Rising from the rubble
July 10, 2012
by L. Joshua Sosland
When Seaboard Corp. and Continental Grain Co. joined as part of a consortium to acquire Les Moulins d’Haiti (LMH) in 1997, the group knew the road to revive the shuttered and neglected business would be lengthy and expensive.
Indeed, in the 12 years that followed, an aggregate of about $20 million was spent to restore and expand Haiti’s largest flour mill to assure the business was able to more fully serve the impoverished Caribbean nation of about 10 million. The continuing investment in the complex in the 2000s was evidence of progress and even the success the venture enjoyed. But the many years of work and millions invested were wiped out in a matter of seconds in the January 2010 earthquake that devastated the island.
Thus, the recent reopening of the mill in December 2011 represented a new, promising chapter in an endeavor that has had difficulties far exceeding even what the principals could have imagined when they stepped forward in 1997. With the rebuilding, itself a difficult process, the cumulative investment in LMH since the privatization had ballooned to about $75 million.
And perhaps because this road has been such a difficult, even painful one, the owners and employees of LMH take enormous pride in what they describe as the newest and most technologically advanced flour mill in the Caribbean. The mill’s design, considerably different from the 1950s mill it replaced, is built to withstand potential future natural disasters. Equipment for the new, highly automated mill was supplied by Bühler, Inc., Minneapolis, Minnesota, U.S., and engineering was handled by T.E. Ibberson Co., Hopkins, Minnesota, U.S. The owners see the mill as emblematic of hopes placed on the country itself in the aftermath of the earthquake — that it will finally be positioned for sustained stability and even prosperity.
Significant implications for Haiti
For the nation of Haiti and its government, the reopening of the mill was no insignificant matter. With its growth after 1997, the mill had become the nation’s second largest tax revenue source at the time of the earthquake (lagging only Digicel, the largest mobile phone company), said Christian Fucina, managing director of LMH. He said other benefits have resulted in the completion of the rebuilding.
“The reopening has stabilized the price and the supply of flour,” he said. “While we were down, there were supply disruptions, sporadic shortages and much higher prices. The price has declined and is now stable.”
Plenty of new challenges face LMH, even after the reopening. While the physical destruction of the mill was covered by insurance, the company’s full losses from business interruption were not. With opportunistic steps taken by other Caribbean millers, the mill’s sales force must strive to reestablish customer relationships.
More specifically, Fucina said a flour mill in the Dominican Republic on the other side of the island of Hispaniola has doubled its milling capacity and is exporting increasingly large volumes of flour to Haiti. This expansion has been facilitated by large export incentives funded by the Dominican government. Additionally, a new, smaller mill is under construction in Haiti itself.
Still, LMH was operating three to four days a week as of early April, which Fucina described as “reasonable” only three months after the mill opened.
‘Most modern mill in the Caribbean’
James L. Gutsch, senior vice-president of engineering at Seaboard, said there are many reasons to be hopeful about prospects for LMH.
“We come back into the market with some real advantages,” Gutsch said. “This is the most modern mill in the Caribbean. It’s a fully automated, lights out mill that can be remotely monitored. Our power costs are lower than before the earthquake. It’s a better mill designed with an emphasis on hygiene and food safety.”
LMH has worked hard to regain market share, Fucina said. The flour mill produces principally one product — wheat flour milled from U.S. hard winter with protein between 12% and 12.5%. All of the flour is enriched. Most of the flour is used for bread, higher quality bread in the more affluent area in the hills surrounding Port au Prince. Consumers also bring to supermarkets a tin can that is filled with about 0.9 kilograms (kg) of flour. The majority of bread is sold by street vendors who push large baskets on wheelbarrows, filled with loaves in plastic bags.
Most of the flour is sold to local distributors, though the company is working to sell more flour directly to the island’s larger commercial bakers. LMH has no bulk customers at present. With the building of the new mill, the proportion of flour sold in 25-kg bags has increased sharply, said Peter Harsveld, production manager at LMH.
“We have more and more people buying 25-kilogram bags,” he said. “Before, our capacity was limited, so it was mostly 50 kilograms. In the countryside, the smaller bags are popular, with two bags carried up hillsides packed on each side of a donkey. In the town, the smaller bags are popular because of the lower cost.”
LMH stands to benefit if economic conditions in Haiti improve. Per capita income there was estimated by the World Bank at an average of $671 in the years 2007-11. The poorest nation outside of Africa, its income compares with $5,200 in the Dominican Republic.
“Per capita flour consumption is (22.6 kilograms) in Haiti,” Fucina said. “Rice is the principal source of calories on the island. Corn, consumed mostly in a polenta-like preparation, also is a staple.”
While the birthrate has declined in recent years, life expectancy has been on the rise.
“The overall rate of population growth is 2.5%,” Fucina said. “That’s more and more potential flour consumers.”
In any visit to Haiti, relief organizations of all stripes are a prominent presence. Fucina said food relief accounts for virtually no LMH business. Most food relief is either in the form of rice or corn-soy blend.
“The U.S. Agency for International Development gives wheat to the NGO’s, and we buy the wheat through monetization, usually done in a bid process,” he said. “We also sell a little flour in bids by the World Food Program. That’s the extent of the mill’s connection with the humanitarian groups. The program has worked well, and we hope the U.S. government will continue providing this critical support for the people of Haiti.”
Initial investment of $9 million
The mill’s ownership structure dates back to the 1990s privatization, a move Haiti made at the urging of the World Bank. To bid on the mill, Seaboard Corp. and Continental Grain Co. joined with a local financial institution in Haiti, Unifinance, to form Haiti Agro Partners (or H.A.P.). The partners committed $9 million to refurbish the mill and for working capital, acquiring a 70% stake in the enterprise. Seaboard assumed responsibility for grain procurement, logistics, technical support and hiring a managing director. The Haitian government, which had owned the mill since 1969, retained a 30% ownership stake in exchange for its contribution of the land and assets.
