Prospects for Flour Markets
September 01, 1997
by Teresa Acklin
Morton Sosland, editor-in-chief of World Grain, analyzes the remarkable rebound in U.S. flour consumption and the implications for growth in flour markets everywhere.
As a long-time student of flour markets, I can think of no time more exciting than the present for the flour milling industry in practically every part of the world. For instance, I'm comfortable in saying even though there's no way of measuring this with certainty that building of new flour mills and expansion of flour milling capacity are more active now than at any time in the past century or longer. The last time we saw anything like the current activity was prior to the turn of the 20th century when roller mills replaced stone grinding.
Here we can make an important distinction. That early era was driven primarily by a technological revolution. What's happening currently primarily results from expanding demand.
Of course, mills are being built or modernized to take advantage of new technology. But these expansions are of the sort that primarily stems from confidence about demand maintenance and growth.
It's appropriate to note that while the expansion that dominates the global milling scene may be attributed mainly to demand growth, the countries and regions where milling is in the doldrums are affected by very different influences. At a conference our company sponsored in Mexico City a few months ago, we heard that milling in many Latin American nations was negatively affected by forces like currency devaluations, dramatic advances in wheat and flour prices and even increased competition from other foods as markets opened and incomes rose.
In some Latin American nations, sudden freeing of wheat and flour prices and supplies had introduced uncertainties that initially proved negative. But also, don't forget that only one nation in all of Latin America, Argentina, is self-sufficient in wheat production.
Along similar lines, in central and eastern Europe the introduction of market forces at the start of this decade took its toll on consumption. But it's instructive to note how demand is recovering in those nations to the point where new mill building is now under way.
Let me acknowledge the problems we have in obtaining reliable data on flour production and disappearance, at either national, regional or global levels. It so happens that the most amazing trends in flour markets exist in the United States, where we have reliable numbers over many years. For this reason, it's my intention to give major attention to the amazing growth that has occurred in the American flour market.
Yet, I hardly can discuss the U.S. flour situation without first commenting on global production and consumption. This gives me the opportunity to express appreciation for the work of the International Grains Council in assembling statistics on flour production. Even though the last time the Council estimated world flour production was in the mid-1980s, it has continued to compile national production figures.
Global and regional production is best measured using the I.G.C.'s estimates of food use of wheat, which are issued periodically for major countries, regions and the world. Those estimates are all we have to measure global and regional trends.
Using the 1990-91 crop year as the base, the Council's projection of global wheat food use in the 1997-98 season, 434 million tonnes, shows an increase of 16%. Not too surprisingly, the gain is rather consistent year over year, averaging a trifle more than 2% annually and thus keeping in line with population gains.
While global numbers like these are always interesting, they mask the underlying excitement of regional figures. Using the I.G.C. wheat food use estimates for the first half of the decade of the 1990s, in effect comparing 1995-96 use with 1990-91, startling changes appear in flour consumption even over this brief time.
Demand is up in every major area except the Former Soviet Union and central and eastern Europe, where market-related impacts, as noted previously, obviously curtailed usage. What is important, though, is how much faster use is rising in Asia than elsewhere.
Asia's share of global wheat food use climbed to 57.2% in 1995-96, up from 54.8% only half a decade earlier. Both the Near East and Far East Asia gained market share, but the principal rise, of two percentage points, was in the Far East.
Europe western, central and eastern gave up market share in the first half of the 1990s, down to 12.9%, and so did the F.S.U. South America held steady, Africa gained a tenth of a percentage point, and North and Central America rose to 8.3% of total wheat food use.
The reasons for the rapid gains in Asian consumption are well known. This is the area with the fastest population as well as income growth, providing the ideal base for rising demand for flour-based food. Yet, Asia's share of wheat food use, at 57.2%, lags its 59.4% share of total world population.
Africa, with 12.7% of the population, accounts for just 8.1% of consumption. Europe's population and usage shares are very near the same; North and Central America consume more than their relative population share, and the Former Soviet Union, with 5.2% of population, accounts for 8.6% of wheat food use.
These numbers may be interpreted many different ways. So far as I'm concerned, they indicate that wheat food consumption in areas like Asia and Africa lags the major developed markets. Since these two continents are also witnessing the fastest rates of population growth, their possibilities for expanding wheat food consumption in the next century are impressive.U.S. Consumption Growth
It's also important to understand what is happening in a major developed market like the United States. This is a subject in which I've had a keen interest for a number of years, primarily because what has happened to flour consumption in America increasing quite rapidly on an aggregate and per capita basis appears to be at variance with what might have been expected to occur in a developed nation in the last quarter of the 20th century.
