Posted on April, 16, 2018 at 10:43 am
By Dr. M. Hikmet Boyacioglu
Turkey is a country where archaeological evidence shows that flour milling first started roughly 12,000 years ago (10.000 BC), and today it is the global leader in flour exports.
Gobeklitepe, Sanliurfa, Turkey, is the site of the archeological discovery that could profoundly change the understanding of a crucial stage in the development of human society. The remains of fermented grains and wheat seeds contained in the dishes excavated from the ruins reveal that agriculture was carried out in a conscious manner. One of the biggest indicators of grinding wheat prior to consumption is the mid-drilled round stones shaped as the stone hand mills.
Wheat flour mills are present in almost all provinces of Turkey, with Konya (Central Anatolia) having the largest number of plants. Currently, 707 of 1,200 flour mills in Turkey are active. The average capacity utilization rate in the flour industry is 45%, with annual production capacity estimated at 30 million tonnes.
According to the Turkish Statistical Institute, Turkey’s flour exports jumped from about 355,000 tonnes in 2000 to about 3.5 million tonnes in 2017 (see table 1) while the International Grains Council (IGC) forecasts Turkey’s flour exports at 5,450,000 tonnes (grain equivalent) followed by Kazakhstan (3,350,000 tonnes) and Argentina (1,140,000 tonnes) for 2017-18. In 2017, main customers of Turkish flour were Iraq, Syria, Sudan, Angola and Somali (see table 2).
As Morton Sosland noted in an editorial in the December 2016 issue of World Grain, Turkey accounted for nearly a third of total trade in wheat flour that year, and “the Turkey outgo would approach being the largest amount of flour ever exported by a single country in history. The wheat equivalent total forecast this year for Turkey roughly equals between 85 million and 90 million cwts, which is a remarkable achievement for a nation that first exported flour in 1984-85, shipping 7,000 tonnes of wheat equivalent, and which did not ship as much as 1 million tonnes until 2004-05.”
In its Turkey Grain and Feed Update, published Oct. 13, 2017, the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) said “despite all the current logistical problems, especially in the Iraq and Syria border areas, the Turkish flour sector has maintained the level of the previous year’s high exports. Turkey’s wheat flour exports during the first three months of MY 2017-18 were just above last year’s exports of the same period, reaching 870,000 tonnes. Iraq continues to be the leading importer with 480,000 tonnes, followed by Syria with 73,000 tonnes.”
There are many contributing factors behind Turkey’s success story in global flour trade These include, but are not limited to:
Obviously, the most important factor affecting Turkey’s position in global flour trade is its self-sufficiency in terms of producing quality wheat. According to recent USDA-FAS projections, in 2017-18 Turkey will produce and consume 21 million tonnes and 17.9 million tonnes of wheat, respectively. As a result, imported wheat is used for blending purposes to meet the quantity and quality of flour and wheat products. For 2017-18, USDA-FAS forecasts Turkey’s wheat, flour and related product exports to total 6.5 million tonnes while imports are forecast at 4.5 million tonnes.
Eren Gunhan Ulusoy, chairman of the board of ULUSOY Flour Mills and chairman of the board of the Turkish Flour Industrialists’ Federation (TUSAF), said Turkey has been the global wheat flour market leader for five seasons with 30% in total flour trade.
“This success comes from the combination of several factors that were created by Turkish flour industrialists,” he said. “The improvement in the flour industry and the intense investment in the sector in the 1990s caused overcapacity in the 2000s. As a result, exports gained speed, especially to southern neighbor Iraq and Middle East countries. But Turkish flour industrialists succeeded to create a dynamic trade network that spreads to 160 countries today.”
Turkey’s well-known and developed milling equipment manufacturing industry also has been an advantage for continuous capacity improvement and modernization of its flour mills.
Regarding Turkey’s success in global flour trade, Hakan Esen, former general manager of Doruk Marmara Flour Mills and current member of Leadership Committee of IAOM-MEA, said: “Since the exporter mills have the capacity to produce 1,500 tonnes to 5,000 tonnes daily and their target is to maximize the capacity, thus they work with moderate profit levels around 6% to 8%, which is actually the customary industry standard for a flour mill.”
