Under his leadership, Singapore-headquartered Interflour has emerged as one of the leading players in Southeast Asian milling. In the last five years the company has invested some $200 million in flour mills, ports and malt plants as it continues to expand across Asia. The company now operates 10 flour mills — nine in Southeast Asia and one in Turkey — and has the capacity to process over 2 million tonnes of wheat per annum for institutional buyers, medium-sized distributors and retail consumers across Southeast Asia. This compares to a portfolio four years ago of just seven mills and around 1.2 million tonnes of milling capacity.
“We have been pushing into new markets as well as expanding our capacity and footprint in existing markets such as Vietnam and Indonesia,” Harvey said. “This is an industry that runs on scale and we have continued to add to Interflour’s through acquisition and also a number of greenfield projects over the last few years. Now our network breadth gives us even greater opportunities to find supply chain efficiencies.”
Outside the private sector, Harvey is the chairperson of the Atlanta, Georgia, U.S.-based Food Fortification Initiative (FFI), an alliance of private companies, international government and aid agencies, that seeks to alleviate birth defects and child malnutrition through the fortification of wheat flour, maize flour and rice with minerals and vitamins.
Recently, World Grain interviewed Harvey about the Asian flour milling industry, and more specifically, Interflour’s role in meeting the needs of consumers in that region, which has a growing appetite for wheat-based products.
WG: What are the driving forces behind the growing consumption of milling products, particularly in Southeast Asia where Interflour has such a strong base?
|Greg Harvey, managing director and CEO of the Interflour Group.|
Harvey: The biggest factors behind the growth rates in Southeast Asia are population growth, wages increasing and a switch to wheat-based products. Two of the strongest factors that we use to predict flour consumption growth are the existing per capita flour consumption and the urbanization rate. The lower the current consumption of flour per person, the higher the expected flour production growth. As more people move from rural to urban areas, the higher the flour demand growth. So, as you would expect, the fastest growing flour markets are in emerging countries. Emerging economies in Southeast Asia like Vietnam, Indonesia and Philippines are expected to have an average annual real GDP growth in excess of 4% from 2014-50.
WG: What is Interflour’s strategy to meet rising demand in these fast-growing markets?
Harvey: Indonesia is the largest market in Southeast Asia, but Vietnam, Thailand and Philippines will account for increasing share of the total market size in the future. We have a good base in Vietnam to start to penetrate these high growth markets in the region. Based on information from the USDA, in 2015, Indonesia (5.9 million tonnes) represented 52% of the total Southeast Asian market (11.4 million tonnes). Since 2000, Indonesia has accounted for 54% of the new flour demand in the region, with Vietnam, Thailand, Philippines and Malaysia together accounting for 40% of additional demand.
WG: When we last spoke there was a suspicion that Indonesia was building too many mills and this could put pressure on your operations there, is this still a concern?
Harvey: Competition in Indonesia has continued to strengthen with 31 mills now operating, up from 12 a decade ago. This has put a lot of pressure on the market but it’s still a dominant market for us and demand continues to grow, too. Our Golden Grand mill has just come back into production after refurbishment and upgrade works, so we will look to ramp up our operations again during the second half of 2017.
WG: Where does Interflour generally purchase its wheat from and can you tell us if the percentage of your requirements sourced from Australia has fallen in recent years as Black Sea exports have flooded the market?
Harvey: Interflour sources wheat from Australia, North America and the Black Sea region. The change of wheat export tax policy in Argentina might make South American wheat more attractive in the future depending on freight and the size of their production growth, so we will keep our eye on what happens in that part of the world. On average, we purchase around 60% Australian wheat annually, although last year, given the bumper crop in the Black Sea and higher demand for lower quality, Australian wheat demand fell below that. It really depends on the CFR price spread between Australian and Black Sea wheat as to how we source.
WG: How important are supply chain costs — particularly for ocean freight — in your sourcing strategy?
Harvey: Supply chain costs are very important in our procurement strategy. The cost of purchasing wheat is the single biggest element of our production expense, but, of course, scrutinizing supply chain costs the whole way along is vital to our business. Our centralized wheat procurement team are headquartered in Singapore and do just that — they look for value along the supply chain from freight and logistical efficiencies like combo loading. Increased freight rates make shipping wheat from origins outside our region like Black Sea and Argentina much more expensive relative to Southeast Asia. So, Australian wheat will have very notable freight advantages into the SEA market when freight rates move higher.
