İbrahim OĞUZ
Chairman of the Board
AgriFin Agricultural Finance Research Inc.

Wheat remains one of the most strategic commodities in human nutrition and food security. In today’s volatile environment, competition in wheat and flour milling is no longer shaped only by agronomic performance or industrial efficiency. It is also being reshaped by geopolitics, trade disruptions, logistics uncertainty, and macroeconomic instability.

Across many wheat-importing or input-import-dependent economies, persistent inflation, elevated interest rates, exchange-rate distortions or volatility, and weakened policy predictability are transmitting costs through the entire wheat value chain. What begins as a macroeconomic imbalance quickly becomes a production, storage, financing, processing, and competitiveness problem.

Türkiye offers a valuable case study of this transmission mechanism. The Turkish experience shows how structural fragilities in the wheat value chain—combined with high working capital costs and low capacity utilization in flour milling—can reduce competitiveness even in a country with a deep and sophisticated grain-processing industry.

Recent years have exposed Türkiye’s wheat and flour ecosystem to a combination of external and domestic shocks. Globally, trade tensions, the Covid-19 period, the Russia-Ukraine war, and logistics uncertainty intensified volatility in grain trade and supply chains. Domestically, macroeconomic imbalances, inflationary pressure, exchange-rate uncertainty, and high financing costs created an additional layer of stress.

This article analyzes the wheat value chain in Türkiye during the 2025-2026 production cycle, with a focus on the main breakpoints in cost transmission and competitiveness. It also proposes policy and operational measures that are relevant not only for Türkiye, but for many countries facing similar macroeconomic and sectoral pressures.

THREE DRIVERS OF CHRONIC VALUE CHAIN DISRUPTION

A value chain begins with the procurement of agricultural inputs and extends through production, harvest, storage, processing, grading, packaging, logistics, marketing, wholesale and retail sales, all the way to the end consumer. The quickest way to identify whether a value chain is functioning poorly is this: if, in a globalized world, your product prices and costs are diverging negatively from world markets—meaning your costs remain above global averages while your prices stay at levels that cannot compete with world prices for a prolonged period—then your value chain is operating in an unhealthy manner.

When examining the causes of chronic disruption in the value chain, three main categories stand out. The most important of these is structural problems. Weak economies of scale, excessive value chain length, lack of organization, and low capacity utilization rates are among the principal drivers of structural inefficiency. Another major cause is the prolonged deterioration of macroeconomic balances. High inflation and interest rates, along with a suppressed exchange rate or exchange-rate uncertainty, are key components of this problem.

On the other hand, one of the core factors that chronically distorts the value chain is supply-demand imbalance and the resulting inability to accurately forecast export and import volumes. This is also more commonly observed in countries where informality and manipulative interventions occur frequently. 

THE FIRST BREAKPOINT IN THE WHEAT VALUE CHAIN

The wheat value chain begins with input supply. As can be seen from Table 1, in Türkiye, an average yield of 276 kg of wheat per decare requires a total expenditure of TRY 1,665 on inputs such as diesel, seed, fertilizer, and pesticides. On a per-ton basis, the input expenditure for wheat production in Türkiye is approximately TRY 6,000. When this amount is converted using the average exchange rate for 2025, it is estimated that around USD 137 is spent on inputs to produce 1 ton of wheat.

Excluding seed, Türkiye is import-dependent in diesel, chemical fertilizers, pesticides, and many other inputs; as a result, approximately USD 92 per ton of wheat production is effectively transferred abroad. By comparison, in countries with limited external dependence in diesel, seed, and chemical nitrogen fertilizers, this amount remains significantly lower. The best example is Russia. In wheat production, Russia has no external dependency except for phosphate raw materials.

TURKISH FARMERS’ COSTS VS GLOBAL WHEAT PRICES

As shown in Table 2, for a producer to achieve an average wheat yield of 276 kg per decare, they must procure and use TRY 1,665 worth of inputs; when other cost items are added, total expenditure reaches TRY 2,818. When this total cost is divided by total output, it is seen that in 2025 the Turkish farmer was able to produce wheat at an average cost of TRY 10.2/kg. When converted at the year’s average exchange rate, this corresponds to an estimated production cost of approximately USD 250 per ton.

Considering that global wheat prices traded in the USD 225-250/ton range in 2025, it is clear that Turkish farmers’ production costs were at levels comparable to world wheat prices. Under these conditions, TMO (Turkish Grain Board) had to regulate prices and purchase wheat from producers at TRY 13,000 per ton (approximately USD 330) in order to prevent farmer losses.

TABLE 3: 2025 TMO WHEAT STORAGE COST AND SALES VALUES

According to Table 3, TMO purchases wheat from farmers at TRY 13,000 per ton and, after an average storage period of about six months, offers it for sale at TRY 14,000 per ton. However, when stockholding costs and working capital financing are taken into account, TMO’s cost rises to TRY 16,235 per ton.

The main factor affecting this cost appears to be working capital interest expenses driven by high interest rates. It is evident that the deterioration in macroeconomic indicators—particularly persistently high interest rates directly feeds into the cost of regulation. If TMO were not performing its market-regulating function, bread prices would likely be at least 15% higher today, and lower-income groups would face greater difficulty accessing bread.

INVENTORY CARRYING COSTS: THE DECISIVE FACTOR IN FLOUR MILLING

As shown in Table 4, wheat sold to mills at TRY 14,000 per ton through TMO’s subsidy mechanism is processed into products such as flour, bran, and wheat germ. When January 2026 operating costs and sales values are calculated, mills are seen to be facing a loss of approximately TRY 443 per ton.

Although flour selling prices vary by region and operating costs vary from mill to mill, increasing competitive pressure continues to suppress flour prices. While energy, labor, and logistics costs are important in flour mills, the most decisive factor appears to be raw material inventory carrying cost.

In previous periods, some mills held wheat stocks sufficient for annual processing requirements. However, due to high interest rates, many businesses have little choice but to shorten their stockholding period. Our calculations show that when stock duration can be reduced to as little as one month, flour mills can return to profitability.

Across this wheat value chain assessment, four main fragility points emerge:

•  Import dependency in input procurement
•  Low-efficiency and small-scale wheat production
•  Working capital costs driven by high interest rates
•  Low capacity utilization in milling plants

THE OPERATIONAL ROADMAP FOR MILLING SUSTAINABILITY

The most important step to address import dependency in input procurement is to improve competitive conditions and, in particular, increase subsidies and support mechanisms for input supply. Expanding economies of scale for producers is a long-term and complex issue. However, it should be emphasized that there is still considerable room for improvement in raising average productivity levels in Türkiye.

In this context, the most important priorities include improving plant nutrition practices during production, developing drought-tolerant varieties, preventing soil compaction, improving soil conditions (especially organic matter levels), using irrigation water resources efficiently and effectively, and increasing farmer awareness to ensure these measures can be implemented. With these relatively simple practices, increasing wheat yields by at least 40% would improve both macroeconomic and microeconomic indicators and reduce external dependency.

On the other hand, for the sustainability of the milling sector, reducing stockholding periods and narrowing the sales hinterland in the short term would help lower logistics costs. In the medium and long term, increasing capacity utilization and implementing support measures to improve energy and resource efficiency in mills would strengthen the milling industry.