Central Europe's feed industry
May 01, 1998
by Teresa Acklin
An expert panel assesses the status and outlook for feed manufacturing throughout the region.
After nearly a decade of economic and political turmoil and change, most countries in Central Europe appear to be on the road to recovery. At the 3rd East/West Feed Industry Conference and Exhibition in Prague, Czech Republic, in June 1997, speakers described the effects of the decade's events on the feed industries in several countries and evaluated industry prospects.
Restoration, privatization and modernization are the goals for Croatia's compound feed industry, which endured not only the difficulties of economic transition but the disruption and devastation of war.
Prior to the collapse of Yugoslavia and the onset of war in 1991, 41 feedmills operated in what is now Croatia (the country became independent from Yugoslavia in June 1991). The mills at that time had a total of 1.3 million tonnes of annual capacity, and compound feed output in 1990 was 971,000 tonnes.
During the war years, a large number of mills sustained heavy damage from shelling, while other mills, although still operational, were forced out of production by a lack of raw materials or transportation. Production slid each year, and by 1996, feed output had dropped to 487,000 tonnes.
In 1997, four large feedmills remained in operation, each with a capacity of about 100,000 tonnes in two shifts. A few smaller mills, each with capacity of 20,000 to 40,000 tonnes per year, also produced feed. In the past year, a number of “mini-plants,” with annual capacities of 1,000 to 4,000 tonnes apiece, have begun to produce feed to serve markets in their immediate vicinities.
After the hostilities ended in Croatia, the country began the task of privatization, which included feed manufacturing facilities. But the process has been slow, primarily because of the lingering effects of the war, and still continues.
Routine feed manufacturing operations have resumed, but Croatian feedmillers use outdated equipment. Little capital investment in feed technology was made during the waning years of the command economy, and the war virtually precluded investment of any kind.
Croatian feedmillers are eager to bring in up-to-date manufacturing technology, and as mills are privatized, their owners are developing programs for restoration and modernization. Private feedmill owners also hope to participate in the rebuilding of the livestock industry, specifically by providing the organization and financing for breeding programs.
The structure of the compound feed industry has changed significantly since the 1989 “Velvet Revolution” that liberalized Czechoslovakia's political and economic systems. Beginning in 1990, large state-enterprise manufacturers such as ZZN have been privatized or transformed into joint stock companies, while a range of small- and medium-sized private feed producers have begun operations.
Initially during this period, demand for feed was shrinking. As the country struggled to make the changeover to market orientation from a command system, incomes decreased, consumers lowered their intake of meat, and the livestock industry reduced herds to stem economic losses.
In 1989-90, Czech compound feed production totaled 5.5 million tonnes, but by 1997, production had fallen to an estimated 4.1 million annually. Although demand and feed output have stabilized, capacity utilization among the largest feed manufacturers currently is estimated at only 70% to 75%.
Of the Czech Republic's 190 feed producers, 70 are large manufacturers, defined as those with average production of 45,000 tonnes each per year. Together, the large manufacturers account for a total of 3.15 million tonnes, or 77%, of the country's total annual compound feed output. The remaining 120 small- and medium-sized feed manufacturers each produce an annual average of 8,000 tonnes and together account for 23% of total annual production.
The Czech premix and additive market consists of about 25 companies, half of which involve either 100% foreign ownership or some foreign participation. Czech-owned companies control about 85% of the market, with the remaining 15% controlled by foreign companies. In the next eight to 10 years, the premix-additive market share controlled by non-Czech-owned companies is projected to increase to as much as 30%.
Czech analysts also predict that foreign company involvement in Czech compound feed manufacturing, which up to now has been minimal, will increase during the next decade, particularly as the industry continues to integrate and consolidate. Eventually, four or five large companies are expected to dominate the Czech market for compound feed, premixes and additives.
As in neighboring countries, Hungary saw the number of feedmills, the quantity of feed produced and capacity utilization decline during the 1990-96 period of market transition. Per capita domestic meat consumption dropped by 13 kilograms, and herds were liquidated as inflation soared and agricultural profitability slumped.