After holding unchanged year after year in the first seven decades of the 20th century, U.S. domestic disappearance began an upward course in the early 1970s that has been, for all intents and purposes, uninterrupted. From 1970 through 1996, U.S. flour consumption climbed from 10.1 million to an estimated 17.6 million tonnes. That is an increase of 7.5 million tonnes, or 74%, a rate more than double the population increase of 29%.
Considering that in the seven decades prior to the start of this upward swing annual consumption had held near 10 million tonnes as population gains were exquisitely offset by falling per capita usage, you can appreciate the dimension of what has occurred. Of course, the rise of 29% in population helped propel the increase in disappearance.
But the principal power was climbing per capita consumption. On a flour basis, per capita use rose from a historical low of 50 kilograms at the start of the 1970s to 68 kg in 1996. That's a climb of 18 kg, or 36%.
As astounding as that may be by itself, it's even more so when you remember that no other developed country has experienced anything like it. Most developed countries count themselves lucky if their per capita use did not decrease in the past 25 years.
At 68 kg per person, U.S. per capita flour consumption is the highest it has been since World War II, when wartime rationing of meat forced flour use. Of course, the current consumption level is well below its historical high at the turn of the century when the average was near 100 kg.
It's important to understand that production by U.S. mills has lagged the growth in consumption. Yes, mills in 1996 produced a record 17.8 million tonnes, and this was up 12% from the start of the decade and was 57% over 1970. But, in those same two periods, consumption rose 17% and 74%, respectively, outstripping the growth in output by five and seventeen percentage points, respectively.
Accounting for this discrepancy are two forces, which by themselves would make for an interesting, and also provocative, talk.
One is the drop in U.S. flour exports, falling to 498,000 tonnes of flour in 1996, down 42% from 856,000 in 1990 and off 57% from 1,163,000 in 1970. Not so incidentally, these were periods when world flour exports increased. Adding insult to injury was a surge in U.S. flour imports, to a 1996 total of 406,000 tonnes, contrasted with less than 15,000 tonnes in 1970.
It could be said that since 1970 the loss of exports and the rise in imports combined to deprive U.S. millers of more than 1 million tonnes of annual production. Considering that output did rise 6.5 million tonnes over that period, some naive observers might be tempted to ask what American millers have to complain about. That would belie understanding of the fiercely competitive U.S. market where mills fight for every kilo of business.
We've devoted considerable effort to singling out the factors accounting for consumption trends as dynamic as those occurring in the United States. Our aim is to provide some guidance as to what could be expected, or even done, in other parts of the world to nurture similar trends.Four Influences
We have concluded that four principal influences are at work here. These are: lifestyle, which is how people live and what factors influence food decisions; knowledge and perceptions about nutrition; demographic trends, not just changes in total numbers but also the role of ethnic diversity, as well as shifts in age and work categories; and the impact of a broad array of steps by industry and individual companies.
When it comes to lifestyle changes, first place must go to the surge in the number of women in the workplace, which in turn has accelerated a rush for convenience and for time-saving in food preparation. Sliced bread is the ultimate convenience food.
Other successful baked foods are those developed to speed-up food preparation at home, while giving the food preparer an opportunity to please the family. Informal eating, frequent snacking and outdoor barbecuing favor stepped-up consumption of grain-based food.
Nearly equaling the rise in working women as a positive influence is the mounting popularity of food eaten away from home. The moment rapidly approaches when half of all food consumed in America will be either eaten or prepared outside the home.
This trend has been propelled primarily by what is often called the “hamburger revolution,” relating to exponential growth of fast food chains like McDonald's. From the viewpoint of milling, this trend is best termed the “bun revolution,” which recognizes how practically every major product sold in fast food outlets comes either on a bun or is a finger food involving biscuits, tortillas or other flour-based food.
In examining the forces that might affect consumption in other nations, the global spread of fast food must be assigned great power. It's hard to overstate its importance in what has happened in the U.S.; it can have the same role in other lands.
Another aspect of lifestyle changes is the growing willingness to try new foods, mainly those of an ethnic origin. Americans have gone from being exceptionally cautious about what they eat to enthusiastic acceptance of the new.
The great rise in popularity of pizza and Mexican-style foods stands out. We estimate that pizza accounts for near 8% of flour used in the U.S.
