U.S. baking industry official asks millers to be more active in political process.

by Teresa Acklin
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   Consolidation and heightened competition are pressing the U.S. grain-based foods sector, and tax and regulatory burdens exacerbate the struggle to operate profitably, according to Frederick E. Cooper, chairman of the board and chief executive officer of CooperSmith, Inc., Atlanta.

   Mr. Cooper made those observations in the keynote address at the 101st annual technical conference of the Association of Operative Millers May 3-7 in Nashville, Tennessee, U.S. He urged the milling and baking industries to work together to ease mutual burdens by becoming more active in the political process.

   “This is the single area we cannot afford to ignore,” Mr. Cooper said. “Involvement in the political process, in my judgment, is as important as anything we can do.”

   He noted that U.S.$0.27 out of every U.S.$1 spent on a loaf of bread — or two to three times the value of the flour — was applied to pay various taxes. And federal, state and local regulations ranging from environmental issues to equal opportunity employment practices place “unbelievable” cost burdens on the U.S. industry, he said.

   “Not all regulation is bad,” he stressed. “But when it gets too burdensome, it's difficult for business to survive.”

   The grain-based foods sector already has undergone significant structural changes, Mr. Cooper said, adding that the evolution in the baking industry was not unlike what had occurred in milling.

   “All of us are in consolidating industries that have changed very drastically,” Mr. Cooper said. “I'm not sure we know each other as well as we should.”

   Even as recently as 25 years ago, baking could be considered a “cottage industry,” he said, citing the small, often family-owned operations that were located in each town. The variety of baked foods available was narrow, and sales and distribution territories were limited by the perishable nature of the products, he said.

   The development of the interstate highway system and technological advances in packaging and refrigeration revolutionized the industry and created a proliferation of products, he said.

   “Today, even in a small town in Georgia, you can find sourdough bread from California and bagels from New York,” he noted.

   These changes have contributed to consolidation within the industry and have driven many independent bakeries out of business, he said. Today's market is dominated by three major national companies and three to four regional companies, he noted, and further consolidation probably is inevitable.

   “In 10 years, the entire (U.S.) industry will be driven by three or four entities, all publicly held,” Mr. Cooper said. “They will have to answer to shareholders, and that will drive them to manage profitably.”

   The same type of rapidly changing environment exists in milling, packaging and retailing, Mr. Cooper said. Consumers also are changing, demanding increasingly more variety and convenience from grain-based foods.

   Mr. Cooper called on the milling and baking industry to cooperate in addressing other common concerns. He said millers and bakers needed to work harder on wheat quality issues, as well as on consumer education.

   Wheat price volatility is another issue that poses significant difficulties for millers and bakers, he said.

   “It's hard to run a business day-to- day when you don't know the price of your primary raw ingredient,” Mr. Cooper noted. “At some point, we have to come to grips with how to level out volatility.”

   Mr. Cooper said he had no specific proposals to deal with price volatility. He said a grain reserve of some type might reduce volatility associated with tight grain supplies, but he admitted to some ambivalence on the subject.

   “Government involvement usually is not good,” he said. “But there may be a role for government here.”