Ardent Mills speaks to milling's future

by Morton I. Sosland
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Announcing the steps to create Ardent Mills caused great surprise and even shock from many executives across the entire grain-based foods industry. Impressed by its size, its reach and even its imagination, the project revealed by the three founding companies — Cargill, ConAgra Foods and CHS — means embarking on a course that hails a new era not just for these three leading businesses and American flour milling, but for all of grain-based foods.

That is especially the case in view of the likely impact this may have on much of global food processing. Yes, there has never before been a merger within flour milling of this dimension, but the potential extends far beyond to define important new parameters.

These may affect how production and distribution efficiency will be measured in the hugely essential business of making and providing the ingredients that account for a, if not the, major part of humankind’s sustenance.

Executives with even limited experience in milling are aware how acquisitions and mergers have radically altered the face of the industry almost from the time the modern milling industry arose in the late 19th century.

Fascinating describes the way a startling array of influences together have prompted what in the end is a high measure of ownership consolidation — shifts in global and national wheat production, equipment inventions and innovations that made milling the first successful modern industry more than a century and a half ago, dramatic transformations in the retail distribution of flour-based foods, the dominance of commercial baked foods in introducing consumers to products, the huge weight of away-from-home eating and the overwhelming force of government as a powerful influence on milling’s structure and development.

Yet, close examination of milling’s economics and business culture shows little or no diminishment of the intense competition for a marketplace that has driven the industry’s history for decades.

That the proposal involving Ardent Mills follows quickly on the heels of various transactions that soon will see major parts of what once was the nation’s largest wholesale baking business, Hostess Brands, Inc., divided among new owners, as well as baking giants, is no surprise to observers of baking’s recent truly amazing course.

Why, it may be asked, would not a milling executive think wistfully of strengthening his operating hand at the same time he is witnessing the carving up of a baking business that once might have been a significant potential or real customer?

Spreading milling operations across the entire country, as this newest milling merger promises, may be ranked as one of the surest ways of protecting market positions with baking plants that are being divided among a new or different set of operators.

It is surely unwise, perhaps even ridiculous, to treat the transaction now unfolding as anything other than of unprecedented scale. Nothing like it has occurred before. It would involve roughly a third of U.S. daily flour milling capacity, which is a share never before attained in a single dealing.

The proposed transaction aims to create a business with 44 flour mills operating more than half a million hundredweights of daily U.S. milling capacity. It would be the very first milling transaction establishing a company that would combine the milling businesses of two of the three largest companies then operating. Large-scale cost advantages may be likely under such circumstances, even though U.S. milling long has been recognized for its focus on consistent cost savings.

Combined, the three companies as Ardent Mills would be the largest U.S. flour milling company by a hefty margin. From a historical perspective the Ardent daily capacity would be more than four times the capacity of General Mills at its 1960 peak, which made it at that time the world’s largest milling company.

While several past transactions appeared to be of huge long-term consequence, like General Mills closing 9 of its 17 flour mills in the 1960s, Seaboard Allied Milling Corp. selling its U.S. domestic flour business to Cargill, and Cargill joining with CHS to operate the mills of both companies under the Horizon name, none approach Ardent. It does seem likely that Cargill’s success with the CHS joint venture, which was a new approach, has provided an incentive to move forward into the latest transaction.

In taking a careful look at all the reasons that this transaction makes excellent sense to its three partners, one aspect also offers a hugely valuable insight to all of grain-based foods about what constitutes a successful milling business a quarter of a way into the 21st century. It is that three of the most experienced as well as economically successful companies in grain-based foods have apparently concluded that their milling businesses operate best totally separate from the rest of their companies. This is the case in the face of the manufacturing and product integration that might have been employed in the past.

The 20th century is ripe with examples of milling operations that were joined “at the belly” with other business sectors that seemed right but for a wide range of reasons never quite worked out.

These three Ardent founders as well as many other milling leaders have reached the same conclusion as to the best path for milling to pursue as a business devoted to quality production and products made by businesses that are uniquely dedicated to milling’s most important operating and strategic fundamentals.

That is especially the case when accompanied by a commitment to meet the fast-changing requirements of a food marketplace that just this type of flour milling has proved so successful in serving.


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