Rapid expansion in Openfield farmer owned grain storage

Farmer-owned central grain storage has grown by 9% in the past year to almost 1m tonnes and will expand by a further 9% in 2011 at grain marketing and arable inputs co-op Openfield.

The expansion is a combination of organic growth and new stores, with existing members accounting for 40% of new investment and new members 60%.

“At our current rate of growth we will double the size of the network in eight years,” said head of central stores Rob Sanderson.

Openfield is considering how to tackle a gap in the north of England and possibly departing from tradition by creating a strategic grain hub away from production areas and closer to customers in the north west of England.

However expansion was not simply a question of more storage but significant investments in drying, handling and processing capacity, said Mr Sanderson.

“Service to both ends of the supply chain is crucial – we are no longer building a ‘big farm store’ but more an integrated food processing and distribution hub where value can be created and retained by growers who own the facility.

“Competition has until recently been at the price level, with plenty of raw material to go round. But now the dynamic is changing. Sustainability, security, provenance, traceability and carbon credentials have all become key drivers for consumers. We are starting to get the critical mass that’s of interest to big consumers. We can both deliver the produce to meet their needs and negotiate on price.

“Supply contracts are certainly helping, for example the long-term agreement for 100% of flour used in Sainsbury’s in-store bakeries to be supplied to miller Whitworths through Camgrain.

“Harvest service to farmers is key, with daily intake capable of handling 10% of store capacity, maybe 500t an hour and some stores running 24 hours a day. If you were to build an equivalent capacity store on farm, you would have to massively over spec to be confident of dealing with say a wet harvest to the same level of intake and efficiency.

“Typical costs for investment in a central store through Openfield are £110-120/t. You could build a store on farm that does what ours do, but the pounds per tonne cost would be roughly three times the cost of our stores.

“Some 25% of UK on farm grain storage is approaching 30 years old. Much of this will need to be replaced or renovated in the next decade, maybe five or six million tonnes.

“With planning, professional and site related fees all rising, a store can cost £150,000 before a single piece of steel is delivered or load of concrete is tipped. That all cash is all at risk because planning permission may not be granted.”

The cost per tonne gap between central and individual on farm storage has widened over the last 10 years, says Mr Sanderson. Growers often think they can build an on-farm store cheaper than centrally but they have often not looked recently at the costs of farm store construction, he says. For example steel prices have risen 40% since January and planning fees have shot up compared with a few years ago.

Investment in central stores – how does it work?

Members invest roughly one third of the £110-120/t capital requirement up front, the rest is borrowed on a six to eight-year loan by the group and repaid by members through deductions to income from grain sold through the store.

Openfield provides expertise and often initial funding to get a project under way, finding sites, getting planning permission, completing grant applications and recruiting farmer members, occasionally also becoming a member.

Annual operating costs range from £5 to £8/t, paid by users of the store per tonne of thoughput.

The payment up front by grower investors is treated as a loan on their balance sheet while repayments to cover the bank loan are treated as a business expense and allowable against income tax.

Central storage tonnage can be sold on by members if it is no longer required.

Recent and planned expansion at Openfield network stores

• Montrose – construction begins late October of 24,000t store for Angus Cereals, expanding to 43,000t within three years
• Northamptonshire Grain, Kettering – subject to planning, work starts in 2012 on first phase of 90,000t extension to Camgrain’s storage
• Snetterton, Norfolk – site secured for new 80,000 to 90,000t store
• Aberdeen Grain can now handle 5000-6000t a day compared with maximum of 1500t a few years ago
• Camgrain total tonnage now 280,000t, expansion continues
• APC Newmarket has planning permission for another 200,000t
• Arable Crop Services, Stratford on Avon doubling capacity from 25,000t to £50,000t
• Wiltshire Grain grew 7000t this year
• Hampshire Grain looking for an additional site
• Weald Granary, Kent, increasing by 7000t/year for next five years
• Woldgrain, Lincolnshire, has doubled capacity in past 12 months to 48,000t, plans to double again within two years
• Kernow Grain, Bodmin, has increased storage by 30% this year to 19,000t