Comfort from little change amidst turmoil

by Morton Sosland
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Years ago a historian was reading through the issues of this publication (then The Southwestern Miller) of the 1930s to study the effects the Great Depression had on the industry now called grain-based foods. This historian-author, after spending much time, expressed amazement that he found little or no direct impact from that economic slowdown. He said he was astounded to find that those years of business contraction went by without affecting a measure of industry activity like flour production. This revelation, if it may be called that, is recalled in response to flour production data newly released by the Bureau of the Census. Once again, the data indicate that financial turmoil as well as shattering volatility in wheat and flour prices have left demand for flour relatively untouched. Of course, this same conclusion would apply to the broad array of baked foods and other consumer products where flour is the primary ingredient.

As traditional as it has been to believe consumer demand for a basic food like bread is free from the influences that affect purchases of products varying in response to personal income levels, it seems likely that changes in both the industry and in the products that are made might have revised that truism. Sliced white bread is no longer the overwhelmingly dominant product of grain-based foods, as witness the range of variety, whole grain and special products that have come to the fore. On top of product transformations, equally massive changes have occurred in distribution channels, at both retail and food service. Yet, in the face of all of this, this basic measure — how much wheat flour is produced — shows little or no reaction in the face of a period described as one of the most troubled economically in modern times.

Current numbers are as astounding as those observed during the 1930s. This is especially the case in looking at the two most recent quarters, July-September and April-June. These are periods that witnessed swings in prices and in the condition of the economy that were unprecedented. Yet, the third quarter of this year, a period that laid the groundwork for massive interventions by the federal government to save the financial sector and to bolster confidence, saw flour output registering a decrease of less than 0.1 per cent from a year earlier. That repeated the infinitesimal decrease of the second quarter. Flour production for the first nine months of 2008, a period wracked by wild price swings and a deteriorating economy, was practically the same as in the prior year when conditions were considerably brighter.

Considering the negative economic data, from rising unemployment to plummeting auto sales, this overall performance of grain-based foods is strikingly positive. Even after acknowledging that aggregate flour output masks differences between companies, areas and product sectors, the numbers for grain-based foods stand out. Plumbing the data reveals the way that price discrepancies, particularly durum semolina soaring to an amazing premium of nearly $30 per hundredweight over spring wheat flour, prompted a realignment of ingredients used in pasta making. Thus, durum semolina output in the third quarter fell 11 per cent from 2007 as perhaps the most obvious evidence that price swings account for some change in flour production.

It would be a grievous error to conclude from these numbers that the declining condition of business in America did not influence activity across grain-based foods. In the case of milling, it is apparent that current output levels, in sight of possibly reaching a new record, are accompanied by enough economy-induced conservatism to dampen large-scale investing in capacity expansion. Total industry daily capacity remains in line with a year earlier and below the peaks of early 2006. While being grateful that its most basic production number, of wheat flour, has held steady in these difficult times, grain-based foods must continue to appreciate that good fortune has no guarantee in worrying times.

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