation of competitive domestic products to meet the needs of the population is therefore likely to impact market conditions. Business development in relation to higher quality agricultural products, based on an accurate assessment of market demand characteristics such as WTP and preference prediction measures, have the potential to affect the egg and poultry sectors in particular due to the high levels of egg and poultry products in Turkey.

A literature search based on Scopus, ISI Web of Knowledge, AgEcon Search and Google Scholar identified ten studies for laying hens and eight studies for broiler chicken that examined the price premium expressed by participants to purchase products produced with defined farm animal welfare standards, for which the WTP was the dependent variable in the analysis. An additional set of ten studies addressed consumer WTP for antibiotic free meat and dairy products. According to this literature review, there were no previous studies assessing the business case for developing higher quality products in the poultry meat and egg sectors in transition countries.

Within the limited published research on consumer preferences for higher quality poultry and egg products, results from the study by Norwood and Lusk (2011) suggest that the WTP for products with higher animal welfare was significantly discounted as the number of related attributes increased, which suggests that a highly isolated valuation task generates a polarised, and less valid, valuation. As the choice context becomes more complex and realistic, it is typically reported that consumers give priority to product attributes that are more directly related to their own health and to sensory characteristics such as taste or food safety (Carlsson et al., 2005; Lagerkvist et al., 2006).


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The meta-study by Lagerkvist and Hess (2011) reported few studies examining consumers’ WTP for organic chicken products together with relevant product features such as animal welfare. Instead, Van Loo et al. (2011) concentrated on organic labelling and found excessive price premiums. Other studies, for example the EU-funded CERTCOST project report (2011) on organic certification, found that surveyed consumers in seven countries had a low level of knowledge about organic production and organic control systems. Still, the surveyed consumers clearly preferred certain organic logos to others and were willing to pay hefty premiums for those specific logos. In the case of Turkey, the study concluded that consumers would be willing to pay an additional 15-31 percent of the average market price for organic eggs with organic certification logo relative to organic eggs without the logo (the exact percentage depends on the logo, with Ecocert commanding the highest premium). In the other countries of study (Denmark, Czech Republic, Germany, Italy, Switzerland and United Kingdom), certain organic logos would even reach a premium of 105 percent of the average egg market price. The aforementioned study, however, had a very specific organic focus and its results do not help map the potential size of the market or the willingness-to-pay for other attributes. This is because the WTP survey was exclusively on the organic attributes and labels and also only surveyed households that bought organic apples and eggs at least once a month in certain types of outlets. In Turkey, 50 percent of the respondents were interviewed in conventional supermarkets and the other half in specialised organic food shops. Another study (Akgungor et al., 2007) focusing exclusively on organic fruits and vegetables in urban areas (Istanbul and Izmir) found that educated and high income individuals are willing to pay more (up to 36 percent) for organic labelled and certified products. This was mainly due to consumer perception that organic products provide higher nutritional benefits and carry lower health risks.

Research design – survey work

This study used an adaptive choice-based experiment to estimate consumers’ WTP for egg and chicken meat premiums and animal welfare attributes. This is an advanced system for choice analysis that is based on an interactive experience, customised to the preferences and opinions of each individual respondent. More details on the selection process and the adaptive approach can be found in Annex 2. Figure 18 displays the five steps included in the adaptive choice study.

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Figure 18: The adaptive choice-based experiment interview flow

Benefits of adaptive choice-based experiments:

• more engaging, relevant interviews

• directly incorporates non-compensatory decision-making

• ability to obtain strong individual-level estimates

• solid behavioural theory (consideration, then choice)

• solid statistical theory (near-orthogonal experiments and choice data)

To collect information about consumer preferences, computer assisted in-person surveys were conducted of egg and chicken meat consumers in Turkey. The surveys were conducted through TNS Turkey, a marketing research firm. For the surveys, TNS targeted one adult, aged 18-65, per household who was identified as responsible for at least 50 percent of the household purchases of eggs or chicken meat in terms of type or amount.

Target respondents came from residential areas within Turkey’s seven regions and three metropolitan provinces55. Sample selection was based on population strata of provinces within the geographical regions using the same methodology as is used in data collection for the Eurobarometer (TURKSTAT).

Eligible households were given an initial survey discussing education levels and income, among other factors (for more information, see Annex 2). All surveys were completed between late March and late May 2015. The time to complete the survey varied between 30-50 minutes per respondent.

After completion of the screening questions, respondents were asked about their responsibility concerning how much and which eggs and chicken meat the household purchased (individuals were eligible as respondents if they were responsible for at least 50 percent of chicken meat or egg purchases). They were also asked about purchase frequency and quantity (last seven days and past month), preferred brand (list of available alternatives and open-end option) and shopping outlets, and finally about use and perceived difficulties in relation

55 Turkey is officially divided into seven regions (Adana, Bursa, Erzurum, Gantep, Konya, Manisa, and Samsun); and three metropolitan provinces (İstanbul, Ankara, İzmir). Furthermore, Turkey is comprised of 81 provinces with one to six provinces in each region.


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to labelling information during purchase. Detailed data on questionnaires and survey implementation are in Annex 2.

As the main part of the surveys, each respondent then completed an adaptive choice-based experiment (ACBE) designed to determine the amount consumers were willing to pay for various egg or chicken meat (specified as breast fillet) production, food safety, and product quality attributes. Annex 2 presents details on the design and structure of the ACBE. The included attributes were selected for the study design based on the focus group discussion and expert interviews. Combined, this information provides a comprehensive assessment of preferences of consumers about Turkish egg and chicken meat products.

The attributes and their levels included in the adaptive choice experiments are shown in the next chapters of this report (Tables 16 and 17, for eggs and chicken meat, respectively).

Finally, each respondent completed a set of four scales to determine attitudes related to animal welfare. The first scale included ten statements related to values as they pertain to what is referred to as the “Five Freedoms” (UK Farm Animal Welfare Council as cited in Appelby and Hughes, 1997). The second scale used four belief statements developed by Heleski, Mertig and Zanella (2004). Respondents were asked to express their agreement with the statements: “Chicken/laying hens have individual temperaments”, “Chicken/laying hens can experience something akin to boredom”, “It is important to meet the majority of behavioural needs possessed by chicken/laying hens (behavioural needs are defined as those behaviours animals have evolved to perform and are highly motivated to engage in)”, and “If chicken/laying hens are producing (i.e. gaining weight, producing eggs, etc.), that means they have good welfare”. Thirdly, respondents were asked an attitude statement to identify whether they felt that the predominant chicken meat/egg production methods incorporate sufficient animal welfare standards to maintain the emotional well-being and good quality of life for the birds. Fourthly, respondents were asked about their perception related to whether welfare-related changes are needed in the current production systems of chicken/eggs. The general definition of animal welfare (UK Farm Animal Welfare Council) was provided to establish a benchmark when responding to the perception question.

Research results

Sample characteristics

A total of 813 respondents completed the egg survey, while 804 respondents completed the chicken survey. Summary data of selected demographic attributes of survey respondents are provided in Table 10. Among the respondents for the egg survey, 617 persons (75.9 percent) reported that they were fully responsible for the grocery shopping, while 196 (24.1 percent) were responsible for at least

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50 percent of the grocery shopping. In the chicken survey, 588 (73.1 percent) and 216 (26.9 percent) were fully or partly responsible, respectively. Furthermore, 587 (72.2 percent) of the respondents in the egg survey were also the ones who decided how much and what chicken meat to buy, while the remaining 226 (27.8 percent) were responsible for at least 50 percent of the egg purchases. For the chicken survey, 536 (66.7 percent) and 268 (24.1 percent) fully or partly decided which type of chicken meat to buy.

Table 10: Socio-demographic sample characteristics

chickena eggsb chickena eggsb

Gender Income before taxc (TL)

Female 0.64 0.65 ≤1.500 0.138 0.156

Male 0.36 0.35 1 501-2 000 0.232 0.164

Age 2 001-3 000 0.235 0.161

18 – 25 years 0.23 0.28 3 001-4 000 0.077 0.106

26 – 35 years 0.32 0.33 4 001-5 000 0.040 0.053

36 – 45 years 0.23 0.22 5 001-6 000 0.019 0.012

46 – 65 years 0.23 0.17 6 001-7 000 0.002 0.009

Household size 7 001-8 000 0.001 0

1 0.06 0.05 8 001-9 000 0 0.001

2 0.19 0.18 9 001-10 000 0 0

3 0.28 0.31 10 001-15 000 0.001 0

4 0.26 0.27 15 001-20 000 0 0

5 0.13 0.13 ≥20 001 0 0

6 0.06 0.05 Don’t want to answer/ Don’t know 0.253 0.338

>7 0.03 0.02

Note: a n=804, b n=813, c Household’s total monthly income.

Table 11 shows the geographical distribution of the samples and the distribution of SES classes. The egg and meat survey samples are similar in relation to the geographical and SES distributions. Based on the SES quotas detailed above, the samples were drawn based on population and socio-demographic strata with a focus on urban areas within each region so as to allow a concentration of the market analysis to areas with similar social class conditions. The samples are therefore representative of urban areas in Turkey.


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Table 11: Geographical and social class distribution of samples (shares)

region chicken eggs

Adana 0.114 0.121

Bursa 0.123 0.129

Erzurum 0.049 0.055

Gantep 0.078 0.082

Konya 0.088 0.098

Manisa 0.066 0.060

Samsun 0.091 0.075

Ankara 0.086 0.076

Istanbul 0.242 0.239

Izmir 0.062 0.064

SES class

AB 0.144 0.146

C1 0.312 0.299

C2 0.295 0.325

DE 0.249 0.230

a Sample size was 804 respondents.b Sample size was 813 respondents.c The total population of these 7 regions and three metropolitan areas is 31.483 million.

Table 12 shows the quantities of chicken meat bought and consumed as well as the weekly expenditures and choice of market outlets for purchases of chicken meat. The result shows that respondents were consistent in reporting quantities purchased and consumed. For the chicken survey, 11 percent of the respondents made purchases four to seven times per week, while 63 percent shopped for chicken meat one to three times per week. Local and premium supermarkets were the main points-of-purchase for chicken meat.

Table 13 shows the quantities of eggs bought and consumed as well as the weekly expenditures and choice of market outlets for purchases of eggs. Eighteen percent of the respondents for the egg survey reported that they bought eggs as often as four to seven times per week, while 54 percent reported a purchase frequency of one to three times per week. A majority of these purchases were from supermarkets or corner shops (69 percent) which is well in line with an earlier study that found that out of a sample of 2 241

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households, 68 percent of the egg purchases were from supermarkets (Mizrak et al., 2012). Purchases of eggs were more evenly distributed among the main types of outlets in relation to the purchases of chicken meat.

Table 12: Quantities of chicken meat bought and consumed, weekly expenditures and market outlets (n=804)

chicken meat bought for household past 7 days

chicken meat consumed

by household past 7 days

chicken meat bought for

household past month

chicken meat consumed by


Quantity share Quantity share Quantity share Quantity share

< 1 kg 0.27 < 1 kg 0.23 <1 kg 0.20 <1 kg 0.20

1 kg 0.40 1 kg 0.43 1.1-3.9 kg 0.21 1.1-3.9 kg 0.19

1.1-2 kg 0.23 1.1-2 kg 0.23 4 kg 0.22 4 kg 0.23

>2 kg 0.10 >2 kg 0.11 4.1-6.9 kg 0.19 4.1-6.9 kg 0.21

7.1-9.9 kg 0.10 7.1-9.9 kg 0.10

>10 kg 0.08 >10 kg 0.08

Amount spent on chicken meat by household every week (tl)

From which type of outlet(s) do you most frequently purchase chicken meat?a

0-5 0.04 Local marketplace 0.15

5.1-10 0.24 Discount store 0.14

10.1-15 0.30 Local supermarket 0.46

15.1-20 0.22 Premium supermarket 0.43

20.1-25 0.04 Village farm 0.01

25.1-30 0.04 Local butchers 0.16

30.1-35 0.01 Other, please specify: 0.06

35.1-40 0.03

40.1-45 0.01

45.1-50 0.03

>50 0.03

Note:a Respondents could select up to two types of outlets.


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Table 13: Quantities of eggs bought and consumed, weekly expenditures and market outlets (n=813)

number of eggs bought by household past 7 days

number of eggs consumed by

household past 7 days

number of eggs purchased by


number of eggs consumed by


Quantity share Quantity share Quantity share Quantity share

0-5 0.06 0-5 0.07 0-10 0.01 0-10 0.02

6-10 0.21 6-10 0.23 11-20 0.08 11-20 0.07

11-15 0.31 11-15 0.29 21-30 0.14 21-30 0.13

16-20 0.06 16-20 0.06 31-40 0.08 31-40 0.09

21-25 0.02 21-25 0.02 41-50 0.04 41-50 0.05

26-30 0.30 26-30 0.29 51-60 0.22 51-60 0.21

>30 0.03 >30 0.04 61-70 0.06 61-70 0.06

71-80 0.03 71-80 0.04

81-90 0.04 81-90 0.04

91-100 0.01 91-100 0.03

101-110 0.00 101-110 0.01

110-120 0.18 110-120 0.17

>120 0.10 >120 0.09

amount spent on eggs by household every week (tl)

From which type of outlet(s) do you most frequently purchase eggs?a

0-5 0.26 Local marketplace 0.25

5.1-8 0.34 Discount store 0.18

8.1-10 0.20 Local supermarket 0.52

10.1-15 0.11Premium

supermarket 0.33

15.1-20 0.05 Village farm 0.03

>20 0.03 Local butchers 0.10

Note: aRespondents could select up to two types of outlets.

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Tests were then applied to see whether quantities bought and consumed or weekly expenditures differed by SES, household size, or between area of living (metropolitan [i.e. Istanbul, Izmir, and Ankara] versus non-metropolitan areas).

The results from the survey showed that the amount bought as well as the amount spent on chicken meat differed by household size and areas of living (metropolitan vs region), while there were no such differences by SES. Figure 19a shows the quantities of chicken meat bought by household size categories, while Figure 19b shows the quantities of chicken meat bought by area of living. The results correspond to an annual consumption quantity of 51.9, 58.7 and 65.1 kilograms for households of 1-2 persons, 3-4 persons, and more than 5 persons, respectively. Furthermore, the annual quantity consumed was larger (61.4 kg) for metropolitan households as compared to non-metropolitan (56.4 kg). The study by Durmus et al. (2012) reported an annual per capita consumption of 16.7 kg, although it differed between geographical regions, being highest in the Mediterranean region (20.9 kg/year) and lowest in south-east Anatolia and in the Aegean regions (12.7-12.3 kg/year).

Figure 19a: Kilograms of chicken meat bought during the seven days prior to the interview by household category

0

0,1

0,2

0,3

0,4

0,5

0,6

< 1 1 1.1 - 2 > 2

shar

e of

res

pond

ents

kg

1 or 2 persons 3 or 4 persons 5 or more people

Source: Authors’ compilation.


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Figure 19b: Kilograms of chicken meat bought during the seven days prior to the interview by area

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

0,45

0,5

< 1 1 1.1 - 2 > 2

shar

e of

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ents

kg

non-metropolitan metropolitan


Note: Metropolitan = Ankara, Istanbul, Izmir.

For eggs, the survey results also showed that the amount bought and spent differed by household size and areas of living, but not by SES. Figure 20a shows the quantities of eggs bought by household size categories, while Figure 20b shows the quantities of eggs bought by area of living. The results correspond to an annual consumption quantity of 672, 862 and 1 078 eggs for household of 1-2 persons, 3-4 persons, and more than 5 persons, respectively. Furthermore, the annual quantity consumed was smaller (798 eggs) for metropolitan households as compared to non-metropolitan (897 eggs). The amounts consumed seems to be higher than what was reported in the study by Mizrak et al. (2012) where the average consumption was found to be 158 eggs per person per year. It should be noted that our quantity estimates are based on data collection during a short period of time and as such do not include potential seasonal adjustments. The timing of the survey did not coincide with any specific national festivities, however, which could have potentially biased the survey data.

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Figure 20a: Number of eggs bought during the seven days prior to the interview by household category

0

0,1

0,2

0,3

0,4

0,5

0,6

0 - 5 5 - 10 11-15 16 - 20 21 - 25 26 - 30 >30

shar

e of

res

pond

ents

number of eggs

1 or 2 persons 3 or 4 persons 5 or more people


Figure 20b: Number of eggs bought during the seven days prior to the interview by area

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

Sha

re o

f re

spon

dent

s

Number of eggs bought last 7 days

non-metropolitan metropolitan

0 - 5 5 - 10 11-15 16 - 20 21 - 25 26 - 30 >30


Note: Metropolitan = Ankara, Istanbul, Izmir.


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Table 14 presents the preferred brands of chicken meat and eggs. For chicken meat, three major brands were indicated, while for eggs the Keskinoglu brand was dominant. In the egg survey, several additional brands were preferred through the open-ended response. For each respondent, the preferred brand was subsequently included within the design of the choice experiment as one of two levels for the brand attribute.

Table 14: Preferred brands of chicken meat and eggs

chicken meat eggs

Brand share Brand share

Senpiliç 0.249 Keskinoglu 0.546

Keskinoglu 0.197 Köylüm 0.060

Beypiliç 0.149 Bili Bili 0.048

Erpiliç 0.073 Dogalim Yumurta 0.005

Banvit 0.066 Kumbasar 0.004

Beyza 0.065 Aybar 0.004

C.P 0.057 Armutcuoglu 0.002

Mudurnu 0.020 Flotty 0.001

City Farm 0.004 Green Ranch 0

Orvital 0 Sade 0

Damii 0 City Farm 0

Raya 0

I do not remember brands 0.024 I do not remember brands 0.080

I do not look at the brand when buying chicken meat 0.009

I do not look at the brand when buying eggs 0.063

Other brands 0.088 Other brands 0.186


Table 15 shows the self-reported use of labelling information. Results are consistent across the two surveys indicating that the respondents look at most labels when making their purchases of eggs and chicken meat. Respondents also stated that it is easy to express which type of labelling information is important to them while making their purchases. These answers suggest a more thorough use of labels and less difficulty in expressing relevance than what has been reported in the literature for similar studies (i.e. Lagerkvist, 2013).

As perceived survey complexity could lead to biased responses, it is important to examine how the respondents understood the content of the questionnaire. Following Lagerkvist (2013), six statements were presented after the completion of the adaptive choice (see Annex 2 for details). The data shows that 68.7 percent

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of the respondents for the chicken questionnaire and 73.4 percent for eggs found it easy to express what was important to them concerning labelling of the product. A strong majority also found it easy to express their preferences in regards to chicken meat or egg purchases and found it easy to understand the product information text. Based on these results, there is little evidence to support that cognitive bias or fatigue issues were inflicting on the respondents’ ability to complete the survey.

Table 15: Self-reported use of labelling information

chicken meat eggs

To what extent would you say you look at the labelling information (on the package) when you buy eggs (chicken meat) today?

I look at all labelling 0.343 0.330

I look at most labelling 0.325 0.316

I look at some but not all labelling 0.139 0.146

I look at just a few parts of the labelling 0.083 0.062

I do not look at labelling at all 0.109 0.146

How easy or difficult do you find expressing which type of egg (chicken meat) labelling information that is important to you?

Very easy 0.193 0.241

Fairly easy 0.494 0.493

Neither easy nor difficult 0.192 0.175

Fairly difficult 0.039 0.021

Very difficult 0.083 0.07

Note: The percentages in the columns denote the share of respondents.

Results from the adaptive choice-based experiments

initial preferences from product configuration. The willingness-to-pay experiment provided the possibility for respondents to select their preferred egg or chicken product based on all available attributes. The design of the screening step meant that respondents were asked about their preferred attributes or levels to obtain a condensed list of preferences. Price premiums were not assigned to all attributes/levels56. The product configuration step within the ACBE method presented a list of all attributes and levels (see Annex 2). Tables 16 and 17 show the preferences between the levels of each attribute, indicating which alternative the respondents would most likely purchase, taking into account the extra cost incurred by that feature. Based on the answers to the configuration step, specific pools of product alternatives (combinations of attributes and levels) were created within the survey instrument. This meant

56 In this experiment, indicative prices are used for key attributes to show that such an attribute should be expected to come with a price premium. For other attributes like data and packaging, it was not clear that the respective levels would differ in production costs and thus in consumer prices. The list therefore seeks to provide a menu of preferences and is not used to estimate WTP.


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that the continuing product choice and willingness-to-pay parts of the ACBE method were programmed around the respondent’s preferred attributes and levels. The subsequent parts were therefore unique to each respondent.

Table 16: Choice counts from the configuration of individual preferences for eggs (n=813)

attribute levels extra cost for feature (tl)

counts(share)

FeedFeed free from hormones, antibiotics and

slaughter by-products 1.30 49.9

No information provided on package (base) 0 50.1

traceability Available via number on package 1.30 35.5

Not available (base) 0 64.5

housing

Basic cage (base) 0 56.6

Enriched cages 0.65 21.3

Free-range, no outdoor option 0.65 14.5

Free-range with outdoor area 1.30 7.6

BrandPreferred branda (piped in from earlier question) 0.65 86.0

Generic brand (base) 0 14.0

dateExpiration date (base) 0 69.9

Egg-laying and expiration date 0 30.1

Packaging-seal

Sealed package 0 83.4

Non-sealed package (base) 0 16.6

Packaging-visibility

With product visibility 0 79.8

No product visibility (base) 0 20.2

Food control, hygiene control and biosecurity

Verification of regular control 1.30 42.9

Verification of regular controls not available (base) 0 57.1

PasteurisedPasteurised 0.65 35.7

Not pasteurised (base) 0 64.3

omega-3Fodder enriched with omega-3 0.50 38.7

Not enriched with omega-3 (base) 0 61.3

size/weight

Medium (<62g/egg) (base) 0 79.2

Larger (63-72g/egg) 1.50 18.6

Jumbo (≥73g/egg) 2.50 2.2

shell colourWhite (base) 0 86.0

Yellow 0.50 14.0


Note: a Respondents were asked to indicate their most preferred brand in an earlier part of the questionnaire, which then was presented within the product configuration step.

