“When I evaluate the situation in the Black Sea region through a strategic and political perspective, I cannot be hopeful about Russia’s return to the grain corridor deal. If the Black Sea grain supply is interrupted, we could see a repeat of the situation in March 2022 when grain prices skyrocketed. Any supply disruption from Russia, given the lack of alternatives, could plunge the global grain market into chaos. However, it’s essential to note that the chances of this scenario unfolding are, in my assessment, low.”

Ever since Russia backed out of the grain corridor agreement, there’s been a cloud of uncertainty over the future of grain trade in Black Sea waters. The unpredictability in the region has the potential to ripple through global grain markets, possibly jeopardizing world food security. Amidst these uncertainties, we interviewed Dr. Eren Günhan Ulusoy, Chairman of the Board at Ulusoy Flour in Samsun, located on the southern shores of the Black Sea and directly opposite the Russia-Ukraine conflict zone, who offers an insightful perspective on the region’s dynamics. In our discussion, which covered the grain corridor’s future, risks in the Black Sea grain supply, the geopolitics of bread, and Moscow’s outreach to Africa, Ulusoy provided valuable insights on the intricate nuances shaping the grain trade landscape.

We asked Mr. Ulusoy, who also has served as the Chairman of the Board for the Turkish Flour Industrialists Federation (TFIF) for two terms, questions about Turkey’s performance this season, given its leadership in global flour exports, as well as the future of the agriculture and food sector. We also delved into the future prospects of the agriculture and food sector. Furthermore, Ulusoy shed light on the future aspirations of Ulusoy Flour, a vanguard in Turkey’s food industry.

Here’s a closer look at Chairman Günhan Ulusoy’s enlightening responses to our queries:

Mr. Ulusoy, to begin with, could you enlighten us about the standing of Ulusoy Flour in both the Turkish and global markets? 

Ulusoy Flour is a food enterprise rooted in Samsun, initiated by my late father, Fahrettin Ulusoy, in 1969. Embarking on regional exports in the 1990s, it expanded its reach to both

Dr. Eren Günhan Ulusoy
Chairman of the Board at Ulusoy Flour
Director of IAOM Euroasia

Regarding our capacity: our 50th Year Production Facility in Samsun boasts an output of 2,085 tons per day. Our plants in Çorlu, Aydın Söke, and Sincan have capacities of 400 tons, 640 tons, and 800 tons per day, respectively. Thus, we currently harness an operational strength of 3,925 tons. With the anticipated commissioning of our Hatay plant post its refurbishment, which has a capacity of 275 tons, our cumulative capacity will scale to 4,200 tons. This makes us the entity with the most expansive installed capacity throughout Turkey. Although we initially aimed to kick off operations at our Hatay facility in this year’s third quarter, this timeline has been pushed to the fourth.

In addition to our flour production units, our subsidiary, Ulidaş Licensed Warehousing, operates across four locales. This year, we added the Germencik site in Aydın to our existing facilities in Sorgun (Yozgat), Çerikli (Kırıkkale), and Alaca (Çorum). These four sites collectively offer a storage capacity of 190,000 tons, enabling our group to engage in licensed warehousing activities. We strategically positioned these storage sites near domestic grain production hubs, particularly proximal to the Samsun 50th Year Facility. This is crucial given Samsun’s daily production capacity of 2,085 tons necessitates sourcing equivalent quantities of wheat.

Beyond the aforementioned endeavors, we have a footprint in the international agricultural trade sector. To that end, in 2018, we founded Rolweg, headquartered in Switzerland, as a wholly-owned subsidiary of Ulusoy Flour. This entity serves as a significant grain merchant on our behalf, primarily in the Far East Asian region.

Lastly, Alfaway, a venture we launched in 2019, spearheads our domestic flour sales and marketing operations throughout all 81 provinces in Turkey.

A 21 MILLION-TON WHEAT YIELD IS ANTICIPATED

Following a dry winter that had Turkey concerned about its wheat production, the spring rains came as a welcome relief. The harvest season has concluded. What are the latest reports from the field regarding the yield?

Up until February, Turkey was grappling with its most severe drought in six decades. However, subsequent rains brought us back in line with long-term averages. These showers came as a significant relief, and now we anticipate harvests nearing our record outputs. The Turkish Statistical Institute (TurkStat) initially projected a yield of 20.5 million tons. Meanwhile, the National Grain Council hinted at a potential output touching 21.5 million tons. On the other hand, the US Department of Agriculture (USDA) foresaw a production of 19.5 million tons. Taking all these figures into account, alongside our on-the-ground observations, we believe that a total of 21 million tons is a realistic expectation. Undoubtedly, this presents a heartening scenario for Turkey.