Under the new ownership, the mill resumed operations in 1998 with daily milling capacity of 9,000 cwts, a figure raised to 11,750 cwts three years later. In the early 2000s, additional grain storage and vessel unloading capacity were added at the port that is part of the milling complex. An entirely new milling unit was built in 2005 (the 2001 increase was within the existing mill), raising capacity to nearly 14,000 cwts, and capacity was raised yet again, to 16,000 in 2007, which is where it stood when the earthquake hit.
Preparing for earthquakes, hurricanes
Memories of the devastation caused by the quake and a determination to do everything possible to protect the mill from future natural disasters informed a wide range of decisions when it came to the somewhat unconventional design of the new mill, Gutsch said. In particular, the new mill is designed to withstand hurricane gusts of 145 miles per hour and was built to Seismic Design Category D standards (buildings in areas subject to severe and destructive earthquakes but not located near a major fault).
The mill has some natural protections against the elements. The complex is built into a nicely landscaped hill, terraced above the port. The mill itself is about 20 feet above sea level, and the offices are another 10 feet higher.
While the original mill, built in 1959, was a solid structure mostly of concrete, it proved particularly vulnerable to an earthquake, Gutsch said.
“Concrete is strong in terms of compression, but is not always as forgiving in seismic conditions,” he said. “The new mill has a massive steel structure. The size of the individual members, bolted steel construction, all are dictated by the load requirements. Steel is strong in terms of both compression and tension. That’s the basic difference.”
Several months into the cleanup phase after the earthquake it was determined the mill’s foundation, which initially appeared to escape undamaged, would need to be replaced.
While the finding caused extensive delays, the requirement to unearth the foundation was not without a silver lining.
“Even before the earthquake we had planned to add a new maize mill and were going to use a separate building,” Gutsch said. “With the need to build a new foundation, we were able to configure the maize mill alongside the wheat flour mill, which gives us efficiencies.”
The reinforced concrete used in the foundation and other parts of the new mill features far more steel rebar than is typical in such projects. In addition to materials, the most notable departure from standard mill design was the decision to opt for a facility with most of the roller mills placed on the ground floor, to meet the strenuous seismic codes.
“As the project neared completion, one of the owners remarked darkly that even if the world were to come to an end, this new mill would be ready to start up the next day,” Gutsch said.
Besides the flour mill, the maize mill and the port, the complex also features a small water desalinization facility installed in 2004 and a power plant expanded in 2003 and 2006. Both survived the earthquake. National supplied power is not available to Les Moulins d’Haiti, and the diesel fueled power plant is the only source of electricity for the entire complex.
The entire reconstruction project cost $55 million, including two wheat milling units and a corn mill.
Two 9,000 cwt wheat flour units
The new mill features two identical units with 9,000 cwts of daily flour milling capacity apiece in addition to the corn mill. Each of the wheat mills is able to operate completely independently of one another, and both are able to deliver flour directly to carousel packers, Harsveld said.
The mills each feature 22 rollstands, including seven double highs and with aggregate roll surface of 4.58 meters per 100 kg per 24 hours. Total break roll length is 27.5 meters. Five sifters provide 320 square meters of sifter surface.
The flow of the mill does not include purifiers.
“Our product mix doesn’t require purifiers,” Harsveld said. “There isn’t much of a market for farina in Haiti. We don’t make specialty flours.”
Expanded bulk storage at the mill allows LMH to accumulate enough flour to run a single 12-hour shift on the packaging line.
“We no longer have to pack ‘on line,’” Harsveld said. “We have three carousel packers. We had none before.”
The corn mill has the capacity to grind 140 tonnes of corn each day.
The complex has grain storage of about 45,000 tonnes. A warehouse has storage capacity of 22,000 bags of flour.
Looking for energy efficiencies
Traditionally, low-profile mills offer milling companies up front cost savings but higher energy costs in the long-run because of diminished use of gravity for the mill flow.
While the low-profile design at LMH was driven by safety rather than cost considerations, Harsveld said a number of steps were taken to offset the higher prospective energy costs.
“Elevator lifts rather than pneumatics are used at various points in the flow for energy savings,” he said. “The old mill had four pneumatic fans and the new mill has two. The savings are great.”
He said the new mill is 20% to 25% more efficient than the old one, even with the greater milling capacity and low-profile (four floors versus six) design.
The power plant on the grounds of the mill has six 850-900 kilowatt generators, Harsveld said. Three are needed to run the mill. Because power is self-generated and is started and stopped as needed, it works out to be more efficient to run both units for the three to four days the mill currently is operating rather than running a single unit for seven days, he said.
To accommodate increased flour milling capacity and a corn mill essentially on the same footprint as the older, smaller temper bins were installed outside the building. The old temper bins were concrete but now are constructed of epoxy coated steel.
“The temper bins and the flour bins are not interconnected to the main building, so they are less susceptible to earthquake damage,” Harsveld said.
While only two of the mill’s 28 steel grain silos were destroyed, several sustained damage and were repaired as part of the mill reconstruction.
“The structural integrity of the silos was restored to their original condition or stronger,” Gutsch said. “Larger anchor bolts are used now, and additional stiffeners were installed inside each silo.”
With the repair of the port on the property, capabilities have been expanded to handle bagged break-bulk cargo. While Port au Prince handles container vessels coming into Haiti, the L.M.H. port now has the capability of adding container handling capacity (with the installation of a crane) if the opportunity arises.
“We tried to design flexibility for the future at the wharf,” Fucina said. “Things have changed over the last 12 years, and they are likely to change more going forward.”