TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS M croeconomics, Tr de & Investment Turkish Cypriot Economy IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Document of the World Bank This study is part of the Economic Analysis Program for Growth and Sustainable Development which is funded through the European Union’s aid regulation “Council Regulation (EC) No. 389/2006” of 27 February 2006. The opinions expressed in this study do not reflect any official opinion by the European Commission and the World Bank’s Board of Executive Directors, nor do they intend to make any judgment on the legal or other status of the territories concerned. l i TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 +1 202-473-1000 www.worldbank.org Disclaimer The contents of this document are the sole responsibility of its authors and should in no way be taken to reflect the official views of the World Bank and its Board of Directors, the governments they represent or the European Commission. The Republic of Cyprus covers the entire territory of the island of Cyprus. The term ‘Turkish Cypriot community’ refers, solely for the purposes of this study, to the areas in which the Administration of the Republic of Cyprus does not exercise effective control. If reference is made in the report to any ‘ministries’, ‘departments’, ‘services’, ‘bodies’, ‘organizations’, ‘institutions’, and ‘authorities’ in the areas not under the effective control of the Administration of the Republic of Cyprus, or if respective acronyms or abbreviations are used, this is done to allow a clear factual understanding of the administrative structures in the Turkish Cypriot community and shall not imply recognition of any public authority in the areas other than the Government of the Republic of Cyprus. Similarly, comparisons between the areas where the Administration of the Republic of Cyprus exercises effective control, and those areas where it does not, are factual only. ii l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS TABLE OF CONTENTS Executive Summary..................................................................................................................... 1 1. Introduction.............................................................................................................................7 2. Competitiveness Analysis of Turkish Cypriot Agriculture........................................................8 2.1 Agriculture sector performance........................................................................................8 ...............................................................................................10 2.2 Competitive environment. 2.2.1 Business environment........................................................................................10 2.2.2 Market development..........................................................................................10 2.2.3 Labor................................................................................................................... 11 2.2.4 Capital................................................................................................................. 11 2.2.5 Risk management...............................................................................................12 2.2.6 ‘Public’ support...................................................................................................13 2.2.7 Institutions..........................................................................................................13 2.3 Revealed comparative advantage of agri-food exports...................................................14 3. Halloumi/Hellim Value Chain Analysis...................................................................................18 3.1 Descriptive analysis of halloumi/hellim value chain in the TCc.......................................19 3.1.1 Milk production..................................................................................................19 3.1.2 Milk collection and marketing............................................................................24 ......................................25 3.1.3 Production and processing of halloumi/hellim cheese. 3.1.4 Distribution, marketing, and consumption.........................................................28 3.2 Investment appeal and critical constraints......................................................................32 3.2.1 Strengths and opportunities...............................................................................33 3.2.2 Weaknesses and threats.....................................................................................33 3.3 Recommendations and actions to strengthen value chain competitiveness..................35 ...................................................................................................38 4. Carob Value Chain Analysis. 4.1 Descriptive analysis of carob value chain........................................................................38 4.1.1 Primary production.............................................................................................39 4.1.2 Processing of carob.............................................................................................42 4.1.3 Distribution and marketing of carob products....................................................43 4.2 Global carob production and trade.................................................................................45 4.3 Investment appeal and critical constraints......................................................................49 4.3.1 Strengths and opportunities...............................................................................50 4.3.2 Weaknesses and threats.....................................................................................50 4.4 Recommendations and actions to strengthen value chain competitiveness..................51 l iii TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS ACKNOWLEDGEMENTS T his report was prepared by Xueling Li (Agriculture Economist and Task Team Leader), Hans Kordik and Ilke Erdal (World Bank consultants). The report received managerial guidance from Frauke Jungbluth (Practice Manager, Agriculture and Food Global Practice) and Goran Tinjic (Program Manager, Southern Europe). The team is grateful to Natasha Rovo (Economist) and Stefano Curto (Senior Economist), Co- Task Team Leaders of the European Union Economic Convergence Program, and to Oya Kocak Barcin, Izge Arizal, Fabio Artuso and Suay Anil (World Bank consultants), Luz Berania Diaz Rios (Senior Agribusiness Specialist), Sergiy Zorya (Lead Agriculture Economist), Ulrich Schmitt (Lead Agriculture Economist), and Julie Biau (Operations Officer), for their various contributions to the report. The team is also grateful for the support and collaboration of several Turkish Cypriot community officials who facilitated the preparation of this report, particularly the European Union Coordination Center, and the European Union for financing the work program. The team would also like to thank the stakeholders and value chain actors who participated in the interviews and provided valuable information for the report. iv l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS ABBREVIATIONS AND ACRONYMS AKIS Agriculture Knowledge and Innovation Systems AWU Annual Working Unit BRC British Retail Consortium CAP Common Agricultural Policy EC European Commission EU European Union EUR Euro FAO Food and Agriculture Organization of the United Nations FAS Farm Advisory Services GAIF General Agriculture Insurance Fund GDP Gross Domestic Product GFCF Gross Fixed Capital Formation GI Geographical Indication GMO Genetically Modified Organism GVA Gross Value Added ha Hectare kg Kilogram L Liter LBG Locust Bean Gum PDO Protected Designation of Origin PGI Protected Geographical Indication R&D Research and Development RCA Revealed Comparative Advantage RoC Republic of Cyprus SÜTEK Turkish Cypriot Milk Marketing Board TC Turkish Cypriot TCc Turkish Cypriot community TL Turkish Lira TSG Traditional Specialty Guaranteed UAA Utilized Agricultural Area UAE United Arab Emirates UK United Kingdom USA United States of America USD United States Dollar WTO World Trade Organization l v TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS vi l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS EXECUTIVE SUMMARY Agriculture is an important sector of the A revealed comparative analysis (RCA) Turkish Cypriot (TC) economy. In 2019, the found that the TC agriculture sector exhibits sector generated 5.5% of total GDP, contributed a strong comparative advantage for dairy 4.1% to total employment, and agri-food and citrus products, whilst the comparative products comprised more than 80% of total advantage of carob is also evident. However, goods ‘exported’ from the Turkish Cypriot the advantages of dairy and citrus products community (TCc). The sector has significant come at a significant cost of ‘public’ support linkages to other economic sectors, such as food to the agriculture subsectors. The burden processing and tourism. Strengthening agri- of this support is aggravated by the ongoing food value chains will be critical for supporting depreciation of the Turkish Lira. In addition, economic development in the TCc. This nearly 20% of the ‘public’ expenditure in report applies a combination of quantitative agriculture is used for ‘export’ subsidies. and qualitative methods to conduct a macro The most significant opportunities may lie in analysis focusing on competitiveness and the implementation of the recent Protected comparative advantage of the TC agri-food Designation of Origin (PDO) registration of sector, and value chain analyses of halloumi/ halloumi/hellim. By strengthening dairy sector hellim and carob subsectors in the TCc, value chains and improving coordination, with the aim of identifying constraints and actors will have the opportunity to further opportunities for improved sectoral and value specialize in high-value products that compete chain performance. on the basis of quality rather than a lower price segment of the market. Similarly, the Although the ‘export’ of agri-food products is global increase in demand for carob products the largest driver of agricultural development is an opportunity to ‘export’ a product with in the TCc, competitiveness is constrained by strong comparative advantage, warranting a range of factors. The business environment is further exploration of its existing value chains unfavorable, and markets are highly regulated and opportunities to strengthen them. and influenced by frequent interventions by the TC administration. Presently, the TCc has Halloumi/Hellim is the most important restricted access to the European Union (EU) agricultural product of Cyprus and has great single market due to suspension of the EU cultural and economic significance for the acquis, and the gap between the TCc and the island. In the TCc, halloumi/hellim is produced EU in terms of agri-food quality and safety in large amounts and the production sector standards presents a significant barrier. Lack is diverse. There are ten factories which of skilled labor, low capital accumulation in generally meet international processing agriculture, limited access to credit, and weak standards (e.g. BRC certification) and produce agriculture knowledge and innovation systems halloumi/hellim on an industrial scale for limit the development of a more competitive domestic retail and ‘export’, and numerous agricultural sector. Although the TC economy small and medium scale producers who cater spends more ‘public’ resources on agriculture to domestic consumption with varying levels compared with similar island economies, the of participation in the informal economy. The spending has less impact on competitiveness. annual production of halloumi/hellim has In addition, the burdensome and costly been approximately 10,000 tons/year for the service delivery also affects competitiveness. past five years. Consumption in the TCc is high The TC administration will continue to have an and there is significant local demand. important role to play to enabling competitive The contribution of halloumi/hellim to TCc value chains and innovative, productive ‘foreign trade’ is significant and increasing. agribusiness environment. The ‘export’ value in 2019 was approximately l 1 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 33 million USD, accounting for 38% of TCc total cooling in 2020. Veterinary services and ‘export’ value. The main external markets for animal health outcomes are inadequate. TC halloumi/hellim have been Turkey and Halloumi/Hellim producers consistently Middle Eastern countries. Turkey, Kuwait, highlighted that the sheep and goat milk Saudi Arabia, and United Arab Emirates are supply bottleneck will severely constrain the top destinations. However, the movement production of PDO-compliant halloumi/ of halloumi/hellim from the TCc across hellim as their demand for sheep and goat the Green Line1 and into the EU market is milk increases. currently prohibited, pending implementation (ii) The highly regulated milk marketing of workable arrangements to satisfy the EU and allocation system enables animal and public health standards. maladaptive practices by farmers The recent registration of halloumi/hellim as and disincentivizes investment by a PDO and the prospect of lifting prohibitions cheesemakers towards improving milk on its movement across the Green Line brings production. The parastatal milk marketing significant opportunities but also challenges board SÜTEK is viewed by farmers as an for the TCc. Besides providing a useful entity which can always absorb price marketing tool in the EU and globally, and reductions in the international market and legal protection against imitations or misuse to whom one can always sell sub-standard of the product name, the PDO registration will product. This reduces the incentives for enable the TCc value chain actors to benefit farmers to adapt to risks, to increase from access to the high value EU market the quality of their output, and to raise that they currently are not able to access. productivity. Conversely, whilst some large These benefits are expected to secure higher and small halloumi/hellim producers have incomes for value chain actors in return for invested in sheep and goat production to their efforts to improve quality. However, the increase supply, the legal requirement to PDO requires that the proportion of sheep or sell their milk to SÜTEK and then buy it goat’s milk or the mixture thereof must always back following prescribed allocation rules be greater than the proportion of cow’s milk, is a disincentive. and the milk used for production must meet (iii) The current level and direction of the stringent standards of the EU regulations. ‘public’ support to the dairy sector leaves These conditions necessitate significant little resources to support adaptation to adaptation among value chain actors in the the market opportunities and challenges TCc before they can benefit from the PDO. offered by halloumi/hellim PDO, despite Value chain analysis identified the main its high cost. The dairy sector alone weaknesses in the TCc halloumi/hellim absorbs 41% of total agricultural ‘public’ subsector that threaten the attainment support, but the current support neglects of the benefits associated with the PDO to address much needed safety and quality specification, notably: standards to protect consumer health and help prepare for fiercer competition (i) The general capacity of current in the EU market. The ‘export’ subsidies sheep and goat farms to supply milk paid to halloumi/hellim producers are a is presently insufficient to meet the clear demonstration of this, as they are demand of halloumi/hellim producers, costly, and the benefits are transferred to and the capacity to produce milk to the international clients. quality and hygiene standards of the EU market is inadequate. The collection (iv) Concerns have been raised by TC and delivery systems for sheep and goat halloumi/hellim producers regarding milk are poor, with about 60% of sheep conditions on the trade of halloumi/ and goat milk being collected without hellim across the Green Line. A local 1 Green Line refers to the line which separated the two parts of the island. Green Line Regulation (“Council Regulation 866/2004”) defines the terms under which provisions of EU law apply to the movement of persons, goods and services across the line between the areas of the Republic of Cyprus in which the government does not exercise effective control and the areas in which it does. 2 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS framework will be essential for actors in concern with the proposed arrangements the halloumi/hellim value chain to be able for compliance monitoring. to track the inputs for production so that they may achieve and maintain PDO status. Many actors in halloumi/hellim value chains Large-scale halloumi/hellim producers in stand to benefit from measures which the TCc have indicated a willingness to improve the quantity and quality of sheep comply with the traceability conditions of and goat milk and resolve supply bottlenecks. the PDO during stakeholder consultation, The following recommendations and short-to- however they have also expressed a strong medium term actions are proposed: Proposed recommendations and actions to strengthen halloumi/hellim value chain Recommendations Short-term (1–2 years) actions Medium-term (3–5 years) actions Raise the productivi- - Strengthen targeted invest- - Implement matching grants for ty, sustainability and ment to support sheep and goat fixed capital/asset formation quality standards of subsector development (e.g. that supports the development sheep and goat milk sustainably increasing animal of sustainable sheep and goat production numbers, attaining disease-free milk production (e.g., milking status, improving genetics, etc.). facility, storage and delivery - Continue to promote and im- systems, local livestock feed plement best practices (milking, production/processing, etc.). feeding, animal health and hus- bandry, etc.) through capacity building programs for farmers to produce milk more efficiently, in higher quantities and according to stringent hygiene standards. Review the roles of - Clarify the roles of SÜTEK and - Gradually transform the role of the milk marketing responsible organizations in en- SÜTEK from being a parastatal board (SÜTEK) to suring compliance with EU milk marketing enterprise to being a ensure milk qual- quality and safety standards, producer association or farmers’ ity standards and and allocate resources accord- marketing cooperative. support inclusive ingly. halloumi/hellim val- - Explore alternate supply ar- ue chains rangements with SÜTEK for val- ue chain actors that both pro- duce and process milk to remove disincentives for investment in production. l 3 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Recommendations Short-term (1–2 years) actions Medium-term (3–5 years) actions Increase the alloc- - Reduce the direct income sup- - Progressively reduce ‘export’ ative efficiency of port for loose milk relative to subsidy for halloumi/hellim and agricultural ‘public’ cold chain milk to encourage im- output subsidies for dairy cattle. support by repur- provement of milk storage and - Streamline the fragmented ser- posing the budget delivery systems. vice delivery of ‘public’ support for the dairy sector - Carry out internal organizational with the aim of consolidating improvements in the agriculture into a single independent paying administration to improve the agency. quality of the implementation - Increase support for ‘public’ of existing programs (e.g., incor- goods such as veterinary and porate climate and sustainabili- support services, disease sur- ty considerations, assure closer veillance, agricultural extension linkage of research and exten- and goat/sheep breeding pro- sion systems, etc.). grams. Increase readiness - Raise awareness of specifica- to capitalize on tions and conditions laid out in opportunities from EU regulations and support re- PDO registration and sponsible parties to meet them. lifting prohibition on - Support producers to obtain the moving halloumi/ “attestations” by the delegat- hellim across the ed body, to trade PDO-compli- Green Line ant halloumi/hellim across the Green Line into the EU market. - Strengthen the local framework for tracking/tracing inputs (e.g., animal identification and regis- tration system) in the halloumi/ hellim value chain. - Strengthen local regulations (e.g., adopt the EU Food and Feed Safety legislation) to en- sure fair competition and that quality schemes are not abused. Like halloumi/hellim, the production of carob 2,317 tons and an ‘export’ value of 1.1 million is culturally significant and well-suited to the USD in 2019. agricultural conditions in Cyprus. Carob has Carob production in the TCc underwent favorable agronomic traits for production in a period of stagnation and even decline. Cyprus, given its lower irrigation requirement This decline was driven by transition to and climate sensitivity compared with other other agricultural products, namely citrus, crops for which the TCc shows a revealed potatoes, and grapes, and the carob subsector comparative advantage. In the TCc, the carob is currently in a state of disrepair. Current subsector occupies a significant place because carob production in the TCc is only 1/6 of of its cultural significance and long tradition. its historical peak, and this is reflected in an However, it is also an important agriculture overall global decline in production driven by commodity with an estimated production of similar circumstances. 