Economics of Grain Storage - meeting market requirements

1 2008 grant thornton UK LLP. All rights reserved. Economics of Grain Storage - meeting market requirements U K Grain 2010 Gary Markham Director of Agriculture 07970 794495 2008 grant thornton UK LLP. All rights reserved. The issues - as before the increasing gap between industry standard demands and the investment in Grain Storage facilities - vendor assurance logistics and transport - 42 million Grain handling and Storage on the farm barriers to efficiency tenanted farms capital investment 2008 grant thornton UK LLP. All rights reserved. What's New Food market upgrading Grain to premium contracts Energy market low cost production Protection of Continuity of Supply World stocks - availability 2008 grant thornton UK LLP. All rights reserved.

2 Key Drivers - Food Brand protection Risk management Transparent traceability Competitive demand - lack of world supply 2008 grant thornton UK LLP. All rights reserved. Key Drivers - energy Bankable business plans - continuity of supply Business models - contracts Risk management - cannot rely on world supplies 2008 grant thornton UK LLP. All rights reserved. Growing for the market Maximising the net return from the crop net of labour and machinery net of Storage costs Drill the crop to meet the required specification 2008 grant thornton UK LLP. All rights reserved. Farmers - on farm Grain Storage costs on farm Storage costs: notoriously difficult to quantify due to lack of detailed costs often lost in the farm fixed cost most Grain stores are between 15 - 30 years old therefore their actual annual cost is minimal vary widely depending upon individual farm 2008 grant thornton UK LLP.

3 All rights reserved. Grain Storage on farm other costs possible additional costs rejected loads - over two thirds of farmers missed deliveries at customers - 42m handling delays at harvest combine capacity 2008 grant thornton UK LLP. All rights reserved. Grain Storage the costs of on farm Storage are therefore difficult to quantify and cost estimates vary widely depending on the data source the alternative to costing existing Storage is to cost new build Grain Storage grant thornton report Economics of Grain Storage 2008 grant thornton UK LLP. All rights reserved. grant thornton Grain Storage report The report compares: the costs of installing Grain Storage on farm co-operative Grain Storage costs Grain syndicate stores and explores the funding of central Storage rental of farm buildings machinery syndicates use of pension schemes (SIPPS/SSAS) 2008 grant thornton UK LLP.

4 All rights reserved. Farmers - on farm Grain Storage opportunity cost opportunity cost of renting out the building commercial Storage 3 per sq ft average sized store (1,000t) 4480 sq ft Rental per annum 13,440 2008 grant thornton UK LLP. All rights reserved. Funding the investment - rental renting out existing Grain stores rental per square foot 3 average floor area in sq ft 4,480 potential rental per annum 13,440 funding a loan at 5% over 20 years 167,492 less 10,000 initial building costs equivalent capital cost per tonne 157 2008 grant thornton UK LLP. All rights reserved. Funding the investment - syndicates machinery syndicates average machinery per acre 220 average machinery syndicate 180 capital released per acre 40 the average grant thornton Farm Income Survey arable farm is 1,543 acres capital released is therefore 61,720 equivalent on 1000t 61 2008 grant thornton UK LLP.

5 All rights reserved. The SIPPS option on farm central store 2008 grant thornton UK LLP. All rights reserved. Capital costs per tonne /t central Storage 1,000 tonnes 115,000 115 average on farm 1,000 tonnes 208,000 165/250 2008 grant thornton UK LLP. All rights reserved. Camgrain standard option including rental income based on Storage for 1,000 tonnes qualifying loan repayable in 6 yrs 40,000 Storage charge years 1-6 only 15,560 handling charge per tonne 9,500 rental income per annum 13,440 final sale of Storage 105 per tonne 105,000 tax at 40% net present value of cost 130 per tonne ( 28) 2008 grant thornton UK LLP. All rights reserved. Conclusion New Grain Storage represents significant capital investment Farmer owned central Grain Storage provides a high specification alternative to on farm Storage Net present value comparisons Cost per tonne Central store 130 Central Store SIPP 79 On floor Storage 161 On floor Storage SIPP 100 2008 grant thornton UK LLP.

6 All rights reserved. Conclusion Cost per tonne Continuous flow drier 220 Continuous flow drier SIPP 157 Central store with rental income 28 2008 grant thornton UK LLP. All rights reserved. Disclaimer At grant thornton , we are committed to providing a highly professional service to help all of our clients meet their financial objectives, both business and personal. This seminar is part of our service but is intended only as a guide in highlighting general issues which may be of interest. It is not a substitute for full professional advice and specialist assistance should be sought in relation to any particular circumstances. Accordingly no responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this seminar can be accepted by grant thornton .

7 2008 grant thornton UK LLP. All rights reserved. Economics of Grain Storage - meeting market requirements Gary Markham Director of Agriculture 07970 794495