May 24, 2018
Livestock health, vaccines and natural growth promoters: A profitable symbiotic relationship
Natural growth promoters (NGPs) do not halt disease as efficiently as their antibiotic growth promoters. Vaccines are not fully effective without the immunity enhancing effects of NGPs. Together, the two can create a sustainable livestock farming paradigm.
By Eric J. Brooks
An eFeedLink Hot Topic
While the world market for livestock health products is only growing at half the speed it did earlier, legal restrictions and industry trends mean that the pace of innovation and change is, if anything, faster than ever. Spurred on by mounting volume of legislative restrictions on antibiotic use and developing countries seeking to boost agribusiness productivity, demand for animal health products typically grows two to four times faster than world feed production.
At the same time however, world feed production which grew by over 4% annually from 2000 through 2010 only increased by 2% annually in the years 2011 through 2016 inclusive. With the slow down in feed and livestock growth, the rate at which the market for supplements can expand was also constrained.
The good news is that with developing economies growing and feed costs falling, Alltech's annual survey shows that feed production growth rebounded to 3.6% in 2017 and could grow at a comparable rate this year. Thus, while the market for feed supplements has decelerated from close to 10% annual growth a decade ago to 3.5% to 4.5% (depending on the study quoted), a partial rebound in livestock production is on the horizon. That means that over the next years, the world animal health market may surpass expectations and show an overall growth of 5% or more in years to come.
According to a recent study by Hexa Research, the global animal feed supplements market (not including vaccines) had revenues of US$16 billion in 2014 and US$18 billion in 2017. Going forward, they project it to grow 4% annually through 2022, totaling US$21.9 billion by 2022.
Encompassing a wide array of products including vitamins and trace minerals, antibiotics, acidifiers, toxin binders and plant-based AGP substitutes, livestock feed additives are in an increasingly symbiotic relationship with vaccines. With some help from other feed supplement classes, vaccines are increasingly being substituted in place of antibiotics and the new, sustainable livestock health paradigm depends on the successful continuation of this process.
Poultry's large share of world protein output, above average expansion rate and traditional dependence on supplements makes it largest livestock health market segment. Poultry feed additives dominate the market, with revenue at a Hexa Research estimated US$6.1 billion in 2014 and expected to grow at a CAGR of 4.3% from 2015 to 2022. Aquaculture feed additives market is expected to reach US$1.29 billion by 2022, with an estimated CAGR of 4.2% over the next seven years.
Poultry also shares an important though highly problematic relationship with the vaccine sector. On one hand, over-dependence on vaccinations is blamed by some researchers for encouraging the development of new, lethal bird flu strains in China. America shook off its own bird flu troubles without resorting to vaccinations while Thailand relied on biosecure poultry housings. On the other hand, officials in China claim to have reduced 2018 bird flu cases from the previous year's high levels through the strategic use of new, more effective vaccines.
With respect to geography, slower growing North America and Europe each accounted for slightly over 25% of world animal health revenues in 2014. While increasingly stringent US regulations on antibiotic use create scope for growth, animal health revenues in these mature markets can be expected to grow by 3% to 4% annually. That is half the rate of fast-growing agribusiness markets of East Asia and the Indian subcontinent.
Within Asia, China accounted for nearly half Asia's animal health expenditures followed by India's 20% share, with most of the rest accounted for by Southeast Asian nations such as Thailand, Indonesia and Philippines. Similarly, due to Brazil's dominant role in Latin American agriculture, it accounted for 80% of all Latin American expenditures on livestock health products.
But while the market is growing quickly, its product mix is changing rapidly. Essentially, the unsustainable mass use of antibiotic growth promoters (AGPs) is being replaced with a complex mix of acidifiers, plant-based compounds and most problematically, vaccines.
By Hexa Research's estimate, amino acids accounted for over 30% of global demand in 2014, with revenue estimated to reach US$8 billion by 2022, when they will account for over 36% of world animal health supplement expenditures. Similarly, feed enzyme revenues are expected to rise an average of 5.3% annually, from US$1.1 billion in 2017 to US$1.44 in 2022. Revenues from acidifiers are projected to grow an even faster 6.5% annually, from US$1.61 in 2017 to US$2.2 billion in 2022.
Based on the findings of Industry-experts.com, overall amino acid demand should rise by roughly 6.5% annually over the next ten years. Accounting for over half of production animal amino acid consumption, poultry will act as amino acids' demand locomotive, with its consumption of amino compounds such as methionine and lysine rising 7.3% annually through 2027.
