Interflour's Grand niche
The head of Interflour's operations in Indonesia has highlighted the strategic importance of the latest addition to a network of flour mills part-owned by WA grain growers.
General manager of operations Nick Trim said the Golden Grand Flour Mill at Cilegon in West Java gave growers a foothold on a major shipping route in South-East Asia.
The mill sits on a 2.3ha site in an industrial estate attached to Cigading Port, where it is surrounded by much bigger mills.
Interflour, the joint venture between CBH and Indonesian billionaire Anthony Salim, christened the $US19 million acquisition with a 65,000-tonne shipment of wheat from Geraldton last year.
Cigading was the ship's first port of call before it continued through the Sunda Strait to deliver wheat for Interflour mills in Malaysia and Vietnam.
Mr Trim said that would become the norm as Interflour sought savings by using Panamax vessels to deliver wheat from WA and South Australia.
"You get a really big vessel and freight drops by $US5/t across whole vessel," he said. "If you get 60,000t on a vessel you have already saved $300,000. You do 10 vessels a year, that's $3 million."
The savings will help keep WA competitively priced at a time when cheap wheat originating from elsewhere is flowing into Indonesia, along with cheap flour from Turkey and India.
Bogasari, one of CBH's biggest customers, recently purchased Russian wheat for $US220/t cost and freight for July delivery.
And the message to WA growers from Bogasari and other big flour millers in Indonesia is that the quality of wheat from the Black Sea region is improving.
Last month, Interflour purchased Australian Premium White wheat for $US280/t including freight and it plans to stick with local growers who exported wheat worth more than $700 million to Indonesia in 2013-14.
"There is definitely cheap wheat out there. It is going to be poor quality and it is going to flood market," Mr Trim told a group of 16 Wheatbelt farmers who inspected Golden Grand last week as part of a CBH grower tour of processing plants in Vietnam and Indonesia.
"But that is not our strategy here. Our strategy is to use competitively priced Australian wheat to produce good flour.
"We don't have the biggest mill but we don't need to pump out a lot of volume. We do about 10,000t a month, Bogasari is doing 300,000t a month.
"We are just looking to target a profitable segment of the market for Australian-based flours."
Bogasari, controlled by Mr Salim, has huge mills in the Tanjung Priok region in Jakarta and Surabaya. In Cilegon, Golden Grand is dwarfed by the Bungasari, Cerestar and Wilmar-owned Pundi Kencana mills.
Mr Trim said a lot of mills built to meet future demand were struggling to break even.
"In Indonesia at the moment there are a lot of mills built for five years' time or 10 years' time," he said.
"They look at Indonesia and see 7 per cent or 8 per cent GDP growth and take the trend.
"The unfortunate thing is so does someone else and another person and another person, so there is way too much capacity in Indonesia at the moment."
Mr Trim believes it is inevitable that there will be some consolidation and has not ruled out Interflour eventually buying another mill in Indonesia.
Interflour's Eastern Pearl mill at Makassar in Sulawesi is one of the biggest in the world and produces 700,000t of flour a year.
"We are the most profitable mill in Indonesia and the most profitable in Interflour," Mr Trim said.
"We provide over half the profit for Interflour. Eastern Pearl ships all over Indonesia but is very strong in the east where we have 70 per cent market share."
Mr Trim said competitors found it difficult to ship into eastern markets such as Sulawesi, Borneo, Ambon and Papua.
Interflour is using key staff from Eastern Pearl to bring Golden Grand into full production after buying the mill in a rundown state in November.
Golden Grand is operating at about 60 per cent of its 600t/day capacity as Interflour clears poor quality Indian wheat from on-site silos able to hold up to 40,000t.
It is expected to be operating close to capacity by the end of May and will produce flour for existing Eastern Pearl customers in Java under the respected Kompas and Gatotkaca brands as well as trying to increase market share.
Interflour now owns eight flour mills - one in Turkey, one in Vietnam, four in Malaysia and two in Indonesia. It is building mills at Subic Bay in the Philippines, in Malaysia and near Bangkok in Thailand in addition to a major malting plant at its port in Vietnam.
The reporter travelled to Vietnam and Indonesia as a guest of CBH
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