PLP Flour Miller's Council Strategic Plan 13Dec2005

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Commissioned by
Flour Millers’ Council of Victoria
In conjunction with Regional Development Victoria
Completed by
Poh Len Pek
Strategic & International Marketing
Mobile: +61 417 007 118

Victorian Flour Milling Industry Sector Plan Sector Plan 2006-2010
BACKGROUND
Sector Plan Development and Methodology
There is the first Victorian Flour Milling Industry Sector Plan.
The Plan was commissioned by the Flour Millers’ Council of Victoria in conjunction
with the Department of Regional Development Victoria with a view of documenting
the industry position to provide focus in promoting and implementing actions for
industry development. It also aims to quantify the significance of the industry to the
Victorian economy on production value, employment, exports, to present the
challenges faced by the industry and to achieve outcomes via an action plan for
implementation of strategies and objectives that would help future development of the
industry.
These outcomes align with the scope of the Victorian Government Next Generation
Food Strategy, Strategy 2003 – Industry Planning - Industry Sector Action Plan
Development.
Ms Poh Len Pek of Strategic & International Marketing was commissioned to develop
the Plan. The following methodology – involving 2 stages - was adopted.
Stage 1 Review encompassed a comprehensive Strategic Review of the Victorian
Flour Milling Industry. It involved an evaluation of immediate past and present
industry position, strengths, weaknesses, opportunities, threats and issues and its
prioritization by industry for attention or change. Fourteen consultations were made
with industry players, customers and suppliers.
Stage 2 Industry Sector Plan involved an analysis of the industry issues in the
context of its environment and urgency of address. The prioritization of these
strategic issues is on the basis of their capacity to reduce barriers to growth, i.e.,
strategic impediments or promote industry expansion. These priorities form the basis
of address in the Industry Sector Plan, and are recommended to industry as the
Sector Plan Objectives and Strategies.
An issue encountered in developing the Sector Plan was the considerable lack of
statistics and non commercially sensitive data on the Victorian industry as industry
concentration is very high i.e., only 3 Victorian players and a need for observance of
the Trade Practices Act which posed a challenge in articulating industry position. It is
strongly recommended that the industry generates and collects salient data to help
direct ongoing update and future development of the Sector Plan.
Poh Len Pek of Strategic & International Marketing wishes to thank all participants
who have freely provided their time, views and invaluable information which has
facilitated the completion of the Sector Plan.
©
Poh Len Pek, Strategic International Marketing Consultant 2

Flour Millers Council of Victoria
“Creating Value: The Essential Link Grain to Food “
The Victorian Mill Owners Association was formed in 1895 and changed its name to
The Flour Millers’ Council of Victoria (FMCV) in 1974. The Council has a long history
of being a strong & influential voice within the Victorian milling & grains industry. It is
affiliated with the national body, The Flour Millers’ Council of Australia (FMCA). The
Victorian Flour Milling Industry is an essential link in the value chain in the conversion
of raw grains - primarily wheat - into technically specified flours that enables its
customers in the cereals food manufacturing sector to manufacture a vast variety of
consumer foods. Its challenge within the grains value chain is recognition of its value
creation role in linking milled flour to an array of consumer cereal products like bread,
biscuits, cakes, etc.
The Objectives of FMCV are as follows:
• To be the peak employer association representing the flour milling industry in
Victoria.
• To promote the interests of flour mill Members in Victoria both individually and
collectively in all matters pertaining to the flour milling industry.
• To provide a conduit for communication between the industry and governments,
statutory authorities and other relevant organisations.
• To determine the views of flour millers on matters affecting the industry and to
communicate these views to governments, statutory authorities and other
organisations.
• To provide forums for members to meet and discuss issues relevant to the
industry.
The industry is expert in defining wheat quality needs and actively promotes domestic
wheat quality needs to wheat breeders and milling variety preferences to growers. It
procures wheat directly from bulk handlers and growers and need supplies
throughout the year. It segregates wheat carefully at mill silos for blending into
specified flours that are customized to its various customer demands in consistency
of processing performance and cereal product attributes desired by the consumer.
The FMCV Wheat Committee maintains active involvement in all wheat supply
matters, especially in defining Wheat Quality Requirements and Preferred Wheat
Varieties that meet miller’s requirements and communicates them regularly to
breeders, growers and other participants in the grains supply chain.
Member Companies
Weston Milling
(North Melbourne)
Allied Mills
(Kensington &
Ballarat)
Laucke
Flour Mills
(Bridgewater)
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EXECUTIVE SUMMARY
The Victorian Flour Milling Industry Vision is to seek potential for growth beyond that
attributable to growth in the Australian population.
A fundamental issue for the industry is one of a mature industry that is contracting in
size and export volume with no growth impetus from its domestic Victorian or national
markets. It operates in a changing subsidized global grains industry environment and
is uncompetitive in international markets which could provide a key to sustainable
growth. Core strategic issues revolve around its mandatory raw material, wheat, and
wheat price which makes up to 70% of flour production cost. Domestic wheat pricing
is driven by international wheat price dynamics via the Australian Wheat Board Pool
price. Opportunities exist to grow niche local markets like organics and develop more
products utilizing other grains but these also need to extend to international markets
as local markets are not large enough to sustain growth. Much of the industry core
competency is developed from experience. With rationalisation intensifying over
recent years, much technical and management experience and understanding of
important linkages in wheat procurement and milling to customer demands has been
lost. The industry needs to increase its profile in the grain value chain and as an
industry attractive to potential employees.
The 8 major strategic areas faced by the Victorian Flour Milling Industry are:
1. Wheat Availability All Year Round & Sustainable Access
2. Wheat Quality Meeting Milling & End User Requirements
3. Wheat Price
4. Research & Development
5. Location, Logistics and Infrastructure
6. Market Growth & Demand
7. Human Resource - Skills, Training and Development
8. Industry Profile
The Objectives and Strategies addressing these issues follow.
It is recommended to members of the Victorian Flour Milling Council to adopt the
strategies as their Action Plan and develop further details on timeframe,
implementation mechanics and prioritization commensurate with prevailing industry
circumstances.
©

Victorian Flour Milling Industry Sector Plan 2006-2010
OBJECTIVES & STRATEGIES
1.1 Wheat Availability All Year Round & Sustainable Access
O 1. Viable Victorian farm sector and grains infrastructure for sustainable local wheat supply.
S 1. Work with Victorian Government’s Next Generation Food Strategy Initiatives to promote factors supporting a
viable farm sector and development of a globally competitive grains infrastructure.
O 2. Secure access year round to suitable and available wheat.
S 2. Regularly communicate industry broad needs to industry forums and key organizations like AWB Ltd and
Bulk Handlers etc.
S 3. Negotiate specific supply contracts, individual millers with marketers as part of strategic procurement options.
S 4. Seek cooperation and support from Victorian Farmers’ Federation.
O 3. Priority access especially in times of wheat shortage.
S 5. Gain formal acknowledgment from AWB Ltd for Victorian Millers’ priority access to wheat access in times of
supply duress (drought) [ Maintain watch on harvest conditions]
S 6. Provide information to biofuel-ethanol debate on ramifications to milling industry.
1.2 Wheat Quality Meeting Milling & End User Requirements
O 4. Suitable wheat varieties available for existing and future milling needs
S 7. Appraise varieties grown in Victoria against the industry collective quality needs to ascertain suitability in
meeting current and future demands.
S 8. An (updated) Domestic Wheat Quality Objectives document disseminated and communicated in one on one
meetings with wheat breeders in individual breeding programs
S 9. A Victorian Domestic Industry Preferred Varieties document disseminated to millers, grain growers (VFF
Grains Group Conference), AWB Ltd, Department of Primary Industries Annual Varieties Guide to Growers
and interested parties.
S 10. At least an annual meeting with each breeding program to discuss industry need consider crossbreds under
development and provide feedback to breeders on merit from industry.
S 11. Participate in annual AWB Ltd Breeders Forum and present on behalf of the domestic industry.
S 12. Facilitate the traditional FMCV Wheat Study Tour to encourage supply chain communications to breeders,
©