Swine (+6.4%) and ruminants (5.8%) will see lower annual increases in their demand for amino acids. On the other hand, aquaculture's anticipated 9.8% annual growth in its demand for amino acids is counterbalanced by the fact that even by 2027, farmed fish will account for less than 5% of all the amino acid supplementation used in protein production.
The latter will play a very important role in maintaining productivity in a post-AGP world. On one hand, a wide array of NGPs ranging from essential oils from oregano to lemongrass, butyric acid to propionic acid has been shown to boost animal performance as effectively as their AGP predecessors. On the other hand, at the high stocking densities taken for granted in AGP-dependent farms, NGPs do not prevent disease outbreaks as effectively as AGPs.
Fortunately, Norwegian aquaculture has provided world agribusiness a viable, intensive yet sustainable growth path away from reliance on AGPs They successfully substituted vaccines against a large array of common salmon disease in place of their former reliance on antibiotics.
From 48,000 tonnes in 1987, the volume of antibiotics used to raise Norwegian salmon fell to under 1,000 tonnes after 2010. Despite this steep 99% drop in antibiotic usage, the total quantity of salmon produced rose sharply, from under 0.1 million tonnes in 1987 to over 1.3 million tonnes by the early 2010a.
Over this time, the concentration of antibiotic residue in the flesh of Norwegian salmon fell by 99.7%, from 887mg/kg in 1987 to 2mg/kg in 1997 and 0.4mg/kg since 2014. World agribusiness hopes to replicate Norwegian salmon's substitution of vaccines in place of antibiotics. Hence, companies like Elanco, Merck, Eli Lilly and Zoetis, all of which are significant AGP suppliers, are now investing heavily in vaccine research and the construction of new vaccine production facilities.
Even so, this goal brings with it challenges which can only be answered by other parts of the ascending natural supplements paradigm. The good news is that vaccines are better and far safer means of preventing diseases than antibiotics are. The bad news is that a vaccine's ability to prevent disease depends on animal immune systems, which easily malfunction in intensive farming conditions.
As mycotoxins have been implicated as a major cause of impaired animal immunity and inflammation, toxin binders will play a critical role in ensuring that vaccines are effective in the future. Led by suppliers such as Biomin, Mordor Market Intelligence estimates that revenues from myotoxin binder sales while rise from a slightly over US$2 billion in 2017 to US$2.5 billion by 2022
This, in turn, reflects another important research finding: Contrary to a popular, longstanding assumption, AGPs do not boost animal productivity by reducing the total number of pathogens in an animal's intestines. Instead, AGPs and natural alternatives including acidifiers, plant extracts and probiotics all boost productivity by reducing inflammation. –The latter over an extended period of time not only reduces animal productivity but also leads to a malfunctioning immune system incapable of responding to livestock vaccines.
Hence, from a technical perspective, future livestock health advances will focus on fine-tuning a delicate but increasingly well-understood relationship between intestinal flora, an animal's immune response to vaccine's and the productivity-boosting side-effects of NGPs.
Business-wise, animal health has a pyramid-shaped industry structure, featuring hundreds of nearly anonymous suppliers at the industry's base and a handful of highly dominant multinationals at the top.
A 2016 Battelle Institute study found that out of over 350 animal health product suppliers worldwide, only 11 of these companies have over US$1 billion in annual revenues.
Among companies with over a billion in animal health derived revenues, four are based in Germany (BASF, Bayer, Boehringer Ingleheim, Evonik) are German, four in the United States (Elanco, Merck, Merial, Merck, Zoetis), with one each based in Switzerland (DSM), Denmark (Danisco) and China (Bluestar). Interestingly, many of the above companies are currently leading AGP suppliers but are investing heavily in research, development of new vaccines, as well as constructing new facilities for their production.
Going forward however, the amount of capital required for the development of new vaccines, new toxin binders or create economies of scale for efficient amino acid or trace mineral production is rapidly rising. On the other hand, with world feed and livestock production growing more slowly than a decade ago, competitive pressure is rising across the animal health spectrum.
Only capital intensive subsectors such as vaccines or toxin binder development offer temporary, patent law protection from competitive forces. All this implies that through the end of this decade and into the mid-2020s, we are likely to see considerable animal health industry consolidation, but also a lot of innovation.
Just remember: No matter how good the news gets on the vaccine front, there is no substitute for keeping your animals in a clean, ecologically sustainable environment.
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