Challenges for U.S. Milling

by Teresa Acklin
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Chairman of U.S. Millers' National Federation sees further milling consolidation in the United States.

   The U.S. milling industry is rapidly approaching a point at which overcapacity will lead to a new round of consolidations, according to Richard R. DeGregorio, chairman of the U.S. Millers' National Federation.

   "There will come a time, and we may be approaching that time very quickly, when the milling capacity will exceed at least domestic demand," Mr. DeGregorio, president and chief executive officer of Pioneer Flour Mills in San Antonio, Texas, U.S., said in an interview earlier this year. "That would lead one to believe that consolidations would have to occur in order to maintain efficient markets. Resource demand in this business is quite high, and the return on the investments has to make sense."

   The road to the chairmanship of the M.N.F. was a winding one for Mr. DeGregorio, who began his career in the laboratory. After graduating in 1960 with a major in chemistry and a minor in mathematics, Mr. DeGregorio joined Durkee Foods Co. as a chemist working with fats, oils and emulsifiers. He joined the sales force of Beatrice Foods in 1964, moving through a variety of positions and building a sales department primarily of individuals with technical backgrounds.

Pioneer Flour Mills

   In 1982, Mr. DeGregorio joined Pioneer as executive vice-president and chief operating officer of the oldest flour milling company in the United States continuously owned by a single family. The business was established 145 years ago by the Carl Hilmar Guenther family.

   In 1984, Mr. DeGregorio was named president of the company. He is only the second person who is not a member of the Guenther family to attain that position. Several members of the Guenther family, which still owns the company, serve as directors of Pioneer.

   "They are a very diverse group," Mr. DeGregorio said. "They are involved with everything from nuclear physics to small businesses, to law, ranching and oil." Mr. DeGregorio, who is also a company director, views his role as one of a "professional manager" working with the board to map out a long-term strategic plan for growth.

   Pioneer employs 550 at its two Texas locations — Pioneer Flour Mills and Pioneer Foods. Its product line includes mixes, gravies, sauces, frozen doughs and frozen baked goods. The company sells to food service institutions across the United States and sells flour and mixes in Southern U.S. states from New Mexico to the East coast.

   In 1995, Pioneer purchased the White Lily Food Co., a U.S. milling company in Knoxville, Tennessee. The acquisition brought Pioneer's total daily milling capacity to 476 tonnes in terms of flour.

   The acquisition was planned to take advantage of the White Lily franchise in the Southeast United States through new product introductions, Mr. DeGregorio said. White Lily has introduced a brand of White Lily gravy onto the market, and it has been very successful capturing market share, he said, adding that other product introductions were planned.

   While expressing optimism on prospects for domestic flour demand, Mr. DeGregorio said the U.S. milling industry faced a tough challenge. "We have to continue to inform consumers that our products are good for them," he said, "not only in terms of satisfying the functional appetites that people have, but that the products are really good for them. It is our responsibility to communicate that message so that per capita consumption levels can start rising.

   "People have choices on what to consume. The world is finally coming to the realization that products made from our industry, the milling industry, are not empty calories, but are useful calories and are healthful in a general sense. So as we step up the awareness, we should be in a position to step up per capita consumption."

Safety and Politics

   In recent months, the largest U.S. manufacturers of family flour have indicated that they would lower the weights of family flour bales in response to requests from the supermarket trade aimed at increasing worker safety. Mr. DeGregorio said that Pioneer and White Lily were going along with these changes, although adopting the new size is no simple process, he said.

   "It's a bellwether to the issues wrapped around our commitment to safety," he said. "I think we as an industry have to say, ‘Okay, if someone who is more qualified than we are has identified that it is a safety issue that needs to be addressed, let's address it.'"

   Mr. DeGregorio said that both White Lily and Pioneer were making the change to 18-kilogram bales from 22.5-kg bales.

   "It changes a number of things," he said. "It changes the pallet configurations; it changes the number of bales on a pallet, so it could change the number of pallets going on trailers, and it could change the warehouse space that you have to assign to those particular pallets.

   "There are a lot of issues, but the primary issue is dealing with the perceptions, and maybe the reality, that there is a safety issue that comes first."

   While Mr. DeGregorio's background in research and development makes him unique among the top echelon of milling managers, he believes that R.&D. has an important role for every company.

   "I think that R.&D. makes sense in every industry," he said. "We have to recognize that research and development will always be part of the future. And if you don't have it as part of your present, then you probably will not share in the future.

   "I see that as true in the industry that we're in. There was a time when people who made the cereals made them from a type of equipment considered old conventional cookers. Today, we don't make cereal that way. We use an extrusion process, and these new extruders are a whole lot less capital intensive and kick out a whole lot more product more efficiently under a more controlled environment.

   "So the process changed because someone spent time doing research on what kind of outcome they wanted and asked whether there are other processes that help us get from here to there."

   Mr. DeGregorio said milling would be different in the future. "There's a lot of genetic work being done out there," he said. "There's a lot of work being done with stripping of bran. There is a lot of work being done in terms of entomology. There is a lot of work going on in controlling molds and maybe even the changing of those things genetically. So we are going to have research, and we better succeed in it if we are going to be part of this industry in the future. If we start shutting down research, we're going to start shutting down our industry. I think that many other industries have found that to be the case."

   Turning to Federation issues, Mr. DeGregorio spoke positively of the association's handling of the Karnal bunt crisis. A hallmark of Federation activity in coming years will be intense work on issues directly affecting the industry, he added.

   "I think our regular visits to Washington (D.C.) show we are going to be more focused on the events that come from the government's decision-making machine," he said. "We hope to have a real degree of influence in making sure that the millers are appropriately represented there."

   In recent years, Federation meetings have been dominated to a growing extent by presentations and discussions of issues that do not directly affect flour milling. At this year's annual meeting, two thirds of the proceedings during the general session were occupied with Washington politics. The balance of the program included presentations on farm policy and the bagel industry and brief addresses by the incoming and outgoing chairmen of the Federation.

   According to Mr. DeGregorio, the Washington focus helps meet an important need for Federation members.

   "There are all kinds of things that impact the decision process of those responsible for the resources of companies," he said. "These kinds of things are extremely important. Executives are making decisions related to the allocation of resources. And things impact them from all different places.

   "Political influences impact the decision process and resource utilization. This applies to everything from insecticides to safety issues to health issues; all those kinds of things demand resources. Whether we put those resources into those issues first or second or third becomes the choice we have to make. I think we have to keep a broad agenda in front of this membership."