E.U.'s fate has role in milling's future

by Morton I. Sosland
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Since flour mills operate in almost all of the 28 member countries of the European Union, recent intense debate about the role and future of the E.U. and its administrative arm, the European Commission, has reverberated through the European milling industry and deserves attention from millers around the world. Counting the E.U. as a single entity, its annual production in recent years has ranged between 725 million and 830 million hundredweights. That surpasses by more than 70% the record 2014 output of United States mills and is exceeded only by China’s unconfirmed annual output near 1 billion. Even putting these comparisons aside, what is happening and may lie ahead for European milling pose dramatic repercussions affecting its continuing influence as central to global milling development and as an area where many of the fundamentals of modern-day operations evolved.

The present turmoil, primarily political, raging in the E.U. reflects distinctly different attitudes toward the role the central authority should have. On one side are those who attribute economic shortcomings, mainly a static economy and worries about deflation, to the failure of the Commission and the European Central Bank to take the strongest possible actions to gain increased control over member countries. On the other side are those urging that the Commission and Bank reduce their interference in national economies to the point that business would be free of many central controls.

Nothing is more important to this debate than the Common Agricultural Policy and the array of food regulations imposed from Commission headquarters in Brussels. When the E.U. was formed in the late 1950s with six nations as members, it was the 1960 adoption of the CAP, with its crop price minimums and controls over marketing of wheat and other grains, that gave substance to the Union. For years, the CAP accounted for the largest part of the budget, and its programs exerted a huge influence not just on where and how much wheat was produced, but how much wheat and also flour were imported or exported. As the result of E.U. subsidies, its mills for a time beat the U.S. out of export flour sales. But these programs changed, and flour exports decreased with repercussions for domestic mills.

Due in part to protection from international competition, E.U. milling continues, as for generations, to be plagued by overcapacity. At its annual meeting held this year in Edinburgh, the European Flour Millers’ Association estimated that the continent’s mills operate at 65% of capacity, turning out 35 million tonnes of flour, or 770 million hundredweights. That run rate for the 3,800 milling companies in the association is unsatisfactory, even dismal, when compared with the U.S. average at least 20 percentage points higher.

While the association is circumspect in addressing the overcapacity problem, it has taken the lead in areas where it hopes to bring about E.U. actions addressing subjects like food safety, product origin, wheat marketing and futures hedging. Like its counterpart in the U.S., the European association has not hesitated in promoting “the sustainable, wholesome and healthy image of flour-based products.” It is working to implement a co-financed promotion seeking to encourage consumption of European flour products both within and outside the Community. It leaves no doubt that if the E.U. milling industry is to be profitable, it must continue to “build on a high quality reputation to sustain competitiveness.”

Maintaining that status at a time when the E.U. itself is under attack is formidable. Recent elections in countries like France and Britain produced majority votes opposed to the E.U. Britain’s prime minister has promised if he wins re-election in two years’ time to schedule a referendum on continued membership. While the U.K. was not one of the first members, its importance to how the E.U. operates as well as having a large flour milling industry affirms the knife’s edge on which such an important global entity now sits.