The US wheat industry demonstrates how integration across the food chain can raise efficiency. At the beginning of the century, it was much like what India is today. It was fragmented, with a proliferation of small regional markets. There was no standard grading system; each state had its own informal grades. Farmers, although large, were exploited by traders, who often bought wheat at low prices by claiming that it was poor or that demand was weak. The storage, handling, and transport infrastructure was limited. The result was high intermediary margins, a dearth of accurate market signals to producers, waste, and low processing yields. Today, however, the US industry is the benchmark for efficiency in grain processing and procurement. Its farmers produce 36 bushels per acre, one of the highest yields in the world, and its millers achieve flour extraction levels of 75 percent. Its average waste level of 2 percent is the lowest in the world, and well ahead of the 8 to 11 percent in India.
Large, integrated grain processors such as Cargill and Archer Daniel Midland (ADM) played a central role in this transformation. They have influenced all parts of the chain ? agricultural inputs, agricultural production, procurement, and processing ? and in so doing have been able to build profitability in a low-margin business.
Agricultural inputs - Cargill has developed high-yielding seed varieties that are resistant to disease and pests, raising productivity and reducing the need for agrochemicals.
Agricultural production - Large, integrated processors have established joint ventures with farmers' cooperatives and provided marketing support, access to credit, and extension services. ADM, for example, works with Growmark, a cooperative of 175,000 farmers, to enc ...