4 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS The global demand for carob products has which is paid on the basis of area and recently increased as the uses of carob have thereby provides no incentive to improve expanded. The main driving force is the productivity per unit of area. Furthermore, production of locust bean gum from carob large amounts of forest carobs are seeds. Locust bean gum is widely used as a neglected or underutilized. thickening and stabilizing agent in the food and pharmaceutical industries, and for a (ii) The derelict status of carob farming range of industrial applications. However, has resulted in a supply bottleneck for carob pulp also has desirable characteristics industrial TCc carob processors. As a that are in increasingly high demand from result, the two main carob processing modern international markets and depending facilities, with a combined processing on production and processing, products can capacity of 8,000 tons per year, are be marketed as organic, non-GMO, gluten currently processing only at 1/4 of their free, caffeine free, soy free, vegan/vegetarian, capacity. These processors struggle to halal, and/or kosher. compete with the prices offered by Turkish importers for the carob harvested in the The worldwide trade value of primary carob TCc. products is increasing steadily and carob ‘export’ from the TCc are increasing both in (iii) The success of carob specialty food value and quantity since 2016. Almost half producers in the TCc has been mixed. of the total production of carob in the TCc Syrup makers are currently making gains has been ‘exported’ each year, with Turkey on international markets, namely Turkey accounting for more than 90% of the external and the United Kingdom. However, the TCc market. The unit value of carob ‘exports’ is remains a net ‘importer’ of carob syrup. relatively low in the TCc when compared There is a single producer of specialty with the RoC, which exports seeds primarily carob products that are similar to those to countries in the EU. The EU locust bean available on the international market, such gum producers are an established market as carob powder and products flavored with a high demand for carob seeds that with carob powder, however production is could be targeted by the TC producers, whilst very low, due to limited awareness of the Asia-Pacific region is emerging as a market. products, low demand and poor returns. Alternatively, domestic processing of seed into locust bean gum may be an opportunity to add There are many pathways that could be value before ‘export’. explored to reinvigorate carob production in the TCc and realize the potential Despite many positive signs for future opportunities of international markets. The demand for carob products, the carob investment strategies will differ depending on value chain in the TCc is constrained by low the intended end use of the carob products. productivity, supply bottlenecks and weak Both the administration and the private competitiveness: sector will have a role to play in determining (i) In general, farmers do not invest in which pathways are most appropriate and their carob production, resulting in poor how these can be supported. The following productivity. Instead, farmers rely on recommendations and short-to-medium term the administration for income support, actions are proposed: l 5 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Proposed recommendations and actions to strengthen carob value chain Recommendations Short-term (1–2 years) actions Medium-term (3–5 years) actions Create an enabling - Promote adoption of best - Modify ‘public’ support to environment for practices including orchards carob farmers from area increased carob with deliberate layouts to enable payments to grants/loans that production and pro- mechanical shaking/harvesting, enable establishment of new cessing in the TCc better use of inputs and tree plantations using high quality management. carob cultivars and modern - Explore strategies (e.g., contract farming techniques. farming) to strengthen linkages - Provide incentives for carob between carob producers and producers/processors to the TCc processers that have promote products and attain unmet demand for carob. certifications that will improve competitiveness (e.g. organic, non-GMO, halal, kosher, etc.). Support research to - Support research and develop- - Support to explore the feasibility increase carob farm/ ment (R&D) and identify the of using the area between carob forest productivity most appropriate cultivars for trees for economic activities or seed production in orchards ecosystem services to increase that can sustain production tar- land use efficiency both in geting profitable international intensive orchard production seed markets and/or producing and extensive forest production. pulp with a high culinary value, pursue collaborative research between TCc and RoC. Explore opportuni- - Hold dialogue between TCc and - Encourage private sector to ties to trade carob RoC administrations and private conduct feasibility study of products across the sector to ensure that processed locust bean gum production Green Line food (of non-animal origin) can on the island and explore joint- cross the Green Line as foreseen business opportunities across by the EU regulation. the Green Line. 6 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 1. Introduction Cyprus joined the European Union (EU) in supporting services and the business environ- 2004 as a de-facto divided island. The appli- ment. This value-chain assessment of the TC cation of the EU acquis is suspended in areas agri-food sector aims to investigate the market of the Republic of Cyprus (RoC) in which the forces while responding to the following ques- Government of the Republic of Cyprus does tions: not exercise effective control, hereafter re- ferred to as the Turkish Cypriot community (i) What are the current status and (TCc). In 2006, the Council of the EU approved constraints that impede the the aid regulation “Council Regulation (EC) No. competitiveness of TC agriculture 389/2006” to end the isolation of the TCc, and and prevent TC farmers and agri- the EU has since supported programs to facil- food processors from responding to itate the reunification of Cyprus by encourag- market? ing the development of the Turkish Cypriot (ii) Which TC agri-food value chains (TC) economy. show the strongest growth prospects The agriculture sector is an important driver (comparative advantage)? for the TC economy. In 2019, the sector gen- erated 5.5% of total GDP, contributed 4.1% (iii) What actions can the TC administration to total employment, and agri-food products consider for improving the profitability comprised more than 80% of total goods ‘ex- and efficiency of those value chains? ported’ from the TCc. The sector has significant The COVID-19 pandemic and travel restrictions linkages to other economic sectors, such as affected working methodology, and required food processing and tourism. Manufacturing, the report to employ more remote sources which includes agri-food processing, produces and publicly available data in its quantitative predominantly dairy products and therefore and qualitative analyses that included: (i) an relies heavily on domestic milk production. examination of global, European and local Agriculture also performs important social agri-food market trends to identify the most protection functions by providing income-gen- dynamic value chains; (ii) competitiveness erating activities for the rural population, and revealed comparative advantage (RCA) thereby improving household consumption, analyses of the agri-food sector; (iii) value food security, and the accumulation of durable assets. However, imperfect market infrastruc- chain analyses for halloumi/hellim and carob ture, and socio-economic and climate vulner- subsectors drawing on a range of statistical data abilities affect the agri-food production and and consultation with public and private key processing in the TCc. stakeholders; (iv) developing evidence-based recommendations and actions to address the Improving agri-food value chain linkages can constraints and realize the opportunities. increase farm incomes, improve sustainabili- ty, and support the agriculture sector’s con- The report consists of three sections: a macro tribution to the economy. An analysis of value analysis focusing on competitiveness and chains will help to identify business-to-busi- comparative advantage analysis, a value chain ness relationships that connect the chain, analysis of the TCc halloumi/hellim subsector, methods for increasing efficiency and profit- and a value chain analysis of the TCc carob ability, and ways to enable businesses to in- subsector. The latter two sections contain crease productivity and add value. It can also specific recommendations and actions to provide a reference point for improvements in strengthen value chain competitiveness. l 7 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 2. Competitiveness Analysis of Turkish Cypriot Agriculture The purpose of this chapter is to provide crops, while milk and poultry dominate the an overview on the status and constraints livestock sector. The TC agriculture sector of competitiveness in TC agriculture, and to and its 12,000 farms generate around 5% of identify agri-food products where the TCc GDP and provide employment to 4 % of the demonstrates a comparative advantage. The total workforce (Figure 2.1). While the shares competitiveness of the TC agriculture sector of GDP and employment of the agriculture is assessed against the agriculture sectors of sector in the TCc were higher than the shares the RoC and Malta, which are economies of in the RoC and Malta during the past 10 years, similar size that have comparable agronomic the agriculture sector shares of GDP and production factors. As a foundation for the value chain analysis, the competitiveness employment have decreased from 2010 to of the agriculture sector is assessed using 2019 in all three economies (Figure 2.1). a variety of selected cost, non-cost, and The majority of farmers in the TCc practice comparative indices. The factors influencing small-scale agriculture. The average farm size agricultural competitiveness depend on the of 13.3 ha in the TCc is substantially larger than economy’s level of income and vary between the RoC (3.2 ha) and Malta (1.2 ha), however price- and quality-factoring objectives (Box small-scale farms often practice (semi) 2.1). subsistence farming and do not participate in the formal economy, meaning their commercial 2.1 Agriculture sector activity is not regulated or protected by the performance TC administration. Considering their marginal Agriculture plays an important role in the participation in regulated markets, these TCc and contributes to a greater share of the smaller producers mostly are not reached economy than the RoC and Malta. Almost by and do not benefit from ‘public’ support. 75% of the TC area is rural, and more than 2/3 Although 83% of farms have less than 20 ha, is used for agriculture (157,500 ha)2. Labor- 68% of the Utilized Agricultural Area (UAA) is intensive fruit (especially citrus) and vegetable managed by the 17% of farms that have more production, as well as cereals are the dominant than 20 ha (Figure 2.2). Box 2.1: Definition of competitiveness and comparative advantage Competitiveness is the ability of an economy or business to sell its commodities for profits in face of competition on the domestic or international markets. The demand requirements, above all, pricing, quality, and quantity of produce are the key factors influencing the competitiveness. In low-income economies, where consumers spend a high share of their incomes on food, price is the decisive factor. In high income economies, more attention is given to quality and other standards, such as environmental sustainability (including organic foods), animal welfare and hygiene. The concept of comparative advantage recognizes that every economy or business has different levels of productivity for each commodity it produces. Comparing this economy with its trading partners reveals for which commodities it performs relatively well or not. The comparability also stems on the concept of the WTO’s Agreement on Agriculture, which is based on free trade and thus, does not foresee the use of export subsidies. The economy can maximize its prosperity by focusing on those commodities where it has a comparative advantage, enabling to import products from the foreign exchange earnings where it has a comparative disadvantage. 2 North Cyprus Rural Development Program, 2020. 8 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.1: The role of TC agriculture compared with RoC and Malta Source: ‘State Planning Organization’, 2021 and European Commission, Statistical Factsheet, June 2020. Agriculture growth in the TCc is hampered In addition to the challenging agro-climatic by low productivity, low investment and conditions, low productivity in the TCc is low market prices. While all three island driven by the interplay of low investment in economies suffer from lagging agricultural agriculture and low market prices, indicating productivity, with yields of major cereals that the competitive environment is a major lower than EU-27 averages3, the agriculture constraint on the sector. production value per ha of UAA in the TCc was 36% lower than that in the RoC in 2019. Figure 2.2: Distribution of farms and utilized agricultural area by farm size in the TCc Source: General Agriculture Insurance Fund, 2021. 3 Eurostat, 2021. l 9 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 2.2 Competitive environment positions in their respective value chains with regards to regulating sales and supply. This report assessed agricultural competitive- Price fixtures, daily delivery quotas and ness in the TCc through an analysis of seven direct income support based on the type key determinants: business environment, and amount of production influence farmers’ market development, labor, capital, risk man- choices in production and do not encourage agement, ‘public’ support, and institutions. them to adjust to produce what the market These determinants were also compared with is calling for. Furthermore, the marketing the RoC and Malta to identify the strengths boards are viewed by farmers as entities and limitations of the current competitive en- which can always absorb price reductions in vironment in the TCc. the international market and to whom one can 2.2.1 Business environment always sell sub-standard product. This reduces the incentives for farmers to increase the The overall business environment in the TCc quality of their output and raise productivity. is unfavorable and shows opportunities for The TC administration regularly intervenes improvements. Regulatory unpredictability in the market via the marketing boards, and weak rule of law in the overall TC economy through price controls and other measures, can have important impacts on agriculture protecting farmers and shielding consumers operations, as they prevent effective planning from the ongoing depreciation of the Turkish and a healthy business environment for Lira. Conversely, market interventions such farmers. Notably, the regulatory framework as quota systems and institutional reference is outdated and does not reflect modern pricing have been abolished in the EU, and regulatory practices. For example, newly other market regulating mechanisms have established companies are registered under been phased out over the last two decades, Company Act/Cap 113 of 1951, which therefore these interventions are not part is modelled after the even older British of market development in the RoC and Company Act of 1948. There are regulatory Malta. Transparency on market including drafts of long-outstanding and pressing issues, price development and production outlook such as alignment with the EU food and feed is of paramount importance for farmers and safety standards, which would build the legal agriculture stakeholders to make business foundation for strengthening competitiveness. decisions and invest in the agriculture and However, this draft regulatory paper has yet food sector. to be approved by the TC administration. Presently, the TCc has restricted access to the Similarly, a draft regulatory document for the prosperous EU market, which limits its agri- establishment of a ‘payments department’ food ‘export’ potential. The agri-food ‘export’ within the agriculture administration has value recorded by the TC economy (71.1 million existed for several years and is also still USD) was lower than that of the RoC (506.7 awaiting approval. These delays in approval of million USD) and Malta (155.2 million USD). an improved regulatory framework impact the The fact that the RoC exported more than performance and overall competitiveness of 70% of its agri-food exports to the EU, while the TC agriculture sector. the TCc ‘exported’ just 10% to the EU (Figure 2.2.2 Market development 2.3) accounts for much of this difference, as the EU is a much higher value market relative The domestic agri-food market is strictly to the Middle Eastern markets into which the regulated. Dairy, citrus, and cereals are TCc mostly ‘exports’. As the TCc is outside the the three most dominant subsectors of effective control of the Government of the TC agriculture, and together demonstrate RoC, the EU Acquis is suspended in the TCc how the administration dictates the market and regulation prohibits the movement of development. There are parastatal marketing live animals and animal products subject to boards for dairy (SÜTEK), fruits/vegetables EU veterinary requirements across the Green (CYPFRUVEX) and cereals (TÜK), which are Line. TC producers face additional barriers to the main implementers of agricultural policy trade across the Green Line, notwithstanding in the TCc and have almost monopolistic the prohibitions and restrictions on certain 10 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.3: Share of agri-food exports with EU Figure 2.4: Share of agriculture versus high value and non-EU countries 2019 processed agri-food exports 2019 Source: TC ‘Department of Trade’ and European Commission, Statistical Factsheet, June 2021. products. For example, the gap between the captured in this statistic despite 41% of farms TCc and the EU in terms of food and feed being family farms6. Of the TC agriculture labor safety, quality, sanitary, and phytosanitary force, only 19% are employed full-time, 64% and environmental standards pose not only a are self-employed, 6% are working part-time, threat to consumer health, but also presents and 11% represent unpaid family workers7. a significant barrier to the EU’s single market. The TC agriculture sector depends on seasonal Furthermore, in practice almost all processed workers, especially in the citrus and vegetable agri-food products originating in the TCc are subsectors. As many Turkish Cypriots do not currently prevented from crossing the Green choose to work in the fields, foreign workers, Line by RoC authorities, due to concerns raised mainly from Turkey come to the TCc during by health services regarding the production the manual labor-intensive harvest period. process. The EU Commission has confirmed However, many seasonal workers lack the to the RoC that these products are permitted proper skills needed in agriculture, especially under the applicable legal framework to cross for driving vehicles, using agricultural the Green Line and should not be prevented by machinery or technical appliances. Most the RoC authorities. However, the restrictions seasonal workers are remunerated at minimum remain, and a resolution has not been found. wage level, on a daily fee basis, or sometimes The share of processed agri-food products in based on the weight of harvest produce. The the TC ‘exports’ (75%) in 2019 is comparable advantage of cheap labor is offset by the low with the RoC (78.4%), and lower than Malta4 agricultural productivity associated with the (Figure 2.4). unskilled workforce. 