Quantity over quality

by Meyer Sosland
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Low world wheat stocks and soaring prices are problems for fl flour millers everywhere. But in Britain there’s an added concern, as farmers don’t want to grow the sort of wheat millers need. With ideal conditions for getting high yields of feed wheat, growers in Britain are turning away from quality. During the annual Home Grown Cereals Authority (HGCA) Milling Wheat Conference in Cambridge, U.K in early March, representatives from the flour milling industry talked about how they are coping with this dilemma.

"To a certain extent I don’t really care what I pay for wheat," said George Mason, senior executive, grain buying for Heygates. "As long as I can maintain my operating margin, I’m happy."

Wheat in the U.K. is classified by variety into four National Association of British and Irish Millers (NABIM) groups. They range from Group 1, which contains varieties likely to make the full milling specification; Group 2, which has varieties with bread-making potential but that won’t necessarily be suitable for all grists; Group 3 soft varieties for biscuit, cake and other flours and Group 4, which is usually known as feed wheat. Millers may sometimes use Group 4 wheats, but they are unlikely to achieve a premium.

The most dramatic shift has been out of Group 3 into Group 4. The proportion of Group 3 wheat grown in the U.K. has fallen steadily in recent years, from 44% in 2005-06 to 19% in 2007-08.

One problem is that it’s not easy to find alternative supplies. "The problem is there is no replacement," Mason said. "We can’t just go trotting off to Canada."

It is easy to see why farmers have made the change. "The trend is away from quality into Group 4," he said. "That’s farmers chasing better profitability."

It’s a problem for millers, but it’s also a problem from the point of view of U.K. wheat exports. Heike Hintze Gharres, manager of the HGCA’s market analysis team, said 50% of exports are traditionally from Group 3 varieties.

"The decline in Group 3s is reason for concern," she said.

Mason saw some hope in a new Group 3 variety, Viscount, being brought forward by seed breeders KWS (formerly CPB Twyford). "We need Group 3s more than we need anything else," he said. "I’m quite excited about it."

One reason for the decline in top quality wheat varieties has been the lack of progress on yield. "The development has been in yield in the feed sector," said Mason. "It’s been a long time since we’ve had a high yielding Group 1."

Planted area for Group 1 was also down in 2007 at 14.6%, compared with 20.4% the year before. Millers had problems with the quality of Group 1 milling wheat from the 2007 harvest. "We haven’t had a very good time," Mason said. "The problem has been that the wheat that has made full (specification) has not performed very well."

Mason said there’s been a real issue with protein quality in the most recent crop. He said the problem stems from "rain at the wrong time and too much heat early on."

There had been problems with protein and Hagberg Falling Number (HFN). He noted that just 56% of the Group 1 wheat made a minimum 12% protein, 200 HFN and 74kg/hl specific weight in 2007, compared with 74% the year before and 80% the year before that, according to the HGCA’s quality survey.

Mason felt that farmers should keep an eye on quality in whatever type of wheat they’re growing. "As producers you must be aware there is nothing that’s feed wheat," he said. "Every single variety in the HGCA recommended lists will make you a premium, but you’ve got to have Hagberg."

In the malting barley sector, there has been a big move by maltsters to agree with farmers to grow grain on contract, so as to guarantee supply. It is a trend he felt could become the pattern for wheat.

"I wouldn’t be surprised if the vast majority of wheat we consume won’t be grown on contract in the next two to four years," he said. "I can manage price; what I can’t manage is the lack of availability."

Hintze Gharres told the conference how farmers worldwide had responded to high wheat prices with increased

plantings. The total E.U. area is up by 6% at 26.3 million hectares, with German plantings up 6%, French up 5% and those in the U.K. up 13%. Plantings in the former Soviet Union are up by 3% to 47.9 million hectares, with Russia up 3% and Ukraine up 12%. Canada’s plantings are up by 14% to 9.8 million hectares. U.S. farmers have planted a 5% bigger area at 21.7 million hectares, while the Australians have planted a 10% larger area at 13.5 million.

She quoted an International Grains Council prediction for a record 2008-09 wheat crop of 642 million tonnes on the basis of a 3% rise in planted area. "To achieve this yield, world crops need to see consistently normal growing conditions," she said. "Weather patterns, as we know, have become increasingly erratic."

Even with yields at the 2004 level, the highest achieved in recent years, the world crop would come to 643 million tonnes. The much lower 2003 average yield level would give a crop of 589 million tonnes. She pointed out that total world wheat demand was 611 million tonnes in 2007.

Reduced world stocks had created a highly volatile market. "Markets have moved and continue to move at such a rate that price graphs are out of date just hours after preparation," she said. "The huge price rises reflect the fact that there isn’t enough wheat around in the world."

Currencies have also gone the wrong way for European exporters. "The very strong euro against the dollar has slowed E.U. export progress," she said. "The weaker dollar explains why the U.S. has been a major exporter. U.S. exports are forecast at 33 million tonnes, the highest in a decade. "

One result has been moves by countries around the world to limit exports, or to encourage exports. Russia has imposed an export duty of 40% on wheat

since January. Ukraine has imposed quotas on wheat exports. Argentina was limiting exports to 400,000 tonnes a day. China has a 20% wheat export duty, while India has banned wheat exports altogether and suspended its wheat import duty. Brazil has removed its wheat import tariff until the end of June and the E.U. has suspended its import duty.

In the U.K., millers have responded to the quality problem by importing more. "Around 600,000 tonnes of imported wheat was used in July to December of 2007, 30% more than in the previous year," she said. "Canada supplied most of the non-E.U. wheat."

Although the price of bread in British supermarkets is well above the extreme lows seen in the 1990s, when a sliced loaf was used as a loss leader by many of the big chains, the massive rise in the price of wheat has left the bread price well behind.

"We are still waiting for the price increase on bread that we’ve seen in wheat," said Mason. "We operate in a very competitive market."

The bread market is in a long-term decline in terms of volume, according to Paul Molyneux, divisional technical director at Hovis. "It has been flattening off, and in January we saw the first increase in a long time," he said.

Despite the fall in volume, the total value of the bread market had risen because of a move to premium brands. "There is a real ongoing demand for quality, and that means quality wheat," he said. "People are prepared to pay.

They’ve gone from paying 7 pence a loaf to £1.50. We have got a high level of new product development. There are more and more new types of bread."

Molyneaux said there have been major innovations recently in both the health and taste of bread products. Health will continue as a trend, and there was real growth in the idea of provenance and local origin for bread, but it has to taste good. "It has to be great tasting," he said "It won’t succeed if it isn’t."

There might also be a move to individuality within the family in the same way as already happens with breakfast cereal. "There may be two or three variants of a meal being produced," he said. He said one possible innovation could come from the trend to smaller households. "Every household is getting smaller," he said. "There is more demand for smaller loaf sizes."

Despite the trend to premium bread, British consumers continue to assume that bread should be cheap. "We still have some of the cheapest bread in the world," he said. "There are two cities in Europe that have cheaper bread than London. They are Budapest and Prague."

Chris Lyddon is World Grain's European editor. He may be contacted at: chris.lyddon@ntworld.com.