8 December 1995

Buying groups can reduce risk

By Jonathan Riley

MANY pig producers could cut their feed bills simply by buying forward or entering into buying groups, according to ADAS business consultant Tony Walker.

"To get the required product as cheaply as possible good information on industry and price trends is vital," he says.

"The best way for an individual farmer to save money is to get quotes from several firms and simply play one off against another until the best deal is struck. Not all farmers do this which means their loyalty to a particular company is costing them money."

Mr Walker advised that when offered a forward buying deal for feed, deals from other firms should also be considered. And that forward buying of cereals and soya involved more risks due to uncertainty over future crop yields.

"Good information makes for better decisions – if you make the wrong decision you will have to sit out several months of your mistakes.

"The key is to accept a deal only when you know you can afford it," says Mr Walker.

"Buying groups reduce risks because someone else does the negotiating for you. The main advantage is that by co-operating with others you secure more buying power. Bigger volumes mean bigger discounts and more competitive deals from the feed firms. But members have to use the brand of feed chosen by most of the group and there is a cost of membership," he says.

Occasionally groups will have the feed business tendered for every six months in which case tendering companies need to take a longer term view of the likely changes in feed price.

This occasionally means food may be dearer at any one time than when quoted monthly if, for example, the feed price unexpectedly comes down.

"Credit through feed companies can be very expensive. Even when the interest rates look low the feed price will include the cost of the credit.

"Paying on time will always get the best price. If you need credit you should compare feed company schemes against borrowing from the bank as this may be cheaper. However, banks need good security and feed companies may give credit against production. For example, the company might agree credit if you sell your pigs to them," says Mr Walker.

In all these cases what is best for an individual farmer will depend on his production system, financial reserves and ability and willingness to negotiate.

David Moorhouse, ADAS based pig specialist, says: "Even small scale producers can take advantage of large scale buying.

Prices are usually quoted monthly on a number of given specification diets, sometimes of fixed.

ADAS business consultant Tony Walker: "Good information makes for better decisions – if you make the wrong decison you will have to sit out months of mistakes."