The Turkish Mercantile Exchange (TMEX) is leading the transformation of Turkey's agricultural sector, marked by a remarkable threefold increase in licensed warehouse capacity over five years and the upcoming launch of a futures market by 2025. In this exclusive interview, Ali Kırali, CEO of TMEX, reveals strategic initiatives aimed at ensuring food supply security, enhancing market transparency, and establishing Turkey as a global leader in agricultural innovation.

Ali Kırali
CEO of the Turkish Mercantile Exchange (TMEX)

Ali Kırali, CEO of the Turkish Mercantile Exchange (TMEX), reflects on the organization’s significant progress and future ambitions in an exclusive interview for Miller Magazine’s September issue. As TMEX celebrates its 5th anniversary, Kırali discusses how the exchange has become a cornerstone of Turkey’s agricultural sector and grain markets, with its licensed warehouse storage capacity increasing from 4 million tons to nearly 12 million tons and its product range expanding.

Kırali underscores the crucial role of licensed warehousing in ensuring food supply security. “Our licensed warehouses are crucial for ensuring food supply security and addressing the gap between harvest and consumption,” he states. He also notes a dramatic eightfold increase in the number of registered investors in TMEX’s Electronic Warehouse Receipt (EWR) Market, reflecting growing trust and engagement with TMEX’s platform.

Looking ahead, Kırali highlights the upcoming introduction of the Commodity Market Intermediary Institutions (CMII) system, which is set to enhance market efficiency. “The CMIIs will bring user-friendly interfaces, broaden access, and enhance market efficiency,” Kırali explains. This new system is anticipated to significantly boost trading volume and market liquidity.

Additionally, TMEX’s commitment to innovation is evident through projects like the AI-Supported Market Surveillance Project and the forthcoming launch of a futures market for agricultural products by 2025. “Our goal is to provide farmers with a more predictable financial environment and to enhance market efficiency,” Kırali adds.

With a focus on technological advancements and expanding regional collaborations, TMEX is set to further its impact on Turkey’s agricultural markets and beyond. Kırali emphasizes, “Every step we take is aimed at supporting the stable growth of the agricultural sector and contributing to our national economy.”

Mr. Kırali, could you please give us a brief overview of the core functions of the Turkish Mercantile Exchange (TMEX)?

TMEX was established on June 8, 2018, under Article 53 of Law No. 5174 on the Union of Chambers and Commodity Exchanges of Turkey. Its mission is to support the stable growth of the agricultural sector and economy by bringing agricultural stakeholders together on a centralized platform to ensure transactions at healthy, appropriate, and realistic prices. Within this scope, TMEX launched the Electronic Warehouse Receipt (EWR) Market on July 26, 2019.

Our exchange operates within the framework of Law No. 5300 on Licensed Warehousing of Agricultural Products and related regulations, facilitating the trade of EWRs and futures contracts based on these receipts issued by licensed warehouse operators.

This activity provides a transparent environment where agricultural producers and consumers meet in a centralized platform, and the prices formed by buyers and sellers are published, ensuring that information is simultaneously conveyed to all stakeholders.

A FIVE-YEAR SUCCESS STORY

TMEX is celebrating its 5th anniversary this year. Could you highlight the key achievements and successes TMEX has experienced over this period?

The backbone of the mercantile exchange ecosystem is our farmers and the licensed warehouses where their products are stored. In its fifth year of operation, the storage capacity of licensed warehouses increased approximately threefold to nearly 12 million tons. The number of licensed warehouse operators has risen to 219, providing services in 297 different locations across 48 provinces and 145 districts. In the medium term, it is expected that the storage capacity will increase to 16 million tons, enabling the safe and healthy storage of approximately 40% of the country’s grain harvest, which ranges between 36-41 million tons.

In the fifth year of operation, the number of registered investors in the EWR Market increased eightfold, with 236,000 investors registered to trade on TMEX. Registrations were carried out through our agents via Commodity Exchanges. Among the investors, 3% are legal entities, and 97% are primarily farmers. During the period when the commodity market intermediary institutions (CMII) are still not operational, buyers and sellers send orders directly to TMEX. We expect a significant increase in the number of investors once the CMIIs become operational.

