“At Doruk Un, we are planning a 1.1-billion investment in agriculture and seeds, noodle and pasta, energy, feed and feed raw materials, especially in retail, in the 5-year projection. With this investment move, we aim to grow by over 200% in flour and bakery products, and over 400% together with other investment and business lines.”

Doruk Un, one of the leading wheat flour producers and exporters of Turkey, which dominates the world flour trade, is shooting for the sky. The company, which plans to realize projects in the fields of noodle and pasta, solar energy facility, agriculture and seed growing, feed and feed ingredients, especially in retail, will make an investment of 1.1 billion liras in the 5-year projection. The company is considering to give the lion’s share of its investment to noodles and pasta with 425 million liras and planning an investment of 275 million liras for energy. The biggest turnover target that the company expects from these investments is 4 billion liras from noodles and 700 million liras from pasta production. 

We had the chance to have a talk with Gürsel Erbap, Chairman and CEO of Doruk Un, one of the veteran figures of the industry with a 32-year experience in all areas of the industry, at the company’s production facility in Tekirdağ. We talked with Mr. Erbap about his new investments, the dangers awaiting the Turkish flour industrialist, the world grain markets, the Black Sea Grain Corridor Deal, Turkey’s flour export policies, and wheat production.

The answers given by Gürsel Erbap to our questions are as follows: 

Mr. Gürsel, first of all, could you briefly introduce yourself to us? Can we listen to your company’s incorporation story and its journey to success?

Thank you so much for giving me this opportunity. I was born in 1965 Tutak, Ağrı. I graduated from university in 1988 as an agricultural engineer. I finished all schools, including primary, secondary, high school and university ranking first. I entered the industry in 1989. I started at the lowest level. I started my business life by working in laboratories in flour factories. After getting to know the industry closely in a few years, I decided to stay in the industry and studied milling engineering abroad. So far, I have attended many seminars related to the sector. I have worked in many institutions and organizations related to the sector. Turkish Flour Industrialists’ Federation (TUSAF), Turkish Grain Board, Association of Marmara Region Flour Industrialists’, and Turkish Exporters’ Assembly are among the non-governmental organizations I have worked with in the sector. I have been working in the sector for 32 years. 

Although I am this experienced in the industry, the establishment of Doruk Un took place in 2015. Since 2015, together with our teammates, we proceed on our way collecting our experiences in the company.

As Doruk Un, we rank among the top three brands in Turkey in the field of wheat and wheat-based products. We have an annual wheat crushing capacity of 438 thousand tons and a flour production of 350 thousand tons. Moreover, we have a wheat storage capacity of 60 thousand tons and a 20 thousand m2 hi-tech facility. In 2021, we achieved a turnover of 1.8 billion TRY. We aim to increase our turnover to 7.25 billion TRY in 5 years through new investments. 

Due to the rapid increase in exchange rates and the shrinking trade network due to the pandemic, the flour industry, which is one of the main staple food, has gone through the hoop. Despite this, we have left behind a successful period and a fruitful harvest. The flour sector, which has a strategic importance in the whole world economy, had a challenging time due to exchange rate increases, climatic effects, pandemic and economic uncertainties brought by the pandemic. Serious global price imbalances have occurred and continue to occur. In 2021, we, as Doruk Un, achieved our goals despite all these poor conditions. Our short-term goal is to deepen our strength in the sector by making production and logistics investments that will support our supply chain. Besides, we are implementing our plans to manage flour requirements in different categories in line with the correct market, product and demand. 

You have a rapidly growing success. Although it does not have a very long history, you have made the lists of ISO 500 and TİM’s (Turkish Exporters Assembly) Top 1000 Exporters. What is the secret lying behind this success?

Although we are a company established in 2015, all of us, including the employees and the team, have worked with the know-how, customer portfolio and potential of the companies we have worked with in the past. So it’s not like starting over a new company from scratch. As I said, we have come to this point with our 30 years of history, business, know-how and customer experience in the places we had worked. 

WHEAT HARVEST EXCEEDED 19 M TONS

Last year, we had a subpar harvest season due to the drought. We have come to the end of this year’s harvest. Can you share with us your harvest estimates and the latest information you have received from the field? 

Last year was a bad season, as you expressed. There are different figures. But according to TurkSTAT’s figures, there is an increase of 10-15 percent across Turkey between last year and this year. This means that we have a wheat yield of around 19 million tons this year. According to us, the wheat production was around 16-17 million tons last year. The amount of precipitation and climatic conditions of our country, especially last winter, allowed us to have a productive harvest period.