cereal chemists and researchers, and build high level of co-operation for mutually beneficial outputs.
S 13. Active participation in industry forums and working groups for appropriate representation of industry position.
O 5. Reliable and consistent Soft Wheat supply
S 14. Appraise the change in Victorian soft wheat profile and all existing commercial and non-commercial breeding
programs against industry’s existing and future needs to ascertain gap and size of gap for action such as
those for Rosella variety
S 15. Support soft wheat growing areas with natural advantage and critical mass such as Bordertown area SA and
Murrumbidgee Irrigation area in southern NSW.
S 16. Support individual company development of direct relationships with growers for specific variety needs by
maintaining general awareness of industry supply / demand balance.
S 17. Encourage breeders to identify and promote promising crossbreds from their programs which could suit niche
requirements but would otherwise be culled due to concentration on high volume markets.
S 18. Work with AWB Ltd to negate factors which discourage growers from growing soft wheat, such as revisions
in receival standards to those proposed by the domestic industry to ensure that marginal standard was not
downgraded to feed payment scale.
O 6. Adequacy of wheat receival standards based on quality of wheat receivals at mills.
S 19. Meet with AWB Ltd annually to discuss and negotiate proposed wheat receival standards for the subsequent
wheat harvest.
S 20. Monitor wheat receival standards as reflected by testing of wheat received at the mills, and compare with
historic records to ascertain variation from past acceptance.
S 21. Maintain consultative discussions with AWB Ltd to research apparent deterioration in wheat receival
standards despite minimal change in actual published standards, (a multiple of possible considerations have
been identified, changes in harvest technology, golden grain rewards where some growers rather than
aiming for premium are prepared to suffer discount and deliver lower standard, commercial flexibility of bulk
handlers to work to bin average, effectively minimum acceptable standards).
1.3 Wheat Price
O 7. Wheat Price at least at lower end of Pool Price Parity for Export Flour
S 22. Negotiate with AWB on concept of improving wheat access and price specifically to be more competitive in
export markets and in so doing have higher level of value adding manufacture retained in the local economy.
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1.4 Research & Development
O 8. Research continues to deliver wheat quality improvements at comparative or better yields.
S 23. Representation through Flour Millers Council (and individual company) in GRDC and other research
organization research programs.
S 24. Regular dialogues with commercial breeders. (see previous).
S 25. Increase research community’s understanding of quality characteristics and impact on processing within
chain, (see previous)
O 9. Wheat Breeding Programs in place for replacement of potentially obsolete desirable old soft wheat varieties. E.g.
Rosella variety whose yields are becoming uncompetitive.
S 26. Increase miller / breeder interface in the changed breeding research and commercialisation structure.
S 27. Appraise adequacy of replacement potentials to varieties under threat like Rosella.
S 28. Monitor commercialisation of new varieties in millers’ preferred procurement zones to ensure choice and
availability of quality varieties.
O 10. New Product Development with Food Manufacturers
S 29. Foster industry cooperation with Victorian food manufacturing industry to identify specific new product
opportunities.
S 30. Leverage into Victorian Governments Next Generation Food Strategy Initiatives in Regional Innovation
Cluster Programs.
O 11. Efficient industry through chain
S 31. Explore potential for a through chain project that assists in development of a new product, the developing
organic industry represents an opportunity for this.
S 32. Investigate potential and mechanics for cooperation with the Organic Federation of Australia and AWB Ltd
who are developing this market.
O 12. A New Industry Product for Export
S 33. Leverage into Victorian Government’s Exports Development and Promotion Initiatives to explore industry
cooperation on development of a new product specific for industry exports
O 13. GM Technology
S 34. Support development and science of GM technology to ensure international grains industry competitiveness
S 35. Maintain a watch on legislation and market readiness for the technology.
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1.5 Location, Logistics and Infrastructure
O 14. Suitable wheat for domestic millers in bulk segregations.
S 36. Monitor varietal mix and segregation availability to meet domestic industry requirements so that concerns can
be raised with AWB and bulk handlers.
S 37. Encourage growers in preferred procurement zones for the domestic industry to invest in adequate storage if
they want to engage in this supply line.
S 38. Highlight industry’s quality needs for approved protectants and pesticide free requirements when negotiating
harvest treatment protocols with AWB Ltd annually.
S 39. Maintain domestic industry voice in the general grains industry forum on concerns of lack of alternative
fumigant to phosphine for the industry.
O 15. Consistency in bulk segregated wheat for specific purpose.
S 40. Monitor consistency levels and highlight outcomes to grain handlers, individual companies with contractual
issues, flour millers council with issues of generic concern.
O 16. Strong direct relationships with growers who do not always respond to AWB premium varieties for specific variety
needs, i.e., those in marginal Victorian growing areas where achieving higher protein to make into the hard grade is
difficult.
S 41. Develop a list of potential growers and investigate interest.
O 17. Competitive storage, handling and transportation costs
S 42. Initiate a study comparing bulk handling and transport charges between Australian states to ascertain
competitiveness of a Victorian mill to elsewhere and current cost gaps to interstate mills
1.6 Market Growth & Demand
O 18. Gain strong support in development of niche products at an early stage
S 43. Niche Products and Market Development.
S 44. Active engagement in various grains industry CRC’s, CSIRO programs, GRDC New Products program etc. to
identify alternative and new market potential such as functional foods.
S 45. A through-chain support for organic grains and for export, Extend support for export market development.
O 19. Development of a Victorian organic flour and flour manufactured products industry.
S 46. Develop a Victorian industry position on organics and explore potential synergy with a national flour milling
industry approach.
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S 47. Work with “The Victorian Directory of Organic Producers’, a Victorian Government’s Next Generation Food
Strategy Initiative to address impediments to development of a Victorian organic industry.
S 48. Identify growers receptive to segregations for organics and specific wheat variety not conforming to AWB
segregations.
S 49. Work with AWB’s existing registry of organic wheat growers
S 50. Facilitate growers’ investment in storage facilities for organic wheat.
S 51. Gain support from AWB in developing an organics through chain specific for Victorian cereals industry.
O 20. Increase Exports
S 52. Support individual member pursuit of commercial export initiatives by lobbying AWB Ltd for improved price
basis for exports
S 53. Support individual member pursuit of commercial export initiatives by exploring government initiatives to
encourage exports
S 54. Encourage food manufacturers to export products to create demand for domestic flour sales
O 21. Increase use of AusAid opportunities to maximize Victorian industry’s milling capacity
S 55. Lobby AusAID to increase aid shipments in form of flour and manufactured flour products rather than grains.
S 56. Collaboration with AWB on wheat priced competitively such as at low end of Pool Price for flour aid
shipments.
S 57. Collaborate with dairy and sugar industries in lobbying for flour/sugar/milk powder mix in Aid shipments.
1.7 Human Resource - Skills, Training and Development
O 22. Trained and skilled workforce for future.
S 58. Investigate opportunities for development of cereal chemists through Universities, Bread Research Institute,
Grains Industry CRCs, Royal Australian Cereals Institute- Cereal Chemistry Short courses
S 59. Assess relevancy of the NABIM distance learning course for Australian Millers and explore adaptation to
Australian industry conditions.
S 60. Explore FMCA vocational training programs for mill employees.
S 61. Maintain scholarship and work experience programs.
S 62. Explore potential for an Industry Induction Program for new recruits into industry
S 63. Consider Mentoring Programs aligning older millers with younger employees.
O 23. Talent retention
S 64. Assess incentives such as Industry Apprenticeship Program, Industry Regional Cadetship programs,
Mentoring Programs and in conjunction with other sectors, e.g. Baking Sector.
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1.8 Industry Profile
O 24. Attractive Victorian milling industry with career path into wider Victorian cereals food manufacturing sector.
S 65. Create and promote a profile highlighting attractiveness of careers in the Victorian cereals industry within the
cereals sectors and to school leavers. [e.g. Develop and publish information brochure/project sheet profiling
industry and career opportunities to students at senior, primary, late secondary and tertiary levels]
S 66. Assess collaborative partnerships with customer industry organizations (e.g. baking, stockfeed) on state or
national level
O 25. Recognition of industry value add in value chain.
S 67. Develop a strong profile and presence by increasing communications of the industry value add in the grains
value chain.
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TABLE OF CONTENTS
VICTORIAN FLOUR MILLING INDUSTRY SECTOR PLAN..........................................................1
BACKGROUND ...............................................................................................................................2
1 EXECUTIVE SUMMARY..........................................................................................................4
OBJECTIVES & STRATEGIES.......................................................................................................5
1.1 WHEAT AVAILABILITY ALL YEAR ROUND & SUSTAINABLE ACCESS ..................................................5
1.2 WHEAT QUALITY MEETING MILLING & END USER REQUIREMENTS ...................................................5
1.3 WHEAT PRICE ..................................................................................................................................6
1.4 RESEARCH & DEVELOPMENT ............................................................................................................7
1.5 LOCATION, LOGISTICS AND INFRASTRUCTURE ...................................................................................8
1.6 MARKET GROWTH & DEMAND .........................................................................................................8
1.7 HUMAN RESOURCE - SKILLS, TRAINING AND DEVELOPMENT .............................................................9
1.8 INDUSTRY PROFILE......................................................................................................................... 10
TABLE OF CONTENTS................................................................................................................ 11
2 INDUSTRY BACKGROUND ................................................................................................. 13
2.1 HISTORY ........................................................................................................................................ 13
2.1.1 Production and Mill Numbers ................................................................................................ 13
2.1.2 Mill Capacity......................................................................................................................... 14
2.1.3 Mill Location......................................................................................................................... 14
2.1.4 Exports History...................................................................................................................... 15
2.2 PRODUCTION TODAY: 300,000 MT P.A............................................................................................ 16
2.3 TURNOVER: ~$150 MILLION (2004-05)............................................................................................ 18
2.3.1 Exports and Imports............................................................................................................... 19
2.4 PER CAPITA CONSUMPTION ............................................................................................................ 20
2.5 CUSTOMERS ................................................................................................................................... 21
2.5.1 Victorian Cereals Based Food Industry.................................................................................. 24
2.5.2 Bread..................................................................................................................................... 25
2.5.3 Cakes & Pastry...................................................................................................................... 26
2.5.4 Biscuits.................................................................................................................................. 27
2.5.5 Animal Feed .......................................................................................................................... 29
2.5.6 Demand Drivers .................................................................................................................... 29
2.6 PLAYERS........................................................................................................................................ 31
2.7 MILLING PROCESS & TECHNOLOGY ................................................................................................ 33
3 INDUSTRY FACTORS .......................................................................................................... 33
3.1 GLOBAL NATURE OF AUSTRALIAN WHEAT INDUSTRY ..................................................................... 34
3.2 VICTORIAN WHEAT PRODUCTION ................................................................................................... 35
3.2.1 Impact of Drought.................................................................................................................. 36
3.2.2 Wheat Yields.......................................................................................................................... 37
3.2.3 Victorian Wheat Areas & Varieties......................................................................................... 37
3.2.4 Impact of Mill location........................................................................................................... 39
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3.3 WHEAT HANDLING, STORAGE AND TRANSPORTATION ..................................................................... 40
3.4 WHEAT VARIETY & QUALITY ......................................................................................................... 43
3.4.1 Wheat Variety Control Scheme & Classification..................................................................... 44
3.4.2 Wheat Quality Standard......................................................................................................... 44
3.4.3 Impact of Variety Segregation, Quality Standard and AWB Crop Shaping Program................ 46
3.4.4 Soft Wheat Varieties............................................................................................................... 46
3.5 AWB POOL PRICE .......................................................................................................................... 50
3.6 RESEARCH & DEVELOPMENT .......................................................................................................... 51
3.7 GENETIC MODIFICATION (GM) TECHNOLOGY ................................................................................. 54
3.8 REGULATIONS ................................................................................................................................ 55
3.9 HUMAN RESOURCE SKILLS, TRAINING AND DEVELOPMENT ............................................................. 55
3.10 SWOT ........................................................................................................................................... 57
4 THREATS .............................................................................................................................. 61
4.1 INDUSTRY STRUCTURE & MATURE MARKETS.................................................................................. 61
4.2 DROUGHT ...................................................................................................................................... 62
4.3 RATIONALISATION IN GRAINS SUPPLY CHAIN.................................................................................. 62
4.4 BIOFUEL–ETHANOL INDUSTRY........................................................................................................ 62
4.5 FLOUR AND MANUFACTURED FLOUR PRODUCTS IMPORTS ............................................................... 64
5 OPPORTUNITIES.................................................................................................................. 64
5.1 DIETARY & ETHNIC BREADS, NICHE PRODUCTS & USE WITH OTHER GRAINS (OATS, BARLEY)......... 65
5.2 ORGANICS...................................................................................................................................... 65
5.3 EXPORTS........................................................................................................................................ 67
5.4 AUSAID FLOUR .............................................................................................................................. 68
6 INDUSTRY ISSUES............................................................................................................... 68
7 STRATEGIC ISSUES ............................................................................................................ 72
7.1 WHEAT AVAILABILITY ALL YEAR ROUND & SUSTAINABLE ACCESS ................................................ 72
7.3 LOCATION, LOGISTICS AND INFRASTRUCTURE ................................................................................. 75
7.4 WHEAT PRICE ................................................................................................................................ 76
7.5 MARKET GROWTH & FOOD INDUSTRY DEMAND.............................................................................. 76
7.6 SKILLS & TRAINING........................................................................................................................ 77
8 OBJECTIVES & STRATEGIES............................................................................................. 78
8.1 WHEAT AVAILABILITY ALL YEAR ROUND & SUSTAINABLE ACCESS ................................................ 78
8.2 WHEAT QUALITY FOR MILLING & END USER REQUIREMENTS.......................................................... 79
8.3 WHEAT PRICE ................................................................................................................................ 80
8.5 LOCATION, LOGISTICS AND INFRASTRUCTURE ................................................................................. 82
8.6 MARKET GROWTH & DEMAND ....................................................................................................... 83
8.7 HUMAN RESOURCE - SKILLS, TRAINING AND DEVELOPMENT ........................................................... 84
9 IMPLEMENTATION............................................................................................................... 86
10 APPENDIX ......................................................................................................................... 87
10.1 CONSULTATIONS ............................................................................................................................ 87
10.2 REFERENCES .................................................................................................................................. 87
10.3 CONSOLIDATED INDUSTRY FEEDBACK ON INDUSTRY ISSUES............................................................ 89
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2 INDUSTRY BACKGROUND
As this is the first Plan for the Victorian Flour Milling industry, considerable industry background
information is presented as part of the Plan. This section covers production history of the
Victorian industry, statistics on flour supply and demand, i.e., production volumes and values,
customer industries, players, exports & imports and the national flour milling industry as context
for comparison.
2.1 History
2.1.1 Production and Mill Numbers
Historically, the Victorian flour industry had been a flourishing industry in the nine
decades from 1870s to the sixties with production attaining on average 400,000 MT
in the sixties from a base of 105,000 MT in the 1870s and extensive mill
rationalization from 156 mills in the 1870s to 30 mills in the sixties (refer Figure 1).
This was followed by 2 decades of extensive contraction and consolidation in the
seventies and eighties where production shrunk to an average 234,000 MT in the
eighties and mill numbers reduced by 75% to five. Thereafter in the nineties, the
remaining 5 mills operated by 5 players expanded strongly to an average 334,000
MT. Expansion continued into 2000 and 2001 where production grew by 4% and 6%
respectively and peaked at a record 433 863 MT in 2001 (Refer Figure 3).
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0
20
40
60
80
100
120
140
160
180
1870s1880s1890s1900s1910s1920s1930s1940s1950s1960s1970s1980s1990s
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
No of
Mills
Avg Flour
Production MT
for the Decade
Source: FMCV: Victorian Year Books and Centenary Booklet 1895-1995
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2.1.2 Mill Capacity
Information on the mill capacities of the national industry is presented since non-
commercially sensitive data specific to Victorian mills is unavailable. From 1956 to
the present day, 137 mills were progressively rationalized to the remaining 28 mills
today (refer Table 1). Average mill capacity increased steadily over this period with
larger mills of higher throughput (nearly 12 MT flour processing per hour in 2004)
replacing smaller mills and achieving higher asset utilization (87% in 2004) compared
to utilization of 55% in 1956 or low 80s% in the nineties and early part of this century.
In the present day, a critical success factor for industry players in the 21st
century is
large mills with (globally competitive) high throughputs, economy of scale and high
capacity utilization in a mature domestic market beset with low growth prospects and
impacted by global competition.
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11995566 ttoo 22000044..
Year No. of
Mills
Annual Flour
Production
(MT)
Average Mill
Capacity
(MT/Hour)
Capacity
Utilisation
%
1956 137 1,400,000 2.46 55
1962 114 1,383,000 2.75 59
1966 96 1,300, 000 3.02 60
1971 85 1,336,000 3.22 65
1976 66 1,274,000 3.79 68
1981 44 1,167,000 4.82 73
1986 44 1,216,000 5.08 73
1991 39 1,385,000 6.12 78
1996 39 1,653,000 7.74 73
1999 35 1,965,000 8.95 84
2001 31 2,030,000 10.79 81
2002 30 2,077,000 11.38 82
2003 30 2,043,000 11.32 80
2004 28 2,135,000 11.75 87
Source: FMCA
2.1.3 Mill Location
Historically from 1948 to 1976, there were more regional than metropolitan mills in
Victoria (as was in other states, refer Table 2). Regional mills in Victoria were more
extensively rationalized than metropolitan mills with reduction by 80% from 27 to five
mills compared to metropolitan mills down 60% from 11 to four, resulting in a total of
nine mills remaining in Victoria in 1976. Similarly in other states, regional mills were
reduced by two-thirds while metropolitan mills were halved. Over this period,
Victoria’s national share in 1976 of the number of mills operating decreased from
24% to 14% in contrast to New South Wales where despite mill numbers being
halved, its national share remained around 38%. Comparing the impact of
rationalization on each state’s national share of mills indicated the Victorian industry
as having had been the most affected.
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Today, Victoria has 4 mills (2 regional and 2 metropolitan) accounting for 14% share
of mills in operation in Australia.
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FFlloouurr MMiillllss iinn eeaacchh SSttaattee iinn AAuussttrraalliiaa..
State 1948 1956 1966 1976 2005
VIC Metropolitan 11 10 8 4 2
Regional 27 24 12 5 2
Total 38 34 20 9 4
% of Australian Mills 24% 25% 21% 13.5% 14%
NSW Metropolitan 18 16 11 10 2
Regional 40 31 21 15 9
Total 58 47 32 25 11
% of Australian Mills 36% 34% 33% 38% 39%
SA Metropolitan 8 4 4 4 2
Regional 23 19 13 9 3
Total 31 23 17 13 5
% of Australian Mills 19% 17% 18% 19.5% 18%
QLD Metropolitan 3 3 3 3 2
Regional 7 8 8 8 1
Total 10 11 11 11 3
% of Australian Mills 6% 8% 11.5% 16.5% 11%
WA Metropolitan 10 7 6 3 2
Regional 10 12 5 2 2
Total 20 19 11 5 4
% of Australian Mills 13% 14% 11.5% 7.5% 14%
TAS Metropolitan 1 1 2 1 1
Regional 2 2 3 2 -
Total 3 3 5 3 1
% of Australian Mills 2% 2% 5% 5% 4%
AUST
RALIA
Total 160 137 96 66 28
Source: FMCA
2.1.4 Exports History
Historically, growth in the 1st
half of the 20th
century had been fuelled by strong export
growth which accounted for up to 57% of production in the 1930s and 1940s, but
declined rapidly through the fifties and sixties and more so in the seventies to 12% of
production in line with extensive mill rationalization over the same period. Thereafter
exports continued to decline in the eighties to 12,000 MT or 5% of production with
only 5 mills remaining. Beyond the eighties, no further data on Victorian exports were
available.
©