WILL THE BLACK SEA CEASE GRAIN EXPORTS?

For months, the global conversation has centered around the grain corridor. Russia has pulled out of the agreement, and efforts to bring them back into the fold appear unsuccessful at the moment. Could we hear your perspective on the future of this agreement? Are you hopeful about the situation?

Professionally speaking, I’d say I’m ‘reserved’ in my judgment. However, on a human level, I want to remain optimistic. This is because the Black Sea grain corridor plays a crucial role in ensuring the sustainability of agricultural production in Ukraine, a key player in the global grain trade. If producers can’t sell or distribute their products to the markets, they face financial losses and may eventually pull out of production. Furthermore, ensuring that Ukrainian grain reaches global markets is critical for worldwide food security. Thus, we genuinely hope that this agreement persists without any interruptions.

Yet, when I assess the situation in the Black Sea region from both strategic and political standpoints, my optimism wanes. This is what I allude to when I say I’m ‘reserved’. Over the past two seasons, Russia has enjoyed plentiful harvests. After producing more than 100 million tons of wheat last season, they’re projected to surpass 90 million tons this season. Initial estimates put Russia’s wheat exports at 45 million tons, but recent figures suggest that could climb to as high as 50 million tons. The record-breaking shipments observed in July and August, averaging over 5 million tons, lend credence to this potential. Russia is quite pleased with this scenario and boasts a significant stockpile. Meanwhile, Ukraine struggles to ship grain from its deep ports in the Black Sea to international markets. In contrast, Russia is actively trading — exporting to countries like Mexico, Brazil, and Bangladesh, to name a few. They are selling globally.

When Russia declared its exit from the agreement, wheat prices shot up. Yet, as supplies continued, the markets adjusted, leading to a decrease in wheat prices. However, the region is rife with tension. Russia has targeted the ports along the Danube River and declared ships headed to Ukraine as adversaries. In response, Ukraine issued a similar warning. The bridge over the Kerch Strait was bombed. Given this heightened tension, what are the potential risks for the wheat markets and the supply chain in the Black Sea region?

At this point, we can discuss two potential scenarios. First, if the Black Sea grain supply is interrupted, we could see a repeat of the situation in March 2022 when grain prices skyrocketed. You see, this situation is like communicating vessels. While some argue that Ukraine’s grain shipments haven’t reached impoverished nations, an essential aspect is overlooked: the presence of grain supplies from Ukraine enhances market accessibility, ensuring impoverished nations dependent on wheat imports can procure it at reasonable prices. Why does the market seem somewhat stable now? This is largely because, even without Ukraine’s contributions, Russia stands as a robust supplier. However, any supply disruption from Russia, given the lack of alternatives, could plunge the global grain market into chaos.

So, what are the odds of such a scenario unfolding? Personally, I deem them to be low. Observing the dynamics of the ongoing conflict, Ukraine appears to be mostly reactive to Russia’s initiatives. To date, Ukraine hasn’t made military advances that could escalate tensions or drastically alter the war’s trajectory. Kiev is cautious, believing that any attempt to obstruct Russia’s grain distribution routes might provoke a harsh Russian counteraction. It’s worth noting how Ukraine’s intervention in the Kerch Strait significantly influenced the Black Sea grain market. The transit durations for coaster vessels navigating through Kerch extended from a mere 2-3 days to a staggering 10-13 days, consequently elevating freight costs.

However, as previously stated, we perceive a low likelihood of events transpiring in the region that could detrimentally affect the sector’s supply chain. Evaluating the grain supply-demand equilibrium, no imminent threats are apparent. For such a drastic change to occur, radical shifts in the war would be necessary. Will that materialize? Well, that’s a question best suited for defense specialists and foreign policy pundits, not our purview.

WILL TURKEY BECOME A GRAIN HUB?

Russia, backed by Qatar’s financial support, has announced that it will supply 1 million tons of wheat to impoverished African nations for processing into flour in Turkey. It declared that Ankara has given its preliminary approval to this African initiative. What would be the impact of such an agreement on the Turkish flour industry? Could you assess this in light of Turkey’s goal to become a major grain hub? How would this agreement function technically?

