Milling In The South Pacific Islands

Although this lightly populated region produces little grain, wheat-based foods are popular.

The lightly populated islands of the South Pacific cover a vast expanse of ocean extending several thousand kilometres from Papua New Guinea (PNG) in the east to Tahiti in the west. Even on the
largest island groups of this “Blue Continent,” almost no cereals are grown. Still, wheat-based foods and rice play a big role in the diets of the 12 sovereign countries and 10 dependent territories.

Excluding Australia and New Zealand on its subtropical and temperate southern periphery, the population of Oceania is just 12.3 million, of which three quarters is PNG. Flour milling companies are found in only four larger countries: PNG, Fiji and New Caledonia with two each and a single small miller in Solomon Islands. Nevertheless, the region is largely self-sufficient in wheat flour production.

There is a smattering of subsistence rice farming and village mills in some countries, but the only commercial-scale milling is in New Caledonia of imported paddy.

Before the arrival of Europeans, easily cultivated taro and breadfruit as well as coconuts were the main sources of carbohydrates while fish and pork provided protein. Other introduced root crops like yams and cassava are now important as well.

In most countries, health indicators like longevity and infant mortality have improved significantly in recent decades, but modern diets and overnutrition pose a major challenge. The 10 countries with the world’s highest rates of obesity are all in the South Seas, ranging from 46% in Samoa to 62% in Nauru, leading to a growing incidence of diabetes and hypertension.

The South Pacific can be divided into three subregions that provide a framework for this survey: Melanesia in the east; the Polynesian triangle to the west and south; and Micronesia, much of which is north of the equator.

FMF Foods Ltd.’s milling complex near the Walu Bay port of Suva, capital of Fiji, is the oldest and largest in the South Pacific.

MELANESIA

Thanks to its relatively large population, central geographic position and a pair of strong food companies, Fiji (896,445 people) is the linchpin of milling and trade in wheat foods in the South Pacific.

Fiji’s population is ethnically divided mainly between the indigenous people constituting 57%, officially known as iTaukei, and 37% Indo-Fijians introduced as plantation laborers by the British in the 19th century. The former group is still largely engaged in semi-subsistence farming. Rural families consume much of what they grow and adhere more to the traditional diet of taro, yams and breadfruit, while the latter, who are mostly urban dwellers, consume the largest amounts per capita of imported rice and flour.

Fiji’s annual rice imports, stable at around 40,000 tonnes, make up 80% of use.

Total wheat imports to Fiji in 2019 were 200,000 tonnes, about a one-third increase in a decade. All wheat comes from Australia with bulk vessels routinely discharging part of their cargo at mills in Indonesia and PNG before reaching Fiji.

A. Cowley and Sons has a semi-automated tunnel oven for toast bread and other products.

FMF Foods Ltd. is Fiji’s oldest and largest milling company. It has operated its flour mill near the harbor of Suva, the capital city since the late 1970s. Milling capacity of several hundred tonnes per day exceeds demand. The company has a rice packaging line at its mill site. A new biscuit factory just outside Suva was launched in August 2017. It makes specially formulated breakfast crackers with local brand names for the markets of PNG, Vanuatu and Solomon Islands, as wells as the traditional FMF brands.

Three years ago, FMF followed soon after by Punjas introduced atta flour products to local supermarkets, a marketing success. FMF is publicly traded on the Fiji stock exchange. Total revenues for the year ended June 30, 2019, were Fiji dollars 190 million ($88 million), up slightly from the previous year.

Atta flour is a newer product introduced to supermarkets by two Fijian milling companies.

Punjas Group is Fiji’s second, newer milling company. Its plant, supplied by Bühler, is located in Lautoka on the eastern side of the same island, near the main international airport at Nadi. Competition is fierce among the two companies both domestically and in the many Pacific island export markets where they dominate supply of flour and breakfast crackers.

Punjas is a diversified company, with 1,000 employees producing and distributing a wide range of food and household products to its importers and distributors throughout the Pacific.

PNG (8.9 million people) is an outlier from the rest of the South Pacific geographically, demographically and in other ways. Its rapidly growing population and land area is by far the largest. Culturally and linguistically it is one of the world’s most heterogenous nations. Three quarters of the population reside in villages, very often in isolated valleys.

In 2019, PNG imported 300,00 tonnes of wheat, a 50% increase over 10 years before, according to the USDA, due to growing population and urbanization.

Breakfast crackers, thanks to their long shelf life, are a dietary staple as in most other South Seas countries. However, in PNG the dry, hard biscuits may account for the highest proportion of wheat-based foods.

In 2019, PNG imported 300,000 tonnes of wheat, a 50% increase over 10 years before, according to the USDA, due to growing population and urbanization.

In PNG, whole villages close to cities specialize in bread baking.

Goodman Fielder, a diversified Australia-based food company, operates two flour mills of about 250 tonnes per day capacity in the capital of Port Moresby in the southeast and at Lae on the northern coast. Its PNG company started as Associated Mills in 1975.

