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Turkish potato price surge adds political, economic pressure before polls

* Potato prices triple from a year ago

* Hurts living standards of poor just before elections

* Complicates central bank's fight against inflation

* Structural problems in food industry partly to blame

* Some retailers say potatoes being hoarded

ISTANBUL, Feb 5 (Reuters) - The humble potato has become a factor in Turkey's political and economic turmoil as prices of the staple soar, hurting the living standards of poorer Turks just before the ruling AK Party's toughest election test in a decade.

At a market in the lower-income Istanbul suburb of Kucukcekmece, potatoes sell for between 3 and 4 lira ($1.33 and $1.77) a kilogramme, up from slightly more than 1 lira at about this time last year.

That could be a political headache for the government at the best of times, but it comes just before March 30 local government elections in which Prime Minister Tayyip Erdogan's AK Party will try to keep its dominance after a high-level corruption scandal erupted in December.

"I have never experienced such economic difficulty in my entire life before, during any other government. Of course I will say "stop" to him (Erdogan) at the elections," said a 68-year old retired man shopping at a potato stall.

"I put my money in my pocket and it's gone in days," he added, looking angrily at an AK Party campaign bus driving past with a speech by Erdogan playing from loudspeakers.

The retiree declined to be named, saying he was afraid of speaking publicly about politics. Tensions are rising ahead of the polls, with thousands of police officers and 200 prosecutors being dismissed or reassigned since the scandal emerged, in what Erdogan's critics see as a ploy to stifle graft probes.

The AK Party still looks unlikely to lose power at the national level, partly because it can point to a strong economic record over the past decade - per capita incomes have risen by about 40 percent in inflation-adjusted terms.

But rising potato prices are an economic as well as political headache for Turkey because inflation is now running far above the central bank's target.

Growing inflation pressures, along with weakness of the lira, led the central bank to hike interest rates last week despite public opposition from Erdogan, and may make further hikes necessary. These will raise companies' financing costs, threatening to slow economic growth.

"(The central bank) can signal it has turned its focus to price stability and can go ahead of the market," said Serkan Gonencler, an economist at Unlu Portfolio Management.

The bank holds its next monetary policy meeting on Feb. 18.

INFLATION

Potatoes, widely used in basic dishes such as vegetable stews, are a major part of the diet of many Turks, including the urban working class which provides much of Erdogan's support.

Nationally, Turkish consumer prices rose sharply in January, climbing 1.72 percent on the month and 7.48 percent year-on-year, the government announced this week. The central bank's medium-term inflation target is 5 percent.

Tax hikes and the weak lira were partly responsible for January inflation, but potato prices soared 58 percent from a month earlier. This helped to push food price inflation to 5.2 percent; food contributed about two-thirds of total month-on-month inflation.

The soaring price of potatoes is to a large extent due to inefficiencies in Turkey's food production sector, analysts say - a reminder that the AK Party, although it presided over a decade of rising incomes, has not solved some of the country's main economic problems.

The large number of middlemen, the fact that many potatoes are produced on small-scale farms, and high fuel and electricity prices contribute to high prices of potatoes and other vegetables in Turkey.

"The issue is not the tomatoes or potatoes, but the structural problems in the Turkish food sector," Burak Kanli, an economist at Finans Invest, said in a report.

"Food price volatility in Turkey is seven times higher than the EU-27 average and the volatility is consistently increasing," he said, making a comparison with the European Union, which Turkey hopes eventually to join.

"Given the high share of food in the Turkish consumption basket, this is a critical issue for the economy."

HOARDING

Other factors may also be boosting potato prices. There are signs of hoarding in expectation of further price rises, some retailers in the industry say.

"Traders are keeping potatoes in the warehouses and we are receiving less potatoes, so prices have increased and will not decline until May," said 48-year old Cafer Ozer, who sells potatoes at a stall in Kucukcekmece.

"Our business dropped by half. Most people leave the stall without buying."

Government officials have insisted there is no shortage of potatoes. Farm minister Mehdi Eker, quoted by local media late last month, said some producers wanted to exploit worries about a drought by raising prices, but there were no supply problems.

"Some circles are trying to see if they can cause chaos in society by spreading rumours about enormous price hikes," he was quoted as saying by the Zaman newspaper, in an echo of Erdogan's claim that Turkey's difficulties were due to a "plot" by unnamed forces against its economy.

(Editing by Andrew Torchia and Toby Chopra)