Milling & Baking News - December 21, 2004 - 7

E D I T O R I A L

Different perception of growers and milling in Australia

ven though Americans visiting Australia often say
that the people of that country are more like their
fellow U.S. citizens than what they have observed in
other nations, this commonality disappears for grain-based
foods when it comes to business development strategies.
That's particularly the case when attention is given to the
inclination of Australian wheat farmers and their marketing
organizations to invest in flour milling as a way to increase
farmer income and to build foreign markets. Any inclination along similar lines in the United States has usually not
worked well, as milling ventures by farmer-owned cooperatives either did not reach minimal expectations or collapsed.
The vision of the leader of an Australian cooperative, who
described milling as "an important step to add value for
grain growers," has rarely been realized in America.
The course pursued in Australia provides instructive insights into farmer investing in further processing.
"Adding value" has been a rallying cry among farmers,
not just in Australia and the United States, but in many
other parts of the world. As recently happened in Australia, it's easy to point to the price of flour as a multiple of
the price for wheat, thus prompting the simple-minded
conclusion that the difference is processor earnings. It
does not require much knowledge of milling to recognize
that this spread is far from signifying the profit of millers.
More often than not it provides an inadequate return.
All that aside, one suspects that the leaning of Australian growers toward having a stake in flour milling is
driven in part by a national government that has maintained a single-desk monopoly on export sales of wheat.
That position is enjoyed by AWB Limited, a company
whose shares have been publicly listed for several years
after a changeover from the semi-governmental Australian Wheat Board. Indeed, it was the Board that first ventured into foreign flour milling as a way to protect export
markets. The initial Board investments were in milling in
Vietnam and Egypt, two countries that were changing
from large flour importers into important wheat markets
with sizable milling industries of their own.
As state wheat pools in Australia were converted to either farmer-owned or publicly-owned companies, rivalry
emerged, not just in local grain marketing but also in milling. When Goodman Fielder, the country's major miller and
baker, announced plans to dispose of its milling business,

AWB left no doubt about its desire to be the buyer. Instead,
though, a joint venture of GrainCorp Ltd. and Cargill, Incorporated won Goodman Fielder's Australian milling assets.
The joint venture, operating the newly-named Milling Australia, is 60 per cent owned by GrainCorp, which dominates
grain marketing in the states of New South Wales and Victoria, and 40 per cent by Cargill. Not so incidentally, this is
Cargill's second joint venture in flour milling with a farmerowned organization. In the United States, Horizon Milling
L.L.C., the nation's largest miller, is a joint venture of Cargill
and CHS, the leading Upper Midwest cooperative.
As this desire to own milling assets persists, the latest move occurred when a joint venture formed by Cooperative Bulk Handling Ltd., which dominates grain
marketing in Western Australia, and the Salim Group
acquired two-thirds of a southeast Asian milling group
named Interflour. The latter is the creation of Interpacific
Holding, a distributor of pharmaceuticals in Southeast
Asia. Interflour's milling operations are in Malaysia and
Vietnam. Also as part of this transaction, which reflects
the ownership complexity of many Asian businesses,
C.B.H. also became a one-third owner of a second-tier
Salim flour milling operation in Indonesia. Salim Group,
controlled by the Salim family, has been a large investor
in Indonesia for years. It controls Indofood, the world's
largest package noodle maker and also the owner of Bogasari, which operates the world's largest flour mill.
As the result of this wave of transactions, three of
Australia's farmer-owned grain marketing organizations
- AWB, GrainCorp and C.B.H. - now have relatively
large stakes in various sorts of flour milling enterprises.
Because of the makeup of these joint ventures, it may be
difficult to determine whether the hoped-for synergies and
returns have any chance of being realized. The many hints
of a special hold on direct export marketing channels are
still to be tested in the increasingly competitive global marketplace. "Shoring up relationships," "displacing wheat
previously supplied from the U.S., Canada and Europe,"
and "an exciting opportunity for growers to take a share of
the grain value chain" are a few of the promises made as
these transactions were disclosed. Familiarity with milling
realities, even in countries with vastly different cultures,
makes fulfilling this outlook much more difficult than
might be declared at the moment of launch.

Food aid criticism becomes an attack on exporting

he year now closing included a 50th anniversary
celebration, of the Agricultural Trade Development and Assistance Act of 1954, or Public Law
480, that underscored the generosity of the United
States in providing food assistance to needy people in
many lands. That P.L. 480 programs have accounted for
more than 340 million tonnes of food aid "to save and
improve the lives of hundreds of millions of poor and
hungry people around the world" is an accomplishment
of which the United States is very proud.
Alas, any inclination to celebrate what this law, signed
by President Eisenhower, has done was marred by the criticism to which American food aid programs are now subjected. Largely as the result of a carefully orchestrated effort by the European Union, to counter criticism of its own
efforts to stimulate exporting of agricultural products by a
range of devices, including export subsidies, U.S. food aid
has been denigrated to the point where cries are heard that
bakingbusiness.com / world-grain.com

it should be replaced by direct cash grants. Somehow, the
idea of America shipping food is characterized as providing little or no help for U.S. farmers, while often undermining agriculture in recipient countries and also not relieving
the emergency that prompted aid in the first place.
When one reads "the futile use of food aid to pursue
donor self-interests," which appeared in a recent criticism
of U.S. programs, it may be sensed that exporting U.S. food,
whether for food aid or even commercially, is being attacked
for not helping either the U.S. economy or recipient nations.
This assault on the role of exporting as a contributor to the
U.S. economy, while disguised as an effort to improve food
aid efficiency, does not sit well with industries like grainbased foods that have proudly played a prominent relief
role. At this season when good will should prevail, it would
be far better to praise what food aid has and can accomplish,
while focusing on finding new ways to utilize America's
continuing desire to be generous. MBN
Milling & Baking News, December 21, 2004 / 7

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - December 21, 2004

Table of Contents for the Digital Edition of Milling & Baking News - December 21, 2004