TMEX’s total trading volume reached 227 billion TRY, with a trading amount exceeding 45,2 million tons and over 1,2 million transactions. Transactions were conducted in all EWR representing 17 products, including wheat, corn, barley, and sunflower seeds, which are open for trading on TMEX. The product range of licensed warehousing has expanded to 19 products with the recent additions of canola and white cheese, from which we expect the first EWR issuances.

To address the industry’s need for agricultural commodity market indicators, TMEX started publishing the TMEX Agricultural Commodity Indices in 2021, which is a significant achievement for the sector. These indices serve as market indicators and provide a basis for securities issued in the agricultural market. Through these indices, innovative financial products have been introduced in the financial sector, such as Turkey’s first TMEX Wheat-Indexed Lease Certificate (Sukuk) and Asset-Backed Securities (ABS). The system and method for determining our indices were patented by Turkish Patent Institution on January 21, 2022.

Since its establishment, our exchange has been approved as an R&D Center by the Ministry of Industry and Technology of the Republic of Turkey in less than 1,5 years. Our R&D Center, which was approved on March 23, 2021, has implemented projects that have significantly contributed to the agricultural ecosystem both before and after the approval, and we have crowned these achievements with awards. For example, we won first place in the “Future of the Industrial Ecosystem” category at IDC DX 2021 with the TMEX Agricultural Commodity Indices, which is the “Pulse of Agriculture and the Compass of Farmers and Investors”. In addition, we won third place in the “Digital Transformation” category at IDC DX 2020 with the Contract Farming FINTECH Solution, and third place in the “IT Cost Efficiency” category at the IDC CIO Summit 2020 with the TMEX EWR Trading Platform.

Since 2021, within the scope of offering digital transformation and fintech solutions to the agricultural ecosystem, our focus at the TMEX R&D Center has been on transitioning the EWR Market to an intermediary system and developing the infrastructure for a futures market through the TMEX Technological Transformation Project “TMEX-TP.” We have also been working on the AI-Supported Market Surveillance Project, and on data business to enhance market transparency and meet the demand for data through the development of new indicators and the dissemination of market data via data vending companies.

With the technological infrastructure we acquired through the TMEX-TP Project, we have rapidly developed the tawarruq market by conducting the commodity trading leg of the short-term funding needs for participation finance on EWR. In August 2022, we completed the technical work and aimed to launch this market upon completion of the regulatory requirements in financial matters with the Revenue Administration of the Ministry of Finance and Treasury.

Given our technology-intensive services, we are in the final stages of obtaining the ISO 27001 Information Security Management System and ISO 20000-1 Information Technology Service Management System certifications to optimize our information security and IT service management processes, close security gaps, and enhance our competitive strength. As an R&D Center, we prioritize obtaining these certifications. We conducted a gap analysis, reviewed our policies and procedures, and completed internal audits and staff training in this regard. We aim to apply for these certifications within this year.

LICENSED WAREHOUSES: THE CORNERSTONE OF FOOD SUPPLY SECURITY IN TURKEY

Can you assess the role of licensed warehousing in Turkey’s agricultural ecosystem and the importance of increased capacity?

Turkey is a country with high agricultural potential. However, production is carried out under challenging conditions due to changing precipitation patterns caused by climate change and geopolitical risks in the region. Specifically, regarding grains, barley and wheat are harvested in May-July, and corn is harvested in August-December with second plantings. Since agricultural commodities are harvested in a certain period but consumed throughout the year, it is essential to store them under healthy conditions, minimizing waste and loss. In this context, we view licensed warehouses equipped with modern technology, where products subject to EWR are stored, as a safeguard and insurance for food supply security.

