Martin Connolly is this year’s president of the National Association of British and Irish Millers (NABIM). He became a second-generation miller by joining his father, Jim, at William Nelstrop and Co. Ltd of Stockport.
He joined Allied Mills, the milling subsidiary of Associated British Foods, as a management trainee in 1965. He was appointed managing director in 1992. Following the sale of part of Allied Mills to ADM, he joined the new owners as Business Development Director.
World Grain talked to Connolly in his capacity as president of NABIM; the views expressed here are not necessarily those of ADM.
WG: The U.K. flour milling industry is one of the most concentrated in the world with only three companies accounting for 60% of production. Do you expect to see any further concentration in the next few years?
Connolly: Not substantially. Bearing in mind the current market share thresholds applied by the U.K. competition authorities, if there is further consolidation, it seems more likely that some of the smaller operators in the U.K. market might come together than the larger businesses enlarging their overall share of the market.
WG: The price of bread in the U.K. is kept low by the powerful supermarket chains that dominate food retailing. How much does this affect the milling industry and what opportunities are there for improving margins?
Connolly: There is a range of bread pricing in the U.K., but it is true to say that prices are generally low by comparison with elsewhere in the E.U. or North America. Operators in a low-price environment have to be efficient in order to survive, and I believe that the U.K. flour milling industry is among the best in the world. In the wide bakery sector, there has been an increasing emphasis on quality, variety and branding in order to escape the difficulties associated with low pricing and persistent below-cost selling by multiple retailers.
WG: There is a very high level of integration between the milling and baking industry. Do you expect to see any further integration in the U.K.?
Connolly: The extent of integration in the U.K. is unusually high. In general, branded food manufacturers are divesting themselves of basic raw material processing divisions. Therefore I would not expect the degree of formal integration (i.e. ownership) to increase. However, there is scope for stronger trading partnerships, falling short of ownership.
WG: The quality of U.K. wheat is crucial to the millers, but farmers say they don’t get enough feedback. How can the links be improved?
Connolly: Communication between elements of the grain chain is probably better than it has ever been — although it could certainly be improved further. There is formal discussion using structures such as the Cereal Chain Centre (part of the Food Chain Centre established following the report of the Curry Commission) and the Home Grown Cereals Authority, an organization bringing together representatives of farmers, grain merchants and processors. In recent years, NABIM has developed its guide to wheat growers with a review on the choice of varieties and their likely value. We also maintain a regular dialogue with the National Farmers Union. Millers generally buy wheat on a minimum specification. Where the standard is not met, suppliers receive feedback on what the problems were. In common with most businesses in the food sector or not, we do not give feedback on loads where contractual requirements were met.
WG: How important is the Assured Combinable Crops Scheme in the supply of wheat and increasing consumer confidence?
Connolly: The ACC scheme represents a big step forward for the U.K. grain trade. It provides traceability where grain comes direct from farm. By requiring minimum standards and independent inspection it provides a level of assurance not available anywhere else in the world. It is definitely a step forward in enhancing the attractiveness of U.K. grain. Members of NABIM now source grain exclusively from assured suppliers.
WG: How does the operation of the supply chain in the U.K. compare with other European countries, and are there any changes you would like to see?
Connolly: The U.K. is unusual in that the majority of grain is delivered to the end user, including millers, direct from farm without going through an intermediate storage point. This has both benefits and disadvantages. The benefits are in terms of traceability, varietal segregation, ability to source small lots of specific quality and cost/efficiency. The main disadvantage is that grain will not have been sorted in terms of quality, meaning that there is considerable variation at the point of delivery. The trick is to retain the benefits while minimizing the problems. The current focus on improving on-farm sampling and encouraging farmers to understand what they have and market it more effectively are necessary steps towards improving efficiency and minimizing problems on delivery, for the benefit of all.
WG: Are there any major technical developments in the milling industry coming up in the near future, and do you see any change in the potential for GM wheat in the U.K.?
Connolly: If there are major technical developments in milling, I am sure they are already well known or else commercial secrets. So far as GM is concerned, there currently appears little prospect of a change in the attitude of consumers or customers, who do not favor the use of GM materials, meaning that U.K. millers would have to avoid it. However, the arrival of GM wheat does not appear imminent. Even though Monsanto is seeking regulatory approval for its round-up ready wheat, it has publicly stated that commercialization would not take place until the market was assured and a mechanism had been found to satisfy those who wished to avoid GM in their products. The trick will be to find mechanisms that can satisfy the aspirations of both sides, which will be tough.
WG: French mills have been moving sizeable quantities of flour into the U.K. Do you expect this to continue and are other countries like Germany likely to follow?
Connolly: Almost all the French flour coming into the U.K. is used to make products considered French in some sense. It is possible that sales of this type will increase in the same way that there is a growing demand for English style products in France. However, it is equally possible that the current level of imports will diminish through substitution by U.K. milled flour. The English Channel is an expensive strip of water for bulk flour tankers to cross.
WG: What are the prospects for U.K. millers to expand into mainland Europe — and do you expect to see the development of transnational purchasing?
Connolly: Flour has a low value to weight ratio, meaning that it is expensive to transport long distances across land. For convenience, large flour buyers may wish to establish a European tendering system, but it is debatable whether this would need an EU wide flour milling company to supply. It might be equally possible for existing businesses to enter into a marketing arrangement in order to meet customer requirements in several different markets.
WG: How will the eastern expansion of the E.U. affect the U.K. milling industry and do you expect to see any big changes in wheat sourcing patterns by millers?
Connolly: E.U. millers, including the U.K., have been looking at wheat from Eastern Europe, including the new member states, for some time. Therefore they are already familiar with it and have been using grain shipped under concessionary import arrangements for a number of years. Accession seems unlikely to make a huge difference immediately. Of course, if there were problems with other origins — for example associated with GM — that might change.
WG: What are the prospects for the expansion of industrial uses of wheat and how will this affect the U.K. milling industry?
Connolly: Expansion of industrial use of wheat (and other crops) is mostly centered on potential replacement of fossil fuel derived energy and chemicals. Therefore it is entirely dependent on price relativities and government taxation policy. In general, if this kind of approach encourages farmers to maintain wheat production, it should be good for the flour milling industry. Elsewhere, there are opportunities to develop other non-food uses of flour (aside from starch) but these tend to be relatively small in scale.