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Results from the product configuration step for eggs suggest strong preferences for having the preferred brand, white shell colour, medium-sized eggs, and sealed packages with product visibility. Furthermore, a majority of the respondents indicated preferences for information about expiration date and for having non-pasteurised eggs without omega-3 enrichment and without traceability available via number on the package. Basic cages were the most preferred housing system. Preferences were more evenly divided between the included levels for the feed and for the food control attributes. These attributes can therefore be expected to be attractive for product differentiation purposes.

For chicken meat, the results suggest strong preferences for the maximum transportation time, and for having meat from fast growing breeds. The preferred brand was also important but less so than for eggs. Strong preference was also revealed for basic cages and for certification of proper handling during transport, though individuals were not as concerned with having product traceability57 or for feed certified as free from antibiotics, hormones and slaughter by-products. Preferences were more evenly divided between the included levels for product visibility, scalding, packaging, expiry date and food control attributes.

57 The authors note that this finding should not necessarily be interpreted to mean that individuals do not care about traceability, but rather, that from the initial set of attributes, they were more interested in other attributes.


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Table 17: Choice counts from the configuration of individual preferences for chicken fillet (n=804)

Feature levels extra cost for feature (tl)

counts(share)

Packaging and expiry date

Expiry date (base) 0 59.3

Packaging and expiry date 0 40.7

handlingCertified to ensure proper handling when

loading and unloading 0 66.5

No certification available (base) 0 33.5

transportTransport to slaughterhouse up to 12

hours (base) 0 86.6

Short journey time (i.e. <4 hours) 3 13.4

traceabilityAvailable via number on pack 1 32.6

Not available (base) 0 67.4

FeedFeed free from antibiotics, hormones

and slaughter by-products 4 35.8

No information (base) 0 64.2

scalding and plucking

Scalding by dipping in hot water (base) 0 47.9

Steam scalding 0 45.0

Dry plucking 6 7.1

growth period Fast growing breed (base) 0 72.4

Slow growing breed 4 27.6

housing Cage (base) 0 68.6

Open floor, no outdoor area 1.50 26.2

Open floor with outdoor area 6 5.1

Food control, hygienic control and biosecurity

Control verified by government authority 3 42.2

No verified control (base) 0 57.8

BrandPreferred branda (piped in from earlier

question) 1 69.2

Generic brand (base) 0 30.8

VisibilityPartly visible through pack (base) 0 49.8

Fully visible through pack 0 50.2


Note: a Respondents were asked to indicate their preferred brand in an earlier part of the questionnaire, which then was presented within the product configuration step.

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attitudes towards animal welfare. Before analysing the results from the subsequent parts of the study we present the results from the survey sections in which attitudes towards animal welfare were assessed. Since the market demand for value-added attributes related to housing, handling, transport, growth period and feed is related to animal welfare it was considered relevant to examine the extent to which the demand (WTP) for such services are segmented based on underlying differences in attitudes toward animal welfare. In cases of segmented demands, models based on assumptions of homogeneity among respondents would be inappropriate (Campell and Doherty, 2013).

Table 18 shows the attitudes toward animal welfare for each of the samples. Kruskal-Wallis and chi-square tests were unable to reject that the responses on the attitudinal measures differed due to SES. The results are therefore analysed across each sample. The findings from the value scale suggest large internal consistency in strong agreement of the “five freedoms”.58. Responses to the belief scale showed a certain level of internal consistency with some heterogeneity among respondents in relation to the recognition of animals as sentient creatures. The attitude question related to animal welfare standards within predominant production methods showed that respondents largely consider that the emotional-well-being and good quality of life for the animals is well met. That said, a majority of the respondents considered that large changes within the poultry production system should be made. However, for egg production the majority of respondents considered only minor or no animal welfare changes were needed.

58 According to the UK Farm Animal Welfare Council, the “five freedoms” define “ideal states rather than standards for acceptable welfare”. The five freedoms for animals are: freedom from hunger and thirst, freedom from discomfort, freedom from pain, injury or disease, freedom to express normal behavior, and freedom from fear and distress. For more information, see: http://webarchive.nationalarchives.gov.uk/20121007104210/http://www.fawc.org.uk/freedoms.htm.


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Table 18: Attitudes toward animal welfare

chicken eggs

Mean St. dev Cronbach alpha Mean St. dev Cronbach

alpha

Value scalea,c 42.11 6.5 0.928 41.20 7.2 0.932

Belief scaleb,c 15.75 2.98 0.784 15.65 3.06 0.823

Predominant productiond chicken egg extent of changes

needed e chicken eggs

Strongly disagree 0.5% 0.5% No changes 11.3% 22.9%

Disagree 5.6% 8.0% Only minor 33.3% 32.5%

Neutral 15.0% 18.7% Quite large 24.8% 24.2%

Agree 44.8% 39.7% Large 16.9% 11.4%

Strongly agree 34.1% 33.1% Very substantial 13.7% 9.0%


Note: a Based on 10 items adopted from Heleski et al. (2004) related to values as they pertain to the “five freedoms” (U.K. Farm Animal Welfare Council).b Four item scale. cThe value and beliefs scales were assessed on 5 item Likert scales (1=Strongly disagree; 5=Strongly agree). d The extent to which it incorporates sufficient animal welfare standards for maintaining the emotional well-being and good quality of life for the birds.e The extent to which it is felt that welfare-related changes are needed in the current production systems of chicken/eggs.

Preferred premium product attributes. A cluster ensemble analysis was performed to identify segments of respondents with very similar responses to animal welfare-related questions. The cluster analysis used the four measures of attitudes towards animal welfare as continuous variables59. The four variables were transformed into a new format (mean=0; standard deviation=1) to eliminate potential scale bias.

The cluster analysis for the chicken survey identified four groups of respondents:

(i) Pro-animal welfare/pro-system changes (n=311, 38.7 percent of respondents): this group had higher scoring than the average for all the four variables (values, attitudes and beliefs on animal welfare, as well as the need for changes in the production system). This means that individuals hold

59 For more information, see Annex 6.

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animal welfare in high importance and believe that the current system is in need of significant changes to ensure that animal welfare needs are met.

(ii) Low animal welfare/pro-system changes (n=164, 20.4 percent of respondents): these respondents had lower than average scores on values, beliefs and the predominant question but they scored above average on the extent of needed changes in the production system. This group considered the need of such changes to be large or very substantial. However, these perceptions were not necessarily related to concerns for animal welfare, but could potentially be attributed to a general lack of knowledge about the state of the production system.

(iii) High values for animal welfare/no system changes (n=158, 19.7 percent of respondents)); these respondents scored higher on the value scale but lower than the average for beliefs and attitudes towards animal welfare, as well as the need for changes to the production system. This group of respondents demonstrated a high degree of concern about animals’ rights, and asserted that animals should be treated well. However, individuals in this group did not believe that animals are sentient beings, which is an anomaly when taking into account their values for animal welfare. On the subject of production systems, this group did not see the need for changes in the system, which may be attributed to a lack of understanding about the concept of animal welfare. This combination of responses towards animal welfare and the production system is unexpected; indeed, the authors have not encountered this result in previous studies.

(iv) Pro-animal welfare/no system changes (n=171, 21.3 percent of respondents): this group of respondents scored higher than average for the values, beliefs and attitudes variables but scored lower on the need for changes. In other words, this group held animal welfare values in high regard and believed that animals are sentient beings. However, respondents did not agree that changes to the production system needed to be made, as in their opinion, the current system treats animals adequately. As a result, this group did not uphold their values, beliefs and attitudes about animal welfare in practice, which likely stems from a lack of sufficient knowledge about current production systems. Due to this limited understanding, respondents from this group may not have the information to judge the extent to which the production system meets their requirements for animal welfare.

The cluster analysis for the egg survey identified three groups of respondents:

(i) Pro-animal welfare/no system changes (n=283, 34.8 percent of respondents): scored lower than average on the extent of needed changes but higher than average on the other three variables. Consequently, this group also held animal welfare values highly but did not believe that changes need to be made.

(ii) Low animal welfare/no system changes (n=450, majority of respondents): this group scored slightly lower than average on the value, beliefs and


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predominant variable, but had a substantially lower score on the extent of current changes. This means that the majority of respondents in the egg survey did not consider animal welfare a high priority and did not think major changes needed to be made to the systems of egg production.

(iii) Low animal welfare/pro-system changes (n=80, 9.8 percent of respondents): this group was small but notable in revealing lower scores on values, beliefs and predominance, but recognised a need for larger changes to the current production systems. Like the group in poultry meat production, this result may potentially be attributed to a general lack of knowledge about the state of the production system.

The WTP was then calculated based on successive random draws of the mean of the population distributions for each improved attribute level using an HB approach. The cluster membership variable related to animal welfare attitudes, SES and geographical location (metropolitan area vs region) and household size were tested as categorical covariates in the HB estimation to improve the efficiency of the upper level part of the HB model.

Tables 19 and 20 present the mean WTP (and the posterior mean range [i.e. confidence interval for mean WTP]) for each of the attributes within the egg and broiler meat surveys, respectively (see more details in Annex 2). For a given attribute, the WTP is derived based on a comparison between the premium and the base levels for that attribute. In this particular experiment there are two types of situations: those with two levels for a given attribute and those with three levels.

An example of a two level attribute is the traceability of a product. The base level of this attribute is a product with no traceability information, while the second level is a level with information about traceability. This exercise therefore seeks to assess the WTP for having product traceability information. This same comparison was made for all two level attributes.

An example of a three level attribute is housing. The usage of basic cages is considered the base level, while free-range housing without outdoor access is the second level and free-range housing with outdoor access is the third level. As a result, the WTP was assessed in two different ways. First, the WTP for free-range without outdoor space was compared to the base level. Subsequently, the WTP for free-range with outdoor space was compared to the base level.

Another issue related to attribute importance is the extent to which probabilistic transitive order and dominance relations exist. The survey data allowed for the mapping of WTP distributions (probability density), which then was used to examine the dominance relations between attributes (Figure 21 for eggs and Figure 22 for broiler meat). A strictly dominant attribute would be preferred to

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all other attributes. A weakly dominant attribute would not be dominated by other attributes, but would dominate at least one other attribute in terms of importance. Sets of weakly dominant attributes then define so-called “chunks”.

For the egg survey the strongest preferences were for the preferred brand and the results show that respondents, on average, were willing to pay TL 0.83 (per 10 eggs) more when the product carried the name of each person’s preferred brand instead of having just a generic brand name. Consumers revealed strong preferences for a label certifying the feed to be free from hormones, antibiotics and slaughter by-products as well as for sealed packages allowing for eggs to be visible through the package. Verification of regular controls showed relatively strong support, and there were also preferences for access to a web-based system to allow traceability and access to quality certificates as well as pasteurisation and omega-3 enrichment.


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Table 19: Mean willingness-to-pay and ranges for the mean of the posterior distributions of the Bayesian estimations

Posterior mean range

eggs (WtP per 10 eggs) Mean (tl) 5% 95%

Feed free from hormones, antibiotics and slaughter by-products 0.487 0.414 0.585

Traceability via number on package 0.194 0.121 0.278

Enriched cages -0.179 -0.258 -0.101

Free-range, no outdoor option -0.169 -0.253 -0.088

Free-range with outdoor area -0.108 -0.201 -0.025

Preferred brand 0.834 0.747 0.941

Egg-laying and expiration date -0.237 -0.293 -0.188

Sealed package 0.451 0.388 0.517

Package with product visibility 0.441 0.381 0.515

Verification of regular control by government authority 0.351 0.287 0.438

Pasteurised 0.131 0.062 0.214

Fodder enriched with omega-3 0.104 0.038 0.166

Yellow shell colour -0.453 -0.542 -0.382

Large size (63-72g) -0.111 -0.189 -0.035

Jumbo size (>73g) -0.039 -0.144 0.06


Most notably, the average WTP for the enriched cages and free-range housing alternatives were negative, meaning that such attributes would have to be discounted for a consumer to accept them. This result is consistent with the choice counts from the configuration step in which a majority of the respondents expressed preferences for basic cages. In addition, there was a lack of preferences for the addition of the egg-laying date to the mandatory requirement of expiration date. Finally, consumers lack preferences for yellow shell colour as well as for larger sized eggs. There was, however, a smaller portion of consumers who were willing to pay extra for jumbo eggs.

Figure 21 shows WTP distributions for the egg atributes for which the average WTP was positive (Table 19). The data supports the presence of the preferred brand as the only strictly dominant attribute. This suggests that marketing

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investments in developing premium egg production should focus on brand identity as the provider of premium quality rather than trying to communicate the various product features that form the premium. Moreover, the data supports transitivity among the remaining attributes with three “chunks” of weakly dominant attributes. From right to left in Figure 21, three attributes (feed free from hormones, etc.; sealed package; package with visibility) formed a chunk which is only dominated by the preferred brand attribute. The second chunk, although not strictly revealing weak dominance, consists of only one attribute: verification of regular controls. The third chunk again consists of three attributes (traceability; pasteurisation; and fodder enriched with omega-3). These dominance relationships are useful to determine the prioritisation of products by the respondents.

Figure 21: Distributions of mean willingness-to-pay for egg attributes

0

0,02

0,04

0,06

0,08

0,1

0,12

0,14

-0,0

3

0,01

0,05

0,09

0,13

0,17

0,21

0,25

0,29

0,33

0,37

0,41

0,45

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0,53

0,57

0,61

0,65

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0,73

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0,81

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0,89

0,93

0,97

freq

uenc

y

TL/10 eggs

Feed free from hormones, antibiotics and slaughter by-products

Traceability via number on package

Preferred brand Sealed package

Package with product visibility Verification of regular control by government authority

Pasteurised Fodder enriched with omega-3


Note: Based on 30 000 iterations from the means of posteriors of the population distributions.

For the broiler meat survey, the strongest preference was also revealed for brand, with an average WTP of TL 2.45 per kg more when the product carried the name of the preferred brand instead of having just a generic brand name (Table 20). Consumers also revealed strong preference for verification of regular


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controls. Moderate levels of preference were revealed for a label certifying the feed to be free from hormones, antibiotics and slaughter by-products as well as for certification of proper handling of animals during loading and unloading. Less pronounced preferences were revealed for steam scalding and dry plucking as well as for the slower growing breed. Access to a web-based system to allow traceability, access to quality certificates and having the product fully visible through the package were reflected in only marginal preferences. Similar to the egg survey, the preferences for the outdoor housing alternatives and for additional information about packaging date were found to be negative. Furthermore, the shorter distance transportation alternative was associated with negative preferences.

Table 20: Mean willingness-to-pay and ranges for the mean of the posterior distributions of the Bayesian estimations

Posterior mean range

Broiler meat (WtP per 1 kg) Mean (tl) 5% 95%

Packing and expiration date -0.162 -0.246 -0.075

Certification of proper handling during loading and unloading 0.441 0.360 0.523

Short transportation time (< 4 hours) -0.307 -0.440 -0.172

Traceability via number on package 0.023 -0.077 0.134

Feed free from hormones, antibiotics and slaughter by products 0.471 0.324 0.583

Steam scalding 0.122 0.023 0.232

Dry plucking 0.279 0.113 0.457

Slow-growing breed 0.146 0.004 0.287

Open floor, no outdoor area -0.217 -0.368 -0.062

Open floor with outdoor area -0.130 -0.348 0.062

Verification of regular control by government authority 0.804 0.695 0.922

Preferred brand 2.446 2.247 2.654

Product fully visible through package 0.039 -0.047 0.120


Figure 22 show the willingness-to-pay distributions for the broiler meat attributes for which the average WTP was positive (Table 20). The data supports the presence of the preferred brand as the only strictly dominant attribute and, by the distance of

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this distribution from the other WTP distributions, it is clear that the importance of the preferred brand is more emphasised for broiler meat than for eggs.

Moreover, data then supports that the “verification of regular control” attribute dominates the remaining attributes, which suggests that further development of public quality assurance schemes should be a priority. Next, feed free from hormones etc. and certification of proper handling weakly dominate the remaining attributes with exception of dry plucking. Four attributes (slow growing breed, steam scalding, full visibility and traceability) form a chunk of attributes which weakly dominate the “open floor with outdoor area attribute”, for which the WTP distribution is only partly above zero.

Figure 22: Distributions of mean willingness-to-pay for broiler meat attributes

0

0,01

0,02

0,03

0,04

0,05

0,06

0,07

0,08

0,09

-0,6

1-0

,53

-0,4

5-0

,37

-0,2

9-0

,21

-0,1

3-0

,05

0,03

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0,27

0,35

0,43

0,51

0,59

0,67

0,75

0,83

0,91

0,99

1,07

1,15

1,23

1,31

1,39

1,47

1,55

1,63

1,71

1,79

1,87

1,95

2,03

2,11

2,19

2,27

2,35

2,43

2,51

2,59

2,67

2,75

2,83

2,91

2,99

freq

uenc

y

willingness to pay (TL/kg)

Certification of proper handling during loading and unloading

Traceability via number on package


Steam scalding

Dry plucking Slow-growing breed

Open floor with outdoor area Verification of regular control by government authority

Preferred brand Product fully visible through package


Note: Based on 30 000 iterations from the means of posteriors of the population distributions.


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Finally, the results presented an anomaly with regards to preferences for animal welfare. Although respondents largely agreed that large changes should be made in poultry production, there was a low level of WTP for animal welfare attributes. This may be due in part to the relatively high cost of premium products with animal welfare.

Market simulations – preference predictions

For the purpose of predicting market choice, the estimated part-worth utilities for each respondent from the HB estimations were used to construct so-called market simulators for eggs and chicken meat. The market simulators used in this study were based on the share of preference method, which can be used to analyse preference predictions for groups of individual respondents sharing some given characteristic (e.g. for household sizes, areas of living, etc.). It should also be acknowledged that there is a difference between shares of preferences and the mean WTP results. The share of preferences is a measure that relates to trade-offs between attributes at the level of each individual whereas the mean WTP for a given attribute is a population measure. It should, however, be acknowledged that the market simulator preference predictions cannot account for additional impact of real-world factors such as advertising or other contextual factors.

In this study, the market simulators were used for three strategic marketing purposes: (i) to generate relative demand curves for each improved attribute level, (ii) to examine the competitiveness of each product attribute and therefore how the product can be modified to capture more demand, and (iii) to examine which selection of product attributes could be offered to different market segments to maximise the probability of market choices60.

Relative demand functions

Figure 23 presents the relative demand functions for the attributes included in the egg survey. The results show that presence of a preferred brand attribute would be decisive for predicting product preferences within the lower range of the price continuum (TL 2.45-4 per 10 eggs). Within this price range, 55-60 percent of the respondent would choose to buy eggs from their preferred brand instead of eggs with all attributes at base level61. However, another 14 percent of respondents stated that within this price range, they were unsure as to whether they would purchase the product, and might instead opt out of the purchase. In other words, the opt-out alternative, or the number of respondents who would not necessarily buy this product, was approximately 14 percent for a product within this price range.

For higher prices, the importance of the preferred brand attributes becomes less substantial but is still the attribute that would have the strongest influence on

60 For more information, see Annex 6.61 “Base level” is the poultry product without any premium attributes.

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the predictions of market choice. At the highest price level, the opt-out option draws a share of 18 percent, meaning that as prices for the preferred brand egg product increases, individuals become more likely to select the base product, or the product with no premium attributes, at the lowest price.

Eggs with yellow shell colour exhibit the lowest relative demand but the results still suggest that 22-27 percent of the respondents prefer these types of eggs, while 26 percent stated that they would opt out. The parallel shapes of the relative demand curves within the lower range of prices suggest that the price sensitivity is fairly constant across attributes. The results also suggest that the price sensitivity is less pronounced within the lower range of prices. At prices higher than TL 4 per 10 eggs there is a more pronounced substitution in favour of the base-level product. Furthermore, the relative demand curves are quite well separated, meaning that the results can serve as an input to product optimisation and differentiation decisions based on the order of preference predictions.

Figure 23: Relative demand for improved egg product attributes

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Verification of control

Pastuerized

Omega-3

Enriched cages

Free range, no outdoor area

Free range, with outdoor areaLarge eggs

Jumbo

Yellow (brown) colour

Egg laying date & expiry date



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As part of the analysis it was considered how the addition of attributes related to improved farm animal welfare within egg production would affect relative demand. For egg production, the improved housing systems and the use of feed free from hormones, etc. were the two attributes most associated with animal welfare. For the housing systems, use of enriched cages or, alternatively, use of free-range production with an outdoor area were considered since there is little evidence in the literature that free-range production without an outdoor area would provide qualitatively better animal welfare conditions than enriched cages. The improved feed attribute has little to do with animal welfare per se but is relevant to consider here since organic production would require the use of such feed quality in combination with the availability of outdoor areas.

