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COMMENTARY & ANALYSIS

December 4, 2018
 
Sustainability, antibiotic replacement drive animal health trends
 
Vaccines lead the way with disease prevention. Led by probiotics and reformulated traditional supplements, a wide array of natural products are taking over the anti-inflammatory functions once performed by AGPs.
 
By Eric J. Brooks
 
An efeedLink Hot Topic
 
 
Based on the most recent feed supplement market studies by MarketsandMarkets, the cumulative 2017 revenues of vaccines (US$6.50 billion), minerals (US$5.71 billion), amino acids (US$5.37 billion), antibiotics (US$3.94 billion), probiotics (US$3.85 billion), vitamins (US$2.89 billion), acidifiers (US$2.59 billion), mycotoxin binders (US$2.31 billion), phosphates (US$2.16 billion), sweeteners and flavor enhancers (US$1.24 billion), enzymes (US$0.92 billion) and phytogenics (US$0.58 billion) totaled US$37.71 billion in 2017, up from US$35.83 billion in 2016.
 
Granted, this is barely half the near 10%+ rate in animal supplements growth seen in the late 1990s to late 2000s. Even so, it is roughly twice the projected growth rate in world feed production.
 
It reflects a slowdown in world feed demand growth, which mostly occurred in China and Latin America after 2012. Even so, China's slowing meat production is mostly due to the old, antibiotic growth promoter (AGP) based model breaking down –it needs to transition to a new, emerging generation of natural growth promoters. Coinciding with an ongoing recovery in Russian and Brazilian economies, this will keep demand for animal health products growing at a healthy pace.
 
Going forward, based on the findings of studies by MarketsandMarkets, these animal health product lines are projected to increase at a 5.4% annual rate and total US$49.1 billion by 2022. Thereafter, they should continue growing by at least 5% annually, achieving a value of at least US$57.6 billion by 2025.
 
Even so, when the cumulative findings of the most up-to-date studies from MarketsandMarkets are compared, we see both continuities and change with the larger aggregate trends. Both of which are derived from a worldwide effort to put agribusiness on a more environmentally friendly, sustainable footing.
 
Vaccines lead…
 
An industry-wide movement away from AGPs is driving the development of products with comparable antimicrobial and anti-inflammatory properties. With vaccines increasingly replacing the antimicrobial function of AGPs, it is not surprising that their revenues lead that of all product lines.
 
Hence, revenues from veterinary vaccines are projected to grow at a 5.9% annual rate, totaling US$8.66 billion by 2022, from US$6.50 billion in 2017. The swine sector is expected to continue accounting for the largest proportion of livestock vaccines, though poultry and aquaculture vaccines are projected to have above average growth.
 
The ease of administration and long-term immunity offered by live attenuated vaccines are factors driving the adoption of this technology, with inactivated, toxoid and recombinant vaccines holding smaller market shares.
 
Europe and North America currently lead in global vaccine revenues but Asian Pacific Rim and South Asian countries are expected to have the fastest market growth. Towards this end, we see much investment in Asian vaccine making facilities. They function to both supply regional demand and (via local manufacturing) accelerate their legislative approval in large markets such as China.
 
Alongside the need for legislative approval in many national markets, the need to keep many vaccines refrigerated will hold back vaccine growth in markets such as India or African countries, where such facilities cannot be taken for granted in all regions.
 
While vaccines increasingly replace the antimicrobials for disease prevention, a diverse array of complementary product lines are being used to replace AGP's anti-inflammatory, growth promoting properties –and none more so than probiotics.
 
Probiotics lead all NGP lines
 
From almost nothing several decades ago, 2017 probiotic revenues of US$3.50 billion have nearly caught up to those of antibiotics (US$3.94 billion). Among animal health products with worldwide revenues of over US$1 billion, none has a higher growth rate than their 7.7%. By 2020, probiotic sales of US$5.07 billion will have overtaken those of antibiotics.
 
Within the probiotic product class, led by lactobacillus, bacteria account for the largest market segment, followed by yeasts. Due to their complex digestive systems, both meat and dairy sector ruminants were the biggest probiotic customers.
 
With Asia accounting for a high proportion of world hog and ruminant populations, its leading probiotic market share is destined to continue increasing. Exceptionally high swine and/or cattle inventories are to be found in China, India, Japan, Vietnam, Australia and New Zealand. Collectively, they make rapidly growing Pacific rim countries account for the largest share of worldwide probiotic sales.
 
Moreover, unlike vaccines, many probiotics come in a dry form that does not require refrigeration. This allows their use to expand rapidly even in underdeveloped regions lacking cold storage facilities.
 
Vitamins and minerals: Reformulated, environmentally friendlier & reborn
 
At the same time, despite being an old product line, 2017 revenues from minerals (US$5.71 billion) and amino acids (US$5.37 billion) continue to exceed those of natural growth promoters (NGPs) such as probiotics, acidifiers or phytogenics. There are several reasons for this.
 
Both in Europe and more lately Asia, there is a growing awareness of the heavy metal water pollution caused by conventional livestock supplements. Both to boost livestock productivity and to comply with stricter animal waste laws, more efficient, less polluting and more expensive trace minerals are being substituted in place of their conventional equivalents.
 
