Category Archives: Middle East

IRAQ’S wheat milling conundrum

Iraq is a conundrum when it comes to wheat and flour. Despite around 300 privately owned mills, it is among the world’s largest wheat flour importers at over 2 million tonnes per year. The wheat supply is not enough but new mills continue to be built. The government pays farmers close to $500 per tonne for their wheat, and yet production had declined and quality falls far short of bakers’ and consumers’ requirements. The milling industry is almost entirely in private hands but depends on the government for all wheat deliveries and flour offtake. Mill revenues are from tolling fees and bran sales. Mills do not sell flour.

Earlier this year, World Grain went to Sulaymaniyah, the commercial and industrial center of the semi-autonomous Kurdistan region in northern Iraq, to meet with Saad Kola, chairman of Iraq’s largest wheat milling company, Kulok Group. He talked about his company and candidly shed some light on the challenges it faces in such a uniquely difficult business environment.

“It was the father of my father that founded the first mill,” he said. “It was 100 tonnes per day and built in 1973. The mill was one of only two mills in Sulaymaniyah during that time.”

The two mills had “more than enough capacity,” for the city and for the Kurdistan region, he explained, adding, “They even exported product to Baghdad and the south of Iraq. At that time there was not much population here.”

Now the company’s Sachnar Mill on the original site has 600 tonnes per day of total capacity. “It is the largest milling plant in all Iraq,” the chairman noted.


Kulok Group’s Sachnar flour mill is the largest mill in Iraq with daily wheat grinding capacity of 600 tonnes. Photos by David McKee

It consists of three processing lines of 200 tons each, supplied by mill manufacturer Aybakar in Ankara.

“We have been acquiring mills,” he said. “We have four in Sulaymaniyah for a capacity of 1,500 tonnes per day. In Kirkuk we have another two mills. One is Zad and the other is Rast. We have six milling plants in total. All are separate companies. Total employment at our mills is 150. With management and drivers, it is 175.”

WHEAT SUPPLY CHALLENGES

The main challenge has to do with getting enough wheat. “Unfortunately, the government gives us the wheat,” Kola said. “There is no private importation. We are trying to get permission from the government to import wheat. Since 1991, the Iraqi government has not allowed private importation.”

Kola referred to the system that the Saddam Hussein regime was forced to adopt after the first Gulf War as part of the UN Food for Oil program.

Regarding the wheat allocations from the government, the chairman observed, “Year by year they have reduced the quantities. We used to get enough wheat to run 24 days or 30 days per month. After the start of the ISIS war more than five years ago, they gave us wheat in eight portions over the year, not 12 monthly allocations. Our six separate milling companies get separate wheat allocations. Ten years ago, the government gave Sachnar 9,000 tonnes every 30 days. Now it gets 5,600 tonnes every 44 days.

“But now a lot of people are interested in this business. People with other businesses are entering flour milling, though they don’t know anything about it. Just because people have enough money, they do it. They build a mill and get an allocation. This milling business doesn’t require any marketing. Mills receive wheat from the government and deliver flour back to it.”


Saad Kola, chairman of the family-owned Kulok Group, represents the third generation to manage the mill.

Kola maintains that there is enough milling capacity to feed Iraq three times: 50,000 tonnes per day times 300 days is 15 million tonnes. Iraq needs 4 million tonnes of flour.

Based on the government system, Kola said, “Now there is only one type of flour: 80% flour and 20% bran; no gluten or protein specification; moisture 14.5% and ash is maximum 1%.”

Since virtually all private mills must operate within the government system, they are excluded from buying wheat to produce flour of the type needed by private bakeries.

“Private companies import flour from Turkey. All bakeries use flour from Turkey,” is how Kola explains the phenomenal 2 million tonnes of wheat flour that Iraq has been importing annually in recent years.

Kola dwelled upon Iraq’s Public Distribution System (PDS) that is intended to provide monthly rations of flour, rice, sugar and cooking oil to every family based on household size.

“The Iraqi government gives flour to the people mostly free of charge,” he said. “Because it is free without quality control, it is very bad quality. In the countryside, the people eat it. They make bread at home, but in the cities, especially big cities, the people don’t even take it. The flour dealers sell it as animal feed. Rich people don’t take the flour.

