The Argentinian wheat milling industry - Characterizing the operations of its two main company types

Abstract

This paper characterizes the operations of the two main types of Argentinian wheat milling companies using Transaction Cost Economics. Small- and medium-sized mills operate efficiently within the macroeconomic context of Argentina by using SPOT market transactions; they exhibit an idle capacity that impedes the full realization of scale effects by keeping its overhead costs high, squeezing them between grain producers and bakeries. The findings suggest that they could produce a higher quality flour destined for supermarkets or exportation by improving their scale effects and access to financing via forward contracts, forming cooperatives and/or becoming part of a Sociedad de Garantía Recíproca (SGR; Mutual Guarantee Society). Molino Cañuelas - the case study illustrating the food companies - benefits not only from using plural forms in its sourcing processes and large-scale effects, but also from investments into producer relationships, processes, and brands, that allow it to achieve higher margins.