Figure 24 presents the relative demand functions for each of these three attributes when considered separately as well as when the free-range and the feed attributes are considered together. The results show higher demand for free-range housing systems in the lower price range but that the share of preferences then become reversed, although just marginally so, at higher prices. Furthermore, and interestingly, the results suggest the presence of minor complementarity for the combination of the animal welfare attributes. Hence, introducing just the improved feed level, while keeping production to basic cages, would attract almost as much demand.

Figure 24: Relative demand for improved levels of attribute related to animal welfare in egg production

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Figure 25 presents the relative demand functions for the attributes included in the broiler meat survey. In the case of broiler meat, the preferred brand attribute draws an even higher relative demand than for egg products, meaning that the importance of the brand is even more important for product differentiation. In addition, the verification of regular governmental controls attribute is the second most important attribute to predict product preferences.

Furthermore, there is little discrimination between the remaining attributes. The short travel time attribute received the lowest level of relative demand. The slopes of the relative demand functions are similar across the attributes with a step-wise shape so that there is relatively little price sensitivity in the low and upper range of the price interval but more price sensitivity in the interval between TL 12.90 and 15 per kg. As the use of the opt-out alternative was fairly stable (14-20 percent along the price range depending on attribute) this means that the change in slopes are more attributed to substitution effects in regards to the base level product.

Figure 25: Relative demand of improved broiler meat product attributes

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Certification of proper handling

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Feed free from hormones, antibiotics and slaughter byproductsSteam scalding

Dry plucking

Slow growing breed

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Preferred brand

Product fully visible through package

Open floor, no outdoor option

Open floor, with outdoor option

Packaging and expiry date



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For broiler meat production, it was also relevant to considered how the addition of attributes related to improved farm animal welfare would affect relative demand. There were five attributes for which the improved levels related to animal welfare (Figure 26). The relative demand for the free-range housing system without outdoor option is not shown in Figure 26. The results suggest that feed free from hormones, etc. together with certification of proper handling had the most discriminatory impact on demand. However, the certification attribute had more emphasis at the lower price range. The combined complementarity effect on demand from a product which would include all five animal welfare related attributes was larger at prices above TL 15 per kilogram. However, no complementary effects were seen within the lower price range. This suggests that a certification scheme for the proper handling of animal during transport, or alternatively a mandatory requirement of feed quality, could serve as public goods.

Taken together, the results for both eggs and the broiler meat products suggest the presence of a relative demand for all improved levels of the attributes. But the results also show that the extent of complementarity between attributes related to animal welfare varies across product and prices.

Figure 26: Relative demand for improved levels of attribute related to animal welfare in broiler meat production

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Certification of proper handling during loading and unloading


Slow growing breed

Open floor, with outdoor option

Short travel time

Product with all improved levels of FAW


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The second strategic marketing question relates to the competitiveness of each product attribute: how the product can be modified to capture more demand. The market simulators were used to place two products (as well as the opt-out alternative) in competition with each other. Each scenario placed a product with an improved attribute level (leaving all other attributes at base levels) in competition with a product with all attributes at base levels. The share of preferences for the two competing product at equal prices and the share of the opt-out alternative was then obtained along the price continuum. Only attribute levels with a positive average WTP were included in the analysis. The results from this step of the analysis could be used together with cost information to investigate the incremental benefits of the different product attributes relative to the cost of providing them.

For eggs, the results (Figure 50, Annex 7) showed that the attributes preferred brand, feed free from hormones etc., sealed packaging, full product visibility, verification of regular control, and to some extent the traceability attribute, can be used to modify the base level product to capture more demand. Adding these attribute levels to the base level product clearly differentiate the product to the advantage of the modified product. However, improving the product with pasteurisation or omega-3 will just put the improved product on par with the base level product, meaning that it would not be an effective product development. For omega-3, the results suggest that there is a minor competitive advantage within the TL 6-8 per ten egg price range.

For broiler meat, the results (Figure 51, Annex 7) show that the attributes preferred brand, verification of regular control, certification of proper handling of animals, dry plucking, feed free from hormones, etc.; and to a minor extent steam-scalding, can be used to modify the base level product to capture more demand.

In addition to the analysis on competitiveness, it is relevant to consider how much more demand a product with all attribute levels could generate (considering attributes for which the WTP was positive). The comparison was made to a product with all attributes at base level. The analysis simulated these product configurations as two separate scenarios. The results in Figures 27a (eggs) and 27b (broiler meat) show the total market demand for each configuration separately. In each figure, the share of the opt-out alternative represents the market residual as one minus the share of market choice for each of the product configurations.


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Figure 27a: Prediction of market choice for eggs

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Figure 27b: Prediction of market choice for broiler meat

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The results in Figures 27a and 27b show that product configurations including all attribute levels for which the WTP is positive have considerable potential to increase market demand. For eggs, such a configuration nearly exhausts market demand within the price range between TL 2.45 and 4 per 10 eggs, leaving an opt-out level of around 2 percent. For broiler meat, the opt-out level in the lower price range amounts to around 9 percent, which means that there are likely other product features that may contribute to increase market demand beyond what was included in this study.

The difference between the shares of market choices in Figures 27a and 27b represents the maximum potential increase in market demand from adding improved attribute levels. This potential is larger for eggs than for broiler meat. For eggs, the potential increase in market demand from adding improved attribute levels is around 26 percent in the lower price range and around 27 percent at the upper price range, though the potential reaches a maximum of 32 percent at the TL 7 price level. For broiler meat, the potential increases from a level of 13 percent at the lower price level to 18 percent at the upper price level. Furthermore, the results suggest that the egg market is more price sensitive than the broiler meat market. The share of market choice for the base level product falls below 50 percent already at the TL 6 price level. The improved configuration is, however, more price invariant and can garner a price at TL 9 before a majority of respondents have selected the opt-out alternative.

Competitiveness of different egg housing systems

Next, as the housing attribute is a major characteristic of egg production systems, it is reasonable to examine the competitiveness of the four housing systems in a scenario where eggs from each could co-exist in the market. This scenario then presents housing as the only distinguishable attribute between egg products. Figure 28 shows the share of preferences for each housing system when all other product attributes are at either base level, or at the levels for which there was positive WTP.


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Figure 28: Market choices for housing systems in egg production

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Free range, no outdoor area [WTP>0] Free range, with outdoor area [WTP>0]

None [base] None [WTP>0]


The results in Figure 28 suggest that the egg market has the potential to include all four housing systems. The share of preferences for each housing system is rather stable in relative terms within the lower price range between the two types of product configurations. In the case when all other attributes are at their base levels, the largest share of housing preferences goes to basic cages with a share of 22.7 percent, followed by free-range systems with an outdoor area with a share of 20 percent, while the two other housing systems have equal shares of around 18 percent.

As prices then increase, the share of preferences for the housing alternatives becomes less differentiated while the share of the opt-out alternative grows larger. Market demand then increases when the other attribute levels for which WTP was positive are included. This is seen in Figure 28 from the downward shift of the “none” alternative. The effect was to increase the share of predictions for the housing attributes and this effect was rather proportional, which suggests that the preferences for the housing systems

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are quite independent of all other attributes. This result might be unrealistic since products generally can be expected to compete with one another more unequally than was specified in this scenario analysis. A product for which attributes are improved would likely gain more in demand from the subset of products with which it competes more directly.

For broiler meat production, the results in Figure 29 also support the notion that the market for broiler meat has the potential to include the three housing systems. The results are similar in structure to the results for eggs in that the highest share of preferences goes to basic cages but each of the free-range alternatives would, ceteris paribus, would be preferred by 25 percent when other attributes are at base levels. In addition, the results in Figure 29 corroborate the results shown in Figure 27b and suggest that the market for broiler meat is less price sensitive than the egg market. Figure 29 shows that this also holds for the competitive environment for housing systems.

Figure 29: Market choices for housing systems in broiler meat production

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Open floor, with oudoor option [WTP>0] None [WTP>0]



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Choosing the right product portfolio

The third and last strategic marketing aspect in this analysis concerns which portfolio of the egg and broiler meat products could be offered to different market segments to maximise the probability of market choice. There were results in the surveys to suggest that the quantities of eggs and broiler meat differed due to household size and areas of living (metropolitan or other geographical regions), while no such differences could be attributed to SES (see Figure 19 (a,b) and Figure 20 (a,b)). However, preference differences due to SES are presented in the following analysis as this classification is a proxy for the household income level, which can be expected to influence the utility of product characteristics. The results are presented in Annex 3 for eggs, and Annex 4 for broiler meat. The analysis had a portfolio approach and sought to identify the relative share of preference for each attribute level of a product comprised of all attributes with a positive WTP (while keeping the remaining attributes at their base levels).

The results for the segmentation based on SES revealed more distinctive differences for broiler meat than for eggs (see Annex 1 and 2 for more information on SES breakdown). For the egg product, the SES-AB class had distinctively stronger preferences for the preferred brand attribute, while also having lower preference for traceability. Moreover, product visibility was more important for the C1 and C2 classes than for the other classes. It is also noteworthy to observe that the DE class revealed the lowest share of preferences for omega-3 enrichment.

For broiler meat, the results in Annex 4 (Figure 47) show more discrepancies in attribute preferences due to the SES-class categorisation. The two extremes (SES-classes AB and DE) both had relatively strong preferences for verification of regular controls as well as for improved feed quality. The DE class then had the lowest preferences for a preferred brand but more preferred product visibility and traceability. The AB class had distinctively low preferences for the attributes related to scalding, but also lower preferences for proper handling, slow growing breed, and product visibility.

The segmentation based on whether the respondent was living in any of the three metropolitan areas or in any of the seven other regions revealed more pronounced discrepancies in preferences but more so for the broiler meat than for eggs. For the egg product, respondents living in the regional areas revealed higher preferences for the packaging attributes as well as for omega-3 enhancement, whereas people living in the metropolitan areas had higher preferences for traceability. The results for the remaining attributes were mixed.

For broiler meat, the importance of preferred brand, improved feed quality, alternative methods of plucking and product visibility was higher for respondents living in the regional areas. Preferences for traceability, slow

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growing breeds and proper handling (but only at lower prices) was higher among respondents in the metropolitan areas.

The results for the segmentation based on household size were mixed. For eggs, more emphasised discrepancies in preferences were revealed only for verification of control, traceability and pasteurisation. Larger households had distinctively higher relative preferences for traceability. For broiler meat, smaller households had distinctive preferences for proper handling and traceability as well as to some extent for dry plucking, whereas this category had the lowest preferences for preferred brand. The latter attribute was of more pronounced importance to middle-size or large households.

Taken together, the results here suggest that different portfolios of egg and broiler meat products can appeal to market segments based on income, areas of living and household size. These aspects could be considered in product optimisation to make the products appeal to different groups of respondents.


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Chapter 6 – Supply chain costs for developing improved quality/animal welfare products

Summary

• During 2015, interviews were conducted with medium- to large-scale egg and poultry meat producing companies in Turkey in order to assess their views regarding potential investments in premium poultry products. In addition, in-depth interviews were conducted with representatives of the Turkish poultry industry as well as with consultants, scientists and technical experts of supplying companies. Approximate planning figures on fixed and variable cost are compared for the three most relevant types of egg production: conventional cages, enriched cages and truly organic production with access to outdoor areas.

• All respondents expressed that biosecurity is their primary concern and companies able to secure the services of at least one veterinary have a major advantage.

• Enriched cages differ from conventional cages only in terms of the slightly more expensive indoor equipment, which amounts to about an additional TL 0.01 per egg. According to industry expert estimates, feed conversion ratios and mortality rates are overall comparable between conventional cages and enriched cage systems. In both systems, feed costs amount to more than 50 percent of total cost per egg.

• Calculations based on the available average figures suggest that the additional land required for outdoor access is a significant fixed cost component and may amount to TL 0.05-0.08 per egg, depending on local land prices and development costs.

• Total production costs for organic eggs with outdoor access are about 60-70 percent higher than production costs for conventional eggs, while feed represents the largest cost in both systems. However, this figure may be even higher depending on the availability of certified organic feed.

• There is currently no market in Turkey for certified organic feed, and no regular world market. This implies that the setup of certified organic production would have to take place in combination with the establishment of organic crop farms.

• Production cost for conventional versus organic broiler meat also show that feed costs account for the largest share in total cost (about 50-80 percent). Production costs for organic broilers are slightly higher, due to lower stocking densities and an almost twice as long a growth period per bird.

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• According to the study results, none of the fixed cost items that are potentially relevant for the provision of certain premium product attributes, e.g. animal welfare, would alter the production cost structure significantly.

• At observed market prices for eggs, the breakeven price would be TL 0.22, 0.24 and 0.37 per egg for cages meeting conventional, enriched and organic standards, respectively. Thus, for these average figures, no additional margin seems to exist for producers. From an economic perspective, this can be interpreted as an indication that the egg market in Turkey is competitive and individual firms are price takers.

• The largest poultry meat producers are not considering organic production because it would require fundamental changes to the existing system of subcontracting farms. Major fixed costs in this respect include the development of new guidelines according to which contractors should be paid, and a different set of contractors would need to be found in areas of Turkey where no poultry production takes place in order to maintain biosecurity.

• Specifically, the results suggest that it would not be possible to establish large-scale organic egg production facilities in Turkey based on imported certified feed from Europe or elsewhere. Instead, the assumed price ranges intend to illustrate the sensitivity of organic egg production in Turkey with respect to feed cost, assuming that price ranges for organic feed in Turkey can be approximated by the corresponding prices from Europe.

Methodology: Case studies of poultry meat and egg producing companies in Turkey

Prospective costs of developing and introducing premium poultry products into Turkish poultry meat and egg supply chains have been evaluated based on in-depth interviews with technical experts and executive managers of selected commercial companies that reflect best industry practices. The firms were selected based on the following criteria:

• representative of different firm sizes in line with industry best practices

• representative of geographical hotspots of egg and poultry production in Turkey

• preliminary interest to invest into free-range or organic production

• availability of relevant interviewees (e.g. technical experts)

During most interviews, several technical experts from each company were present and stated their opinions. Each interview took between two to three hours; extensive interviews were conducted in spring 2015 by the research team, and also separately with support from representatives of the Big Dutchman company.


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The aim of the interviews was to generate relevant case studies of medium- to large-scale producers, rather than a sample that would be representative of all farms in Turkey that happen to have any number of fowls. As indicated earlier in the document there are not a lot of large-scale producers in Turkey as the market is quite concentrated, which means that the firms covered by the case study interviews in this report actually represent a major share of Turkey’s poultry and egg output.

Table 21 presents an overview of the interviewees. Because some of them requested confidentiality, company names and names of individuals are not released here.

Table 21: Overview of interview partners for in-depth interviews

Interviewed firm Type of institution/firm location

1 Egg producer Izmir

2 Meat integration Bandirma

3 Egg producerMeat integration Inegöl

4 Egg producer Ankara

* Prof. Dr. Necmettin Ceylan Poultry expert, University of Ankara

5,6 Two different egg producers Çorum

*Yum-Bir (Producers Association),

Hüseyin Sungur, General Secretary

Ankara


* Additional in-depth interviews that were not conducted with firms directly, but with experts who familiar with the type of large-scale producers targeted in this report.

In order to preserve anonymity, it is also not possible to link the information in Table 21 to further details of the corresponding firm profiles presented in Table 22, which summarises important characteristics of the firms without connecting them to their geographical location within Turkey.

Table 22 explains that most egg producers described their main product as “fresh eggs”, which may be interpreted as generic eggs in shells. Only the largest producer described it explicitly as “table eggs” and emphasised his focus on premium quality egg production. Throughout the analysis in this section, results from the four different egg producers are not presented separately, and instead are referred to as “the typical large-scale producer” and “the typical medium-scale producer”. This approach was chosen because

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not all respondents replied to all questions, and usually several experts from each company were present during the interviews. The rich set of information obtained from this constellation of in-depth interviews was then aggregated such that differences between the firms that are related to the scale of the operation rather than to firm-specific aspects of technology, can be identified.

Table 22: Profiles of firms that were included in the in-depth interviews

Main activitycapacity (birds

or market share)

employees own brand?

Major export destinations

is the eu a relevant future

market?

Fresh eggs 200 000 7+10 seasonal

Yes, in cooperative Iraq No

Fresh eggs 350 000 12 Yes Iraq, Georgia Maybe

Fresh eggs 1 200 000 ca. 50 Yes Iraq, Israel Maybe

Table eggs 4 500 000 120 Yes, several Israel, Dubai, S. Arabia Yes, definitely

Poultry meat

ca. 20 percent of chicken

meat produced in Turkey;

system of subcontractors

4 500 + contractors Yes, several Gulf countries Yes, definitely

Poultry meat

ca. 5 percent of chicken meat

produced in Turkey; own

facilities

50 directly related to

primary poultry

production

Yes, several Main focus on Turkey Unlikely


Furthermore, Table 22 reveals that the two poultry meat producing firms included in the set of in-depth interviews account for about one-quarter of chicken meat produced in Turkey in terms of quantity. These companies are both large-scale operations with a high degree of vertical integration, involving almost all stages of broiler production. However, both poultry firms utilise a system of subcontracting farms for raising poultry.

All firms included in the sample carry at least one brand, though only the largest egg and poultry producers had at least one brand known to consumers. Meanwhile, all firms were frequent exporters of egg or poultry products, though only the larger producers saw the EU as a potential future market. However, poultry producers were not as optimistic about opportunities in the EU; rather, many looked to emerging markets for market expansion instead.


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Analysis of current practices in Turkey’s poultry supply chain organisation

The companies selected for the in-depth interviews (Table 21) can be viewed as best practice egg and poultry producers of medium to large size. During the interviews, the organisation of each firm’s supply chain was assessed for each major task in egg and poultry production based on whether they used in-house production, out-contracting or open market purchases. A distinction of supply chain organisation according to these different tasks is useful because it highlights the different fixed costs, opportunity costs and transaction costs of each major step of production.

Box 2: Definition of different types of contractual arrangements in poultry supply chains

In-house: A specific task or stage along the supply chain is managed and operated directly by personnel of the company, or by another company that is under 100 percent ownership of the firm.

Out-contracting: A specific task or stage along the supply chain is managed and performed by another company that is at maximum partly owned by the firm, while regularly contributing to the supply chain under contractual arrangements that keep date, type of service and further parameters, such as price and quantity, fixed over a longer time horizon

Open market: A specific task or stage along the supply chain is purchased by the company as an input to the production process from other businesses without having close contractual arrangements with them. The main difference from out-contracting is the degree of contractual integration into the firm. Open market tasks imply that the providing firm or supply channel may be changed flexibly according to market prices for the corresponding task.

Current practice among Turkey’s egg producers

The Turkish Ministry of Agriculture has issued licenses for 1 100 egg production companies62. There are currently about 3 400 production houses and production is increasing at a rate of 5 percent each year. In the year 2014, 17.1 billion eggs were produced63, of which 26 percent were exported. Additionally, around 2 billion eggs are produced each year in backyard production systems (Sungur, 2015).

Table 23 reveals that for both large- and medium-scale egg producers, the supply chain is highly fragmented and typically focused on core production and marketing activities. The observed relative importance of wholesalers in the distribution process is a signal of high transaction costs for the distribution of eggs to consumers.

62 Information received from H. Sungur, representative of the Yum-Bir Association in a personal interview on February 26, 2015.

63 USDA International Egg and Poultry Review. Accessible at: http://search.ams.usda.gov/MNDMS/2015/03/PY20150324WIntlPoultryandEgg.pdf.

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However, the largest egg producers included in the set of interviews develop their own brand labels for premium eggs, while medium-sized egg producers tend to market eggs through wholesalers or (less often) cooperative arrangements. This may signal that substantial fixed costs are involved brand-name development. These fixed costs arise from necessary up-front investments in production facilities, sales channels and marketing, and also require expenses in terms of continuous marketing activities in order to maintain brand market share. These fixed costs are likely diminished with economies of scale, implying that the largest egg producers can cover them, but medium-sized egg producers are less likely to be able to and are therefore less likely to develop their own brand.

Table 23: Typical organisation of tasks along the supply chain among the interviewed egg producing firms

egg supply chain: task large-scale egg producer: organisation of tasks

Medium-scale egg producer: organisation of tasks

sales

Own brand, distribution system, exports; to

wholesale and directly to retailer

Largely to wholesaler, joint marketing association with

other producers

k Transport Own and contractors Typically contractors

distribution Own or wholesaler Own or wholesaler

k Transport Own and contractors Own and contractors

Processing and Packing In-house In-house

Transport Own Own

k layers Own feed millsOwn veterinarians and labs

Own or subcontracted feed mills

Veterinarians shared with other producers

k Transport Own Own

rearing Sub-contractor; shares invested Own rearing

k Transport Contractor Contractor

hatchery & Breeding Outsourced to other company; special breeders

Outsourced to other company; special breeders


Note: Categorisation of medium- and large-scale producers differs from official government definitions and is based on self-assessments and perceptions expressed by industry groups in the interviews.


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Another major cost for both large- and medium-sized firms rests in the specialised transport of live animals and eggs for final consumption, which may explain the presence of specialised contractors for these tasks. Such costs are variable and depend on distance, wages and mode of transportation. However, in the case of satisfying animal welfare requirements, there is a need for upfront investments in special trucks that cannot be used for other purposes, as well as investments in training workers in the appropriate handling of the animals. Furthermore, according to the interviews, transport capacity needs can fluctuate: companies normally own transport vehicles themselves, but frequently seem to match excess transport requirements for deliveries through contracted firms.