In recent years, with the acceleration of investments by the private sector, the storage capacity of licensed warehouses has increased from 4 million tons in 2019 to 12 million tons in 2024. Based on the applications submitted to the Ministry of Trade, it is targeted to reach a storage capacity of 16 million tons in the medium term and 20-25 million tons in the long term. As of August 2024, 219 licensed warehouses provide services in 297 different locations, covering products equivalent to 30% of Turkey’s grain harvest. This extensive service network significantly contributes to ensuring food supply security and the healthy storage of products.

The increase in licensed warehouse capacity has made it more crucial than ever for our farmers to use this system and transparently market their products through EWR. Products that have been digitized with EWR are traded in a transparent market under supervision and surveillance, allowing farmers to use their EWR as collateral and access financing more easily. This situation makes significant contributions to the agricultural sector and food supply security.

Licensed warehouses provide the necessary infrastructure not only for the continuity of agricultural markets but also for food safety. Licensed warehouses are important because they ensure the healthy storage of products and mitigate potential supply gaps due to the time difference between harvest and consumption periods. Particularly, the production instabilities caused by global warming and climate change can be overcome thanks to licensed warehouses.

A NEW ERA FOR TURKEY’S GRAIN TRADING

Last month, you announced that the Commodity Market Intermediary Institutions (CMII) system would be operational before the end of the year. Can you provide information about the implementation of the CMII system and its expected impact on Turkey’s grain markets?

In exchanges, an intermediary structure means that investors trade not directly with the exchange but through intermediary institutions. In this system, intermediary institutions submit buy and sell orders to the exchange on behalf of investors and execute the trades. Intermediaries play an important role in ensuring the effective and efficient operation of the exchange, expanding the investor base, increasing market liquidity, and generally contributing to market security.

Until CMIIs become operational, investors in our exchange directly send their orders to the EWR Market to execute their transactions. The integration of an intermediary system into the EWR Market through CMIIs will introduce innovations in the trading of agricultural products. Some of these innovations include:

• User-Friendly Order Transmission Interfaces and Mobile Applications: CMIIs will provide user-friendly order transmission interfaces and mobile applications to facilitate transactions for investors and farmers, allowing trades to be conducted more quickly and efficiently.
  
• Broad Access: CMIIs will offer wider access to a broader group of farmers and investors through widespread agencies across the country, thus increasing the depth and trading volume of the agricultural market.
• Information on EWR Conversion Process: Effective field information campaigns about the process of converting products to EWR will enable farmers to participate in these processes more consciously and market their products more efficiently.
• Coordination and Bridge Function: Acting as a bridge between TMEX, licensed warehouse operators, and investors, CMIIs will provide coordination between transactions, contributing to a more orderly and secure operation of the system.
• Rapid Operational Improvements: CMIIs, which directly interact with investors, will quickly evaluate feedback from the field and allow the rapid implementation of necessary operational improvements.
• Financial Awareness and Consulting: CMIIs will provide financial awareness and consulting services as needed to farmers, supporting them in accessing financial resources, encouraging production, and enhancing financial strength.
• Risk Management Efficiency: As the number of clients and transaction volume increase, CMIIs will conduct more effective risk management in line with the principles of knowing the customer, supporting transaction security and market stability.
• Ease of Access through Digitalization: Processes that will be digitalized will make information and documents more easily accessible, accelerating transaction processes and making it easier for investors and farmers to conduct their business.

In conclusion, with the activation of CMIIs, the integration of an intermediary structure into the EWR Market will bring significant innovations to agricultural product trading and enhance the efficiency of our exchange. As a result, the depth, trading volume, and overall efficiency of agricultural markets will increase, while the quality and accessibility of services provided by our exchange will also improve significantly. The development of the intermediary structure will also encourage the growth of the futures market based on agricultural commodities, contribute to the diversification of agricultural markets, offer new investment opportunities to investors, and provide risk management capabilities through forward price formation.

What kinds of support and incentives are available for farmers and investors involved in EWR transactions and licensed warehouse investments? Are there any efforts to increase these supports?

The income derived from the sale of agricultural products stored in licensed warehouses is exempt from income tax (including income from agricultural activities) and corporate tax until the end of 2028. Additionally, these transactions are exempt from stamp duty and VAT.