Niugini Tablebirds Ltd., PNG’s leading poultry and crocodile meat processor, also has a mill in Lae that makes 3 Roses Flour and animal feed.

Goodman Fielder divested its flour mills in Australia and New Zealand but hung on to them in PNG and in New Caledonia (285,498), a self-governing French territory. Since 2015 Goodman Fielder has been a subsidiary of Wilmar International, Asia’s largest agribusiness company.

Locally owned St. Vincent Group operates the second milling company in New Caledonia, which started up in 1985 and is located outside Noumea, the capital. It imports wheat from Australia and Europe in bulk 20-foot containers holding 25 tonnes each. The company offers the largest assortment of flour of anywhere in the South Pacific, making possible a wide range of baked foods catering to a mostly middle-class population with sophisticated European tastes. Likewise, the company has a feed mill that predates the flour mill, with four lines making pelleted products for several types of livestock as well as shrimp feed. Finally, St. Vincent Group operates a rice mill processing paddy imported from southeast Asia.

The Solomon Islands (686,445), the least developed country of Oceania, is home to one milling company. Delite Flour Mill is located in the capital of Honiara on the island of Guadalcanal, where the majority of the urban population is concentrated. The company imports wheat in bulk containers for domestic production of about 90% of the flour used in the country. Per capita wheat flour use is well below 100 grams, in contrast to most countries of the region where it exceeds that. Lower average incomes and dispersal of the population on dozens of islands in the archipelago contribute to smaller consumption. Delite has fortified its flour output with vitamins and minerals since 2015.

Ah Pow Bakery in Port Vila, the largest bread maker in Vanuatu, produces mainly baguettes and other French-style baked foods reflecting the country’s colonial heritage.

Rice, mostly imported, is eaten much more than wheat flour. A law requiring vitamin and mineral fortification of all imported rice was passed in 2018.

Vanuatu (307,145) is the largest country in the South Pacific without a wheat mill. Distribution of flour to a population spread evenly over a large archipelago of at least 80 inhabited islands is an obstacle. Imported breakfast crackers are a staple food. Up until independence in 1980, Vanuatu (formerly New Hebrides) was jointly administered by the British and French. The influence of the latter is reflected in a strong preference for baguettes, the main output of the largest bread maker, Ah Pow Bakery in Port Vila, the capital. Ah Pow relies mainly on flour imported from Australia and Indonesia.

POLYNESIA

Samoa (198,414) does not have a flour mill. Rather its major food importers have strong alliances with the two Fijian millers to procure wheat flour for commercial bakeries, mostly attached to large supermarkets, and for retail sales in those stores. Large rectangular loaves of white toast bread are the biggest sellers, but a growing middle class and burgeoning tourism has spurred demand for a greater variety of bread and pastry types. Consumption of instant noodles, 30% palm oil and often eaten dry as a snack, is high. One company produces them locally, but most are imported from China and Southeast Asia. Rice consumption per capita exceeds wheat flour with most rice coming from Australia or China.

The Kingdom of Tonga (105,695) to the south of Samoa has healthy, small-scale commercial agriculture and even exports melons to Samoa and containerloads of taro to Australia and New Zealand, where there are large communities of Pacific Islanders sending home remittances that account for a big part of GDP in several countries.

The largest Tongan baking company and one of the main food importers is A. Cowley & Sons, established in the late 19th century by the English immigrant great-grandfather of the current owner, Alfred Cowley. The company has invested in a semi-automated tunnel oven to counter labor shortages resulting from the large number of Tongans working abroad. It is the exclusive import agent of FMF, including its popular breakfast crackers, and has the same arrangement for Fonterra powdered milk from New Zealand. The second leading Tongan baker has its own breakfast cracker production.

Several years ago, Cowley started a layer farm at first to provide eggs for his cake bakery. It has become the largest poultry operation on Tonga, with 8,000 hens requiring importation of a few containerloads of poultry feed from New Zealand every month.

Despite its remoteness, French Polynesia (280,908), centered on the largest island Tahiti, is politically integrated with France, in much the same way Hawaii is part of the United States. Government subsidized private flour imports of 6,000 to 7,000 tonnes per year are conducted through a highly regulated tendering process subject to much controversy.

Tuvalu (11,792) is known as the world’s least visited and one of the two smallest (26 square km) countries. The densely inhabited main atoll of Funafuti, with 7,000 people and almost no room for crops, has a single commercial bakery, Mils Fresh, founded by a retired seafarer, Teitimani Simeone, who was seeking something to do “for the rest of his time ashore.” Two employees make a single product — 800-gram loaves of toast bread selling for A$4. There are 30 to 40 Tuvalese households that bake daily buns, rolls, samosa, cakes, pastries and other products for sale in a nearby community bakery shop.

A large number of families keep pigs in stys with magnificent ocean views from a rugged strip of shoreline on the other side of the airport from town. The owners slop them with a mixture of coconut flesh, table scraps and Millmix, composed of bran and screenings imported from Fiji. They tote the slop across the runway in rectangular 5-kg plastic bread cracker pales.