In fact, Turkey is a self-sufficient country in wheat. There will be a significant increase in wheat production if the accurate agricultural policies are executed in Turkey and if TMO continues its agricultural supports, especially as it was this year. Turkey can increase its production by 60% by combining and consolidating agricultural lands, bringing uncultivated lands into agriculture, making productivity investments and integrating technology. So to speak, it is possible to create a value-added economy by achieving full export potential without importing. While 19.8 million tons of wheat production is estimated in Turkey in 2022, this figure is expected to exceed 22 million tons in 2025. 

The Marmara Region and Thrace lands are crucial for Turkey’s wheat harvest. In the 2022 wheat harvest, approximately 3.12 million tons of the 19.8 thousand tons of Turkish wheat harvest was yielded from the Marmara Region. Marmara Region, which is one of the important locations for wheat in terms of cultivation area size and yield, and especially Tekirdağ, provides us with a logistical advantage with its proximity to the ports. Following Central Anatolia, the Marmara Region is attracting the attention as the second largest region meeting the wheat harvest in Turkey.

There are concerns about a global food crisis due to the effects of climate change, drought and pandemic, and finally the war between Russia and Ukraine, two leading grain producers. The International Grain Council says that wheat stocks are at the lowest level of the last 5 years. Due to the war, there is a shortage of supply from the Black Sea. Do you agree with the concerns about a food crisis? Is there such a danger, particularly in Turkey? 

In fact, the world’s wheat or grain-related food crisis started two or three years ago. With the pandemic, we witnessed a waste of time in agriculture in many areas. In some places, the plantings could not be done. There were no laborers to farm. Therefore, the low market prices of 4-5 years ago also affected the wheat crisis, which came to light along with the pandemic. If you look carefully, global wheat prices were around 200-250 dollars 4-5 years ago. This actually had caused farmers to be unable to do this job anymore, not only in Turkey but all over the world. 

Last year, to crown it all, a drought broke out. I think this is the biggest problem. You know, the farmer is planting in the amount of soil for each year. The seeds, pesticides and fertilizers used per decare are the same. The tractor, diesel and labor he uses for this are the same. Yield per decare is crucial for the farmer. If the yield is good that year, you survive; if it is bad, you don’t. Last year, due to climatic conditions and drought, the yield hit rock bottom. 

One of the most important reasons that led to the global decrease in wheat stocks last season was the use of quality wheat as animal feed in some parts of the world, including Turkey, due to the shortage of corn and barley. This was the second major factor causing distress in the world. 

The third major factor causing problem worldwide, and I think one of the most important, is the aggressive stocking. Countries have tried to increase their stocks at any cost due to the pandemic, war, drought and geopolitical crises. There was such a crazy stock of wheat that we do not even know the amount of stocks of some countries. This is really important. In other words, when the harvest period comes, generally everyone leaves the stock and enters the new harvest. Because everyone knows that the new harvest will yield more affordable products. However, this wasn’t the case this year. It’s about the supply-demand balance in the world. When yields are low, when supply is constrained, prices rise immediately. High prices cause farmers to enlarge their planting areas. 

Long story short, there is a risk of a food crisis, but I don’t think there will be a famine. Harvesting takes place at different times in two hemispheres. In addition, due to the Russia-Ukraine war, Russia could not enter the market that much. It has big grain stocks. Russia’s yield this year is also very good. Thus, there is risk in the near future, but I do not expect a famine.

How long do you anticipate this panic situation, especially due to the stockpiling of some countries in the world, will last?

If you pay close attention, this state of panic has seriously decreased. With the pandemic, wheat prices increased to 450-480 dollars/ton in the world markets. Towards the end of the pandemic, at the beginning of 2022, these figures were around 300-320 dollars in the world wheat markets. However, with the Russia-Ukraine war that broke out later, it rose again to 450-460 dollars. With the grain corridor deal and the new harvest, it started to come back to the $300-350 band today. I think it is going to stay around this level. I don’t think it is coming any lower. This is because there are still crises in the world and the pandemic is not over yet. There is a fear of war.

Do you foresee the possibility of wheat prices falling below $300? 

Wheat prices’ falling below 300 dollars is also dangerous because if it goes down further, the farmers may refrain from wheat production. In the past, we have seen examples of this both in our country and in the world. In particular, the prices should not fall under a certain level which may discourage the farmer from production. Sometimes low prices can lead to a decrease in the production of the following years.

