A year ago, in an examination of flour milling's remarkable growth and change in the 20th century, we described flour milling at the end of this century as having reached its "golden age." This judgment reflected our belief that the foods made from the industry's principal products were very near their apogee of consumer acceptance, as well as our appreciation for the newfound willingness of mill owners to invest in new technology and new capacity.
The latter was a radical departure from the past, especially in North America, where for much of the 20th century extreme caution ruled about investing in plant modernization, much less the building of new flour milling capacity. The change in attitude reflected two relatively new phenomena. One was a genuine desire to keep pace with milling technology, to invest in new engineering and new equipment in order to take advantage of electronics and computer-driven systems that offered greater output at lower unit cost. The second was the wish to stay abreast of the amazing market expansion that had come to characterize flour milling in the last half of the century that is now drawing to a close.
The charge today is to postulate flour milling's future, specifically looking to the 21st century, and if we want to be bold, speculate on the outlook for the industry in the third millennium. It is a future that, while being cloudy, may be described as more promising than at almost any time in the long and venerable history of milling.
The principal products made from flour are the only manufactured foods available to consumers today that would be recognized by consumers of 1,000 years ago as essentially the same. Despite that longevity, there is nothing about these products, their quality, their long history, their nutrition, their value, that absolutely assures the future is ours for the taking.
DEMOGRAPHIC FORCES. Grain-based foods at the middle of the 20th century lost "share of stomach" to many other foods. How consumer attitudes turned in favor of flour-based foods is reflected in an upward trend in per capita consumption of flour, magnifying the benefits from growth in population.
U.S. population expanded by 77% between 1950 and 1999. Total flour consumption in that same half-century rose 96%, bolstered by rising per capita use. In the first 50 years of the 20th century, population gains were totally offset by per capita consumption declines. This left flour disappearance unchanged year-after-year, creating a milling industry with economics starkly less promising than now.
The U.S. numbers are straightforward — growth from the present to 2010 of 10%, to 2025 of 24% and to 2050 of 46%. Remembering that population expanded 77% in the last 50 years of the 20th century, the outlook is for a slowing in the rate of growth. However, even gains at the currently projected level would require significant increases in flour milling capacity.
Milling operations for most of the
past decade were very near 90% of six-day capacity. Runs at that rate leave
little flexibility for increasing production. More recent milling expansion may have changed that, though, for the worse, as witness the growing complaints about slack operating rates.
Raw population numbers are important, but need to be studied in the context of one of the most important lessons learned from the century now drawing to a close: That the U.S. market for flour-based foods is not one great big homogenous marketplace, but a highly diverse market driven by geography, ethnicity and those other two powerful demographic forces — age and income.
It wasn't very long ago that rising incomes foretold a fall in consumption of foods made from flour. Now that reaction is just the opposite, due in part to the proliferation of varieties and also to knowledge of the role of grain-based foods in healthy eating. Health concerns directly affect food preferences, especially in a time of prosperity in the U.S. when consumer decisions are often influenced by economic well-being.
In using population forecasts as guides to the future, millers and other producers of grain-based foods must give careful attention to trends like the projection that the number of people 65 and older is going to increase in the next half-century at a faster rate than the total population.
There was a time when consumption of flour-based foods was measurably higher among teenagers than older people; that has changed and is continuing to change, to the industry's benefit. Similarly, forecasts of a rising share of Hispanics, a decrease in whites and no change in the proportion of blacks all stress alertness. Considering how flour tortillas have skyrocketed as a relatively new food signifies the importance of these forces.
Not to be neglected in this context are the momentous changes under way in family composition, as well as what constitutes a household, of who works and who doesn't.
America's shifting demographics also will effect change. Growth in Florida, Texas and California will account for the major share of the aggregate population gains expected in the next half century. Seeing the central role these states have had in recent capacity increases, it is obvious that appreciation of where the people will be exerts a major impact on the location of new milling.
This helps explain why the preferred location for new milling capacity increasingly leans toward where the consumers are rather than where the wheat is grown or where millfeed enjoys the highest values. Location was one of the major strategic issues faced by millers in the 20th century. The only certainty is where population is growing the fastest. Major inputs like transportation service and costs reflect as much uncertainty going forward as they ever had in the past.
Except for the slowing in overall growth, the bottom line is that population prospects into the next century present a fairly positive scenario for flour milling. A certain level of caution, though, is called for in looking to the likely trend of per capita consumption — the other powerful force — into the next century.
CAPTURING CONSUMER DEMAND. Much of the credit for the gains of the past 50 years belongs to a radical change in consumer attitudes. At the middle of the 20th century, many consumers regarded bread negatively. Enrichment of bread, which began at the start of World War II and was initially hailed as an unparalleled opportunity to increase public appreciation, fizzled as an influence. Instead, it was the positive perception of bread in reaction to rising health concerns about heart disease and cancer that managed to effect the amazing reversal.