MICRONESIA

The Marshall Islands (59,190), Kiribati (119,449), Federated States of Micronesia (FSM: 115,023) and Palau (18,094) are collections of mostly far flung atolls, while Nauru (10,824) is just one main island.

Container ship lines from Fiji serve most of them, enabling a reliable supply of breakfast crackers and wheat flour from FMF and Punjas. However, the relative proximity of Micronesia to Northern Hemisphere countries means rice and many processed foods also come from elsewhere. FSM gained its independence from the United States in 1986 but still has a special status thanks to a Compact of Free Association.

For animal feed, rice, wheat flour and many processed foods, FSM mainly depends on shipments from the American mainland on vessels that also serve US territories Guam (168,775) and Northern Mariana Islands (57,559).

Ranking The World’S Biggest Flour Millers

For the first time, World Grain has ranked and profiled the world’s largest wheat milling groups. The picture is one of increasing consolidation but not yet on a global scale. Four of the top 10 companies have milling operations almost exclusively in China, including Wudeli, the largest by a wide margin. The greatest new capacity addition is happening mostly in China as well. The three U.S. companies making the list are limited to North America, with the exception of ADM’s U.K. subsidiary. Nisshin Seifun has the most even distribution of operations among countries but is wholly absent from major parts of the world. Europe’s largest milling group ranks just 10th globally and accounts for only 4% of the 70 million tonnes of wheat milled annually in the E.U.-27.

The capacity estimates and other information come from company websites, media reports and reliable industry sources, but World Grain cannot fully vouch for its accuracy.

1. Wudeli Flour Group

Headquarters: Daming, Hebei Province, China
Installed capacity: 45,000 tonnes per day


Wudeli Flour Group has more than doubled its production capacity in the last eight years and now ranks No. 1 in installed capacity.
Photo courtesy of Wudeli Flour Group

The world’s biggest wheat milling company is situated in the heart of the North China Plain, the major growing zone in the top wheat-producing and consuming country. Wudeli has 15 milling subsidiaries in six contiguous provinces of northern China. Projects are underway to build four greenfield mills of 3,000 to 5,500 tonnes per day capacity at new locations and to expand capacity at another six sites. All told, the company will add about 35,000 tonnes of new milling capacity to bring its total to 80,000 tonnes per day. Doubters need only to look at the company’s track record. In 2012, daily capacity was 20,000 tonnes, already the largest among Chinese milling companies, but within six years had doubled to 40,000 tonnes. Once the current expansion goal is realized, Wudeli’s domestic market share will climb to about 30%. Wudeli’s mammoth plants operate at about 90% capacity utilization compared to an average 40% utilization for second and third tier mills in China, so the pace of consolidation is bound to continue. The family-owned business only started milling wheat in 1989 and built its first 200-tonne-per-day mill in 1996.The company is managed by the two sons of the founder, Dan Hong, born in 1940, who still frequently reviews company financial reports.

2. Archer Daniels Midland Co.

Headquarters: Chicago, Illinois, U.S.
Installed capacity: 27,000 tonnes per day
Countries: United States, Canada, United, Kingdom, Caribbean


ADM Milling in 2018 expanded and modernized its flour mill located in Enid, Oklahoma, U.S.
Photo courtesy of ADM

By market share, Archer Daniels Midland (ADM) occupies the second or third position among milling companies in the United States, Canada and U.K., all mature markets where industry consolidation has largely run its course. In 2019 in Mendota, Illinois, U.S., ADM Milling opened the largest greenfield plant ever built in the United States with 30,000 cwts (1,800 tonnes) daily capacity. Seven mills in Canada process around 4,000 tonnes daily. Another seven in England and Scotland can grind 800,000 tonnes of wheat per year. ADM Milling operates wheat mills in four countries of the Caribbean basin. The largest is in Jamaica. ADM is the only wheat miller in Belize, Barbados and Grenada as well.ADM’s 25% ownership of publicly traded Wilmar International means a large indirect stake in wheat milling in China, which is not counted in the above total.

3. Ardent Mills LLC

Headquarters: Denver, Colorado, U.S.
Installed capacity: 26,000 tonnes per day
Countries: United States, Canada, Puerto Rico


Ardent Mills’ flour mill in Puerto Rico, which was damaged by a hurricane in 2017.
Photo courtesy of Ardent Mills

Ardent’s 31 mills in 21 states account for about half of the flour sold in the U.S. market. Additionally, the company owns three mills in Canada and one in Puerto Rico.The company was formed in May 2014 as a joint venture that merged the milling operations of Cargill, ConAgra and CHS. The companies hold respectively 44%, 44% and 8% equity shares in Ardent. Before approving the transaction, U.S. anti-trust authorities required the divestiture of a number of operations to limit the new company’s market share to 50%. Rationalization of its network continues with the closure of three milling plants in 2019 and another scheduled for the first quarter of 2020, reducing installed capacity by 1,000 tonnes per day. Ardent’s creation was the biggest step in Cargill’s global withdrawal from wheat milling. During the last decade, the process also included the divestiture of flour milling companies in Australia, Argentina and Venezuela, all countries where the world’s largest agribusiness firm was once the major player.