Output of compound feed in this period declined by up to 2.27 million tonnes per year. Production of feed for cattle was off by 47.8%, swine feed fell by 36.7% and poultry feed output slipped by 15%; each decline was in line with the respective percentage drops in animal inventories.
The feed industry subsequently has stabilized, and a few new feedmilling facilities have been constructed. Even so, the overall level of modernization is relatively low.
In coming years, analysts expect to see more active industry consolidation, which is already occurring to some degree. Larger, industrial feedmillers with higher capitalization are expanding capacity, adding newer technology and increasing marketing efforts, and more and more plants are obtaining I.S.O. certification.
Prospects are promising for the industry's future. After years of decline or stagnation, real domestic consumer income is on the rise, and export demand for Hungarian meat products is expanding. Hungary also passed legislation to harmonize its feed laws with European Union requirements in anticipation of E.U. expansion.
When Lithuania was part of the former Soviet Union, authorities designated the republic as a supplier of animal feed to other republics. Consequently, Lithuania's compound feed industry was developed to provide not only for its own needs but to produce exportable surpluses.
At that time, the industry's primary output consisted of compound feed for swine and poultry and supplemental feed for dairy and beef cattle. Production reached a peak of 2.5 million tonnes per year before independence.
After Lithuania gained its independence in September 1991, animal and feed production dropped considerably, particularly in 1991-93, before stabilizing at the significantly lower level of about 500,000 tonnes annually, where it currently remains. The steep decline occurred because of the economic transition, during which working capital dried up and costs soared, and the loss of export markets in former Soviet republics.
Lithuania's feed production today is concentrated in 15 mills, with two additional facilities manufacturing premixes. The market consists primarily of the large domestic swine and poultry operations that do not manufacture their own feed.
The main feed components are grains, primarily barley, wheat and maize, which constitute 70% of complete feed rations. Some grain, especially maize, and almost all necessary protein ingredients are imported, as only small amounts of rapeseed, peas and lupines are available domestically.
Protein is primarily imported in the form of high-protein soymeal from the United States under the P.L.-480 credit program and sunflowerseed meal and cottonseed meal from the Commonwealth of Independent States. About 70,000 tonnes of protein sources are imported each year.
Lithuania's feed industry currently is operating in a strongly competitive environment, with most mills working considerably below capacity. The large pig and poultry operators are demanding increasingly higher quality products, while smaller livestock operators have little purchasing power.
These conditions have led analysts to point to several probable trends, including closer integration between feed and animal producers. Feedmillers already are working to upgrade technology and formulations to improve product quality and efficiency. They also are working to provide technical assistance to end-users to establish good relations with their customers. Analysts expect to see production of premixes and concentrates increase, as smaller livestock operators prefer cheaper on-farm mixing to the more expensive complete feed.
Feed production in Poland has been growing systematically since 1993. After the economic transition crisis in the early 1990s, the feed industry began to improve efficiencies. As the crisis eased and consumer demand for meat products began to recover, the feed industry in the mid-1990s entered a stage of substantial improvement in its financial condition.
In 1996, Poland's large feed companies (those employing 50 or more persons) saw feed production increase by 16%, a healthy growth rate, although disappointing when compared with the 1995 growth rate of more than 37%. Smaller feed companies also increased output in both years, but by much slower rates than their larger competitors.
Total production in 1996 reached 3.7 million tonnes, 70% more than in 1993, the year of the industry's deepest depression. But despite this sharp three-year turnaround, 1996 output was still 15% lower than feed production before the economic transition began.
In 1996, capacity utilization was 70% out of a total annual capacity of 5.4 million tonnes. Despite a strong trend toward consolidation, the industry remains fragmented; average annual capacity was 33,000 tonnes, but only 27% of feed companies exceeded that level. Meanwhile, more than 51% of feed companies had capacities of fewer than 20,000 tonnes.
