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Sector Study: Flour Industry Products
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Athens, November 10th, 2010


A saturated domestic flour market - Strong price fluctuations of flour products in recent years

  • The worldwide constant volatility of raw material (cereal) prices in recent times has affected the price of flour, triggering major fluctuations.
  • The industry faces tough competition as a result of oversupply.
  • With low annual rates of change, the domestic wheat flour and wheat semolina market is considered to be saturated.

Significant findings are featured in the Sector Study that was carried out by the ICAP Group Department of Economic Research which delves into the wheat flour and wheat semolina market. The flour industry consists of several companies (mostly small and medium-sized ones) which make flour, semolina and their by-products by milling soft and hard wheat. The big flour mills, which have the necessary equipment, are the ones that produce large quantities. Most products manufactured by sector companies are directly supplied to craft bakeries and to the food industry, in 50, 25 and 10-kilo sacks, or in bulk. The remainder is put into smaller packages which are intended for domestic use and are sold in retail.

The total demand for products made by the flour industry (flour, semolina) is price and income inelastic since these products are the raw material of staple foods.

The domestic market of wheat flour and wheat semolina is considered to be saturated. The flour industry is facing an oversupply as a result of the constant expansion of the productive base, especially in the 90s, which led to the creation of an excess production capacity.

Wheat flour production was generally on the rise between 1992 and 2001, at an average rate of 1.9% per annum, and it then fluctuated a little from one year to another. Over the past two years (2008-2009), total production has dropped with a 1.8% average rate of change, following a four-year period of growth.

The domestic consumption of wheat flour was also more or less on the rise from 1992 to 2009, but with low annual rates of change. Out of the overall wheat flour consumption, only a share of around 5% corresponds to packaged flour which is intended for consumers and is sold through the supermarket channel and in other types of food stores.
Domestic production fulfills almost the entire demand. Hardly any imports and exports are made and this is mainly due to the product's characteristics, which renders its transportation to great distances disadvantageous. More specifically, import penetration over the past two years has been negligible. The sector's export performance also declined and accounted for approximately 3% of production in 2009.

Semolina consumption grew between 1992 and 2004 and it then contracted at an average rate of 2.9% per annum. Out of the total domestic consumption of wheat semolina, only a share of around 3% is packaged and sold in retail, and the majority is distributed in bulk or in big sags, mainly for the production of pasta.

From an economic standpoint, most flour millers posted solid growth in their total sales until mid 2008 (around +30%), due to the sharp increase of raw material prices. In 2009, however, sales fell considerably (as a result of the respective drop in cereal prices).
The study also includes a financial analysis of sector companies that was carried out using selected ratios. It also consists of a consolidated balance sheet that was based on a sample of 31 companies whose core business is the production of flour and semolina. The figures show that in 2008 their total assets registered a 3.5% increase from 2007, mainly as a result of the respective increase in their receivables and net fixed assets. The total sales of these 31 businesses rose a whopping 27.3%. Their gross profit also went up, by 30.5%, and this had a positive impact on their operating margin which advanced 79.4%. Finally, in 2008, their profit before taxes and their EBITDA were much higher (up 57.4% and 33.4% respectively) compared to 2007.

Regarding the sector's outlook, the total size of the domestic consumption of flour and semolina is not expected to vary considerably from the current situation (only slight changes are anticipated) in 2010-2011.

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