Europe is the second largest market for compound feed in the world — total compound feed production in Europe in 2016, according to Alletch’s global feed survey, was 249.4 million tonnes, preceded only by the Asia-Pacific region at 367.6 million tonnes. Of the European total, 153.4 million tonnes were produced in E.U.-28 countries while the remainder (96 million) of the output came from non-E.U.-28 countries, including Russia (29 million tonnes) and Turkey (19 million tonnes)
The sum of Russia and Turkey’s production is higher than that of the two largest producers in the E.U. — France and Germany. Rabobank said this is indicative of stagnating compound feed production in the E.U., where in the last 10 years production has grown by only 4%. Meanwhile, the global compound feed market has almost doubled during that period, it said.
The largest compound feed market in Europe is for poultry, which represents roughly one-third of the market. In 2016, E.U. poultry feed production was 53.6 million tonnes, which was 0.2% below the 2015 level.
Feed output had grown at 1.4% compound annual growth rate (CAGR) from 2007 to 2015. In that same period, poultry meat production continued to grow at 3.3% CAGR, up to 11 million tonnes of meat in 2016, the report said.
“The different growth pace of feed and meat production is exemplary for the rapid efficiency improvements in poultry production — less feed is required to produce more meat,” Rabobank said.
The report said key poultry feed producers are Poland, France, the U.K., Germany and Italy, which combine to produce 63% of total E.U. poultry compound feed. Poland poultry feed output has grown particularly fast at 4.8% CAGR since 2007.
Pig feed is the second largest compound feed market in Europe. Rabobank noted that historically it had been Europe’s largest compound feed market, but it was surpassed by poultry in 2010. Pig feed production in 2016 was 49.4 million tonnes, a decline of 1.6% compared to 2015, despite rising pig prices, slightly higher meat production, and optimism in the market last year.
“Efficiency improvements also play a role in pig feed demand, although less than for poultry,” Rabobank said. “An example is the declining, yet more productive, sow herd, resulting in relatively lower sow feed demand. Also, home-mixing — mixing dry or liquid co-products with concentrates — is quite common in pig production. This feeding strategy is expected to become more important as farms grow and have the flexibility to opt for such systems.”
The largest pig feed producing countries in the E.U. are Spain (9.9 million tonnes), Germany (9.6 million tonnes), the Netherlands (5.3 million tonnes) and France (5 million tonnes), the report said.
“Feed companies in these markets will need to contribute to a structural improvement of the competitiveness of their domestic pork farming sectors, through further feed cost reductions or by participating in value-added concepts,” Rabobank said.
Cattle, the third most important compound feed market in the E.U., accounted for 27% of feed production in 2016 at 41.4 million tonnes, a 1.5% decline from 2015, Rabobank said.
Spain (7.4 million tonnes), Germany (6.5 million), France (5.4 million) and the U.K. (5.2 million) were the E.U.’s top cattle feed producers in 2016, the report said. Most of the feed goes to dairy cattle.
“In the coming years we expect milk production within Europe to shift to the north and west, toward areas with cheaper feed sources, i.e. grass,” Rabobank said. “The Dutch dairy sector will face additional changes as a substantial phosphate reduction needs to be achieved, resulting in downsizing the herd.”
Rabobank said a topic to watch closely in the cattle sector is the uptake of precision livestock farming technologies at dairy farms.
“A shift in the farmer wallets will take place, but the role of animal nutrition providers has yet to be determined,” Rabobank said.
Implications for feed companies
Volume growth in the European compound feed market is stagnating, Rabobank said.
Market developments within and outside the E.U.-28, changing nutritional product needs, and a consolidating farmer base will all challenge the straightforward growth potential of the established European compound feed markets, Rabobank said.
“Most of the key companies in these markets already operate diversified businesses, and with international footprints and broader product portfolios than just compound feed, they are developing into total nutritional service providers,” Rabobank said.
Rabobank noted that the Spanish market is an exception as the majority of feed in Spain is produced by vertically-integrated animal protein producers. Independent feed production accounts for approximately 40% of the market.
“Operational efficiency improvement of the country’s 820 feed mills is the key challenge,” Rabobank said. “However, this also applies to the animal nutrition providers in other countries — where livestock farming is a commodity business, feed costs per kilogram of produce should be contained. This will always be a challenge for a net feedstuff importing region such as Europe.”
Given the size of the E.U. livestock sector and feed industry, the E.U. is the world’s second largest consumer of raw materials for feed after China, and well ahead of the United States and Brazil. Grain makes up the largest part of feed in the E.U., accounting for about 70%, followed by about 25% oilseed meals. The E.U. accounts for 18% of all globally used grain for feeding, and although grain fed in the E.U. has grown marginally over the last 10 years, other regions have shown stronger growth rates, Rabobank said.
Strategie Grains estimates that about 60% of the 166 million tonnes of grain produced for feed in the E.U. in 2016-17 is used for compound feed. The remainder is fed directly on farm.
Rabobank said the amount of wheat used in feeding has grown over the last four years, from 45 million tonnes in 2013-14 to 54 million tonnes in 2016-17, with the majority of the wheat being grown in the E.U.
Besides grains, 56 million tonnes of oilseed meals are used for feed in the E.U., which makes the E.U. the second largest oilseed meal consuming region in the world after China.
“The amount of oilseed meal consumed in the E.U. has grown over the last five years, by 1% per year,” Rabobank said. “Still, other countries like China (+3%) and the U.S. (+2%) have shown a stronger increase.”
Soybean meal makes up 58% of all the oilseed meals used in the E.U., and E.U. soybean production has doubled in the last four years, to 2.4 million tonnes, but this is only sufficient to supply 5% of its soybean meal demand, requiring large-scale imports of soybeans and soybean meal, Rabobank said.
The report noted that the E.U. imported 21 million tonnes of soybean meal in 2016-17, with 60% coming from Argentina, 33% from Brazil, 5% from Paraguay and the remainder from the United States, India and China.
In addition, nearly 13.5 million tonnes of soybeans are imported and processed in the E.U., with about 50% coming from Brazil and nearly 30% imported from the United States.
E.U. rapeseed production has been on the decline, therefore imports of the crop have surged, exceeding 4 million tonnes in 2016-17, which was up almost 20% year on year. However, as the report notes, overall rapeseed crush declined again in 2016-17, which resulted in about 13 million tonnes of rapeseed meal.
The report said E.U. feed also includes another 2.5 million tonnes of palm oil expeller from the Malaysian palm oil industry, less than 500,000 tonnes of fish meal, linseed meal, and cotton meal, as well as 3 million tonnes of corn gluten feed — the byproduct from wet milling of corn for the starch industry — as well as another 3.5 million tonnes of distiller dried grains from the ethanol industry.
Rabobank noted that E.U. pulses supplies have increased in recent years and are gaining a higher share in the E.U. protein mix. In 2016-17, about 2.2 million tonnes were used, up from 1.8 million tonnes the previous year.