I want to talk about flour export. You are exporting 60 percent of your production. So, you are following the world flour trade very closely. Turkey has been the world flour export champion for the last 8 years. But about half of this export goes only to Iraq. However, Iraq has focused on wheat imports and a policy of milling the wheat in its country instead of flour imports. Do you foresee a danger for the Turkish flour industrialist, such as the shrinkage of the export market? What should the Turkish market do to maintain its position in the market?

This risk you are pointing out is something that all our colleagues in the industry should think about. A very good question. Total flour export in the world is 10 million tons. This corresponds to 13-14 million tons of wheat. Turkey meets a large proportion of this with 30-35%. Other countries such as Iraq, which imports flour from Turkey, want to both create employment and produce the product in their own country by buying wheat instead of the final product. In other words, when you import flour, you buy the flour and sell it at the groceries. But when you import wheat, you run factories and create employment. You develop livestock industry with the bran of the by-products. For this reason, this is a serious risk in the near future. 

When you think about the established capacity of Turkey in the flour sector, there are currently about 500 flour factories. Turkey’s total capacity is equivalent to milling 25-30 million tons of wheat. In other words, even if Turkey supplies 10 million tons of flour, which is the total amount traded all over the world, there is still a serious excess of capacity. There is a serious surplus capacity in Turkey. Especially the factories in the Southeast meet the exports to Iraq almost alone. The flour factories in that region have enough capacity for almost all of Turkey’s exports. There is a large wheat milling capacity especially in Mardin. This is a very serious risk. 

If you pay attention to the investment projects that we, as Doruk Un, take for the coming periods, you will understand that we see these risks. Because I think that there will be shrinkage in the flour market in the future, we will use the flour we produce as noodles and pasta in our own factory. In addition, I can say that we took a precautionary measure by entering the retail sector with our Panpan brand in order to make our flour more value-added. 

PANPAN WILL BE OUR STRENGTH IN RETAIL

When will we see Panpan on the shelves and in which categories?

We developed products for domestic consumption with our retail brand Panpan. We will take our place on the shelves in a month. We are continuing our negotiations with Turkey’s two big market chains, of which names I cannot say at the moment, for Panpan. Currently, there are 2-3 flour brands dominating the market shelves in Turkey. We aimed to be in the top three when we first hit the shelves. That’s the level we position ourselves and that’s where our price policy targets.

Thus far, you have supplied flour to mostly industrial companies. However, you are entering the retail market with Panpan brand, your new investment. Does the risk of market shrinkage in global flour export play a role in your decision? 

This factor has a share for sure. And frankly, our colleagues in Turkey have very large factories, they export and import. But they lack leading brands. We are not far ahead in creating brands. We want to create a brand in the sector with Panpan. With reference to the increase in fast-food consumption in the world, perhaps we can expand into the domestic market and abroad under the name Panpan both in noodles and pasta. In other words, Panpan is an investment that we dote on not to be affected by the possible contraction in domestic and foreign markets, as well as due to our desire to create a brand. With the pandemic, people are now spending more time and consume more food at home. Considering these, we have developed Panpan brand. The pandemic has somehow encouraged us for this brand. 

Will your proximity to raw materials, ports and retail markets at the same time provide you with a price advantage?

Of course, it will provide a price advantage. But at the same time, we believe that we will achieve this through our know-how and experience in the final product. For Panpan, we are starting with the most used products classically. After that, we are going to combine various flours and mixes under the name of Panpan. 

DORUK FLOUR UNDERTAKES 13% OF OUR FLOUR EXPORTS

Could you also give information about your export markets?

60% of our production is for export. We carry out customized production with 7 different brands in export. We have a robust place in the Turkish economy with our ever-expanding sales and distribution network. We export to 41 countries across Africa, Asia, South America and the Middle East. Our biggest success in exports is meeting the demands of the end users with the R&D team. We select, mill and localize wheat with the technology we create, according to the consumption habits and bread types of each country. 

Its proximity to the Black Sea basin and the fact that it is a critical intermediate point in wheat production, especially after the Russia-Ukraine war, drive Turkey forward in terms of exports. As Doruk Un, we realize 13% of the total flour export from Turkey, excluding Iraq and Syria. Being only exporting to borders carries a substantial risk for Turkey in the future. This is why we turned towards different markets.

The Grain Corridor Deal led by Turkey made a significant contribution to preventing the world food crisis, relieving grain supply and restraining prices. What kind of advantages do you think the deal provides for Turkey and the Turkish flour industrialists?

The Grain Corridor Agreement is very important because if you keep the wheat in the Black Sea Basin, which constitutes almost 30-35% of the world wheat trade, here because of the war, this will lead to a food crisis and particularly severe crises related to flour and bread all over the world. We have overcome this with the grain corridor. A severe crisis has been bypassed for the whole world.

