Specialty Milling in Canada, part I

by Stormy Wylie
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Canada's milling industry, like many Canadian businesses, went through a major restructuring in the 1980s and 90s in response to stronger global competition and technological change. The number of mills in Canada declined dramatically between 1970 and 1990, but observers say the industry is healthier today because of consolidation and modernization, good capacity utilization, improved two-way trade with the U.S. and a rise in per capita flour consumption spurred by the growth of in-store baking. Two new mills in Canada, featured on the following pages, have invested cautiously and wisely in niche markets, hoping to capture market share through a service approach.

If building North America's newest and largest certified organic flour mill, grains processing and packaging plant wasn't a big enough goal, the founders and investors in Canada's FarmGro Organic Foods Inc. have an even loftier vision of the future: they want to develop an organic food processing "village."

This village, to be built on FarmGro's 15 acres of land just east of Regina, Saskatchewan, would include not only the C$12-million, 16,000-tonne processing plant and flour mill that became operational in June, but also facilities to provide organic pasta, frozen bakery products, soup mixes, vegetable processing and even an organic feed mill.

Gerry Liski, chief executive officer of FarmGro, said the company's goal is to serve global customers with a "one-stop shopping" marketing concept.

FarmGro is capitalizing on a virtually untapped market in one of the fastest-growing food segments in the world. Sales of organic food products have exceeded 20% in the United States in recent years and have grown by as much as 35% annually in Japan for each of the past six years.

According to a recent study by the International Trade Center, Geneva, the biggest markets for organic products are North America, Europe and Asia, where sales are expected to reach U.S.$20 billion this year. The World Trade Organization estimates the market share of organic products will reach 10% in a few years.

Organic foods are no longer a fad or a trend. Once found only in farmer's markets and health food stores, organic food products are increasingly showing up on the shelves of mainstream supermarkets.

"Consumers are raising their expectations for healthy, nutritious and safe foods," Mr. Liski said. "Consumer concerns about foods made from genetically modified agriculture products is an indication of this trend. There is also a continual growing initiative for a safer and sustainable agricultural environment."

For a product to be labeled "certified organic," it must meet standards set and verified by a third-party public or private entity, according to Katherine DiMatteo, executive director of the Organic Trade Association, Greenfield, Massachusetts, U.S. In a recent interview with Milling & Baking News, sister publication to World Grain, Ms. DiMatteo said, "Although organic standards may vary somewhat from certifier to certifier, they generally require that land on which organic food and fiber are grown must be free of prohibited substances (such as pesticides) for a minimum of three years prior to certification."

Organic farmers and processors are required to prepare a comprehensive plan detailing their management practices, maintain thorough records to document their adherence to the organic plan and undergo an annual inspection of their operations. "Certification ensures the organic integrity of a product and thus is a key requirement for organic products traded in the international market," Ms. DiMatteo said.

The growing demand for organic food products is evidenced by the amount of crop land being dedicated for organic production worldwide. In Europe, farmers are being subsidized to switch to organic production. In Austria and Germany, about 10% of agricultural land is earmarked for organic production and Denmark wants to have 50% of its land in organic farming. Certified organic cropland in the U.S. more than doubled during the 1990s, according to the U.S. Department of Agriculture.

Canada has seen a 20% increase in organic farming, according to the Canadian Wheat Board. But the growth of the Canadian organic farming industry has been restricted by the lack of a totally dedicated organic food processing facility, according to Bob Balfour, an organic grower in Regina and the founder of FarmGro.

Organic growers traditionally have had a hard time finding a miller to process their grain. Mills that handle chemically treated grain must clean out their bins, roller mills and other equipment before processing organic grains, and few want to be bothered with keeping up the trail of paperwork that must accompany each bag of flour to ensure its organic integrity.

So, Mr. Balfour set out to build an organic flour mill.

THE NEW ECONOMY. The story of FarmGro began in 1995 when Mr. Balfour shared his dream of building a dedicated organic grain processing facility with Regina restaurant owner Fred Soofi, who was seeking a source of organic products for his customers.

"Organics is the new economy," said Mr. Soofi, who took time from his duties as chef at his Pasta Prima restaurant in Regina to talk with World Grain. "I think it is the future."

Mr. Soofi, a native of Iran who came to Canada as a student 27 years ago and went on to build up a successful restaurant business, envisions the day he can produce and market fresh organic pasta in North America, using FarmGro organic semolina.

Things really started cooking in 1997 when the two men incorporated Farm-Gro and attracted a small core of grain industry experts to manage a small start-up office. One of those experts was Mr. Liski, a former senior executive with Saskatchewan Wheat Pool. Another was Peter Aizlewood, a native Britain now living in Canada and a consultant to the grains industry.

The next task was to attract investors. Although a public share offering is currently in the marketplace, several Sas-katchewan businesses and organic producers signed on originally, as did Nichimen, a Japanese general trading company, and several provincial and federal Canadian corporations, including Crown Investment Corp., Sas-katchewan Government Growth Fund, Farm Credit Corp., Western Economic Diversification Canada, the Royal Bank of Canada and the Canadian Imperial Bank of Commerce.

Prokop, a Czech flour mill equipment manufacturer, also decided to invest in the project after winning the contract for the milling equipment.