4. Wilmar International Limited

Headquarters: Singapore
Installed capacity: 22,000 tonnes per day
Countries: China, Indonesia, Myanmar

Wilmar is one of Asia’s largest agribusiness company with $44.5 billion in annual sales turnover in 2018 of which China accounted for 56%.Under the name Yihai Flour Company, it started building state-of-the-art wheat mills on greenfield sites in China over 12 years ago, around the time the Chinese government capped Wilmar’s market share in soybean crushing. Yihai Flour operates more than 20,000 tonnes of milling capacity at 18 locations in 12 provinces with a grinding capacity of 6 million tonnes of wheat per year. Compared to those of Wudeli Group, Yihai’s mills are smaller with a wider geographical distribution from Heilongjiang and Liaoning provinces in the northeast to Fujian and Guangdong provinces in the south. It is also present in inland provinces like Yunnan, Sichuan and Shanxi. Yihai’s mills are mostly situated near largest population centers in each province like Shenyang, Harbin and Kunming, as well as in Beijing and Shanghai. Industry sources report Yihai has projects underway for 19,000 tonnes of new capacity based on expansion at 11 existing locations and four greenfield sites. Wilmar operates two mills in Indonesia and has included a mill at its port complex in Myanmar.

5. PT Indofood Sukses Makmur,

Headquarters: Jakarta, Indonesia
Installed capacity: 20,600 tonnes per day


Indofood’s Bogasari Flour Mills operates the world’s largest mill with 11,650 tonnes of daily production capacity.
Photo courtesy of PT Bogasari

Indofood’s Bogasari Flour Mills division boasts the world’s single largest milling site Located in the Port of Jakarta, a number of the site’s 15 milling lines were expanded from 800 to 1,200 tonnes per day in the last two years to raise total daily capacity to 11,650 tonnes, equivalent to 3.5 million tonnes of wheat annually. Bogasari’s second mill in the port of Surabaya, at the eastern end of the densely populated island of Java, also ranks globally among the biggest at 6,150 tonnes per day. Expansion in Cibitung in West Java near Jakarta will raise capacity there to 2,600 tonnes. The country’s 270 million people are expected to continue eating more wheat-based products as incomes rise and diets diversify. Indofood takes 22% of Bogasari’s output, mainly for noodle production at dozens of factories distributed throughout the vast archipelago. After Egypt, Indonesia is the world’s No. 2 wheat importer at 11 million tonnes per year in 2019. Since deregulation of the industry in 1998, the number of milling companies has jumped from five to 28, resulting in a decline of Bogasari’s market share to around 50%.

6. Nisshin Seifun Group

Headquarters: Tokyo, Japan
Installed capacity: 20,000 tonnes per day
Countries: Japan, United States, Canada, Australia, New Zealand, Thailand, China

Founded in 1900 as Tatebayashi Flour Milling, Nisshin Seifun Group is Japan’s largest wheat miller and one of its largest food companies. Faced with a declining population and stagnant consumption in its home market, the company increasingly has looked overseas for growth. Its U.S. subsidiary Miller Milling, based in Minneapolis, Minnesota, operates six plants including three in California. Three of these locations were acquired from ConAgra and one from Cargill’s Horizon Milling during the formation of Ardent in 2014, enabling Nisshin to become the fourth largest in the U.S. wheat flour market at around 4,000 tonnes (88,000 cwts) daily capacity. The company recently announced the closure of its 816-tonne-per-day mill in New Prague, Minnesota, U.S. Its first overseas milling venture was Rogers Foods with two mills in British Columbia, Canada, that also partially serve the U.S. market. Its next overseas move was in Thailand, where it built and operates two plants. In early 2019, Nisshin acquired Australia’s market leader Allied Pinnacle Mills – originally a joint venture between GrainCorp and Cargill – from a private equity firm that had acquired it in 2017.The 11 millingsites in Australia combined with the two plants of Champion Flour Milling in New Zealand make Nisshin the largest milling company in Oceania.

7. COFCO Group

Headquarters: Beijing, China
Installed capacity: 13,900 tonnes
Countries: China

As a sprawling, state-owned, “national champion” food conglomerate with 409 billion yuan ($58 billion)in annual revenues, COFCO differs sharply from its flour industry rivals. Domestic wheat milling is just a small part of its total business mix. COFCO’s Hong Kong- listed China Agri Industries Holding Ltd. subsidiary reported 2019 first-half wheat products sales with a value of HK$6.2 billion (U.S.$1.46 billion), ranking it third behind the company’s oilseed crushing (HK$43 billion) and rice milling (HK$9.1 billion) segments. COFCO’s 16 milling sites are in 12 provinces and cities. Average mill size of below 900 tonnes results in part from COFCO’s early history of rescuing failing government mills. Six of its sites are less than 600 tonnes per day.In the last year, COFCO acquired a 1,200-tonne-per-day mill in Tianjin to strengthen its position in the Beijing- Tianjin metropolitan region. In contrast to the organic growth models practiced by Wilmar and Wudeli, COFCO formerly relied on acquisitions but has more recently switched to building large-scale greenfield plants. Sources report that the company has projects to add 7,000 tonnes of capacity at three new locations, including expansion of its footprint by 3,000 tonnes in Henan, the Middle Kingdom’s No. 1 wheat-growing province, where it already has 4,000 tonnes of capacity at four mills. Plants of 2,0000 tonnes per day are also planned for Inner Mongolia province and in Dongguan, Guangzhou province, China’s leading export manufacturing hub.

