Fall is planting time for wheat across the Great Plains and this year’s crop went into the ground while big changes were underway in the wheat market. Some of the biggest players in the flour milling industry are joining forces to make the country’s largest miller even larger.
The biggest flour miller in the U.S., Horizon Milling, which is jointly owned by privately-held Cargill and the agricultural cooperative CHS, proposed earlier this year a merger with the milling arm of food giant ConAgra. The new company would be called Ardent Mills.
Consolidating Market Power
Combining the flour milling footprint of Horizon and ConAgra, Ardent Mills would be double the size of its next biggest competitor, and control roughly a third of the country’s flour milling market. Currently the top three milling companies are evenly split in terms of market share. Horizon holds an 18 percent share. ADM Milling, based in Overland Park, Kan., (and a division of Illinois-based ADM) has 17 percent and ConAgra is steady at 16 percent.
Ardent Mills would dwarf its competitors by the volume it can churn out each day and its market share, controlling more than 34 percent of the U.S. flour market.
Hundreds of smaller and specialty mills will remain, but if the Ardent Mills merger is given the U.S. Department of Justice’s blessing, a huge portion of the market would be controlled under one roof. That could mean lower prices for farmers and higher prices for consumers, according to advocates for both groups.
“[This merger] allows the company to exert tremendous market power, both over the grain elevators and farmers where they buy wheat, and the bakeries and other manufacturers where they buy flour,” said Patrick Woodall, research director for Food and Water Watch, a Washington D.C.-based consumer advocacy group that opposes the merger.
Fewer options in flour mills means decreased competition, and potentially lower prices, for wheat. For the farmers who run the 160,000 wheat farms across the country, that could spell trouble.
“It’s somewhat hard to imagine that I as a producer will be better off if this merger goes through, if my elevator is only dealing with one company, rather than three,” said Doug Schmale, a wheat farmer outside Lodgepole, Neb., in the state’s panhandle.
It’s not just farmers who are concerned. Consumer advocates have said this merger would concentrate power within Ardent Mills, allowing them to raise prices for flour buyers.
The changes might be more acute in some parts of the country, Woodall said. In some areas like Northern California or the Mid-Atlantic region, Horizon mills and ConAgra mills compete directly for business. Under the merger, they’d be owned by the same entity.
“If you’re a bakery, you’re getting to choose where to buy your flour from,” Woodall said. “Once the merger occurs, [in some areas] there really will only be one place to buy the flour and you’ll be forced to take whatever price they offer.”
Merger Under Review
The Department of Justice is currently doing its own review of the merger to see if it violates any antitrust legislation, a process underway since this past summer. Reviews can take up to nine months to complete. The review is expected to be finished by the end of the year. If given approval, the new company says it will be up and running in 2014.
The Department of Justice review has kept the leaders of the would-be company quiet until the dust settles. If and when Ardent Mills is up and running, Dan Dye, current president of Horizon Milling, will be the CEO. Officials with Cargill, ConAgra and CHS wouldn’t agree to an interview, but Dye provided a prepared statement on the concerns about Ardent Mills’s effects on the flour milling industry.
“Ardent Mills will continue to face a lot of competition, significant competition from many other companies in the flour milling industry,” Dye said in the statement. “It’s a strong industry, a lot of competitive forces there. And competition is going to spur Ardent Mills to innovate.”
Midwest Connection
Midwest wheat producers stand to be among those most affected by the proposed Ardent Mills merger. Farmers in Colorado, Kansas, Oklahoma and Nebraska harvest about one-third of the nation’s wheat acres, according to the most recent Agricultural Census.
Ardent Mills would be based in Denver, Colo., and Darrell Hanavan, director of the Colorado Wheat Growers Association, said having the new company close by could be beneficial for Midwest farmers.
“This is where the research and innovation is happening right now,” Hanavan said.
ConAgra and Colorado’s Wheat Research Foundation have a memorandum of agreement to develop new varieties of wheat and eventually bring them to market. The Foundation is paid a “substantial amount” by ConAgra, according to Hanavan, to breed new wheat varieties in partnership with Colorado State University. The exact amount is confidential, Hanavan said.
Hanavan said he’s still hearing concern about the merger. Many wheat farmers were already worried about consolidation in the industry.
“We’ve had a lack of competition,” Hanavan said. “And so it will of course always be an issue, and I don’t know how to remedy that issue.”
Ardent Mills’ would-be leaders’ decision to base in Denver, Hanavan said, came after Colorado’s governor, democratic Gov. John Hickenlooper, became personally involved. Phone calls, emails and an eventual, still undisclosed, incentive package wooed the company to choose Denver as its new home.
“One of the questions I asked, ‘Are wheat growers still going to get competition when they’re looking to sell?’” Hickenlooper said. “Well the wheat growers say, ‘We don’t have enough competition as it is, but this probably won’t change that.”
The question, really, is how much the merger will change the landscape.
“They’re only going to have 32 or 34 percent of the market,” Hickenlooper said. “That’s hardly a monopoly.”
Further Consolidation
Thomas Horton, a former Department of Justice antitrust litigator and current law professor at the University of South Dakota, said more scrutiny is needed on proposed mergers. He says a proposal like Ardent Mills will only add momentum to further consolidation within the industry.
“These are fairly cutthroat companies that we’re talking about here,” Horton said. “There could possibly be predatory and cutthroat activities and other exclusionary practices that could jeopardize these smaller mills. There’s no doubt about it.”
Expect to see the remaining large flour millers, like Kansas-based ADM Milling, gobble up more mills just to compete, Horton said.
“The companies have been very forthright in saying that the primary reason for this deal is to control commodity price volatility,” Horton said. “If you do the translation, that means they want to lower the prices they pay for wheat.”
It’s a familiar story for farmer Doug Schmale back in Lodgepole, Neb. Corporate mergers strategized in boardrooms hundreds of miles away still have a very real effect on him, even if not right away.
“It’s looking at the long game. It’s thinking about how 10 or 15 years out I’m selling into an even less competitive market,” Schmale said. “And I’m probably getting a little less for my product because the market is a little less competitive.”