2.2.3 Labor 2.2.4 Capital The lack of skilled labor is a constraint to the Low capital accumulation in the TC TC agriculture sector development. During agriculture sector limits strengthening of the last decade, the share of the TC’s labor competitiveness. The share of the Gross force that is employed in agriculture decreased Fixed Capital Formation (GFCF)8 in agriculture from 5.7% to 4.1%. In 2019, 5,620 annual showed a decreasing trend in the TCc and working units (AWU) were recorded in TC accounted only 4.6% in 2018, which was lower agriculture5. Unpaid family members are not compared with the RoC (7.4%) and Malta 4 European Commission: Statistical Factsheet for Malta, June 2020. 5 Annual work unit is the full-time equivalent employment, i.e. the total hours worked divided by the average annual hours worked in full-time jobs in the country. One annual work unit corresponds to the work performed by one person who is occupied on an agricultural holding on a full-time basis. 6 ‘State Planning Organization’, 2021. 7 North Cyprus Rural Development Program, 2020. 8 Gross Fixed Capital Formation consists of private and public investments in tangible or intangible assets, particularly covering machinery, equipment, technical facilities, vehicles, buildings, livestock and perennials. l 11 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.5: Development of agriculture investments (2012-2018) Source: SPO and European Commission, CAP indicators, 2020. (16.4%) (Figure 2.5), and far beneath the EU- agriculture shields farmers from market and 27 average of 32.3%. Investment is necessary production risks. This framework is based for farmers to respond to market demands on mandatory insurance and ad hoc disaster and to acquire modern technologies and aid. Risk management practices at the farm- facilities, and thereby improve the efficiency level, such as drought-resistant crops or and profitability of the TC agriculture sector. income diversification (for example, agri- Limited access to credit presents a barrier for ‘tourism’) has yet to become widespread. capital investments. Financial intermediaries The TC administration has absorbed market are reluctant to provide credit without risks for farmers and thus created a situation adequate collateral. Smallholders have more in which farmers have not adapted to the difficulty providing collateral in form of land or various risks they would otherwise face. other tangible assets. Legislation that enables However, compensating for the ongoing lenders to enforce their rights and collect debt Turkish Lira depreciation and the related or repossess collateral through a rapid cost- income losses that TC farmers now face is effective process is missing. starting to burden the agriculture budget. The ‘General Agriculture Insurance Fund’ (GAIF) 2.2.5 Risk management covers production losses from the climatic The TC agriculture sector is affected by risks of drought, frost, hail, floods, storm, and price, production, and climate risks. The TC erosion, and from plant and animal diseases. crop subsectors are affected by heat stress The GAIF benefits from levies deducted and water scarcity, which result in increased from ‘imported’ and ‘exported’ goods, but variability in productivity and associated additional funds needed to be allocated for vulnerability. Rising costs of agricultural animal feed necessities to address disasters in inputs, especially energy (fuel) and fertilizer, 2018. Similar to the TCc, agriculture insurance leads to further vulnerability. The imbalances in the RoC is compulsory for all farmers, which between production revenues and costs affect provides insurance against climatic risks for incomes and thus, competitiveness. The new losses in crop production, however unlike the water pipeline from Turkey will provide new TCc, they are not indemnified against market opportunities to mitigate climate and water risks like income and price volatility, placing related risks in the TCc, however the on- and less financial burden on the administration. off-farm irrigation infrastructure still needs to Malta belongs to the group of 10 EU member be developed. states that subsidizes crop insurance through The risk management framework in TC the EU Rural Development Program9. 9 European Commission: Risk management schemes in EU agriculture, EU Agricultural Market Briefs, https://ec.europa.eu/info/sites/default/files/ food-farming-fisheries/trade/documents/agri-market-brief-12_en.pdf 12 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.6: Distribution of agriculture expenditure Source: ‘MoA’, and European Commission, Agricultural Factsheet, 2020. 2.2.6 ‘Public’ support support investment grants (Figure 2.6). The RoC’s budgetary allocation aligns with the The TC economy spends more ‘public’ EU-27 average that is, around one quarter of resources on agriculture compared with the agriculture expenditure supports improving RoC and Malta. During the last five years competitiveness, environmental sustainability, (2015-2019), the TC administration spent on and income diversification. Furthermore, average 1.1% of GDP on agriculture, which is investments in the livestock sector, especially more than three times the share of spending following the registration of halloumi/hellim on agriculture in the RoC (0.33%), Malta as a Protected Designation of Origin (PDO), (0.26%), and the EU-27 average (0.36%). have increased. Malta has put even more The level of spending in TC agriculture has emphasis on strengthening competitiveness increased by 45% since 2015 in absolute and diversification, as more than 70% of terms. The majority of this spending is funded CAP expenditure are earmarked for rural through the local budget, while Turkey and the development measures. EU have typically contributed around 12% of the outlays in agriculture. Irregularity of the 2.2.7 Institutions financial inflows contribute to the vulnerability The delivery of agricultural support by of the TC agriculture sector10. The RoC and the institutions of the TC administration Malta benefit from stable financial inflows is burdensome and costly. Within the TC through the EU’s common agricultural policy agriculture administration, 40% of staff, (CAP), which is secured through a 7-year multi- divided among 11 different ‘departments’ annual financial framework for its members, or ‘attached institutions’ with 42 branch enabling better planning perspective for offices in the five districts, are involved in farmers and agri-food producers. the administration of the delivery of ‘public’ ‘Public’ support provided to TC agriculture policy measures. The various ‘departments’ has less impact on competitiveness compared and ‘attached institutions’ involved in policy with its regional peers. The TC administration delivery work independently, and thus have allocates 68% of the total agricultural limited impact on enhancing competitiveness. budget, or 0.58% of GDP, on direct income In addition, the procedures that farmers face support alone. Together with input, ‘import’, in accessing ‘public’ support are bureaucratic ‘export’ subsidies and price support, 97.4% and burdensome, as farmers have to submit of TC agriculture expenditure is allocated for different subsidy applications to different market regulation and just 2.6% are used to entities depending on the type of the support 10 Nearly 10% of agriculture spending is provided by Turkey. However, these financial contributions are often provided with significant delays. l 13 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.7: Overview of AKIS systems in the EU and TC economy Source: World Bank design, based on PRO-AKIS report, 2021. measure. As required under the CAP, Malta 2.3 Revealed comparative and the RoC have established an independent paying agency, which functions as a one-stop- advantage of agri-food exports shop for farmers to access EU funds and is Revealed comparative advantage (RCA) thereby more efficient. measures the relative advantage or disadvantage of an economy in particular Weak agriculture knowledge and innovation commodities, as evidenced by trade flows. systems (AKIS) affect competitiveness in RCA is defined as the ratio of two shares: the TCc. While TC agriculture encompasses a the numerator is the share of an economy’s relatively diverse range of ‘public’ and private exports of the commodity of interest in its actors, they are fragmented and poorly total exports, and the denominator is share of connected (Figure 2.7). Cooperation between world exports of the same commodity in total agriculture stakeholders in terms of joint world exports. A value greater than 1 indicates research, education and advisory activities a comparative advantage for that commodity. is limited. Basic and applied research exists, RCA can be influenced by public support, but acquired knowledge is not effectively because measures such as export subsidies shared with farmers to promote development. tend to increase production and exports and Although a Farm Advisory Services regulation thus increase the RCA value for a supported has been drafted that would improve the commodity. The remainder of this section uses situation, it has been awaiting approval from data provided by TC ‘Department of Trade’ the TC administration for several years. By and United Nations COMTRADE11 to calculate contrast, Malta and the RoC benefit from more the RCA of various agri-food products for the integrated administrative structures (Figure TC economy and identify those for which the 2.7). For example, the Maltese Ministry of TCc has a comparative advantage. The RCA in Agriculture hosts Farm Advisory Services, 2020 and the change since 2015 are calculated but has limited linkages between research, based on ‘export’ values. The RCA was carried education, and extension, whereas the RoC’s out for commodities that TC economy showed Ministry of Agriculture, Rural Development ‘export’ data in 2020. It starts with the analysis and Environment has undergone reforms, of the 24 agri-food groups (2-digit HS codes), improving its AKIS and providing closer then deepens the analysis on those commodity linkages between agricultural research and groups showing the highest comparative policy formulation. The TC administration can advantage (4- and 6-digit HS codes). also benefit from promoting linkages between stakeholders that enable an innovative, The TC economy exhibits a strong revealed productive agribusiness environment. comparative advantage for dairy and citrus 11 United Nations Comtrade: International Trade Statistics Database, https://comtrade.un.org/data/ 14 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.8: Revealed Comparative Advantage (RCA) of TC agri-food products in 2020 (change since 2015) Note: Bubble size indicates share in the value of total agri-food ‘export’ in 2020; carob is included in the 12-Oilseeds group. Source: TC ‘Department of Trade’ and UN COMTRADE, 2021. products. The dairy sector is the largest ‘exports’ make economic sense. Since 2015, contributor to the agriculture production the comparative advantage of halloumi/hellim value (output) and also has by far the highest ‘exports’ has been constantly high and is RCA, with a value of 81 (Figure 2.8). Dairy showing growth. is also the largest ‘export’ item of the TC Citrus fruit ‘exports’ show highest prospects economy, with a value of 45.7 million USD in for international markets. The growing 2020, accounting for more than 45% of the demand for fruits on the international markets TC total agri-food ‘export’ value. However, seems reflected in the ‘export’ success of the since 2015, dairy ‘exports’ have slightly TC economy. Within the citrus fruit sector, declined in competitiveness with the RCA mandarins reveal the highest comparative having decreased by 19% over the last 6 advantage followed by oranges, grapefruits, years. Fruits, especially citrus, are the second and lemons (Figure 2.10). The durian fruit is most competitive group with an RCA of 40 also showing prospects for commercialization. in 2020, which is 54% higher than 2015, revealing an increase in competitiveness. However, the comparative advantage of the In 2020, the citrus fruit subsector accounts dairy and citrus sectors comes at a significant about 27% of total agri-food ‘export’ value cost. ‘Public’ spending in TC agriculture is and contributes 27.9 million USD to the TC significantly high (discussed in section 2.2). economy. Cereals also reveal a comparative Besides outdated policy instruments, such as area payments, livestock-headage payments, advantage, but volatility in production persists input- and import subsidies, the dairy and based on climate change. Although tobacco citrus ‘exports’ benefit from ‘export’ subsidies. shows a comparative advantage, this is based 20% of ‘public’ support in the TC agriculture entirely on re-export, as the TCc specializes in sector is used for ‘export’ subsidies alone, manufacturing of tobacco products. despite international commitments in the Halloumi/Hellim is the flagship ‘export’ Agreement on Agriculture of the World Trade product within the dairy sector. Cream and Organization (WTO)12 to phase out such yellow cheese also reveal a comparative subsidies by 2015 in order to create fairer advantage, while yellow cheese has been competition (Box 2.2.). The TC administration losing ground significantly since 2015 (Figure provides ‘export’ subsidies with the aims of 2.9). Until 2017, butter also showed that compensating ‘exporters’ for the tariffs that 12 WTO: Marrakesh Agreement, Article 8 on Export Competition Commitments, https://www.wto.org/english/docs_e/legal_e/14-ag_02_e. htm#articleVIII l 15 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 2.9: RCA of the dairy sector 2020 (change since 2015) Source: ‘Department of Trade’ and UN COMTRADE, 2021. Figure 2.10: RCA of the citrus fruit sector 2020 (change since 2015) Source: ‘Department of Trade’ and UN COMTRADE, 2021. TC goods, which do not carry EU compliant group in the TCc has continuously increased, documents, are subject to at entry to the EU reaching 2.4, which is driven almost entirely market; and offsetting the high transactional by ‘exports’ of carob (Figure 2.11). Carob costs incurred due to double shipment of ‘exports’ (RCA ~1000) have doubled in value goods via Turkey. during the period 2015-2020. Although the RCA indicates a comparative Based on the RCA analysis and TC’s agro- advantage of cereals in 2020, the cereal sector ecological conditions, strategic opportunities shows high sensitivity to climate change for the development of more competitive compared with other commodities such as TC agri-food value chains are apparent. carob. The vulnerability of the cereal sector Citrus fruits show potential under the RCA to climatic factors is evident in the dramatic to remain a leading ‘export’ based on the decreases in RCA and ‘export’ value in 2016 harvest period which enables early market and 2018, coinciding severe droughts (Figure entry in the EU, however the most significant 2.11). Conversely, the RCA of the oilseeds opportunities may lie in the realization of the 16 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Box 2.2: The impact of ‘public’ support on competitiveness While the export-based Revealed Comparative Advantage measures underlying natural and structural advantages, it is also enhanced by ‘public’ support. Most kinds of ‘public’ support instruments in agriculture, such as input subsidies, livestock-headage payments, production-specific area payments, price support, processing subsidies and above all, ‘export’ subsidies will tend to increase production and exports and so, increase the RCA value for a supported commodity. This reflects an increase in financial competitiveness, though often with little or no impact on the underlying economic competitiveness. The TC ‘public’ support system in agriculture tends to reward farmers for what they have produced rather than providing an investment-friendly environment to increase agriculture productivity and strengthen competitiveness. Several commodities for which the TC economy shows a comparative advantage receive relatively high levels of support and are considered as trade distorting under the global definition of the WTO. This ‘public’ support scheme will likely have contributed to their ‘export’ success and high RCA values. Shifting agricultural support towards ‘public’ goods by enabling an en- vironment for investments would improve safety and quality standards that also improve access to more prosperous markets. recent PDO registration of halloumi/hellim. productive agribusiness environment. By strengthening dairy sector value chains Opportunities to develop the halloumi/hellim and improving coordination, actors will have and carob subsectors are not yet supported the opportunity to further specialize in high- in an efficient and sustainable way by the value products that compete on the basis ‘public’ support measures. To realize these of quality rather than price. Similarly, the opportunities, the TCc would likely benefit potential reemergence of carob products as from further assessing its agriculture policy a significant ‘export’ with strong comparative impacts and adjusting its support. Accordingly, advantage warrants the exploration of existing the following chapters will conduct value chain value chains for opportunities. analyses of the halloumi/hellim and carob subsectors in the TCc to identify constraints, The TC administration will continue to solutions, and opportunities, with the aim of have an important role to play in enabling supporting growth, increased investment and competitive value chains and innovative, competitiveness. Figure 2.11: Revealed Comparative Advantage of TC cereals and carob (2015-2020) Source: ‘Department of Trade’ and UN Comtrade, 2021. l 17 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 3. Halloumi/Hellim Value Chain Analysis Halloumi/Hellim is the most important The EU has stipulated conditions to allow for agricultural product of Cyprus and has the movement of PDO-compliant halloumi/ significant cultural and economic importance hellim produced in the TCc across the Green for the island. Nearly 25% of the TC agriculture Line and into the EU15. Presently, the EU production value in 2019 is based on the acquis is suspended in the TCc, and regulation production of halloumi/hellim. In the TCc, prohibits the movement of live animals and the average annual production of halloumi/ animal products (such as cheese) subject to hellim has been approximately 10,000 tons Union veterinary requirements across the for the past five years, with approximately Green Line. As a result of lifting the prohibition 75% of the production ‘exported’. The on moving halloumi/hellim across the Green ‘export’ value of halloumi/hellim from the Line, producers in the TCc will be able to TCc was approximately 33 million USD, market PDO-compliant halloumi/hellim to accounting 38% of TC total ‘export’ value in the EU, pending implementation of workable 2019. Approximately 16% of Turkish Cypriots arrangements to guarantee that EU animal depend largely on halloumi/hellim production health and public health controls are efficiently and marketing for their livelihoods.13 performed. Thus, the potential benefits of the In April 2021, the European Commission PDO declaration to the TCc are even more registered the name Χαλλούμι/Halloumi/ pronounced than the marketing tools and Hellim as a Protected Designation of Origin legal protections described in Box 3.2 that are (PDO). As part of the EU quality schemes14, typically associated with PDO. the PDO for halloumi/hellim protects the name and enables both communities of The registration of Χαλλούμι/Halloumi/ Cyprus to promote the qualities and traditions Hellim as a PDO and the prospects of associated with its origin. The PDO is also commercialization within the EU via the guided by stringent requirements on the Green Line will bring numerous opportunities recipe and specifies that the placing on the but also challenges to the TCc. This chapter market of halloumi/hellim within the EU is will undertake a value chain analysis to identify conditional on the compliance with other constraints, solutions, and opportunities of specific EU provisions of relevance, including the halloumi/hellim subsector in the TCc, the fulfilment of sanitary provisions applicable with the aim of supporting growth, increased at EU level. investment and competitiveness. Box 3.1: Cyprus iconic cheese halloumi/hellim Hellim in Turkish and Χαλλούμι/halloumi in Greek is the traditional semi-hard and unripened cheese of Cyprus made from goat, sheep and/or cow milk. Its main trait is a high melting point that enables halloumi/hellim to easily be fried or grilled. From antiquity, halloumi/hellim has maintained an im- portant function in the Cypriot diet and has met the needs of Cypriot families throughout the year as a meat substitute and one of the most common accompaniments to bread.13 13 European Commission: Publication of an application pursuant to Article 50(2)(a) of Regulation (EU) No 1151/2012 of the European Parliament and of the Council on quality schemes for agricultural products and foodstuffs. ‘ΧΑΛΛΟΥΜΙ’ (HALLOUMI)/‘HELLIM’ EU No: CY- PDO-0005-01243-17.7.2014. Official Journal of the European Union, C 246, 28 July 2015. 