This attitude change climaxed in 1992 with the U.S. government's release of the Food Guide Pyramid that strikingly defines grain-based foods as the foundation of a good diet and advocates a consumption level double the current rate. But we worry that the Food Guide Pyramid has been diminished, and we worry about an industry that would let this happen to the most powerful endorsement any food industry ever received.
There are reasons for concern that the upward trend in per capita consumption experienced since the early 1970s may not be maintained. After all, U.S. per capita flour use is now fairly well in line with that of western Europe, where per capita use has been stymied for some decades. But the industry's neglect of its own opportunities worries us the most. No wonder we hesitate in saying that per capita consumption, having risen from the all-time low of 110 pounds in 1951 to a range of 148 to 150 pounds currently, will continue indefinitely on that upward slope.
Having thrown a monkey wrench into the Pollyannaish speculations of those who like to see no limit to flour market growth in America, we have no hesitancy in declaring that the industry's future is no more constrained than it has ever been. Only shortsightedness and myopia have gotten milling and grain-based foods into trouble in the past. Any theoretical ceiling on consumption may be lifted by attention to the industry's strengths and by recognition that product quality and innovation may do wonders to capture consumer demand at a pace that would make the 21st century even better than its predecessor.
Milling's future depends on more than the course of flour consumption. The importance of domestic use to U.S. milling operations has been intensified by shrinking flour exports. At one time, U.S. flour exports accounted for nearly 20% of the year's output. The decline to less than 3% in recent years means that domestic use is all-important.
At the same time that exports collapsed, largely because the U.S. government has rebuffed all entreaties to help millers compete in the global marketplace against special assistance enjoyed by European Union millers, imports of flour have risen to a fairly significant total. Imports in 1998, just shy of 10 million hundredweights, supplied 5% of domestic consumption.
Milling's economic position as the interface between wheat farmers and manufacturers of consumer foods makes the industry particularly vulnerable to events in the two parts of the food chain that face astounding changes in the 21st century.
At the start of the 20th century, more than half of the output of U.S. mills went into household flour for home baking. The shrinkage of the home baking share to hardly 5% currently may be categorized as the seminal event of the 20th century in market transformation. It also has cast milling's lot with bakers and other food manufacturers that expect a consistent, high quality ingredient at ever lower cost.
Milling's relationship with food manufacturers is undergoing a revolution of sorts just as the 20th century ends, and dealing with that will be a tremendously important influence on the industry's future. As the new century approaches, bakers and other flour-using customers will come to look upon millers as essential allies in attaining desired production results.
EVOLVING RELATIONSHIP. To a growing extent, bakers want their flour suppliers to be innovative by coming up with new ideas that meet production requirements. They want flour that does better at lower cost. That relationship signals great change in how flour mills are designed, engineered and operated from when millers cared mainly about maximizing yield.
Several leading mill equipment manufacturers were asked what the equipment needs of the future would be. In each response, considerable attention was given to this evolving relationship between millers and flour users. One declared that flour in the future will increasingly be milled "to meet a customer's unique requirements, not to analytical or numerical specifications." Another asserted that conventional milling systems would not suffice to meet demands for improved functionality.
Still another cited the increased demand on bakers for specialty products that in turn require different sorts of flours. In this instance, great attention was given to the need for "absolutely consistent and pure flours to prevent quality problems and damage claims."
Flowing from this need to respond to customers' demands was a vision of the milling plant of the future that would combine flexibility to allow the production of a much broader range of flours, while doing this in a highly efficient manner. Here the emphasis was placed on the absolute importance of designing the logistics of the entire operation to avoid inherent paradoxes. This was appropriately described as "a true challenge to the abilities of the engineers."
Another came out in favor of what was called "a simplified milling system" that would improve flour quality, promising "a superior quality flour in a more efficient manner."
One engineering firm tempered insistence on automation by underscoring that consistency and quality may not be sacrificed.
Only one went so far as to wonder whether the "new" relationship between flour millers and customers would not at some point lead to new sorts of alliances. The implication is that the miller-baker relationship may evolve to the point that, short of total integration, alliances between millers and bakers may come close to tying the knot.
This already has occurred in durum milling and pasta manufacturing, where more than half of the semolina produced is for a specific pasta plant. Outside of pasta manufacturing, Nabisco's large Toledo mill, producing more than 80% of its flour requirements, is the only other example of total integration.
The geographic spread of baking in the United States, reinforced by the perceived need for local baking capacity in all major markets, has made captive or even dedicated flour milling unrealistic. But this doesn't mean that change will not occur, even as the principal flour-using products have changed.