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PPrroodduuccttiioonn aass EExxppoorrttss iinn tthhee 11990000ss ttoo 11998800ss..
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
1900s
1910s
1920s
1930s
1940s
1950s
1960s
1970s
1980s
Average MT
for decade Victorian
Production
Victorian
Exports
57%
39%
12%
5%
49%57%
Source: FMCV
2.2 Production Today: 300,000 MT p.a.
While the industry had previously expanded strongly in the nineties and up to 2001
where production had peaked at a record 433 863 MT (Refer Figure 3), the Victorian
industry thereafter contracted by 29% in the past 3 years to produce 306,296 MT in
2004. This represents a wheat utilization of 375,000 MT, which is 18% of the total
Victorian wheat crop.
FFiigguurree 33.. AAuussttrraalliiaa aanndd VViiccttoorriiaa FFlloouurr PPrroodduuccttiioonn:: 11999955--22000044
1,545,037
1,681,763
1,710,506
1,751,752
1,790,727
1,836,024
1,871,717
1,881,429
1,951,830
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1,482,318
345,600
342,805
367,154
390,774
391,305
409,701
433,863
393,701
336,653
306,296
Tonnes
Victoria
Australia
Source: FMCV
©

In the eighties and nineties, the Victorian industry had grown by 2% on average
annually, in line with national growth in the eighties but below the 3% average in the
nineties. In the last 3 years production had contracted by an average 7% annually
while the national flour milling industry grew on average 2% per annum (refer Figures
4 & 5).
FFiigguurree 44.. PPeerrcceennttaaggee YYeeaarr oonn YYeeaarr CChhaannggee iinn VViiccttoorriiaann FFlloouurr PPrroodduuccttiioonn ffrroomm
11997777 ttoo 22000044..
-20%
-15%
-10%
-5%
0%
5%
10%
1978 1982 1986 1990 1994 1998 2002
% Year on Year Change in Victorian Flour Production
between 1977 to 2004
Trendline
Source: FMCV
FFiigguurree 55.. CCoommppaarriissoonn bbeettwweeeenn PPeerrcceennttaaggee YYeeaarr oonn YYeeaarr CChhaannggee iinn VViiccttoorriiaann
aanndd AAuussttrraalliiaann FFlloouurr PPrroodduuccttiioonn ffrroomm 11997777 ttoo 22000044..
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1978 1981 1984 1987 1990 1993 1996 1999 2002
Australia
Victoria
Source: FMCV
Share of Australian Flour Production
Over the 3 decades in the seventies, eighties and nineties, Victorian flour production
had been progressively losing share in the national industry where it had accounted
for between 23-26% of national production (refer Figure 6). In the last 3 years, its
national share declined rapidly and in 2004, with production at just over 300,000 MT,
©