14 The EU regulation on quality schemes (1151/2012) differentiates between Protected Designation of Origin (PDO), Protected Geographical Indication (PGI), and Traditional Specialty Guaranteed (TSG). 15 European Commission: Implementing Regulation (EU) 2021/591 on entering a name in the register of protected designations of origin and protected geographical indications (‘Χαλλούμι’ (Halloumi)/‘Hellim’ (PDO)), and Implementing Decision (EU) 2021/586 on conditions for the movement of ‘Χαλλούμι’ (Halloumi)/‘Hellim’ (PDO)), Official Journal of the European Union, L125/42 and L126/1, April 13, 2021. 18 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Box 3.2: Protected Designation of Origin (PDO) for Χαλλούμι/Halloumi/Hellim The EU differentiates three quality certification schemes: (i) the Protected Designation of Origin (PDO), (ii) the Protected Geographical Indication (PGI), and (iii) the Traditional Specialty Guaranteed (TSG). The trademark PDO certifies that production, processing and preparing of the registered product are from a geographical area and use recognized know-how. In the EU, more than 1,450 products are registered under the three designations, and Italy alone has nearly 300 certified products. Besides providing a useful marketing tool in the EU and globally, registration under these schemes provides producers with legal protection against imitations or misuse of the product name. The marketability of halloumi/hellim under the PDO went into effect on October 1, 2021. From this time onwards, only halloumi/hellim made by cheesemakers in the island of Cyprus and which con- forms to the requirements of the product specification of the PDO halloumi/hellim can be marketed in the EU. Both Cypriot communities will have a transitional period until 2024 to implement the PDO specification for halloumi/hellim. 3.1 Descriptive analysis of 3.1.1 Milk production halloumi/hellim value chain in The basis for the production of the traditional the TCc halloumi/hellim cheese is fresh milk from sheep, goats, and cattle. PDO compliance In the TCc, halloumi/hellim is produced in specifies conditions on the inputs used to large amounts and the production sector is produce the milk, particularly the animals that diverse. The key actors in the halloumi/hellim produce it and the feeds they consume. value chain include the dairy farmers, milk marketing board (SÜTEK), cheese makers/ Milk producers factories, wholesalers/traders, and retailers The enterprises that provide raw milk inputs (Figure 3.1). According to regulations, all milk for halloumi/hellim production are diverse. for sale should be collected and marketed Larger, commercially oriented cattle dairies and by SÜTEK, however value chain linkages that smaller, subsistence-oriented sheep and goat bypass SÜTEK exist. It is common for private dairies emerge as the dominant typologies, sector actors to perform multiple functions however inversions of these typologies exist in the value chain, for example, small milk and are significant to existing and future producers that also process milk into halloumi/ halloumi/hellim value chains. For example, hellim, and large processors that also manage in 2014, a major dairy processing company domestic retail outlets and/or ‘export’ their established a large-scale sheep and goat product directly. dairy that presently manages approximately a Figure 3.1: Halloumi/Hellim value chain in the TCc Milk Raw milk Large cheese International International marketing Producers factories retailers consumers board (SÜTEK) TCc TCc retailers consumers Small cheese factories Note: Dotted line indicates informal linkage - TC regulation requires all milk to be sold to SÜTEK. l 19 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.1: Key figures for milk production Indicator/dairy animal Cattle/Cow Sheep Goat Total Milk production (tons), 2019 158,221 16,980 4,999 180,200 Number of animals, 2019 65,701 196,890 77,852 340,443 Number of animals used for milk production, 2019 29,118 170,883 67,093 267,094 Milk productivity in 2019 (kg/per animal/per year) 5,434 99 75 Quantity of milk collected by SÜTEK (tons)*, 2020 148,076 2,223 2,475 152,774 Number of milk producers registered with SÜTEK, 2020 752 420 396 1,568 *Converted from L at a ratio of 1L = 0.001 tons. Note: TC ‘Ministry of Agriculture’, TCc livestock data and SÜTEK. herd of 2,500 animals and continues to invest Milk production data in its development. Most data about milk Total milk production has been increasing producers comes from SÜTEK, however this in the TCc over the past decade. The total does not capture much information about the recorded milk production in 2019 was performance of the milk producers that do not 180,200 tons, of which, sheep/goat milk sell milk to them. The majority of these farms accounted for 12% of milk production, and are less developed and less commercially cow milk accounted for the remaining 88%. oriented and for many, milk production is not Total recorded milk production from sheep the primary livelihood activity and receives and goats has increased almost twofold from low investment. This contributes to the overall 11,481 tons in 2010 to 21,979 tons in 2019 poor standards of milk production. (TCc yearbooks) (16,980 tons of sheep milk and In 2020, 127 villages and 70 commercial 4,999 tons of goat milk). In the same period, dairies sold milk through SÜTEK. There the total cow milk production increased from were 752 registered cattle milk producers, 95,787 tons in 2010 to 158,221 tons in 2019 420 registered sheep milk producers and (Table 3.1; Figure 3.2). 396 registered goat milk producers. Of the The quantity and quality of sheep and goat total number of livestock businesses, this milk production are seasonal. Both quantity represents the majority of cattle businesses and quality dimensions change due to (84.5%), but it only represents a small fraction temperature and the lactation period of the of sheep (11.8%) and goat (15.8%) businesses. animals, with sheep and goat milk becoming Whilst the total number of businesses also ‘salty’ in advanced lactation, usually in May- includes enterprises specializing in meat June. Halloumi/Hellim producers and SÜTEK and fiber production, the small fraction avoid purchasing ‘salty’ milk, meaning that of registered sheep and goat businesses milk availability is further constrained during selling milk through SÜTEK indicates a large this period. The possibility of timing breeding amount of sheep and goat producers are not to ensure there are no gaps in supply of quality participating in formal value chains. The mode sheep and goat milk when too many animals of milk delivery can serve as an indication of are in advanced lactation could be explored. commercial orientation and development Livestock for milk production of these producers. According to data from SÜTEK, 6.8% of recorded cattle producers The number of sheep and goats decreased lack milk cooling or cold chain infrastructure, during 2015-2019, while the number of cattle whereas this increases to 60.4% for sheep milk was more stable. The number of sheep and producers and 55.4% for goat milk producers. goat increased to a peak of 251,250 sheep and This indicates a great disparity between 102,498 goats in 2015, then decreased slightly. the typical level of capability in cattle milk The most recent data from 2019 indicates producers compared with sheep and goat that there are approximately 196,890 sheep producers, a conclusion which was reinforced and 77,852 goats in the TCc. Consistent with during stakeholder consultation. milk production figures, the number of cattle 20 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 3.2: Sheep/goat and cow milk production, 2010-2019 Source: TCc Statistical Yearbook 2013-2019. increased from 2010 to a peak of 67,882 in goat, and cattle that could be used for milk 2015 and then remained relatively stable production was 87% (170,883 heads) and 86% (Figure 3.3). Livestock production in the TCc (67,093 heads) and 44% (29,118 heads) of has historically been impacted by the outbreak their total respectively in 2019. The average of animal diseases, which have required the milk productivity in 2019 was 5,434 kg/cow/ culling of local cattle, sheep, and goat herds. year, 99 kg/sheep/year, and 75 kg/goat/year In 2017 and 2018, brucellosis outbreaks led to (Table 3.1). By comparison in 2019, the average slaughtering of 18.5% of the sheep and goat milk productivity in the RoC was higher for population and 12.5% of cattle16. The ratio of each type of animal at approximately 6,818 goat and sheep to cattle has decreased from kg/cow/year, 157 kg/sheep/year and 206 kg/ above 5:1 during 2010-2013 to around 4:1 in goat/year. 2018 and 2019 (Figure 3.4). The majority of dairy cattle, sheep, and goat The milk productivity of ruminant animals breeds used to produce milk in the TCc are in the TCc is relatively low when compared compliant with the halloumi/hellim PDO with peer countries. The percentage of sheep, specification. The cattle are black and white Figure 3.3: Number of ruminant animals, Figure 3.4: Ratio of goat and sheep to cattle, 2010-2019 2010-2019 Source: TCc Statistical Yearbook 2013-2019. 16 Brucellosis is a widespread disease of farm animals caused by bacteria genus Brucella. l 21 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 3.5: ‘Import’ value of animal feed and additives, 2017-2020 Source: TCc ‘Chamber of Commerce’. dairy breeds as specified in the PDO. The fed on forage, hay, silage, and straw that are majority of sheep are Awassi, Assaf, and Chios/ produced in Cyprus, mainly from native forage Sakiz, compliant with the PDO specification. plants, and on feed supplements. Presently, The goats used to produce milk in the TCc approximately 35-40 % of cattle rations consist are primarily PDO-compliant local breeds and of locally produced green forage plants, hay, their crossbreeds, although approximately silage, and straw/stubble. The remaining 60- 5000 goats are not PDO-compliant breeds. The 65 % of their diet consists of feed supplements majority of breeding is performed by the dairy containing mainly barley, maize, soya, and farmers themselves rather than purchasing bran. Approximately, 20 % of the barley and animals on the market, for example, 69% of the bran is produced locally, while the soya surveyed goat farms practiced natural random and maize are imported. The import quantities mating, and the remaining 31% paired selected of maize germ meal, maize silage, and soybean billy goats with good does (Arsoy 2020). meal for fodder for all uses were respectively Feeds for milk production 1,000 tons, 1,667 tons, and 38,744 tons in Feeding practices and supply situation vary 2019. The annual value of feed and additives between small and large ruminants. In 2019, imports showed an increasing trend from it was estimated that 4.95% of the TC land around 25 million USD in 2017 to 31 million area was available for grazing, amounting USD in 2020 (Figure 3.5). to approximately 16,369 ha (0.049 ha per Health and sanitation ruminant head). It has been reported that 90% of goat farms have access to natural The capacity to produce milk according pasture, however pasture is low quality and to stringent hygiene standards is limited, productivity is limited by the long and dry especially among small and medium-scale summer (Arsoy 2020). All the coarse fodder in sheep and goat farms. Most goat farms have the diet of sheep and goats is locally produced open or semi-open barn types, whilst the (green forage, hay, silage, straw/stubble, and majority have separate kidding pens. Dairy grazing on wild plants). Feed supplements and cattle are typically housed in sheds with cereals, including barley and maize, protein limited grazing. The mechanical milking rate feed such as husked, partly decorticated and the percentage of farms that have their soybean meal, products and by-products of own cooling tanks are relatively low (~60% and various raw materials such as wheat bran, 36%) compared with other EU countries (e.g. and inorganic substances, vitamins and Spain 100% and 80%, respectively). Amongst micronutrients may be used. Dairy cattle are goat farms, it was reported that 40% practice 22 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.2: Subsidies provided for registered milk producers, 2018-2021 Milk delivery type Direct income support (TL/L) May 2018 July 2019 Jan 2020 Jan 2021 July 2021 Cold chain 0.30 0.45 0.40 0.40 0.70 Cow Cooled 0.30 0.45 0.40 0.40 0.70 Loose 0.26 0.35 0.30 0.30 0.30 Cold chain 0.70 0.50 0.80 0.80 1.00 Sheep Cooled 0.70 0.50 0.80 0.80 1.00 Loose 0.60 0.40 0.75 0.75 0.85 Cold chain 0.50 0.40 0.70 0.70 0.90 Goat Cooled 0.50 0.40 0.70 0.70 0.90 Loose 0.40 0.35 0.65 0.65 - Note: Figures are actual amounts paid, unadjusted for inflation. Source: TC ‘Ministry of Agriculture’. hand milking, 32% had their own milking Technical Support program are available. The facilities, and 28% used mobile milking units, direct income support for milk is provided and that 64% do not possess a milk cooling on the basis of quantity, animal origin, and tank (Arsoy 2020). whether it is delivered loose, cooled, or through cold chain17 (Table 3.2). Headage Animal health issues and subsequent milk payments are provided to sheep and goat quality issues are likely to impede fulfilment producers and diminish in brackets until a of sanitary provisions applicable at EU level. maximum of 1,000 head (Table 3.3). Headage The ‘Department of Veterinary Services’ payments for cattle are not included in the is responsible for conducting relevant current support payments (Table 3.3) because inspections at the farms and for issuing “free the administration considers current cow milk from diseases” certification to farms as part production levels to be sufficient. of an EU-supported project. The project has been underway since 2015, and all farms The income support system is motivated by are currently free from tuberculosis whilst the desire to shield farmers and consumers brucellosis is reported to be present in ~5% from volatile markets, however the program of farms. As the whole TCc must be 99.8%- transfers market risks from producers and 99.9% free from brucellosis for dairy products consumers to the administration’s budget. to be permitted to cross the Green Line, the The program has provided a safe and profitable eradication of this disease is of paramount environment for producers and production significance to the attainment of benefits has grown steadily. In turn, subsidized milk associated with the trade of PDO-compliant volumes have grown, leading to a growth in halloumi/hellim. However, there is currently dairy-related budget expenditures. Already no budget or action plan in place for the culling pressed by volume increases, a sharp of diseased animals and the compensation of depreciation of the Turkish Lira has pushed owners, which is likely to delay the attainment the program’s budget to a tipping point as of disease-free status. program administrators frequently adjust support to farmers to keep pace with the Support to milk producers consequences of the depreciation. Therefore, Raw milk producers are supported by the the TC agriculture support system has become administration with direct income support, increasingly difficult to sustain due to financial and training programs supported by the EU constraints. 17 Cold chain refers to milk that is transferred directly from the udder into a cooling tank at ~4°C and maintained at this temperature until it reaches the manufacturers, without being exposed to daylight. Cooled milk is milk that is collected loose and then transferred to the cooling tanks. l 23 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.3: Subsidies for sheep and goat breeders, 2021 Head Direct income support (TL/head) 1-350 150 351 – 700 115 701- 1000 90 Source: TCc ‘Ministry of Agriculture’. In addition to the administration’s support The share of milk produced in the TCc that is program, the EU-funded technical assistance collected by SÜTEK varies largely among cow, project on establishment of efficient local sheep, and goat milk. According to livestock Farm Advisory Services (FAS) was launched data from 2018 and 2019, it is estimated that in March 2016. FAS aims to support the whilst more than 88-98% of the raw cow milk establishment of an efficient and sustainable produced in the TCc is collected by SÜTEK, local farm advisory service for the benefit of TC only 13%-15% of raw sheep milk and 52%-55% farmers, processors, and rural communities. of raw goat milk is collected. Furthermore, the The main tasks of FAS are capacity building, sheep and goat milk collected by SÜTEK comes training of advisors and piloting with farmers, from a small proportion of farms, respectively and supporting the launch of EU support for 11.8% and 15.8% in 2020. Whilst TC regulation advisory services. Livestock producers have requires all milk to be marketed by SÜTEK, indicated during consultation that the sharing direct sales between raw milk producers and of best practice by FAS has been very useful smaller cheese makers have been reported by to them. industry stakeholders and local experts. The 3.1.2 Milk collection and marketing extent of this practice cannot be determined due to reluctance to report and difficulty The milk marketing board (SÜTEK) is to distinguish from non-commercial use, responsible for regulating and distributing however it appears significant and is estimated milk collected from the TCc farmers. According by stakeholders to account for half of all sheep to regulations, all milk for sale should be and goat milk sales. SÜTEK increased the price collected and marketed by SÜTEK. This of goat and sheep milk in January 2020 to provides SÜTEK with a monopolistic position motivate farmers to increase production and with regards to regulating milk sales in the TCc. to sell their milk to SÜTEK. Currently, SÜTEK operates 3 cold milk tankers, and has contracts with 11 more privately While the quality of milk collection and owned cold milk tankers and 28 loose milk delivery systems has improved significantly carriers. These vehicles collect milk from farms for cow milk in recent years, improvements and deliver it to processors, with the type of have been modest for sheep and goat milk. tanker or carrier used depending on the farm’s In 2020, only 40% to 45% of sheep and goat milking infrastructure. SÜTEK tests the quality milk was collected/delivered from cooling of collected milk, and the purchase price from tanks or through cold chains, according to farmers is based on the fat percentage of the data from SÜTEK (Table 3.4). To address milk. Tests performed include determination this limitation, SÜTEK has discussed with of fat percentage, water content, somatic some village cooperatives the possibility of cell count, bacteria count, and detecting the having one cooling tank for the common use presence of antibiotics residue (tetracycline of the farmers in the village. However, this and beta-lactam) and toxins (aflatoxin M1). would require payment for electricity and The milk is accepted or rejected by SÜTEK personnel to conduct relevant laboratory tests according to the test results, and then sold before transferring the milk into the cooling to dairy manufacturing companies, including tank, therefore it is currently thought to be halloumi/hellim producers. infeasible. The present situation indicates that 24 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.4: Collected milk, 2020 Loose Cold chain Cooled Total Producers (number) 329 332 91 752 Cow Volume collected (L) 9,993,945 132,027,865 6,054,464 148,076,274 Producers 376 21 23 420 Sheep Volume collected (L) 1,342,962 729,402 150,957 2,223,321 Producers 343 23 30 396 Goat Volume collected (L) 1,372,031 653,927 448,770 2,474,728 Source: TCc livestock data and SÜTEK. investments are needed in the sheep and goat SÜTEK. The producers have written contracts sector to support smallholders to participate with SÜTEK that stipulate the amount of milk in the value chain as well as incentives to that can be purchased during a year, calculated improve the productivity, storage facility and according to the production performance delivery services. of the producers during the previous year. In addition to the contract quantities, the 3.1.3 Production and processing of companies can also buy cow milk from SÜTEK halloumi/hellim cheese through a bidding process. All sheep and goat Halloumi/Hellim producers milk is sold through the allocation system, due There are presently 10 factories producing to the limited supply. halloumi/hellim on an industrial scale for The raw materials needed for PDO-compliant domestic retail and ‘export’, and numerous halloumi/hellim cheese production are milk small producers who cater to domestic (fresh sheep or goat’s milk or a mixture consumption. The industrial-scale factories thereof, with or without cow’s milk added), generally meet international processing rennet (but not pig rennet), fresh or dried standards, e.g. BRC certification (class A), and Cypriot mint leaves (Mentha