Milling is highly competitive during the best of times, but competition is especially fierce at a time of recession. During the recent joint Home Grown Cereals Authority/National Association of British and Irish Millers Milling (HGCA/nabim) Wheat Conference in Cambridge, U.K., the topic of having to cope with a consumer move to lower priced products was brought up repeatedly.
"There is no doubt that the last couple of years have been extremely challenging," Paul Heygate, president of nabim, said during his presentation at the conference, held Feb. 25. "The good news has been that the volume of sales has been undiminished as people continue to eat.
"This still remains a vibrant and a dynamic sector with a strong attachment to using home-grown wheat. U.K. millers through nabim are committed to U.K. wheat and U.K. growers."
Howard Leland, head of procurement at Allied Mills, highlighted some problems. "There is overcapacity in the industry to start with," he said. "Depending on the time of year, we’re averaging around 10% overcapacity in the U.K. flour milling industry."
Taking U.K. bread sales for the week ended Jan. 23, Leland did identify a small 0.3% fall in the total consumption of bread, a market worth around £3 billion a year. "Total plant bread sales are falling, which is not good news for any of us," he said.
Consumers have responded to recession, and the U.K.’s sluggish recovery, by changing the type of bread they eat. "The big news is rolls and baps," he said, citing a 5.6% decline in volume year on year. "This is a lot to do with the recession. Rolls and baps are quite expensive per portion in comparison with sliced bread."
The same week showed a 43% drop in organic bread sales, although he did point out that it was from a very low base, with a share after the fall of just 0.7%. "That’s another effect of the recession," Leland said. "The other loser is ‘healthy’ (breads)." That sector, he said, was down 9.9% to an overall market share of 5.2%.
Recession has made consumers less inclined to experiment. "People are going back to basics," he said. "They are buying cheap stuff that they know they will like." Leland also noted a long-term downtrend in sales of premium wholemeal bread, the most expensive type. Its fall of 16% on the year is not just an effect of the recession.
The fall in bread consumption is being driven by older people, with men ages 45 to 64 and women 65 and older showing the sharpest cuts in the number of occasions on which bread is consumed. "The baby boomers are all eating less bread now," he said, noting the growth in this age group as part of the population. "This category is the group of people which is expanding the fastest."
Leland identified the three main drivers in the bread market as health, enjoyment and practicality. In the long term, health as a driver for bread consumption has been growing at the expense of practicality.
Carbon footprint and provenance are important in consumers’ thinking when they buy bread, and some companies have adopted labeling accordingly.
The three big brands in the U.K. — Kingsmill, Hovis and Warburtons — have all spent heavily on advertising on new product development, reaching a total of £51 million over the past three years.
WHAT MILLERS WANT
In front of an audience taken from all parts of the grain supply chain, Leland also looked at what millers want from their suppliers. "We need a supply chain that understands the dynamics of the market," he said. "We need growers to understand what their local and regional consumer is." Millers want a supply chain that understands the dynamics of the market and wheat market liquidity that facilitates flour price risk management.
Although the "Green Revolution" is history, plant breeders are still making progress with wheat, according to Dr. Ed Flatman, senior U.K. wheat breeder at RAGT, a prominent European seed company. "Clearly yield is a key driver," he said. "Roughly, per-decade breeds are improving yield by 5%. We need to improve that."
Growers need reliable end performance as well as suitability for endmarkets, he said. Varieties have to meet the specification reliably and be easy and cost-effective to produce. The end user also wants consistent quality, as well as ease of processing, reliability and flexibility.
Breeders’ ability to understand and apply genetic markers had grown enormously, he said. "Every day we are understanding more and more about the core genetics," he said. "All the time we need to anticipate change."
U.S. MAIZE MARKET IS KEY
From Jack Watts, senior analyst, AHDB-HGCA Market Intelligence, came a warning that the U.K.’s wheat market is very much part of a global grains picture. This year what growers in Britain need to watch is U.S. maize (corn).
"In 2010, it’s the state of the U.S. maize crop that will be the more influential over U.K. wheat markets than the state of the U.K. wheat crop," Watts said.
The reason is the tight ratio of stocks to use in maize, while wheat stocks have been rebuilt. "We’ve seen a radical divergence between wheat and maize," he said.
He explained that the increase in wheat stocks had been due to the unprecedented performance of arable agriculture around the world during the last three years. "In the 10 years prior to 2008, the world only saw a wheat surplus in three years," he said. "Production on the other hand is more volatile."
There are other factors which play a role in markets. "In 2009-10, funds have been short of wheat," he said. "We’re still going to see volatile currencies. Both of these issues have nothing to do with the physical grain market."
Even though it is still a long way until harvest 2010, because 90% of the wheat crop is in the northern hemisphere, most of the planting decisions have already been made, making it possible to get some impressions of production. "We have a reasonable idea of what’s been planted," Watts said. "Unsurprisingly, given the reduction in prices, the expectation is that the area will fall by just over 1%."
The E.U. is an exception, with area up by 0.7% to 25.9 million hectares. "The E.U. sticks out like a sore thumb," he said. "That, in my view, is down to the poor profitability in barley. The E.U. wants to plant anything but barley."
The 2010-11 world crop is forecast at 653 million tonnes, and demand is expected to rise by 1.5%, which means that supply and demand are likely to be closely matched.
Watts also highlighted reasons for uncertainty, including North American spring plantings, plantings in the southern hemisphere and the impact of weather on growing crops. "There are more questions than there are answers at this stage on the new crop," he said.
His colleague, Michael Archer, took a close look at the U.K.’s 2009 wheat crop and showed the overall crop figure may not be the one to give a correct picture of bread-making wheat availability. Although the crop was down by 2.85 million tonnes overall, the declines were limited for the highest quality varieties. At the same time, a higher proportion of those varieties had achieved the specification.
In Group 1, High Quality Breadmaking Wheat, the estimated percentage meeting the actual NABIM Group 1 spec of 76 kg/hl, 250 Hagberg and 13% protein was just 6% in 2008. That rose to 26% in 2009. The same was true of Group 2, the next quality category down. The proportion which met the spec (74 kg/hl, 180 Hagberg and 12.5% protein) in 2008 was 17%. In 2009 it rose to 45%.
So despite the overall fall of nearly 3 million tonnes, the 2009 crop in the U.K. had actually produced 440,000 more Group 1 specification wheat and 1.31 million tonnes more Group 2 specification medium-quality bread wheat. At the same time, demand from millers was down by 1% in the period July to December 2009, compared with the same period the year before.
"The percentage of Group 1 and 2 has actually done quite well," he said. "We’re seeing an increase in high-quality and medium-quality bread wheat despite the lower crop. Availability looks probably better than the previous year."
The conference also heard from farmer James Price about how careful use of nitrogen, including the use of yield mapping, had enabled him to raise his farm’s average yield from 7 tonnes to 8.5 tonnes a hectare and to develop the confidence to go for milling spec.
He started almost by chance in 2003 with the purchase of a new combine. "The combine came with yield mapping, so we did it," he said.
The data collected in the first year wasn’t much use, but eventually he got to find out a lot about how the farm could perform. "You start to build up a picture," he said.
"Fertilizer has become the most important thing to get right," he said. "It’s also very difficult to get right."
Chris Lyddon is World Grain’s European editor. He may be contacted at