MGP Ingredients outsources flour supply to boost profits

By Caroline Scott-Thomas

- Last updated on GMT

Related tags Flour Wheat

MGP Ingredients has announced that it has stopped production at its Atchison flour mill in Kansas and intends to switch the sourcing of its wheat flour to ConAgra for its protein and starch ingredients.

The announcement comes only days after MGPI director and CEO Tim Newkirk addressed the company’s annual stockholders’ meeting, at which he outlined the company’s profit-boosting strategy following its first net loss in a decade.

As part of that strategy, Newkirk announced MGPI’s intention to step up customer focus and to look into outsourcing parts of its production chain, including raw materials, in an effort to counter the effects of high input prices and volatile grain markets, so this latest announcement will come as no great surprise to stockholders.

MGPI has signed a non-binding letter of intent with ConAgra Mills and said that the agreement could go through within the next month, depending on negotiations. Meanwhile, production at the Atchison mill stopped on Monday, resulting in 32 temporary lay-offs with a further 12 staff being offered early retirement.

Newkirk said: “From a personnel standpoint, the discontinuation of our milling operations at this time is a difficult and painful decision. However, it is one that we find necessary for the good of the business and our overall workforce, as well as is in the best interest of our stockholders. This potential change will also enable us to more effectively serve our customers by concentrating on those areas of our operations that can create greater value for them.”

Speaking at last week’s meeting, Newkirk highlighted the company’s wheat-flour-based specialty starches and proteins, designed to boost fiber and protein, as one of those areas with greatest growth potential, due to high demand for healthy foods.

MGPI has supplied its own flour as the raw material for its specialty proteins and starches since it acquired the Atchison mill from the Pillsbury Company in 1987. The company said that while this has provided it with a cost-effective supply in the past, market volatility now means that self-sufficiency in flour production is no longer the most profitable sourcing solution.

Newkirk said: “For many years, the mill was operated at efficient, relatively stable capacity levels. In more recent years, however, utilization of the mill's capacity has been extremely erratic. This is due to a number of factors, including changing market dynamics, changes in our protein and starch product mix requirements, and volatile wheat prices, which reached record highs during our 2008 fiscal year.”

The Atchison mill is the 13th largest mill in the US, with a daily milling capacity of 20,000cwt (approximately 907,000kg).

MGP Ingredients posted a net loss of $11.7m in the 2007/08 financial year, ended June 30.

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