With its acquisition of Malton, Grampian becomes the dominant supplier of bacon in the UK says Elaine Watson Two years ago the jewel in the crown of the British bacon industry was driving growth at parent company Unigate and clocking up annual profits in excess of £15m. But in the year to March 31, Malton Foods was losing the best part of £1m a month. By the spring, the only issue for debate was when Uniq was going to hive it off and how much money it was likely to lose before an "industry wide solution" for its troubled subsidiary was found. Last month, the solution finally emerged in the form of Scottish agribusiness Grampian Country Foods. The deal surprised those who expected Malton to fall into foreign hands with the Danes or the Dutch moving in for the kill as Uniq's financial woes worsened and Malton's pricetag dropped further. Grampian is unwilling to discuss its plans for Malton before it completes a thorough review of its acquisition, but the logic behind further rationalisation is compelling, and Grampian is widely expected to move quickly to reduce surplus capacity. While EU pig production is expected to rise 2% year-on-year in 2001/2002, driven by the Dutch and the Danes, UK production will continue to decline. According to Provision Trade Federation forecasts, by the end of next year the UK herd will have contracted by a third since 1998 from 15.9m to just 10.8m pigs. Industry sources say this makes the need for further rationalisation an "incontrovertible fact". Even before its acquisition, Malton had closed sites in Middlesborough, Cheshire and Northern Ireland and cut head office staff to address overcapacity problems. Given it is cheaper to move around pigmeat than live pigs, some sources predict cuts will be in processing rather than slaughtering capacity, with additional synergies to be extracted where administrative and other functions overlap. However, the combined group is by far the largest pig buyer in the UK, with a weekly kill of 56,000 pigs ­ representing between 30% and 35% of the UK total. With its existing plants, particularly the Haverhill facility, Grampian will be a huge player in the own label pork market and the dominant supplier of bacon. Driving exports will be key to Grampian's strategy if it is to improve Malton's fortunes and grapple with the perennial problem that UK retail customers are only interested in about 40% of a carcass, making the export of more peripheral parts of the pig critical to securing margins. While multiple buyers may not be quaking in their boots at Grampian's new strength, an extra £275m sales of pigmeat to add to Malton's £500m plus is not to be sniffed at, and must give the Scottish firm some extra flexibility, if not buying muscle. How it uses that clout with farmers is also a moot point because Grampian can't drive too hard a deal with pig suppliers in case that exacerbates the already serious problem of falling animal production. At the moment, privately owned Grampian is keeping its cards close to its chest about its strategy to turn things round at Malton, but analysts are giving the Aberdeen-based firm the benefit of the doubt. "Malton is not fundamentally a bad company," said one City commentator. "I've got no doubt that there is money to be made out of distressed assets like this, and if anyone can do it, Grampian can." {{FOCUS SPECIALS }}

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