“Each person or family member gets 9 kilograms per month, but in reality they get 9 kilograms for each five weeks. Now it is even every 44 days.

“Distributors work with the government. They are private shops — retailers. They are called agents for Ministry of Trade and Grain Processing.”

He commented further on the fraud inherent in the PDS scheme.

“A lot of people left their homes due to instability after ISIS,” he said. “Many people are missing. So bad people take flour from the trucks and sell it immediately without looking for people (the rightful beneficiaries). Even World Bank and IFC are asking the Iraqi government to change the system.”

People with other businesses are entering flour milling, though they
don’t know anything about it.


Saad Kola, chairman, Kulok Group

INCONSISTENT WHEAT QUALITY

The 320,000 tonnes of wheat per year ground by the Kulok Group milling plants is almost entirely imported. Kola reports very inconsistent quality.

“Sometimes there is good wheat from the U.S. or Australia or bad wheat from Ukraine,” he said.

The government imports wheat through the port of Basra and transports it in 35- to 40-tonne bulk trucks to government silos around the country. There are 40,000-tonne and 80,000-tonne grain storage facilities near Sulaymaniyah.

The mills must send their own trucks to pick up their grain allocations. Because of the government storage facilities, the private millers need to store relatively small volumes. The Sachnar mill, despite being Iraq’s largest, has only 4,000 tonnes of silo capacity.

The government buys up nearly all the domestic wheat crop. The USDA estimates it at 3 million tonnes in 2018, a 25% decline from the 4-million-tonne harvest of the previous year. The peak production year was 2015 with 4.4 million tonnes, but thanks to the most rain in two decades, the USDA forecasts 2019 production to be a record 4.8 million tonnes.

Wheat growers need financing well before the government can pay. Kulok Group helps to fill this need, Kola said.

“Most farmers can supply two or three truckloads of 22 to 25 tonnes,” he said. “Landholdings are small. I finance the farmers. I give them money before they plant. But the money is stuck for two years. We collect the wheat and supply to government under their name. The government pays the farmers and they pay us.

“We work with farmers around three big cities. My employees are there. They need financing for irrigation. A few other millers do the same, but it takes a lot of capital. And it takes patience. In southern Iraq it is different. Traders are financing farmers because they will get a high price from the government.”

Kola said the quality of local wheat is very bad.

“Low gluten, not even C class,” he said. “The government buys it from farmers at a high price to encourage them to farm. Minimum purchase price is $500 per tonne for Class C. I could import it for $200 per tonne.”

The subsidies, he said, “do not go into the right pocket. Mostly traders do this business. They are cheating. They buy it from the farmers at a cheap price and mix it with imported wheat to sell to the government.”

The government pays millers only a $10 per tonne tolling fee, but they are allowed to sell 20% of the bran. The price of bran can go as high as $270 or $280 per tonne, though in the spring of this year, thanks to good grazing from abundant rain, it had fallen to below $200.

“An advantage of importing more wheat would be more bran for sheep and cows,” Kola said.


Kulok Group employs 150 workers at its mills in Iraq.

Though Sulaymaniyah is the principal city of Kurdistan, most of the employees are Arabs from the south of Iraq. Arabic is the language of the milling plant. The unmarried men have housing within the mill compound. Married ones live in apartments in the city. Because of the wheat shortages, the mill operates a maximum of four or five hours per day, five days per week and rarely more than that.

KFMB – Kuwait’s milling giant

Already dominating its domestic market, KFMB is planning to expand its milling and baking capacities.

Few millers dominate their domestic market like Kuwait Flour Mills & Bakeries Company S.A.K.C. (KFMB). With massive port storage for imported cereals, nearly 3,000 tonnes of daily milling capacity, a chain of nine industrial bakeries and a range of processed products, the wholly state-owned company plays critical economic, social policy and food security roles in the oil-rich country of 4.4 million while generating $1.3 billion in annual sales revenues and net profit of $123 million in 2016.