Firms also face costs associated with veterinarians and laboratories – costs that smaller producers have more difficulty in meeting, obliging them to share veterinarians and use open market laboratory services, while larger producers are able to maintain their own laboratories and veterinarians.

A major difference between large- and medium-sized egg producers was found regarding the organisation of veterinary services and laboratory-based quality controls: the largest egg producers employ several of their own veterinarians that do not serve other egg producers in order to minimise the risk of biosecurity. In addition, the largest egg producers run on laboratories with up to ten employees in order to perform tests on product quality and feed content. For medium-sized egg producers this cost is too high, so they typically share veterinarians and rely on open market laboratory services.

Current practices among Turkey’s chicken meat (broiler) producers

There are a number of costs that threaten the profitability of organic poultry meat production. Firstly, it is very difficult to purchase certified organic feed in Turkey. As in the EU, organic production schemes usually require producers of broiler meat to produce their own feed on-farm, which makes large-scale commercial organic broiler production unfeasible for many operations.

Within the context of the Turkish market, organic broiler production requires the following: no GMO feed, no growth hormones, and only very little pesticide treatment on cereals used in feed. However, Chapter 5 showed that consumers in Turkey on average do not appreciate many of these attributes to the extent that they will pay elevated prices for such products.

The profitability of organic poultry (and partly egg) production is threatened further by less efficient feed conversion ratios for chickens that receive organic feed ratios. Conventional feed conversion ratios are 1:1.7 for poultry and 1:2.08

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for eggs. However, for organic production, the feed conversion ratio is 1:3-1:5 for poultry and 1:2.42 for eggs64.

Feed costs were also expected to rise from January 2016 onwards with the implementation of a ban on the use of slaughter by-products in feed. However, in January 2016, the government announced that it will postpone the implementation of the ban until January 201765. Interviewees even estimated that a full implementation of this ban may take at least five more years. Nevertheless, the ban is expected to create a number of economic and environmental problems for poultry producers. According to a 2015 GAIN Report by the USDA, 300 000 tonnes of feedstuffs were obtained from poultry by-products in 2014, contributing an estimated 8 percent of the protein needs for the feed sector in Turkey66. The ban of the use of slaughter by-products will necessitate the additional import of an estimated 400 000-500 000 tonnes of soybeans, 30 000 tonnes of di-calcium phosphate and 80 000 tonnes of fats. Turkey is already dependent on imports to meet its feed needs, and imported 9 million tonnes of feedstuffs in 2014 at a cost of USD 3.8 million.

The industry will also face difficulties in disposing of by-products due to the absence of incineration facilities in Turkey and a lack of knowledge about alternative ways to process slaughter residues. Although by-products could be incorporated into pet feed, the production and processing facilities for pet feed are currently far below the capacity that will be required once rendering can no longer be used. Large-scale investments in plants to process slaughter by-products and dead animals may therefore soon become a major issue in Turkey, while potentially creating problems with environmental pollution. Sector representatives in the GAIN Report estimate that the implementation of the ban will incur losses of USD 240 million to the Turkish economy. According to interviews conducted for this report, the ban of slaughter by-products implies an operational cost increase of about 3-4 percent for poultry and egg production. However, if large-scale investments are made, this may contribute to a more resilient poultry sector by reducing the threat of disease outbreaks.

As can be seen in Table 24, typical large-scale poultry meat production’s supply chain organisation is similar to egg production. However, due to the fixed costs involved in slaughtering and packaging the final product, the in-

64 Source: Helix Management Consultants. 2014. Turkey Meat and Dairy Markets Assessment Report. Report for the European Bank of Reconstruction and Development. Istanbul, September 2014.

65 Source: USDA. For more information, see: http://www.fas.usda.gov/data/turkey-amended-new-rules-turkish-government-poultry-feed-restrictions.

66 United States Department of Agriculture Foreign Agricultural Service Global Agricultural Information Network (GAIN) Report. “New Rules by Turkish Government on Poultry Feed Restrictions”. GAIN Report Number: TR 5067. December 28, 2015. Accessed at: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/New%20Rules%20by%20Turkish%20Government%20on%20Poultry%20Feed%20Restrictions%20_Ankara_Turkey_12-28-2015.pdf.


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house concentration beyond primary production appears somewhat stronger compared to the egg producing firms. Furthermore, the poultry meat producing companies included in the survey work using out-grower schemes (system of contractors for the actual growing of broilers).

Table 24: Typical organisation of the supply chain among the interviewed poultry producing firms

Poultry supply chain large-scale poultry producers (n=2)

sales & distribution Own brand, stores, wholesalers and retailers

Processing ii Own convenience food factory; also open market

k Transport Contractor

Processing i Own or commercial

k Transport Contractor

Broiler

(iv) System of contracting farms that do not own the chickens but get paid for the service. Contractors pay only for

medicine.(v) In-house production of broilers

(vi) Combination of I & II

k Transport Own

hatchery In-house

k Transport Own

Breeder Outsourced to specialised breeding company


Note: based on interviews with n=2 firms.

Implications for the implementation of premium product attributes

The eggs perspective

Assessing the feasibility of implementing premium poultry product attributes requires an analysis of the conditions under which certain attributes could be implemented by firms into their corresponding supply chain procedures. This allows one to draw conclusions about the relative ease at which promising product attributes may reach market implementation. Tables 25 and 26 present results of the in-depth interviews with technical experts from the egg producing companies listed in Table 21.

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Table 25 distinguishes egg producers into the categories of “large” and “medium-sized” (compare to Table 21). Firms in both categories were found to already fulfil many of the specific premium tasks in primary production and packaging that consumers appreciate, according to results of the willingness-to-pay assessment in Chapter 5.

However, it was found that for small- to medium-sized firms, it would be more difficult to implement premium poultry production requirements for a number of reasons. For example, smaller firms are unable to maintain their own veterinarians, and are therefore obliged to share veterinarians with other producers. In order to reduce the biosecurity risk associated with veterinarians entering several farms frequently, visits must be kept to a minimum, thereby reducing smaller firms’ compliance with certain premium poultry attributes. At the same time, it is more difficult for smaller producers to find and train new contractors in premium poultry production standards. Box 3 also explores potential opportunities for organic housing investments.

Table 25: Current practices among the egg producers interviewed (n=4)

stage task large-scale egg producer

Medium-scale egg producer

In place? Implementation possible? In place? Implementation

possible?

Primary production

Feed free from antibiotics, hormones Yes Yes

Feed free from slaughter by-products Partly Difficult Partly Difficult

Only in barn and free-range systems: provide

good litter, ventilation and air quality, nest boxes; ensure birds

can get out during day (free-range)

No e.g. Rondeel© system No No

Fodder enriched with omega-3

Yes if marketable

Yes if marketable

Yes if marketable

Yes if marketable

Inspect laying hens for bone fractures old,

new; brittle bones; dislocations

YesYes through

own veterinary

NoDifficult,

shared veterinary

Daily, weekly, cumulative morbidity:

check, count and investigate cause, treat

if necessary

YesYes through

own veterinary

NoDifficult,

shared veterinary


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Primary production

Failure/delay in converting to enriched

cages. Provide enrichment, improve floor, convert to new

system

Yes

New investment

only in enriched

cages

Partly Challenging

Plumage condition and cleanliness:

observe litter quality and stocking density.

Examine the breast of the birds and score.

No Requires new system No Difficult

Bruising and injuries. Reduce stocking density, improve

cage design, provide enrichment; improve

litter conditions

Enriched cages in

use

Add “furniture”

to enrichable cages once

requested by law.

Enriched cages less

common in use

“Furniture” can be added to enrichable cages where

they are in use.

Litter condition. Regular checks on ventilation,

humidity, maintain litter in good condition.

Yes Yes

Feather pecking (cannibalism).

Beak trimming by permissible method

Yes Yes

Air quality: Improve ventilation Yes

In enrichable cage system automatically

controlled

To the extent that en-richable

cages used

Traditional cage

system only controlled ad

hoc

1) Salmonella and campylobacter

2) Coccidiosis: Treat and prevent contamination

and disease

Yes Yes

Lighting. Adjust lighting periods Yes Yes

Food safety, hygienic control and biosecurity

control verified by government authority

Yes Yes

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Depopulation and transport

Optimum crating to reduce bruising, along

with improved handlingContractor

Regulation or certification

of contractor required

Contractor

Regulation or certification


Adjust lighting periods ContractorRegulation


ContractorRegulation


Transport to slaughter 12 hours (according to

current regulations)Yes Yes

Short journey time (i.e. <4 hours) Yes Yes

Certified to ensure proper handling when loading and unloading

ContractorRegulation contractor

required ContractorRegulation


Optimise transport conditions

Unloading to hang-on shackle time reduced

Processing

End of lay hens-depopulation, transport

and cull. In-house culling in sheds with

gas

No Not feasible No Not feasible


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Packaging

Traceability: Available via number on pack Yes Yes, flexibly

possible Yes Yes, flexibly possible

Preferred brand rather than less known brand Yes Yes, flexibly

possible

No own brands

establishedToo expensive

Packaging and expiry date available Yes Yes, flexibly


Pasteurised versus not Yes Yes, flexibly possible Yes Yes, flexibly

possible

Smaller eggs (<62 grams/egg) Yes Yes, flexibly


Larger eggs (≤62 grams/egg) Yes Yes, flexibly


Sealed pack without visibility through

packageYes +3 percent

cost/egg Yes

Special packaging in

small lot sizes may take

+20 percent/egg.

Sealed pack with visibility Yes +5 percent

cost/egg Yes Yes, flexibly possible

Non-sealed without visibility Yes No price

change Yes Yes, flexibly possible

Non-sealed with visibility Yes No price

change Yes Yes, flexibly possible


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The poultry meat perspective

Both medium- and large-sized firms tend to out-contract the depopulation of layer-barns as well as the transport of hens to slaughterhouses. These tasks are typically performed entirely through subcontracting firms, and no differences could be identified in this respect between large- and medium-scale producers. Furthermore, all interviewees insisted that the implementation of potential changes would be entirely up to the contracting firms.

However, any attempt to implement certain premium poultry attributes would imply that firms would have to take either tighter control of the corresponding contractors or would have to shift to in-house provision. Due to biosecurity concerns, any new investment into organic poultry production would require establishing the contracting farms in different geographical regions. In such regions, either new contractors would have to be found, or a sufficiently large plot of land would have to be purchased and developed for in-house production. Furthermore, outdoor access for birds is not feasible for biosecurity reasons. Finally, according to the interviews from Table 26, all firms would find it challenging to implement new hygiene standards and change feed ratios significantly under current production systems unless different animal genetics were used.

Like egg producers, the most notable difference between the large- and medium-sized producers interviewed is whether veterinarians can access the animals frequently in order to perform routine check-ups, as suggested in Table 25, or whether these check-ups remain limited to occasional visits. Larger producers are able to afford their own veterinarians and are therefore able to receive routine check-ups for their animals. In contrast, medium to small sized producers interviewed within the sample stated that they tend to share veterinarians with other producers. However, due to the biosecurity risk implied by veterinarians entering several farms frequently, such visits are usually kept to a minimum. All these factors suggest that the fixed costs associated with the introduction of new product attributes are prohibitive within the context of the current poultry meat supply chain.

Consequently, given the constraints faced by producers, findings from the interview imply that only a small share of companies, if any, will be effectively able to introduce new animal welfare or other premium product attributes. Furthermore, the attributes that can be implemented involve minor changes such as those related to the frequency of check-ups by veterinarians, which do not generally impact large producers who can afford their own veterinarians.


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Table 26: Current practices among the poultry producers included in the in-depth interviews (n=2)

stage large broiler producers (n=2)

currently in place?

implementation possible?

investment needed?

Primary production tasks

Feed free from antibiotics, hormones and slaughter

by-products

Yes, since 2015 Mortality rate +1 percent

Fast growing breed (35-39 days)

Yes

Slow-growing breed (at least 81 days)

No Feed conversion ratio worse

during higher age, higher

mortality rate (ca +1 percent)

Very difficult to

implement: new

contractors have to be

found in different regions due to

biosecurity. Contractors

have to be trained differently.

Daily, weekly, cumulative morbidity. Check, count and

investigate cause, treat if necessary

Weekly checked by own

veterinarians

Changes to this can easily be implemented

by advising veterinarians

Gait abnormality. Farm visits and gait score on

150 birds: Scores 1-5 (4.5 severe and unable to walk)

Plumage condition and cleanliness. Observe

litter quality and stocking density. Examine the breast

of the birds and score.

Litter condition. Regular checks on ventilation,

humidity, supply of good material to maintain litter

in good condition (dry and friable).

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currently in place?


investment needed?

Primary production tasks

Hock burn (Contact dermatitis. Regular

checks on litter quality, identification on birds with

lesions. Foot pad lesion checks and grading at

post-mortem in processing plant)

Pododermatitis (foot pads). Regular checks on litter quality, identification on

birds with lesions.

Broken bones (old/new). Early detection of

lameness, good handling.

Food safety, hygienic control and biosecurity

control is verified by government authority

yes

Depopulation and transport tasks

Optimum crating to reduce bruising, along with

improved handling

Certified contractors

handle depopulation and transport

Adjust lighting periods Currently blue light

Transport to slaughter 12 hours (according to current

regulations)

Yes

Short journey time (i.e. <4 hours).

Currently max. 3hrs, GPS

tracked

Certified to ensure proper handling when loading and

unloading

Yes

Optimise transport conditions

Yes

Unloading to hang-on shackle time reduced

Currently max. 1h waiting time

Further optimisation

unlikely

Possible


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currently in place?


investment needed?

Processing tasks

Slaughter line speed adjusted

Yes

Calibrate stunning equipment, set correct

parameters, train personnel

Yes

Adjust neck cutters, ensure correct manual cutting, train

personnel

Slaughterhouse practice outside

control of producer

Scalding by dipping in hot water (risk of bacteria)

Steam scalding (less risk of bacteria)

Dry plucking (more hygienic)

Packaging tasks

Traceability available via number on pack

Yes Currently barcode

system with batch number

on internet; frequently accessed;

also received via telephone

hotline.

Value brand rather than less known brand

Yes

Colour and appearance partly visible through pack

Yes

Packaging and expiry date available

Yes


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Box 3: A new housing system for production of free-range/organic eggs

One of the two large-scale egg producers interviewed in Turkey mentioned that he would consider investing into the Roundel© system, a new husbandry system in the poultry industry. The Roundel resembles a large round cake from which one piece is missing. It has four different functional areas: The Central Core (4) area gives access to all technical equipment. It is the working area for the poultry farmer. The radial ensures good accessibility and overview. Around it there are the Night Quarters (1) for hens, which provide living space for their primary needs like eating, drinking, resting and laying eggs. In between the Night Quarters are the Day Quarters (2). They provide space for the hens to indulge in their natural behaviour such as foraging and dust bathing. At the outer edge of the Roundel is the Wooded Area (3) to create a natural environment where the hens can forage, explore and find shelter. The Roundel is a prototype for a new type of housing systems with a number of attributes characteristic to the design:

• all production and packing takes place under one roof and there is no contact with outside birds

• there is a central egg collecting, sorting and monitoring area

• the foraging area offers adequate variety

• the pens provide areas for resting, laying eggs, feeding and drinking

• two climate zones have been created

During the interview, two large-scale egg producers said that they had seriously investigated options investments in organic or free-range egg production. One of the companies favoured the recently developed Dutch Rondeel© System, while the other company had visited organic egg producers in Germany and would consider establishing a production system in line with typical German facilities for organic egg production. However, according to the firm owner looking to implement this system, it is estimated that when moving to the Rondeel free-range system, the price of eggs must be twice the current market price in order to achieve a satisfactory rate of return on investment.


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Figure 30: The Rondeel© system is one of several options that egg producers in Turkey currently consider for the production of organic or free-range eggs

Source: Rondeel, 2015.

Cost structure changes when introducing premium attributes

When assessing cost structures, there must be a distinction made between the managerial perspective at the firm level and the sectoral perspective, as the latter is typically relevant for policy evaluation or analyses of international industry competitiveness. Regarding the cost structure of poultry production in Turkey, both perspectives have to be taken into account because the number of relevant firms is comparatively small, their share in the national supply of poultry products tends to be rather large, and almost all of them are involved in export activities.

From a methodological perspective, this means that two fundamental approaches to cost measurement have to be distinguished: accounting cost and opportunity cost. While accounting costs are the figures that a firm can provide about its recent business activities, they are not necessarily the relevant figures when deciding on new investments. For this purpose, it will be necessary to evaluate the opportunity cost of any unit of capital that will potentially be allocated to the production of poultry products.

Such opportunity costs however are sometimes difficult to assess within the context of businesses that are owned and operated by families. This is because family-operated businesses are known for their ability to offer certain services, for instance during peak times, much more flexibly than would be possible under open market conditions. Also, individual family members may be willing to provide certain services to the firm at consistently lower rate than open labour market wage rates would suggest.

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The analysis in this section therefore presents typical average accounting costs that were obtained from industry interviews and technical experts at the Big Dutchman company in Turkey. The individual cost items are presented in an aggregated manner in order to present an overview, and in order to be able to discuss the robustness of the corresponding accounting figures and their potential sensitivities with respect to firm specific opportunity cost constellations.

The presentation of production costs is structured according to the following two main types of cost:

• Fixed cost: this term is widely used in order to describe cost items of poultry production that do not vary substantially according to the number of output units produced. Such costs typically involve production infrastructure -- buildings, land, etc. -- but also permanently employed labour and immaterial assets such as brand values and know-how among workers, as long as it is achieved through investment in corresponding training lessons.

• Variable cost: these are cost items that depend directly on the number of output units produced. For instance, more eggs will require a proportional amount of additional feed, water and time spent on collecting, sorting and packing the eggs. The amount of electricity and other energy used per building may also vary directly according to the stocking density of animals.

Furthermore, it is widely known in production economics that the level of any two cost items may technically not be independent from each other. However, such effects are not considered in this report because detailed firm level data that is necessary for such analyses of the production technology has not been available.

Instead, the analysis presented here is limited to stylised calculations of aggregated average figures that are representative for typical investment decisions, as the firms included in the interviews would consider. Unless stated otherwise, exogenous parameters such as prices and interest rates reflect the corresponding observed market values in Turkey in the second half of 2015.

Production systems for conventional and premium egg and broiler production

Production of poultry products in Turkey depends on the specific characteristics of the production infrastructure, which largely determines the characteristics of the final product. For instance, conventional production in cages will produce a different product in the eyes of consumers than organic production with or without free-range options for hens. Tables 27 and 28 present overviews on different production systems and their specific technical investment requirements.


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Table 27: Alternative egg production systems in Turkey

egg production system / laying hens:

typical capacitycurrent market share

in turkey according to interviews

1. Basic cage (ca. 400 cm2/bird)

This is currently the standard system; 80 000 – 1 000 000 birds in one house.

Standard system. Together with enrichable cages, definitely account

for >90%.

2. “enrichable cage” (ca. 400 cm2/bird or slightly more but less than in enriched cages)

Slightly larger with an option to be converted to improved/enriched cages. This is currently being adopted. Larger producers were found to have slightly

more of these cages already.

From the firms interviewed, ca. 30-70%

(higher shares with larger farms) of cages are

already enrichable. Most planned investments into new cages now consider

“enrichable” cages.

3. enriched cages (ca. 660 cm2/bird)

After 2023 this will be required. However, it is currently hardly used as

“enriched”; instead this system is being used as conventional cage with slightly

more space (ca. 450cm2/bird). When used as enriched, this may be labelled

as “free-range” by some producers.

Grey zone. It is difficult to assess how many

enrichable cages have already indeed been

enriched.

4. Free-range, no outdoor option (ca. 1 100 cm2/bird)

Firms interviewed would not consider this option because enriched cages are

believed to be superior.None.

5. Free-range with outdoor area (ca. 1 100 cm2/bird up to 1 600 cm2/bird for certified organic plus 4m2/bird outside)

Investment cost are typically twice to three times as high as the

corresponding conventional unit. In addition, the availability of suitable

land far from other poultry producers (biosecurity) is a serious constraint

stated by all producers.

There are fewer than five farms in Turkey that operate this system at large scale. The market

share is definitely < 1%.

Source: Authors’ complilation based on interviews.

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Table 28: Alternative poultry meat production systems in Turkey

Broiler production system typical capacitycurrent market share

in turkey according to interviews

cage production: Around 300-375cm2 per bird (half A4 page)

One of the two companies interviewed is currently trying cage-

based broiler production (experimental stage) in

one house.

Investments of this technology are not planned

in Turkey but one broiler producer is considering this

for the East Asian market.

Open floor, no outdoor area: Around 560 cm2 per bird, with litter, e.g. wood shavings covering the floor surface

Standard house e.g. 16m x 120m for ca.

28 000-30 000 birds.

Currently standard in Turkey. Market share >

99%.

Open floor with outdoor area: Around 560 cm2 per bird. At least 1/3 of the floor covered with litter (e.g. wood shavings), minimum 8h continuous rest time guaranteed at night (dark). Access to the outdoors, shade, shelter, exercise areas for at least 1/3 of their lives.

Standard house e.g. 16m x 120m and

additional outdoor access at reduced

stocking density, e.g. 23 000-28 000 birds.

Small and declining production, ca. 50 000 birds during 2015 for all of Turkey.

