Interflour plans for prosperity

The West Australian
Interflour chief Greg Harvey.
Camera IconInterflour chief Greg Harvey. Credit: The West Australian

Lion dancers twist and turn as the pounding of a drum fills the Interflour offices in downtown Singapore.

The raucous prosperity blessing is part of Chinese New Year celebrations at Interflour, a company which usually goes about its business quietly but is pumping up the volume in world flour milling and in South-East Asia.

Chief executive Greg Harvey deals with twists and turns every day in managing a diverse customer base, complex supply chain and string of flour mills in some of the world's fastest growing markets.

The former Bunbury boy runs a burgeoning food production network 50 per cent controlled by CBH's grower members. It is on target to join the elite list of the world's 10 biggest flour millers.

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The joint venture with Anthony Salim, one of Indonesia's richest and most influential figures, aims to produce 10,000 tonnes of flour a day by 2016 with WA farmers supplying most of the wheat.

Depending on the success of a $US150 million expansion across four nations, starting in months, Interflour could have a market value of $US1 billion by 2016.

State and Federal governments talk about taking food from Australian farms to the world and investment in downstream processing. Interflour is one of the few companies with substantial local ownership doing it - building processing capacity and supplying customers who range from multinationals to dirt-poor families in the sprawling backstreets of Jakarta.

Mr Harvey brought Australia's biggest co-operative CBH and Mr Salim - Indonesia's biggest flour miller through Indofood - together to buy Interflour in 2005.

The deal has been described this way: one was going downstream, the other upstream and they met in the middle.

There's no such thing as a perfect marriage - and plenty of CBH's grower members want a divorce if the results of the co-operative's board elections are any guide - but it's hard to argue that it hasn't been a productive and profitable union.

Interflour has grown production from 4200t a day to about 6000t a day since 2005 and now buys about 1.5mt of wheat a year. Sales, subject to fluctuations in the flour price, have grown from $US220 million in 2005 to about $US500 million last year.

CBH has repaid the $US70 million loan it took out to buy its 50 per cent share and received about $40 million in profit payments from Interflour in recent years.

Mr Harvey said the Interflour business model was based on having production capacity close to markets and running tight supply chains with a series of arbitrage points within the company to increase profit margins.

"Our total wheat-buying program is about 1.5mt a year and 75 to 80 per cent of that wheat comes from Australia and 90 per cent of that is from WA," he said.

"WA has freight advantages, quality we like, an accumulation model we like, we know the ports and we know the growers. We can control the supply chain a lot better out of WA."

The relationship includes investing heavily in research and development which directly links grain growers in WA with customers in South-East Asia.

However, all purchases from CBH are at arm's length and the co-operative's supply share fell to just 20 per cent in 2010 before bouncing back.

Mr Harvey believes that by 2016 Interflour will have "all its chess pieces in place" based on expansion projects expected to deliver an annual rate of return of at least 18 per cent.

"I feel that in terms of South-East Asia there will continue to be opportunities for us, but we will have mills strategically located so any expansion will be around those mills," he said.

"Beyond that we would look to go into other emerging markets globally where the basic business strategy of having mills in local markets and a tight supply chain could be applied."

Interflour's expectations about market growth in South-East Asia, where incomes are rising and tastes are changing, are backed by some compelling numbers. Recent figures show annual flour consumption in Australia is 121kg per capita and 71kg per capita in Singapore. In the huge markets Interflour is targeting, consumption is growing rapidly from a relatively low base - 30kg in Malaysia, 10kg in Vietnam, 14kg in Thailand, 24kg in the Philippines and 16kg in Indonesia.

It has seven mills spread across Indonesia, Malaysia, Vietnam and Turkey. It is building new mills in Thailand and the Philippines and adding to its four mills in Malaysia.

Interflour is also brewing up a malting plant set to produce 110,000t in its first year of operation on the 27ha site of its Cai Mep Agri Port in Vietnam.

Cai Mep is connected to Ho Chi Minh City by a new freeway and sits just down river from where a few diehard Vietnam War veterans prop up beachside bars.

It boasts a Panamax vessel berth with high-efficiency discharge capacity, a flour mill that doubled production capacity to 1000t a day in 2012, 60,000t storage silos and a new 160,000t warehouse.

The Philippines mill will be built at Subic Bay, formerly the home of the giant US naval base, near WA-based Wellard's abattoir, which processes Australian cattle.

Interflour is joining forces with a Thai partner to build the mill and associated mini-port on the outskirts of Bangkok.

The new mill in Malaysia, where Interflour already supplies multinationals such as Nestle and Gardenia, will be built near Johor Bahru.

The growth involves forging business ties with government-run enterprises, weighing up joint venture partners and signing MOUs on supply with some of the world's biggest brands.

Interflour has embraced Japan's Sojitz Group as a minority partner in the Vietnamese operations and there are plenty of others knocking on the doors of its Singapore headquarters.

Mr Harvey, who cut his teeth in the international grain industry working for the Australian Wheat Board, says his only regret is that more Australian agribusiness companies are not seizing downstream opportunities in Asia.

"We talk about the Asia century and the opportunities. We are already very good at exporting what we produce and have been doing that for a long time," he said.

"Generally, food manufacturing is going to occur in the market where it is consumed so why don't we take our entrepreneurial expertise, our know- ledge about supply chains, the ability to access the product needed in manufacturing and invest in the manufacturing facilities to make money that way, too."

The reporter travelled to South-East Asia as a guest of Interflour

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