“Mergers in flour industry are inevitable because of fierce competition”

25 January 201914 min reading

“We think of acquisition or having a foreign partner, and this issue – acquisition or foreign partner - has been always on our agenda. We talk with our friends inside and outside of the sector about acquisition or having a local or foreign partner. In our industry, the idle capacity is more than 50 percent. In fact, the figure reveals the fact that how much we are away from productivity – a golden rule in current economies. The fact that local companies do not have a corparate structure and are family-companies makes merger and acquisition difficult. Nonetheless, as time goes by and competition condition hardens, I believe that companies will move to think of merger or acquisition economically.”

Cem Oğuz Kırtız General Manager of Halim Kırtız Food Industry

Producing flour for a quarter of a century with the motto of “For those who seek quality in flour,” Halim Kırtız Food Industry is among the prominent companies in the Turkish milling sector at the production of flour. Acquired a small facility in 2006 at Antalya Organized Industrial Site and improved the facility continually by making new investments, the company increased its production to 700 tons/day and had a fully automated facility with large capacity. Halim Kırtız Food Industry, whose general manager is Cem Oğuz Kırtız that has close to a thirty-year experience in flour industry, maintains its stable position within the sector with right price policy and using new technologies that make a difference in flour production. Being the first interviewee of 2019 of Miller Magazine, Cem Oğuz Kırtız answered questions candidly. Saying that the sector’ idle capacity exceeds fifty percent, Kırtız noted the fierce competition conditions will accelerate consolidations and mergers. Kırtız - a doyen – said his company is open to new acquisition and mergers, adding that “The best thing we can do as the sector is to increase the productivity of mergers.”

Cem Oğuz Kırtız warned that Turkish companies can face with challenging production problems if the price remains below the world price and explains things to do in order to prevent possible wheat and flour shortage in the country. “Two most important problems that Turkish farmers face with are scale and input costs. If we compare the scale, Turkey cultivates wheat in a vase. The small size of farmers also requires them to generate higher income in a unit area. To avoid falling short of self-sufficiency in production, we should make it possible that our farmers gain more than the world’s price,” he said.

Saying that his company thrives to provide a new product to the sector with the research and development efforts, Cem Oğuz Kırtız said his company works on the frozen products that gained popularity recently. The frozen products have significant turnover, according to Kırtız. He said the size of the frozen products will increase even though its current size is small.

The following is the interview with Cem Oğuz Kırtız, the General Manager of Halim Kırtız Food Industry.

Mr. Kırtız, you have spent years in this sector – that’s why we know you. Yet, can you introduce yourself for our readers? I was born in 1968 in Polatlı as a child of a farmer. I completed middle and high school in Polatlı. After that, I graduated from the accounting department of Izmir 9 Eylül University. In 1990, I completed compulsory military service and began my professional career at Kırtızlar Flour Factory that belongs to my family. In 2000, I was elected as a board member of the Ankara Millers Association – an umbrella organization for our sector. I became a board member of the Turkish Flour Industrialists’ Federation (TUSAF) in 2005. In 2006, after working for sixteen years, I left Kırtızlar Flour Factory that was very good, joyous, and useful. In the same year, we bought a flour factory with a capacity of 250 tons located in Antalya with the support of my siblings – Yeliz and Erol Kırtız – under the leadership of our father Halim Kırtız.

You spent years in the management staff in Kırtızlar Flour established by Yavuz Kırtız. Then, you bought a factory in Antalya, and your company has grown rapidly. Later, you changed the name of the company to Halim Kırtız Food Industry. Can you provide information about your factory? Our works are designed to keep all areas of flour consumed under the close monitor and to bring the right product to the right consumer according to consumer needs.

Can you provide information about technology used in the factory, production capacity, and your brands? When we bought the factory in 2006, its capacity was 250 tons/day. In time, we increased this amount to 300 tons and later to 350 tons. In October 2018, we modernized our machines, and with significant help from Takozlar Machinery, we increased the capacity to 700 tons/day within eighty-five days. Also, in time, we increased the wheat storage area to 20,000 tons and the flour storage area to 5,000 tons.

In the selection of technology and machinery, we utilized from Takozlar Machinery. Thanks to the company’s cooperation and expertise, we worked with the best companies in Turkey. That’s why our factory turned into one of the leading facilities both in Turkey and in the world in the productivity and quality when considering the length of the roller mill, mesh, grinding tonnage, yield, ash amount, and energy consumption.