8. Jinshahe Noodle Group

Headquarters: Xingtai, Hebei Province, China
Installed capacity: 11,000 tonnes
Countries: China

Jinshahe was founded in 1996 with a 15-tonne-perday capacity mill. The private company has steadily expanded its wheat flour milling and pasta operations in parallel and at an accelerating rate. As of 2017, the company’s website claimed daily milling capacity at 11,000 tonnes and noodle capacity at 2,800 tonnes per day. The company operates two giant mills, with 6,000 and 4,000 tonnes daily capacity in the cities of Shahe and Nanhe, respectively. Both are in the south of Hebei, the No. 2 province for wheat production after Henan. The Nanhe plant is undergoing a 50% capacity increase to 6,000 tonnes. Investment already has been made in a 1,500-tonne-per-day wheat mill in Alashankou, Xinjiang, province, directly on the border with Kazakhstan. A regular supply of hard wheat and durum from the Central Asian steppes will enhance Jinshahe’s ability to produce western-style pasta products. Sourcing wheat by rail from thousands of kilometers away is a clear case of mutual benefit arising from China’s Belt and Road initiative. Insiders talk of company ambitions for a trio of 7,200-tonne-per-day mills in Anhui, Shaanxi and Henan provinces that would vault the noodle company to the No. 3 ranking globally.

9. Grain Craft

Headquarters: Chattanooga, Tennessee, U.S.
Installed capacity: 8,200 tonnes

Grain Craft resulted from the amalgamation of three leading independent U.S. milling companies: Cereal Food Processors, Milner Milling and Pendleton Flour Mills in 2014, the same year Ardent Mills was formed. The company operates 14 plants in eight states with coast-to-coast market coverage. At the time of the merger, Cereal Food Processors and the Milner/PFM combination were the nation’s fourth and seventh largest wheat millers.The new entity, now based at Milner’s former headquarters, ranks No. 3 in the hugely consolidated U.S. market. Rationalization of manufacturing, distribution, marketing and administration is a key priority.

10. GoodMills Group GmbH

Headquarters: Vienna, Austria
Installed capacity: 8,000 tonnes

The European Union’s largest milling group has a market share of just 4%. GoodMills Group consists of 25 mills held in seven country-based subsidiaries. Total annual milling capacity is 2.8 million tonnes, with the 1.2 million tonnes at the eight sites of GoodMills Germany GmbH accounting for over 40% of the total. Poland and Hungary, each with four mills, are the second and third ranking subsidiaries by capacity at 530,000 and 300,000 tonnes per year. Austria, where the company is headquartered, has three milling locations. Other countries in the group include Romania (two mills), Bulgaria (one mill) and Czech Republic (two mills).The formation of GoodMills Germany and its acquisition by the Austrian group in 2014 arose directly from harsh penalties for price-fixing imposed on a large number of Germany’s flour milling companies in a verdict first handed down by the competition authorities in 2011 after a long investigation. To pay the stiff fines for their cartelistic behavior, selling out was the only option for a number of the family-owned flour mills.

Special Mention

Companies deserving special mention include East Africa’s Bakhresa Group, Interflour Group in Southeast Asia, and Flour Mills of Nigeria. Their rapid growth could vault them into the top 10 in the near future. The state monopoly Saudi Grains Organization would have placed No. 7 had it not divided its 13 large milling sites among four semi-autonomous companies slated eventually for privatization.

IRAQ’S wheat milling conundrum

Iraq is a conundrum when it comes to wheat and flour. Despite around 300 privately owned mills, it is among the world’s largest wheat flour importers at over 2 million tonnes per year. The wheat supply is not enough but new mills continue to be built. The government pays farmers close to $500 per tonne for their wheat, and yet production had declined and quality falls far short of bakers’ and consumers’ requirements. The milling industry is almost entirely in private hands but depends on the government for all wheat deliveries and flour offtake. Mill revenues are from tolling fees and bran sales. Mills do not sell flour.

Earlier this year, World Grain went to Sulaymaniyah, the commercial and industrial center of the semi-autonomous Kurdistan region in northern Iraq, to meet with Saad Kola, chairman of Iraq’s largest wheat milling company, Kulok Group. He talked about his company and candidly shed some light on the challenges it faces in such a uniquely difficult business environment.

“It was the father of my father that founded the first mill,” he said. “It was 100 tonnes per day and built in 1973. The mill was one of only two mills in Sulaymaniyah during that time.”