Ziraat Bank and Agricultural Credit Cooperatives offer farmers registered in the farmer registration system of the Ministry of Agriculture and Forestry, interest-free loans with a maximum term of 9 months for up to 75% of the value of their EWR.

Until 2024, farmers were provided with fixed TL amounts of support per product type, including licensed warehouse storage fee support, fixed TL support per ton for analysis upon delivery to licensed warehouses, and transportation support for delivering products to licensed warehouses. In August 2024, a new support model prepared within the scope of agricultural production planning was announced in the Presidential Decisions published in the Official Gazette. This model includes positive steps aimed at implementing structural transformation policies in the agricultural ecosystem with a holistic approach. The supports have been set for a three-year period and have been streamlined into a simple and effective structure.

For 2024, it was announced that rental fee support would be provided at 60% of the Storage Fee Tariff approved by the Ministry of Trade for licensed warehouse operators. Thus, the amount of support per ton for rental support increased approximately 4 to 5.5 times, depending on the product. The Ministry of Agriculture and Forestry announced that this support would increase to 75% for the 2025-2027 period.

For 2024, it was decided to provide support at 50% of the Analysis Tariff approved by the Ministry of Trade for authorized classifiers, resulting in an increase of approximately 1.7 to 3.3 times in analysis support amounts. Similarly, the transportation support provided to farmers for delivering their products to licensed warehouses was increased by 3 to 4 times.

These decisions are significant improvement steps taken by the Ministry of Agriculture and Forestry to strengthen farmers’ access to financing and food supply security. As a result, the supports provided for products that farmers deliver to licensed warehouses and convert into Electronic Warehouse Receipts (EWR) have been substantially increased. Interest rate-discounted business loans for licensed warehouses also continue to be available.

STRENGTHENING TECHNOLOGICAL INDEPENDENCE

You mentioned that the EWR market software was developed using local resources. Can you discuss its significance for Turkey’s technology sector and TMEX?

Our exchange has focused entirely on using local resources in software projects aimed at enhancing the current spot market with new technologies, transitioning to an intermediary system, and eventually launching futures and teverruk markets.

Software and licenses sourced externally result in additional costs during updates and improvements, increasing dependency on external sources. In contrast, the software we develop using our resources eliminates these constraints, offering greater flexibility and cost advantages. Moreover, owning the software provides opportunities for marketing potential and creating local know-how.

Working with local resources is crucial for the development of a culture of R&D and innovation. Turkey’s technology sector gains the opportunity to create and enhance its own technical knowledge base through projects developed with local resources. Local solutions contribute to our technology ecosystem by enhancing the skills of our software developers and reducing external dependency.

At TMEX, we are committed to developing unique solutions rather than acquiring existing technology from abroad, in recognition of our role as an R&D center. This approach not only reduces software development costs but also contributes to the growth of R&D and innovation capacity within our country.

Developing software with local resources significantly contributes not only to our technology sector and TMEX but also to our country’s technological independence and innovation strength. This strategy represents a vital step toward strengthening local technology in global competition and accelerating Turkey’s digital transformation process in the long term.

TMEX PREPARES TO LAUNCH FUTURES MARKET

TMEX plans to establish a futures market for agricultural products by 2025. What steps are you taking to ensure the success of this process? What are the main objectives of this initiative?

One of the main goals and activities of our exchange is to bring a futures market into the agricultural ecosystem. Additionally, in the 12th Development Plan (2024-2028), TMEX has been tasked with “enhancing its role in risk management in commodity markets by developing product and service diversity.” In the next phase of TMEX’s Technological Transformation Project (TMEX-TP), we will develop the infrastructure for the futures market.

Among the collaborations and projects with our stakeholders aimed at enhancing product and service diversity, our priority in 2025 will be to launch this market. This market, which will enable forward price formation, will be a significant step toward a more predictable agricultural market.

