What will the future bring for feed manufacturers?

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Any attempt to predict the future should be based on sound assumptions and counting the variables into the projection to get a feeling where we are heading and what the drivers are that may determine the factors of what lies ahead of us. This paper follows the style of other researchers and will show 10 major drivers which may be shaping the future each in their own way.

(1) Growth of global human population and growth of gross domestic product (GDP): the population comes close to 6.4 billion worldwide in 2004. In 2025, the global population is estimated to be at 7.59 billion and 9.3 billion by 2050.

Countries in Africa and Asia will account for about 90 percent of the increase in world population projected by 2050, while the population of most developed countries will decrease. Ranked by gross domestic product, China is expected to become the world’s largest economy before 2040. India, Brazil and Russia are also projected to be among the world’s largest economies by 2050.

(2) Further concentrations of retail chain stores, feed mills and farms: over the past decades, there has been a steady consolidation of supermarket chains that are in most developed markets the major distribution channels for meat, milk and eggs.

With the ongoing concentration of the market shares of the retailers the bargaining power of farmers, meat processors and integrators will further erode. As a consequence of that trend, the number of slaughter plants and meat processors has declined continuously in the recent years as have the number of feed mill operators. On the farm level in the USA, for example, the total number of broiler farms has contracted from almost 38,000 in 1987 to fewer than 29,000 ten years later. But it is not yet to end here. Further concentration will follow and therefore economics of scale are the only way to stay in this competitive market place.

(3) Growth of consumption: usually, growth of GDP, at the beginning of the economic cycle, stimulates meat consumption exponentially. This is due to the hidden demand of consumers who will spend an increasing share of their purchasing power on more meat consumption. However, once a saturation plateau is reached, the demand becomes inflexible and even lower prices will not be able to stimulate more consumption.

In countries like the USA and Germany, where meat consumption is already high, it is unlikely to see an increase in consumption. On the other hand, countries with lower consumptions rates, e.g. China, Brazil or Russia are more likely to see a growth in the next decades. Additionally, these are mostly countries with a growing population.

(4) Genetic improvement will further continue: over the last 20 years, we have seen a 25-50g annual increase in weight of 42 to 49-days-old broilers and this trend will presumably continue in the foreseeable future. Heritability for growth rate is quite high.

At the breeder level, relatively large changes have to occur in order to bring about the same economic returns. Quantitative genetics will remain the cornerstone of future pig breeding programmes. But also new tools will be increasingly incorporated such as genetic markers and new traits, molecular biology, immunology and health, male fertility and embryo technology.

(5) Cost of production and energy: in an increasingly liberalized world, production will shift to the location where the lowest cost of production can be found. The costs of production are mostly influenced by the cost on feed, labor and housing.

Feed is the most important factor in the cost pattern as it normally contributes more than 60% to the total costs. Feed itself is mainly influenced by the cost of raw materials such as grain and soybean meal. Since any feed raw material is bulk freight, the cost of transportation becomes more and more crucial, especially in the wake of the current oil price hikes or road pricing in Europe. In consequence, producers will either move nearer to the seaport or waterways or closer to the places where the bulk of feed raw material is produced.

(6) How can a competitive advantage be gained in animal production? Three major factors can lead to a competitive advantage:

(1) resources, access to resources or resources at lower costs, as well as good environmental conditions and effective processing plants, (2) competences, know-how on production, high up in the learning curve and genetic improvements and (3) assets, the lesser loans the lesser vulnerable to cyclic hiccups and the better utilization of the fixes assets the better the cost structure.

(7) Commercial feed production versus home mixing: in general, the bigger the farms become the more they depend on compound feed produced by industrial feed millers. Yet, with the cost of transport on the continuous rise, the calculation has a new factor to consider.

Four kilograms compound feed have to be transported for one kilogram of pork meat (after slaughter-carcass only). If the costs of energy remain to stay at that high level, home mixing might become more common in areas where corn is naturally produced. With the modern technique of liquid feeding and corn conservation without cost of drying, the cost reduction of such systems becomes a real competitive advantage.

(8) Development of the world grain markets: cereals represent normally 60–75% of the feed formula and thus the availability and cost structure of this commodity is of outmost importance.

Based on the earlier assumption of growth of world population and feed consumption the cereal supply becomes critical. The recent widespread drought has resulted in the lowest world grain inventory in years. Consequently the prices have reacted. The increased opening of the world markets in agriculture enforced by the WTO and the current Doha Round will also lead to the increase of international trade of cereals as well as of other agricultural products like sugar and cotton. This will be a new incitation for some developing nations to increase production for exports, which are now not so easy to undertake.

(9) Use of alternative raw materials, GMO plants and futures trends for feed additives: as a consequence to the aforementioned statement the prices of cereals will be tight and edging up higher in the following years. That could be an incentive to use cheaper alternative raw materials, like Tapioka or Maniok. Any residue or leftover from the food industry will be used more freely and alternative sources such as straw or rice bran will be used tighter with the right mix of enzymes.

The GMO discussion in Europe will continue and most likely the EU will not give up its opinion on the health concern issue. The American producer lobbies will strongly fight against the attempts of the EU under consultation. The finals are not clear yet but over long the EU will not be able to stand up against the ban of GMO plants in the feed chain.

Use of enzymes will also increase; NSP enzymes for barley and rye rations as well as phytase are already common place. The development of effective xylanase and fibre degrading enzymes together with the advance of proteases may soon change the way least cost formulations are made. Use of organic minerals is still under some scrutiny and aside of some yeast based organic minerals, the economic use is still unclear.

Phytobiotic substances and natural derived products are surging in the market place. Yet standardization, compositions and analytics still need more investigations. Pro- and pre-biotic products, which can support the resistance of farm animals against diseases, bear some hope for healthier performance. However, more studies in terms of mode of action and improved economics when used are required to make these products a major ingredient in the feed formulations.

(10) Growing concerns about food quality and safety: requirements for quality and safety of food are getting more and more stringent. That leads to two ways the production is developing to meet these requirements. First is the growing segment of organic food, where specific requirements on the use of feed formulation and even housing have to be met. Products out of this segment are normally perceived as saver than the "industrial products" by the consumer.

Second, the traditional animal production is increasingly squeezed by environmental regulations. Aside farmers and feed manufacturers are challenged by the strong trend of monitored and recorded quality control procedures throughout the whole supply chain. ISO certification and HACCP concepts for feed mills and the regulatory to trace every single batch back to the origin will be in place soon. Thus, if there is a problem with a particular food item, the whole food chain can be traced back to the origin.

The world demand on animal protein and consequently on feed will grow further at a rate of 4-5% per year. New production areas for cereals and high cost of transportation will create some clusters of production in the most favoured areas.

The use of alternative raw materials and new additives will lead to further cost efficiency. Sustainable concepts such as the VBS (VarioBioticSystem) developed by Biomin will make its way into the world market based on the superior performance and cost effectiveness yet follow the principle of "the natural way".

by Erich Erber and Maria Wechselberger - Biomin

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