August 23, 2012
Europe''s animal feed manufacturers pass rising costs to farmers
In order to cope with soaring global grain prices, Europe''s animal feed suppliers are passing rising costs on to farmers, with scant substitutes at their disposal.
As feed costs rise faster than meat prices, the squeeze on farmers may become so severe that a number could be forced to cull their herds.
Global corn and wheat prices rose about 50% and soy by around 20% in the six weeks to the end of July as US crops were hit by heat and drought. Analysts say pricing pressures are now shifting to feed wheat, which could rise faster than milling wheat.
"The animals need energy, and I don''t think that the carbohydrates they get from grains could be replaced with anything else. I don''t think we can grow plants with the same content of digestible energy as grains," said Sam Millet, a researcher at the Belgium Institute for Agricultural and Fisheries Research (ILVO).
In Spain, Europe''s major pork producer, farmers are particularly vulnerable because its animal feed industry relies on imports.
"The situation is very, very worrying. Some of the big farmers will be able to cope by cutting production to bear the price rise, but some of the smaller farms have already reached a point of no return," said Javier Alejandre, an analyst at Spain''s Union de Pequenos Agricultores y Ganaderos (UPA).
Grains typically account for more than 50% of animal feed formulas for pigs, poultry and cattle, and protein sourced from oilseeds such as rapeseed and soy makes up another 25%. The rest consists of minerals and additives.
Compound feed producers are looking for any possible combination to lower input costs and protect farmers and consumers from volatile commodity prices, traders said.
John Brennan, director of research and development for animal nutrition at Nutreco, said the Dutch feed producer aimed to reduce the impact of high grain prices by turning to by-products of the food and beer industry, which in the Netherlands means mostly distillers'' grains.
"The use of these (by-products) is limited and linked to availability," he said, adding that they cannot be transported over long distances.
"In North America where we have growth of the ethanol industry, we have increased availability of distilled grains and we use it as feedstock."
Brennan said the biggest savings have come from additives - mixes of vitamins, minerals, emulsifiers and some chemicals. They improve the nutritional value, taste, colour or digestion and change the way that grains are absorbed.
Recently developed blends have led to cost savings of 10% for ruminants'' feed, but cost savings for pig and poultry feed were much lower, Brennan said. Researcher Millet also cited the use of additives to make carbohydrates in grains more digestible for animals, giving them more energy.
Farmer groups in France have said that higher feed costs have already been passed on to animal breeders. Christiane Lambert, vice president of France''s largest farm union FNSEA, estimated that feed now accounts for 70% of the production cost of pork, up from 60% a few months ago.
"The price of feed has risen by more than the price of pork," she said. "The risk is that some of the producers will go out of business."
FNSEA wants supermarkets to pass the higher costs on to consumers in meat prices. Its head said last month he would ask the French body that monitors food prices and margins to start talks with retailers.
In France, a large barley crop this year and the possibility of a higher-than-normal share of feed grain in the wheat harvest due to heavy rain could offer some relief, feed companies said. But high prices still have extended to all major feed ingredients including other grains and additives.
For the long term, one proposal to increase the meat supply regardless of feed costs involves the development of synthetic meat, in which cells from a live animal are used to grow muscle tissue in a laboratory.
"Although this is currently a very expensive way to produce a piece of pork, it offers the potential to feed millions of people cheaply in the future in a resource-efficient manner," said Fidelity Worldwide Investment in a commodity report.