ConAgra Foods says its proposed grain milling joint venture would spur competition and innovation in the industry and would not itself bring about lower prices for wheat farmers.
The president of the company’s commercial foods division said this week the new Ardent Mills venture, which is under investigation by the U.S. Department of Justice’s antitrust division and a number of wheat-producing states, would be able to better serve its flour customers and ultimately food consumers through new efficiencies.
“It will be a more efficient model that will help us be more competitive as we buy wheat, and also as you sell the flour,” Paul Maass said.
Ardent Mills, which would have just over a third of the total U.S. flour milling capacity, won’t be big enough by itself to lower wheat prices for growers, Maass said.
The American Antitrust Institute, which asked for a Justice Department investigation, said the merger could impair wheat growers’ ability to obtain competitive prices and would reduce competition. Institute Vice President Diana Moss said Friday she is concerned about a concentration of both buyer market power and seller market power if the merger goes through.
“Whenever you have consolidation at the midstream, producers — whether they’re farmers, growers, ranchers, you name it — they’re now looking at fewer buyers,” she said. Similarly, flour buyers will have fewer choices of suppliers, she said.
The institute said farmers have seen their share of the retail dollar for cereal and bakery products cut in half over the past 30 years, based on U.S. Department of Agriculture data.
Maass said flour milling still would be a highly competitive market.
“I don’t see the creation of Ardent Mills having any impact on price,” Maass said. “For us to procure, we’ll have to be price-competitive. We compete with hundreds of other companies that are trying to buy wheat.”
He said the new company would be more efficient in its distribution and supply chain, as its customers expect it to be. He said Ardent Mills still would use all the capacity of its combined 44 mills, including two in Omaha and one in Fremont.
Organizations representing wheat growers say they are watching events closely.
“We have talked with the Justice Department as part of their research, primarily providing background information about current farm structures,” said Melissa George Kessler, director of communications for the National Association of Wheat Growers. “We are following the proposed merger as an industry event but don’t have a specific position on it.”
The organization’s Nebraska affiliate said it is doing the same.
The Ardent Mills venture, announced in March, would combine the flour milling operations of Omaha-based ConAgra Mills and Horizon Milling, itself a joint venture of Minnesota-based Cargill and CHS Inc., a St. Paul, Minn., agribusiness. ConAgra Foods would own 44 percent of Ardent Mills.
Ardent Mills would control 34 percent of the U.S. wheat milling capacity, twice as much as the next biggest competitor, Archer Daniels Midland, with 17 percent.
The American Antitrust Institute said an increase in market concentration deserves federal scrutiny, especially because geographic markets for milling tend to be regional, and “the effects of eliminating a competitor are likely to be magnified,” the non-profit group told the Justice Department.
Commodity markets analyst Alan Brugler, president of Brugler Marketing & Management in Omaha, said while there still could be a large number of potential wheat buyers, they may be too widely dispersed for a farmer to access in a given market location. “He’d have to go further away to get a competitive bid.”
But Brugler said consolidation may not always mean lower prices.
“If you decide you want to be out of the market for two weeks, you’re going to knock the price down, or conversely, if that big group made a big sale to, say, Kroger, they might need a lot of product in a hurry,” he said. “They also have the financial power to pay more. It’s not cut and dried.”
ConAgra said Ardent Mills will work to expand the market for flour products and give farmers new opportunities to sell their products. Maass said combining the research and development budgets and capacities of the two firms could lead to the development of new wheat varieties and new flour products.
“The combination of the two accelerates innovation,” he said.
ConAgra also responded to criticism about a statement from its chief executive officer, Gary Rodkin, that the merger would address industry concerns about commodity price volatility. A former Justice Department investigator said Monday he thought that statement indicated the companies are trying to hold down wheat prices. ConAgra said Rodkin was referring to the broad range of risk management services Ardent Mills will offer its customers.