Turkey holds a pivotal role not only for its grain imports but also for its exports of processed products, especially to the Middle East and Africa. Indeed, Turkey is the world’s leading flour exporter. Thus, when discussing food aid to Africa, Turkey emerges as the foremost country capable of processing the designated grain. This is an astute observation. Turkey excels in transforming wheat into flour. We possess both the necessary capacity and logistical capabilities. Naturally, as this involves an intergovernmental agreement among Russia, Turkey, and Qatar, specifics like the amount, processing methods, quality standards, and distribution of the incoming wheat will be determined by our government. From an industry standpoint, our belief is that every flour producer in Turkey should have a stake in this process.

Such an initiative could very well be the first step toward establishing Turkey as a primary grain hub. At this stage, Turkey enjoys a strategic advantage. Since the onset of the Black Sea conflict, Romania, Bulgaria, and Turkey have played instrumental roles in the storage and transit of Ukrainian grain. Notably, we observe a substantial volume of Ukrainian grain being channeled through Romania’s Constanta Port. Yet, when considering both port facilities and storage capacity, Turkey stands in a more advantageous position. We are aptly equipped to facilitate the transit of Ukrainian grain and to process it efficiently.

TRANSITIONING FROM ‘MINIMUM STOCK, MINIMUM FINANCIAL COST’ TO ‘SUSTAINABLE INVENTORY’

The Covid-19 pandemic, disruptions in supply due to extreme weather events, and the recent Ukraine conflict... How are Turkish flour industrialists navigating these challenges in this era of heightened volatility?

Actually, our adeptness at navigating crises isn’t a recent development. Throughout its history, Turkey has weathered numerous political and economic storms, both internally and on a regional scale. We’ve grappled with calamities like droughts and earthquakes. Consequently, Turkish industrialists are generally well-prepared and seasoned in facing crises. I often emphasize a point during our international meetings: An industrialist who thrives in Turkey can achieve success anywhere globally. This is because volatility is a given in our landscape. Navigating crises is ingrained in the DNA of Turkish entrepreneurs.

From a sectoral vantage point, specific measures, especially concerning raw material procurement, were instituted during these tumultuous times. The emphasis on inventory management has intensified. While the previous strategy focused on ‘minimum stock for minimal financial cost’, the pivot has now shifted towards maintaining a ‘sustainable stock’. A mill devoid of wheat is akin to a river sans water. Hence, we’ve initiated procurements while factoring in potential supply chain disruptions.

This trend is evident globally as well. In production-consumption reports, a noticeable shift in the dynamics of supply and demand has been observed. In the past, consumption directly mirrored demand. However, given the current market volatility, several entities have begun demanding more than their consumption needs, thereby bolstering their inventories.

I’d like to discuss the global challenge of food inflation. As global food prices are on the decline, they’re on the rise in Turkey. What measures should be taken to tackle food inflation?

Why does Turkey face tangible food inflation? The primary factor is production, for sure. If we can achieve efficiency and growth in production, we could potentially bring the actual increase in food inflation below the overall inflation rate. This is an expansive and integrative topic. As flour industrialists, we essentially act as a bridge between food and agriculture. The cost of wheat for a flour producer constitutes between 75% and 85% of their total expenses. Thus, the strategies pursued in agriculture, intervention purchase prices, droughts, crop yields... All these factors, which comprise around 80%, inevitably influence flour prices. As the saying goes, “don’t shoot the messenger.” This isn’t something within our control. Even if we optimize efficiency in our production facilities, regulate labor costs, and even generate our own energy, all these factors combined can only impact the price within the remaining 20% margin. Events in the agricultural sector undeniably have a direct impact on food. In conclusion, to address food inflation, it’s essential to boost agricultural production and adopt a comprehensive approach across every facet of the food supply chain.

TURKISH FLOUR EXPORTS MAY HIT 3.7 MILLION TONS THIS YEAR

Could you provide the most recent data regarding our flour exports? Turkey is anticipating exports of 3.5 million tons this year. Do you think this target is going to be achieved?

Last year, Turkey exported 3.04 million tons of flour, and this year we are on track to reach 3.7 million tons. Turkish flour producers experienced a significant surge in exports, especially during the months of July and August. Our exports for September stood at 356,000 tons, while the figure for September 2022 was 320,000 tons. By the end of September last year, our flour exports amounted to 2.144 million tons. However, for the first nine months of this year, exports have reached 2.679 million tons, marking a 25% increase compared to the same period the previous year. Notably, the most pronounced rise in demand originated from Sudan, while shipments to Djibouti and Somalia also experienced an uptick. While exports to Sri Lanka had previously halted, they resumed in September.

Regarding year-end projections: We have three months left post-September. Even if we manage an average export of 300,000 tons monthly for the remainder of the year, it totals 900,000 tons. Combining this with the 2.7 million tons from the initial nine months, we’re looking at a potential export volume of 3.6 million tons. Furthermore, I anticipate our October exports to be no less than 350,000 tons. If we sustain our current export momentum through October and November, we could very well hit the 3.7 million-ton mark by year-end.