WG: What does the expected expansion in demand mean for your annual grain requirements in the future and how will this affect procurement strategy?
Harvey: In Asia, there is a strong growth expectation for flour demand driven by both increases in population and income growth as well as a switch of diet from rice-based to flour-based products. We forecast a 5% to 6% annual growth for the region on wheat demand, inclusive of feed wheat, due to increased feeding demand. The future is very bright for both exporters and grain producers. Key exporter countries increasingly view the SEA market as a key destination. We have witnessed more traders from the Black Sea and South American countries trying to reach out to buyers in this region.
WG: Are there wheat varieties you would like to see produced by growers that are not currently available in the right volumes?
Harvey: Although wheat supply has been sufficient in the past few years, the supply of high protein wheat has been fairly tight due to inclement weather events. So, we haven’t seen volumes of HP wheat from North America and APH from Eastern Australia where we would want them.
WG: Why is there a mismatch between what is required and what is available and how can it be overcome?
Harvey: Of course, weather is a key factor to determine outcome of wheat quality and crop size. Better technology, machinery, fertilizer, better seed that has high tolerance to disease, drought tolerance, freeze tolerance, higher yield and good irrigation systems would all help, but that needs to be an economic decision for producers. We work closely with Western Australian grain growers through our relationship with the CBH Group to ensure we are close to the supply. We run trials with industry groups to test different varieties and feed back to them directly what the market requirements are. It’s this strong relationship with our raw material producers that really helps Interflour to provide value.
||| Next page: Interflour continues its expansion in Vietnam |||
Interflour continues its expansion in Vietnam
Vietnam has rapidly developed into a key market for Interflour. In July, the company opened a major new malting plant at a cost of some $70 million via subsidiary Intermalt.
The new Intermalt plant has an annual capacity of 110,000 tonnes of malt and will eventually have capacity to process approximately 140,000 tonnes of malting barley per annum when it becomes fully operational next year.
Located in southern Vietnam, adjacent to Interflour’s Cai Mep port facility and grain storage facility, the new plant is Bühler-built and fully kitted out with stainless steel features designed to meet the challenges of processing malt in the tropics. It also boasts a wider than normal kiln with higher airflow and thin grain bed, and the germination facility has been built with additional cooling capacity and has the ability to cool the water and the air as they are used.
The investment is part of the company’s ongoing expansion in Vietnam where Interflour also operates a flour mill at Danang. At Cai Mep port, 90% of cargo handled at the company’s terminal is third-party cargo, while some 10% of incoming cargo is Interflour’s own supply of wheat and barley that feeds the company’s adjacent flour milling plant, which now produces 250,000 tonnes of flour a year.
“We have had a presence in Vietnam for 12 years now through our investment in building the deep-water port terminal and large-scale storage facility at Cai Mep as well as our flour milling operations,” said Greg Harvey, managing director and chief executive. “It made good sense to leverage the supply chain and with the beer market growing at such a strong rate in Vietnam, malting was an obvious choice for us.
“Traditionally this market has been dominated by the European malt supply, but we are opening the Vietnamese market to a supply more focused from the Asia Pacific region, using predominantly Western Australian barley. And we are creating value in-country by processing on the ground in Vietnam.
“The construction of the malt plant and port operations in Vietnam has seen Interflour diversifying from flour production but continuing to use the scale, logistic and grain processing expertise within the Group.”
Harvey said the beer market in Vietnam was rapidly expanding and the new plant would be able to deliver locally-produced malt right to the doorstep of breweries in the region.
“This market is the fastest growing beer market in Asia, with consumption growing at an average rate of 6% to 9% per annum over the past 10 years,” he added. “Beer is the number one alcoholic beverage of choice here – staggeringly 95% of alcohol consumed in Vietnam is beer.
“That means big opportunities to support our customers’ businesses by providing just-in-time deliveries. We were able to leverage off Interflour’s efficient bulk supply chain into Vietnam to make this investment really work.”