In milling for instance, the concept of plant specialization has hardly caught on. This system, called "reciprocal baking" among major wholesale bakers that have increasingly seen the advantage of dedicating individual plants to a limited range of special products, is so rare in milling that its existence in one company is often the subject of conversation. Yet, milling companies in other developed nations have embraced this concept to the point where its possibilities loom large in the future structure of the American industry.
IMPACT OF BIOTECHNOLOGY. Of all the factors from which revolutionary change may strike milling in the 21st century, none deserves closer examination than wheat. Yet, none of the equipment manufacturers who responded to our informal survey even speculated how biotechnology could change wheat and thus flour milling.
Most pointed to the likelihood of increasing difficulties with the quality of wheat being produced around the world, requiring millers to grind grain that might have been rejected as unsuitable a few years ago.
Also cited as a wheat-related factor was reduced use of insecticides and pesticides. For one company, the conclusion was a need "to develop highly efficient cleaning and blending systems to ensure consistency and purity."
Milling in the 21st century may face a major revolution brought about by biotechnology. The companies that have invested billions in research and acquisitions are not doing that simply to increase crop yields. They have claimed the ability, through genetic modification, to produce wheat with many different end-use characteristics, including specific texture and grain of bread, degree of sweetness and greatly improved milling yield. That makes for quite a combination of effects on how wheat is milled.
It is also that promise that has stimulated the major integration that has occurred in flour milling — not forward integration into baking, but backward integration into wheat origination and marketing. The degree to which major flour milling companies are integrated with their grain supply is an amazing development at the turn of the new century.
Recalling how milling companies not very long ago were divided between spring wheat, hard winter wheat and soft wheat companies, the easiest differentiation looking to the 21st century is between companies that are and those that are not integrated in originating wheat.
The three largest flour milling groups in the United States are divisions of businesses with a broad range of interests in grain and oilseed processing. For these companies, integration of flour milling with wheat origination is nothing more than an extension of broad-scale integration across all parts of grain and oilseed processing.
The independent millers — flour millers that are only millers — have been much less aggressive in building their own grain origination capabilities. Yet, as consolidation proceeds at a rapid-fire pace, the problems and the choices this creates for independent millers in securing wheat supplies assumes major importance in looking to the next century.
INFLUENCE OF FOOD RETAILING. At the other end of the broad spectrum of influences on milling's future is the near certainty that changes in food retailing will have much more to do with milling's future than it had to do with the past.
Historically far removed from the main issues of importance to milling, food retailing suddenly appears as a tremendous force in how flour milling changes into the new century. At work here are three distinct forces:
Rapid consolidation that is creating grocery chains with massive purchasing power and the ability to make demands on baking suppliers that cannot help but work their way into how flour is bought.
The entrance of Wal-Mart Stores, Inc., into food retailing in a major way to the point that the group, with its high expectations of suppliers, has become the third largest food retailer in America and openly aspires to be the leader.
The expanding importance of food service as a force in how food reaches consumers. Food service has grown to account for just about half of food spending in America, and there is little disputing the forecast that it will account for a major part of the food marketplace growth in the new century.
The ways in which a fast-changing retail food marketplace has already affected milling are many. Look at in-store baking, which now has a presence in every supermarket or hypermarket in the nation. Refrigerated and frozen dough have become the preferred backbone of in-store baking, and the quality requirements of this segment of the industry has become as great an influence on flour specifications as has that powerful subset of baking that makes buns for the major fast food chains.
In thinking about the multiple forces that are coming to bear on American flour milling from both the wheat side and from the retail food marketplace, the initial inclination might be to wonder about the future of an industry buffeted by so much. Yet, all of this is accompanied by a rising appreciation for flour-based foods. Millers owe it to themselves to assure that this potential is realized.
Millers also need to recognize that the industry's success and well-being, whether in the developed world or in a newly emerging nation, depends on keeping abreast of the latest technology. Electronics and computer controls have come near to effecting a revolution in how flour is milled.
Driven by what's ahead in wheat and in the retail marketplace, one senses that further great change is ahead in how wheat is milled. This may come about through discovery and scientific research, or it may arise from the biotechnology that most surely will sweep through wheat production.
At the middle of the 20th century, when much about flour milling was doom and gloom, James Ford Bell, the founder of General Mills, Inc., and one of the most distinguished flour millers of the 20th century, declared his confidence that milling's future "would pale its past." He based his optimism largely on his belief in the ability of science to point the industry in new directions, including new milling methods and new products.
The time is near when Mr. Bell's prognostications about milling's future may be realized. Wouldn't it be wonderful if that occurred as the new century and new millennium got under way?