London, June 9 - Renewed speculation in commodity markets is creating volatility which poses a threat to flour millers in the European Union, a leading industry official said on Tuesday.
"Speculators are returning and they affect our business," Rolf Brack, president of the European Flour Millers' association told a conference organised by the International Grains Council.
"Volatility, that is what threatens our businesses because we can't give it (a price rise) to the bakeries from day to day as we have contracts lasting for three months, six months, whatever," he told Reuters at the sidelines of the conference.
Wheat prices on the Chicago Board of Trade rose rapidly during May, boosted partly by a sharp inflow of managed money across a wide range of commodity markets.
Investment funds and smaller scale investors helped fuel a spike in prices in February 2008 but many liquidated positions later that year as the economic downturn began to bite.
Brack said the EU flour industry was also struggling with overcapacity, adding average capacity usage was about 65 percent.
"If the car industry in Europe had that kind of capacity usage they would be dead at once," he said.
CUT THROAT COMPETITION
Capacity rates vary widely from a high of close to 100 percent in Britain to a low of around 40 percent in Spain with Germany at 80 percent and France at 60 percent.
He said in countries such as France and Italy competition was "close to cut throat" while market conditions in Britain were much more favourable.
Brack said France had suffered from the loss of key flour export markets in North Africa.
"Everywhere (in North Africa) new mills have been built. We now export grain but not flour," he said.
Brack said Spain had not yet undergone the market consolidation which has taken place in countries such as Germany and Britain.
"In Germany, 50 years ago there were 15,000 mills. Today there are 500 mills," he said. "Spain still has thousands of mills."
Brack said flour mills were also threatened by the European Union's policy of zero tolerance for as yet unauthorised genetically modified crops.
"A real, severe threat to the milling industry is if one of the NGOs (non governmental organisations) catches GM products on the (supermarket) shelf," he said, adding the products then had to be withdrawn.
"Everything is everywhere. One (GMO) corn left in a ship, left in a lorry, the next time you carry (non-GMO) wheat it gets infected," Brack added, noting he believed the tolerance level should be set at 0.8 percent.