Source: Authors’ complilation based on interviews.

Tables 27 and 28 suggest that producers in Turkey do not significantly invest in poultry meat or egg production systems other than the most widely established conventional systems (i.e. basic and enrichable cages in the case of egg production, and open floor, no outdoor area systems in the case of poultry meat production). However, several egg producers included in the interviews had undertaken travels to the Netherlands and Germany in order to learn about production system solutions for free-range and organic egg production. These producers stated that they would establish organic production lines along the regulations that are currently in place for organic egg production in those two countries. Potential future access to EU markets for eggs was one of the two main reasons for this; access to related poultry production technology and know-how from EU suppliers was the other reason.

Operating costs for egg and poultry production

According to the interviews, the fixed cost structure of buildings can vary substantially. For instance, two of the interviewed firms were also running construction businesses and stated that they would build new houses for layers during low seasons for construction work. Average figures for the fixed cost structure of typical layer and poultry solutions should therefore be viewed with care. Average figures are in Table 29 for the cost structure (fixed + variable) of different egg production systems in Turkey, and for conventional and organic poultry production. The figures in these tables provide rule of thumb averages


107

that reflect the approximate situation in the firms included in the interviews (for a list of these firms see Table 21). The cost items presented in Table 29 were then used to compute the cost structure of individual output units such as one egg or one broiler.

Operating costs for eggs

Table 29: Average industry figures for assessing costs and revenues of different poultry and egg production systems in Turkey

item no. item conventional

cagesenriched

cagesBarn system “free-range”

truly organic

Assumptions on capacity and revenue 1

Number of birds in a

typical unit

60*60 cm cage for 9

birds

1 500*3 618 cm colony

for 72 birds

9 birds/m2 inside

building - 4 birds/m2 outside

6 birds / m2 inside

building - 4 birds/m2 outside

2

Assumed eggs/bird per year (number

or grams)

280 eggs/year

Comparable with

conventional cages

Comparable with

conventional cages

Comparable with

conventional cages

3

Assumed grams of

feed/bird per day x 365

110

4

Assumed cost/pulled

when entering cage

TL 10.5/bird

5

Assumed value of bird

when leaving cage

TL 1.5/bird

6

No. of days that one bird stays in the

unit

64-68 weeks without

moulting

7 Egg-Price in TL

Average price of TL 0.20-22

No info possible yet

No info possible yet

Up to TL 0.35-40

8

Typical interest rate assumed for

planning layer houses in

Turkey

11.5%/year

108


cagesenriched


truly organic

Assumptions on fixed cost 9 Rough cost of

required landTL 30-50 per

m2

10

Rough cost of building

house (floor, walls, roof,

doors, connection to infrastructure)

TL 350 per m2 house

11

Outside installations

(fence, manure)

No value

12

Depreciation rate for item

10 house (e.g. 30 years)

20 years

13

Indoor-Installations (Electricity,

water, ventilation,

heating)

TL 5 TL per bird TL 6 per bird TL 7 per bird TL 7 per bird

14-17

Indoor-equipment:

Includes cages, nests,

feed/water belts, manure

removal technology

TL 13 per bird

TL 20 per bird

TL 36 per bird

TL 48 per bird

18 Egg collection and packing

Depending on size of

packing machine,

up to TL 1.5 million

19Feed milling

capacity (approximate)

Depending on size of feed mill

20

Depreciation rate for

equipment items 14-19

(e.g. 10 years)

5 years 5 years 5 years 5 years


109


cagesenriched


truly organic

Assumptions on variable cost 21 Price of feed

in TL/tonne

1 000 - depending

on world market price

22Assumed

mortality rate of birds/day

7% laying period and

10% in total

23

Repair & maintenance of equipment

in TL/day or bird

TL 150/day - assumed

capacity of 100 000

birds/house

24Energy and water in TL/day or bird

TL 400 /day - assumed

capacity of 100 000

birds/house

25 Hygiene, veterinary

TL 150/day - assumed

capacity of 100 000

birds/house

26 Labour hours high wage TL 6 000

27 Labour hours low wage TL 2 000

28Assumed

high gross wage TL/hour

40

29Assumed

high gross wage TL/hour

12

30

Assumed cost for

packing and marketing

eggs in TL/egg

0.025

Source: Authors’ complilation based on industry interviews and information from Big Dutchman experts.

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Figure 31: Total production cost per egg

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

0,40

Conventional cages Enriched cages Organic production

thou

sand

TL

per

tonn

e

feed price, TL 1 000/tonne

Indoor equipment (14-17)

Land

Fixed cost for a house of 18mx180m

Labor hours, low wage

Labor hours, high wage

Hygiene, veterinary

Energy and water


Cost of bird (4-5)

Feed

Packing and marketing eggs

Source: Authors’ calculations based on Table 29.

Figure 31 displays the results of these computations for the case of total production costs for one egg under three different production systems. In order to assess the approximate magnitude of costs, assumptions had to be made about the price of feed. While the cost of 1 tonne of feed for layers in late 2015 could readily be obtained from the market information and industry interviews, no price exists for certified organic feed for layers in Turkey.

Instead, the price of TL 1 369 per tonne of certified organic feed was obtained from a survey with feed mills in Germany and Austria during November and December 2015, though even in Europe organic feed for layers is not widely traded. The observed market price in Figure 31 refers to the December 2015 price (converted into Turkish currency) for certified organic feed for layers that complies with the EU regulations for organic production. It does not match the stricter requirements of several private certification schemes for organic production, such as Bioland® or Demeter®.


111

In this context, it should be noted that existing market prices typically refer to smaller quantities that are traded regionally among organic poultry producers. This is because the organic production system in principle requires the use of feed that is produced on farm, while purchasing feed should be an exception in order to compensate temporary imbalances of supply and demand among farms. Organic production systems in Europe typically try to avoid inter-regional trade of feed.

This makes it clear that it would not be possible to establish large-scale organic egg production facilities in Turkey based on imported certified feed from Europe or elsewhere. Instead, the assumed price ranges intend to illustrate the sensitivity of organic egg production in Turkey with respect to feed cost, assuming that price ranges for organic feed can be approximated by the corresponding prices from Europe.

The vertical axis in Figure 31 shows that the breakeven market price for eggs would be TL 0.22, 0.24 and 0.37 per egg in conventional, enriched and organic production, respectively. Thus, observed market prices (see also Chapter 3 of this report) are roughly in line with these total cost estimates and show that for these average figures, no additional margin seems to exist for producers. From an economic perspective, this can be interpreted as an indication that the egg market in Turkey is overall competitive and individual firms are price takers.

Figure 32 uses the same data as Figure 31 and presents the corresponding shares in total production cost rather than the absolute magnitude.

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Figure 32: Production cost shares in different egg production systems in Turkey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Conventional cages Enriched cages Organic productionfeed price, TL 1 000/tonne

Indoor equipment (14-17)

Land




Hygiene, veterinary

Energy and water


Cost of bird (4-5)

Feed

Packing and marketing eggs

Source: Authors’ calculations based on Table 29.

Figure 32 reveals that in any of the three production systems, feed costs constitute by far the most important single cost item, absorbing between 60-70 percent of the total production costs for one egg.

Operating costs for broiler meat

When turning to poultry meat production, slightly different assumptions apply about the structure of the fixed and variable cost, respectively. These assumptions are presented in Table 30.


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Table 30: Assumptions and average figures for assessment of poultry meat production costs

item no. cost item conventional organic

1 Number of birds in a typical unit

13-18 birds/m² in a unit 120 m long x 16m wide

25 000-30 000 birds/house

10-12 birds/m² - 23 000 birds/house

2 Assumed grams of feed/bird per day 100g/average of 43 days 60g/average of 75 days

3 Assumed cost/pulled when entering TL 1/bird TL 2/bird

4 Assumed value of bird when leaving

TL 4.5-5 / whole bird sales price at supermarket TL 15-20

5 No. of days that one bird stays in the unit 42-43 days 60-75 days

6

Typical interest rate assumed for

planning layer houses in Turkey

11.5 percent/year 11.5 percent/year

7 Rough cost of required land TL 30 - 50/m2 TL 31 - 50/m2

8

Rough cost of building house

(floor, walls, roof, doors, connection to

infrastructure)

TL 180/m2 house TL 180/m2 house

9 Outside installations (fence, manure)

10 Depreciation rate for item 10 house 20 years 20 years

11- 13Indoor installations

(electricity, water, ventilation, heating)

TL 140 000/house TL 140 000/house

14-17 Indoor-equipment: TL 120 000/house TL 120 000/house

18 Feed milling capacity (approximate)

Feed is distributed by integrations

19Depreciation rate

for equipment items 14-17

5 years 5 years

20 Price of feed in TL/tonne

1 050 - depending on world market price

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item no. cost item conventional organic

21 Assumed mortality rate of birds

5 percent during production period of 45

daysSimilar to conventional

22Repair &

maintenance of equipment

TL 50/day - assumed capacity of 25 000 birds/

house

TL 50/day - assumed capacity of 25 000 birds/house

23 Energy and water TL 150/day - assumed

capacity of 25 000 birds/house

TL 150/day - assumed capacity of 25 000 birds/

house

24 Hygiene, veterinaryTL 50/day - assumed

capacity of 25 000 birds/house

TL 50/day - assumed capacity of 25 000 birds/house

25 Labour hours, high wage TL 6 000 TL 6 000

26 Labour hours, low wage TL 2 000 TL 2 000

27 Assumed high gross wage TL/hour 40 40

28 Assumed high gross wage TL/hour 12 12

Source: Authors’ compilation based on industry interviews and information from Big Dutchman experts.

Again, the average figures presented in Table 30 have been used in order to construct approximate fixed and variable cost figures per bird. These costs are presented in Figure 34. The assumed price of TL 1 800 per tonne of organic broiler feed however is only based on the observations in Figure 34 wherein the prices of broiler feed range about 20 percent above the price of feed for laying hens. This marker has been used to construct the price for certified organic layer feed based on observations for organic broiler feed prices in Europe, given that no price for certified organic broiler feed exists in Turkey.


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Figure 33: Total production cost per broiler according to different production systems

0

10

20

30

40

50

60

70

Cost per conventional broiler, feed TL 1 050/tonne

Cost per organic broiler, feed TL 1 800/tonne

TL

Indoor-equipment: Includes cages, nests, feed/water belts, manure removal technology

Cost for land (assuming +20% for infrastructure, +100% organic)




Hygiene, veterinary

Energy and water in TL/day or bird

Repair & maintenance of equipment in TL/day or bird

Pullets

Mortality 5%

Feed


Figure 33 confirms that the previous observations for egg production hold for poultry meat production as well, namely that production costs for broilers are also primarily dominated by the cost of feed. Also, Figures 31, 32 and 33 indicate that none of the fixed cost items that are potentially relevant for the provision of certain premium product attributes such as animal welfare would alter the production cost structure significantly.

It is therefore appropriate to assess the sensitivity of different production systems primarily with respect to variations in the price of feed. Figure 34 shows the trend of observed market prices for concentrated feed in Turkey. Both broiler feed and layer feed have constantly been rising in price per metric tonne since the year 2012. Interestingly, the prices in Figure 34 seem to largely ignore the movements of world market prices for major cereals such as wheat

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and corn (not displayed in the figure). This indicates that the Turkish system of tariff-based market protection is effective in insulating the domestic market for cereals from short-term world market price shocks.

Figure 34: Compound feed prices in Turkey, 2012-2014

Source: Reproduced from USDA 2015.

In summary, it is currently difficult to establish detailed assessments of the fixed cost structure of premium poultry investments in Turkey. This is for two reasons: first, actual costs for buildings and land may differ according to geographical site and further firm-specific conditions. Second, virtually no practical experience currently exists among Turkish firms regarding the implementation of premium poultry product attributes such as free-range and organic production.

However, it has also been shown that the cost structure of any major poultry production system in Turkey is heavily dominated by the cost of feed, which constitutes between 50-80 percent (though most often 65-75 percent) of total operating cost in poultry meat and egg production, whether for conventional or organic. It is therefore important to assess the overall profitability of new investments in conventional poultry production in Turkey in comparison to new investments in premium poultry attributes, which will be discussed in the following chapter.

Taking these factors into account, firms were asked about their perspectives on the market outlook. Based on the results, all respondents (egg and poultry meat producers) were relatively optimistic about their sales prospects in export markets at the time of the interviews. This was followed by slightly less optimistic prospects for the domestic market in urban areas of Turkey, where current marketing prospects in rural Turkey are on average only perceived to


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be moderate. This pattern is largely repeated with respect to future marketing opportunities. However, domestic marketing opportunities are estimated to be slightly more dynamic than at present. This indicates that the interview partners consider the domestic market for poultry meat and eggs products in Turkey to still be growing.

Regarding organic poultry products, all interviewees perceived the market to be dynamically growing and as yet unsaturated. Furthermore, answers to interview questions do not show in this respect a distinction between domestic markets and export markets. This implies that the interview partners consider the production of organic eggs to be possible for future exports.

The most optimistic future marketing opportunities are perceived for Halāl poultry meat. This is explained by the positive trend of income and population development in Turkey, where pork-based meat diets are typically not followed.

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Chapter 7 – Potential returns from investing in improved poultry products

Summary

• Potential returns from investing in improved poultry products are calculated using the average cost figures presented in Chapter 6. Investment in a typical production house unit is used as a point of reference, and different production systems for eggs and poultry meat are assessed to see how returns from this investment may vary.

• Net present values are calculated based on available average figures. Results should be interpreted with care and may provide illustrations of the relative magnitude, but cannot be taken as in-depth assessments of a particular project. Instead, actual conditions for related investments may vary widely under real-world conditions and could therefore deviate substantially from the findings presented here.

• Nevertheless, it has to be taken into account that feed costs account for at least 50 percent of total cost in any of the alternative poultry production systems that were considered. Thus, the profitability of these alternative production systems will to a large extent be determined by the expected average price of feed. This is especially the case for certified organic production of eggs or broiler meat.

• Alternative types of premium poultry production investments are compared against each other based on stylised numerical calculations, and the sensitivity of findings from these calculations is assessed over a wide range of potential prices for poultry products and feed.

• Results show that all of the different poultry production types have the potential to generate positive net present values. However, profitability varies considerably for each type of poultry production, depending on the egg prices and cost of feed.

• Conventional cage production generates the highest net present values. The NPV for egg production in enriched cages is slightly lower than conventional cages and substantially higher than the NPV for truly organic production.

• However, under low market prices of around TL 0.21 per egg and TL 850 per tonne of layer feed, producers of conventional eggs may face a negative NPV, which was similar to the price structure observed in late 2015. Nevertheless, the results suggest that returns for conventional production can be quite substantial, provided that sales prices do not remain low. Organic broiler production is harder to assess due to the smaller market share and the difficulty of observing representative prices for organic broiler


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meat and organic feed. Sensitivity analysis suggests that organic broiler meat production can be profitable if output prices are in the upper range of the considered prices or higher.

• In general, the scenarios suggest that conventional cage production or enriched cage production may provide by far the highest return to investment, especially if additional price premiums can be achieved. In the absence of transparent labelling and binding controls, such price premiums might be generated by advertising conventional eggs as “free-range” or even “organic”.

• Calculations have shown that fully certified organic production according to European Union standards would likely not be competitive (in terms of NPV) against investment into conventional poultry production systems.

• For all calculations however it has to be taken into account that the prices for organic feed are based on sporadically observed prices for small quantities in the European Union. If Turkey were to establish regional markets for organic feed, it might be feasible to decrease the feed cost significantly. This could very well provide interesting investment opportunities for a small number of dedicated investors.

• During the interviews conducted with medium- and large-scale poultry producers, respondents’ views on perceived risks were assessed. Respondents were most concerned about unpredictable changes of agri-food policies in Turkey. Besides adverse changes of trade policies and regulations regarding feed ingredients, manure treatment and feed import tariffs, changing regulations about food safety and the treatment of eggs were of primary concern. Most respondents also expressed concern about unfavourable media reports that could negatively affect demand for poultry products in Turkey.

Scenarios and assumptions

As explained in the previous chapter, it is difficult to establish detailed assessments of the fixed cost structure of premium poultry investments in Turkey. Nevertheless, it is important to assess the overall profitability of new investments in conventional poultry production in Turkey in comparison to new investments in premium poultry attributes.

In this chapter, stylised calculations for the NPV of typical investments are presented and their sensitivity regarding output prices and feed cost is assessed. The cost of capital for such investments was stated by interviewees to be 11.5 percent at the time when the report was written. The following typical investment alternatives are considered:

• A new production house for layers of 18 m x 180 m size. It is assumed that this house can host either 100 000 layers in a conventional cage system, 60 000 layers in an enriched cage system or 19 440 layers under an organic,

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free-range system, if additional access to outdoor space is provided. Depreciation rates were assumed to be 20 years for the house itself and five years for indoor equipment.

• A new production house for broilers of 16 m x 120 m, hosting either 29 000 conventional broilers or 23 000 broilers under organic production according to Turkish regulations. Depreciation rates were also assumed to be 20 years for the house itself and five years for indoor equipment.

These investment alternatives constitute typical production units that the firms included in the interviews would consider (see Chapter 6 for more details). It should also be noted that these investment alternatives constitute medium to large standard houses. Therefore, even very large firms would in principle consider these units for a new investment, and may opt to build a larger number of such production houses at the same time than smaller firms would.

Table 31 presents an overview of the scenarios that were assessed, using a discount rate of 11.5 percent; the detailed figures of related fixed and variable cost items are exactly the same as described in Chapter 6 and in Table 29.


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Table 31: Investment scenarios for Turkish poultry producers

scenario 1 2 3 4 5

Type of production

Layers, conventional

cages

Layers, enriched

cages

Layers, organic and free-range

Broilers, conventional

open floor

Broilers, organic open

floor

Type of investment

New production

house, 18 m x 180 m

New production

house, 18 m x 180 m

New production

house, 18 m x 180 m

New production

house, 16 m x 120 m

New production

house, 16 m x 120 m

Bird capacity 100 000 60 000 19 440 29 000 23 000

Year of investment 2015

Duration 20 years

Cost of capital (discount rate) 11.5 percent

Output prices considered (TL)

0.21; 0.25; 0.31/egg

0.21; 0.25; 0.31/egg 0.4; 0.6/egg 5/kg meat 12/kg meat

Share of output that is exported (refund TL 30/ 1 000 eggs on feed import tariffs)

20 percent 20 percentNone, for domestic

market only

None, for domestic

market only

None, for domestic

market only

Range of feed prices considered (TL/tonne)

500-1 200 500-1 200 1 000-2 100 1 050 1 800


Table 31 also shows that the sensitivity of the NPV calculations was assessed for different levels of output prices and over plausible ranges of feed input prices. As explained earlier, however, market prices for organic feed currently do not exist in Turkey and this type of feed is not widely traded even in the EU. The prices for organic feed in Table 31 therefore reflect observed prices within the EU in 2015, not taking into account potential import tariffs or other transaction costs that may apply to imports into Turkey, because trading organic feed in significant quantities to Turkey is not a realistic scenario in the near future. Instead, organic poultry producers in Turkey would be expected to produce their own organic feed locally.

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Results and sensitivity analysis

Prior to an assessment of investment in premium poultry production, it is necessary to evaluate the profitability of additional investments in conventional egg and poultry meat production in Turkey. This corresponds to scenarios 1 and 4 in Table 31, respectively.

Results of the NPV calculations for scenario 1 are presented in Figure 35. The vertical axis shows the calculated NPV for a new production house in thousand TL in the year 2015. Three different long-term average prices for eggs are considered (compare to Table 31), and these are indicated by the three different series of vertical bars in the diagram. The horizontal axis in Figure 35 measures different levels of long-term average feed costs for layers.

Under scenario 1 (Figure 35), the results suggest a negative NPV for egg prices around TL 0.21 per egg, (observed market price in 2015), and corresponding feed prices of TL 850 per tonne of layer feed. Still, for prices at around TL 0.27 per egg or higher, investing in conventional egg production is profitable for feed costs up to TL 1 200 per tonne (i.e. the highest scenario contemplated in the present analysis). Moreover, for prices at around TL 0.31 per egg, the NPV of investing in conventional egg production is quite high even at the upper bound of our estimated feed costs: almost 60 percent at feed costs of TL 1 200 per tonne.

Figure 35: NPV calculations and sensitivity analysis of scenario 1

-15 000

-10 000

-5 000

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

thou

sand

TL

feed cost for laying hens, TL/tonne

NPV, barn with 100 000 layers, 20 years

Scenario: TL 0.21/egg Scenario: TL 0.25/egg Scenario: TL 0.31/egg

1 050 500 600 700 800 850 900 950 1 000 1 100 1 150 1 200


Note: Discount rate of 11.5 percent is used.


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These results suggest that returns for conventional production can be quite substantial, provided that sales prices do not remain low. During interviews with the industry in 2015, egg prices were rather low and were likely only likely covering variable costs. Nevertheless, producers expressed that these prices were not the representative average price, and that the period of low prices was part of a general trend of fluctuating egg prices. Consequently, as long as the period of low prices does not continue, there is still an incentive for producers to invest in conventional egg production.

This point is substantiated by the fact that both figures show that egg producers may very well achieve positive financial returns, provided that the 20 year average of feed prices stays below approximately TL 850 per tonne, or the 20 year average egg price is set at around TL 0.27 per egg or higher.