The production starts with the preparation of wheat and then goes with tempering, grinding, the instant check of grinded flour, and packaging. That means the factory is fully automated and computer-controlled.

Speaking of our brands, in fact, Nar Flour is our brand. The name of the company is Halim Kırtız Food Industry. Apart from Nar Flour, we have brands like Nar Tanesi, Yaver, Perge, Kermen, and Sütun. The reason we have so many brands is to avoid confusion of products in different categories.

How do you navigate as a company in the face of innovation and conditions that the market brings? What kinds of works does your research and development staff carry out? The flour sector is a highly dynamic market, and the needs of consumers have been constantly changing. Without missing and being away from these changes, we try to be in close dialogue with the producers and understand them very well. In line with demands, R&D staff shows efforts to produce the best by working on literature and the final products.

Do you have any works on the frozen product market that has been growing rapidly in recent years? All around the world, the market for frozen products has a significant turnover. In Turkey, frozen products are usually seen in the industrial area and recently in markets. Although the market share of frozen products is very small, there is no doubt that the market share will grow. That’s why we try to provide the right product to the producers of the frozen product according to the results that we get after we keep fermented and unfermented products in different times at -20 C in our test section located at R&D department.

Do you have a plan for acquisition or to have a foreign partner? Yes, we have such an idea. This issue has been always on our agenda. We talk with our friends inside and outside of the sector about acquisition or having a local or foreign partner. All of us are open to this idea and want to put into practice because it is very clear the golden rule of our industry is “Productivity.”

In our industry, the idle capacity is more than fifty percent. In fact, this figure reveals the fact that how much we are away from productivity. In fact, many sectors have the case of idle capacity in Turkey. Although we speak of acquisition or foreign partner continually and everybody accepts this issue, we could not accomplish this. The fact that local companies do not have an institutional structure and are family-companies makes merger and acquisition difficult. Nonetheless, as time goes by and competition condition hardens, I believe that companies will move to think of merger or acquisition economically.

- Mr. Kırtız, apart from your duty in the factory, you are the deputy chairman of Anadolu Flour Industrialists’ Association and a member of Antalya Organized Industrialists and Business People Association. Can you talk about the importance of these NGOs for the sector? NGOs are a must for the world, particularly business world. The reason is that the public sector cannot master all of your problems. NGOs gathered all problems of the sector and examined these problems in the board of directors so that they communicate these problems to the public in a single and right way. You get effective results from these initiatives as a single body. Otherwise, if anyone tries to find a solution to his or her problem in his or her own way, they face with the risk of having serious information pollution and lack of contact. Thus, we should support NGOs. You have to spend significant hours and shoulder important responsibility when you assume duty at NGOs. When you solve a problem, it gives incredible pleasure. In short, you shoulder important responsibility and are criticized often; however, when you solve a problem, you get happy. So far, I do my best when I assume duty at NGOs. After this, I will continue to do my best.

You are active in creating strategies for wheat flour and wheat production. Can you share your thoughts about the problem of wheat and flour as a result of the fluctuation in the rate of exchange? This is the third time I have experienced in my twenty-eight years of business life in the flour sector. If I were to look into these days again, I can say the exchange rate volatility in the 1994 and 2001 crises. The change in exchange rates in both years had made wheat prices in our country the cheapest in the world. In both, cereal export was banned. As the market recovered quickly, the price of wheat had gone over the world price and everything went back to normal. This year, with the increase in exchange rates, the price of wheat was lower than the world’s prices. Later, the market adapted itself to this situation in both wheat exchange and flour prices. In fact, there was no problem with finding wheat and flour. The most problematic situation was that the delay interest increased as the financing cost increased extremely. Also, because the sector cannot find financing easily, terms got shortened. When we reflected this to customers, the issue has reflected the public from a different perspective.

The price of bread and flour was a hot topic recently. The sector was blamed with opportunism and stockpiling. Can you tell us the real reasons and the background of this situation?