viridis) and have indicated their willingness to produce salt. Furthermore, the milk used for making halloumi/hellim according to the PDO halloumi/hellim must be Cypriot full-fat milk, specification pending the implementation and must be pasteurized or have been heated of an appropriate regulatory framework and to a temperature above 65°C. It must not be the availability of compliant inputs. Some condensed milk or contain any of the following: producers indicated that adaptation would milk powder, condensed milk, casein salts, be required given differences between their colorings, preservatives or other additives. current offerings and the conditions specified It must not contain antibiotics, pesticides, or in the PDO registration, for example the other harmful substances. Typical milk input requirement that mint be used. Required rates are provided in Table 3.5. changes include establishing new production lines and storage tanks. Additional costs could According to the PDO specification, the stem from certification, membership fees, and proportion of sheep or goat’s milk or the controls. Although producers intend to act mixture thereof must always be greater on the opportunity presented by the PDO, it than the proportion of cow’s milk, however appears that PDO-compliant halloumi/hellim the majority of halloumi/hellim produced may not completely replace the existing in Cyprus is made with a predominance of products produced and ‘exported’ by the TCc cow’s milk. There are indications that 95% producers for markets outside the EU. of halloumi/hellim produced in Cyprus have an 80-95% cow’s milk content. Of the sheep Inputs and goat milk that is used, most breeds are The milk inputs for large commercial halloumi/ compliant with the PDO specification, however hellim producers are purchased directly from fulfilment of sanitary provisions applicable l 25 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.5: Typical milk input rates for halloumi/hellim production Milk mixture L to produce 1 kg halloumi/hellim Cow (100%) 1 9 Sheep (100%) 5.5 Goat (100%) 8 Sheep (50%) Goat (50%)2 6.5 Sheep (51%) and Cow (49%)2 6.8 Goat (51%) and Cow (49%) 2 8.5 Sheep (25.5%) goat (25.5%) cow (49%)2 7.5 1 Not compliant with PDO specification 2 Uncommon practices, estimated according to other practices Source: Authors’ calculation based on interviews. at EU level will take time. Furthermore, mint that it is not ready to export until the supply is not always used to flavor halloumi/hellim situation is addressed. The current supply of produced in the TCc. Accordingly, it has been sheep and goat milk is certainly inadequate to argued that most of the products on the market cope with a further increase in demand from are not compliant to the PDO specification18, the production of PDO-compliant halloumi/ and significant adjustment will be needed hellim, and accordingly, milk producers, SÜTEK to become PDO compliant. However, all and milk processors have all expressed a need ‘exporters’ consulted indicated willingness to for support to increase production. adapt to produce PDO-compliant halloumi/ Large and small companies have invested hellim, but not necessarily to the exclusion of in sheep and goat production to increase their existing business strategies and products supply, however the legal requirement to sell that target Turkey and Middle Eastern markets their milk to SÜTEK and then buy it back in where there is a market preference for accordance with the allocation rules provides cheaper halloumi/hellim regardless of PDO a disincentive. There is no guarantee that the status. In practice, mixing cow milk with sheep milk they produce will be available to them and/or goat milk in roughly equal ratios to when it is needed, as it will be managed through make halloumi/hellim is uncommon amongst the allocation system. Some producers in this TCc halloumi/hellim ‘exporters’, and halloumi/ situation bypass SÜTEK. SÜTEK has indicated hellim products made from either mostly cow that it will ensure that smaller cheesemakers milk or mostly sheep/goat milk are sometimes are able to access sheep and goat milk through viewed as distinct products with their own the current allocation system, but would allow culinary properties and markets. milk processors to bid for sheep and goat milk The supply deficit of sheep and goat milk in the same way that cow milk is marketed currently limits production capacity of if enough sheep and goat milk were to be halloumi/hellim with a high sheep or goat produced. milk content. A producer specializing in Production process halloumi/hellim made from 100% sheep milk has indicated that they currently can Halloumi/Hellim are made from curds satisfy only 1/3 of the demand from domestic produced by curdling milk with rennet, consumers with the 70-80 tons of sheep milk which are then cooked and formed into they can purchase from SÜTEK in a year, even a characteristic shape. In the traditional with the product selling at a high-end price halloumi/hellim-making process no heat of 70-75 TL/kg. Despite international interest treatment is applied, but in larger-scale in their product, the producer has indicated operations, a low temperature short time 18 European Commission: Implementing Regulation (EU) 2021/591 of 12 April 2021 entering a name in the register of protected designations of origin and protected geographical indications (Halloumi/Hellim (PDO)). 26 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 3.6: Halloumi/Hellim and other cheese production in the TCc, 2015-2019 Source: TC ‘Chamber of Commerce’. heat treatment can be applied. To begin the (generally ambient temperature) for salting. production process, milk is mechanically Dry salt is sprinkled onto the cheese block filtered to be cleaned of any impurities. surface, usually with dry or fresh mint leaves Coagulation is achieved by means of rennet, added to give the finished cheese attractive added at a sufficient level to give a firm curd appearance and to improve the flavor. For in 30–45 min at 30–34°C. Rennet is typically mature halloumi/hellim, the finished cheese is added diluted in water with salt. After the stored in whey brine for at least 40 days at a coagulum has set, curdling is checked by hand temperature of 15 to 20 degrees. and the curd is cut into cubes (1–2 cm3) and Production data stirred constantly while the temperature of the curd is then raised to 38–42°C. Once the Halloumi/Hellim cheese production in the TCc desired temperature has been achieved, has averaged 9,704 tons during 2015-2019. the curd is stirred for a further 10 minutes The quantity increased from 8,801 tons in 2015 to increase its firmness, and then allowed to 10,719 tons in 2017, although it decreased slightly during the following years (Figure to bind and settle. The curd is removed, and 3.6). In 2019, the halloumi/hellim cheese the traditional whey cheese Inari is produced production in the TCc was 9,272 tons, which from it as a byproduct. Afterwards, the curd was about one quarter of the RoC production. is compressed to remove whey, which may These statistics likely underestimate the be done in two different methods. In the total production on account of widespread more traditional method, the curd is gradually household and small-scale production that stacked in baskets until full, and stacked in has little market interaction. twos to aid straining. During the process the curd is turned. Alternatively, the settled curd Support to halloumi/hellim producers is gathered uniformly in a closed cheesecloth Several support measures are in place to and compressed for 30 to 60 minutes until incentivise halloumi/hellim production and strained, typically in a mechanical press. The ‘exports,’ most notably payments of 2 TL/ curd is then cut into small blocks (approx. 10 kg provided for the ‘exports’ of halloumi/ × 15 × 5 cm3) which are cooked in the boiling hellim and other cheese to Turkey and other whey that was collected during the pressing countries. Manufacturing facilities closed of the curd for 30 minutes, during which time temporarily during COVID-19 pandemic and the temperature is gradually raised to 90°C demand for dairy products from overseas until the pieces rise to the surface of the whey, decreased considerably, resulting in excess raw whereby the pieces soften and are considered milk. During this period, the subsidy provided cooked. Afterwards, the pieces are taken out of for halloumi/hellim and cheese ‘exports’ was the whey and cooled to a suitable temperature increased up to 7 TL/kg. Manufacturers were l 27 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS advised to produce curd, which can be stored other economies through advertising and at -18 Celsius, in order to make use of excess strengthening compliance mechanisms to raw milk. Additional subsidies were provided ensure competition is fair. for production and ‘exporting’ of curd. There Associations was a considerable amount of curd ‘export’ during this period. The effect of pandemic in Halloumi/Hellim producers with five or more ‘exports’ has been gradually lessening and the employees and that practice commercial ‘export’ subsidy has returned to the previous retail are required by law to maintain levels. membership in the Turkish Cypriot Chamber of Industry and Turkish Cypriot Chamber of Financing program, investment credits, Commerce, which provide representation, and support for market research and regulatory functions and services related to marketing activities and quality standard manufacturing and retail respectively. The certifications are available. These includes chambers also offer seminars and training funding for participation at international to businesses (generic and sector specific). exhibitions, registration of trademarks, Outside the regulatory functions and services, international marketing and advertising membership benefits were not identified. activities, penetration through e-commerce ‘Public’ policy advocacy was identified as an sites, production of market research reports area in which private sector stakeholders and visits abroad for international market would like to see performance improve. research. Incentives are provided for obtaining quality standard certificates, including TS EN Sales agreements and logistical arrangements ISO 9000, TS EN ISO 14000, TS ISG-OHSAS- Arrangements between producers of TS 18001, TS EN ISO 22000, CE, BRC Global halloumi/hellim and buyers in the TCc appear Standards, Halal Certificate, and Service to be simple in general, with few formal Qualification Certificate. Support is typically arrangements. It is common for both large set at as a percentage of the cost, with an and small business to retail the halloumi/ absolute maximum value, defined for each hellim they produce directly to consumers, activity. but not universal. Where agreements with Some criticism has been raised towards the wholesalers exist, they are described as verbal ‘export’ subsidy, the benefits of which are agreements with manufacturing and supply described being transferred to international on demand, with some exceptions. No issues clients because of fierce price competition relating to agreements were raised during between the TCc halloumi/hellim producers- consultation. ‘exporters’ that drives down prices. Buyers in the Middle East are aware of the Most agreements between producers and incentives provided to the TCc ‘exporters’ importers are verbal agreements. Where by the authorities and consider them when written agreements exist, contract terms negotiating prices for TC halloumi/hellim. are minimal, without minimum quantities or ‘Export’ subsidies are considered market- sole supplier agreements. No issues relating distorting by international trade standards. to agreements were raised during the consultations. Halloumi/Hellim producers of multiple scales all identified the improvement of milk supply 3.1.4 Distribution, marketing, and and quality, especially for sheep and goat consumption milk, as the priority area where support is Domestic marketing and consumption most needed. More support was requested to inform producers about the Green Line The rate of cheese consumption per capita regulation, and about the regulations, in Cyprus is the fifth highest globally, with transportation and customs relating to the fresh or mature halloumi/hellim accounting new markets accessible via the Green Line. for approximately one third of all cheese Other suggestions for support included consumption per capita per year. The average increasing the visibility of the TC products in per capita rate of consumption of halloumi/ 28 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS hellim within the TCc of 12 kg per year is higher TCc. This is in accordance with reports from than the average of the RoC at 9 kg per year other traders of other products from the (Garanti 2016)19. Considering the population TCc21. Furthermore, there is considerable (not accounting for tourists), the domestic concern amongst halloumi/hellim producers consumption of halloumi/hellim in the TCc is in the TCc that non-tariff trade barriers will be estimated around 4,600 tons per year20. implemented by RoC authorities, as has been Halloumi/Hellim is widely available in seen with other processed foods. local supermarkets, small shops, and green International markets markets in the TCc. Large cheese factories with Approximately ten companies from the wholesale quantities of packaged halloumi/ hellim enjoy wide distribution across the TCc TCc ‘export’ halloumi/hellim cheese in small and large retailers, some of which are internationally each year, and the contribution under the same parent company as the dairy of halloumi/hellim to TCc ‘foreign trade’ is processor. Retail price in the TCc typically both significant and increasing. ‘Export’ has varies between 5 and 7.65 EUR/kg, whereas had an increasing trend since 2010, with an retail price in the RoC varies between 7.50 and average annual increase rate of 6.3% in value. 15 EUR/kg, depending on the brand and milk In 2019, the ‘export’ value of halloumi/hellim content. Producers in the TCc have indicated achieved 33 million USD, accounting 38 % that demand in some regions for halloumi/ of TC total ‘export’ value, and 84% of total hellim with a 100% sheep milk content that ‘export’ value of dairy products (Figure 3.7; follows the PDO recipe and is priced in the Figure 3.8). The ‘export’ quantity of halloumi/ higher range (~ 75 TL/kg) greatly exceeds their hellim by the TCc was 7,760 tons, 83.6 % of supply. the recorded total production. Meanwhile, the ‘trade’ quantity and value of other cheese Currently, no halloumi/hellim is traded products has been decreasing sharply since from the TCc into areas under effective 2014 (Figure 3.7). control of the RoC as the inspection and compliance framework necessary to allow The main external markets for TC halloumi/ halloumi/hellim to cross the Green Line is hellim have historically been Turkey and not yet implemented. Some TC producers of Middle Eastern countries. Turkey (30%), halloumi/hellim have indicated a pessimistic Kuwait (30%), Saudi Arabia (20%), and United outlook of willingness for Cypriots outside Arab Emirates (8%) are the top destinations, the TCc to buy products originating from the totally accounting around 90% of the ‘export’ Figure 3.7: ‘Export’ quantity and value of halloumi/hellim and other cheese types from the TCc Source: TC ‘Department of Trade’. 19 Zanete Garanti. 2016. Marketing Hellim/Halloumi Cheese: A Comparative Study of Northern and Southern Cyprus. Proceedings of the 2016 International Conference “Economic Science for Rural Development” No 43. pp. 134–141. 20 This estimation is based on survey data which captures household and small-scale production not included in official production statistics. 21 European Commission. 2021. Seventeenth report on the implementation of Council Regulation (EC) No 866/2004 of 29 April 2004 and the situation resulting from its application covering the period 1 January until 31 December 2020. l 29 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 3.8: Halloumi/Hellim ‘export’ value as a share of TC dairy product and total ‘exports’ value Source: TCc ‘Department of Trade’. value (Figure 3.9; Figure 3.10). The majority of the last five years. Between 2017 and 2019, the ‘exports’ are sold to supermarket chains. halloumi/hellim exports from the RoC surged From 2010 to 2020, all top external markets from 23,431 tons to 33,672 tons, an increase except Qatar showed positive growth. The of 43%. The United Kingdom (UK) continues ‘export’ to Saudi Arabia and UAE increased to be the main export destination, absorbing most dramatically with an average annual approximately 47% of Cypriot total halloumi/ increase above 60% while the increase for hellim exports between 2017 and 2019, with turkey is 11%. ‘Exports’ to Kuwait in 2020 an average of 13,545 tons annually and an were similar to 2010, however fluctuation average annual export value of 89 million EUR. during the period was wide. The low ‘export’ Sweden is the second most important export to Kuwait coincided with elevated ‘exports’ to destination for the cheese product having Turkey from 2016 to 2017. Although ‘exports’ absorbed 15% of total exports during those to Qatar had a strong trend of increase until three years, with an average of 4,246 tons their peak in 2018, a slight drop in 2019 was annually and an average annual value of 28.7 followed by a dramatic decrease in 2020 to million EUR. Germany, Austria, Denmark and less than a third of their 2010 levels. Other Greece follow. important external markets outside the Middle East include USA (2-3%) and Australia The TC Chamber of Industry maintains a geo- (0-1%) (Figure 3.10). graphical indication certification scheme for The marketing and ‘export’ of halloumi/ halloumi/hellim marketed to Turkey, sep- hellim from the TCc differs significantly from arate to the PDO registration. Any product the RoC. RoC, with its efforts of obtaining that does not have a geographical indication geographical indications (GIs) in the USA and registration certificate cannot be sold under Europe, is selling halloumi/hellim cheese as the name halloumi/hellim according to the an explicitly Cypriot product. It is reported arrangements. Compliance mechanisms are that the country-of-origin perception can defined, however enforcement was described influence consumer buying decision process by private sector stakeholders as in need of and contribute to a significant competitive strengthening, as inspections and analyses advantage (Garanti 2016). Recent data are not being carried out frequently enough indicates the value of this strategy given that to ensure the halloumi/hellim being marketed halloumi/hellim exports from the RoC steadily to Turkey are compliant with the conditions of increased by 20%-22% on an annual basis in the scheme. 