While quite a few exceptions may be cited, it is not overreaching to describe global flour milling as an industry that in most parts of the world operates within a business structure uniquely dedicated to milling. That is definitely the case among most of the leaders of American milling, including those owned by corporations headquartered in other countries like Japan. In the Western Hemisphere, exceptions include giant food and grain companies like ADM and General Mills, Inc. and businesses operating in different parts of global grain that have developed large milling holdings. Similar exceptions are noted in parts of Southeast Asia and Russia but these rarely occur in Western Europe and Africa. On balance, milling enterprises now mostly are devoted to grinding wheat and producing flour. Understanding the reasons for this single-minded focus is important to understanding the industry.
As one of the world’s oldest industries, not just in milling but as an operating industry, flour milling has seen many different company structures. A half century ago, the industry saw many of its leading players become divisions of large conglomerates with as broad a base of businesses as could be imagined. Conglomerates acquiring milling companies were the principal factor. Another cause involved milling companies that themselves became active acquirers, sometimes taking on an amazing spread of businesses. The observation often was made in this era that relevance to the business of food was totally neglected in order simply to build size. In ways, the internationalization of the current strict milling focus has significant parallels in how wholesale baking evolved.
Hardly anything symbolizes this focus on companies solely engaged in milling better than corporate creations in the past year. Ardent Mills, the largest U.S. milling company and also at the top of global milling, was created as a free-standing company by the merger of milling companies that had been part of Cargill, CHS, Inc. and ConAgra Foods. Going from being divisions of such large enterprises to a single milling operation represents an assessment that great advantages exist in operating in this manner. Similar initiatives may be cited in other parts of the world. It has happened recently in Africa where a milling company headquartered in Nigeria as part of the largest sub-Sahara corporation was spun out as a new company separated totally from former associates in cement and sugar refining.
Many different reasons may be cited for the focus on milling that has gained broad acceptance. An important one is the demands of wheat procurement, which can create financial risks not always understood by a corporate owner engaged in other businesses. Obtaining a supply of wheat of desired quality mandates purchasing skills that extend well beyond conventional ideas about buying basic inputs for a manufacturing plant. Logistics of successful milling long have been considered among the most complex of any business, where customers may be widely scattered as compared with mills built to secure a quality wheat supply while serving baking customers whose locations are driven by totally different considerations. Nothing spurs milling’s consolidation and structure into highly focused entities more powerfully than the longtime consolidation of large flour-using customers, whether baking bread, making noodles or producing cake and cookies.
Addressing milling’s tendency to operate flour milling separate from any other business is prompted this year by numerous commentaries asking whether Warren Buffett and his Berkshire Hathaway conglomerate do not suddenly signal a different corporate direction. His buying this year of Precision Castparts for $37 billion and his earlier involvement in the creation of The Kraft Heinz Co. as a highly diversified food company signaled rejection by this highly revered investor of any hesitancy he might have about building a totally disconnected conglomerate. Mr. Buffett says he runs a sprawling conglomerate that is “constantly trying to sprawl further.” Milling’s sharp difference from such a business makes for a global industry that has gone in its own direction in a manner making great promise for the future.