the Victorian industry accounted for 16% of domestic flour production while
national flour production expanded by 4% to 1,951,830 MT.
FFiigguurree 66.. VViiccttoorriiaa FFlloouurr PPrroodduuccttiioonn aass aa ppeerrcceennttaaggee ooff TToottaall AAuussttrraalliiaann FFlloouurr
PPrroodduuccttiioonn ffrroomm 11997777 ttoo 22000044..
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Victorian Flour Production as %
of Australia Flour Production
Australia Flour Production %
1977 2004
Trendline
Australian Flour Production
Source: FMCV
The contraction in Victorian flour production in the last 3 years could be attributable to
the exit and relocation of two major user businesses interstate, i.e., the closure of the
Manildra Altona North industrial flour-starch processing plant and Arnott biscuit
production facilities. In the former, approximately 100,000 MT per annum of industrial
flour usage was transferred to the Manildra NSW plant supplied by its NSW flourmills.
The Victorian wheat starch processing plant was the last industrial flour processing
facility in Victoria and had been acquired by Manildra from George Weston Foods in
2000. The closure of two Arnott biscuit factories in Victoria, the last in 2002 of the
Burwood plant, was part of a $100 million overhaul of its operations that involved
expansion of its Sydney, Brisbane and Adelaide factories. Arnotts is owned by its US
Parent, Campbell Soups and nationally consumes 80-100,000 MT of flour per annum
and no longer has any Victorian plants. The decision to retrench more than 600
workers was due to the uneconomical 50-year old Burwood facility and location.
2.3 Turnover: ~$150 million (2004-05)
Only revenues for two periods were available for the Victorian industry as shown in
Table 3. In 1998-99, industry turnover was $180 million and grew to $231 million in
2001-02 when it achieved a record flour production of 433,683 MT (refer Figure 3).
Revenue grew on average 7.4% per annum against a production annual average
increase of 2.5%. During this time, Victorian flour industry represented 14-15% of the
national industry turnover.
Since 2001-02, production had decreased to about 300,000 MT in 2004-05.
Assuming an average flour price of $500/MT, industry turnover in 2004-05 would now
©

be about $150 million, which represents 9% of national industry turnover of
$1,644 million (refer Table 4).
If assuming the Victorian flour milling industry could grow at the same projections for
the national industry of 2.7% per annum over the next 5 years (Refer Table 4, IBIS
World projections), it would be an industry of $170 million producing just less than
350,000 MT of flour by 2009-10.
TTaabbllee 33.. VViiccttoorriiaann FFlloouurr MMiilllliinngg IInndduussttrryy
TTuurrnnoovveerr aanndd NNoo.. ooff EEmmppllooyyeeeess..
TTaabbllee 44.. AAuussttrraalliiaann FFlloouurr MMiilllliinngg
IInndduussttrryy RReevveennuuee
GGrroowwtthh
Year
Turnover
(millions)
%
National
Turnover
No. of
Workers
% of
National
Workforce
1998/9 $180.0 14% 340 16%
2001/02 $231.5 15% - -
Year
Revenue
Millions
Growth
2004 $1,643.9 3.4%
2005 $1685.0 2.5%
2006 $1,732.2 2.8%
2007 $1,777.2 2.6%
2008 $1,825.2 2.7%
2009 $1,880.0 3.0%
Source: IBIS World Cereal Food & Baking Mix
Manufacturing in Australia, 6 August 2005
Source: IBIS World in Business
Outlook, February 2005, p.20
2.3.1 Exports and Imports
Data on Victorian flour exports beyond the nineties is unavailable due to the highly
concentrated nature of the industry with only 3 players (4 Flour Mills). Data in the
nineties indicated, exports volume had declined to 12,000 MT or 5% of production.
Assuming a flour price of $500/MT, this would equate to about $6 million in exports.
Based on Australian flour exports of $198 million in 1999-00, this would account for
3% of Australian flour exports (refer Table 5) or according to IBIS World estimates in
2002-03, 11% of Australian flour exports. This is a distant second to New South
Wales, which leads in flour exports at 69% of industry exports (Table 6).
Australian flour exports typically accounted for less than 15% of industry revenue in
the past 5 years. For a country where 70-80% of wheat production is exported, it is
interesting that flour exports are not significantly higher. The lack of exports by the
Victorian industry will be discussed later.
Flour imports into Australia are typically low and accounted for less than 4% of
industry sales at $40+ to $60+ million over the past 5 years (refer Table 5). Most
imports are sourced from NZ and are typically specialty flour products.
©

TTaabbllee 55.. AAuussttrraalliiaann FFlloouurr EExxppoorrttss aanndd IImmppoorrtt RReevveennuueess:: 11999999//0000--22000033//0044
1999/0 2000/1 2001/2 2002/3 2003/4
Revenue $Million 1373 1514 1607 1775 1873
Exports $ Million 198 205 222 197 180
Imports $ Million 43 44 46 67 55
Imports %share of domestic
demand
3.53 3.28 3.22 4.10 3.14
Exports % share of revenue 14.4 13.6 13.8 11.1 9.6
Source: IBIS World Industry Report: Flour Mill Manufacturing in Australia C2151
30 September 2005
TTaabbllee 66.. AAuussttrraalliiaann FFlloouurr MMiillll EExxppoorrttss bbyy SSttaattee ooff OOrriiggiinn 22000022--0033
State Proportion of Total Industry Exports
NSW 69 %
VIC 11 %
WA 10 %
QLD 6 %
SA 4 %
TAS 0
30 September 2005
2.4 Per Capita Consumption
Australian per capita human consumption of wheaten flour declined over the 5
decades, from 91.6kg in the forties to just below 70 kg in 1998-99 (refer Table 7).
Australian Bureau of Statistics data showed increase in per capita human
consumption from the mid nineties by 1.7% in 1997-98 to 68.4 kg and by 1.9% to
69.7 kg in 1998-99 (Refer Apparent Consumption of Selected Foodstuffs, Australia,
Preliminary (Cat. no. 4315.0)-November 1998). Flour Millers Council of Australia
data based on that collected by the Australian Bureau of Statistics for flour produced
in Australia confirms growth in human consumption per capita consumption of flour
over the past decade. A major factor for change in this pattern is consumer
preference in food, health, convenience, taste, innovative products, price etc.
Based on a national population of 20.3 million, one kilogram per capita increase in
flour consumption would represent 20,300 MT of flour.
TTaabbllee 77.. PPeerr CCaappiittaa CCoonnssuummppttiioonn ooff WWhheeaatteenn FFlloouurr iinn AAuussttrraalliiaa
Year Per Capita Consumption (Kilograms)
1948-49 91.6
1958-59 82.3
1968-69 77.4
1978-88 72.3
1998-99 69.7
Source: IBIS World Industry Report: Flour Mill Manufacturing in Australia C2151,
30 September 2005
©

2.5 Customers
Data on the specific end use of Victorian flour is unavailable. Information on the
national usage is presented instead. The largest use for domestic flour is in bread
manufacture, which accounted for 45% of total flour used nationally (refer Table 7).
The next largest is industrial use, i.e., flour processing into starch, gluten and glucose
and rice flour milling at 28% (550,000 MT). The third largest use for flour is in food
manufacturing at 7% (136,628 MT), with packaged flour next at 6% followed by
biscuits and pasta, each respectively accounting for 5% (97,592 MT) and usage in
pastry products at 4% (~ 78,000 MT)
TTaabbllee 77.. AAuussttrraalliiaann TToottaall FFlloouurr**** PPrroodduuccttiioonn UUssaaggee bbyy EEnndd PPrroodduucctt SSeeccttoorr
End product sector % share
Industrial 28%
Bread 45%
Pastry Cooks 4%
Biscuits 5%
Pasta 5%
Packed flour 6%
Food Manufacturing 7%
30 September 2005 ** Includes rice flour and other grains.
All the food manufacturing sectors which consume flour (other than industrial),
i.e., the Cereal Food & Baking Mix, Bread, Cakes & Pastry and Biscuits industries
are mature industries with growth lagging behind GDP growth in 2003-04 (refer
Table 8) although pasta* and rice**, esp. fresh pasta are the two fastest growing
segments. They also share the same
characteristics of high Industry concentration
except Cakes & Pastry, which is more
fragmented and is medium in industry
concentration.
Regulatory dictates affect all flour milling
customers with flour milling and the cakes &
pastry segments expected to face rising
regulatory imposts. Any regulatory issues
faced by its customers will have
repercussions on the flour milling industry.
*Pasta is made from durum
wheat either as 100% or
blended with wheaten flour.
Wheat millers conduct
milling of durum wheat.
**Rice milling do not share
the same equipment as
wheat mills.
©

TTaabbllee 88.. DDoommeessttiicc MMaarrkkeett SShhaarree,, LLiiffee CCyyccllee,, GGrroowwtthh iinn 22000033//44,, IInndduussttrryy
CCoonncceennttrraattiioonn,, LLeevveellss aanndd TTrreenndd ooff RReegguullaattiioonn ooff tthhee AAuussttrraalliiaann
FFlloouurr,, BBrreeaadd,, CCaakkeess && PPaassttrryy,, BBiissccuuiittss aanndd CCeerreeaall FFoooodd && BBaakkiinngg
MMiixx SSeeggmmeennttss..
Segments Domes
tic
Market
Share
Life
Cycle
Growth
2003-04*
Industry
Concentr
ation
Level of
Regulat
ion
Trend of
regulat-
ion
Flour - Mature - High Medium 
Bread 99% Mature 3.2% High Medium Steady
Cakes & Pastry 99% Mature 3.4% Medium Light 
Biscuits 94% Mature 1% High Medium Steady
Cereal Food &
Baking Mix
- Mature - - Light Steady
 represents an increasing trend  represents a decreasing trend
*Australia Average GDP Growth in 2003-04 is 3.5%
Source: IBIS World Industry Reports, Flour Mill Manufacturing in Australia C2151 30
September 2005.
TTaabbllee 99.. EExxppoorrttss,, IImmppoorrttss,, TTaarriiffffss && GGlloobbaalliissaattiioonn TTrreennddss ooff AAuussttrraalliiaann FFlloouurr,,
BBrreeaadd,, CCaakkeess && PPaassttrryy,, BBiissccuuiittss aanndd CCeerreeaall FFoooodd && BBaakkiinngg MMiixx
SSeeccttoorrss
Sector Export
Level
Export
Trend
Import
Level
Import
Trend
Import
Tariff
Level of
Global-
isation
Global-
isation
Trend
Flour Medium  Low  4.25% Medium 
Bread Low Steady Low Steady Medium 
Cakes &
Pastry
Low  Medium  Medium Steady
Biscuits Medium  Medium  High Steady
Cereal
Food &
Baking Mix
High  Medium  4-5% High Steady
Source: IBIS World Industry Reports
Among the 4 segments, the Cereal Food & Baking Mix segment is the most active in
exports although exports have been contracting since 1999-00 (refer Table 9). NSW
is the dominant exporting state accounting for 82% ($431 million) of exports in the
segment in 1999-00. According to IBIS World, the Flour Milling and Biscuits
segments are expected to increase exports while the Cereal Food & Baking Mix and
Cakes & Pastry segments will experience a decline in exports. All segments face low
levels of import competition although imports are expected to rise in the flour, biscuits
and cereal food & baking mix segments. All the flour-milling customers experience
the impact of globalization as evident by the foreign ownership of large and key
players. The flour industry itself is expected to face increasing pressures from
globalisation.
The international trade of Australia’s flour and flour-based products are shown in
Figure 7. Whilst the make-up of the “Flour Mill Products” are unclear in the ABARE
report, it provides an indication of the trend occurring within the domestic flour and
cereal based industries that showed a significant contraction in exports in the past 3
years (refer Figure 7).
©