In Turkey, the Ministry of Science, Industry, and Technology funds research projects carried out in universities and other public and private organizations through its various grant programs. Benefiting from these programs, most of the major flour mills have established and expanded their R&D laboratories, including pilot bakeries. In addition, some universities located in major flour milling regions established vocational programs to meet human resources needs of flour mills. As a result of these investments, flour mills have become capable of assuring quality of their products, meeting customer specifications and producing tailor-made products, which most of them are not traditional products for Turkey, but for export markets.
“We have to admit the entrepreneur spirit of the Turkish Millers,” Esen said. “They export tailor-made products that are specific to each export destination. That means they have to understand the end product. They easily adapt their mill to certain types of production. Of course, the milling machinery has developed a lot in Turkey. Turkish-installed mills are all over the world. This machinery line also helps our millers to produce fine products.”
Turkey is geographically located in the middle of wheat supplier countries such as Russia, Ukraine, Kazakhstan, Bulgaria and flour consumer regions such as North Africa and the Middle East. The country also is on a trade route to Southeast Asia.
“Besides its own huge wheat harvest of 20 million tonnes, Turkey is importing 3 million to 4 million tonnes of wheat yearly, of which 70% is supplied from Black Sea countries,” Ulusoy said. “And the destination of almost half of wheat flour sales is Iraq, which is the second largest importer of global flour market. Most African countries are important consumers of Turkish flour. In 2017, 43 African countries imported more than 900,000 tonnes of wheat flour.”
Esen also emphasized Turkey’s geological location advantage.
“In the milling industry, the raw material generates almost 80% of the cost of the good sold,” Esen said. “Thus, maintaining the raw material — in this case wheat — at competitive levels is essential for pricing. Turkey is close to the Black Sea region where the most competitive priced wheat can be found. If you look at the last 10 years at HRW 11.5 and Russian 11.5 protein wheat, you can see a price difference of almost 30% on wheat, much more on flour.”
According to Euromonitor International, emerging Asia Pacific markets are driving global retail volume gains for bakery, with further support from certain markets in Middle East and Africa. MEA achieved the strongest retail growth for packaged/industrial bread in 2011.
TMO plays important role
In Turkey, the Turkish Grain Board (TMO) plays an important role in the grain market. TMO, founded in 1938, is a limited liability and autonomous state economic enterprise running on state capital in accordance. The mission of TMO is defined as “taking protective measures for producers and consumers by regulating agricultural products markets, especially the grain market, within its field of business and keeping stocks for states of emergency.” TMO acts as a buffer stock agency to stabilize producer and consumer prices in wheat production.
The Government of Turkey applies high tariffs on grains to protect the domestic market and therefore there is a considerable price differences between domestic and international grains.
However, the government encourages flour exports by exempting wheat imports from tariffs under Inward Processing Regime policy if the value-added processed flour is exported. According to World Customs Organization, “inward processing” means the Customs procedure under which certain goods can be brought into a Customs territory conditionally relieved from payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation. The purpose of the Inward Processing Regime can be expressed as boosting exports by providing raw materials prices on world markets, bringing exporting products in a competitive edge in the international markets, improving and diversifying export markets.
In Turkey, the Inward Processing License is issued by the Ministry of Economy and the certificate allows importing any type of raw materials, auxiliary products, semi-products and products from foreign markets into Turkey required by export-oriented manufacturers, industrialists. Flour exporters gain import certificates, which allow them to import wheat with zero tariff in order to produce and export flour.
Esen criticized the claims that Turkey is taking advantage of the Duty Draw Back System, which is applied by Turkish government and well accepted with the World Trade Organization.
He said the system “is basically allowing the miller (only) to import its wheat without any custom duties in order to export flour from that wheat to a third country. The by-products can also be exported or custom cleared after all related duties are paid. This system is monitored by the government very tightly and any abuse of the system can be charged from paying all related duties, to tax fraud as a jail sentence.”
