Low prices are only the surface; overcapacity is the main cause

In recent years, although wheat prices have risen slowly, they remain strong compared with processed flour, giving rise to the phenomenon of "strong wheat, weak flour." A reporter recently learned from an investigation of several flour processing enterprises in Henan Province that the problem of overcapacity is prominent, and overall poor profitability has become the most prominent problem in the flour industry. In particular, some small and medium-sized flour processing enterprises are on the verge of bankruptcy due to problems such as insufficient funds and poor sales channels.

Although large enterprises have the advantage of scale, their survival situation is also not optimistic - the state-support market purchase price for wheat is rising, and enterprises' purchase costs remain high

Zhang Shaoying, head of the sales and operations department of Zhumadian Jiujiu Agricultural Products Co., Ltd., told reporters that the phenomenon of "strong wheat, weak flour" is not very obvious for agricultural industrialization leading enterprises like theirs. When the enterprise's input costs are high, flour prices will also rise accordingly. If they do not sell at high prices, it is difficult for the enterprise to survive.

"The newly built 500-ton operation line will be put into use soon. Just recently we also received an order worth 140 million yuan." Zhang Shaoying said.

Large enterprises can survive when they encounter the phenomenon of "strong wheat, weak flour," but for small and medium-sized enterprises it is not so easy. According to Zhang Shaoying, many small enterprises have closed because production costs rose, profits fell, and long-term operating losses made it difficult for them to keep going. Large enterprises rely on production volume. Facing rising flour production costs, most large enterprises will lower prices and reduce profits to seek sales.

But not all large enterprises can survive as "calmly" as Jiujiu Company.

Jinmailang (Tangyin) Co., Ltd. processes 500 tons of wheat per day. Company general manager Guo Zhanlin looked helpless when talking about the wheat purchase price. "Don't even mention it. This year Tangyin's wheat purchase price is almost the highest in the country, much higher than in neighboring provinces. It has now reached between 1.32-1.325 yuan." The state-support market purchase gives wheat a floor price. Wheat prices are rising, while the increase in flour prices is lower than that of wheat. Even for large enterprises like ours, it is a bit "hard to breathe."

"Now, to produce 1 ton of flour, after deducting the cost of wheat, machine wear and tear, electricity fees, workers' wages, and so on, there is almost no profit left in the end. Now we are only producing to break even and pay workers' wages." Guo Zhanlin said that because the flour industry has been sluggish this year, many enterprises are losing money. Now most flour processing enterprises are not making money at all. Money in flour processing is not easy to earn.

Enterprises with strength can still "tough it out," while small enterprises may suffer "serious damage" - lacking money to buy wheat, and price-cutting competition can easily endanger product quality

Because after the state-support market purchase, farmers can have a floor price when selling grain, and farmers can also obtain greater benefits from selling grain. But for flour processing enterprises, the upfront input costs will rise, and over time, small enterprises cannot bear it.

It is reported that if in a certain year the industry's profitability is poor, the state will provide subsidized interest loans to leading enterprises, while small and medium-sized enterprises cannot enjoy this kind of preferential treatment.

Many large flour processing enterprises have their own fixed wheat sources. "We store about more than 100,000 tons of grain each year, part of which is grain purchased from local farming households. In addition, we have transferred more than 20,000 mu of land to grow high-quality wheat." Zhang Shaoying said, while small and medium-sized enterprises are mostly constrained by the market in terms of grain sources. Once a problem arises with grain sources, it will be a blow to the enterprise.

"In this situation, enterprises can only sell normally at market prices, but if they raise prices they definitely will not be able to sell. The best solution is to sell however they should sell. The market has its own rules. If you lose money this month, you may earn it back next month. The flour industry is the same." Zhang Shaoying said that large enterprises have the advantage of funds and can still "tough it out," but for small enterprises it means "serious damage."

As flour is the raw material for most foods, flour quality must be put first. Only when quality is stable can the subsequent price positioning, sales, and other links be considered. "But when the industry is sluggish, small enterprises are very likely to experience quality fluctuations. Once quality is unstable, it will definitely affect their sales, and it will be difficult for the enterprise to survive. Now many small factories have been swallowed up by large factories or have gone bankrupt. Prices are being pushed too low, which is a disaster for small factories." The head of a flour enterprise in Henan said this.

The flour industry needs to "scrape the bone to cure the wound," and integration of the industrial chain is imperative - the "major production province" of wheat seeks to transform into a "strong processing province"

This year, Henan Province's wheat output reached 66.58 billion jin, accounting for more than one quarter of the national wheat output. The great abundance of raw materials has also caused the flour processing industry to expand. The province has 713 flour processing enterprises, with processing capacity of 59.5 million tons, accounting for one quarter of the country's total.

Liu Wei, president of Henan Dacheng Grain and Oil Group Co., Ltd., said that in recent years, under the general environment of declining economic conditions in the national grain and oil industry, the flour industry mainly faces the problem of overcapacity. Because the flour consumed by domestic residents is mainly used to make staple foods such as steamed buns and noodles, the entry threshold for processing enterprises is relatively low. This has caused some investors to invest blindly, and small flour mills have sprung up in some places. In addition, backward equipment and inadequate technical conditions make it impossible to produce specialty flour, resulting in an oversupply of ordinary flour.

Data show that in June the operating rate of flour enterprises nationwide was 46.2%, while that of small and medium-sized enterprises was only 17.9%. Shi Hongsong, chairman of Henan Shijia Flour Co., Ltd., said that the mindset of going it alone must change. Only by banding together can one keep warm, and only through alliance can one become an industry leader in a segmented market. Not long ago, the first provincial-level flour processing industry bank-enterprise collaborative development promotion association in the country, initiated by the Henan Provincial Branch of the Agricultural Development Bank of China, was established. Sixty-one flour processing enterprises in Henan Province participated, aiming to lead Henan's flour processing industry out of the "cold winter."

According to Zhang Shaoying, the more than 20,000 mu of land their company has transferred now grows two seasons each year. After the wheat harvest, they begin planting sorghum and sign contracts with distilleries, allowing them to earn another part of the profit from the land each year. Large flour processing enterprises with large-scale, intensive, and industrialized production have a better profit margin ratio than small and medium-sized enterprises.

"Following the route of 'market segmentation and product differentiation' is still feasible." Zhu Lianliang, chairman of Xinxiang Xinliang Grain and Oil Processing Co., Ltd., said that at present, wheat processing enterprises with the capacity to produce specialty flour generally suffer from insufficient or lagging production capacity, and specialty flour on the market is in short supply.

At present, the flour processing industry is gradually transforming from the original production-oriented type to a sales-oriented, service-oriented, and research-and-development-oriented type. Facing the current situation of the flour industry, enterprises should avoid single large-scale production and blind diversified development as much as possible, develop specialty flour products, and at the same time achieve energy conservation and consumption reduction to increase benefits. In response to the development difficulties of small and medium-sized enterprises, the state should provide certain policy and funding support according to their strength, and when necessary guide large flour enterprises to merge and reorganize small enterprises, or guide enterprises to form strong alliances.