The grain corridor is a critical opportunity for Turkey to maintain its presence in the world flour market. Recently, some data were shared about the grain corridor, of which main purpose is to sell wheat and other grains to places in Africa and poor countries where access to food is limited. It was said that the cargoes of the ships passing through the corridor do not go to African countries. Maybe, looking at the instant data and statistics, it can be thought that the wheat going to these places is low. However, this calculation is incorrect. Because the wheat that Turkey imports also goes to poor African countries after being processed into flour and pasta. This should be evaluated not only as wheat, but also as final products.

What should be done to increase Turkey’s wheat production?

Let me tell you this. The farmer and the producer should be supported. Cultivation areas should not be allocated to perennials. In order to increase wheat production, it must be encouraged especially by the government. I regard the support of the Turkish Grain Board to the farmer as a very accurate and appropriate decision. In addition, it is necessary to use quality seeds to increase wheat yield. 

What do you think of TMO’s policy of providing cheap flour to bakers within the scope of a flour regulation?

It is, for sure, very important that TMO supports the bread market amid the world’s food crisis, war and drought. However, it is not right to do this all the time. This is not compatible with private sector or free market economy understanding. It mustn’t be permanent. 

I want to ask two interrelated questions. First, Russia is planning to sell high value-added flour instead of wheat. How do you evaluate this? Secondly, as a prominent exporter and producer of the industry, do you plan to make an investment in Russia? 

I can say that Russia and Ukraine’s idea to produce flour is currently one of the biggest risks for Turkey and the Turkish flour industry. First of all, let me say this: At the end of the day, Russia and Ukraine will definitely export flour. This is because they have the raw material. They impose a tax on wheat and no tax on flour. Therefore, they hold significant advantages in the market.

However, this should not be overlooked either: Turkey has many advantages at this point. The first is that Turkey has a very large feed industry. While approximately 70-75% of the wheat is processed into flour, the remaining 25-30% is used as animal feed, which we call bran and cracked wheat. Since it is also used as animal feed, it is with higher added value in Turkey. This is because we are selling 25 kilograms of animal feed from 100 kg of wheat as a by-product almost more expensively than the wheat in Russia. 

Secondly, in fact, if Russia’s conditions were favorable, it would have already done this. The biggest disadvantage for Russia is that it can transport 3-5 thousand tons at most to Africa and other countries by channels and vessels. And this is not profitable due to freight prices. The biggest advantage of Turkey at this point is the container line. Most of the container lines in the world can easily reach Turkish ports. We have Asyaport, Ambarlı Port, and Mersin Port… But you cannot bring these containers all over Russia.

As for your question about investing in Russia, indeed, we seriously considered investing in Russia. We had even determined a location in Rostov before the Russia-Ukraine war. We went there and talked to the partners. But we still had question marks in our minds there because we couldn’t go there just by thinking about export. We were also making projections about the Russian domestic market. The biggest disadvantage there is containers and logistics. Therefore, I do not expect that Russia will pose a threat to Turkish flour by entering the flour market in the short term. 

How much of its capacity does Doruk Un use?

We use 100 percent of our capacity. We currently have two active production lines. We are going to establish a third production line at the factory for pasta and semolina, which are among our new investment items. Especially with the semolina line we are going to establish, we will produce the raw materials for pasta.

Could you share with us your investment plans for the near future?

At Doruk Un, we are planning a 1.1-billion investment in agriculture and seeds, noodle and pasta, energy, feed and feed raw materials, especially in retail, in the 5-year projection. With this investment move, we aim to grow by over 200% in flour and bakery products, and over 400% together with other investment and business lines. We are carefully following the level where energy prices have reached globally. With reference to the fact that energy is a major expense item, we will establish a solar energy facility, meeting our own consumption and minimize costs in this way.

Is there anything else you want to add?

We all have some responsibilities. That the work we do creates added value and that it is beneficial to humanity as well as to our company and our family are among these responsibilities. We have a gluten-free flour type for celiac patients. Since this is completely gluten-free, we have to produce it on an extra line. We have executed trial productions. We are doing this as a social responsibility project rather than a profit motive.

Another one is the milling school project. This is a shortcoming for Turkey. We carry out this together with my teammates as part of a social responsibility project with the aim of transferring our knowledge for skilled labor for the sector periodically. We want to prepare courses and bring friends together from certain regions and factories 3-5 times a year and transfer our knowledge. The knowledge and experience we have gained should not go up in smoke after we die. I want to share my experience and knowledge with the sector