Turkey’s Currency Crisis Slams the Nutella Global Supply Chain

The farmers who produce most of the world’s hazelnuts are reeling from a currency crisis that has shaken a supply chain that stretches from this town’s jagged hillsides overlooking the Black Sea to Nutella jars on supermarket shelves.

The Turkish hazelnut industry—which employs some four million people who produce 70% of the world’s hazelnuts—is a stark example of the potential global implications of an economic gamble set in motion by President Recep Tayyip Erdogan, who says he wants a weaker Turkish lira to encourage exports and expand productive industry. The lira has lost half of its value this year.

In the center of Turkey’s vast hazelnut industry, the plummeting lira is driving up the cost of fertilizer, seeds, pesticide and other imported essentials. Nut factories are paying more for energy, packaging and transportation. Hazelnut labor costs are expected to rise as the Turkish government is set to raise the minimum wage to keep pace with a 21% inflation rate.

The result: Turkey’s once-prosperous hazelnut farmers are getting poorer, and their farms are producing fewer of the nuts that go into the world’s supply of items such as hazelnut milk and Nutella. Falling supplies of hazelnuts will eventually drive up prices for consumers, industry leaders say.

“The world is on the verge of hazelnut shortage,” said Turgan Zülfikar, a New York-based consultant for Turkish companies entering the U.S. market. “If you are a Nutella fan, you better stock up at your next food-shopping visit.”

Turkey produces more than 70% of the world’s hazelnuts but the plummeting lira means nut factories are paying more for energy, packaging and transportation.

Ferrero, the Italian-owned company that makes Nutella, buys about a third of Turkey’s hazelnut exports. The company didn’t respond to requests for comment on how the situation in Turkey would affect its business.

Turkey plunged into a full-blown currency crisis in November after the country cut interest rates at the urging of Mr. Erdogan. He has fired a series of central bank chiefs and nearly every other senior government official who stood in the way of his unorthodox economic strategy. The lira lost some 30% of its value in November alone.

The crisis deepened on Monday as the lira lost more than 6% of its value in a matter of hours during an investor selloff sparked by comments from Mr. Erdogan in which he called for further interest rate cuts, again citing what he said were Islamic principles. The bank has sold billions in foreign currency in an effort to stabilize the lira since the beginning of December.

Mr. Erdogan has argued for cutting interest rates to encourage economic growth and believes that lower rates will also reduce inflation, contrary to the tenets of mainstream economics and centuries of economic data.

The Turkish president has defended his approach saying that he wants to transform the country’s economy to one focused on exports.

In the short term, the president’s strategy has had some success in boosting exports, which reached an record high of $21.5 billion in November, up 33.4% over the previous year, according to the government.

Those gains have come at a cost to the Turkish public at large, who have seen their savings evaporate, their wages collapse in value, and the cost of food rise. The plunging lira sparked a series of protests in November, while ordinary Turks rushed to trade their lira for dollars and lined up for subsidized bread.

There are also signs that the government’s strategy is hurting the export-based industries it says it wants to help, such as the hazelnut industry. Exporters of clothing and auto parts have said that fluctuations in the lira have made it nearly impossible to set prices and do business with buyers. Turkish businesses’ declining purchasing power and the overall instability in the economy could also lead to an economic slowdown or even a recession, economists say.

“There is no quick fix in the economy. You can’t push a button and get a result,” said Uğur Gürses, a prominent Turkish economist. “In his mind it may be easy, but it’s not easy for ordinary people. It’s destroying everyone’s life with higher prices, inflation.”

“Now I can’t buy anything with the hazelnuts I sell,” says Tahsin Gokce, a 75-year-old hazelnut grower who has a farm outside the Black Sea town of Tirebolu.

For the country’s hazelnut industry, the turmoil in the economy has hurt business. The tens of thousands of small farmers who grow most of the nuts are wrestling with higher production costs. The price of fertilizer, for example, nearly tripled from the equivalent of $215 a ton in 2020 to $650 a ton this year, according to a growers association—making it too expensive for many farmers.

Turkish producers now fear they will lose market share to Italy, Georgia, the U.S. and other countries. Hazelnut producers say Mr. Erdogan’s experiment could backfire, undermining the exports he hopes to expand.

“We used to sell hazelnuts and buy cars, land, houses,” said Tahsin Gokce, a 75-year-old hazelnut grower whose farm is perched on a hilltop outside the Black Sea town of Tirebolu. “Now I can’t buy anything with the hazelnuts I sell.”

Ahmet Ak, the head of exports for the Gaffaro, a company based in Tirebolu with 220 employees that processes and exports hazelnuts, said that the volatility of the exchange rate had weakened the company’s negotiating position with buyers.

With the lira sliding every day, Mr. Ak said that by the time the company ships a container of hazelnuts from Turkey to Brazil, the price per kilo could change significantly meaning buyers have attempted to renegotiate prices they previously agreed on.

“Of course our customers are following the market. They’ll say you have to reduce the price,” he said.

Turgay Cakmak, the head of the Union of Hazelnut Agriculture Sales Cooperatives (known by the portmanteau Fiskobirlik), said farmers had been so squeezed by the crisis that he personally knew some who were shutting down their farms and going to work in garment factories. Mr. Cakmak, himself a farmer, had to give up using fertilizer because of its rising cost.

“The farmers cannot take this burden of increasing costs. They can’t handle it,” said Mr. Cakmak, whose organization also acts as an exporter.

“There is a lot of uncertainty at the moment. We don’t know where the dollar will stop,” he said. “How can you make investments in this situation?”

The Wall Street Journal

Tags: Turkey, fertilizers, nuts, hazelnuts, Nutella