FFiigguurree 77:: AAuussttrraalliiaann FFlloouurr MMiillll PPrroodduuccttss
EExxppoorrttss && IImmppoorrttss IInn 11999911--9922 ttoo
22000033--22000044 $$
FFiigguurree 88:: AAuussttrraalliiaann EExxcchhaannggee rraattee
aaggaaiinnsstt UUSSDD DDoollllaarr
Exports Imports
ABARE Commodities Australia's food industry: recent changes & challenges: R Delforce, A
Dickson & J Hogan Product Code: 13169, June 2005
A major factor impacting on flour and flour based product exports is the Australian
USD exchange rate. When exchange rate fell from 0.77 to 0.55 in the nineties (refer
Figure 8), exports rose steadily. However when the Australian dollar strengthened
against the greenback from 2000 onwards, exports had slowed, although industry
consolidation had also partly contributed to the slowdown in exports.
Cereal Food & Baking Mix
In this segment, 4 major national players collectively hold 50-70% national market
share and all are New South Wales based companies as follows.
Cereal Food & Baking Mix
Major Player Turnover in Millions
Market Share in
2004 (IBISWorld)
Kellogg $492 (12 mths to Dec04) 20-25%
Burns, Philp & Co $4,587 (12 mths to Juno5) 15-20%
Australian Health & Nutrition
Assoc. Ltd (Sanitarium)
$275 (12 mths to Jun05) 8-13%
Ricegrowers’ Coop Ltd $654 (12 mths to Apr05) 5-10%
This segment is projected to grow on average 3% per annum to $3.07 Billion by
2008-09 (in 2003-04 dollars) according to IBISWorld, with pasta sales expected to
increase faster than breakfast cereal sales.
©

2.5.1 Victorian Cereals Based Food Industry
The Victorian cereals based food industry is worth $1.66 billion (2001-02) and
Victorian flour industry plays a vital input role into the sector as flour is its
fundamental building block, (refer Table 10). Any factor impacting the Victorian flour-
milling sector would also impact the Victorian cereals food industry sector.
TTaabbllee 1100.. VViiccttoorriiaa CCeerreeaallss BBaasseedd FFoooodd IInndduussttrryy TTuurrnnoovveerr aanndd EEmmppllooyyeeeess ––
11999988--9999 aanndd 22000011--0022
VICTORIA
Turnover
(millions)
% National
Turnover
No. of
Employees
% National
Workforce
1998/9 Flour milling $180 14% 340 16%
Cereal Food & Baking Mix $623 30% 2332 40%
Bread $300 23% 2184 40%
Cake and pastry $369 34% 3014 32%
Biscuits $288 30% 1630 35%
Total Cereals based food industry $1,760 26% 9500 30%
2001/02 Flour Milling $231.5 15% - -
Cereal Food & Baking Mix $745.8 26% - -
Bread $401 n/a - -
Cakes & Pastry $332 36% - -
Biscuits $354 32%
Total Cereals based food industry $1,663 - - -
Source: IBISWorld Cereal Food & Baking Mix Manufacturing in Australia, 6 August
2002
The cakes, pastry and biscuit sectors value add approximately three times flour
industry revenue at $686 million (2001-02) and employ 9,500 employees or 30% of
the national workforce within which the cake and pastry manufacturing sector is the
largest employer of 3,014 workers.
In the Victorian baking industry, flour is used in 2,356 establishments that
manufacture bread, cakes, pastry and biscuits that are distributed as follows:
• 54% Retail bakeries
• 13% Supermarket bakeries
• 13% Cakes & pastry outlets
• 12% Franchise bakeries
• 4% wholesale cake
• 3% wholesale bakery
• 1% franchise cakes
Source: The Australian Baking Industry – A Profile, Dept of Agriculture, Fisheries and
Forestry, BRI Aust. Ltd, 2003 Pg
©

The Victorian cereals based food industry sector is mature and consumption of
bread, cakes, pastry and biscuit – nationally – is at saturation point. The 2-3% p.a.
growth in manufacturing is not sufficient to provide impetus to the Victorian flour
milling industry.
2.5.2 Bread
Victorian bread industry turnover was about $401 million in 2001-02 (refer Table 10
and The Australian Baking Industry – A Profile, Dept of Agriculture, Fisheries and
Forestry, BRI Aust. Ltd, 2003, pg 5). The industry is mature and operates in an
intensely competitive market owing to low population growth and demand. Bread
consumption nationally has been declining steadily over the last 6 decades (refer
Table 11) although there was a revival in consumption in the 1990s following
expansion of hot bread shops and chains such as Baker’s Delight and Brumby’s.
TTaabbllee 1111.. AAppppaarreenntt CCoonnssuummppttiioonn ooff BBrreeaadd iinn AAuussttrraalliiaa..
Year Per Capita Consumption of
wheaten flour (Kilograms)
Per Capita Consumption
of Bread (Kilograms)
1948-49 91.6 64.0
1958-59 82.3 69.1
1968-69 77.4 59.5
1978-88 72.3 47.7
1988-89 69.7 44.4
1998-99 n/a 53.4
Source: IBIS World Report C2161 Bread Manufacturing in Australia – 2 November
2005
Market share is keenly fought between hot bread chains, (600) independent hot
bread shops, branded and in-store breads that exert downward pressure for lower
flour prices. Trends towards supermarket private labels selling at 30-40% discount to
branded breads also adds to the cost pushback to millers to lower flour prices and
erode milling margin. It is believed that there is about 30% excess capacity in the
national bread industry. The largest bakery customer outside of branded and in-store
bakeries is Bakers’ Delight who holds 13% national bread market share and procures
flour on a national contract. Presently, a non-Victorian miller holds its flour supply
contract.
Although the bread industry is highly fragmented, there are two large players with
modern plant bakeries, both based in NSW:
• George Weston Foods
• Burn Philp & Co. (acquired Goodman Fielder in June 2003).
Burns Philp commands 45% of the national bread market share and 54% share of
the packaged bread market. Its Fresh Start joint venture with McDonalds Australia is
contracted to supply buns and English muffins to McDonald stores. Since June 2003,
Burns Philp has rationalized and closed 5 regional bakeries with another 3
earmarked for closure in the medium term.
©

In Victoria, there are 2 comparatively smaller players of note:
• Mountain Bread & Food Pty Ltd (IBIS est. market share < 2%)
A family business based in Brunswick that specialises in the baking of mountain
bread and distributed throughout Australia.
• Country Life Bakery (IBIS est. market share < 0.5%)
A family business that has continuously been expanding since 1993 based in
Dandenong that specialises in health, organic and dietary breads.
Victoria has the second highest number (~26%) of bread establishments in Australia
behind NSW (~33%, refer Table 12).
TTaabbllee 1122:: DDiissttrriibbuuttiioonn ooff BBrreeaadd EEssttaabblliisshhmmeennttss iinn AAuussttrraalliiaa iinn 22000000
Region % of Australia
NSW 32.7
VIC 25.6
QLD 20.4
SA 9.0
WA 5.8
TAS 4.0
NT 2.5
ACT 0.0
Source: IBIS Bread Manufacturing in Australia 2 November 2005.
The national bread market is projected to increase in revenue by an average 3.3% to
around $2.108 billion in 2008-09 with production forecast to increase an average
2.9% over the next 5 years. This compares with real GDP growth projections of 3.5%
over the same period. It is assumed that the Victorian bread market will experience
similar growth unless there is significant net population migration loss, which lowers
demand.
2.5.3 Cakes & Pastry
The main products in this $332 million (2001-02) Victorian sector are cakes, pastries,
donuts, meat pies, sweet/fruit pies, puddings, canned and frozen bakery products.
Here manufacturers, franchises and supermarkets increasingly use pre-mixes
instead of general purpose flour. The Victorian industry represents 36% of the
national sector in 2001 (refer Table 10). The national sector is estimated to grow at
an average 3% per annum to $1,258 Million (in 2003-04 dollars) by 2008-09
according to IBISWorld projections
The 2 major Victorian corporate players in this sector are Simplot and Patties Foods
(Refer Table 13.) Other major players are NSW based George Weston Foods, Burns
Philp and Sara Lee, Balfours in South Australia and Pilsbury in Queensland.
©

