Glenrath Farms, Scotland's biggest egg producer, increased profits in 2007 despite the soaring costs of grains used for chicken feed.
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Grain prices have hit record levels this year because of strong demand for agricultural raw materials in booming Asian economies like China and India. Bad weather in some producer countries such as Australia and Canada and the growing use of grains for bio-fuels have also helped push up prices.
"Feed prices, which are the company's biggest expense and 60% of production costs, rose by 11.5% during the year," said John Campbell, chairman of the Peeblesshire-based firm, which is a major supplier of free-range eggs.
He said Glenrath would have to recoup some of the higher costs by raising the price of its products. Egg prices in many parts of the UK have risen sharply this year because of the increased costs faced by farmers.
"Given the anticipated cost of feed in the forthcoming year and the relativity of this to the company's profitability, the company is currently negotiating with its customers to recover part of the increased costs from price increases in the market place."
Despite the upward pressure on feed prices, Glenrath reported operating profits for the year ended May 31, 2007, of £3.91m, up from £3.86m the previous year, according to accounts filed at Companies House.
The company, which is Scotland's largest agricultural employer, increased pre-tax profits by more than 3% to £3.98m compared with £3.85m in 2006.
Sales for 2007 were down slightly, coming in at £31.55m compared with £33.56m the previous year.
Campbell, who has owned the company since 1961, described the trading results as "satisfactory" and said the company will continue to invest in modern production systems.
In 2006, Campbell completed the acquisition of Blythbank Farm, near Romanno Bridge in Peeblesshire, with the intention of building 10 giant sheds housing 300,000 free-range birds. Conventional battery cages, which provide 60% of the eggs sold in UK supermarkets, have to be phased out by 2012 under European law.
Blythbank started egg production in April 2007 with the opening of a free-range poultry house. Campbell said Glenrath has applied for planning permission to expand production at Blythbank. Consumer demand for free-range and organic eggs has increased throughout the UK, while there has been a corresponding reduction in demand for traditionally produced "barn" eggs.