Integrated Grain Processors example essay topic

The US wheat industry demonstrates how integration across the food chain can raise efficiency. At the beginning of the century, it was much like what India is today. It was fragmented, with a proliferation of small regional markets. There was no standard grading system; each state had its own informal grades.

Farmers, although large, were exploited by traders, who often bought wheat at low prices by claiming that it was poor or that demand was weak. The storage, handling, and transport infrastructure was limited. The result was high intermediary margins, a dearth of accurate market signals to producers, waste, and low processing yields. Today, however, the US industry is the benchmark for efficiency in grain processing and procurement. Its farmers produce 36 bushels per acre, one of the highest yields in the world, and its millers achieve flour extraction levels of 75 percent. Its average waste level of 2 percent is the lowest in the world, and well ahead of the 8 to 11 percent in India.

Large, integrated grain processors such as Cargill and Archer Daniel Midland (ADM) played a central role in this transformation. They have influenced all parts of the chain - agricultural inputs, agricultural production, procurement, and processing - and in so doing have been able to build profitability in a low-margin business. Agricultural inputs - Cargill has developed high-yielding seed varieties that are resistant to disease and pests, raising productivity and reducing the need for agrochemicals. Agricultural production - Large, integrated processors have established joint ventures with farmers' cooperatives and provided marketing support, access to credit, and extension services.

ADM, for example, works with Grow mark, a cooperative of 175,000 farmers, to encourage them to use better seed varieties and improve farming practices. Procurement - Integrated companies have invested in upstream infrastructure to streamline procurement. ADM owns almost 200 grain elevators in which grain is stored according to moisture content, grade, and dockage (impurities). The elevators allow incoming streams of wheat to be blended to achieve uniformity of grade and functional characteristics. ADM also owns almost 1,900 barges, 800 trucks, and 130,000 rail cars for the rapid movement of grain. All loading and unloading is done using pneumatic blowers.

Investment in infrastructure enables companies like ADM to achieve waste levels as low as 1 to 2 percent. Integrated companies have also influenced grain marketing. They played a key role in the development of grading systems and the standardization of grades in 1916. They have since provided continuous feedback to government agencies to ensure grading systems have kept pace with changes in grain production.

They have also been important in the development of grain trading markets, which have helped stabilize grain prices and assisted the industry in managing risk. Processing - Finally, these companies have influenced processing by raising yields. Continuous improvement in milling technology has pushed extraction rates as high as 75 percent, while process controls have enabled millers consistently to produce more than ten types of flour. This not only means that the market grows and consumers are more satisfied, but also results in better returns to farmers.

Wheat farmers in the United States get 92 percent of the delivered mill price, compared with 70 percent for their Indian counterparts.