TTaabbllee 1133.. MMaajjoorr CCoorrppoorraattee PPllaayyeerrss iinn tthhee AAuussttrraalliiaann CCaakkeess && PPaassttrryy SSeeccttoorr
Major Player Market
Share
Victorian Facility Interstate Facility
Simplot Australia
P/L
15-20% Kensington
Ermington, NSW
Labrador, Southport
George Weston
Foods
15-20%
Burns, Philp & Co 5-10% NSW
Patties Foods P/L
(Owned by six
brothers) 5-10%
Bairnsdale
(180 staff, $38 million sales in
2003-04) (Acquired Four &
Twenty Pies from Simplot in
Ju03)
Sara Lee Group
(Aust) P/L 1-5%
Gosford, NSW
(500 staff, ~$315 million
sales in 2005)
Balfours P/L South Australia.
$63 million sales in
2000-01
Pilsbury
-
Brisbane –(acquired
van den Bergh
Continental Bakeries
from Unilever in August
1999) Frozen unbaked
into Food service
industry
Source: IBIS Cereal Food and Baking Mix Manufacturing in Australia 10 August 2005
Postscript Note: Correction to IBIS data: Simplot has exited the cakes and pastry sector
when it shut its Kensington pastry factory in July 2003 and sold the brands and equipment
to Patties Bakery. Patties as a result increased its annual revenue to about $100 to $110
million with 45% retail pastry market share. It also holds 16% share in the pies market.
Simplot also sold its Big Sister's plant at Ermington, in West Sydney in July 2002, to
Fowlers Vacola, makers of the George & Simpson line of fruit cakes and puddings.
2.5.4 Biscuits
The Victorian Biscuits manufacturing sector was worth $332 million in 2001-02 (refer
Table 9) but has contracted since following closure of Arnotts’ Victorian in 2002. In
contrast the national biscuits sector revenue is projected to grow at an average 2.9%
per annum to $1.446 Billion by 2008-09 (in 2003-04 dollars), which will lag behind
real GDP growth projections of 3.5%.
Flour is the most important input cost in biscuits manufacture and according to
IBISWorld estimates, may constitute up to 46% of production cost with other raw
material inputs. Any hike in flour and other raw material input price would thus
adversely impact the biscuits industry. Up until the closure of two Arnott plants in
Victoria, the last being Burwood in 2002, biscuit manufacturing in Australia was
heavily concentrated in Victoria where it employed around 38% of the industry's
workforce and accounted for ~31.5% of biscuit establishment (2001, refer Table 14).
The industry is highly concentrated with Arnotts dominating at 60-64% market share
©

in 2004 (refer Table 15). Arnotts has no production facility in Victoria. The major
remaining Victorian player is Kraft Foods who acquired Lanes Biscuits in 2002.
TTaabbllee 1144:: LLooccaattiioonn ooff BBiissccuuiitt EEssttaabblliisshhmmeennttss aanndd DDiissttrriibbuuttiioonn ooff EEmmppllooyymmeenntt
iinn 22000011
Region % of Australia (2001) % Distribution of Employment
VIC 31.5 38.2
NSW 30.1 19.7
QLD 17.8 29.7
WA 11.0 3.6
SA 6.8* 2.2
TAS 2.7* -
ACT 0.0 0
NT 0.0 0
Source: IBIS Biscuit Manufacturing in Australia 10 August 2005
TTaabbllee 1155.. MMaajjoorr BBiissccuuiitt PPllaayyeerrss aanndd mmaarrkkeett sshhaarree iinn 11999944 aanndd 22000044..
Major Player in 1994 Major Player in 2004
Market
Share in
2004
Arnotts Arnotts Biscuits Holdings Pty Limited
(no factory in Victoria, factories in Sydney,
Brisbane and Adelaide)
60- 64 %
George Weston Foods George Weston Foods exit in 2003.
Lanes Biscuits Kraft Foods (Australia) Limited;
Acquired Lanes Biscuits in 2002
6 – 8%
Players Acquired by Arnotts in 2002.
Paradise Foods 14%
National biscuit exports were $63 million in 2001-02 (The Australian Baking Industry
– A Profile, Dept of Agriculture, Fisheries and Forestry, BRI Aust. Ltd, 2003, pg 20)
and grew to $85.4 million in 2003-04 where it accounted for about 7% of total industry
turnover. Key export markets are New Zealand (over half of exports), Japan, the
Pacific Islands and New Guinea. Queensland was the top biscuit exporting state
(refer Table 16) and likely mostly attributable to Arnotts and Paradise Foods.
Although Victoria has the highest number of biscuit establishments nationally, apart
from Kraft, Sakata (rice based snacks) and Kez’s Kitchen with notable brands in retail
outlets, most Victorian manufacturers are small and lack resources to develop
exports.
TTaabbllee 1166:: AAuussttrraalliiaann bbiissccuuiitt eexxppoorrttss bbyy ssttaattee ooff oorriiggiinn,, 22000022--0033
State % Share of industry exports
QLD 30
NSW 24
SA 22
VIC 21
WA 3
NT 0
©

TAS 0
Globalisation has impacted strongly on the biscuits sector more than other baked
goods with the value of imports increasing from $57.6 million nationally in 1997-98 to
$83 million in 2001-02 (refer The Australian Baking Industry – A Profile, Dept of
Agriculture, Fisheries and Forestry, BRI Aust. Ltd, 2003, pg 20).
2.5.5 Animal Feed
The milling of flour produces by-products such as bran and pollard (i.e. mill-mix) that
are mostly sold to manufacturers of animal feed, of which there are 42 mills in
Victoria producing about 2.34 Million MT feed annually. Mill-mix represents the 7th
largest ingredient by volume in a feed formulation after wheat, barley, triticale, oats,
lupin and peas at 3-4% of feed formulation in Victoria. This equates to about 75,000
MT of mill mix. The Victorian stockfeed industry is growing strongly at about 4-5% per
annum driven by expansion in dairy herds in the Victorian dairy industry and would
be able to absorb more mill-mix should the Victorian flour industry expand.
A small volume of wheat germ and bran are sold into food processing for human
consumption such as incorporation into breakfast cereals.
2.5.6 Demand Drivers
There are five key demand drivers for wheat flour. They are:
1) Baking and other food manufacturing activities
Rises in demand for bread, cookies, pasta and other flour-based products has a
positive effect on flour demand.
2) Consumer awareness of health and nutrition
Growing awareness of food nutrition is influencing demand for flour and flour based
products where their high fibre content is highlighted.
3) Lifestyle patterns
With food increasingly prepared and consumed away from home and increasing
trend in pre-packaged, take-away or restaurant meals, flourmills have shifted their
orientation from household consumer markets to large-scale food manufacturers.
4) Population growth
Domestic demand for flour products is a function of population size and growth a
function of rising population. As Australia is expected to record low population
growth, this will not increase domestic demand in a maturing market.
5) Changes in consumer tastes and preferences
A model of the supply and demand of Wheat Products is provided in Figure 9.
©

FFiigguurree 99 SSuuppppllyy aanndd ((CCoonnssuummeerr DDrriivveenn)) DDeemmaanndd MMooddeell ooff WWhheeaatt PPrroodduuccttss
Flour Millers Council of Australia
ConsumerConsumer
Imports
Domestic Food
Manufacturer
Flour Miller
Research
Wheat
Producer
Breeder
Wheat
Quality
Objectives
Group
Wheat Quality
Requirements
Wheat
Specification
(Variety)
Economic Result
(Agronomic/Quality)
Flour
Specification
Preference, Value, QualityDomestic Food
Manufacturer
Flour Miller
ImportsImports
©
Poh Len Pek, StrategicInternationalMarketingConsultant 30

2.6 Players
The Victorian Flour Milling industry is highly concentrated with two multinational
companies operating highly forward and backward integrated businesses and
account for over 90% Victorian market share. They are:
• Allied Mills a JV between Cargill (40%) & Grain Corp (60%)
• Weston Milling a subsidiary of George Weston Foods
Allied Mills operates from Kensington and
Ballarat, Weston Milling from North
Melbourne and a smaller independent
miller, Laucke Flour Mills from Bridgewater
Mill (formerly Water Wheel Flour Mills
acquired by Laucke in June 2000).
Two NSW players: Manildra and Ben
Furney Mills (Centurion); also move flour
into Victoria.
The two companies and NSW based
Manildra account for approximately 90% of
the national flour industry output.
Interestingly the Canadian flour milling
industry with a similar population to
Australia shares similar industry
concentration of 4 players controlling 83%
of industry revenue with major player,
George Weston Foods, parent company of
Weston Milling., being also the leader in
bakery markets.
Other than the 2 Victorian mills, Allied Mills
also operate 6 interstate mills while Weston
Milling operates 5 other interstate mills in
addition to North Melbourne mill. Laucke Mills also operates a mill in Strathalbyn,
South Australia additional to its Bridgewater mill (refer Table 17).
Manildra, the key competitor to Victorian mills has 3 large mills all based in New
South Wales.
TTaabbllee 1177.. NNuummbbeerr ooff FFlloouurr MMiillllss ((iinnccll.. dduurruumm)) bbyy PPllaayyeerrss iinn eeaacchh SSttaattee-- 22000055
Company Victoria NSW QLD SA WA TAS Total
Weston Milling 1 2 1 1 1 6
Manildra 0 3 0 0 0 0 3
Allied Mills 2 2 2 1 1 0 8
Laucke Mills 1 0 0 1 0 0 2
Independents 0 4 0 2 2 1 9
Total 4 11 3 5 4 1 28
Source: FMCA
Allied Mills had acquired the
Goodman Fielder flour milling
business in 2003. Its parent
companies: GrainCorp, owns and
operates 411 grain receival
centres in south east Australia,
and Cargill Australia whose
parent company, Cargill Inc is an
international marketer, processor
and distributor of grains and
operate in 60 countries with 20%
of assets in grain storage,
handling and transportation
activities.
Weston Milling is a subsidiary of
George Weston Foods whose
parent company George Weston,
is a major UK food manufacturer
and marketer with major
businesses in Canada where it is
dominant in flour milling and
bakery markets.
©

The Victorian flour industry is estimated to represent 16% of national production and
9% of turnover in an industry that is worth $1.873 Billion (2003-04) and that had
undergone significant consolidation in the past 5 years with mill establishment
numbers fallen by a third since 1997 and a number of players (Bunge, Goodman,
Newport Mills) having exited the industry (refer Table 18, 19).
TTaabbllee 1188.. SShhaarree ooff VViiccttoorriiaann FFlloouurr MMiilllliinngg IInndduussttrryy TTuurrnnoovveerr aanndd NNoo.. ooff
EEmmppllooyyeeeess ttoo NNaattiioonnaall IInndduussttrryy..
Year
Australia
Turnover
(Millions)
Victoria
Turnover
(Millions)
% National
Turnover
Victoria
No. of
Workers
% of National
Workforce
1998/9 $1,373
(1999-00) $180.0 14% 340 16%
2001/02 $1514 $231.5 15% - -
Source: IBIS World Industry Report: Flour Mill Manufacturing in Australia C2151 30
September 2005, IBISWorld Cereal Food & Baking Mix Manufacturing in Australia, 6
August 2002
TTaabbllee 1199.. AAuussttrraalliiaann FFlloouurr PPrroodduuccttiioonn 11999999//0000--22000033//0044
1999/0 2000/1 2001/2 2002/3 2003/4
Revenue $Million 1373 1514 1607 1775 1873
Domestic Demand $Million 1218 1353 1431 1645 1748
Industry Real Growth % 4.6 4.0 3.2 7.5 3.0
No. of establishments 45 38 37 36 35
No. of enterprises 45 40 40 39 34
No. of enterprises
– real growth %
-4.3 -15.6 -2.6 -2.7 -2.8
Employment 2340 3151 2300 2000 1970
Average revenue/employee
$Million
0.67 0.52 0.74 0.91 0.95
Source: IBIS World Industry Report: Flour Mill Manufacturing in Australia C2151 30
September 2005
According to IBISWorld, the level of concentration for the industry is higher than
average for the Food, Beverage and Tobacco Manufacturing Sector. The low unit
value of most flour products means scale economies are necessary to minimise
average production costs although this is less critical for higher value products
targeted at niche markets. This requirement has driven rationalisation and resulted in
fewer large-scale players.
Since 1997/98, the national flour industry growth has not kept up with real GDP
growth of 3.5%. Against this backdrop, the Victorian flour industry is mature and
contracting.
The trend towards higher levels of concentration in the flour milling industry is not
unique and is common to most developed countries across the world. Industry
rationalisation and concentration has been occurring since 1950s with a steady
©