SÖKE’S BAKED GOODS TO HIT SHELVES IN 2024

You aim to have a presence everywhere wheat and flour travel, from the field to the table. With this vision, you’re striving to position Söke Un not only as a leader in the packaged flour sector but also in the realm of baked goods. How are your investments progressing towards this goal?

Ulusoy Flour primarily operated in the wholesale market and was an export-centric firm. They directed 50-60% of their production towards exports, and this figure even reached 70% at times. Essentially, they functioned more as an international B2B entity. In contrast, Söke Un commands a significant presence in the retail flour market. It’s a brand that consumers instantly recognize, and it stands out as the most prominent flour brand in Turkey. Thus, we are setting our sights on amplifying our B2C endeavors under the Söke brand, emphasizing direct consumer engagement.

In line with this vision, we’re progressing with our preparations to produce baked goods. As we continue to develop our products and recipes, we are on the verge of finalizing the location for our new facility. Once this decision is cemented, we will inform the public. Our aspiration is to see our bakery items, bearing the Söke label, gracing the shelves by 2024.

‘WE WILL FULFILL ALL OUR ENERGY REQUIREMENTS INDEPENDENTLY’

Ulusoy Flour is also undertaking Solar Power Plant (SPP) and Wind Power Plant (WPP) projects. What’s the current status of these initiatives?

When we went public with Söke Un, the use of the raised funds included investments in solar energy. We swiftly initiated our efforts in this domain, first submitting an application for an 8-megawatt solar power plant in Ilgın, Konya. Subsequently, we filed for an additional 3 megawatts, and we have received the invitation letter for an 11-megawatt SPP facility. This solar plant is expected to become operational before 2023 concludes. The projected energy output from this facility is in excess of 20 million kWh, which will fulfill 93% of the energy requirements of Söke Un’s plants in Ankara and Aydın.

As highlighted in our Public Disclosure Platform (PDP) statement dated January 31, 2023, the legal application processes for a 22,360 kWe wind power plant (WPP) under Ulusoy Flour are ongoing. Should we obtain the necessary permissions, our WPP project, slated for activation by the close of 2024, will be equipped to cater to the energy needs of all Ulusoy Flour facilities, including those in Samsun, Hatay, and Tekirdağ. Our ambition is to satisfy our entire energy demand via our in-house production units, aiming for full realization by the end of 2024.

‘WE ARE EYEING OVERSEAS ACQUISITION OPPORTUNITIES’

By 2029, marking the company’s 60th anniversary, you aspire to be Turkey’s leading agri-food enterprise. And by your centenary, you envision being among the global giants in the industry. How do you plan to navigate towards these milestones? Are you considering acquisitions or setting up operations abroad?

In the industry, we’ve significantly intensified our domestic presence over the past two years. By the end of 2023, based on our installed capacity and projected consumption figures, we expect to account for the largest share in the sector. We’re also actively scouting for opportunities internationally. As disclosed on PDP, Söke A.Ş. entered into discussions to purchase minority stakes in an industrial bread manufacturing company based in the USA. Just as we are in Turkey, we’ll be vigilant about acquisition opportunities abroad, as we aspire to broaden our growth from Turkey to the surrounding region.

You harbor grand aspirations and ideals for the future. Your determination is evident, and you put in a lot of effort. What drives your motivation at this juncture?

Indeed, at the heart of these growth ambitions lies a mission imparted to us by our founder, my late father Fahrettin Ulusoy. He consistently highlighted the significance of providing jobs and creating employment opportunities. Even when our business faced challenges, we never cut down on our staff. Instead, we continuously sought ways to expand our operations and collaborate with more people. Through providing employment, we grew alongside our employees. Today, our exports surpass 100 million dollars. There are almost 1000 employees across the companies within our group, which is a source of immense pride for us. My late father would often remind us during challenging times, “There’s no giving up, no quitting! You’re shouldering not just your own responsibility, but that of everyone here.”

Adding my personal perspective to this mission, I say: Since we’re on this journey, and we’re committed to our path, we should execute our tasks in the best and most efficient manner possible. We should seize opportunities presented to us and even create new ones. For instance, when reading an article or news in the Miller magazine, we should approach it with the mindset, “What can we deduce from this for our business? Can we implement the insights offered here?” Our industry isn’t a walk in the park. But if we can adopt this proactive mindset as a guiding principle in our operations, I’m confident it will yield positive results.