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something is seriously wrong’. Feed manufacturers, confronted with increasing distribution


costs as a result of the rise in fuel prices will be looking forward with anticipation to this month’s Budget which is being touted as the perfect opportunity for the Chancellor either to cancel the scheduled April increase in fuel duty or to introduce a stabiliser or both. There is, however, the question of the £500 million that the Treasury would forgo if the duty increase was cancelled. In addition, the Chancellor might see political advantage in an increase in fuel duty reinforcing his ‘green’ credentials.


ANNUAL BUSINESS INQUIRY Preliminary results for 2009 became available last November from the Annual Business Inquiry (ABI) for the UK regarding the manufacture of prepared feeds for farm animals. I followed up the publication of this data with a request for supplementary information which was acceded to with quite commendable speed and, as a result, my comments are based on the supplementary data that I received from the Offi ce of National Statistics. The ABI data has become especially relevant since the explosion


of feed material prices in 2007-08 which manifested itself in a dearth of information about feed material prices in the public domain. For example, data from HGCA became particularly spasmodic, apparently because of unwillingness by their interlocutors to quote on a spot basis because of fast-moving markets. Consequently, it has become very diffi cult to arrive at a convincing estimate of trends in the feed industry’s Gross Margin, This is particularly frustrating in the light of sharp rises in feed material prices that has taken place since the summer of 2010. It would also be instructive to see the extent to which the feed industry has adjusted its margins in the light of the pressures being exerted on its livestock producing customers such as dairy, egg and pig producers who appear to have been under particular pressure in terms of the prices being paid by their customers. Before discussing the data in detail, a few defi nitions may be


in order, refl ecting the particular approach of the Offi ce of National Statistics who are responsible for compiling the ABI. ‘Turnover’ is defi ned as Total Sales and Work Done. This is


calculated by adding to the sales value of goods produced the value of goods purchased and sold on without further processing; examples would include the value of supplements that might be


bought in for sale by a compounder in order to complement the product range. Turnover also includes the value of work done, along with industrial and non-industrial services rendered. This is a very similar approach to the old (and much lamented) Census of Production. Gross Value Added is measured by the income generated


by the business less their consumption of goods and services used to generate their output. Gross Value Added is composed of labour costs together with an operating surplus or loss; as the Offi ce of National Statistics notes, the operating surplus is ‘a good approximation to profi ts’. Capital investment costs along with fi nancial charges and dividends are charged to the operating surplus. Total employment costs represent amounts paid to employees


during the year, including all overtime payments, bonuses, commissions, payments or other benefi ts in kind, holiday pay, employer’s NI contributions, employers’ pension fund contributions and redundancy payments less any amounts reimbursed for this purpose from government sources. No deduction is made for income tax or employees’ NI contributions. Having established what we are talking about, we come to the


bad news. If we deduct employment costs for 2009 from Gross Value


Added, we end up with an ‘operating profi t’ of £81 million, the worst result in absolute terms since 2001 and, as a percentage of sales, since 2000. Sales of goods produced, work done and services rendered,


at £3.3 billion, were £150 million or 4.8 per cent up on 2008. Sales of goods bought in and sold without further processing, at £361 million, were almost twelve per cent higher than in 2008. Purchases of goods and materials, on the other hand, at £2.68 billion, were £249 million or 10.3 per cent higher than in 2008 while the costs of goods brought in for resale without further purchasing amounted to £350 million, £82 million or an eye-watering 30.6 per cent more than in 2008. The apparent Gross Margin on goods produced, at just shy of nineteen per cent, was the worst since 1997 while the apparent mark-up on goods purchased for resale without further purchasing was also at its lowest since that year. These fi gures tend to suggest that in 2009, the industry’s


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Gross Margins came under severe pressure as raw material prices became particularly ‘volatile’, to use Finance Directors’ favourite current pejorative, while intense competition in the market place prevented fi nished product prices from being raised to meet soaring costs. What about other costs? Employment costs are an important


part of the cost of feed production and these increased by £22 million or 11.4 per cent in 2009 compared to the previous year. I wondered whether this refl ected higher social security charges but, in fact, these rose by £1 million or by just under three per cent. Energy costs are also, to put it mildly, topical and the data


suggests that there was a sharp fall in the cost of energy and water purchased by the industry in 2009 compared to the previous year. Statistics from the Department of Energy and Climate Change show data for electricity and gas costs for different classes of user based on the amount consumed. I have to admit that I have not got a clue about compounders’ annual average use of gas or


PAGE 12 MARCH 2011 FEED COMPOUNDER


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