A legacy of courage
January 01, 1995
by Teresa Acklin
Czech flour millers draw on tradition to face challenges of today.
By Melissa Cordonier, Editor
Flour millers in what is now the Czech Republic have a long history of courage in the face of daunting challenges.
The legacy goes back nearly 900 years, when a legendary miller single-handedly turned the tide of battle to lead Czech soldiers to a key victory. It continues today, as Czech millers work to seize the opportunities and avoid the pitfalls of an economy and an industry in transition.
Like other former Eastern Bloc countries, Czechoslovakia in the past five years has undergone a difficult political and economic transformation from communism and its centrally planned structure to a market-orientated democracy. Unlike the other countries, Czechoslovakia also weathered the turmoil surrounding its January 1993 split into two autonomous nations, the Czech and Slovak Republics.
The November 1989 Velvet Revolution, as Czechoslovakia's overthrow of communism is called, unleashed an entrepreneurial spirit that had been buried for 40 years. After the revolution, Czechs wasted little time in re-establishing individual property rights and privatizing many industries. Although the country suffered from high inflation and negative real growth during the initial years of reform, the economy in the past two years has improved amid lower inflation and slight gains in the gross domestic product.
Developments in the Czech agriculture and flour milling sectors have paralleled broader economic conditions. Wheat production slipped, and non-feed wheat use and flour production plummeted in the first few years after the revolution.
Wheat output since has rebounded from its post-revolution low in 1991-92. And although flour production statistics for 1992 are not yet available, overall non-feed wheat use has recovered, which implies a rebound in flour production.
The milling industry also has changed its structure. All of the previously state-owned flour mills have been privatized; even more significantly, new mills have proliferated since communism's collapse.
CHANGING FACE OF CZECH MILLING. Contrary to the trend in some industrialized countries where the number of flour mills has been on the decline the Czech Republic has experienced an explosion of flour mills in the past five years.
Before 1990, Czechoslovakia was home to 63 mills, 45 of them in what is now the Czech Republic. (At 10.5 million, the Czech population is nearly double that of the Slovak Republic.) Today, as many as 270 flour mills may exist in the Czech Republic alone.
Most of the new facilities are of small to medium size; the country's average daily capacity is estimated at 120 tonnes per day. Rye bread is popular in the Czech Republic, and most mills grind both wheat and rye.
The country's largest mill facility is in Senov in the northern Moravia region. This plant operates two mills with a total daily capacity of 500 tonnes per day for wheat and 160 tonnes per day for rye. The smallest mills, of which there are many, generally have a capacity of 10 tonnes per day.
The level of technology and the age of equipment in the country's mills vary widely. The average yield extraction is estimated at 73% for wheat and 72% for rye, but output and quality vary from mill to mill.
The industry is eager to revitalize its technology, and Czech millers now are traveling to Western Europe to inspect plants and collaborate with their peers on milling techniques and issues. The Czech Milling Association aids in this effort through its excursions and technical meetings.
But upgrading has come slowly for some mills, particularly the formerly state-run facilities. Major investment has been hampered by the overall economic situation and the need to direct capital resources to pay off loans used to purchase the plants from the state. And all Czech millers face relatively high energy and labor costs, as well as high grain prices.
The Czech Republic harvests more than enough wheat to meet domestic needs each year, and mills generally buy wheat from producers in their area. State farms have been split up and privatized, although some growers have formed private cooperative-type arrangements to achieve economies of scale and to share equipment.
Although wheat prices are market-driven, a price floor exists through the activities of the Fund for Market Regulation, which administers a grain price stabilization program. Consequently, internal wheat prices in September 1994 were some U.S.$10 to $15 dollars per tonne above world prices.
In addition to changes in the number of mills and the market-driven nature of mill operations, the milling industry's market has changed.
Before 1990, all of Czechoslovakia's mills were state-owned, industrial-type facilities serving state-owned, mass production bakeries. Although industrial bakeries still exist, they, too, have been pri-vatized. In addition, many small private bakeries have opened and now provide fresh goods.
With the new market economy and improving incomes, many Czech consumers are no longer satisfied with the mass-produced products of the previous era and are demanding higher quality and more variety. Consequently, private bakeries, both large and small, are placing an increasing emphasis on flour quality and type.
This factor has added another new element to the competitive environment in which Czech millers operate today.
THE CUSTOMER IS KING. Not surprisingly, the sheer number of mills in operation and the new market economy mean that competition in the industry is keen, according to Vaclav Nemecek, head miller for the AMPA (Automaticke Mlyny Pardubice) mill in Pardubice, a medium-sized city some 120 kilometers east of Prague.