About 70% of the industry is concentrated in 41 enterprises with varying ownership forms. The smallest companies, with capacity of 6,000 to 15,000 tonnes per year, are owned by “civil companies,” individuals and cooperatives. Foreign joint ventures, joint stock companies and state enterprises are much larger, ranging from 43,000 to 150,000 tonnes in one mill.
As of mid-1996, the private sector accounted for more than 75% of the value of all feed industry sales. That share probably already has increased as the process of privatization in the feed industry is expected to be complete by the end of 1998.
Consolidation within the industry has been accelerating. The largest manufacturers are Central Soya, with 10 mills; Rolimpex Group and Dobropasz, with 10 mills; Cargill, Inc. with five mills; Dolpasz, with five mills and one premix plant; and Paszutil, with four mills. These companies accounted in 1996 for a 62.5% share of total compound feed production versus a 47% share in 1993.
In general, Poland's feedmilling industry already is working to apply the latest production technologies and to develop advanced formulation methods and accurate ingredient evaluation programs. These developments should position the industry to take advantage of the country's poultry and swine industry efforts to improve their own efficiency and competitiveness. New breeds will create demand for feed with higher nutritional value, and the meat processing industry's push for quality will encourage the livestock industry to seek the highest performance ingredients, rather than the lowest-cost-per-tonne ingredients such as maize and other grains.
Spurred by increased urbanization and the decision to expand meat exports, the government of Romania in the early 1960s developed the country's industrial feed manufacturing industry in conjunction with a large network of state-owned and cooperative livestock operations. The compound feed plants, supplied with the latest technology imported from leading equipment manufacturers, were models of efficiency.
A change in government policy to reduce imports began a difficult period for the feed industry, which relied completely on imports of protein and vitamin additives. After the revolution of 1989, the country's feedmills increased operations, producing 9.5 million tonnes of compound feed as late as 1991.
But the subsequent transition to a market economy led to plunging livestock herds and a sharp drop in compound feed output to an average of 4.1 million tonnes per year. Mills' capacity utilization sank to 35%.
Restructuring and reform included privatization, but the process has been sluggish. In March 1997, the government announced plans to close 20 state-owned farms and feedmill operations and privatize the rest. In the meantime, new private farms and feedmills have been established.
Privatization and the creation of new private livestock operations and feedmills should continue for the foreseeable future. Another trend in the private sector is the integration of livestock, feedmill, slaughterhouse and retail meat operations. Mills with access to capital also have been modernizing production lines, including purchasing pellet mills and bagging systems.
A huge market is opening in Romania for cattle and dairy feed. Before 1989, laws prohibited feeding cereals or complete feed to cattle, resulting in shortages of milk products and beef, and efforts continue to produce supplemental feed to expand milk supplies.
Privatization of the feed manufacturing industry began after the 1989 liberalizations in Czechoslovakia. Slovakia became an independent state on Jan. 1, 1993.
Slovakian feed manufacturers produce about 1.3 million tonnes of compound feed annually. Of the total, 55% is for pork meat production, 30% is for poultry and 15% is for beef. Production of compound feed is concentrated primarily at approximately 50 grain storage facilities, although some large farms also manufacture feed. Of the 50 facilities, some 20% are owned privately, and 50% are in the midst of privatization. The remainder are state-owned.
Domestic feed ingredients consist of wheat, barley, maize, sunflower meal and rapeseed meal. Imported materials, including soymeal, fishmeal, wheat and barley, come mostly from or through the European Union and Ukraine. E.U. goods are shipped via the Rhine-Danube canal.
This article is based on conference presentations by the following: Croatia, Zorislav Weigand, Association of Feed Milling Industry, Zagreb; Czech Republic, Dr. Vit Prokop, director, Research Institute of Animal Nutrition, Pohorelice; Hungary, Gyorgy Makay, Hungarian Grain and Feed Association, Budapest; Lithuania, Dr. Sergej Liser, Joint-Stock Company Grudtama, Vilnius; Poland, Jerzy Kosieradzki, consultant, Warsaw; Romania, Alexandru Munteanu, Nutricomb S.A., Bucharest; and Slovakia, Miroslav Suba, Inteagro, Bratislava.