Boston, MA -- (SBWIRE) -- 02/26/2014 -- We favour the sugar sector in Turkey because of the strong growth potential of the country's confectionery industry. We see little growth potential for the grain, dairy, livestock and rice sectors, as we believe the country's production growth in these segments will be hampered by high domestic production and input costs. In line with these views, we believe domestic confectionery companies will outperform, as they will benefit from growing domestic sugar production capacity as well as a strong consumer story. We highlight Ulker as an example of this dynamic.

Key Forecasts

- Wheat production growth to 2017/18: 25.0% to 19.4mn tonnes. We expect the country to remain a large importer over the medium term. The country is likely to switch plantings towards corn and soybean, as these crops face more restrictive import policies as part of the country's biotech laws.
- Sugar consumption growth to 2017: 3.8% to 2.4mn tonnes. This will be in line with strong growth in the confectionery industry as a whole as well as a positive consumer outlook.
- 2014 real GDP growth: 2.6%, down from 3.3% in 2013.
- Consumer price inflation: 7.6% on average in 2014, up from 7.5% on average in 2013.
- BMI universe agribusiness market value: 14.4% year-on-year (y-o-y) increase to US$75.1bn in 2013/14, forecast to increase by an annual average of 2.7% between 2012/13 and 2017/18.

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Key Developments

We maintain our estimate for wheat production in Turkey to reach 18.0mn tonnes in 2013/14, in line with final official estimates for the crop. Weather conditions have been favourable overall, but there have been strong differences in yields observed in different parts of the country. Yields in the Cukurova region and Amik Valley benefited from abundant rain in April and May 2013, while the Southern Anatolia region suffered from rains during harvest time. For other grain crops, we maintain our estimate for a strong rebound in the country's barley crop, while corn output will be lower in 2013/14. We believe barley production rebounded by 33.0% y-o-y to 7.3mn tonnes in 2013/14, while corn production fell by 14.0% yo- y to 5.2mn tonnes.

With a large, youthful population armed with rising spending power, Turkey continues to offer a dynamic consumer base for growth in confectionery volume and value sales over the medium term. We forecast confectionery volume sales to rise by 11.2% and value sales to tick up by nearly 50% in nominal terms between 2013 and 2018, demonstrating further room for premiumisation across the confectionery sector.

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