June 01, 1995
by Teresa Acklin
European feed industry must develop international perspective, executive says.
BY DIANE MONTAGUE
The European feed industry will become more concentrated as markets stagnate or decline and consumer pressures for quality and value in foods increase, but opportunities exist for technology and expertise in Eastern Europe and the Far East, according to the president of Europe's largest private-sector feed company.
Speaking at a recent international grain conference in Madrid sponsored by Rabobank Nederland, Richard van Wijnbergen, president of Nutreco (previously BP Nutrition), noted that to succeed, feed companies must become more international and knowledge-based.
Critical mass is necessary in research and development to formulate feed and to provide advice that offers real added-value solutions for clients, he said.
“Farmers are more professional and are operating larger businesses as agriculture concentrates,” Mr. van Wijnbergen said. “They will be more demanding customers and more conscious of cost and value.”
Feed technology is becoming more complex and plants more specialized, he noted. Health, safety and environmental standards are more stringent, while retailers are becoming more concerned with quality control and traceability.
“In this changing world, many of the smallest feed producers will be unable to continue to compete, either on cost or on quality,” Mr. van Wijnbergen said. “The industry will restructure. It has become more concentrated in recent years and will continue to do so.”
The future development of the feed industry will be shaped by the markets for consumer food, Mr. van Wijnbergen said. Food expenditure in Europe is rising, but food consumption in volume terms is not. Markets for livestock products are mature, but within the static total, changes are occurring.
“There is likely to be a decline in beef and milk consumption, growth in fish and poultry, and stability in pork,” he predicted. “Consumers and retailers will seek convenience and assured quality and there will be a growth in value rather than volume.”
This trend will pose problems for the livestock industry in terms of meat balance, but an added incentive will exist to breed and feed for better carcass conformation, which will have an effect on feed composition, he said.
In Europe, the use of raw materials is very much affected by political developments, Mr. van Wijn-bergen observed. The reform of Europe's Common Agricultural Policy is affecting the price of raw feed materials, which typically account for 75% to 80% of the selling price of feed. Feed, in turn, represents 60% to 70% of the cost of producing poultry and pork.
But the European Commission's plans to increase the use of cereals in animal feed are unlikely to spark any dramatic changes in ration formulations, Mr. van Wijnbergen said. Last year's increase in the use of cereals will level off, he predicted, and alternative feeds will come down in price to compete with grain. He added it was very unlikely that the use of cereals in European compounds would reach the 60% inclusion rates of the United States.
Of the total of 115 million tonnes of industrial compound feed produced in Europe, 30% of feed materials was cereals, 25% vegetable protein meals, 20% food industry by-products and 25% cereal substitutes, Mr. van Wijnbergen said. By November 1995, cereal intervention prices will have fallen by a third from their 1992 levels. As E.U. cereal prices move toward world levels, cereal inclusion in feeds will increase, but not to American levels, he said.
“The European feed industry has developed skills and knowledge to use raw materials other than cereals and has the equipment and technology to do so,” he said. “Using a wide range of ingredients offers flexibility and a better chance of being able to meet quality and price requirements irrespective of the harvest. Moreover, for many of the cereal substitutes, there is no alternative market, and they will follow the downward trend in cereal prices.”
Nutreco believes that the cereal inclusion rate in a typical Dutch pig feed will only rise to 15% to 20%. Although this compares with zero only two years ago, it is below the levels planned in the CAP reforms, Mr. van Wijnbergen said.
Nutreco's use of feedgrains increased by 13% in the first crop year after the reforms, he said, but has not increased any further since then. The changes varied by country and product, but overall, cereal usage was up and inclusion of non-grain feed ingredients was down slightly.
In the short term, Mr. van Wijnbergen said he expected demand for feed to fall as a result of CAP reforms and the General Agreement on Tariffs and Trade. Cattle feed demand would be affected by milk quotas and would accelerate if quotas were reduced further, while GATT restrictions on subsidized exports would affect poultry exports to areas such as the Middle East. Cereal prices are unlikely to fall by enough to compensate for the loss of subsidy, and European poultry products will be less competitive than those from Brazil and the United States.
Mr. van Wijnbergen said European exports over the longer term would recover as demand increased, but in the short term, compounders would have to spread fixed costs over fewer tonnes a further factor in the concentration of the feed industry.
Other factors likely to affect the feed industry are changes in the location of livestock production and meat processing, animal welfare pressures and pollution problems, Mr. van Wijnbergen said.
Because feed is bulky and expensive to move, it tends to be produced close to the centers of livestock production. But he said added-value meat products were traded internationally, and prices in markets remote from the areas of production could affect compounders' margins.
The growing influence of animal welfare movements and their concern over journey times could influence the location of livestock production and hence compound factories. If the market for livestock products moves toward more traditional, less intensive systems that are less efficient, demand for feed could increase, he said.
At the same time, problems of pollution, particularly in the pig industry, could affect the location of production units, Mr. van Wijnbergen said. This factor already is increasing demand for high-digestibility feeds that limit manure production.
Eastern Europe could offer both opportunities and challenges, said Mr. van Wijnbergen. “As agriculture in Eastern Europe recovers, the Rhine-Danube river complex could become a route for the export of Eastern European produce to areas now served by the same transport system from the North Sea ports,” he said. “These countries could be competitive both in grains and in finished products.”
Nutreco expects there will be growth in the feed industry in Eastern Europe and, along with other European and American companies, is investinq in new projects in these countries, Mr. van Wijnbergen said.
Mr. van Wijnbergen said that the rapid growth in demand for pork, fish and poultry in the Pacific Rim countries would impact the European feed industry in opportunities for technology and high value ingredients rather than demand for basic food products. This, he suggested, could take the form of a package including super-concentrated premixes plus formulations, research and development, plant design, management systems, marketing and training.
Diane Montague owned and edited the U.K.'s leading agribusiness trade weekly, Agricultural Supply Industry, for 22 years. She sold ASI in 1992 and now concentrates on freelance writing and consulting.Nutreco: Europe's largest private compounder
Nutreco is the new name for the European feed, animal products, breeding and aquaculture business previously owned by BP. It was formed in late 1994, following a management buyout worth some U.S.$425 million backed by several financial institutions.
Based in Boxmeer, the Netherlands, Nutreco consists of more than 20 companies and employs 5,700 people. It operates in the Netherlands, Belgium, France, Spain, Germany and Turkey.
Nutreco also is Europe's largest supplier of premixes for feeds; the world's largest supplier of fish feeds; an international processor of poultry, with operations in Spain, Belgium the Netherlands and France; and a leading international supplier of pig and poultry breeding stock.
The company is the largest private sector animal feed compounder in Europe, manufacturing more than 3 million tonnes of feed annually. Its overall share of the European feed market is 3%.
Nutreco's business is based on the science of animal production, covering breeding, husbandry and nutrition for animals, birds and fish. The company's core activities are feeds and premixes, with breeding and processing as complementary operations.