By Kobe Lannoo (Global Category Manager)
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How long will the war between Ukraine and Russia last? Will there be new Covid outbreaks and lockdowns in the fall? How fast will African swine fever and avian influenza spread across the globe? Will containers and vessels be available for the next shipment of raw materials? What will the oil price be after summer? What will be the impact of climate change on meat production?
If we are very honest, we have to conclude that nobody can predict the answers to the questions above. Nevertheless, these are key factors that will determine if and how long the current global crisis in meat production will last. Though we are not capable of predicting the short-term future, we still have the responsibility toward future generations to react to the current situation with optimism and continue to look for options and possibilities for the future.
How profitable is meat production today?
When analyzing today’s situation, it is vital to take a detailed look at the cost of production and put this in relation to the revenue of the end product. Next to this, it is important to analyze what are the biggest threats. This analysis is, of course, specific to every region but, in general, there are global similarities in this industry.
Global feed cost
One of the most important factors is that feed is the biggest driver for the cost of all animal protein markets. A market analysis has shown that, depending on the region, feed cost has increased 35–80% during the last year.
Global meat prices
Unfortunately, this rise in feed is not in relation to the current meat prices. If we take pork meat as an example, globally, we see a general increase in the pig prices, yet this is not covering the increased costs of production.
|South Korea (carcass)
Global threats to meat production
Looking at today’s threats, most—like human health, geopolitical issues, and supply-chain problems—are external threats. The external threats are not related to agriculture alone but have a much broader impact. Compared to internal threats like animal diseases (ASF, avian influenza, foot and mouth disease, etc.), facing these threats will require different strategies. Though the latter is more industry-focused, they are not easy to prevent. Nevertheless, it is safe to say that disease prevention will need to be a constant focus not only today but also in the future.
Tip: A lot of functional feed ingredients can support the industry in avoiding diseases.
3 Strategies for increasing today’s profitability
#1. Purchase and supply strategy
Today, purchase teams today are under a great deal of pressure. Especially when not only price but also availability becomes an issue. Finding a balance between buying at the right price while maintaining enough safety stock becomes a very tricky game. Risks are often spread (or reduced) by contracting with several suppliers who are preferably from different countries—or even continents.
However, this query for new suppliers can also bring new risks—like increased working capital—or, even worse, reduced raw material quality. This concern is especially essential for scarce raw materials that are also in human food products. For these items, feed will likely receive
Tip: Protect your end product and use the right feed safety products to secure the performance in your stable.
#2. Formulation strategies
Next to the purchasing department is the nutrition and formulation department. Members of these teams are making enormous efforts to optimize feed formulas for the new reality. Since the balance between feed cost and technical performance has changed, nutritionists all over the world are optimizing formulas for profitability. Changing nutrient levels, using different raw materials, or even replacing them with well-tested alternatives (e.g. Vit. E replacement with polyphenols). Even with these creative solutions, some nutritionists are struggling to remain profitable. In the end, the animals still have to digest the feed and, therefore, the focus on gastro-intestinal health will be even more important than before.
Tip: When optimizing the feed formulas, maintain (or even increase) the focus on digestibility by investing in gut health enhancers.
#3. Increase the value of the end product
In addition to optimizing production costs, an alternative strategy could be to focus on the value of the end product. This can be done in different ways. One possibility is finding a niche positioning for the product. Therefore, it is of utmost value to listen to the end consumers’ needs and desires. In more and more countries, we see an increased market for concepts like ‘antibiotic free’, ‘animal welfare guaranteed’, and ‘low emission meat’. Even so, conceptual meat can focus on things like meat quality. Examples of known niche products are Parma or Iberico ham. In more challenging times, finding the right niche for your product could prove beneficial. Of course, the right marketing strategy will be crucial and it will take some time before these strategies can be implemented. Easier strategies to improve the end product value are increasing carcass parameters like meat percentage, drip loss, and fat oxidation.
Tip: Functional feed ingredients—like medium-chain fatty acids, polyphenols, or phytogenics— could leverage the quality of the end product to improve carcass characteristics or help achieve customer desires for a concept meat.
The industry is facing tough times. Current meat market prices do not align with increased production (feed) costs. Farmers, nutritionists, purchasers, slaughterhouses, and marketers will need to show resilience to overcome these challenges. With great strategy tips, like the ones described above, functional feed ingredients can play a valuable role in providing solutions to all stakeholders in the industry; after all, we are all in this together.