The import of wheat flour, which is one of the top products imported by Iraq, has been increasing every year. In 2015, the country imported USD 447 million of wheat flour, and this figure increased to 501 million dollars in 2016. When the internal conflict had reached its peak in 2017, the import of wheat has increased to USD 661 million increasing thirty-two percent. The country’s rice imports also reached USD 634 million in 2017. Flour, the prominent export product of Turkey to Iraq, has hegemony in cake/biscuit and pasta market. In 2017, Turkey realized USD 9 billion 56 million worth of export. After jewelry and bar gold, the wheat flour comes. In 2017, Iraq imported USD 661 million worth of wheat flour. Of this, the country imported USD 580 million from Turkey. Turkish companies face no competition in this market.

With a population of 39 million, Iraq is one of the world’s largest grain importers. On average, six million tons of wheat is consumed in Iraq annually. As the wheat cultivation area has been shrinking, Iraq is expected to increase its import of wheat, flour, and biscuit. Iraq’s expected import in grain in the period of 2019-20 will be around 4.5 million tons. Of this amount, 2.9 million tons will be flour while the rest will be rice.

After years of war and social unrest, Iraq has faced a series of challenges in all sectors of the economy. The main challenges are the deterioration of the social and economic infrastructure, the deterioration of the social fabric of the society, and the increase of dependence on oil revenues. Two-thirds of Iraq’s GDP and almost all of its imports and financial revenues are from oil. More than half of Iraq’s 39 million population is under twenty years old while the population growth rate is 2.6%.

It is not impossible for Iraq to become a middle-income country with 437,072 square meters. With a long history of trade, deep commercial traditions, and rich natural resources (the world’s second country with proven oil reserves), Iraq is at the crossroads of culture and trade and has great potential.

The Iraqi economy grew by more than 10 percent in 2016 thanks to the increase in oil prices and financial stability. Because Iraqi security forces gained success against resistance, the country’s overall economic situation has improved. With the help of US forces, Iraqi army recaptured Mosul from terrorist organization ISIS.

In order to have diversified productions that is the key from long term economic development of Iraq, it needs to have a strong investment atmosphere for the private sector. For this, there should be security and the rule of law. Iraq’s mostly state-run economy is dominated by the oil sector. Companies spend huge monies on security. Also, delayed payment of public tenders coupled with intricate and complex procedures put the private sector in a difficult position.

According to official figures, one of five Iraqis is a farmer. Agriculture is mostly done on the basis of small land and low investment-low gain system. The yield of agricultural products is low compared to other places. The majority of farmers (75 percent) earn income from cultivating agricultural products. The rest of the income is derived from animal breeding and facilities that grown animal and agricultural products together. The most cultivated products are wheat and barley. These are mostly planted in the north and central Iraq that has most rains. Towards the south, agriculture is dependent on water from the Tigris and Euphrates rivers.

The government’s agricultural policy is characterized by the control and subsidies of sector inputs (fertilizers, seeds, medicines, agricultural equipment, and machinery). The most important product, wheat, is strictly controlled, and lack of free market conditions affects wheat trade.

Agriculture in Iraq feels pressure deeply to feed the growing population. The Baghdad government pays USD 5 billion in order to close the gap for basic commodities annually. If the government fails to develop sustainable production in the country, it can pay even more in the coming years. On average, the country imports 2.6 million tons of wheat. The country pays USD 750 million for grain imports particularly wheat.

Iraqi farmers cultivate mostly grains - wheat and barley come top – and eight percent of the arable field is reserved for these products. Wheat is mostly planted in rainfall areas in the northern and central regions. Iraqi farmers are planting 3 million hectares of wheat and barley in the country.

Iraqi farmers mostly grow wheat in the homeland of this product. The arable land in Iraq corresponds to about fifteen percent of the country’s surface area, i.e. 8 million hectares. However, 4-5 million hectares are used for sowing. Of this area, 70-85 percent is reserved for grain.

Apart from water shortage, ISIS’ occupation of grain belt - Saladin, Nineveh, Kirkuk, and Anbar provinces – in 2014 hampered the grain production. As a result of unrest in these regions, Baghdad was deprived of a third of its annual wheat and barley production, i.e. one million tons of wheat each year.

WHEAT IMPORT TO INCREASE Machinery and irrigation system were damaged in the conflict area. Because of the low irrigation water, farmers were encouraged to dry rice production techniques. Because the seeds distributed by the government were not delivered to the farmers in time, many farmers had to use non-certified seeds, which resulted in low yields.

Iraq imported 4.1 million tons of wheat in 2017-18. While the country faces with ever-decreasing wheat production each year, it is estimated that this year’s production will decrease by 14 percent compared to the previous year and 20 percent compared to the five-year average.

Iraq had sown wheat on 4 million acres in the period of 2017-18. According to estimates by the US Department of Agriculture (USDA), the wheat harvest in the country will be around 4 million tons in the period of 2018-19. According to the USDA, the wheat storage of Iraq will increase from 880 thousand tons to 1.3 million tons at the beginning of the period. The Iraqi Ministry of Commerce supports wheat producers by paying about USD 487 per ton for 1-numbered-wheat. Even this price means a sharp decrease compared to previous years, and this may lead to a decrease of arable lands in the coming years. Low oil prices in recent years and ongoing conflicts in the country have negatively affected the government’s support for the agricultural sector.

In the coming 2018-19 period (July / June), the import requirement for grain is estimated to be around 4.4 million tons. Of this amount, 2.9 million tons will be flour while the rest will be rice. Although the agricultural import will be the same compared to the previous year, this will be twenty percent more on five-year-average.