As I told you, exchange rates in the market were reflected in the price of wheat. You can see price movements clearly by looking into releases of wheat exchanges in our country. The most important input of the flour sector at the rate of eighty-five and ninety percent is the price of wheat. So, the smallest increase in wheat is reflected in the price of flour. There is no way to escape from this. In addition, a flour factory has to have at least two months of product in its store in order to maintain its product standard. Although you name it stock for the product standard, these are also the undelivered wheat that was sold. So, it is not right to name this as stockpiling. I believe we were blamed unnecessarily and unjustly at that time. I do not think that no person deserved to hear these accusations in this sector. In short, this case saddened all of our friends deeply. In the end, we determine the price of flour based on the price of wheat. The public authority determines the price of wheat. Later, the public authority announced that it would import through TMO and revealed the price of wheat below the world’s price, all markets acted accordingly.

So, it is the public authority, not us that decide the price of wheat and flour. Moreover, our sector has more than fifty percent of idle capacity, and there is fierce competition. For example, when I began working in this sector, there were 1281 flour factories. Now it is around 400. This case shows the reality of the sector.

Speaking of bread prices, in fact, there is no need to talk about this. Bread is not our business. Also, it is not right to talk about its price. However, I can express my opinion easily. No bakery has the same cost. Some are labor-intensify while others are machine-intensify. Some pay low rent while others pay high rent. It is not healthy to fix the price of this product having very different input cost. Also, it is clear that if every input cost of bakeries is changed and the price remains the same, this situation causes serious problems in time. The most important issue to keep in mind is that if workers that produce bread go to their bakeries happily, this will guarantee people have bread with better quality.

Do you think Turkey’s leadership in the world flour export for years would hurt from problems in the domestic market? Of course, it will. This harm will reveal in the middle and long term. As a country, we export based on import. However, the domestic market and export support each other. We grind twelve million tons of wheat for the domestic market and five million tons of wheat for export. You cannot really distinguish these. Of course, we meet the need of our country. After all, all precautions were taken in this regard. However, Turkey exports to 115 countries and these countries have different needs. Also, although we produce, there are the type of wheats that do not go well with Turkish bread structure. On the ground that we import firstly and keep the balance of wheat in the country, it is very important for export and our country to exchange products that we do not need with products that we need. I readily believe that we will overcome these problems and proceed on our way.

What can be done to bring the idle capacity of mill factories back into the national economy? I wish I have something to say on this. The installed capacity is around forty million tons. We grind about seventeen million tons. Twelve million tons of this is for the domestic market, and five million tons of this is for the export. The world’s export market is around ten and twelve million tons. We cover 30-35 percent of this. That means even if we cover the whole world market, we still have idle capacity. What we can do as the sector is to increase productivity.

What steps should be taken in order to avoid a possible shortage of wheat and flour in Turkey? If the Turkish market goes below the world’s prices, that situation will bring a serious production problem in the coming days. Two most important problems that Turkish farmers face with are scale and input costs. If we compare the scale, Turkey cultivates wheat in a vase. The small size of farmers also requires them to generate higher income in a unit area. To avoid falling short of self-sufficiency in production, we should make it possible that our farmers gain more than the world’s price. This can be done in two different ways: You can set up the market higher than the world’s prices or you can establish the market lower than the world’s prices and can cover the difference with premium system. This is the issue that the public authority can decide. If we do not do this, in time, we can become a country that does not only import wheat for export but also for our needs. This is a very, very important issue that we are all responsible for.

Can you tell us about Halim Kırtız Food Industry’s targets for 2019? I wish to congratulate the new year of our shareholders and colleagues. I hope that 2019 brings peace, health, happiness, and abundance for all of us. Unfortunately, 2018 was not a very good year for our sector and our country. Of course, our company was affected by this situation. In 2019, we aim to provide better service to our customers with new products that we included thanks to our renovated factory.

Do you wish to add anything else? Turkey is an extremely dynamic and powerful country. We are whole with public authority and the private sector. We should be aware of our strength and spend our energy in finding common solutions by understanding each other instead of wasting our resources and energy. In the end, our country wins.

My love and respect to all friends, colleagues, and sector stakeholders…

Articles in Interview Category
10 July 20146 min reading

Miller Milling President Kazuyoshi WATANABE: “The selected mills are worth considering”

“As we have been actively expanding our business by taking advantage of Nisshin’s key strength of R...

07 April 202211 min reading

Increasing demand for plant protein will make pulses a shining star

08 May 20146 min reading

“The future of flour industry is bright in Pakistan”

Pervez: “Our future business goals are very clearly defined in our minds. We want to establish a ne...