Earlier this year, World Grain interviewed KFMB’s longtime top production executive, Abdulla Al Wahaibi. He spoke openly about the company, which employs nearly 4,000 and is the country’s lone wheat flour producer.

Milling in Kuwait got its start around the time of Kuwait’s independence from Britain in 1961 with majority private and minority government investment in a 120-tonne-per-day Simon Robinson mill with a silo.

Today, nearly all KFMB’s milling and grain storage operations are at a single 50,000-square-meter site on the Al Shuwaikh port in Kuwait City. The complex houses six milling lines totaling 2,850 tonnes of daily capacity. The two newest are 750 tonnes per day supplied by Ocrim in 2008 and Buhler in 2017. The latter sold its first milling equipment to Kuwait in 1972. A recently expanded feed mill can produce 500 tonnes per day of a wide range of animal feed products. KFMB has total storage capacity of 375,000 tonnes at the port in concrete elevators.

“This is the biggest grain storage at one single location in the Middle East,” observed Al Wahaibi, adding “there are three sections or complexes for wheat, yellow maize and barley. The tallest has a cell height of 59 meters.”

KFMB’s food security role hinges on the large stocks it holds. Sufficient wheat to meet four to six months of consumption is kept on hand as a strategic reserve, he noted. A two- to three-month supply of corn and barley for feed is maintained as well. USDA data show Kuwait’s wheat imports have been stable, averaging just under 500,000 tonnes annually over the last five years. The nation’s combined imports of barley and corn for feed have been as high as 800,000 tonnes per year, Al Wahaibi said.

Australia is the sole wheat source with the exception of about 50,000 to 60,000 tonnes of durum and CWRS normally imported from Canada for pasta and high protein bread. One swing mill is utilized for semolina. Corn and barley originate in Argentina, Australia and the Black Sea.

Panamax-sized vessels 225 meters in length first offload two or three holds at deeper Gulf ports before proceeding to Kuwait City at the Gulf’s northern end where the draft is only 9.6 meters, limiting the maximum wheat delivery to 46,000 tonnes. There is a single berth but 400 and 600-tonne per-hour ship unloaders permit offloading at 1,000 tonnes per hour and rapid vessel turnaround.

Flour

The bulk of flour production is for the main food staple, pita type Arabian flat bread weighing 50 to 75 grams each. KFMB’s own bakeries produce 4.5 million pieces per day. They are sold in packages of five at a fixed government price of just 50 to 75 fils (17¢ to 25¢).

Al Wahaibi estimates the sales price represents about 50% of the production cost. The Kuwaiti government provides a direct subsidy so that KFMB can carry out this social welfare policy and make a small profit as well. Over half of flour production is for pita bread.

KFMB operates a central bakery that consumes about 100 tonnes per day for production of European style rolls, buns and toast bread. McDonalds, KFC, Burger King, Pizza Hut and Subway are just a few of the numerous international fast-food restaurant chains in Kuwait that depend on KFMB to reliably supply standard baked foods or specialty flour to exacting specifications.

Around 15% of production is a highly refined white “patent” flour used for making cakes and pastries, Al Wahaibi said. KFMB can export about 60% of this nonsubsidized flour to other Gulf Cooperation Council (GCC) countries that form a tariff-free zone. Demand is highest in neighboring Saudi Arabia, especially during the period leading up to Ramadan.

Shipments of various flour types through Kuwait-based traders to Iraq have been climbing as well despite the financial and security challenges of dealing with the wartorn country. Basra, a major Iraqi city only 180 kilometers distant, is the main destination.

Al Wahaibi

Al Wahaibi attributes his company’s export success to “high quality wheat, top milling technology and strong quality control standards and efficient sales team.” The company grinds a wide assortment of flour types both for its own use, for small package retail sale in stores and for the hundreds of small private bakers in the country. Brown flour, white flour, biscuit flour, flatbread flour, whole wheat flour, barley bread flour, chappati flour and pastries and logaimat flour are all featured on the company’s website, in addition to crushed wheat and peeled wheat. The executive said KFMB may have the only bakery in the Middle East making glutenfree goods like toast bread, Al Wahaibi buns and rolls. He said such a product line stems more from KFMB’s social consciousness than a desire to add to its bottom line, since demand is limited and the cost of grinding alternatives to wheat is high.