IRAQ MAY HEAD FOR WHEAT INSTEAD OF FLOUR IN IMPORT Although the private sector is responsible for flour imports in Iraq, the government strictly controls wheat imports. The 50 percent increase in flour imports since 2014, According to the USDA’s figure, shows that local production has failed to meet the quality expectations of Iraqi bakers.

Iraqi officials have recently speculated that the government could import wheat from the Public Distribution System (PDS) where the basic foodstuffs are distributed at a reduced rate in order to provide this wheat to the private mills. Thus, the mills working one-third of their capacities will be utilized in a better way, and bran section of wheat is aimed to be sold for animal nutrition.

Iraq needs 4.5-5 million tons of wheat per year. This means that the government needs to import around 2 million tons every year. The Iraq Grain Office controls the grain import. The country imports mostly from US, Canada, and Australia. The Grain Office under the Commerce Ministry opens international tenders as a part of the food aid program. Within this program, packages having flour, cooking oil, rice, sugar, and baby foods are distributed in ratio to people.

Under the system, imported wheat is mixed with local wheat, and flour is obtained. Local and imported wheat is sent to millers by the state-owned wheat processing company according to the formula determined by Grain Office. As a result, most of the flour produced is distributed to the needy citizens under the PDS, the world’s largest food delivery system.

TURKISH HEGEMONY IN IRAQ MARKET Turkey’s advantage in the market of the neighboring country in need of foreign investment and import is as the following: “Geographical proximity is important in terms of cheap shipping. Turkey’s products are relatively cheap and of good quality. Because of the good image of Turkish companies and products, Iraqi people’s approach is positive. There is trust for Turkish contracts and cultural proximity. The presence of Vakıfbank, İş Bank, Al Baraka, and Ziraat Bank branches in Erbil and Baghdad facilitates trade. Turkish Airlines’ flights to major cities such as Baghdad, Erbil, Najaf, and Basra are an advantage for Turkish business people.”

Iraq is among the world’s largest grain importers. An average of six million tons of wheat is consumed annually in Iraq that has 39 million people. According to Iraq’s Ministry of Commerce data, it imports three million tons of flour, which corresponds to about half of its annual need. Turkey that has been the leader of flour export in the last six years realizes forty percent of this export to Iraq. Turkish flour dominates ninety percent of the Iraqi market.

The import of wheat flour, which is one of the products imported by Iraq, has been increasing every year. In 2015, the country imported USD 447 million of wheat flour, and this figure increased to 501 million dollars in 2016. When the internal conflict had reached its peak in 2017, the import of wheat has increased to USD 661 million by increasing thirty-two percent. The country’s rice imports also reached to USD 634 million in 2017.

Flour, the prominent export product of Turkey to Iraq, has hegemony in cake/biscuit and pasta market. In 2017, Turkey realized USD 9 billion 56 million worth of export. After jewelry and bar gold, the wheat flour comes. In 2017, Iraq imported USD 661 million worth of wheat flour. Of this, the country imported USD 580 million from Turkey. Turkish companies face no competition in this market.

In the import of food products, Iraqi customs put a lot of importance of “shelf life/expiry date.” It is highly likely that food products that are about to expire will be turned down by the Iraqi customs.

The country’s biscuit and cake imports continue to increase with each year. In 2015, while total imports in these categories amounted to USD 333 million, it reached USD 513 million in 2016 and USD 525 million in 2017. Turkey, which exported cakes and biscuits products to Iraq, outperformed their competitors. Turkish companies realized fifty-seven percent of USD 525 million worthies of import, i.e. USD 300 million, in 2017.

The recent trend of grain trade in Iraq has reversed the role of the Ministry of Trade and the private sector. Before 2014, wheat and rice imports were mainly carried out by the Ministry of Commerce to use in the PDS program. Since 2014, imports for PDS have decreased while the private sector increased its flour and rice imports.

The reduction of wheat imports by the Ministry of Commerce brought the private sector’s flour imports to record levels. The Iraqi government strictly controls wheat imports due to the high purchase price within the country but allows import of flour.

Again, while the Ministry of Commerce decreased its rice import, the import of private sector continues to increase. The private sector imports India-based Basmati rice, revealing that Iraqi consumers do not prefer long-grain price distributed by the Iraqi government for years. Iraq’s import of high-quality long-grain rice under the PDS program is crucial for those in need to consume this product.

DOUBLE TAXATION WITH IRAQ ABOLISHED; EXPORTS WILL INCREASE Mahsum Altınkaya, Chair of Cereal, Pulse, Oilseed and Their Products at Turkish Exporters Assembly said that double customs duty and double taxation that negatively affected export to Iraq have been abolished. “We expect a serious increase in export in 2019 with this step,” Altunkaya said. He said that this practice, which affected Turkey’s export to Iraq, turned into single customs – single tax practice after two-year-long work with the support of Turkish President Recep Tayyip Erdoğan and Iraqi Commerce Minister Ruhsar Pekcan.

Altunkaya underlined that Iraqi market is the most important export market for Southeast Anatolia and Turkey, adding that with the abolishment of double customs duty and double taxation, which resulted in the loss of market share of Turkey in this market, the export would be affected positively. “In recent years, double customs and taxation practices have dashed our competitiveness in the Iraqi market and negatively affected our exports. In 2018, exports to Iraq amounted to USD 1 billion 17 million 989 that meant a decrease of 13.4 percent compared to the previous year. The exports of our sector decreased to USD 1 billion 554 million 344 thousand that meant a ten percent decrease compared to the previous year. Two years of efforts to change the double customs and taxation duty practice implemented by the Iraqi government into the single customs and single tax system have yielded results. The double customs and taxation affected our export to Iraq negatively. With this practice, we expect a serious increase in our export in 2019,” he said.