30 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 3.9: Main ‘export’ destination and value of halloumi/hellim from the TCc over time Source: TC ‘Department of Trade’. Figure 3.10: Share of TC halloumi/hellim ‘export’ by destination, 2019 and 2020 Source: TC ‘Department of Trade’. TC halloumi/hellim producers have adapted price driven, it is much more profitable for their products to the Middle East consumer the manufacturers to use cow milk. Company orientations, often by using a predominance representatives expressed optimism about of cow’s milk. Halloumi/Hellim products increasing demand on the international made with a high proportion of either cow market from existing and new clients. milk or sheep/goat milk are viewed as distinct products with their own culinary properties As the demand for halloumi/hellim is growing and market niches. For example, a company in the EU and UK, trade across the Green with an annual production output of 150 tons Line is becoming more pertinent. More than of halloumi/hellim made using sheep and goat three quarters of grocery retail stores in the milk, and 1,250 tons of ‘halloumi/hellim’ using EU have halloumi/hellim in their offerings22. majority cow’s milk, it is only the latter which The digital visibility is also impacting the share is ‘exported’. According to the president of the of halloumi/hellim in online services, which Association of Dairy Products Manufacturers, is beyond 90%. The consumer base and per the Middle East market does not have specific capita consumption is growing in the EU and demand for halloumi/hellim with goat-sheep UK. Furthermore, the retail prices of Cypriot milk. Therefore, since the competition is halloumi/hellim in EU market are much higher 22 Europawire, Fact.MR study, Halloumi cheese popularity soars in Europe, 2018. l 31 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS than current TCc clients, although this varies 3.2 Investment appeal and widely. For example, while the prices of Cypriot critical constraints halloumi/hellim could ranges from 7.5 to 19.2 EUR/kg in UK (TESCO) and 12.5 to19.4 EUR/ The halloumi/hellim value chain of the TCc kg in Sweden (Willys), the prices are generally operates within a complex political and lower in Turkey (Migros), ranging from 4.4 to regulatory context that strongly influences 9.5 EUR/kg. It is evident from these retailers the behavior and resources of value chain that the high-quality halloumi/hellim with a actors. This influence extends to how they may high goat and sheep milk content, and organic respond to the significant opportunities and certification sell at a higher price. challenges offered by the PDO registration and lifting prohibition on moving halloumi/hellim across the Green Line. Table 3.6 summarizes the strengths and weaknesses, and the future opportunities and threats identified in the value chain analysis. Table 3.6: SWOT analysis of halloumi/hellim value chain in the TCc Strengths Weaknesses • PDO registration of halloumi/hellim • Low average milk productivity • Strong revealed comparative advantage for dairy • Low availability of safe, high-quality sheep and products including halloumi/hellim goat milk • Mostly PDO-compliant breeds • Low capacity to meet EU quality and sanitary • Mostly PDO-compliant local feed sources standards amongst smallholders • Specialized dairy production • Different sheep/goat milk ratio in the current • Modern cheese production facilities products in the market from the PDO • High domestic and international demand for • Poor infrastructure at smallholder level halloumi/hellim • Limited land resources for animal production • Strong cultural affiliation • Shortage of animal feeds • Distorted dairy market • No legal linkages between milk producers and halloumi/hellim producers • Inefficient ‘public’ support system Opportunities Threats • Trading PDO-compliant halloumi/hellim through • Increased pressure on sheep and goat milk Green Line into EU market delivery systems • Improving marketing strategies • Increased total production costs • Increasing profit margins for value chain actors • Inadequate adaptation to PDO requirements by • Meeting increased demand for sheep and goat milk producers milk • Non-tariff trade barriers to TCc products crossing • Meeting demand for high-quality halloumi/hellim the Green Line • Better integrating smallholder farmers into the • New and resurgent animal diseases value chain • Climate change and adverse weather conditions • Meeting increased demand for PDO-compliant local feeds • Staggering sheep and goat breeding to ensure consistent supply of milk 32 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 3.2.1 Strengths and opportunities with the recommendations of the regulatory framework. PDO compliance and certification is expected to secure higher incomes for value chain A number of elements of added value other actors in return for their efforts to improve than higher gross margins could emerge as a quality. This is especially likely in the case result of halloumi/hellim PDO. These include of the TCc, where compliance with the PDO improved visibility for the TCc and RoC, better will allow producers to access the high-value access to promotion funds and investment aid, EU market that it otherwise could not. In a better support under rural development and detailed study on assessing the added value of other positive impacts. An economic niche PDO/PGI products23, the sale price of a PDO/ may emerge for producers of PDO-compliant PGI product was usually found to be higher local fodder/forage. than the price of its comparator product. The 3.2.2 Weaknesses and threats expected increase in demand for sheep and goat milk to produce PDO-compliant halloumi/ Value chain analysis identified the main hellim is likely to benefit the milk producers in weaknesses in the TCc halloumi/hellim the TCc and RoC that can adapt to the quality subsector that threaten the attainment standards, as they will be the primary suppliers of the benefits associated with the PDO of this fundamental input. specification. First, the supply of sheep and goat milk is deficient in both quantity and Domestic and international demand for quality; Second, the highly-regulated milk halloumi/hellim is strong. This includes for marketing and allocation system enables products which follow the PDO specifications, maladaptive practices by farmers and and those that use or previously used the disincentivizes investment by cheesemakers halloumi/hellim name but do not follow towards improving milk production; Third, the PDO specifications, and is reflected by the inefficient ‘public’ support system does the RCA for dairy products. TC halloumi/ not provide an enabling environment for hellim producers are optimistic about their adaptation to the market opportunities, and market situation regardless of whether they includes market distorting measures; Fourth, can access the EU market, and have signaled issues around the implementation of a PDO their willingness to produce PDO-compliant compliance framework and trade across halloumi/hellim despite anticipated increase the Green Line have delayed adaptation by to production costs. producers. Halloumi/Hellim value chain actors can Deficient milk supply benefit from exploring the improved marketing strategies made possible by the The general capacity of current sheep PDO. Higher gross margin for GI products has and goat farms to supply milk is presently historically been a result of effective marketing insufficient to meet the demand of halloumi/ strategies and tools, including the use of short hellim producers, and capacity to produce market chains and export-oriented strategies. milk to the quality and hygiene standards Other factors like support to promotion and of the EU market is inadequate. This will consumers’ awareness played a role. As likely be exacerbated as large milk processors reported previously, the halloumi/hellim with seek to adapt to the PDO requirements. organic on the package and with clear goat Although modern sheep and goat dairies and sheep milk content often sells at a higher which implement best practices exist, large price in the supermarkets, and the experience dairy processors in the TCc have consistently of RoC wholesalers indicates the value in indicated that this bottleneck will severely marketing as a Cypriot iconic product. Groups/ constrain production of PDO-compliant Cooperatives could monitor the position of halloumi/hellim. Current production data the products on the market in accordance indicates that there is not enough goat and sheep milk available to produce large 23 Areté, Directorate-General for Agriculture and Rural Development (European Commission): Study on assessing the added value of PDO/PGI products. https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/cmef/products-and-markets/assessing- added-value-pdo-pgi-products_en l 33 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS volumes of PDO-compliant halloumi/hellim. adjustments to the support, revising price Consuming all sheep and goat milk produced and levels to keep up with a depreciation- in the TCc at the minimum concentration led inflation. Therefore, the TC agriculture permissible under the PDO specification support system has become increasingly would yield approximately 6,000 tons of difficult to sustain due to financial constraints. halloumi/hellim, not accounting for milk Yet despite the high cost at 1.1% of GDP (three quality and hygiene standards. Given these times higher than in the EU-27 average), challenges, it is likely that majority cow milk spending has not adequately improved ‘halloumi/hellim’ will continue to be produced productivity, which still lags behind peers. The for domestic consumption and ‘exporting’ dairy sector alone absorbs 41% of agricultural to existing markets in the Middle East as it is ‘public’ support but neglects to address much price-competitive and there is a market for needed safety and quality standards to protect this product. consumer health and help prepare for fiercer Disincentives to improving milk supply competition in the EU market. The ‘export’ subsidies paid to halloumi/hellim producers The parastatal milk marketing board SÜTEK are a clear demonstration of this, as they are is viewed by farmers as an entity which costly, market-distorting, and the benefits are can always absorb price reductions in the transferred from TC producers to international international market and to whom one clients. can always sell sub-standard product. This Lack of progress in the implementation of a reduces the incentives for farmers to adapt PDO compliance framework to risk, to increase the quality of their output and to raise productivity. Political pressure Concerns have been raised by TC halloumi/ prevents SÜTEK from withdrawing incentives hellim producers regarding conditions on the to unsustainable and substandard practices, trade of halloumi/hellim across the Green however SÜTEK has attempted to increase Line. A local framework will be essential for incentives to produce high quality sheep and actors in the halloumi/hellim value chain to be goat milk by smallholders. Conversely, whilst able to track the inputs for production so that large and small halloumi/hellim producers they may achieve and maintain PDO status. have invested in sheep and goat production To comply, actors must be able to identify: (a) to increase supply, the legal requirement the supplier, quantity and origin of all batches to sell their milk to SÜTEK and then buy it of raw material and/or products received; back following allocation rules provides a (b) the recipient, quantity and destination disincentive. There is no guarantee that the of products supplied; (c) the correlation milk they produce will be available to them between each batch of inputs and outputs. when it is needed, as it will be managed Large-scale halloumi/hellim producers in the through the allocation system. TCc have indicated a willingness to comply with the traceability conditions of the PDO Inefficient ‘public’ support during stakeholder consultation, however The current ‘public’ support to the dairy they have also expressed a dissatisfaction sector does not focus on enabling adaptation with the proposed arrangements for to market opportunities and challenges compliance monitoring. TC producers see offered by halloumi/hellim PDO, despite the arrangements as unfair and restrictive. its high cost. The dairy support program is Some argued they are disadvantaged by their reflective of the overall bloated ‘public’ support delayed entry into the EU market and that system, in that it lacks effectiveness, does not cheeses which are not compliant with the incentivize productivity improvements and PDO specification can still be marketed in the sustainability, and does not contribute to an EU by the RoC if they are under a different enabling environment for seizing new market name (e.g., grilling cheese), whereas PDO- opportunities24. Given limited resources, compliant halloumi/hellim is the only cheese program administrators have made frequent product that can be traded across the Green 24 The World Bank. 2019. Turkish Cypriot community: A review of the dairy sector and recommendations for policy reform. 34 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Line into EU from the TCc. Furthermore, TC farms and facilities, especially milk production halloumi/hellim producers expect to face and storage infrastructure. Furthermore, politically-motivated obstructive practices by increased biosecurity measures such as RoC authorities when trying to market PDO support for veterinary services and disease halloumi/hellim across the Green Line, based surveillance will be essential. For example, on historical examples where products that farmers could be rewarded with a payment if the EC has confirmed are permitted to cross they meet the environmental, animal health have been prevented. These perceptions in and food safety standards of the PDO. In EU, the private sector dampen enthusiasm for direct payments to farmers are modified in adaptation to the PDO opportunity. Some accordance with their adherence to “cross- actors in the TCc report reluctance to take compliance”25 conditions. However, the measures towards achieving compliance with overall goal of reform would be to decouple the PDO specification before they are satisfied dairy support from direct production targets with the inspection and testing arrangements, to increase market-orientation, efficiency and which may result in missed opportunities as sustainability of production. they delay taking action. (ii) Review the roles of SÜTEK to ensure 3.3 Recommendations and milk quality standards and support inclusive halloumi/hellim value chains: In the short actions to strengthen value term, SÜTEK is likely to remain the only chain competitiveness entity permitted to collect and market milk Many actors in halloumi/hellim value in the TCc and does not anticipate a change chains stand to benefit from measures in its responsibility for testing collected milk. which improve the quantity and quality Whether SÜTEK will maintain responsibility for of sheep and goat milk and resolve supply milk monitoring when implementing the EU bottlenecks. In general, actions taken towards standards requires urgent clarification, so that achieving compliance with PDO conditions will investments in laboratory testing capability strengthen the halloumi/hellim value chain. can be appropriately directed. Furthermore, To resolve the bottlenecks and maximize the TC administration could explore alternate opportunities of the PDO, the following milk supply arrangements with SÜTEK for value recommendations and actions could be chain actors that both produce and process considered: milk to remove disincentives for investment in production. In the medium to long term, (i) Raise the productivity, sustainability and SÜTEK should evolve from being a parastatal quality standards of sheep and goat milk marketing enterprise to being a producer production: Targeted support to increase goat association or farmers’ marketing cooperative and sheep milk production and quality is critical to ensure that marketing by the private sector to obtaining the benefits of the halloumi/ is competitive. hellim PDO. The design of the support program could be modelled after EU CAP while enabling (iii) Increase the allocative efficiency of smooth access to the EU single market in the agricultural ‘public’ support by repurposing future. The EU CAP allows up to 15% of funding the budget for the dairy sector: The TC to target strategic important subsectors of administration needs a paradigm shift in agriculture. In the RoC, production-coupled ‘public’ support to enable widespread payments are mainly targeting sheep and compliance with PDO specifications for goat production to address the deficiencies halloumi/hellim. This shift calls for the design in milk supply for producing PDO-compliant and implementation of a smarter ‘public’ halloumi/hellim. Thus, targeting sheep and support program that uses the available ‘public’ goat producers with supplemental support resources in a more targeted and efficient way would be recommended. A grant support for forward-looking agricultural development. system could be introduced to promote A greater focus on ‘public’ goods, such as investments to modernize sheep and goat veterinary support services, research and 25 Cross compliance is a mechanism that links decoupled direct payments to compliance of with various standards. l 35 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS innovation, and agricultural extension, along support (progressively if needed) may be a with investment support to help farmers to starting point for reform. invest at the farm level, could contribute (iv) Increase readiness to capitalize on to improving the enabling environment for opportunities from PDO registration and producers and processors to better meet the lifting prohibition on moving halloumi/ demands of local consumers and access export hellim across the Green Line: It is essential to markets. This could be achieved through establish regulatory systems and appropriate transforming historic price support for milk, implementation arrangement to ensure other forms of direct income support, as well compliance with the requirements of the as ‘export’ subsidies into income payments PDO, however little progress has been made that enable farmers to better respond to in the TCc for the implementation of the market conditions and invest in productivity inspection framework described in the Green and quality improvements. The ‘export’ Line regulation. Resolution is needed for the subsidies in particular are considered market- realization of the opportunities for economic distorting by international trade standards and development posed by the PDO registration have been criticized by intended beneficiaries and lifting the prohibition on moving halloumi/ within the TCc. Thus, the repurposing of this hellim across the Green Line. 36 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 3.7: Turkish Cypriot community: Recommendations and actions to strengthen halloumi/hellim value chain Recommendations Short-term (1–2 years) actions Medium-term (3–5 years) actions Raise the productivity, - Strengthen targeted investment to - Implement matching grants for fixed sustainability and quality support sheep and goat subsector capital/asset formation that supports standards of sheep and development (e.g. sustainably the development of sustainable sheep goat milk production increasing animal numbers, attaining and goat milk production (e.g. milking disease-free status, improving genetics, facility, storage and delivery systems, etc.). local livestock feed production/ - Continue to promote and implement processing, etc.). best practices (milking, feeding, animal health and husbandry, etc.) through capacity building programs for farmers to produce milk more efficiently, in higher quantities and according to stringent hygiene standards. Review the roles of the - Clarify the roles of SÜTEK and - Gradually transform the role of SÜTEK milk marketing board responsible organizations in ensuring from being a parastatal marketing (SÜTEK) to ensure compliance with EU milk quality and enterprise to being a producer milk quality standards safety standards, and allocate resources association or farmers’ marketing and support inclusive accordingly. cooperative. halloumi/hellim value - Explore alternate supply arrangements chains with SÜTEK for value chain actors that both produce and process milk to remove disincentives for investment in production. Increase the allocative - Reduce the direct income support for - Progressively reduce ‘export’ subsidy efficiency of agricultural loose milk relative to cold chain milk to for halloumi/hellim and output ‘public’ support by encourage improvement of milk storage subsidies for dairy cattle. repurposing the budget and delivery systems. - Streamline the fragmented service for the dairy sector - Carry out internal organizational delivery of ‘public’ support with the improvements in the agriculture aim of consolidating into a single administration to improve the quality independent paying agency. of the implementation of existing - Increase support for ‘public’ goods such programs (e.g. incorporate climate and as veterinary and support services, sustainability considerations, assure disease surveillance, agricultural closer linkage of research and extension extension and goat/sheep breeding systems, etc.). programs. Increase readiness - Raise awareness of specifications and to capitalize on conditions laid out in EU regulations opportunities from PDO and support responsible parties to registration and lifting meet them. prohibition on moving - Support producers to obtain the halloumi/hellim across “attestations” by the delegated body, the Green Line to trade PDO-compliant halloumi/ hellim across the Green Line into the EU market. - Strengthen the local framework for tracking/tracing inputs (e.g. animal identification and registration system) in the halloumi/hellim value chain. - Strengthen local regulations (e.g. adopt the EU Food and Feed Safety legislation) to ensure fair competition and that quality schemes are not abused. l 37 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 4. Carob Value Chain Analysis The production of carob is culturally significant Increasing global demand for carob products and well-suited to the island of Cyprus. It presents an opportunity to revive the was previously the most exported product of traditional carob subsector. This chapter will the island, and the main agricultural activity undertake a value chain analysis to identify and source of income for several villages. constraints, solutions and opportunities of the In the TCc, the carob subsector occupies a carob subsector in the TCc, with the aims of significant place because of its specificity, supporting growth, increased investment and cultural significance and long tradition. It is competitiveness. also an important agriculture commodity with an estimated production of 2317 tons and an 4.1 Descriptive analysis of carob ‘export’ value of 1.1 million USD in 2019. value chain The development of the carob industry across The primary product of the carob tree is the Cyprus underwent a period of stagnation pod which has multiple applications. The and even decline. Recent carob production pod has two main constituents - the pulp was only about 1/6 of the peak production. and the seeds. The seeds are mainly utilized This decline was driven by transition to other for the production of locust bean gum (LBG, agricultural products, namely citrus, potatoes E-410, Ceratonia), which is widely used as a and grapes. The production of carob in the thickening and stabilizing agent in the food TCc specifically also had a declining trend and pharmaceutical industry, and for a wide since 1975, for the same reasons. The average range of industrial applications. The pulp is annual carob production during the 2010s used to produce food ingredients such as was about 23% lower compared to that of carob powder and syrup/molasses, and as bulk the 2000s and industry development slowed animal feed. From the tree to the market, the significantly. Despite these circumstances, the key actors in the TCc carob value chain include ‘export’ value of carob and carob products by the carob producers/collectors, kibbling the TCc showed an increasing trend in recent facilities, carob food producers and animal years. feed producers, and retailers (Figure 4.1). Box 4.1: Carob - the black gold of Cyprus Carob is the fruit of the evergreen carob tree (Ceratonia siliqua L.) of the family Leguminosae, which originates from the Mediterranean region and has been cultivated there for almost four thousand years. It is especially adapted to mild and dry areas. There are strong associations between Cyprus and carob that are prehistoric in origins. The fruit of the tree, also known as “Locust Bean”, is versatile and has often been described as the “black gold of Cyprus”. The German archaeologist Magda Ohne- falsch-Richter, who spent many years on the island during the period 1894-1912, commented that carob was a “gift of nature” to the island and that Cypriot carob fruits were rated as the best in the world, due to their high sugar content. 