Mr. Aizlewood said the Farm-Gro project was interesting "from day one." When entering the tender process, many of the larger, more well-known milling engineers "respectfully declined to quote," he said, "as this was a small but unique project, with the mill designed for both hard wheat and durum semolina." The quotes from Prokop, however, were "very attractive."

Prior to signing the contract, Mr. Aizlewood, Mr. Balfour and Mr. Liski visited Prokop's factory in Pardubice, Czech Republic, and visited three Prokop-equipped mills. At Mr. Liski's invitation, Prokop also agreed to buy a nominal number of shares in the company.

"To be sure, Prokop wanted a North American presence and bent over backwards to ensure we got a good mill, and FarmGro did," Mr. Aizlewood said.

BUILT FOR EXPANSION. FarmGro was built with an eye on the future. The initial milling capacity is 15,500 tonnes per year, but the facility was designed with enough space to eventually double capacity. The grain processing plant, which can clean and package about 18,000 tonnes of organic specialty grains each year, is situated on a railway line and is between two major provincial highways. But for now, all raw materials are brought in by truck and all finished product goes out by truck.

FarmGro's certified organic products include white and whole wheat flour and durum semolina in 10 kg (25 lb) and 20 kg (50 lb) bags and in 1-tonne (2,200 lbs) tote bags; milling and processing by-products such as bran, shorts and screenings; and a variety of cleaned and bagged certified organic grains and specialty crops, including hard spring wheat, durum, soft spring wheat, malt barley, oats, flax, rye, triticale, lentils and peas.

Organic specialty grains will be available in 20-tonne bulk container lots, and plans are to make white and whole wheat flour and durum semolina also available in bulk. The FarmGro facility was built with four loading bays for full truck loading.

In its first few months of operation, FarmGro has filled full truck orders but the majority of orders to date also include less than a truckload: two skids, four skids.

Jim Desjardins, FarmGro's marketing manager, has been busy marketing FarmGro products in North America, Europe and Asia. Building up a customer base is a gradual process, he said.

"Customers start out wanting one or two bags. Then they'll ask for a skid. Then, they'll want four skids, then a full truckload," he said.

FarmGro has 16 receiving bins, including eight 200-tonne bins for wheat and eight 50-tonne bins for specialty grains. Two software systems are in place, one for grain receiving and another for milling. The cleaning house is equipped with three bins for dirty wheat.

The 4-story mill has all the equipment one would find in a traditional flour mill: roll stands, sifters and purifiers, all supplied by Prokop. The yield management system gives instant feedback on how the mill is performing, said Ian Slimmon, operations manager.

Mill processing scales supplied by Comptrol provide feedback to the yield management system. The facility also is equipped with Carter Day grain cleaning equipment for specialty grains cleaning.

The fully equipped laboratory, run by Karen Hammond, quality assurance manager, has all the standard equipment: Leco protein analyzer, Dickey-john grain analyzer, Perten Falling Number, Brabender Farinograph. Ms. Hammond also test-bakes bread, looking at loaf volume, height, crust, spring, bubbles and color. But while most mills spend up to U.S.$30,000 on baking equipment for their laboratories, FarmGro is able to make do with two bread machines.

But the biggest difference between FarmGro and a traditional mill is the attention to housekeeping. Just as the organic farmer cannot use pesticides on his field, the organic processor cannot use fumigants or other chemicals to control infestation.

"We maintain control by old-fashioned methods," said Mr. Slimmon, operations manager. "By keeping the plant clean, you deny pests the basic needs for survival — shelter, food and water."

Mr. Aizlewood, the consultant for the project, said the facility design had to take into account the stringent housekeeping requirements.

"We knew that with the mill being 100% organic, the use of chemicals, gases, etc., for infestation control would not be allowed," he said. "Therefore, the attention to the building design to make it as much as possible inhospitable to pests, and the actual construction to ensure this was maintained throughout, was a major challenge."

He said this was especially difficult when dealing with engineers and building contractors who were not familiar with the sanitation requirements of a food plant. "However, I would venture to say that any new flour mill built today would have similar requirements, but not quite as onerous as an organic facility," Mr. Aizlewood said.

Good, quality construction and smooth concrete surfaces aid in housekeeping functions, and every four to six weeks the mill is shut down for a thorough cleaning. Even the electrical cables that power the equipment are kept away from walls where they can catch dust and harbor pests, and are instead mounted on an open ladder-like structure around the ceilings.

"It's a laborous process," Mr. Slim-mon said of the housekeeping task, "but a critical one."

Mr. Desjardins added, "The key word in organics is integrity. You have to be prepared to put in some extra work involved to maintain that status."

Because integrity is so crucial, an audit number is assigned to every bag of flour or grain. FarmGro installed the FlourSmart program, developed by dbc SMART software, Inc., which provides automatic lot tracking. Within 20 minutes of inputting the audit number, the program will print out full documentation, with a paper trail that traces the product from the final consumer all the way back to the farmer and field.

FarmGro is audited annually by the Organic Crop Improvement Association and Quality Assurance International, and is licensed by the Canadian Wheat Board and the Canadian Grains Commission as an accredited purchaser and exporter of flour, grains and specialty crops.