The two mills had “more than enough capacity,” for the city and for the Kurdistan region, he explained, adding, “They even exported product to Baghdad and the south of Iraq. At that time there was not much population here.”

Now the company’s Sachnar Mill on the original site has 600 tonnes per day of total capacity. “It is the largest milling plant in all Iraq,” the chairman noted.


Kulok Group’s Sachnar flour mill is the largest mill in Iraq with daily wheat grinding capacity of 600 tonnes. Photos by David McKee

It consists of three processing lines of 200 tons each, supplied by mill manufacturer Aybakar in Ankara.

“We have been acquiring mills,” he said. “We have four in Sulaymaniyah for a capacity of 1,500 tonnes per day. In Kirkuk we have another two mills. One is Zad and the other is Rast. We have six milling plants in total. All are separate companies. Total employment at our mills is 150. With management and drivers, it is 175.”

WHEAT SUPPLY CHALLENGES

The main challenge has to do with getting enough wheat. “Unfortunately, the government gives us the wheat,” Kola said. “There is no private importation. We are trying to get permission from the government to import wheat. Since 1991, the Iraqi government has not allowed private importation.”

Kola referred to the system that the Saddam Hussein regime was forced to adopt after the first Gulf War as part of the UN Food for Oil program.

Regarding the wheat allocations from the government, the chairman observed, “Year by year they have reduced the quantities. We used to get enough wheat to run 24 days or 30 days per month. After the start of the ISIS war more than five years ago, they gave us wheat in eight portions over the year, not 12 monthly allocations. Our six separate milling companies get separate wheat allocations. Ten years ago, the government gave Sachnar 9,000 tonnes every 30 days. Now it gets 5,600 tonnes every 44 days.

“But now a lot of people are interested in this business. People with other businesses are entering flour milling, though they don’t know anything about it. Just because people have enough money, they do it. They build a mill and get an allocation. This milling business doesn’t require any marketing. Mills receive wheat from the government and deliver flour back to it.”


Saad Kola, chairman of the family-owned Kulok Group, represents the third generation to manage the mill.

Kola maintains that there is enough milling capacity to feed Iraq three times: 50,000 tonnes per day times 300 days is 15 million tonnes. Iraq needs 4 million tonnes of flour.

Based on the government system, Kola said, “Now there is only one type of flour: 80% flour and 20% bran; no gluten or protein specification; moisture 14.5% and ash is maximum 1%.”

Since virtually all private mills must operate within the government system, they are excluded from buying wheat to produce flour of the type needed by private bakeries.

“Private companies import flour from Turkey. All bakeries use flour from Turkey,” is how Kola explains the phenomenal 2 million tonnes of wheat flour that Iraq has been importing annually in recent years.

Kola dwelled upon Iraq’s Public Distribution System (PDS) that is intended to provide monthly rations of flour, rice, sugar and cooking oil to every family based on household size.

“The Iraqi government gives flour to the people mostly free of charge,” he said. “Because it is free without quality control, it is very bad quality. In the countryside, the people eat it. They make bread at home, but in the cities, especially big cities, the people don’t even take it. The flour dealers sell it as animal feed. Rich people don’t take the flour.

“Each person or family member gets 9 kilograms per month, but in reality they get 9 kilograms for each five weeks. Now it is even every 44 days.

“Distributors work with the government. They are private shops — retailers. They are called agents for Ministry of Trade and Grain Processing.”

He commented further on the fraud inherent in the PDS scheme.

“A lot of people left their homes due to instability after ISIS,” he said. “Many people are missing. So bad people take flour from the trucks and sell it immediately without looking for people (the rightful beneficiaries). Even World Bank and IFC are asking the Iraqi government to change the system.”

People with other businesses are entering flour milling, though they
don’t know anything about it.


Saad Kola, chairman, Kulok Group

INCONSISTENT WHEAT QUALITY

The 320,000 tonnes of wheat per year ground by the Kulok Group milling plants is almost entirely imported. Kola reports very inconsistent quality.

“Sometimes there is good wheat from the U.S. or Australia or bad wheat from Ukraine,” he said.

The government imports wheat through the port of Basra and transports it in 35- to 40-tonne bulk trucks to government silos around the country. There are 40,000-tonne and 80,000-tonne grain storage facilities near Sulaymaniyah.

The mills must send their own trucks to pick up their grain allocations. Because of the government storage facilities, the private millers need to store relatively small volumes. The Sachnar mill, despite being Iraq’s largest, has only 4,000 tonnes of silo capacity.

The government buys up nearly all the domestic wheat crop. The USDA estimates it at 3 million tonnes in 2018, a 25% decline from the 4-million-tonne harvest of the previous year. The peak production year was 2015 with 4.4 million tonnes, but thanks to the most rain in two decades, the USDA forecasts 2019 production to be a record 4.8 million tonnes.

Wheat growers need financing well before the government can pay. Kulok Group helps to fill this need, Kola said.