reduction in the number of mills and firms operating. It has mainly been small mills
that have left the industry with both metropolitan and country mills closed. The
decline in the number of mills may be largely attributable to the fall in exports as
technological developments, notably the trend to shorter milling techniques and
improved transport facilities, have reduced the advantages of regional location.
2.7 Milling Process & Technology
The process of milling wheat into flour in practice is complex. The 3 components of
wheat grain: the fibrous outer layers called bran, the starchy interior called the
endosperm and the embryo or wheat germ; are separated by the milling process. The
extraction rate is the amount of flour obtained from a given weight of wheat,
expressed as a percentage. In Australia extraction rates for white flour, which is
largely derived from the endosperm, are normally in the high 70s.
Capital intensity is high with use of specialized equipment and labour is primarily in
supervisory roles. Although the rate of change in fundamental milling processes is
low, technological and automation improvements in individual milling components
and introduction of electronics and computer programs have driven process
sophistication and productivity trend towards larger computerized mills, of which a
mill with a minimum 500 MT capacity per day is the norm for two-thirds of the milling
capacity in USA today (refer Milling & Baking News 2 August 2005, p 7) and the
largest flour mill has a milling capacity of 600-700 MT per day.
Much of the industry structural change towards larger mills is attributed to advances
in milling technology. Large R&D continues in these areas but undertaken by
international milling engineering companies who supply the industry.
As there were no significant greenfield mills built in Victoria in the past 2 decades –
the last (near new) Greenfield mill: Kensington; was built 20 years ago - much of the
mills’ efficiency gains have been on equipment design for process sophistication with
a focus on flexibility in in-line mixing and blending of sugar, milk powders or fats for
pre-mixes. As a consequence, it is implied that the Victorian industry lacks sufficient
global competitive scale to remain sustainable in the international flour trade that is
dominated by subsidized European flour. It would need to select growth avenues in
higher value added products targeted at premium quality markets such as Japan or
other increasingly sophisticated markets in Asia.
3 INDUSTRY FACTORS
The 7 major areas that impact on the Victorian Flour Milling Industry are as follows:
a) Wheat Availability
b) Wheat Price
c) Wheat Logistics and Infrastructure
d) Wheat Quality and Variety
e) Research & Development, Wheat Breeding
f) Regulations
g) Workforce Skills & Training
Background and context to these areas is provided in the following section.
©

3.1 Global Nature of Australian Wheat Industry
Australian wheat production over the past 20 years (1984-85 to 2003-04) has varied
between 9 and 24.9 million MT per annum with an average 2% annual growth and
annual 17.5 million MT. The recent 5 and 10 year average (including 2004-05) is 20.9
million MT per annum but drought in 2002-03 has adversely impacted the figure
(Source; AWB Investor Fact Book 2004, p 68, also refer Figure 10).
FFiigguurree 1100.. AAuussttrraalliiaann WWhheeaatt PPrroodduuccttiioonn:: LLaasstt 1100 yyeeaarrss 11999944--9955 ttoo 22000044--0055
((FFoorreeccaasstt))
Source: ABARE 2005
Australia is the most export oriented in international wheat trade, exporting on
average 77% of production in the past decade (refer Table 20 despite being the 6th
largest globally in production with 4% of global production (2002). Export is solely
handled by a single desk seller, i.e., AWB Ltd. Australia ’s share of global wheat
trade has risen more than 40% between the mid 1990s and 2004 and is now the 2nd
largest wheat exporter with 15-18% of global market share, displacing Canada as 2nd
largest. Area planted to wheat has grown on average 7% annually over the past
decade paralleling the growth trend in world wheat production (refer Figure 11).
International market forces determine AWB LTD critical success factors in wheat
trade as the domestic wheat consumption market at 5 million MT is small by
comparison. With Australian wheat production oriented to international trade, the
“smaller” domestic wheat consumption industry is therefore exposed to global forces,
both in pricing and availability. This raises important issues for the industry and will
be detailed later.
©

TTaabbllee 2200.. WWoorrlldd’’ss TToopp 55 WWhheeaatt
EExxppoorrtteerrss ((11999900--9922))
FFiigguurree 1111.. WWoorrlldd WWhheeaatt PPrroodduuccttiioonn,, CCoonnssuummppttiioonn
aanndd SSttoocckkss ((MMiilllliioonn MMTT)) -- 1155 yyeeaarrss ttoo
22000055--0066 ((FFoorreeccaasstt))
Export
MT
(Million)
% of
Annual
Produc
tion
Share
of
Global
Trade
USA 30+ m 50% 31%
Australia 17-18 m 70-
80%
16%
Canada ? 66% 14%
EU ? 25% ?
Argentina ? - ?
Source: AWB Investor Fact Book 2004,
p 3, NAB Wheat Outlook Oct 2004.
Source: NAB Global Grain Outlook 2005
3.2 Victorian Wheat Production
Victorian wheat production has similarly grown steadily over the past 15 years from
increasing acreage and yield improvements (refer Figures 12 & 13). Growth in area
planted nationally has averaged 7% annually over the past decade; reference to
Figure 11 suggests similar growth in Victoria. Victorian millers utilise ~18% of the
Victorian wheat crop in 2004.
FFiigguurree 1122.. VViiccttoorriiaann WWhheeaatt AAccrreeaaggee,, PPrroodduuccttiioonn aanndd TTrreennddss::11999900//11-- 22000055//66FF
0
200
400
600
800
1000
1200
1400
1600
1990-9191-9292-9393-9494-9595-9696-9797-9898-9999-002000-0101-0202-0303-0404-05
05-06
est.@
Aug05
'000 ha
0
500
1000
1500
2000
2500
3000
3500
4000kt
Area '000 ha Production kt
Linear (Area '000 ha) Linear (Production kt)
Source: Abare 2005
©

FFiigguurree 1133.. VViiccttoorriiaann WWhheeaatt PPrroodduuccttiioonn aanndd YYiieellddss ::11999900//11-- 22000033//44
0
1000
2000
3000
4000
1990-91
91-92
92-93
93-94
94-95
95-96
96-97
97-98
98-99
99-002000-01
01-02
02-03
03-04
Yield t/ha
0
1
2
3
kt
Sour
Source: Abare 2005
3.2.1 Impact of Drought
The 2002-03 season was the worst drought experienced by all states with national
crop size halved to 10.1 million compared to past 5 years’ average. Victorian
production was also halved to below 1 million MT. This created a severe shortage in
meeting local grain; milling and stockfeed industry demand in the eastern seaboard
where demand is highest (refer Australian Government Wheat Export Authority, The
Growers’ Report 2004). In this period of insufficient grains to meet export obligations
and faced with intense stockfeed competition for limited grains, the Victorian flour
milling industry had to work hard to keep its needs to the fore as wheat is a
mandatory raw material that is not substitutable. To be viable wheat supply needs to
be sourced locally, for example, it is uneconomical to transport wheat from WA into
Victoria at $80 per MT freight penalty.
The issue was alleviated with some 2001-02 carry over wheat stocks being made
available from the AWB Pool and prioritised for local millers, albeit at a considerably
higher price than attainable by AWB in export markets. Millers have no other
recourse in recouping the higher costs other than passing higher flour prices to the
Victorian baking industry.
 The outcome of the 2002-03 drought has highlighted a critical need of the
Victorian flour milling industry for guaranteed wheat availability and
priority access to wheat irrespective of crop size or season, and
availability year round to satisfy on-going baking industry demand.
 Without guaranteed availability and priority access to local wheat, there
will be no Victorian flour milling industry which would jeopardise the
$870 million (2000-01) Victorian bread, cakes, pastry and biscuit
industries where flour is their fundamental raw material.
©

3.2.2 Wheat Yields
Victorian wheat yields have been improving in the past 15 years (refer Figure 11& 12)
but still are typically under 2.5 MT per hectare and below the average Australian
annual increases of +2.5%, although Australian yield improvement over the 20 years
to 1998-99 (refer Abare eReport 0.5.3 pg 8.) is comparatively better than USA
(+0.6%), Canada (+1.5%) and EU (+2.3%) (refer Figure 14). Victorian yields below
2.5 MT per hectare also still lag behind EU at 5.24 MT per hectare (5 year average to
2002-03) and China at 4 MT per hectare (2005-06 forecast, refer Australian Grain
Yearbook 2005, pg 5). Hence yield improvement remains a constant R&D theme in
the Australian wheat breeding program given its considerable impact on farm income.
Focus here however distracts from quality as generally better yield is at the expense
of quality, which creates on-going tension in balancing R&D programs on increasing
wheat quality.
FFiigguurree 1144.. CCoommppaarriissoonn iinn AAuussttrraalliiaann,, UUSSAA aanndd CCaannaaddiiaann WWhheeaatt YYiieellddss ffrroomm
11996600--6611 ttoo 22000000--0011.. ((SSoouurrccee:: AAbbaarree eeRReeppoorrtt 00..55..33 ppgg 88))
3.2.3 Victorian Wheat Areas & Varieties
North-west Victoria is the centre of wheat production with the Mallee and Wimmera
regions collectively accounting for nearly 85% of total Victorian production in 1996
(refer Table 21 & Figure 15).
©