Product is transported through stainless steel spouting at the KFMB mill in Kuwait. Photos courtesy of Buhler.

Another example of the company’s social responsibility is its early adoption of fortification of its flour and wheat-based products in line with GCC standards for iron, folic acid and other vitamins and minerals.

Though pita bread is the key staple food consumed by most households daily, KFMB still faces the management challenge of seasonal demand. Because of the extreme summer heat exceeding 45 degrees Celsius most days from May to September, Al Wahaibi explained, a good part of Kuwait’s population, including the heavy proportion of expatriates, leave the country for extended periods, necessitating a 40% to 50% reduction in output.

KFMB has devoted resources to build a well-recognized logo and “KFMB” brand name across its broad range of wheat-based retail products, including flour, pita bread, toast bread and buns, pasta and biscuits. Packaged cooking oil refined from imported soybean oil, corn oil and sunflower oil also carry the KFMB logo.

“We have been named one of the top 100 brands in the Middle East,” Al Wahaibi noted.

Feed

“In general, the strategic growth of the company will be in feed milling,” he said. “We will expand our current animal feed capacity from 500 tonnes per day to 1,500 tonnes per day and eventually to 3,000 tonnes.”

The company makes mixed feed from bran, corn and barley for sheep, goats, camels, cows and horses, according to government-approved formulas. It also sells yellow corn, wheat bran and other raw materials to the country’s large integrated poultry producers with their own feed mills.

Greater feed production capacity is needed to support livestock breeding at home.

Bühler sifters are part of the KFMB mill in Al Shuwaikh port in Kuwait City. The complex houses six milling lines totaling 2,850 tonnes of daily capacity.

“Our barley and corn imports will have to increase from the current levels” of 50,000 tonnes of barley – 20,000 tonnes respectively per month, he asserted.

Most sheep and goats consumed in the country are imported on the hoof by sea. Kuwait was the first country to import live sheep from Australia in converted automobile transport ships. Saudi Arabia has followed suit. Most of the imported animals are fattened and slaughtered leading up to the Muslim feast holidays.

A more humane but probably less economical approach would be to raise the animals locally. However, Kuwait has limited grazing during its short and intermittently rainy winters. More feed production is needed. In addition to the subsidized fuel, electricity, water and flour available to all consumers, the state provides ration cards to its citizens. They make up only 30% to 40% of the total population due to the large number of immigrant workers.

Kuwait imports live sheep from Australia that are sold locally for $160 to $180. Kuwaitis get monthly ration cards that contain rice, cooking oil, skim powdered milk, pulses and frozen chicken at a subsidized price.

Future

Feed production is an opportunity, but the No. 1 task of KFMB is to continue to expand milling and baking capacity to satisfy the needs of a still growing population, Al Wahaibi said. More bakeries will be launched. The company is looking to add 20,000 to 30,000 square meters of land adjacent to its site to make room for new plant operations. Other challenges include mechanization and automation of production processes in part to reduce dependency on expatriate workers. For every Kuwaiti employee of KFMB there are 20 non-Kuwaitis. The largest contingent come from Egypt followed by India, Bangladesh, Sri Lanka and the Philippines.

History

KFMB has a colorful history resulting in part from its proximity to Iraq. The company converted to 100% government ownership in 1987. The next year Kuwait Bakeries Company was merged into it. Sadam Hussein’s conquest and annexation of Kuwait as Iraq’s 19th province was just two years later in August 1990. During the seven months of occupation an Iraqi manager was appointed to run the company, the wheat stores were emptied, and much flour production was diverted northwards as well. Before it could be put into production, a recently commissioned vegetable oil refinery was dismantled and shipped to a city in northern Iraq never to be returned.

Following the Iraq War of 2003, the UN World Food Programme contracted with KFMB to store and supply wheat and produce flour and other products for humanitarian distribution in Iraq.

Since then with KFMB as a national anchor of food security, Kuwait has continued to be a stabilizing force in the region.

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