As reported by USDA-FAS, in 2017 Turkey started to implement a new subsidy program for agricultural products called the National Agriculture Project. The project aims to diversify Turkey’s agricultural production, increase productivity, and reduce the planted area of water-intensive crops such as rice and corn in drought-prone areas.
Within the new scheme, Turkey is divided into 941 agricultural basins based on climate and soil categories to subsidize specific crops for each zone. In total, 19 strategic crops, including wheat, barley, corn, rye, oats, triticale, paddy rice and forage crops, are subsidized. Turkey also continues premium payments to producers and support for certified seed usage, fuel and agricultural insurance.
Turkey’s imports from the east provide a transport advantage for its flour export markets since containerized cargos are coming to Turkey full and leaving empty, which allow Turkish flour exporters a logistical advantage to find ships at an inexpensive price. This situation also helps Turkey to extend its flour export market to over 100 countries.
In his comment about Turkey’s logistic advantages, Esen noted, “Because of the geographical location, Turkey has become a hub for all container lines. Big ports such as Mersin, İzmir, and Istanbul are also container gathering and feeding ports. The availability of the containers and having all the containers closer to China makes the freight cost and availability extremely competitive. Almost all the lines have a big container facility in Turkey.”
Value of by-products
Turkey is one of the largest compound feed producing countries of the world and, consequently, flour milling by-products are high in demand. Wheat bran has a higher price in Turkey than many other countries for several reasons. First, due to the high level of investment in the dairy and poultry sectors increasing feed demand, wheat bran is readily available domestically while corn and soybean are imported. Also, animals are generally stall-fed rather than pasture-fed, and there is a customs duty for imported wheat bran.
The USDA-FAS also cites the high value of by-products in the Turkish market as another advantage for wheat flour exporters. According to its Turkey-Grain and Feed Update report, wheat bran was 69 turkish liras per tonne ($190 per tonne) in the domestic market as of March 2017, though it was only $135 in the international market. High wheat bran prices in the Turkish domestic market due to high demand from the feed sector contributes to the flour exporters’ global competitiveness.
Seed industry advancements
The USDA-FAS notes that Turkey applied prominent changes to its basic policies related to the seed industry at the beginning of the 1980s and made a transition from a public-based seed industry to a seed industry based on private enterprises with seed production based in Turkey.
Turkish seed policy is based on government supported plant breeding and also private breeding. Both the government and private sectors’ production capacity has increased with the help of government policies supporting certified seed usage and domestic seed production. Certified seed production has increased about threefold in last 10 years.
In another report, the USDA-FAS commented that in Turkey certified seed use is expected to increase due to the government’s encouragement to farmers to use it. Higher quality seeds are expected to lead to better yields.
Ali Ozbugday, chairman of the board of ProGen Seed Inc. and former president of the Turkey Seed Industry Association (TURKTED), said that since 1985 the country’s seed sector had fundamental progress, having private sector integration with the world seed policies based on scientific and technological developments and changes in the seed systems.
“Depending on the developments of certified seed sector in Turkey, seed production and use have been increased over the years,” he said. “While it was 110,000 tonnes in 1996, certified wheat seed production reached about 700,000 tonnes in 2017. Turkey showed an increase in the average yield of wheat of 1.98 tonnes per hectare in 1996 to 2.36 tonnes per hectare in 2006 and reached about 3 tonnes per hectare today.
“The impact of certified seed use in this yield increase cannot be underestimated. The best varieties of barley and wheat, commonly grown in central Europe, have been crossed with particularly resistant Turkish species by using conventional breeding techniques.”
Turkey’s leading role as a flour exporter likely will continue in the near future mainly due to current political unrest in countries that are the main customers of Turkish flour, and the strong demand for baked goods in the region in addition to availability of wheat supply domestically and in the region. The factors that could possibly change the situation are an increase in political stability in the region, farming and flour mill investments in countries that currently depend on Turkish flour, political and logistic problems as well as changes in custom duties and currency exchange rates in Turkey’s wheat supplier countries.