With the goal of providing solutions that meet market needs, we plan to hold workshops with stakeholders and seek academic consultation to jointly determine the underlying assets and contract elements that suit the sector’s needs, thereby increasing market efficiency and offering tailored solutions for various sector requirements. We plan to use EWR representing wheat, corn, and barley as underlying assets.

We will conduct educational and informational activities in the second half of 2025 to introduce the risk management opportunities that the futures market offers for agricultural commodities and to inform sector players on this subject.

Our main objective in launching a futures market for agricultural products is to help manage risks against price fluctuations and provide farmers with a more predictable financial environment. The Futures Market will make the buying and selling of agricultural commodities more liquid and increase market depth, allowing investors to trade more effectively. By enabling forward price formation, it will contribute to determining future prices of agricultural products, thus supporting a more predictable and stable market. Our aim is to increase overall efficiency in the sector by providing sustainable and long-term solutions to establish a sustainable ecosystem in agricultural markets.

These steps and objectives will make significant contributions to the successful establishment of the agricultural products futures market and the strengthening of the agricultural ecosystem.

TMEX’S STRATEGIC ROADMAP

What will TMEX’s long-term goals and strategic priorities be for the development of Turkey’s agricultural markets following the establishment of the futures market?

Based on the successes achieved so far and future goals, TMEX will undertake significant work in the development of products and services, the creation of new indicators, and the integration of ecosystem stakeholders.

We aim to commercialize TMEX-TP spot and derivatives solutions and our AI-supported surveillance products and develop the dissemination of TMEX market data as a major area of activity. We plan to expand EWRs to cover other product categories beyond agricultural products and develop strategies to promote licensed warehousing and the EWR market infrastructure to other regional markets. In this context, our collaborations with the product specialization exchanges of the Czech Republic and Pakistan are ongoing. We signed a Memorandum of Understanding with the Mongolian Commodity Exchange on November 21, 2022, and a Cooperation Agreement with the Czech-Moravian Commodity Exchange (CMKB) on May 21, 2024. A Memorandum of Understanding is expected to be signed with the Pakisatan mercantile exchange - PMEX delegation in September. These collaborations form the foundation of our goal to extend our products and services across borders.

The AI-supported market surveillance and monitoring infrastructure of the markets we operate establishes security and ensures accurate price formation. We aim to contribute to market transparency by analyzing data with AI-supported tools.

The activation of the Tawarruq Market is another key priority. Both the Presidential Development Plan and the Participation Finance Strategy Document assign us a role in this regard. This market will address the need for an organized market to provide short-term funds suitable for participation finance for participation banks. Currently, tawarruq transactions are conducted by participation banks in foreign markets; however, with the launch of the TMEX Tawarruq Market, these transactions will be brought domestically. As market efficiency increases, our country will become competitive in the Tawarruq Market and establish itself as an international center.

Our efforts to develop new indices reflecting important indicators in the agricultural sector are ongoing. These indices will be designed to better reflect production, consumption, and price dynamics. Additionally, we continue to organize regular training programs and seminars for farmers, investors, and other stakeholders to introduce market mechanisms and new technologies.

Finally, are there any other points you would like to add?

In licensed warehouses, 19 agricultural products are currently being stored, with canola and white cheese being the most recent additions, although EWR issuances for these products have not yet been carried out. It is important to promote the use of licensed warehousing for strategically and economically significant products such as hazelnuts and cotton, facilitate their trade through our Exchange, and launch futures contract trading for these products. Additionally, while there are applications for licensed warehousing for olive oil, they have not yet been implemented. We believe these products can make significant contributions to the industry and that there are areas for improvement in licensed warehousing. We aim to identify possible actions in collaboration with stakeholders and take the necessary steps.

The majority of our trading volume occurs in wheat, corn, barley, and sunflower. Organizing and transparent trading of other products on the EWR Market and creating an effective international electronic platform for agricultural producers and consumers to trade at healthy, appropriate, and realistic prices will support our mission to contribute to the stable growth of the agricultural sector and our national economy.

In this context, we want to emphasize the importance of every step taken to advance the development of this strategically significant sector for our country.