Flour tortillas have become so ubiquitous that no longer does the prediction that they may some day challenge the leadership of white bread in the grain-based foods category prompt laughter. And while Mexican food may seem to dominate the ethnic marketplace, growth in bagels, which have an eastern European origin, and of rice, driven by its dual popularity in both Latin and Asian diets, ought not to be overlooked.
Demographic changes obviously have played a great role in the expanding market for grain-based food. At one time, the aging of the population and the relative reduction in number of teenagers, who are the heaviest consumers of grain-based food, were considered unfavorable. Totally unexpected was the shifting attitude of the baby-boomer generation, as they age, toward eating more flour-based foods.
Of all the forces I've listed, nutrition's role is the most difficult to define. Prior to the 1970s, bread and many other grain-based food were viewed negatively by consumers. It is no exaggeration to say that mothers in the 1950s and 1960s felt guilty about feeding white bread to their children. The nearly total reversal of that attitude is the cornerstone of consumption growth.
Yet, people do not eat bread or buns because they are considered healthy in the same way vitamin pills, or even milk and orange juice are consumed. As a source of complex carbohydrates with a fairly high fiber content and a good array of vitamins and other nutrients, the dietary role of bread, and especially whole grain bread, is recognized by nutritionists as essential. Enrichment and the recent addition of folic acid have helped in this regard. What has happened is massive transformation of public opinion.
The real turning point came in 1990 with the publication of the Dietary Guidelines for Americans. Drafted by the U.S. Department of Agriculture and the Department of Health and Human Services with the help of leading nutrition and medical scientists, the Guidelines recommend that Americans eat 6 to 11 servings of grain-based food every day. In effect, this suggests that consumption be doubled from the present daily average of 3 servings. And don't forget, per capita use currently is up a third from 25 years earlier.
While the Guidelines mark a great victory for grain-based food, the ultimate win turned out to be the release in May 1992 of the Food Guide Pyramid. The Pyramid is the Department of Agriculture's graphic representation of the Dietary Guidelines. In embracing the Guidelines' recommendations, the Pyramid positions grain-based foods as the foundation of the diet.Industry Efforts
Lifestyle, demographic and nutritional influences were hardly influenced by industry actions. Sure, wheat growers, millers and bakers have conducted programs aimed at educating opinion leaders about the nutritional values of bread and other grain-based foods, but a transformation like this can hardly be credited to that modestly funded effort.
Three other areas where industry had a role did help to accelerate these trends. One was the embracing by bakers beginning in the early 1970s of variety bread, in a departure from previous insistence that sliced white bread was not just the primary product, but for many plants the only product.
A second area involves in-store bakeries in grocery stores, the surge in craft-type baking that focuses on product quality and the development of a retailer supply system mainly offering mixes, frozen and refrigerated dough and par-baked products that makes it possible for small outlets to offer quality products and to compete in the tough American retail marketplace.
Nearly every supermarket in the United States has an in-store bakery, and these have boosted demand. There are now literally thousands of small outlets offering freshly-baked or prepared baked foods, from donuts to hearth bread, from tortillas to bun shops, from bagels to pizza, that didn't exist 25 years ago.
Retail and in-store baking now accounts for nearly 20% of flour usage in the United States. That is up significantly from a decade or so ago, while wholesale bread and cake bakers utilize a third of the nation's flour, down from 40% and more 10 years ago.
The third industry contribution to market growth has been product development to satisfy food service insistence on innovation.
Remembering that the 1996 increases in both total and per capita flour consumption were the largest in history, the U.S. industry faces the task of deciding whether the upward trend is gaining force or is somehow capping out. I remind you, though, that the official government recommendations would just about double consumption from current already elevated levels, and that is why many believe growth of grain-based foods has every chance of continuing.
Looking ahead to 2010, U.S. population is forecast to reach 300 million, up from today's 275 million. Assuming per capita flour consumption rising half a kilo per year leads to usage a little more than 10 years out of more than 22 million tonnes, up another 4 million-plus from 1996.
There's no question that realizing this depends on two forces the degree to which the message of the Food Guide Pyramid influences consumption and the success of the industry in providing new products.
One loud and very clear message from all this is the absolute importance of product quality to building markets for wheat foods beyond the sustenance level. There's no question but that success here depends largely on quality in wheat and flour, as well as skills in baking and in merchandising.
It's my belief that the American success story may be repeated in other lands where attention is given first and foremost to quality. If we succeed in this undertaking, we will have strengthened a great industry extending from wheat growing through milling and processing, but we also will have brought tangible benefits to consumers who could benefit from eating more wheat-based foods.
This article is based on Mr. Sosland's presentation at the International Grains Council's June 1997 conference in London.