JOURNAL : Farmers Weekly
SUBJECT : Compost helps rake in money
AUTHOR : Robert Harris
SECTION : Business
ISSUE DATE : 13/09/06
PAGE NUMBER : 1
COPYRIGHT : Free Reuse
BOXTEXT: boosting income
The compost itself contributes little to revenue, even though it is a valuable fertiliser, containing about 10% nitrogen on a dry matter basis and useful levels of P, K and sulphur.
“The Waste Management Regulations mean you have to apply for a licence and pay a fee to use the compost,” says Mr Morgan. “And farmers have to declare they are using a waste product through assurance schemes. It is ludicrous, when one part of government is trying to divert stuff away from landfill, while another is putting all these barriers in the way.
“We have to absorb the cost. That runs into hundreds of thousands of pounds. The compost is worth about £20/t after spreading costs – at the moment, sales average about £5/t.”
Mr Morgan hopes that an ongoing industry consultation will result in composts achieving certain quality control standards being no longer classified as waste.
HEADLINE: Compost helps rake in money
INTRO: A multi-million pound investment in the composting sector is set to pay dividends for a farmer-controlled business and its shareholders. Robert Harris reports
TEXT: Most farmers know 7Y as one of the UK’s most successful machinery rings. While it still retains that reputation, the company has branched out considerably since it was established in 1991.
7Y now offers a wide range of services to all types of rural business, from lawn-cutting to payroll management; casual labour hire to IT contracts; input-buying services to management training.
But the Herefordshire-based company’s latest scheme is the most radical yet, aiming to tap into a novel, potentially lucrative market – waste management.
The momentum came from the local poultry industry’s need to dispose of waste, while a sizeable cheque from foot-and-mouth contract work allowed the idea to become reality.
Bioganix started operations in 2002, building a pilot plant at Leominster. It was soon producing compost from a mixture of food manufacturing waste and poultry products, mainly feathers and hatchery materials.
Julian Morgan, finance director at Bioganix, says there are two main drivers to the business. “The first is the animal by-product regulations, which prevent you putting food and animal waste into landfill. The second is the government’s landfill target. This aims to reduce the amount of biodegradable material going into landfill sites by 3m tonnes a year over the next decade.
“There is also the landfill tax accelerator. So there is a lot of pressure, economic and legislative, as to why you can’t just keep burying stuff. A process that produces a material that has value to agriculture is an attractive proposition. And there are good growth prospects – you could build over 10 plants in the UK just to deal with feathers alone.”
This year, Bioganix has really taken off. It tendered successfully for a 10-year contract with Suffolk County Council last autumn, to process garden waste as well as food waste from domestic premises, the food service sector and retail establishments. A £1m DEFRA grant was included as part of the prize – but only if the plant was operational by the end of March.
The first hurdle was to raise enough finance (see right), but within three months building began at Parham and the £3m plant was up and running with days to spare. By the end of the year it will be running at full tilt, producing 35,000t of compost annually.
The plant’s state-of-the-art technology makes it one of the most efficient in the country. Slowly revolving drums aerate the raw material, which heats up to about 55C and converts in just five days to friable compost. This is then pasteurised at 70C, before being trucked to farms, currently at the rate of 400t a week.
This speed of operation means the plant is compact, occupying a much smaller space than traditional composting techniques. That, says Mr Morgan, is one powerful selling point.
The other is odour control. Smells can be a big barrier to expansion, but the Bioganix plant is kept under negative pressure and outgoing air is routed through a series of chemical scrubbers.
One 48,000t capacity unit is expected to come on stream in the West Country next year, and a similar-sized unit is planned each year after that for the foreseeable future.
“We don’t think anyone else is near this sort of operation, which could be located on an industrial estate,” says Mr Morgan. “It’s the shape of things to come.”
The move follows a substantial restructuring of 7Y in January 2004, to ensure best corporate governance to tempt City investors and to allow farmers to benefit from increasing company value.
“By 2004, 7Y had invested £1m in Bioganix,” says Mr Morgan. “It was starting to become profitable, but we were still only running a pilot plant and we had ambitions to grow.
“Under the old Industrial and Provident Society structure, there was no way farmer investors could get their money out if they so wished. We basically demutualised, and established a new company called 7Y Holdings, which had two wholly-owned subsidiaries, Bioganix and 7Y Services.
“7Y’s existing 450 members each acquired 10 shares in 7Y holdings. These shares can now be traded in an auction-type process. Originally people had paid just £40 for their share in the machinery ring; it’s obviously now a much bigger number. We have a dealing period coming up, so I can’t say any more than that.”
Given the tight timetable with the Suffolk build, it was impossible to float before work began, so 7Y raised money through a convertible loan-note issue. These notes would convert into equity shares when the company eventually launched on AIM.
“We were stunned at the response. To show confidence on our part, individual board members invested over £600,000. But we actually raised just under £2m, the bulk coming from farmer-members of 7Y.”
Market capitalisation value of Bioganix was £7.75m at flotation. About 21% of Bioganix is owned by 7Y Holdings, about 50% by farmers and the rest by City money.
After three years’ operation, the company turned a pre-tax profit on ordinary activities of £6936 in 2005. This rose to just over £8000 for the first six months of this year.