Doing well even with relatively small flour changes

by Morton Sosland
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Now that the final Census Bureau report on U.S. flour production in 2010 has been issued, showing only minimum changes from the figures derived from the quarterly releases, it is possible to declare with confidence that the past year was a satisfactory one for flour milling and for flour-based foods. Yet, in a financial environment where only rapid growth seems to matter, that conclusion might be looked upon as rather odd when the data are examined without awareness of what is happening beyond the numbers themselves. After all, the increases in flour production and in disappearance that were registered are minuscule at best. Indeed, in many sectors gains like these of less than 1 per cent might not even be counted as increases. Why then should milling and flour-based foods in general celebrate such results and why should the industry count itself as one of the most fortunate of American businesses?

The slightly revised figures are vulnerable to simplistic diagnosis. The same goes for the first quarter of 2011 report showing an output decrease. The total of domestic wheat flour disappearance in 2010 reached 417,625,000 hundredweights, up 0.9 per cent from 413,722,000 in the prior year and less than 500,000 above the previous record reached four years earlier. That might be interpreted as a new mark hardly worth celebrating. The important point not immediately apparent is that maintaining and even slightly increasing the market for flour-based foods in America stand as real triumph in a period when demand for wheat flour came under attack in ways and with a fury that had hardly ever been experienced before.

Not only did many companies successfully contend against weight-reduction diets calling for slashing or eliminating consumption of bread and similar foods, but for the most part managed to shine in their bottom-line results during one of the most severe economic downturns in history. This is no mean accomplishment. Indeed, it ranks this industry as one of the best performers in any sector in the face of both the treacherous economy and the consumer marketplace under attack from faddish eating that came near to threatening the industry’s future.

Perhaps of even greater importance is the success of flour milling and its principal customers in achieving good, if not even excellent, returns against a marketplace that appeared void of upward momentum. Reaching that conclusion provides another instance where flour-based foods companies find rewards from a market that many other sectors would consider nearly disastrous. Focusing on new products like whole wheat flour has an important role. At the close of the first decade of the 21st century, annual wheat flour disappearance had gained hardly 1 per cent during all the prior 10 years. Yet, it is also correct to say that the industries dependent on this market were, if anything, doing better at the end of that decade than at its beginning.

In decrying the absence of upward momentum, sight must not be lost of how the reach of the industry’s products into every American household — a standing that no other food sector achieves — means that no food business benefits more from population gain than flour-based foods. In the first decade of the new century, the industry enjoyed the impact of a 28-million population increase, equaling 10 per cent. It doesn’t take much imagination to figure where the industry would be without that, considering how this growth in the number of consumers relates to a flour disappearance gain right at 1 per cent.

For a country and economy where lower single-digit annual percentage gains frequently are regarded as disappointing, flour-based foods stands as a business where rapid growth is not essential to the final result. Even in the prior several decades when the market for flour foods expanded by much more than many parts of the food industry, it could be sensed that this pace of increase did not account for the industry’s performance. Now strikingly apparent is how this business benefits from skillful management, particularly of capital outlays, from understanding of the exceptional volatility in prices for its major ingredient, wheat, and for dealing with customers in ways that recognize of the importance of service and quality.

The newly-issued Census Bureau report on flour production in the first quarter of 2011, revealing an output decrease of 2.4 per cent, provides a note of caution in assuming that any slide in demand has been halted. While a single quarter’s results do not foretell a year’s record, the January-March showing is a sobering reminder of the reality of consumer demand for what the industry makes.

Hardly anything symbolizes just how this industry has benefited from fundamental knowledge of wheat markets combined with customer respect than its reaction to one of the most important barometers of how the flour-based foods industry is doing. That measure is per capita disappearance, which after three decades of an upward climb, reversed direction just as the 20th century ended. The per capita average in 2010 held unchanged from the prior year at 135 pounds and was up one pound from the decade’s low mark. Yet, it was below the recent high of 138 pounds in 2007 and down sharply from the modern peak of 147 pounds in 1997. The latter was nearly a third above the low in the early 1970s. While all of flour-based foods wish for an uptrend, instead of what has happened, the industry’s reaction to disappointment with such an important measure has been positive. It mainly takes the form of mustering support for efforts like the Grain Foods Foundation, which is dedicated to educating consumers about the merits of industry products. Through such collaboration as well as by exercising the same sound judgments accumulated in recent years, flour-based foods looks to a future that will continue to pale the past.

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