'Guessing the grain market at its hardest in 30 years'

Published on Monday 17 December 2007 19:00

FARMERS have got to grasp the reality that they cannot any longer operate in isolation: the 10,000 serious businesses in Scotland are part of the wider food industry.

That is the opinion of Billy Davidson, the managing director of Shotts-based Davidsons Animal Feeds.

Davidson has made it to business success the tough way, from leaving school at 15, then working on farms before venturing into sales and starting his own company in 1977, with limited resources. The business now employs a staff of 60 operating a fleet of 30 lorries servicing about 3,500 farming customers from Cumbria to just short of Caithness. Turnover this year is expected to be in the region of 18 million, from sales of a wide range of animal feeds amounting to about 140,000 tonnes. Over the past five years Davidsons has invested 6.5m in the site at Shotts.

Davidson is passionate in his belief that the farming industry has a bright future. He said: "Food security is now becoming an issue and I suspect that the politicians in Westminster, most of whom have never done a proper day's work in their lives, will soon have to wake up to the fact that there are no surpluses of food in the world."

His views on the 2003 reforms of the Common Agricultural Policy, which resulted in a wide range of commodity-related support regimes being replaced by the new single farm payment (SFP), are equally blunt.

He said: "The SFP is one of the worst mechanisms ever foisted on the industry: giving money to farmers for producing nothing is simply not sustainable."

Politics apart, Davidson has a large business to run and he finds it increasingly difficult to plan ahead, with international prices for cereals and proteins subject to huge fluctuations. He said: "The countries of the Far East are becoming more affluent and consumers want to eat better. World grain stocks are at their lowest level for almost 40 years and we also have to face this huge increase in the biofuels industry.

"For the first time in almost 30 years that I find it very hard get a grasp of the market situation."

However, Davidsons' customers can take some heart that the company has been shrewd enough to secure forward contracts for most of its principal ingredients, with prices set at current levels until the end of May 2008.

Bill Souter, commercial and technical director, said: "Most of our farmer clients are on fixed prices for several months and that would cover almost 75 per cent of our customer base. That should give them a degree of security."

Dairy farmers account for about a third of the Davidsons customer base. They have had a tough time until recently, but slow payment of bills has not been a problem, according to Souter. He said: "Bad debt is rarely an issue in agriculture. We give a special discount to those who settle within seven days, but are more than willing to listen to the minority who may have short-term difficulties. All we ask is that they come and speak to us. In most cases we can sort it out."

Fuel costs have soared in recent months. Davidson and his team have been astute enough to buy forward. The current cost of shifting anything is in the region of 16.90 per tonne, but the Shotts company is paying at least 10p per litre for diesel less than pump prices. It has also locked in low electricity charges.