MGP Ingredients announces strategy to counter market volatility

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: Futures contract, Maize

US grain-based ingredients company MGP Ingredients has outlined its new customer-focussed strategy for dealing with volatile grain markets after registering its first net loss for a decade.

MGPI produces a range of wheat and corn-based ingredients including specialty proteins and starches for use in foods including bakery products, as well as food-grade alcohol and ethanol for fuel.

Despite an increase in sales to $392.9m for the financial year ending June 30, record rises in corn and wheat prices left the company with a net loss of $11.7m, prompting MGPI to rethink its strategy for achieving future profitability.

Meeting consumer demand

At the company’s annual stockholder meeting on Thursday, company director and CEO Tim Newkirk spoke about moving away from MGPI’s previous focus of increasing sales volume, towards targeting consumer demand.

He said: “To be candid, I think we developed more of an inward focus over the years. For example, we typically placed greater emphasis on pounds and gallons instead of problem-solving…Given today’s volatility in the commodity markets, as well as changing customer demands, it is paramount that we become a more nimble and more responsive organisation.”

In particular, the company is tapping into what it perceives to be growing consumer demand for high fibre products. It highlighted sales growth in its fibre-boosting specialty starches and textured protein, which have become increasingly popular for use in bakery products.

“Our ingredient solutions segment offers the most promising upside, based on growing demand for healthy foods,” ​said Newkirk. “Since most of our customers are big companies, we’re setting out to solve ‘big-company’ problems around the globe.”

Possible outsourcing

Other areas he highlighted for possible change included the sourcing of raw materials, manufacturing, development and distribution.

He said: “We will seek to retain only those ‘links’ in the value chain where we truly create value. Other areas will be considered for possible outsourcing.”

MGPI said that underlying grain costs represented 75 per cent of the combined sales price of all its products in the 2008 financial year. It aims to reduce this proportion and protect itself against future market volatility by improving manufacturing efficiency, developing new products and increasing sales of its higher value products.

Sales in some of MGPI’s important ingredient categories have already risen. Its specialty starches, for example, designed to decrease carbohydrates and increase fibre content and protein, were up by 30 per cent over the year.

The price at which MGPI bought corn was 37.6 per cent higher on average in 2008 than in 2007, while wheat was up 63.3 per cent.

Related topics: Markets

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