A close look at Toyota's entry into flour milling

by Morton I. Sosland
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Welcoming a new major investor to flour milling does not happen all that frequently even though milling wheat into flour is a business that has a presence in almost every country of the world. When the investor is one of the world’s largest and most admired industrial enterprises, its decision to participate in flour milling merits more than cursory attention. For that reason, the announcement several months ago that a unit of the Toyota Group, by the name of Toyota Tsusho Corp., had become a partner in establishing a new flour milling company in Indonesia was worthy of more than routine attention from flour millers around the globe as well as by those that will be directly competing with this new enterprise.

Toyota Tshuso is one of many different businesses within the Toyota Group, which is known as being among the world’s largest vehicle manufacturers. Set up in 1948 to handle the auto group’s international activities, Toyota Tsusho has grown into an enterprise with capital of 65 billion yen ($850 million) and with a range of activities that focuses on international marketing of autos made by the group in Japan, steel-making and electronics, air conditioning and wheel assemblies, and of greatest interest in this context, “Produce & Foodstuffs.” The latter division initially focused on providing grain and other ingredients for Japan’s feed manufacturing industry and subsequently grew into one of the nation’s largest grain importers, operating four large port elevators and making direct delivery to feed plants. From this start, its business grew into proprietary trading in wheat and other grains, dealings in flour in China and Southeast Asia, and extending into baking, frozen food manufacturing, sugar refining and Bluefin tuna culture.

The move into flour milling came through a partnership with a Malayan milling company and an Indonesian investment business. The group will build a new mill in Jakarta with 1,500 tonnes of daily wheat milling capacity at an estimated cost of $66 million. In announcing its participation, Toyota cited its expanding interest in food, “particularly the grain business, as a field of concentration outside the automotive industry.” It goes on to note that Indonesia has the potential to replace Japan as Asia’s largest wheat importer and that it sees its entry into milling as a way “to enhance and expand the group’s value chain for increased stable procurement and supply.” The implication is that helping to assure food to meet growing demand in Asia will also help stabilize Toyota’s presence.

Just as meaningful as Toyota’s entry into milling is its choice of Indonesia. This not only reflects Toyota’s attention to its home continent of Asia, but also the attraction of emerging markets for food-related investing by international companies. Indonesia is already home to one of the largest national milling companies in the world, Bogasari, which is a part of the PT Indofood Sukses Makmur enterprise. In the first half of this fiscal year, Indofood posted a sales gain of 21% and a 12% increase in net profits, spurred by the success of its instant noodles. These are replacing rice as the diet’s mainstay because of low cost and marketing and product enhancements.

For millers operating in the highly competitive markets of North America and Europe, these emerging nations should also have considerable appeal. This move by Toyota may actually serve as a wake-up call or at least a reminder of the promise of growth in these distant lands. In the case of Indonesia, the world’s fourth most populous nation with 240 million, consumption is driven more by supply than by demand. Building the new mill will assure an expanded supply to satisfy the pent-up demand that is being driven both by urbanization and income growth. Recognizing the great success Toyota has achieved in marketing its autos around the world should prompt considerable scrutiny of what its entry might mean into flour milling.

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