“Most farmers can supply two or three truckloads of 22 to 25 tonnes,” he said. “Landholdings are small. I finance the farmers. I give them money before they plant. But the money is stuck for two years. We collect the wheat and supply to government under their name. The government pays the farmers and they pay us.

“We work with farmers around three big cities. My employees are there. They need financing for irrigation. A few other millers do the same, but it takes a lot of capital. And it takes patience. In southern Iraq it is different. Traders are financing farmers because they will get a high price from the government.”

Kola said the quality of local wheat is very bad.

“Low gluten, not even C class,” he said. “The government buys it from farmers at a high price to encourage them to farm. Minimum purchase price is $500 per tonne for Class C. I could import it for $200 per tonne.”

The subsidies, he said, “do not go into the right pocket. Mostly traders do this business. They are cheating. They buy it from the farmers at a cheap price and mix it with imported wheat to sell to the government.”

The government pays millers only a $10 per tonne tolling fee, but they are allowed to sell 20% of the bran. The price of bran can go as high as $270 or $280 per tonne, though in the spring of this year, thanks to good grazing from abundant rain, it had fallen to below $200.

“An advantage of importing more wheat would be more bran for sheep and cows,” Kola said.


Kulok Group employs 150 workers at its mills in Iraq.

Though Sulaymaniyah is the principal city of Kurdistan, most of the employees are Arabs from the south of Iraq. Arabic is the language of the milling plant. The unmarried men have housing within the mill compound. Married ones live in apartments in the city. Because of the wheat shortages, the mill operates a maximum of four or five hours per day, five days per week and rarely more than that.

Zambia’s push for more protein

Investments in meat and animal feed production reflect changing diet in this African country.

With the exception of a few conflict-torn pockets, since the turn of the century sub-Saharan Africa has achieved much greater availability of carbohydrates despite the world’s highest rates of population growth. Gains in production of cereals, mainly corn, and root crops, principally cassava, are a big part of the positive caloric equation. Another is importation of low-cost rice and wheat to feed burgeoning urban areas. Under-nutrition rates above 30% in many countries across the vast region, per FAO data, are still high but have been coming down.

The next stage, greater intake of protein foods, particularly animal-sourced ones, is well underway in many countries due to investments in feed milling, oil-seed crushing, layer and broiler farms, aquaculture, improved dairy and beef cattle herds, pasteurization plants, feedlots and slaughterhouses.

Aller Aqua’s fish feed plant in Siavonga, Zambia. Photo courtesy of Famsun Group.

A recently published report uses Zambia as a case study of the pan-African trend toward greater availability of commercially produced, affordable, protein-rich foods. U.K.’s CDC Group, an international development bank, commissioned SAIPAR, a Zambian research institute, to carry out a comprehensive analysis of key value chains.

One major conclusion is that though Zambians overall have benefited from greater food production, as evidenced by reduced rates of childhood stunting that is partly due to insufficient dietary protein, much could still be done to make commercially-produced, animal-sourced foods (ASF) more accessible to the rural poor who still make up over half the country’s population of 16 million.

“Low income consumers spend less per household, but still account for a large proportion (43%) of the overall market,” the study said.

Total spending on food by these households, mainly composed of smallholder farmers in villages, amounts to around $500 million per year, according to data from Zambia’s 2015 Living Cost Monitoring Survey. Since the majority of these households grow their own corn and cassava, most of their spending is on animal proteins like dried fish, live chickens and milk from village cows.

FEED INPUTS

Zambia’s relatively modern agriculture and food sectors are well-positioned to respond to demand for more accessible and affordable ASFs. Self-sufficiency in both soybeans and corn underlies a thriving feed milling industry. The USDA estimates that 600,000 tonnes, over one quarter of total corn production, now goes to domestic feed consumption. Commercial producers of compound feed still take less than half, with most non-food corn used by the thousands of small and medium broiler farming enterprises.

Government purchase, transport and storage of smallholder corn and allocations to industrial roller mills amounts to an indirect subsidy for those companies that produce feed as well.

Soybean production peaked at 351,000 tonnes in 2017 and dropped to 321,000 tonnes in 2018, per the USDA. Its growth directly parallels the rise in demand for compound feed for the commercial production of protein foods. In 2002, soybean production was only 2,000 tonnes.

Large commercial farmers with pivot irrigation accounted for the initial surge in soybeans, often cutting back on wheat acreage. But when prices soared, many smallholders also began planting soybeans in place of corn.

Soybean farmers face major challenges. One is severe price volatility. From 2017 to 2018, farmgate soybean prices fell from over $400 per tonne to less than $150 per tonne but have partially recovered. The glut in soybeans resulted in part because Zambia as a landlocked country has no easy export markets. Plantings were reduced following the bumper harvest and price collapse.

Strict non-GMO laws also mean lower soybean as well as corn yields, resulting in higher overall feed costs in comparison to South Africa, which has no such restrictions and where soybean production has doubled. The GMO restrictions also mean that soybeans or soybean meal cannot be imported from South Africa when prices spike. Only India is an alternative source of non-GMO corn.

