THE future of the 182-year-old Hutchison milling business in Kirkcaldy has been secured after owner Carr's Milling Industries said it is to construct a new £17 million mill on the site with the help of a seven-figure Government grant.

The first flour mill to be built in Scotland for 30 years, it will be built adjacent to the recently reopened harbour and will allow Carr's to retain a presence close to its Scottish customers' baking and biscuit industries.

Chris Holmes, chief executive of Carlisle-based Carr's, told The Herald: "The mill we have got at the moment is quite an historical mill."

He added: "It is like any business: we have to invest in the future.

"This mill we are building will be state-of-the-art."

Supported by a £1m regional selective assistance grant, the new mill will start production in September 2013 and will run alongside the older plant for a period until the latter closes.

Carr's Hutchison employs 71 people in Kirkcaldy and the impact on jobs remains unclear.

Asked if jobs will be lost, Mr Holmes said the firm was unable to say "at the moment", adding: "It's better having fewer jobs than none at all."

The move comes two years after Carr's participated in the re-opening of the port at Kirkcaldy last year to make it easier for it to ship in grain from England. Most Scottish grain is unsuitable for milling.

Carr's, which has net debt of £9m, said it will meet the cost of the project from existing facilities. The investment is the culmination of six months of talks between Carr's and Government agencies in Scotland.

Lena Wilson, chief executive of Scottish Enterprise, said: "The decision to develop the first new flour mill that Scotland has seen in 30 years is an important investment for the Fife economy, the local supply chain, and Scotland's food and drink industry as a whole and will help to safeguard jobs in the long term."

The investment comes at a tricky time for the milling industry.

In a trading update for the 18 weeks to July 7, Carr's reported: "The performance of our flour milling business has continued to be depressed by the long-term capacity issues experienced by the industry."

Poor weather in the United States and Eastern Europe also combined to push up wheat costs 15% since March, it said.

The company added: "The utilisation of the wheat handling facility at the Port of Kirkcaldy, adjacent to our mill, has far exceeded our expectations and, in addition to giving significant flexibility, has enabled Carr's to secure supplies of high quality wheat at competitive prices in the challenging grain market."

Its UK agricultural arm benefited from unusually cold weather in April and May that kept livestock indoors and boosted demand for its feeds.

Carr's engineering business had a "very strong financial performance", helped by rising demand.

The group said: "The board is confident that strong earnings growth will be achieved for the full year."

Carr's has expanded north of the Border in the last couple of years with acquisitions.

Shares rose 18.5p, or 2.1%, to 890p.