Additionally, some of the largest producers may be able to negotiate higher prices from the market because they possess more bargaining power. Also, some producers that have successfully established their own brands may receive a higher price mark-up. Finally, firms that are falsely selling conventional eggs as premium products may enjoy a higher profitability rate.

Meanwhile, the production of eggs in enriched cages under scenario 2 would require more capital per bird. Using similar sale prices under scenario 2 thus translates into automatically lower returns when compared to scenario 1. As a consequence, the relationship between returns and feed costs, as observed in Figure 35, recurs in Figure 36, yet with observed NPVs shifting downwards. For brevity, results for internal rate of return calculations of scenario 2 are omitted here.

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-15 000

-10 000

-5 000

0

5 000

10 000

15 000

20 000

500 600 700 800 850 900 950 1 000 1 050 1 100 1 150 1 200

thou

sand

TL


NPV at 11.5% discount rate, barn with 60,000 layers in enriched cages, 20 years

Scenario: TL 0.21/egg Scenario: TL 0.25/egg Scenario: TL 0.31/egg



As explained earlier, the scenarios presented assume that the same typical poultry production barn is used for the three considered production systems for layers. Because the barn in scenario 2 is only able to house 60 000 layers in enriched cages, the returns for this scenario are inherently lower than in scenario 1 due to the higher initial costs of investment. If egg prices remain low at TL 0.21 per egg (using the 11.5 percent discount rate), production would only be profitable if feed prices also remained below TL 700 per tonne. Although returns would be notably better at egg prices around TL 0.25 per egg, production would not be profitable if feed prices reached over TL 950 per tonne. Nevertheless, overall production under enriched cage production can still theoretically be profitable with a combination of moderate egg prices and moderate to low feed prices.

When comparing conventional production (scenario 1) and organic production (scenario 3), Figure 37 shows that the NPV for an investment in a standard poultry barn is substantially lower if eggs are produced according to organic production regulations. This is partly due to the reduced number of birds and low stocking densities, such that only about 20 percent of the birds can be kept in one building compared to conventional cage production. Indeed, the low stocking density and outdoor access under organic production raises the capital per bird ratio significantly. Organic production would also necessitate


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the purchase of additional land for access to outdoor facilities. However, substantially higher output prices for organic eggs can likely be achieved over output prices for conventional eggs; Chapter 2 of this report has shown that the price for organic eggs could be twice the price of conventional eggs.

Additionally, the fixed cost for the building itself does not constitute a major share of total production costs and therefore the absolute magnitude of the NPV for organic production might not be so relevant in practice because with a given amount of capital, more houses could simply be added for organic production.

In addition, feed production would likely have to take place on-farm, and the true feed cost would depend on the opportunity cost for land and labour. In some parts of Turkey these might indeed be substantially lower than in the EU, though according to industry interviews this does not seem to be the case around the large metropolitan areas in Turkey.


-12 000

-10 000

-8 000

-6 000

-4 000

-2 000

0

2 000

4 000

6 000

1 000 1 100 1 200 1 300 1 400 1 500 1 600 1 700 1 800 1 900 2 000 2 100

thou

sand

TL


NPV, barn with 19 440 layers, organic (EU standard), 20 years

Scenario: TL 0.4/egg Scenario: TL 0.6/egg



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Based on the authors’ calculations, organic egg production can only be profitable under high egg prices of TL 0.6/egg. Additionally, organic feed costs must remain at around TL 1 700 per tonne or below to remain profitable. In contrast, assuming egg prices of TL 0.4/egg, producers would face negative returns, even at feed costs of only TL 1 000 per tonne.

However, in order to establish organic egg production facilities, information gathered from interviews suggested that it would be important to identify locations where feed could be commissioned at relatively low opportunity costs, while access to relevant markets would guarantee a high long-term average price for eggs.

During interviews with industry experts, firms discussed their interest in establishing organic poultry production in locations where output prices are high and land prices are low to achieve profitability. However, according to industry members, this is a combination that would be difficult to find in Turkey due to the fact that (i) output prices for organic eggs are high in and around urban areas, while (ii) low land prices are most likely to be found in remote rural areas. Consequently, the firms expressed the belief that it would be difficult to acquire land for organic production that satisfies both of these conditions. Most probably, organic production units will have to be located in more remote areas given biosecurity and land price considerations with transportation costs being covered by the price premium on organic products.


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Table 32: Operating profits for conventional and organic broiler production systems in Turkey

conventional (meat price assumed tl 5/

bird)

organic (feed price assumed tl 1 800/tonne)

scenario:Feed

tl 700/tonne

Feed tl 1 050/

tonne

Broiler tl 15/bird

Broiler tl 12/bird

Broiler tl 10/bird

House capacity 29 000 29 000 23 000 23 000 23 000

Annual output (birds) 211 700 211 700 106 950 106 950 106 950

revenue (tl) 1 058 500 1 058 500 1 604 250 1 283 400 1 069 500

5% mortality 52 925 52 925 80 212.5 64 170 53 475

Feed 637 217 955 825.5 866 295 866 295 866 295

Pullets 211 700 211 700 213 900 213 900 213 900

Repair & maintenance of equipment 18 275 18 275 18 275 18 275 18 275

Energy and water 54 825 54 825 54 825 54 825 54 825

Hygiene, veterinary 18 275 18 275 18 275 18 275 18 275

Labour hours, high wage 6 000 6 000 6 000 6 000 6 000

Labour hours, low wage 2 000 2 000 2 000 2 000 2 000

gross margin 57 283 -261 325.5 344 467.5 39 660 -163 545

Fixed cost for a house of 16mx120m 17 280 17 280 17 280 17 280 17 280

Cost for land 4 608 4 608 4 608 4 608 4 608

Indoor equipment (14-17) 52 000 52 000 52 000 52 000 52 000

Operating profit per year, excluding fixed cost for feed mill and packaging facilities

-16 605 -335 213.5 270 579.5 -34 228 -237 433


Note: Table 32 provides a breakdown of annual total production costs for the first year of production for a typical broiler production unit (conventional and organic), using rates that were provided by industry experts. The fixed costs for housing, the cost of land, and the indoor equipment costs are annualised figures based on expected useful life of the assets.

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The profitability of conventional and organic broiler production systems in Turkey is assessed in Table 32 under different assumptions. Underlying figures from which these cost calculations were compiled can be found in table 29.

For conventional broiler meat, a market price of TL 5 per bird was assumed. According to the simple models prepared (Table 32) it was found that a positive gross margin can be obtained only under substantially lower feed prices than currently observed. The operating profit would, however, still be negative in this scenario, which implies that no positive returns could be achieved.

In sum, conventional broiler production in Turkey currently has difficulties to cover the full cost of production. Most likely, a substantial number of contracting farms operate based in fully depreciated (older) buildings.

The three right-hand side columns of Table 32 focus on organic meat production. In this scenario, feed costs have been arbitrarily fixed at TL 1 800 per tonne. Instead, the output price is varied according to three different levels: TL 10, TL 12 and TL 15 per bird.

Calculations suggest that positive gross margins can be obtained for output prices between TL 10 and 12 per bird. However, a positive operating profit can only be achieved with output prices of TL 15 per bird and more. Consequently, only under such output prices could positive NPVs be achieved.

In summary, an assessment of the scenarios presented in Table 31 shows that under current market conditions it is unlikely that producers will invest into organic production facilities, simply because the overall profitability turns out to be substantially lower than that of a comparable investment in conventional production systems.

This finding is in line with results from stakeholder interviews, according to which several of the producers had already investigated suitable investment projects for organic egg production but were reticent to invest.

Moreover, qualitative data collected from industry stakeholders suggested that they see the organic poultry product market as dynamically growing and far from saturation. Furthermore, answers to interview questions do not a distinction between domestic markets and export markets. This implies that the interview partners consider the production of organic eggs to be possible for future exports.


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Discussion of potential investment decisions

The calculations in the previous chapter primarily assessed the profitability of different poultry investments in Turkey based on realistic and plausible ranges for output prices and feed costs. However, potential investment into premium poultry production may also be subject to other risks which are more difficult to quantify. Often, investors can only form subjective estimates of such risk sources.

The interviews with Turkish poultry producers (described in Chapter 6) have therefore tried to address this issue. During the interviews, relevant dimensions of risk associated with premium poultry production in Turkey were assessed based on a set of questions that first captured perceptions about the overall state of the business, and then asked individuals to assess the relative importance of risk factors out of a set of possible risks.

Key risk factors

Respondents to the interviews were asked to rate ten different risk sources. Figure 38 presents box plots that show mean and standard deviation for the answers. The answering scale has not been labelled with endpoints. However, respondents were told that low levels imply high risk.

Figure 38 suggests that the highest perceived risk is from macroeconomic shocks such as inflation or exchange rate fluctuations. Indeed, the second half of 2015 showed substantially more political instability and currency devaluation than the first half of the year during which the interviews were conducted. This underlines the importance of macroeconomic stability for sectoral competitiveness and investment decisions in the short run, as the devaluation of the currency may spur exports. However, in the long run investments may get postponed because the price of imported technology parts would rise.

This risk of macroeconomic instability is closely followed by food scandals in the media related to Turkish poultry products. The Turkish egg and poultry industry as a whole is concerned about adverse media reports that may affect the demand for egg and/or broiler products while inducing consumers to turn to substitutes. However, such media effects may also strengthen demand for premium poultry products, and may raise pressure that would lead to a stricter enforcement of labels. This could ultimately lead to a stronger segmentation of the market into a general price-driven segment on the one hand and a premium segment with higher prices on the other hand. The latter, though likely substantially smaller than the current “grey” market for organically labelled conventional eggs, would then allow for prices that cover investments even in the long run. Under such a scenario, the early adopters of organic production will benefit most.

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Somewhat surprisingly, declining availability of qualified personnel is perceived by Turkish poultry producers as the third most important risk source.

Figure 38: Ranking of risk sources according to their relative importance (= the severity of the threat) for your company within the next 3-5 years

Source: Interviews with representatives of the firms in the case study.

On the contrary, the entry of foreign firms into the Turkish poultry market and changing food safety regulations or overall Turkish agricultural policy were the lowest risk factors for respondents. This result underlines the fact that all firms included in the sample are highly export-oriented and among the largest and most productive Turkish poultry and egg producing firms. Apparently, the firms within the sample do not fear foreign competition but remain concerned about macroeconomic shocks and food scandals, which may lower their competitiveness in international markets.

Risks associated with agricultural policy changes

Respondents were asked to express their views on potential risks coming from changes of national agricultural policies in Turkey. Two alternate dimensions of agricultural policy risk were outlined during interviews and respondents were asked to explain their perception of these risks:

Reorientation of Turkey’s agricultural trade policy towards national self-sufficiencyThis reorientation has led to a rise of import tariffs for cereals and other imported feed products, as well as for poultry meat and eggs. In their responses, respondents overall did not consider this scenario likely because


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they perceive a relatively strong effort from the government to comply with EU regulations and to work towards EU market access. In addition, it was stated that export prospects to neighbouring countries in the Middle East and North Africa are expected to grow so dynamically that this could potentially compensate for rising feed costs due to increased import tariffs.

Stronger focus of Turkey’s national agricultural policy towards support for small-scale producersIn response to this scenario, it was stated that only mild competition, if any, is perceived from small-scale producers and only during summer months. In addition, respondents stated that small-scale producers provide a substantial biosecurity risk for the entire poultry sector in Turkey, and typically exhibit high transaction costs for the implementation of higher quality standards. Therefore, respondents concluded that it is not be in the interest of the government to support small-scale poultry producers. Also, some respondents stated that this scenario would not affect their own investment plans regarding egg and poultry meat production in any way. As a result, interviewed firms expressed a relatively low level of concern regarding the impact of unpredictable changes of Turkish agricultural policy.

Perceptions of other investment decision factors

In summary, market prospects for premium poultry products in Turkey were perceived by the large-scale producers included in the interviews as positive or even very positive. However, when considering investment options for an entirely new production system for eggs or poultry, the situation looks much more difficult, and only a few producers are considering such investments. For example, the egg producers included in the interviews did not consider it feasible to establish new production systems in close proximity to their existing operations because of the risk posed by biosecurity issues. Instead, entirely new locations would have to be identified where land is available and accessible through existing infrastructure. Such land should not be located more than two to three hours from larger urban markets, and other poultry producers should not already be present. This increases the difficulty in establishing new production systems.

In the case of broiler production, the situation is even more difficult because new contracting farms would also need to be found in locations where poultry production is not already present. In addition, new routines would need to be worked out according to which the contractors could be trained. Finally, even assuming that these constraints could be overcome, there is still no market for certified organic feed in Turkey.

Stakeholder interviews have also revealed that independently of the above considerations, certain investments in the Turkish egg and poultry industry will have to be undertaken:

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• Conversion of conventional cages to enriched cages: as discussed in Chapter 4, this conversion must take place by 2023, though smaller producers may have difficultly implementing the regulation due to the long-term investments required.

• Disposal of manure: producers face difficulties in manure disposal as there is currently no market for chicken manure as a fertiliser, and the technologies and practices associated with fertiliser production are not widely known within the industry. As a result, firms may face rising investment costs in order to deal with excess manure. This will depend highly on the country’s regulatory framework going forward, as well as its implementation (Chapter 4).

• Use of slaughter by products/rendering in poultry feed: as discussed in Chapters 4 and 6, the ban on the use of slaughter by-products in poultry feed will introduce new economic, and potentially environmental, challenges for producers.

Taking these factors into account, while premium broiler production is currently not considered an option that any of the firms included in the interviews would pursue, large-scale egg producers would in principle invest if the market situation would ensure that genuine premium products are rewarded through corresponding price mark-ups. However, uncertainty about the true willingness-to-pay of Turkish consumers for various product attributes is widespread, and the size of the corresponding market segments is largely unknown to producers.

While the interviews revealed that producers potentially interested in related premium egg investments have an understanding of the magnitude of fixed and variable cost increases, it remains questionable to what extent they would correctly estimates the premium prices that -- under stricter enforcement of labels -- may indeed be achieved in the market. In other words, based on evidence gained during the interviews, producers may somewhat overestimate the willingness-to-pay of Turkish consumers regarding premium poultry attributes. This might be due to the dynamically evolving market for conventional eggs that are falsely labelled as organic or free-range, which generate higher revenues for fraudulent producers.

In turn, producers may observe that consumers pay certain price premiums for good attributes of eggs, and producers may extrapolate from this observed purchasing behaviour that willingness-to-pay for true organic products would be even higher once labels are more strictly monitored, due to the better quality of the products. However, most likely such expectations will not be matched by the market reality. Instead, many consumers may avoid organic eggs once faced with their “true” price, which will have to be about twice as high as the conventional reference price for eggs.


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Chapter 8 – Conclusions

Turkey has become one of the leading emerging economies in the world; and with changing dietary patterns, increasing urbanisation, and rising import competition, the agricultural sector is evolving in response to many different forces (Yavuz et al., 2013). In particular, this economic growth brings the potential to stimulate development of premium livestock products (including those with animal welfare characteristics) destined for the local market, as well as the development of export opportunities with European countries.

Turkey is an important agricultural powerhouse witnessing fast agribusiness sector development, with its agricultural production value first among European countries and seventh in the world (Yavuz et al., 2013). Poultry meat and egg production have been amongst the most dynamic sub-sectors: between 2005-2013, poultry meat production increased 87.7 percent from almost 1 million tonnes to nearly 1.8 million tonnes, while hen egg production expanded 36.9 percent from over 12 billion eggs to nearly 16.5 billion eggs67. These figures ranked Turkey as the tenth largest global producer of chicken meat and hen eggs in 201368. For both eggs and broiler meat, Turkey also ranks among the world’s largest exporting countries, with a rapid increase in export share of total production over the last five years. Current exports of eggs and broiler meat are, however, heavily dependent on Iraq and other countries within the neighbouring region. Reliance on one dominant export partner, especially in a geographical region with increasing levels of political instability, may pose substantial risks to the Turkish poultry industry. In addition, recent increases in Iraqi meat customs taxes have already begun to impede export flows.

In such a context, the present study has examined opportunities for greater market penetration of high quality poultry meat and egg products, particularly those that are animal welfare-friendly, in Turkey. This study has sought to fill gaps in the literature surrounding consumer interest in premium poultry products, particularly in transition economies. It has also explored the cost implications of producing premium products. These insights are particularly interesting in the context of Turkey, where although the premium market remains underdeveloped, there appears to be growing interest on the part of consumers and producers in exploring premium attributes. Besides the business case analysis, the results from this study include considerable potential public policy conclusions for Turkey, namely on rationale for different type of labelling

67 Source: TURKSTAT. For more information, see: http://www.thepoultrysite.com/reports/?id=4060.68 According to FAOSTAT data, Turkey produced nearly 2 percent of the world’s chicken meat and around

1 percent of the world’s hen eggs in 2013. Source: Author’s calculations based on FAOSTAT data.

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systems, as well as regulatory issues regarding EU accession and sector development.

Overall the study provides interesting conclusions that can be grouped along the following three dimensions: (i) market trends and willingness-to-pay for premium products, (ii) investment attractiveness and (iii) premium market development considerations. In addition, all such conclusions highlight potentially interesting policy themes in the sector.

Market trends and willingness-to-pay for premium products

There is strong government regulation of Turkey’s poultry sector. Moreover, the poultry production sector is well organised in comparison with other agricultural subsectors in Turkey. The two producer associations, YUM-BİR and BESD-BİR control significant shares of the sector and are both tightly related to the regulators. Dialogue between the government and industry representatives, and the organisational structure of the producer associations could be improved, however, and may lead to problems of long-term competitiveness if they are not strengthened, especially in export markets.

The legal regulation of animal welfare in Turkey has been developed to match the minimum requirement directives of the EU and most large-scale producers in Turkey adhere to these regulations. However, a lack of public enforcement has made compliance with the regulations on animal welfare and health a problem. Moreover, government biosecurity intervention systems could be improved, which poses a threat to the industry because farmers tend to hide outbreaks out of fear that they will not be compensated in the event of a disease outbreak even though compensation has been provided in the past.

Product quality claims are under the control of the Ministry of Food, Agriculture and Livestock. For organic products, a system of independent private quality approval/assurance/certification/auditing is in place and a set of different logos is used to identify certified organic products. However, the requirements for organic products in Turkey do not seem to match corresponding principles used in European countries. Moreover, there is no functioning market for certified organic poultry feed from domestic sources. Finally, there is no available labelling for animal welfare production.

At present there is a race-to-the-bottom for production costs due to strong market concentration and the fact that the majority of production is geared towards homogenous products within standardised and large-scale production systems. The dominant problem for both egg and broiler production relates to stocking density and litter conditions, although the current governmental system for production and food safety control, as initiated in response to the avian influenza epidemic, has worked to promote product quality.


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Representatives of the poultry industry voiced concerns that the current system for the verification of production control should be improved. The lack of sufficiently documented, controlled and verified stages of production and lack of transparency is leading to mistrust and misconceptions among consumers about modern production systems. It was also noted that the regulation and control of food enrichment, for example Omega-3, is incomplete. For production controls, there is mistrust among producers and consumers in relation to the frequency/placement of controls as well as the qualifications of control officials. In response, retailers are increasingly initiating private quality assurance schemes but it remains unclear how such actions are understood by consumers. Furthermore, a lack of proper infrastructure for laboratory controls is impeding the efficiency of compliance controls. However, large-scale producers have recently obtained accreditation and pre-permits for export to the EU and the Russian Federation market, suggesting potential opportunities for Turkish export diversification in the sector.

For poultry producers, the regulation that restricts expansion of their business is related to planning and building new production facilities. Low levels of coordination among authorities at the regional and local levels, and requirements in relation to environmental impact assessments, also impede business development.

Premium broiler meat and egg products are available to consumers. The product range available in supermarkets and grocery stores is wide and spans from the most basic meat and egg products to distinctively differentiated products (organic, natural, low cholesterol, omega-3 enriched, etc.). No product was explicitly marketed with claims referring to improved animal welfare conditions. There are substantial price premiums for more differentiated products, with the highest mark-ups noted for organic products. The market share for organic products is however very low.

There are substantial discrepancies between the industry’s view of consumer interests and the consumers’ opinions on what are relevant and important issues in production and product quality. Interviews with experts from poultry meat and eggs industry associations, retailers and producers revealed that the concept of premium products refers only to egg size or to organic and free-range on the production side. This, however, does not match the current very low demand of organic products. Food processors defined premium products based on hygiene, packaging, an unbroken distribution cold chain, and government approval of products. Importantly, the industry experts did not mention farm animal welfare as an aspect related to premium products.

On the other hand, interviews with consumers revealed that meeting the Halal criteria was an overarching requirement. The concept of organic poultry products was not widely known while “animal welfare” was mainly understood as having a natural environment, leading to healthier products and human

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well-being. Hence, little focus was on the conditions for the animals. This result corroborates earlier findings in the literature that consumers give priority to product attributes that are more directly related to their own health and to sensory characteristics such as taste or food safety. However, consumers were found to have negative association with current production systems, with high concerns with regards to over-crowding. Separate presentation of animal welfare-friendly products in stores, complemented with sealed packaging, enhanced colouring (i.e. green colour) and the use of natural materials should meet consumer demands. Consumers revealed strong patriotic support for Turkish egg and broiler meat, and perceived domestic producers to be more reliable, using higher feed quality, and offering higher levels of product freshness. Television programs and government support would be important marketing channels for communication about premium quality poultry and egg products.