SOYBEAN CRUSHING

The presence of several soybean crushing companies is a competitive advantage for feed production. After South Africa, where soybean production has taken off, Zambia has the most soybean crushing capacity of any country in sub-Saharan Africa.

Newcomer Global Industries Limited is now the country’s largest oilseed crusher with a 1,000-tonne per-day capacity plant in Ndola in the Copperbelt. It started up only in 2017 with investment from India, but, according to industry informants, has won a large share of the market for the high-protein soybean meal demanded by expanding aquafeed production.

Illegal imports of cheap palm oil from southeast Asia in addition to competition for the smaller 2018 crop have squeezed soybean crushers’ profitability. In late 2018, Cargill shuttered and began mothballing its 500-tonne-per-day capacity crushing and vegetable oil refining plant in Lusaka, which it had acquired in 2015 from Zambeef and upgraded.

FEED MILLING

Both large and small animal protein producers benefit from a sophisticated feed milling sector that consisted of eight companies whose output of a range of compound feed products reached 300,000 tonnes in 2017, according to Alltech’s 2018 global feed survey.

About 45% of feed production is for poultry, which includes 90% for broilers. Large layer farm operators mostly mix loose feed themselves, grinding corn in hammer mills on site and buying soybean meal and vitamin and mineral premixes.

The two new dedicated aquafeed producers that started up in late 2017 will increase national compound feed output by at least one-third within a year or two and greatly enlarge the aqua feed share, as farmed fish production continues its double-digit growth. Danish multinational Aller Aqua partnered with local company Yalelo to build a fish feed plant, commissioned in 2017, with capacity of 50,000 tonnes per year in Siavonga on the shore of Lake Kariba. It is now undergoing an expansion to add a second 14-tonne-per-hour line supplied by Famsum Group.

Norway-based Skretting, a subsidiary of Nutreco of the Netherlands and the top global fish feed producer, has partnered with Lake Harvest, a subsidiary of African Century Foods, to build a smaller, competing aqua feed plant in Siavonga, also made by Famsum.

As in the rising aquaculture sector, some of the poultry feed millers are parts of fully integrated operations that include day-old chicks, broiler farms and slaughtering lines. These include Ross Breeders and Nutrifeed, which are subsidiaries of Country Bird Holdings Ltd. of South Africa and Zambeef, Zambia’s largest agribusiness company, which produces Novatek brand feed.

FISH, POULTRY AND BEEF

The SAIPAR study reveals that consumption of farmed fish, predominantly tilapia, increased rapidly in the last decade to surpass poultry as the most important ASF in Zambia. This development reflects the efficiency of global aquaculture value chains with their improving aquafeed conversion rations. The initial surge in consumption resulted from the increase of frozen fish imports from 8,000 tonnes in 2011 to 127,000 tonnes in 2016.

The second stage was the rapid expansion of large-scale, caged fish farming in Zambia, concentrated in Lake Kariba, the world’s largest reservoir by volume, separating Zambia and
Zimbabwe. Domestically farmed fish volumes are likely to triple from 31,000 tonnes in 2016 to 100,000 tonnes in the coming year or two. Production in 2011 was 9,000 tonnes.

The poultry sector is highly developed but still in need of expansion in order to reach more under-served consumers in rural areas, according to SAIPAR.

Commercial egg production is an earlier Zambian success story with competition and investment lowering production costs and market prices, enabling a rapid increase in consumption. A handful of both locally and internationally invested layer farm companies, mostly in Copperbelt province, account for over two-thirds of egg production. The largest of these, Golden Lay, has over a half-million hens in lay.

Zambia now has annual output exceeding 1 billion eggs with at least 10% exported via informal cross-border trade to neighboring Katanga province of the DRC. Zambians consume over 60 eggs per capita per year, much higher than the average for sub-Saharan Africa, but still well below many developing countries elsewhere.

Efficient distribution by layer farms and traders directly to township markets means that retail egg prices hover around 10′ per piece, which is low by international standards.

Abundant soybean meal, corn and bran help keep layer feed prices in check. Globally feed is usually twothirds of both broiler meat and egg production costs. Raw material prices can be volatile due to currency devaluations and production swings.

CONCLUSION

In sub-Saharan Africa, production and consumption of animal source foods like eggs, chicken, fish, beef and milk has been on the rise as a result of the strong economic growth of the last decade and greater disposable income.

Across the continent, investment in protein food production has surged to meet demand, mostly coming from the relatively well-off and burgeoning urban population. In Zambia, the commercial production and supply of ASFs is largely limited to a corridor from Lusaka in the center northward to the Copperbelt province bordering DRC where the urban population is concentrated and percentage of population below the poverty line is much less.

By focusing on easier to reach city dwellers, are commercial processors missing an opportunity to profitably meet the protein needs of smallholder farm households that are typically under-served by the food industry?

Zambia, which as a lower middle-income country is a step higher up the development ladder than most other sub-Saharan countries, would seem to show that there is much room for corporate players to extend their marketing and distribution strategies to encompass more of the rural poor.

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