38 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.1: Current carob value chain in the TCc 4.1.1 Primary production from October to February. The pod elongates rapidly between February and late May/early In the TCc, carob trees are both grown in the June when it reaches its maximum size. In July, wild and cultivated for their ripe fruit. There its color changes to a chocolate-brown and the are an estimated 286,545 trees distributed fruit is fully mature towards the end of August throughout the region as a result of the long (Davies, 1970). Annual harvesting takes place history of carob production. To establish new late in August, and is a simple process of carob trees, seedlings are germinated and collecting the mature pods from the trees. grown from seeds, and then transplanted Long poles are commonly used to knock down into the field. As trees originating from seed the pods, which can cause damage to the do not usually produce high quality carobs, branches and the flowers (which produce the the propagator usually grafts on budwood next year’s fruit), if done carelessly. Mechanical from a high-yielding tree in May, 3-4 years shaking is not widely used in the TCc however after planting the seedlings in the field. it is practiced in carob plantations in other Budded trees begin to bear fruit 5-6 years countries. In the TCc, carob harvest date varies from planting, and the creation, growth and in different regions, and collection dates are ripening of the carob fruit takes almost a year, regulated by the district administrations. Few from the time the flowering takes place until chemical inputs are used for carob production, August of the following year (Davies, 1970)26. most often fertilizers and rodenticide. Carob is naturally pollinated by bees and wind, and pollination occurs mainly in September Producers and October. If the pollination conditions are The majority of carob is harvested by not satisfactory, then there is a strong fall of villagers from forest lands and a small flowers and a reduced fruit set. The degree of portion is collected by landowners of private pollination can additionally affect the size of lands, with few farmers specializing in carob the fruit (the more efficient the pollination, production. There are no cooperatives among the greater the size of the fruit, always in carob farmers. In general, farmers do not relation to the characteristics of the variety)27. invest in their carob production and rely on The fruit, which is a pod, is green when the administration for support. According young and in its “dormant” winter period to 2020 data, there were 127 carob farmers 26 W. N. L. Davies. 1970. The Carob Tree and its Importance in the Agricultural Economy of Cyprus. Economic Botany, 24 (4): 460-470. 27 University of Cyprus. Carob: Cyprus’ Black Gold. http://www.ucy.ac.cy/carob/el/cultivation/organic-cultivation l 39 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.2: Carob trees and production in the TCc from 1975 to 2019 Source: TCc ‘Ministry of Agriculture’. who applied for direct income support, with a 71,120 tons for the whole island in 1963, which combined total area of carob equaling 1,033 was 12.4% of the world total and the second donums (1 Cypriot donum= 1,322 m2). The highest national output after Spain (FAO data), largest plantation was 51 donums, and the carob production decreased dramatically in smallest plantation was 0.5 donum. Carob the 1970s. The decreasing trend continued farmers are entitled 150 TL per year for each until the mid-1990s and has since remained donum of carob trees, and the minimum stagnant. In the TCc specifically, the highest number of trees in the plantation to be eligible carob production was recorded in 1975 with for the support is 12. In addition, support for above 13,000 tons, however the production fuel (1.1 TL/L, 10 L/donum) is available to has since held a declining trend with large carob producers. There is also a program to fluctuations. In the last ten years, the annual provide rodenticide to carob farmers free of carob production ranged between a maximum charge, however, procurement in 2020 was of 3,000 tons in 2010 and minimum of 1,400 not completed in time. There is currently no tons in 2012. In 2019, the estimated total support for the establishment of new carob amount of carob produced was 2,317 tons. plantations. The estimated number of carob trees also Production levels decreased from a peak in the late 1970s (~490,000), to the lowest number (267,967) Current carob production in Cyprus is a small of trees in 2013 (Figure 4.2). After 2013, fraction of its peak, including in the TCc. the number has slightly increased, with the Following the recorded production peak of number of trees in 2019 reported as 286,545, Table 4.1: Key figures for carob production in the TCc Indicator Carob production (tons), 2019 2,317 Area cultivated (ha), 2019 1,920 Number of trees, 2019 286,545 Average yield (kg/tree; kg/ha), 2019 8.1 kg/tree; 1.2 ton/ha Number of farmers registered for direct income support for carob production, 2021 127 Number of primary industrial processors, 2021 2 Source: TC ‘Ministry of Agriculture’ and TC ‘Chamber of Industry’. 40 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.3: Annual average yield of the carob trees in the TCc from 1975 to 2019 Source: TC ‘Ministry of Agriculture’. Figure 4.4: Carob trees and production in regions as percentage of total, 2019 Source: TC ‘Ministry of Agriculture’. growing in an area of approximately 1920 ha in 1975, in 2019 the average yield was very (Figure 4.2; Table 4.1). modest and at approximately 8.1 kg/tree or Although carob production is carried out 1.2 ton/ha (Table 4.2; Figure 4.3). In 2019, throughout the TCc, the number of trees the highest average yield was achieved at and their productivity varies. The greatest 71kg/tree in Morphou/Guzelyurt, while the inventory of carob trees is in the Northeast lowest average yield was estimated at 4.8kg/ (Trikomo/Iskele and Famagusta regions). tree in Trikomo/Iskele although this region Carob trees are found mainly on the seaward has the highest number of trees. According slopes of the northern and central mountain to the ‘Agricultural Research Institute’, reason ranges of Cyprus, below 600 meters altitude. for this disparity is that there are many wild As of 2019, the highest number of tress are carob trees left unattended in Trikomo/Iskele found in Trikomo/Iskele, with 59.1% of the that are included in counts but have no yields total number of trees, followed by Kyrenia recorded, although the soil structure and hot (19.1%), Famagusta (18.2%), Nicosia (3.1%) and dry weather of the region also drives the and Morphou/Guzelyurt (0.4%), respectively yield difference to an unknown extent. The (Figure 4.4). The yield varies largely in different accuracy of carob tree inventories in forested regions and years. Although an average yield areas is confounded by simple hand counted of around 27kg/tree was recorded for the TCc methodologies using limited ground staff. l 41 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Table 4.2: TCc carob trees and production in 2019 Region Number of trees Average yield (kg/tree) Production (tons) Nicosia 9,010 5.5 50 Famagusta 52,240 21.3 1,113 Kyrenia 54,850 4.9 271 Morphou/Guzelyurt 1,105 70.6 78 Trikomo/Iskele 169,340 4.8 805 Total 286,545 8.1 2,317 Note: The number of unmanaged and wild trees for which no yield data were recorded varies between regions, therefore the average yields may not necessarily be directly comparable or representative. Source: TCc ‘Ministry of Agriculture’. Carob trees in the TCc appear to be producing wild, and do not bear fruit suitable for carob below maximum potential. By comparison, syrup making or table consumption. These are a budded tree in California is expected to mostly used as raw materials for animal feed yield about 2.25 kg of carob at 6 years of producers, whilst the seeds are ‘exported’. age, increasing to 45 kg at 12 years, and There are two main facilities in the TCc that steadily increases up to 25 to 30 years when process carob pods purchased directly from the yield may average 90 kg. Individual trees collectors and producers, with a combined in Israel have produced 204 to 227 kg 18 annual production capacity of approximately years after grafting. Some ancient trees in 8000 tons. The primary processing activity the Mediterranean area are reported to have of these facilities is the separation of seeds borne 1,360 kg in a season28. A carob tree may from pods. The separation of seeds results remain productive for 80 to 100 years. The in a significant quantity of de-seeded broken difference in yield in the TCc can be partially carob pods, commonly known as kibbles, or explained by management, the different ages pulp when used for foods. Industrial kibbling of the trees, and the impact of pests. Rats and is carried out using specialized machinery of carob moths in particular cause harm to yield the hammer mill type. The pods are crushed, and quality of carobs in Cyprus. The lack of and a graded series of products are produced delivery of rodenticide in the previous year is through the use of differential sieve sizes. anticipated to result in lower yields in 2021. The proportions of the different grades are as 4.1.2 Processing of carob cubes 50-53%, medium kibbled 22-25%, meal 13-20%, seeds 7- 9%. Sorting and kibbling The two main carob processing facilities are The initial stages of carob processing are currently processing only 1/4 of their annual drying and separation into pulp and seeds. capacity due to insufficient supply. The supply Processing then depends on the end use. deficit was attributed to both poor yields The common products derived from carob and competition with importers from Turkey trees are the dried fruits, carob powder, for carob pods. As the processing output is carob syrup, animal feeds and locust bean entirely sold, this represents a significant value gum. These products differ highly in their chain bottleneck. degree of processing, end-use, and marketing. High quality carob pods are selected either The main domestic customers for processed by collectors or at a processing facility, and carob kibbles are carob syrup producers and processed as dried fruits that are then eaten animal feed producers, who further process as is. Processing these simply involves drying the kibbles. Some kibbles and a limited the pods. According to consultation with local amount of whole carob pods are ‘exported’ researchers and industry representatives, it is by the companies, mainly to Turkey. Seeds are estimated that about 1/3 of carob trees are ‘exported’ because there is no local processing 28 https://hort.purdue.edu/newcrop/morton/carob.html 42 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Box 4.2: Carob processing abroad – lost opportunities for value addition in the TCc? Although it does not take place in the TCc, the production of locust bean gum from carob seed is an important global industry. Locust bean gum is a polymer used as a natural food additive and in the pharmaceutical industry. To produce locust bean gum, seeds are dehusked by treatment with dilute sulfuric acid, or with a thermo-mechanical treatment, known as acid peeling and thermal peeling, respectively. The isolated endosperm is then milled and sieved to obtain a fine particle size. The pro- duced locust bean gum can be further clarified by dissolving it in water under heating. The solution is filtered to remove insoluble substances and then dried and milled to obtain clarified or purified locust bean gum (Loullis and Pinakoulaki, 2018)29. Carob powder (or carob flour) is used in a variety of processed products on international markets. To produce it, the pulp is first dehulled, grounded to different sizes, optionally roasted, and milled into a fine powder. Depending on time and temperature used for roasting, lightly, medium and highly roast- ed carob powder can be obtained (Loullis and Pinakoulaki, 2018). Carob powder is a cocoa powder al- ternative, and is sold as raw or roasted carob powder or used in a variety of processed foods including carob bars, chocolate substitutes, carob coated fruits and nuts, carob cakes and cake mix, carob bis- cuits and cookies, carob spreads, diet coffee substitutes and caffeine-free tea and coffee alternatives (Papaefstathiou et al. 2018)30. facility in the TCc for producing locust bean year to manufacture final products (main ones gum. are Haciali Ltd. and Binboga Ltd.). According Secondary processing to interviewed producers, the usage of carob in the animal feed depends on the prices of Carob kibble is currently processed in the TCc other animal feed ingredients, and carob is not to produce carob syrup and animal feeds, always used. whilst the production of carob powder is very low. There are approximately 4 commercial- Nonindustrial food processing methods, scale producers of carob syrup (Tuccaroglu, and limited manufacturing practices, Helvasan, Diner, and Kantara). Household and personnel, resources and awareness of commercial production of syrup generally regulations may make it difficult for carob follow the same basic steps, although processors to comply with requirements household production generally will not use for contaminants and standardization. commercially processed kibble. The syrup This is a known and expectable problem in is made by boiling or soaking carob kibbles, the production of traditional products by straining the mixture to separate the pulp and small, family enterprises with limited ability liquid (sometimes under pressure), and then to comply with requirements for frequent boiling off the liquid until most of the water nutritional composition analyses. A study of is evaporated, leaving a thick golden-black carob products in RoC found that only 60% syrup. The syrup has many uses, including as a of the products had a label indicating their sweetener for cakes, breakfast cereals and hot nutritional value, and the majority of them drinks, as a beverage additive, and in sweets (75%) were consistent with that of labeling and candies such as carob toffee and praline. A (Papaefstathiou et al 2018).29 30 single business in the TCc produces 100-200 kg 4.1.3 Distribution and marketing of of carob powder per month from finely milled carob products kibble, which is sold as was or further processed into packaged foods such as carob bars and as Domestic market and consumption a thickening agent in peanut butter. There are All primary carob products traded and typically 3-4 producers of animal feed that buy consumed within the TCc is locally produced, kibbled carob from the two processors each as primary carob products are not imported 29 Andreas Loullis, Eftychia Pinakoulaki. 2018. Carob as cocoa substitute: a review on composition, health benefits and food applications. European Food Research and Technology, 244: 959–977. 30 Eleni Papaefstathiou, Agapios Agapiou, Stelios Giannopoulos, Rebecca Kokkinofta. 2018. Nutritional characterization of carobs and traditional carob products. Food Science & Nutrition, 6: 2151–2161. l 43 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS from abroad. It is estimated about half of carob all whole pods (495,540 kg) in 2020, valued at production in the TCc is used domestically 661,323 USD and 239,025 USD respectively. either for human consumption, animal feed A total of 1,482,000 kg of kibbles valued at or industrial processing, although no detailed 574,456 USD was also ‘exported’ in 2020, with data has been found for each category. Locally Turkey again importing the vast majority. In produced finished carob products are sold in addition, value-added carob products such the TCc including carob syrup and traditional as carob syrup have started to be ‘exported’ Cypriot foods such as Pastelli and Halva. more intensively in recent years, however the Specialty carob products (functional foods) TCc remains a net ‘importer’ for these value- that are available on the international market added products. The total ‘export’ of carob are produced in the TCc such as carob powder syrup in 2020 was 2,560 kg, valued at 10,674 and products flavored with carob powder, but USD, which was imported entirely by the UK. production is very low. The single producer Whilst the ‘export’ value of carob pods and cited limited awareness of the products, low seeds has increased from 1.1 million USD in demand and poor returns as reasons. It has 2019 to 1.5 million USD in 2020 (Figure 4.5), been reported that some processed carob sharp decreases have occurred throughout products including carob syrup and carob the past decade, indicating volatility. powder are ‘imported’ from Turkey. In 2020, The unit value of carob ‘exports’ is relatively total ‘import’ of carob syrup was 77,223.52 low in the TCc when compared with the RoC. USD (85,955 kg) and total ‘import’ of carob While the TCc’s main external market is Turkey powder was 43.47 USD (26 kg). for most primary carob products including ‘Export’ from the TCc seeds, RoC exported most of the produced seeds to Spain (61% of quantity, 69% of value) Carob ‘export’ from the TCc showed a and Italy (19% of quantity, 24% of value). The promising trend of increase both in quantity RoC exports to Spain and Italy in 2018 and 2019 and value since 2016. Almost half of the total had a unit price that was more than 2 times production of carobs, including the carob seed greater than the unit price of the TCc ‘exports’ and grounded carob, have been ‘exported’ to Turkey (4.2-5.6 USD/kg to 1.4-1.8 USD/kg). each year (43% in 2017 & 2018, and 46% in Carob pods (with and without seeds) from the 2019). The main external market of TCc carob RoC were typically exported to Egypt (86% of is Turkey, which imported more than 95 % quantity, 96% of value), Israel (6% of quantity, of the recorded ‘export’ of primary carob 4.4% of value) and USA (6% of quantity, 3.6% products, including all seeds (107,000 kg) and of value). Figure 4.5: ‘Export’ value and quantity of carob primary products by the TCc Note: The quantity is the total for all carob primary products, which are sold in different formats (seeds, kibbles, whole carob etc.) at different unit prices. Source: TCc ‘Department of Trade’. 