Agriculture, food and engineering group Carr's Milling Industries said the flour market continues to be extremely challenging, as it contends with significantly higher raw material prices and industry over-capacity, in its full-year results to 28 August 2010.

The UK company's food division, which comprises three flour mills - in Fife, Cumbria and Essex - saw pre-tax profit fall to £1.51m (2009: £2.06m). The division supplies industrial and craft bakers, as well as food manufacturers and multiple retailers.

Carr's said the current volatility and fast-moving nature of the wheat market presented both challenges and opportunities.

It explained it was responding by reducing operating costs, while at the same time focusing on developing speciality products, and has recently secured a contract to supply a leading UK food retailer with a new range of speciality flours for its own premium brand.

"We have taken appropriate steps to manage the risks presented by greater volatility and continue to explore new wheat supply sources," commented the firm. "In the past year, we have received cargoes of wheat from Latvia, and also, for the first time in almost 50 years, direct shipments of Canadian wheat into our Cumbrian Silloth mill."