TTaabbllee 2211.. AAvveerraaggee VViiccttoorriiaann WWhheeaatt
PPrroodduuccttiioonn bbyy RReeggiioonn ((55
yyeeaarrss ttoo 11999955..))
FFiigguurree 1155.. AArreeaa ooff wwhheeaatt ggrroowwnn iinn
VViiccttoorriiaa--HHeeccttaarreess bbyy SShhiirree
((11999966))
Region
Wheat
Production
MT
% of
Victorian
Total
Production
Mallee 760,000 44
Wimmera 690,000 40
Loddon
Campaspe
173,000 10
Goulburn &
Ovens & Murray
73,000 4
Rest of the state 33,000 2
TOTAL
VICTORIA
1,729,000 100
Source: Growing Wheat, Margaret Hillman & Ian Smith, Bendigo, DPIV, 1996
Wheat grown in Victoria is generally Australian Standard White, Australian Hard
Wheat, Australian General Purpose and Feed Wheat (refer Figures 16, 17 and 18).
The change in profile of the varieties grown in Victoria is detailed later.
The Mallee region is the major source of higher (≥11%+) protein hard wheat for the
Victorian milling industry for bread use. Competition for this wheat from the local
stockfeed industry is limited.
Figure 16. Australian
Standard White
Growing Areas
Hard Wheat Growing
Areas
General Purpose and
Feed Wheat Growing
Areas.
Source: AWB Website, Sept 2005
©

3.2.4 Impact of Mill location
With key wheat areas located in North West Victoria, about 400-500 kilometers from
the 4 mills: Weston Milling and Allied Mills in metropolitan Melbourne, Allied Mills in
Ballarat and Laucke Mills in Bridgewater; proximity to efficient grain silos and
handling infrastructure is a key logistics consideration within millers’ control to
manage wheat procurement costs, additional to considerations on the right wheat
quality for milling efficiency and end use requirements.
The logistics trade offs considered by millers in procurement involve the following:
• Proximity to wheat growing regions and storage silos
• Proximity to feed processors and consumers to offload by-products bran & offal
(i.e. mill mix)
• Proximity to key end use customer markets egg plant bakeries & biscuit factories
• Back-load offsets
• Access to highly efficient logistics infrastructure geared to exports markets
Proximity to Wheat
The 2 regional mills in Ballarat and Bridgewater being in closer proximity to wheat
growing regions than the metropolitan mills are better placed to meet their
requirements from local catchments. However they are completely reliant on road
transportation, which for cost efficiency, limit procurement by trucks within 300-
400km radius of the mills.
Proximity to Market
In contrast, Allied Mills in Kensington and Weston Milling in North Melbourne while
being further away from wheat growing areas and silos, are located closer to market,
which partly off-set the higher costs of bringing wheat in from the countryside.
However a downside of a city locale is that with increasing urbanisation, the mills
have become enveloped by encroaching residential developments as industrial lands
are converted to residential housing. Although there are no production noise, effluent
or emission issues from the mills, the constant wheat transportation into and flour out
of mills to market could eventually raise conflict with residential communities on noise
pollution from on-going truck movements. It is envisaged that mills may have to
relocate as early as the next decade when its neighbourhood is dominated by
residential zones.
 This raises issues of timing of re-location and whereabouts of a new mill
that both major players would need to address in the medium to longer
term.
 A new mill would costs in excess of $100 million and with historical low
margins deterring investments by new entrants or smaller players with
limited capital; it is difficult to envisage likely scenarios as this is
primarily a business strategy of the players. Of note is that there have
been no significant greenfield mills built in Victoria over the last decade
©

with the last (near) greenfield mill built in Kensington in the late 80s. In
contrast, Allied Mills has proposed building a new greenfield mill in
Picton, NSW. Any impact this would have on Kensington and Ballarat
mills in Victoria is unknown.
Proximity to Stockfeed Industry
A location in proximity to the growing Stockfeed Industry – in general regional locality
- would be advantageous in transferring mill-mix in bulk for cost savings in packaging
and transportation. However, as this only represents 20% of output the transport of
flour to the market is a prime consideration.
3.3 Wheat Handling, Storage and Transportation
There are about 165 grain storage silos in Victoria - operated by 4 key players
(GrainCorp (113 in 2002), AWB, ABA, Ausbulk) and a small number of independents
such as growers, grower cooperatives, transport companies, Japanese trading
houses, etc - serviced by a rail and road infrastructure as shown in Figure 19.
FFiigguurree 1199.. GGrraaiinn ssttoorraaggee ssiilloo aanndd rraaiill iinnffrraassttrruuccttuurree iinn VViiccttoorriiaa ((22000022))
Source: Essential Services Commission: Review of Export Grain Handling
Regulation - Final Report - 25 October 2002 - Map 3: VicGrain Catchment Area
©

In the past 5 years, deregulation and extensive rationalisation of the national grain
storage, handling and transportation sectors have occurred but have yet to result in
lower procurement costs according to Victorian millers.
Deregulation has resulted in one dominant wheat storage and handling player in
Victoria, i.e., Graincorp, who is also a key player in New South Wales and
Queensland (refer Figure 17). Graincorp owns 60% of Allied Mills in a joint venture
partnership with Cargill Australia, and is a publicly listed company (ASX, 1998) that
merged with “Vicgrain”, the then Victorian Grain Elevators Board, in 2000. It
purchased Allied Mills in 2002 in a 60:40 JV with Cargill and acquired Grainco
Australia in 2003.Through its interest in Allied Mills, it is the largest national flour
miller for human consumption with operations in all states with Victorian mills in
Kensington and Ballarat.
Deregulation of the rail sector in the eastern seaboard has similarly not benefited the
Victorian flour milling industry. Infrastructure and work practice deficiencies means
that the rail system cannot meet industry needs, and export demand moreover has
precedence. Where access is available to rail freight, it is used in a limited way. The
rail service in Victoria is dominated by one player, Pacific National (who acquired the
then monopoly player Freight Australia in September 2004, refer Figure 20).
FFiigguurree 2200 PPrriimmaarryy LLooggiissttiiccss PPrroovviiddeerrss bbyy SSttaattee ffrroomm 11998899 ttoo 22000044
Source: Directory of Linkages in the Australian Grains Industry at February 2004,
Kronos Corp. Pty Ltd.
©

Impact of a Consolidating Grains Infrastructure
As further consolidation is anticipated within the grain handling infrastructure, it is
envisaged that the cost advantage between large and smaller millers would widen as
larger players have better capacity to balance the negotiating power of dominant
infrastructure players on storage, handling and transportation requirements.
Notwithstanding, all players would face the following challenges in the changing
environment:
 Smaller players will be increasingly reliant on direct relationships with
grain growers to deliver at a competitive price which places the onus on
growers to access an efficient and competitive grains handling and
storage infrastructure to store & supply grain in meeting domestic flour
miller requirements. As wheat farms in Victoria are smaller in scale
compared to other states (other than Queensland, refer Table 21), there
maybe potential avenues for smaller players to align with smaller
growers for niche markets, although in an increasingly competitive
environment and where larger farms are more profitable than smaller
farms (refer Farm size & productivity, ABARE, S Hooper, P Martin, G Love &
B Fisher September 2002 )
TTaabbllee 2222.. SSuummmmaarryy ooff ffaarrmm ssttaattiissttiiccss iinn tthhee WWhheeaatt--SShheeeepp ZZoonneess 22000011//0022
Average per farm NSW VIC QLD SA WA
Number of farms 14,665 6,752 6,120 5,032 6,031
Area operated (ha) 1,595 869 4,263 1,727 2,680
Wheat area (ha) 171 138 83 325 660
Source ABARE 2003
 As millers require comparatively smaller quantities, i.e. hundreds of MT
for daily delivery compared to hundreds of thousands of MT moved for
exports, it raises the challenge of getting the “smaller quantities”
delivered regularly from a storage silo to mills at economical rates
without incurring additional storage costs that add to procurement costs.
 As the grains infrastructure efficiencies and scale are geared towards
large exports volume (e.g. GrainCorp focusing on “Super Sites”, i.e.
larger tonnages in silos), local millers are marginalised on their ability to
access smaller parcels as required to maintain continuity of milling and
supply to end users.
 With more rationalisation anticipated on silo sites and location, the
reduction in silo choice and location also limits availability of millers’
wheat supply options and potentially adds additional transportation and
other cost penalties from operations conducted under duress and
outside of programmed schedule.
©

Impact of Consolidation in Grains Logistics Providers
Road is the dominant mode of logistics for Victorian millers, and for most players it is
the only mode of transportation of wheat into mills and outbound bulk and packaged
flour to end-users. The volume of road freight for the Victorian millers is high with a
constant need to move large quantities of wheat and flour in and out of mills.
A complete reliance on road transportation subjects millers to the following issues
which impacts on their operational efficiencies and thereby costs.
 Rising fuel costs and fuel levy increases millers’ cost and impacts on
millers’ already low margins.
 Frequency of truck movements in and out of neighbouring residential
areas for the 2 metropolitan mills not only pose a potential environmental
threat, but is inefficient in truck turn around from congestion in city
traffic.
 The Federal Initiative of “Chain of Responsibility” will be implemented in
Victoria by end 2005. How it would impact on wheat procurement is
unknown, i.e., whether it would reduce availability of choice of freight
providers and limit wheat procurement locality, whether independent
growers be forced to align with “export “ aligned infrastructure and use
“big” companies who can better afford to adequately train resources, etc.
It is evident that the Victorian Flour Milling Industry needs a viable farm sector to
satisfy their mandatory raw material wheat, such that supply of quantity and quality is
satisfied at reasonable price and an efficient infrastructure, which can service its
logistical needs. There is concern that with on going rail transport deficiencies and a
lack of deep harbour facility that the milling and some end use industries may
relocate out of Victoria in the longer term, with direct impact on the milling industry.
3.4 Wheat Variety & Quality
Both wheat variety and quality attributes are inter-related and major determinants of
milling efficiency and end use (bread, noodle, biscuits) quality requirements to meet
consumer demand. Wheat quality encompasses the suitability of particular varieties
grown in certain regions and environments for the manufacture of particular foods.
Millers convert their knowledge of flour requirements for end-user needs into wheat
quality specifications that are used to determine preferred varieties to procure.
These quality specifications are also used to establish wheat breeder objectives.
 Variety is a key factor within miller’s control to achieve best procurement
value and reduce cost input. While variety is a key determinant of
quality, different soil type and rainfall regime may affect quality.
 Wheat yield and quality are outcomes determined by the genetic potential
of the variety interacting with the environment. A variety may perform
differently on a different soil type and rainfall regime, thereby creating
variability in a variety quality and increasing procurement challenges.
Thus, Victorian millers need access to a range of areas for varieties and
ensure enough is grown in one area.
©

PLP Flour Miller's Council Strategic Plan 13Dec2005

PLP Flour Miller's Council Strategic Plan 13Dec2005

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PLP Flour Miller's Council Strategic Plan 13Dec2005