44 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.6: World carob production and harvested area Source: FAO. No processed carob products from the in trade relations, based on their business TCc are traded across the Green Line and requirements. into the EU market. Whilst the Green Line prohibitions are specific to products of animal 4.2 Global carob production origins, in practice the restriction is applied and trade by the authorities of the RoC to almost all The worldwide carob production decreased processed goods originating in the TCc, due to dramatically bewtween 1960s and early concerns raised by health services regarding 1990s, and has since remained stagnant. Mild the production process. The EU Commission fluctuations with no clear trend characterize has confirmed to the RoC that these products the most recent 20 years of data (Figure 4.6). are permitted under the applicable legal The main reasons for the global decline in framework to cross the Green Line and should carob production are the mechanization of not be prevented by the RoC authorities31. farming and the drop in prices, and the use of Traders from the TCc have continued to coastal lands for roads, housing and industrial report difficulties in having their products areas (Yaşama Dair Vakıf, 2018)33. Farmers’ stocked in shops and advertising their interest in carob in many Mediterranean products and services in the government- countries has reduced due to low fruit prices controlled areas, which hinders trade. Traders and reduced individual consumption. continue to report on a reluctance among The leading carob producing countries Greek Cypriots to purchase products from the are Portugal, Italy, and Morocco, in both TCc. In addition, it was mentioned that traders production quantity and area harvested. from both communities are faced with many According to FAO data, as of 2017, Portugal administrative problems when wishing to produced over 40,000 tons, Italy produced enter into business with the other community; 29,000 tons, and Morocco produced 22,000 for example, TC businesses trading across the tons, with harvested areas of 13,240, 5,576 and Green Line encounter difficulty in opening 10,234 ha respectively (Figure 4.7). Although accounts with banks in the government- Spain was previously the leading country for controlled areas32. The economic operators carob production in the past, today Portugal from both sides need to be free to engage 31 European Commission. 2021. Seventeenth report on the implementation of Council Regulation (EC) No 866/2004 of 29 April 2004 and the situation resulting from its application covering the period 1 January until 31 December 2020. 32 European Commission. 2021. Seventeenth report on the implementation of Council Regulation (EC) No 866/2004 of 29 April 2004 and the situation resulting from its application covering the period 1 January until 31 December 2020. 33 Yaşama Dair Vakıf. 2018. Non-Wood Forest Products: Carob Value Chain Analysis. The report was prepared under the project “Integrated Approach to Management of Forests in Turkey, with Demonstration in High Conservation Value Forests in the Mediterranean Region”. l 45 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.7: World leading carob producers Source: FAO and TCc ‘Ministry of Agriculture’. and Italy produce more carobs. However, (Yaşama Dair Vakıf, 2018). Carob orchards are Spain has the largest area used for producing also being established in RoC to meet foreign carobs followed by Portugal, Morocco, Italy, demand, including a large organic carob Greece and Turkey. The production of the RoC plantation as part of the University of Cyprus’ and TCc ranked 6th (7,475 tons) and 9th (2,267 Black Gold project34. tons) worldwide, respectively, in 2017 (Figure The worldwide trade value of primary carob 4.7). products is increasing, with an average As the uses of carob expanded in the second annual growth of 30% between 2010 and half of the 2000’s, the demand for carob 2019. The increase is more pronounced after increased again globally. There are works 2016 (Figure 4.8), with the total imported implemented for establishing new plantations value of carob in 2019 being approximately in Spain, Italy, Portugal, California and Mexico 190 million USD, which is nearly 4 times of Figure 4.8: Wordwide import value of carob Source: International Trade Centre. 34 https://cyprus-mail.com/2017/11/22/new-plantation-produce-range-carob-products/ 46 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.9: Leading importers of carob in international market Source: International Trade Centre. Figure 4.10: Leading exporters of carob in international market Source: International Trade Centre and TCc ‘Department of Trade’. that in 2010, according to the International region’s increasing production of ready-to-eat Trade Centre (ITC) data. The leading importers food products and frozen desserts. The leading in international market for carob are Spain (59 exporters in international market for carob are million USD) and Italy (34 million USD), with Morocco, Spain, Portugal, and Italy with recent carob seeds accounting for about 96% of their average annual export values at around 64, total carob import values. They are followed 25, 19 and 6 million USD, respectively (Figure by Switzerland, Turkey and Vietnam, with 4.10). recent average annual import values at around 8, 6, and 4 million USD respectively (Figure The vast majority of import value was for 4.9). The emergence of Thailand and Vietnam carob seeds, despite being a much smaller as importers is indicative of the Asia Pacific proportion of import quantities. In Spain, l 47 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS Figure 4.11: Import unit value of carob by Spain Source: International Trade Centre. the unit value of imported carob seed was 28 Exports of processed products where carob times the unit value of carob pods (crushed is a marketed ingredient are difficult to trace or not, with or without seed) in 2019 (Figure from the available data. Interest in harnessing 4.11). Furthermore, the unit value of imported the culinary characteristics of carob in the carob seeds has increased dramatically products within the TCc that traditionally amongst the main importers. Export unit value include them for taste (e.g., syrup/molasses, from the RoC matches this trend (Figure 4.12). biscuits, cakes) appears to be growing with the However, the ‘export’ unit value from the TCc recent ‘export’ of carob syrup. Value-added fluctuated largely with no clear trend. products in international markets include carob bars, chocolate substitutes, carob The main driving forces of the worldwide coated fruits and nuts, carob syrup, raw or demand for carob products are the production roasted carob powder, carob cakes and cake of locust bean gum rather than the culinary mix, carob cookies, carob spreads, diet coffee characteristics of carob itself. The demand substitutes and caffeine-free tea and coffee for locust bean gum appears to be primarily alternatives. for export and use in frozen desserts, dairy, jelly and fruit, culinary dressing and sauces. Figure 4.12: Export unit value of carob by the RoC Source: International Trade Centre. 48 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 4.3 Investment appeal and the carob value chain is currently operating below its potential. Table 4.3 summarizes critical constraints the strengths and weaknesses, and the future Despite many favorable characteristics and a opportunities and threats identified in the long history of carob production in the TCc, value chain analysis. Table 4.3: SWOT analysis of carob value chain in the TCc Strengths Weaknesses • Locally adapted genetic resources with high sugar • Local supply bottlenecks content • Unstable yield/production • Longstanding traditions and local knowledge • High processing costs relative to competitors • Strong geographic association • Poor standardization and labeling of traditional • Carob can grow in marginal land (dry and poor carob products land) where other crops cannot be grown • Slow/lack of development of the carob industry • Versatile usage • Lack of efficient value chain that benefits all actors • Low irrigation requirement • Limited ‘export’ of value-added products • Minimal human labor needed to manage trees • Limited awareness of carob and carob products • Existing international markets • Few international buyers of carob seeds • Long-term revenue stream • Inefficient ‘public’ support • Climate resilient and environment friendly Opportunities Threats • Modernization and mechanization to improve • Shrinking orchards carob production efficiency • Lack of interests from farmers/growers • Expanding carob syrup/molasses production and • Slow return on investment for new orchards increase its competitiveness in international mar- • Limited land availability for development ket • Rat and pests that ruin the tree and production of • Development of new functional foods and special- the pods ty products such as carob drinks, substitutes for chocolate, coffee and cocoa, etc. • Meeting increasing international market demand for carob seeds and locust bean gum products • Marketing towards increased demand for special- ized functional foods, such as gluten-free foods • Marketing towards increased demand for organic products, and environmentally and climate-friend- ly products • Possibility of trade through Green Line into EU market • Potential for collaboration between TCc and RoC for carob research and development • Funding and support to revive the carob industry l 49 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS 4.3.1 Strengths and opportunities but also because of other factors, such as the expected shortage of cacao and the beneficial The agronomic traits of carob are especially effect of carobs on gastrointestinal disorders. well-suited to the conditions of Cyprus. Carob European locust bean gum producers are trees provide a long-term income stream and an established market with a high demand are adapted to low-input farming, with a for carob seeds that could be targeted by reduced need for nutritional, irrigation and increased seed production, whilst Asia-Pacific phytochemical treatments throughout the region is emerging as a market. production cycle. Under a scenario of climate change (high temperatures and low rainfall) Carob byproducts can be used for animal and limited irrigation, few crops will persist in feed with minimal processing and demand Cyprus as well as carob does. for locally produced coarse feed is expected to increase with the production of PDO- Carob products have desirable characteristics compliant halloumi/hellim. Carob pods are that are in increasingly high demand from highly palatable and readily eaten by ruminants. modern international markets. Carob fruits Despite a fairly modest crude protein content, are characterized by high sugar content (48%– they may compare favorably to other locally 56%) (mainly sucrose, glucose, and fructose), produced feeds in terms of nutritive value 3%–4% protein, low-fat content (0.2%–0.6%), and accessibility. They have traditionally been low concentrations of alkaloids, and high used as a supplement for lactating animals in dietary fiber content. The pulp is composed of Cyprus. However, high tannin concentrations sugars, polyphenols (e.g., tannins, flavonoids, have been reported to cause negative phenolic acids), and minerals (e.g., K, Ca, Mg, effects on animal performance at carob pulp Na, Cu, Fe, Mn, Zn), whereas the seed contains intakes above 20%. Supplementation with proteins, dietary fibers, polyphenols, and polyethylene glycol can mitigate the effect minerals and is free of gluten. Raw or roasted in rations containing up to 56% carob pulp carob powders are high in protein, rich in (Priolo et al. 2000)35. Carob tannins also have fiber, contain essential vitamins and minerals anti-diarrheal properties  which may be of and are healthy alternatives to most snack value to animal production systems (Lizardo et foods. Moreover, it can function as a natural al. 2002)36, and commercial feed additives for chocolate-like sweetener with advantages this purpose are available from Algeria. over chocolate, as it has fewer calories and does not contain caffeine or theobromine. It Overall, there are many positive signs for is becoming increasingly recognized in this the future growth of demand for carob role and the niche may expand given the products. Given the historic role of Cyprus expected global cocoa shortage. Furthermore, as a supplier of high-quality carobs, there is studies have indicated that carobs and their a great opportunity for the island to supply products can promote human health and help the increasing international market demand. prevent specific chronic diseases (Loullis and Furthermore, the prospect of trade across the Pinakoulaki 2018; Papaefstathiou et al. 2018). Green Line would bring about access to much Carob is inherently or has the potential to be higher value EU market with a strong demand marketed as (depending on production and for functional foods and locust bean gum. processing) organic, non-GMO, gluten free, 4.3.2 Weaknesses and threats soy fee, vegan/vegetarian, halal and kosher. Value chain analysis found that the TCc Carob and carob product prices are increasing. carob subsector is constrained by low The international import value is increasing productivity, supply bottlenecks and weak steadily, and the increase is more pronounced competitiveness. In general, farmers do not after 2016. The increase is partly driven by the invest in their carob production, resulting significant rise in the demand for biologically in poor productivity. Farmers rely on the natural, gluten and caffeine free products 35 A. Priolo, G. C. Waghorn, M. Lanza, L. Biondi, P. Pennisi. 2000. Polyethylene glycol as a means for reducing the impact of condensed tannins in carob pulp: effects on lamb growth performance and meat quality. Journal of Animal Science, 78 (4): 810-816. 36 R. Lizardo, J. Cañellas, F. Mas, D. Torrallardona, J. Brufau. 2002. Utilisation of carob powder in piglet diets and its influence on growth performance and health after weaning. Journées de la Recherche Porcine en France, 34: 97-101. 50 l TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS administration for income support, which is increasing supply. Extension services may paid on the basis of area and thereby provides promote best practices, including better use of no incentive to improve productivity per unit inputs and optimal layout to enable mechanical of area. Large amounts of forest carobs are harvesting. As productivity increases, it will neglected or underutilized. The derelict status be beneficial for the private sector to explore of carob farming has resulted in a supply strategies to strengthen linkages (e.g., contract bottleneck for TCc carob processors, who farming) between carob producers and the struggle to compete with the prices offered by processers in the TCc that have unmet demand Turkish importers for the harvested carob pods for carob and to attain certifications that will and therefore operate below capacity. Labor, improve competitiveness (e.g. organic, non- electricity and input costs are higher in the TCc GMO, halal, kosher, etc.). than in Turkey, diminishing competitiveness. (ii) Support research to increase carob Weak competitive power is also reported farm/forest productivity: Research can by carob syrup producers, who compete identify the most appropriate cultivars for with carob syrup imported from Turkey37. seed production in orchards. The primary Additionally, there is a single producer of traits of interest would be high seed yield, specialty carob products that are similar to uniform ripening, climate resilience, ease of those available on the international market, mechanical shaking and pest resistance. High such as carob powder and products flavored pulp yield would also enable dual purpose with carob powder, however production is production and would therefore increase the very low, due to limited awareness of the resilience of enterprises to price volatility. In products, low demand and poor returns. addition to improving production efficiency, 4.4 Recommendations and these characteristics could potentially reduce input requirements and enable the actions to strengthen value attainment of organic status. Collaborative chain competitiveness research between TCc and RoC to identify Given the generally derelict status of these cultivars should be pursued. Further carob production in the TCc, there are avenues for research might include exploring many pathways that could be explored to the feasibility of using the area between carob reinvigorate production and realize the trees for economic activities or ecosystem potential opportunities of international services to increase land use efficiency both markets. The investment strategies will differ in intensive orchard and extensive forest depending on the intended end use of the production. The primary mechanism would carob products, namely the production of seed be reseeding suitable forage crops or by top- for locust bean gum and the development dressing with fertilizers to improve the natural of specialty carob products and functional vegetation between trees. This would enable foods. Both the administration and the private grazing, carbon sequestration and/or a habitat sector will have a role to play in determining for native flora and fauna. The former would which pathways are most appropriate and be especially meaningful given the expected how these can be supported. The following increase in demand for locally produced recommendations and actions could be feedstuffs for sheep and goats associated with considered: the PDO specifications of halloumi/hellim, although caution is advised given that carob (i) Create an enabling environment for trees are often cultivated in landscapes that increased carob production and processing are marginal. Furthermore, carob trees have in the TCc: ‘Public’ support to carob farmers great potential to contribute to afforestation/ could be modified from area payments to restoration programs with socio-economic grants/loans that enable establishment of new added values to the ecosystem services. plantations using high quality carob cultivars and modern farming techniques, thereby (iii) Explore opportunities to trade carob products across the Green Line: Given that 37 http://www.kibso.org/index.php/tr/%C3%BCye-haberleri/323-bal-ve-geleneksel-tatlarda-usta-firma-kantara.html?fbclid=IwAR3hjBtbL8k2G__ sJWmF_TkSw_fsgphzG7TYDK_NQSjvZAvu56W9o3gTu00 l 51 TCe: IDENTIFYING AND ANALYZING PRIORITY AGRI-FOOD VALUE CHAINS ‘exported’ carob seed is almost universally textile industries, amongst others. The private processed into higher value locust bean sector may wish to conduct feasibility study of gum, it may be possible to conduct this locust bean gum production on the island and value addition prior to export. As a small develop an investment strategy if appropriate, economy with limited land resources, TCc and explore joint-business opportunities should explore the value addition of carob across the Green Line. Currently, the TCc and and its products domestically. This would RoC combined produce a similar quantity of have the advantage of creating local business, shortening value chains and increasing the carobs as Turkey, which produces and exports ease of monitoring and tracking in compliance locust bean gum to the EU market. Dialogue with the requirements of European market and between TCc and RoC administrations and emerging Asia-Pacific market. Furthermore, private sector may be necessary to ensure that domestically produced locust bean gum processed carob products can cross the Green could supply the local pharmaceutical and Line as foreseen by the EU regulation. Table 4.4: Turkish Cypriot community: Recommendations and actions to strengthen carob value chain Recommendations Short-term (1–2 years) actions Medium-term (3–5 years) actions Create an enabling en- - Promote adoption of best practices - Modify ‘public’ support to carob farm- vironment for increased including orchards with deliberate ers from area payments to grants/loans carob production and layouts to enable mechanical shaking/ that enable establishment of new plan- processing in the TCc harvesting, better use of inputs and tations using high quality carob cultivars tree management. and modern farming techniques. - Explore strategies (e.g., contract - Provide incentives for carob producers/ farming) to strengthen linkages processors to promote products and between carob producers and the TCc attain certifications that will improve processers that have unmet demand for competitiveness (e.g. organic, non- carob. GMO, halal, kosher, etc.). Support research to - Support research and development - Support to explore the feasibility of increase carob farm/ (R&D) and identify the most appropriate using the area between carob trees forest productivity cultivars for seed production in orchards for economic activities or ecosystem that can sustain production targeting services to increase land use efficiency profitable international seed markets both in intensive orchard production and/or producing pulp with a high and extensive forest production. culinary value, pursue collaborative research between TCc and RoC. Explore opportunities - Hold dialogue between TCc and RoC - Encourage private sector to conduct to trade carob products administrations and private sector to feasibility study of locust bean gum across the Green Line ensure that processed food (of non- production on the island and explore animal origin) can cross the Green Line joint-business opportunities across the as foreseen by the EU regulation. Green Line. 52 l