The Flour and Grain milling industry – from field to table

The flour and grain mill products manufacturing industry is crucial to the South African economy and livelihoods. Staple foods like maize and wheat are essentially a commodity. They are produced in bulk and there is a high degree of interchangeability from one producer to another. They are also traded on the stock exchange, eligible for global demand and require minimal processing.

South Africa’s participation in the global maize industry

South Africa is integrated into the global maize market, and local prices are often influenced by international maize prices, particularly from major maize-exporting countries like the United States and Brazil. This is possibly one of the reasons why in the past, and to some extent still today, price controls are exercised. Indeed, as per the WOW report on the manufacture of flour and grain mill products in South Africa, South Africa has a wheat tariff, set at R422/t as at 2 July 2024, which kicks in when the international wheat price falls below a reference price, which is currently set at US$279/t.

The South African Futures Exchange (SAFEX) platform, which is quite developed, is enabling farmers to hedge grain prices to better manage their wheat production operations.

Price protection by government to encourage local growers

It is interesting, however, that while there is no protection mechanism for maize pricing as there is for wheat, South Africa is a consistent net exporter of maize but remains a consistent net importer of wheat. There is really no need for South Africa to be a net importer of grain given the local demand for wheat, and since a floor price, referenced by international pricing, is available which is aimed at protecting local growers from fluctuating international prices.

For staple food commodities that are so important for food security the picture painted in the graph for Africa here shows the ability to reverse the local production deficit given the vast amounts of arable land and the demand in Africa as a whole.

Growing demand for alternative flours and health-conscious products

On the milling side, the industry is still dominated by a few major players who source raw materials from large-scale farmers. This makes it difficult for smaller players, but they still have an opportunity to focus on high-value crops like sorghum or gluten-free grains, which are becoming more in demand as consumers become health and wellness-conscious.

For the industry to compete with imported flour and grain products which can undercut prices, it has to remain innovative and incorporate technology to reduce costs and remain efficient. This applies particularly to small and emerging businesses that lack the economies of scale of larger players.

As with all consumables, a diversity of tastes and affinities will ensure that small local millers retain a market for their products which are marketed as specialties, very much the way in which the mega-brewers like AB InBev and Heineken have not extinguished the market for craft brews.

In the context of national consumption, niche markets will always represent a small percentage of total consumption, with the commoditised staple foods driving prices. The WOW graphs are evidence that the price-controlled wheat consumption is much more stable than maize. According to the WOW report, temporary high pricing for maize is due to strong demand from neighbouring countries, causing lower consumption in South Africa as consumers search for cheaper alternatives.

As always, despite the industry being dominated by four big manufacturers, Pioneer, Premier, Tiger Brands and RCL, there is opportunity for local artisanal manufacturers to follow changing consumer attitudes to healthier and/or higher margin specialty products such as iron fortified foodstuffs.

Growth opportunities in the

The flour and grain milling industry in South Africa remains a crucial part of the economy, contributing to food security, job creation, and rural development. Although the industry grapples with global market pressures, technological disruption and rising operational costs, it also offers significant opportunities for growth and innovation. By embracing technology, supporting smaller players, and promoting sustainable practices, South Africa can ensure a thriving, inclusive, and resilient milling industry for the future.