The examination of consumer perceptions of animal welfare in relation to egg and broiler meat production identified consumer segments with distinctly different views. There was more heterogeneity among consumers in relation to broiler production as compared to egg production.

Based on the results from the WTP study, quality assurance schemes related to feed (free from hormones, antibiotics and slaughter by-products) and improved institutions for verification of production and product quality control should be given priority. Furthermore, as the results for the WTP experiment revealed, product brand was the most distinct product quality attribute for both egg and broiler meat products. Consequently, complementarity between brands and the development of premium quality product features should be sought. For eggs, there were also preferences for sealed packaging allowing for eggs to be visible through the package, access to a web-based system to allow traceability and see quality certificates, and pasteurisation and omega-3 enrichment. This web system is already in place for some brands. The average WTP for animal welfare-related housing alternatives within the population sample was found to be negative, meaning that consumers would generally require price discounts in order to make a purchase based on housing criteria69. Consequently, Turkish consumers do not appear to be interested in paying more to improve animal housing conditions. In addition, there was a lack of preference for the addition of the egg-laying date to the mandatory requirement of expiration date. Finally, consumers lack preferences for yellow shell colour as well as for larger-sized eggs.

For broiler meat, moderate levels of WTP were found for labels certifying the proper handling of animals during loading and unloading. The WTP for steam scalding, dry plucking, a lower growing breed (which is used in organic production),

69 It has to be noted that the results presented at this stage are only population averages. The market simulators presented in other parts of the report focus on individual taste preferences, which allow for a better discrimination across the sampled populations.


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a web-based system to allow traceability and quality certificate access, and full visibility through the package was, in contrast to the findings for eggs, on average quite low. The WTP for animal welfare-related housing alternatives and shorter distance transportation in broiler meat production were found to be negative, as was the WTP for additional information about packaging date.

Based on individual choice data, market simulators were developed to predict expected market choices. This analysis complements the WTP results as the numbers are expressed only as averages across the populations and therefore do not account for differences in preferences across individuals. In contrast, the market simulations focus on individual taste preferences, which allow for a better discrimination across the sampled populations. For both eggs and broiler meat, a product configuration that included all attribute levels for which the WTP was positive had a substantial potential to increase market demand. Product optimisation based on the results from this study therefore holds the potential to increase demand. Adding the premium quality attributes for which the WTP was found to be positive would almost exhaust demand at price ranges where most of today’s products are provided.

Results from the market choice analysis confirmed that the presence of a preferred brand would be decisive for predicting product preferences at all price levels, but particularly at lower prices. This may reflect the fact that consumer trust in the product is more important at lower price levels due to the potentially lower quality of the product. For broiler meat, a perception of improved government controls would also substantially increase demand. However, the addition of attributes related to improved animal welfare related to egg production would have little effect on relative demand, and there is little support to claim complementarity between animal welfare-related attributes. Introducing just the improved feed free from hormones, antibiotics and by-products, while keeping production to basic cages, would attract almost as much demand. For broiler meat production, the animal welfare attributes that most affected demand were using feed free from hormones, etc. together with certification of proper handling. The combined complementarity effect on demand for a product including all five animal welfare-related attributes was larger at prices above TL 15 per kilogram. However, no complementary effect existed at the lower price range. This suggests that a certification scheme for proper handling of animals during transport, or alternatively a mandatory requirement of feed quality, could serve as public goods and would hence attract the same level of consumer acceptance for the product as from including other improved attributes.

Regarding competiveness for eggs, the presence of a preferred brand, feed free of hormones etc., sealed packaging, full product visibility, verification of regular control, and to some extent traceability, are all modifications to the base level product that would capture more demand. However, improving the product with pasteurisation or omega-3 just put the improved product on par with the base level product, meaning that it would not be an effective product development.

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For broiler meat, the results showed that the presence of a preferred brand, verification of regular control, certification of proper handling of animals, dry plucking, feed free from hormones, etc. and to a minor extent steam-scalding, would all capture more demand and elevate product competitiveness.

For both eggs and broiler meat, the results showed that the amount bought as well as the amount spent differed by household size and areas of living, but not for SES. This suggests that consumption patterns in quantity are stable across the population. The results from the market choice analysis, however, suggest that different portfolios of egg and broiler meat products appeal differently to market segments based on SES, geographical area and household size. Hence, the population is differentiated with respect to preferences for product quality. These aspects could be considered in product optimisation to make the products appeal to different groups of respondents.

Investment attractiveness

Enriched cages differ from conventional cages only in terms of the slightly more expensive indoor equipment, which amounts to around an additional TL 0.01 per egg. According to industry expert estimates, feed conversion ratios and mortality rates are overall comparable between conventional cages and enriched cage systems. In both systems, feed costs amount to more than 50 percent of total cost per egg.

The largest poultry meat producers are not currently considering organic production or related types of premium production because it would require fundamental changes to the existing system of subcontracting farms. Major related fixed costs include the development of new guidelines according to which contractors should be paid, and a different set of contractors would need to be found in areas of Turkey where no poultry production yet takes place, in order to maintain biosecurity.

The return calculations were based on available average figures and therefore results should be interpreted with care and may provide illustrations of the relative magnitude, but cannot be taken as in-depth assessments of a particular project. According to such calculations, conventional cage production generates the highest net present value. The NPV for egg production in enriched cages is slightly lower, although it is substantially higher than the NPV for truly organic production.

As such, with the price structure observed in late 2015 (which was characterised by low egg prices), a new investment in conventional broiler production may be difficult to render profitable if low prices persist. However, provided that egg prices do not remain as low as TL 0.21 per egg, with feed prices around TL 850 per tonne, the results suggest that conventional egg production can be highly profitable. Organic broiler production is harder to assess due to the smaller


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market share and the difficulty of observing representative prices for organic broiler meat and organic feed.

In general, the scenarios suggest that conventional cage production or enriched cage production may provide by far the highest return to investment, especially if additional price premiums can be achieved, for example through the development of premium brands.

The total cost per egg for certified organic production under free-range conditions is difficult to estimate because of a lack of experience with that type of production in Turkey. Calculations based on the available average figures suggest that the additional land required for outdoor access would be a significant fixed cost component. Total production costs for organic eggs and poultry meat with outdoor access are substantially higher than those for conventional eggs and poultry meat. However, the consumer survey has shown that this outdoor option is hardly appreciated by consumers, potentially due to the fact that it might be considered harmful for human health if the animals have access to outside areas. Thus, according to the results presented in this study, it is questionable whether Turkish poultry producers should indeed undertake investment towards organic production with outdoor access, as is mandated in the EU.

Instead, “organic production” according to the preferences of Turkish consumers would focus mainly on aspects of animal feed, with the aim of minimising adverse effects on humans. However, there is currently no market in Turkey for certified organic feed, and no regular world market because the philosophy of certified organic production relies on feed production in line with the resources of a specific farm. This implies that the setup of certified organic production would have to take place in combination with the establishment of organic crop farms. If Turkey were to establish regional markets for organic feed, for instance through contractual agreements between poultry producers and organic crop farmers, it might be feasible to decrease the feed cost significantly. This could provide interesting investment opportunities for the establishment of premium poultry brands.

In summary, present investment challenges primarily arise from the transition from conventional cages to enriched cages. This transition will be largely in line with the expectations by many consumers about proper housing conditions for the animals. Further investment towards improved conditions for broilers or laying hens, especially in terms of access to outdoor areas, would likely imply a significant rise in production fixed costs and has at the same time very limited if any market potential among consumers. Instead, investments towards the development of premium brand labels, based for example on the attributes of quality-assured feed free from hormones, antibiotics and slaughter by-products, appear to be most appreciated by consumers.

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Premium market development considerations

Finally, the results of this report have implications for the prospects for further developing premium egg and broiler meat products in Turkey. In this respect, there are several aspects on the sector level as well as on the consumer level that are relevant to consider.

Sector-level perspective

The Turkish production of eggs has been relatively volatile in the past five years, whereas the production of broiler meat has increased rather steadily. At the same time, exports have increased for both eggs and broiler meat, and exports have increased more than the increase in domestic demand. This suggest that the most recent investment in production capacity has been directed towards meeting requirements in export markets. However, exports have been highly concentrated in neighbouring Middle Eastern countries, which play a role in determining domestic Turkish prices and product quality.

An alternative perspective could be that the investment has been undertaken so as to ensure the capacity to meet domestic as well as export product quality demand. The prevailing production strategy is however largely based on a cost-minimisation strategy, which in itself is indicative of a market characterised by homogenous products. Furthermore, the sector comprises mainly large and efficient production facilities and makes use of basic cages with high stocking densities.

The consumption of meat in Turkey has been rising over the last five years from a relatively low level by international standards. This, together with decreasing prices on meat in real terms, and with eggs and broiler meat being more inexpensive than other meat, should create an impetus for increasing domestic demand for eggs and broiler meat, particularly in light of Turkey’s on-going economic transition.

The question is then if this new demand will be more quality differentiated than what has been the case in the past. In this respect, the results of this study have shown that there is evidence of emerging product quality differentiation in the marketplace. Organic products represent one example of such product differentiation. In Europe, the development of organic eggs and meat has been driven by animal welfare concerns, with requirements for outdoor areas and other production aspects related to natural behaviour and ethical animal-related concerns. In Turkey, there is little evidence to suggest that the concept of organic products has come from concern about animals.

In Turkey, however, there are products with different quality features (e.g. omega-3 enriched, natural, organic, etc.) available in supermarkets, but the price mark-ups for such products in relation to the most inexpensive and most basic product are very different. Most notably, the retail mark-up for organic products is very high (around 280 percent for eggs, and around 400 percent for


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broiler meat). These are much higher in Turkey than what is typically observed in Europe, which may be indicative of weak demand for such product features, and fewer wealthy consumers. However, the result of this study suggest that there is potential market demand for premium quality over a wider array of prices, and not just at the very top of the price range. The results of this study also suggest that a combination of product, pricing, and advertisement analyses could serve to increase the demand of premium products. According to interviews with industry experts, the retail sector is highly concentrated and dominated by a few very large actors, which may also contribute to these price mark-ups. It is not easy to confirm such a situation especially since poultry production in Turkey is quite concentrated as well, but if there are low gross margins for premium poultry products at the producer level, this could result in fewer incentives to differentiate the product offer.

Consumer-level perspective

From a consumer-level perspective of the development of premium eggs and broiler meat products, the results of this study suggest that there is an asymmetry with respect to the understanding of the concept of animal welfare. As demonstrated in the cluster analysis, there are very different and often inconsistent views on the subject of animal welfare and the extent to which the current production system upholds appropriate animal welfare standards. Even amongst groups that value animal rights and uphold beliefs that animals are sentient creatures, respondents did not necessarily consider that changes needed to be made in the production system. This may be attributed to a limited understanding of animal welfare as well as a lack of knowledge of current conditions within the production system.

The analysis, however, also suggests that there is a potential market segment of consumers with strong preferences for animal welfare-friendly products. This segment was larger for broiler meat production (around 20 percent of total market demand) than for egg production (about 10 percent of total market demand). In the case of broiler meat, if consumers decide that current practices are not acceptable, then the market share for animal welfare broiler meat could be 10 percent of total broiler meat demand in Turkey. Given the relatively limited emphasis of consumers and producers regarding animal welfare in current and past product optimisation and in marketing communications, there is potential for market development by targeting the needs of these consumers.

Another main finding is that the concept of premium quality, in the view of the consumer, focuses in large part on branding, quality assurance (improved systems for verification of control), packaging (emphasising product visibility and a sealed package), and concerns related to own health (by requesting use of feed free from antibiotics, etc.). These findings mean that a combination of trust and health concerns drive the perception of premium products.

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The pivotal role of trust in situations where consumers have to cope with uncertainty as an environmental constraint, for example in relationships between consumers and institutions/organisations within food chains, is well-documented. Trust in food chain actors has been reported to compensate for a lack of knowledge about production or processing practices. Moreover, the results suggested that the trust and health-related quality features were more important in the lower price range, which seems reasonable given that the focus on such features should be more important for a more basic, non-differentiated product.

The results however suggest that there are reasons to expect market demand for several of the premium quality features at higher price levels as well. Taken together, the findings at the consumer-level in this study indicate that there is likely a potential for further product optimisation that takes different combinations of premium quality features into account, and a possibility to establish a range of product feature combinations that should appeal to a broader base of consumers than the current market. Different governance and communication issues could complement the development of premium products.

Related policy topics

This report has shown that government regulations play an important role in the competitiveness of Turkey’s poultry sector. This includes changes to trade policies regarding outputs and inputs of the poultry industry, as well as domestic regulations regarding food safety, the treatment of eggs, feed ingredients and manure treatment. Specifically, five pertinent policy areas were identified that could dampen the growth of the Turkish poultry industry:

The lack of transparent and reliable enforcement of product/production control hampers the development of premium products because of asymmetric information: consumers are not fully able to discern what quality is, which may impede the efficiency of product quality labelling. Consequently, producers do not undertake investments in premium products because the false premium labelling of conventional products would drive prices down, and may render premium investments unprofitable.

The export of premium eggs to the EU will require enriched cages. While some of the largest egg producers currently invest in enrichable cages that can easily be transformed into enriched cages, there is still confusion and uncertainty among many producers whether and to what extent such an investment would be necessary. Specifically, the government may decide to further extend the deadline of conversion towards enriched cages, and EU market access may not become a relevant option in the near future, which reduces the appeal of producer investments in new cages. The government should therefore aim to provide definite planning horizons to producers in this respect. The results


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presented in this study also suggest that enriched cages may also qualify for price premiums on the domestic market, especially if combined with the development of premium brand labels.

From 2017, the use of rendering products in feed will be forbidden for the egg and poultry sector in Turkey. This change calls for an analysis of whether to use private or public-based schemes to reduce the availability of rendering products. This may include the establishment of further processing capacities for rendering products, potentially under publicly-supported or incentivised pricing schemes and related controls. The economic unavailability of rendering products may decrease the necessity for tight and administratively expensive controls and enforce the ban on rendering products in feed. At the same time, this would address the preferences of a major share of Turkish consumers.

The disposal of manure and potential biosecurity risks for manure when used as fertiliser are of concern. Technical solutions to dry chicken manure and use it as a fertiliser in crop production are in principle available but not widely known yet in Turkey. Public and private extension networks may contribute to the wider adoption of these technologies. In addition, the government might consider establishing conditions for a country-wide market for manure-based fertiliser. Finally, chicken manure can also be analysed in the context of broader livestock and agricultural waste management – and improving the conditions for biogas sector development is also an option.

High industry concentration together with a highly-concentrated retail/wholesale market have effects on the business climate and on the economic conditions within the sector. It will be up to the governmental institutions to continuously ensure a competitive environment in this respect.

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Annex 1 – details on qualitative research

Desk research was combined with six in-depth interviews with experts from poultry meat and egg industry associations, retailers and/or producers during July and August 2014 (Table 3).

Table 33: Organisations interviewed

organization area of expertise/title

BESD-BİR General Secretary assistant

CARREFOUR SA Purchase/representative of supermarket

KESKİNOĞLU Factory management/producer, active in both broiler and egg production

MAKRO MARKET Purchase/representative of a premium market

METRO MARKET Purchase/representative of a wholesaler

YUM-BİR Association manager/representative of relevant egg or meat association


A total of eight focus group discussions were undertaken to understand and detail the most important processes and product quality attributes for consumers in Turkey regarding broiler and egg production and products. The focus group technique makes explicit use of group interaction to produce data and insights that might be less accessible without the interaction found in a group. The FGDs were conducted during July 2014 through TNS Turkey, which is part of a global market research company. Each focus group discussion included 6-8 participants and lasted around two hours. The interview guides for eggs and chicken meat, which was developed by the research team in collaboration with TNS Turkey, are available as supplementary material. A total of four focus group discussions were held in İstanbul at TNS Istanbul studios and four focus groups were held in Denizli, a smaller province.

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Table 34: Breakdown of the focus groups

group age ses Product city

1 25-35 ABC1 Chicken Istanbul

2 36-50 ABC1 Chicken Istanbul

3 25-35 ABC1 Egg Istanbul

4 36-50 ABC1 Egg Istanbul

5 25-35 ABC1 Chicken Denizli

6 36-50 ABC1 Chicken Denizli

7 25-35 ABC1 Egg Denizli

8 36-50 ABC1 Egg Denizli


Participation criteria:

• Females aged 25-50.

• SES ABC1 (i.e. a balanced distribution in each group): SES in Turkey are A, B, C1, C2, D and E. The classification is made through an algorithm of job and education of the main earner in the household, with A as the highest job/education category and E the lowest. The SES classification is published by the Turkish Market Researchers’ Association and accepted in official statistics such as Eurobarometer.

• Mainly responsible of the household shopping.

• Buy eggs in grocery stores at least once a month.

• Buy chicken in grocery stores at least once a month.

• In each group, at least half of respondents had children still in the home.


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Annex 2 – The design of the adaptive choice experiment

Selection process

Within each geographical region, provinces were selected based on judgmental sampling according to each province’s population and the socio-demographic representation power of the region. For each province, four strata based on population size were generated since locations with similar population size – even if in different provinces or regions – show more similarities in terms of socio-cultural and economic patterns than locations with different population sizes, even within the same province or region.

Allocation of interviews to stratum was then based on the population distribution of the province and the distribution of the adult population within each stratum. Interviewers were guided to households using a pre-determined random route procedure. A quota sampling approach based on SES was then applied to obtain a balanced representation so as to estimate a fair representation of market demand. Therefore, once the interviewer designated an eligible household, the SES questions were applied to determine whether the household matched the quota criteria that were set in accordance with the scheme developed by the Turkish Association of Marketing and Public Opinion Research (Tampor), which collects official statistics. The SES quotas were AB=15 percent; C1=25 percent; C2=30 percent, and DE=30 percent. The SES classification was based on an algorithm of job and education of the main income earner in the household. The A category represents the group of households with the highest education and income. The survey also included a question about the household’s total monthly income before taxes (see Table 10) but, as expected, the share of non-responses (33.8 percent for the egg survey, and 25.4 percent for the chicken meat survey) make the interpretation of the income data difficult. Previous results suggest a weakly positive correlation between income levels and poultry meat consumption in Turkey (Durmuş et al., 2012).

Respondents were assured their answers would be anonymous but telephone numbers were collected and used for quality control. Collected surveys were checked on a daily basis for completeness and respondents were randomly called back and asked control questions to ensure that their responses were original and valid.

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The adaptive approach

Recent research shows that adaptive selection of optimal stimuli in each experimental trial based on the results of the preceding trials increases the predictive validity for models of decision making (Gilbride and Allenby, 2004; Cavagnaro et al., 2013). Therefore, using an adaptive approach rather than a conventional method such as a discrete choice experiment is motivated by the quest to obtain more valid choice data. It has also been reported that adaptive methods are more engaging for respondents (Liechty et al., 2001; Cohen and Liechty, 2007). A choice experiment, even if simpler to design, would also have limited the study as it is typically not recommended to include more than five to six attributes. The adaptive method is also valuable from a research perspective as it generates more data at the respondent level in comparison to standard discrete choice methods.

The adaptive choice-based experiment question flow incorporates the well-established theory that buyers make complex choices by forming a consideration set (typically using cut-off rules) and then choosing a product within that consideration set. Relevant product bundles were displayed for respondents to consider by patterning them after the preferred product that respondents have first specified using a configuration exercise.

First in the adaptive choice experiments, respondents were informed about which labelling attributes are mandatory according to the Turkish Food Codex. For poultry meat these are: serial and batch number of the product; net amount; expiration date; origin; whether it is Halal; the company name and address of the manufacturer/packer/importer or distributor; the registration number of the manufacturer or packager; and brand name. For eggs the mandatory labels are: serial and batch number of the product; number of eggs in pack; size/weight of eggs; expiration date; origin (detailed to be Turkish); the company name and address of the manufacturer/packer/importer or distributor; the registration number of the manufacturer or packager; and brand name. An image for each product category illustrated the presentation of the mandatory labelling. Respondents were also informed that additional information could be included on egg and chicken breast fillet packages.

Descriptions included in the adaptive choice experiments of the specific product attributes for eggs

Housing

Basic cages

• High risk of overcrowding: 450cm2 usable area per bird (less than an A4 page).


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The limited opportunity to move around results in a weak skeleton and muscles. Retains a small group size which protects birds from harming or pecking one another. More hygienic and clean eggs, compared to free-range.

Enriched cages

• Less crowded: 750cm2 usable area per bird (a little bit more than an A4 page). Cages are 56cm high.

The limited opportunity to move around results in a weak skeleton and muscles. Retains a small group size which protects birds from harming or pecking one another. More hygienic and clean eggs, compared to free-range. Enriched cages have welfare benefits beyond the basic cages by providing additional space, a nest, a claw shortening device, a dust bath/litter substrate and a perch.

Free-range system, no outdoor area

• More spacious: No more than 9 hens/m2 (equivalent to about two A4 pages) indoors.

If more than one level is used, a height of at least 45cm must be between the levels. One nest for every seven hens. Litter (e.g. wood shavings) covering at least one-third of the floor surface. 15cm of perching space per hen. Compared to a cage system, the risk is larger for parasite infestation, feather picking and cannibalism.

Free range system with outdoor area

• Relatively spacious: No more than 6 hens/m2 (equivalent to about 2.67 A4 pages) indoors.