Skill in buying and selling wheat and flour in a free market system is one issue that presents competitive challenges, Mr. Nemecek said. In addition, bakers have become very demanding, he said.
Although large mills in general often have a distinct competitive advantage, the smaller Czech mills currently are competing effectively by focusing on marketing and customer service, such as providing flour samples on demand and offering attractive payment terms, Mr. Nemecek said. The large, newly privatized mills never needed to concern themselves with these issues until recently.
But mills of all sizes are becoming more customer-driven and quality conscious in their quest for market share and survival. For example, AMPA's primary operating principle translates from Czech to English as “Our customer our lord.”
The AMPA mill, with a daily capacity of 150 tonnes of wheat and 100 tonnes of rye, is located near the confluence of the Labe (Elbe) and Chrudimky rivers. Milling in that location began in 1910.
The current structure was built during the period 1920 to 1924 by the prominent Czech architect, Josef Gocar, and had an original daily capacity of 30 tonnes of wheat and 10 tonnes of rye. The first owners sold the mill some time later to Centrofarina, a joint-stock company based in Prague. The mill was nationalized in the late 1940s, when it also became a management center for several other mills in the eastern Bohemia region.
The AMPA mill was one of the country's last to be privatized. The headquarters office of the State Company for Flour was located next door to the mill, and state officials held the AMPA facility off the market during the first round of privatization sales.
By the time the second round of privatization sales began in late 1993, the mill's employes had pooled resources, including privatization vouchers, to buy their mill from the state. Their chief competition in the bidding consisted of the state flour company officials located next door.
The mill employes were the successful bidders, but the price was dear. Their winning bid was 100 million Czech crowns or about U.S.$4.5 million at current exchange rates; mills purchased in the first round of privatization reportedly sold for only 30 million to 35 million crowns.
AMPA's employes used bank financing as well as vouchers to purchase the mill. The loan collateral consists of not only the building itself and the mill's other assets, but also the employes' own real property.
The mill uses equipment from Prokop Milling Machines, the Czech mill manufacturing company that was founded in 1870 in Pardubice. The wheat mill includes 11 Prokop type M22 roller mills installed in 1960, while the rye mill, renovated in 1990, includes four Prokop type PM4 roller mills.
The AMPA mill originates grain through direct contacts with growers in the region. It produces wheat, rye and specialty flours, which are shipped in bags and in bulk, as well as bakery mixes. AMPA also donates wheat for the Czech Republic's only milling school, located in Pardubice.Legend of the miller's coat of arms
In the Czech Republic, offices affiliated in any way with flour milling are likely to sport an intriguing piece of art: the miller's coat of arms.
The coat of arms originated in 1116, the same year the millers' guild was founded. The events inspiring this symbol of Czech milling have been documented by the Czech writer Beckovsy, translated from Czech as follows: In 1116, Vladislav I, a Czech prince, was asked by Stephen, a Hungarian king, to make Eternal Peace. To this end, both rulers met at the border with their armies.
Meanwhile, an evil fellow named Sok had been expelled from Hungary. Seeking revenge for his banishment, he sent a false message to both armies. The message turned the parties against each other so that instead of the eternal peace, a furious fight arose between the Czech and Hungarian troops, with alternating success.
Suddenly the Czech troops began to retreat, and not even Vladislav, who arrived to lead his army, was able to prevent them from flight. When the danger of defeat was highest and the Czech cause seemed lost, a man in a white tunic jumped among the Hungarians and began to cut them to pieces with his sword, until he was deep in their blood. When the other Hungarians saw this, they turned and retreated to the town of Buda.
After that glorious victory, Prince Vladislav asked his knights to identify the hero who had acted so bravely. The knights answered that he was a miller, George from Doupov, and introduced him to the prince.
When George bowed to him, the prince arose and reached out to shake the hand of the brave fighter. The miller, reaching out his own right hand, saw that he had lost three fingers in the battle. He quickly wiped his hand over his white tunic, staining it with three stripes of blood. Only then did the miller shake hands with the prince.
Then the prince addressed the miller as follows: “Thanks to you, you virtuous and brave hero, for you have delivered us from a great shame. For a reward, you and all offspring of your clan will use three red stripes in a white field, which you made yourself, as your coat of arms.”
At the same time, the prince named George from Doupov as warden of the town of Zatec and the surrounding country. Then, in the presence of the miller and the army, the prince sentenced Sok, whose behavior had aroused hatred and caused the fearful slaughter, to death.Total wheat flour production, Czech and Slovak Republics in thousand tonnes, wheat equivalent