FOOD ingredients manufacturer Macphie of Glenbervie has begun talks to close its defined benefit pension scheme as it revealed that rising costs and squeezed consumer spending combined to wipe out two-thirds of its profits last year.

Family-owned Macphie employs around 200 at its headquarters near Stonehaven and another 60 at Uddingston, near Glasgow, where its chilled and frozen ingredients operation is based.

Around half of its staff are members of its defined benefit pension scheme, the most generous form of retirement provision.

The scheme is already closed to new members and entitlements are now calculated on a career average rather than a typically higher final salary basis.

Such schemes are increasingly rare as companies baulk at the investment risk and the cost of rising life expectancy.

Macphie contributed £624,000 to its defined benefit scheme last year and expects to put in £635,000 this year.

The scheme deficit fell to £1.2m at the end of March, down from £3m a year ago, the company's accounts for the year ended March 31 revealed.

But the company warned the "pensions market continues to be volatile", citing the eurozone sovereign debt crisis, and said it is consulting scheme members about closing it to future accrual. Macphie added yesterday: "We remain in consultation with the trustees and this will continue into the new year. It would not be appropriate for us to predict the potential outcome at this stage."

Macphie, which makes food ingredients for the bakery, food manufacturing and food service sectors in the UK and overseas, posted a 6.9% increase in turnover to £44.7m in the 12 months to March 31.

However, pre-tax profit fell 65.2% to £333,000 as the company saw a surge in rising raw material and distribution costs which it struggled to pass on to end customers as retail spending remained subdued.

The company said yesterday that sugar prices are 40% up on last year while butter prices have doubled since 2007.

Net debt fell from £2.2m to £1.2m over the year.

Chief executive Alastair Macphie said: "Despite difficult market conditions, we are seeing an encouraging sales trend, we have a resilient balance sheet and very low borrowings.

"Our sales growth is being undermined by the continued downward pressure on margins.

"We are caught between the pincers of raw material price increases being imposed on us by suppliers and the time delay or resistance in passing these on to the retailers and food service customers. Therein lies the challenge."

But he added: "The eating-out- of-home market continues to grow, which marries with our strategic direction.

"We do not anticipate 2012 to be in any way easy, but as demonstrated over the last few years, we will continue to strengthen our market position through new product innovation and improving our communication to customers."

Last year Macphie made its first foray into direct retailing with the DeviliShh dessert brand which is stocked by Waitrose.