Outdoor space: at least 2.5m2 per hen. Continuous access during the day to this open-air range with vegetation. Compared to a cage system, the risk is larger for parasite infestation, feather picking and cannibalism.

Presentation of the housing attributes also provided the respondents with information about the global warming potential70.


• Hormone injection or other administration in poultry is illegal in Turkey.

• Antibiotics are by Turkish law only allowed for treatment of a manifested disease. When given, antibiotics are distributed through water. Eggs from treated herds are not allowed to be sold for a fixed withdrawal time.

70 In general, intensive production with cages uses less energy than free-range production. The environmental impact in form of Global Warming Potential from a free-range system can be up to 14 percenthigher than when more cage systems are used in the production (Lynch et al., 2011). GWP is a relative measure of how much heat a greenhouse gas traps in the atmosphere.

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• “Free from…” claims on egg cartons can only be made by egg producers who choose not to use any antibiotics or slaughter by-products at all during the growing period of pullets or while hens are laying eggs.

Traceability: Production chain traceable for consumer

• A web-based system to provide detailed information about production and processing (including origin information such as specific production facility and available quality certificates).

• The system will be available on the web by entering an ID number printed on the package.

Food safety, hygiene control and biosecurity: regular control

• All entrances of the farm are controlled at all times – all vehicles, workers and visitors go through disinfection gates.

• Regular health tests of farm workers made by hospitals every 3-6 months.

• Special uniforms/overalls must be worn by farm workers and visitors and daily showers must be taken.

• Feed analysis of each feed truck for toxins, humidity, harmful bacteria, etc.

• Independent veterinary checks must be done for every part of the slaughterhouse.

• Test purchases: government employees anonymously buy food for testing. If they find something ınsıde the food product, the store owners are punıshed and need to pay very high bills or may even have to close theır busıness.

• Control of the refrigeration circuit from farm to grocery store.

Pasteurisation

• The primary risk associated with eggs is food-borne illness caused by Salmonella enteritis bacteria. Salmonella is a dangerous bacterium that can be transferred to humans through ingestion of raw or undercooked eggs.

• Pasteurising eggs in their shells is achieved through a patented, all natural process that uses precise timing and temperature-controlled zones in water baths.

• Like all eggs, they must be kept refrigerated to retain quality.

• Opinions on the quality of pasteurised shell eggs are mixed.

Feed enriched with omega-3

• Omega-3 eggs are produced by hens fed a diet containing flaxseed.

• Eggs labelled “omega-3” do contain these fats, which many people associate with good health. But depending on which brand you buy, they might not have the type of omega-3 fat that is linked to brain and heart


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health. And the actual amount of omega-3 fat might be considerably less than you think.

• Depending on your diet, you might not need to pay extra for omega-3 eggs. If oily fish is a regular part of your diet or if you take a fish oil supplement, eating an omega-3 egg now and again will not do much to boost your omega-3 intake.

• Omega-3 eggs have just as much cholesterol as regular eggs – around 195mg of cholesterol per large egg yolk. Since consuming too much cholesterol can increase LDL (bad) blood cholesterol, it is advised to limit intake to less than 300mg a day.

Additional attributes included in the adaptive choice-based experiments were related to:

• Sealed vs. non-sealed packages

• Product visibility vs. no product visibility

• Information about both egg laying date as well as expiry date vs. only about expiry date

• Size and weight (medium ≤ 62g; large 63-72g; jumbo ≥ 73g)

• Shell colour (white; yellow)

Finally, brand was included as an attribute by using the choice of preferred brand from the initial part of the survey as the attribute level to which a generic brand would provide an alternative.

Descriptions included in the adaptive choice experiments of the specific product attributes for chicken breast fillets

Housing

Cage production

• Very crowded: Around 300-375cm2 per bird (half the size of an A4 page).

Retains a small group size which protects birds from harming or pecking one another. Broilers lack opportunity for natural behaviour. The limited opportunity to move around results in a weak skeleton and muscles. Risk of health problems such as leg deformities and breast blisters, which have adverse effect on meat quality.

Open floor, no outdoor area

• Crowded: Around 560 cm2 per bird (less than an A4 page).

Litter (e.g. wood shavings) covering the floor surface, meaning birds are able to express more of their natural behaviour, including ground scratching and dust bathing. Compared to a cage system, the risk is larger for parasite infestation, feather picking and cannibalism.

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Open floor with outdoor area

• Crowded: Around 560 cm2 per bird (less than an A4 page).

At least one-third of the floor area covered with litter (e.g. wood shavings), meaning birds are able to express more of their natural behaviour, including ground scratching and dust bathing. A minimum of eight hours of continuous rest time guaranteed at night (dark). Access to the outdoors, shade, shelter, exercise areas for at least one-third of their lives. Compared to a cage system, the risk is larger for parasite infestation, feather picking and cannibalism.

Loading and unloading

• Rough handling whilst loading birds into crates for transport can cause bruises and bone breaks. The same goes for when birds are being unloaded for slaughter.

• Preventive measures include employing trained pickers and prompt removal from crates.

Transport

• Long journeys in crowded conditions, especially during hot weather can increase dead on arrival numbers.

• Transportation of poultry is allowed to last up to 12 hours, excluding loading and unloading.

• Sufficient amount of food and water should be given during transport.

• Preventive measures include adopting short journeys and using climatic control vehicles.

Antibiotics, hormones and slaughter by-products

• Hormone injection or other administration in poultry is illegal in Turkey. Use of probiotics and antibiotics in feed is also banned. Antibiotics can be used for treatment only and the maximum level is 1kg per tonne of feed. If used, withdrawal time applies before slaughter.

• Information that the product is free from hormones, antibiotics residues and that slaughter by-products have not been used in feed is available on the packaging.

Traceability

• Monitoring the process of production: the process (including information about specific production facility) can be seen on the web by entering the number on the package.


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Scalding and plucking

• The scalding and plucking processes will largely determine the appearance, colour and visual quality of the chicken meat you can find in the store and can also influence shelf life. Scalding is applied to make it easier to remove the feathers.

• Wet scalding is a process where the birds are dipped into a tank with hot water to prepare birds for easier removal of the feathers. This can make the skin clammy and produce an unpleasant smell. This is the most common commercial method employed to prepare chickens for the market.

• Steam scalding (moisturised hot water treatment) is an alternative to wet plucking and can form a barrier to prevent bacterial contamination.

• Dry plucking (no scalding is applied): this is a more complex process involving manual or machine removal of feathers. After defeathering, the carcass is waxed in order to suppress skin strength. This leaves the skin soft with no smell. Dry plucking has the added advantage of increasing shelf life in comparison with wet-plucked birds, as the heat and moisture involved in wet plucking can promote bacterial growth.

Growing period

• Usually, chickens are raised for 35-39 days. The fast growth rate can cause health and metabolic disorders problems such as weak bones leading to leg disorders, lameness, high water retention, heart failure and also poor meat quality.

• Slow-growing breeds (at least 81 days): or genetic selection for healthy growing birds can be alternatives.

• The environmental impact through greenhouse gases from a slow growing breed can be up to 45 percenthigher than when fast growing breeds are used in production (Lynch et al., 2011). Slow growing chickens having a lower feed conversion, i.e. eat more feed. Feed accounts for most of the energy required during production.

Food safety, hygiene control and biosecurity

• All entrances of the farm are controlled at all times – all vehicles, workers and visitors go through disinfection gates.

• Regular health tests of farm workers made by hospitals every 3-6 months

• Special uniforms/overalls must be worn by farm workers and visitors and daily showers must be taken.

• Feed analysis of each feed truck for toxins, humidity, harmful bacteria, etc.

• Independent veterinary checks must be done for every part of the slaughterhouse.

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• Test purchases: government employees anonymously buy food for testing. If they find something ınsıde the food product the store owners are punıshed and need to pay very high bills or may even have to close theır busıness.

• Control of the refrigeration circuit from farm to grocery store.

Additional attributes included in the adaptive choice-based experiments related to chicken filet were related to product visibility. Finally, brand was included as an attribute by using the choice of preferred brand from the initial part of the survey as the attribute level to which a generic brand would provide an alternative.

Attribute familiarisation

The second step of the adaptive choice-based experiment presented the attributes to the respondents in the form of a drag-and-drop exercise (Figure 39). In this part, by pointing the cursor on a specific attribute, the informative text related to this attribute appeared. The stylised label could then be dragged to the package, or moved to the background area. Respondents were invited to explore the attributes and to move the attributes that were important to them onto the package.

Figure 39: Example of the product attribute familiarisation exercise



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Product configuration

The third step of the experiment introduced the product configuration. Respondents were presented with a menu of all attributes and levels. Figure 40 shows the configuration set used in the egg survey. Information buttons were available so respondents could still access the attribute information text while selecting the preferred attributes and levels. In this step, the respondents were asked to indicate the preferred level of each attribute so as to select the alternative they would be most likely to purchase while taking into account the feature-dependent prices. Based on the individual answers to the configuration step, a pool of product alternatives (combination of attributes and levels) were created within the survey instrument. This pool was programmed to be concentrated around the respondent’s preferred attributes and levels.

Figure 40: Configuration step used in the egg survey


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Product screening

In the fourth step of the experiment, the respondents were presented with a series of eight screening tasks each presenting three product concepts designed using the information collected from the third step. The instructions stated: “Imagine that you are in a store and about to purchase eggs [chicken filet]. Remember that as a starting point all mandatory aspects are in place. Below are a few egg alternatives you might like. For each product please indicate whether it is a possibility or not.”

Figure 41 shows a typical screening task used in the egg survey. The survey instrument screened the responses for evidence of two types of non-compensatory decision rules and was programmed to provide feedback checks in cases when such patterns were detected. In cases when it was noted that the respondent avoided certain attributes or levels, a list was shown with at least one attribute that the respondent had not included in a product denoted as a possibility. This list also included at least one other attribute which had not been considered up to the given point during the screening. The respondent was then asked to indicate whether this attribute was totally irrelevant (or select at least one completely irrelevant alternative if there were more than one detected as avoided). Such attributes were then not further shown to the respondent and the adaptive design was adjusted to concentrate on attributes that had not been rejected. Secondly, responses were also screened for patterns indicating that the respondent consistently selected just one level of some attribute. A feedback list was then provided asking the respondent to verify whether that level was an absolute requirement (“must-have”). In such cases, the design was adjusted so as to only include the must-have level.

Prices were introduced in the design based on step four by summing up the prices associated with each attribute level (if any) across all attributes in the product alternative, and then randomly varying that summed price within the range (-30 to +30 percent). If necessary, the price was rounded off to the nearest TL 0.5. The base price for eggs was set at TL 3.5 (i.e. the product with the most basic configuration). The base price for chicken filet was set at TL 9.03.

The main purpose of steps three and four was to establish the consideration set at the level of the individual respondent.


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Figure 41: Example of screening task used in the egg survey


The choice tournament

In the fifth step of the adaptive choice-based experiments, the respondents were presented with a series of six triplets of product concepts based on alternatives denoted as “possibilities” in the preceding step. Figure 42 shows an example of a choice set for which respondents were instructed to use the radio buttons to select the best option. At this point in the experiments, the choice tasks included the most relevant products for the specific respondent: the adaptive design has worked to screen out the consideration set while also controlling for non-compensatory decision-rules. The design further means that the winning product from each triple was moved to the next choice task to compete with two alternative product alternatives. At the level of each respondent, this allows for trade-offs between related products and should therefore contribute to the study aim to estimate part-worth utilities. Only the differential attributes and levels were highlighted in each triplet to allow for an easier and more rapid assessment of the trade-off between the alternatives.

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Figure 42: Example of choice task used in the egg survey


Purchase likelihood calibration

The sixth and final step in the experiment was a calibration task which included six products (each evaluated separately). Each respondent was here re-shown the overall winning product from step five together with the specification provided during the third step (configuration). In addition, four randomly selected alternatives from steps four and five was included. Figure 43 shows an example of the evaluation task within step six. The respondents were asked to indicate how likely he/she would be to purchase this alternative if it were available in the market, using a five-point Likert scale. This step provided data for estimation of the part-worth for the “none” option and we used the “might or might not” as the threshold level. This is an alternative approach to have an opt-out alternative included in a standard choice experiment.


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Figure 43: Example of calibration task


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Annex 3 – Egg market simulations

Figure 44: Egg market simulations (share of preferences) for consumer segments based on SES

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Figure 45: Egg market simulations (share of preferences) for consumer segments based on area of living

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Figure 46: Egg market simulations (share of preferences) for consumer segments based on number of household members

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Annex 4 – Broiler meat market simulations

Figure 47: Broiler meat market simulations (share of preferences) for consumer segments based on SES class

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Figure 48: Broiler meat market simulations (share of preferences) for consumer segments based on area of living

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Figure 49: Broiler meat market simulations (share of preferences) for consumer segments based on number of household members

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Annex 5 – duties of the Turkish general directorate of Food and Control

Within the Turkish Ministry of Food, Agriculture and Livestock, the duties of the General Directorate of Food and Control are:

(i) Providing safety food and feed demand, forming and auditing policies for this reason.

(ii) Determining principles for the traceability at each stage of the processes related to the production, processing and marketing of food, food additives and materials and articles intended to come into contact with foodstuffs substances and materials.

(iii) Determining the nature of businesses producing food, food additives and materials and articles intended to come into contact with foodstuffs, substances and materials and permission and registration principles, registering these businesses in food registry, making controls and audits of production sites and salesrooms and delegating these controls and audits.

(iv) Determining and announcing the port of entry and exit of food, food additives and materials and articles intended to come into contact with foodstuffs, substances and materials by obtaining the relevant institutions’ opinions; determining and auditing veterinary border inspection posts and their working principles.

(v) Determining and auditing principles concerning the feed and feed additives’ registration, sales and audit.

(vi) Determining the approval principles for the establishments producing and selling feed and feed additives and making approval processes.

(vii) Establishing animal identification system and controlling animal movements.

(viii) Determining health conditions of the foreign trade of livestock, plant, animal and plant products, food and feed, determining and also conducting the border inspection posts and their working principles.

(ix) Taking measures in order to protect consumer and public health by considering plant, animal, food and feed safety.

(x) Conducting studies for ensuring animal welfare.

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(xi) Determining principles for certification of laboratories active in the field of animal and plant health and food and feed and also auditing them.

(xii) Making control and follow up processes concerning animal product processing and marketing and determining principles concerning this.

(xiii) Conducting services fighting against animal diseases and animal health services determining principles concerning this.


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Annex 6 – details of willingness-to-pay analysis

Willingness-to-pay cluster analysis

A cluster ensemble analysis was performed to identify segments of respondents with as similar responses as possible to animal welfare. The cluster analysis used the four measures of attitudes towards animal welfare as continuous variables. The four variables were transformed into a new format (mean=0; standard deviation=1) to eliminate potential scale bias.

The cluster analysis for the chicken survey identified four groups of respondents: the first group (n=311) had higher scoring than the average for all the four variables. The second group (n=164) had lower than average scores on the values, the beliefs and on the predominant question, while scoring above average on the extent of needed changes -- meaning that this group considered the need of such changes to be large or substantial. The third group (n=158) scored higher on the value scale but lower than the average for the other three variables. Finally, the fourth group (n=171) scored lower on the need of changes but scored higher than average for the values, beliefs and predominant variables.

The cluster analysis for the egg survey identified three groups of respondents. The first group (n=283) scored lower than average on the extent of needed changes but higher than average on the other three variables. The second group (n=450) scored slightly lower than average on the value, beliefs, and on the predominant variable, but this group had a substantially lower score on the extent of current changes. This means that the majority of the respondents in the egg survey found no or only minor changes needed to the systems of egg production. Finally, the third group was small (n=80) but characteristic in revealing lower scores on values, beliefs and predominance; although it recognised the need for larger changes to the current production systems.

The WTP was then calculated based on successive random draws of the mean of the population distributions for each improved attribute level using a Hierarchical Bayesian (HB) (Sawtooth Software) approach with 60 000 iterations (30 000 used for calculation of WTP). The cluster membership variable related to animal welfare attitudes, the SES as well as geographical location (metropolitan area vs. regions) and household size were tested as categorical covariates in the HB estimation to improve the efficiency of the upper level part of the model. Among these covariates, only the animal welfare attitude clustering for the chicken survey was found to have a significant effect on the HB estimation.

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Data from the configuration step up to the calibration step of the experiment was used in an HB estimation of the part-worths per attribute and attribute levels at the level of each individual respondent. The analysis was set to estimate main effects but as the data is sufficiently large, the model is capable of also capturing interactions between product attributes. Responses from the configuration, the screening and the choice steps within the study were coded as a sequence of choice tasks. Otter’s method (2007) to account for differences in scales was applied when analysing the choice data as the three sections of the experiment may have separate scale factors but the weights from the configuration task were quite high. This means that there was more variation at the individual level during the configuration step than at the screening or choice steps of the experiment. As the configuration part only provides tentative choice information (no actual trade-offs) we instead estimated the WTP based on equal scales across the three sections. The price attribute was piece-wisely coded with breakpoints based on an analysis of counts from the design so as to ensure at least 200 occasions of price shown to the respondents at each interval between two sequential levels. Price betas were constrained negative so as to ensure a negative price coefficient for all respondents in line with the standard approach in choice modelling (Lusk, Roosen and Fox, 2003). The predictive accuracy (i.e. prediction of acceptance probability from the last step of the ACBE) of the HB estimation was assessed through the root likelihood measure, which can vary between 0 (the model fits the data at the chance level) and 1 (perfect fit). The model estimations showed good fit statistics with a slightly better fit for the chicken survey. The root likelihood was 55.7 percentfor chicken and 47.5 percentfor eggs. This good fit falls well within the range of what has been observed in other choice studies.

Mean WTP

Tables 19 and 20 in Chapter 5 present the mean WTP (and the posterior mean range [i.e. confidence interval for mean WTP]) for each of the attributes within the egg and broiler meat surveys, respectively. The Bayesian model provides an attractive feature for analysis of measures like the mean WTP because it allows the posterior distributions to just reflect the choice data (e.g. be asymmetric if that is what the data indicates it to be). The conventional and the latent class models would instead provide WTP distributions that correspond to the distributional assumptions that guided the estimation (e.g. normality). The mean WTPs are useful for ranking purposes (i.e. to determine attribute importance in form of what is called “determinance”), but is less useful from a marketing perspective when the interest is to identify idiosyncratic patterns of preferences at individual or segment levels. Determinance is a measure of the trade-off by which a certain attribute level is exchangeable for another attribute level.


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Market simulations – preference predictions

For the purpose of predicting market choice, the estimated part-worth utilities for each respondent from the HB estimations were used to construct so-called market simulators for eggs and chicken meat. Market simulators are useful to predict relative choice outcomes for product concepts (specified configurations of certain product attributes including a price level) as well as for competitive scenarios (such as comparing the preference predictions for two, or more, alternative configurations). The market simulators used in this study were based on the share of preference method, which can be used to analyse preference predictions for groups of individual respondents sharing some given characteristic (e.g. for household sizes, areas of living, etc.). It should also be acknowledged that there is a difference between shares of preferences and the mean WTP results that were presented in Chapter 5. The share of preferences is a measure that relates to trade-offs between attributes at the level of each individual whereas the mean WTP for a given attribute is a population measure.

This method transforms estimates of part-worth b for each respondent by the logit rule

into individual shares of preferences. It should,

however, be acknowledged that the market simulator preference predictions cannot account for the additional impact of real-world factors such as advertising or contextual factors.

In this study, the market simulators were used for three strategic marketing purposes: (i) to generate relative demand curves for each improved attribute level; (ii) to examine the competitiveness of each product attribute and therefore how the product can be modified to capture more demand; and (iii) to examine which set of attributes can be offered to different market segments in order to maximise the probability of being chosen by consumers.

The 5-point scale purchase likelihood questions within the final calibration step of the experiment (see Figure 43) were used for calibration of a “none” parameter utility. The threshold value was set at “might or might not buy”. Therefore, the presentation of the share of “none” responses for a given price level refers to the share of preference prediction for the “probably would not buy” and “definitively would not buy” intentional decisions. The “none” variable then has the same role as an opt-out alternative in a choice experiment. Here, this parameter was used in the simulators as an estimate of the share of respondents which would not buy a given product configuration at a given price level.

The first strategic question relates to the price sensitivity of the improved attribute levels. The relative demand (share of preferences) was obtained by holding all other attributes at their base levels and changing the price of the product with the improved attribute level, recording the relative share at each point for that product along the price continuum. The relative comparison was

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made against a product with all attributes at their base levels (including price). The “none” option was also considered within the analysis. The sensitivity analysis therefore modelled a situation with two products on the market, while the opt-out alternative was always available. The opt-out alternative in this partial analysis is expected to be relatively high as it is the only product feature together with price that is altered from the base level configuration.


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Annex 7 – Competitiveness of improved attribute egg and broiler meat products

Figure 50: Competitiveness of an egg product with an improved attribute level against the base level product at equal prices

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Figure 51: Competitiveness of a broiler meat product with an improved attribute level against the base level product at equal prices

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Please address comments and inquiries to:Investment Centre DivisionFood and Agriculture Organization of the United Nations (FAO)Viale delle Terme di Caracalla – 00153 Rome, Italy [email protected]/investment/en

Report No.28 – September 2016

Turkey – Prem

ium

po

ultry p

rod

ucts. W

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-pay an

d investm

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Rep

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o. 28

Turkey


I7467EN/1/06.17

ISBN 978-92-5-109810-3

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