BANKS CARGILL Agriculture and Allied Grain are to join forces, forging the UK”s second largest grain merchant after co-op Grainfarmers.

The deal is expected to go through in March 2005, subject to clearance from the Office of Fair Trading.

The new company will be called Frontier, and is to be 50% owned by each partner. It will buy about 4m tonnes of grain each year with a turnover of £700m.

This is the latest in a series of moves towards consolidation in the cereals sector, which saw Banks and Cargill merge in 2001, Grainfarmers buy up Dalgety’s grain marketing wing in 2003 and Centaur and Soufflet UK merge in the same year.

Allied Grain, which is owned by Associated British Foods, is the smaller of the partners, with sales of £331m in the year to Sept 18. Banks Cargill Agriculture had sales of £483m in the 12 months up to May 31.

Both companies are primarily grain merchants with sidelines in seed, fertiliser and other agricultural inputs. But BCA also sells consulting and advice on agronomy, which will now be provided by Frontier.

Allied Grain’s managing director, David Irwin, said the deal would increase the geographic reach of the two firms, and help to cut costs.

“For our farmer customers, we will also offer the ability to exploit supply chain efficiencies and minimise food miles by finding local, sustainable markets for their grain.”

“For our food customers, our strong farmer relationships mean we will be able to offer high quality, locally-sourced grain anywhere in the UK,” he said.

But the new firm will dominate some sectors, with 30% of the seed and oilseed rape markets. The NFU”s chief arable adviser, Paul Ibbott, said he hoped it would not bring greater pressure to bear on farmers.

“What we want is a new frontier in farming particularly, not just passing on downward pressures. We are going to have to look quite carefully at the effect on producers.”

Keith Davies, managing director of grain merchant Glencore, said farmers and consumers should be worried about consolidation in the industry.

“They are getting quite concerned over the limited number of options they have in terms of whom to sell their grain to. A farmer only has to fall out with one merchant to be reduced to one or two buyers.”

Another industry figure said he would raise concerns with the regulatory authorities.

But Alastair Dickie, crop marketing director at the Home-Grown Cereals Authority, said farmers might benefit from competition between big co-ops and big commercial merchants.

“It keeps the co-ops from getting too complacent and fat-catting on their members, while the big co-ops will keep the traders from becoming anti-competitive,” he said.

BCA’s managing director, Mark Aitchison, will become MD of Frontier. He said the new company would provide farmers with some certainty in the face of CAP reform, and would ensure continued investment in the industry.

“There will always be large-scale agricultural production in this country, otherwise we would not be doing this. We will continue to support farmers for the long term.

“There will be no reduction in support at the farm gate; in fact we will have a wider range of opportunities, markets and products for farmers.”