This combination of substituting modern, more value-added minerals in place of less expensive traditional ones and rapid Asian livestock growth is driving animal mineral supplement revenue growth of 4.8%, from US$5.71 billion in 2017 to US$7.2 billion by 2022.
 
While older (but now chelated/reformulated) products such as iron, potassium or copper will experience market expansion, chlorine, sulfur, selenium, sodium, and iodine, are projected to be fastest growing mineral lines. The mineral feed supplements market is driven by their role in livestock productivity and disease prevention. At the same time, the higher productivity of chelated and other newer, reformulated mineral forms boost animal efficiency while lowering animal waste discharges into the environment.
 
In a similar vein, Partly due to more efficient, environmentally friendly formulations and in part due to their synergistic impact on NGP effectiveness, vitamins are another old supplement line that is growing strongly. Livestock demand for vitamins is expected to expand 7.24% annually, from US$3.10 billion in 2016 to 2022, to reach a projected value of US$4.39 Billion by 2022
 
MCP leads among phosphates
 
While not driven as strongly as reformulated vitamins or minerals, rapid Asia Pacific agribusiness consolidation and meat demand are making it grow 50% faster than world feed demand. MarketsandMarkets estimated world feed phosphates market revenues at US$2.25 billion in 2018 and they are expected to increase 3.7% annually, totaling  US$2.60 by 2022 and US$2.90 by 2025.
 
Among phosphate types, thanks to its ability to neutralize the impact of other minerals, boost metabolism and mitigate the occurrence of disease, monocalcium phosphate (MCP) segment is projected to witness the fastest growth during the forecast period.
 
Among livestock types, poultry's need for a strong skeletal system makes it the biggest animal line customer for phosphate. Though much smaller than poultry, aquaculture demand for mono and dicalcium phosphate is growing rapidly and will account for an increasing proportion of its demand. At the same time, in both livestock and aquaculture, phosphate competes with phytase and this tends to limit its demand growth.
 
Enzymes find new frontiers
 
Another old animal supplement line finding itself with new life (and for new reasons) is enzymes. Valued at US$842.9 million in 2016. It is projected to grow 9.3% annually from 2017, reaching 1.429 billion by 2022.
 
Alongside the use of traditional enzymes that make corn and soy substitutes (like wheat rapeseed) digestible, the substitution of soymeal in place of scarce fishmeal in aquafeed has led to the use of a new generation of enzymes designed to enhance protein digestibility and minimize the disruptive impact of plant fiber on fish metabolism.
 
In a similar vein, high feed costs at the turn of the decade motivated the use of alternative feed inputs such as cassava, which itself stimulated the development of new enzymes that enhance digestibility.
 
Despite all the innovation in this field, phytase (which breaks down soybean anti-nutritionals) continues to lead this market. With their considerable use of phytase, poultry continues to account for the largest global feed enzymes livestock market segment. It provides poultry birds with proteins, thereby increasing their growth rate; they also strengthen their immune system. Hence, they are required for higher end production of poultry meat, which is in high demand, globally.
 
Relative to its dry form, liquid enzymes enjoys are dominant market share due to their cost-efficiency and efficient means of mixing with other feed enzymes. With respect to manufacturing technology, microorganisms such as yeast are cost-effective and increasingly dominated the production of feed enzymes.
 
While North America and Europe account for the largest market shares, their mature, strict regulatory structure makes it difficult to bring products to market. With its significantly faster meat consumption growth and simpler regulatory structure, Asia-Pacific's share of the enzyme market is rising rapidly and should be the largest by sometime between 2025 and 2030.
 
Amino Acids enjoy steady growth
 
In a similar vein, the rapid growth of Asian livestock herds and consolidation is driving 4.4% annual growth in amino acid revenues. Everywhere from Russia to Vietnam, integrators are replacing backyard farmers –and in the process, supplementing amino acids to boost finishing weights and carcass yields. With new Pacific Rim investments in lysine and methionine production leading the way, global amino acid revenues are increasing from US$5.37 billion in 2017 to an estimated US$6.66 billion in 2022, and approximately US$7.50 billion by 2025.
 
With respect to market segments, poultry are the biggest amino acid customers. Lysine accounts for the most revenue, as it enriches feeds made from lower quality inputs while reducing pollution from nitrogen excretion. With poultry being the largest customers of amino acids and requiring methionine supplementation, it is not surprising that the latter makes up the second largest amino acid line.
 
At the same time, despite being a mature product line and increasingly frowned upon, antibiotics will continue earning more revenues than any NGP line except probiotics. While America, Europe and Japan put severe restrictions on their use, emerging economies with rapid meat consumption growth either do not restrict antibiotic use at all, or are imposing minimal regulations.
 
Driven by a large tetracycline user base, aggressive growth in the use of fluoroquinolones and antimicrobials that are not used in humans, antibiotic revenues continue to climb at a 4.6% annual rate. From 2017's US$3.94 billion and US$4.12 billion this year to US$4.73 billion by 2022. Even if tighter regulations slow down their growth after 2022, they should still enjoy revenues of approximately US$5.5 billion by 2025.
 
Even so, NGPs such as probiotics (US$3.50 billion), acidifiers (US$2.59 billion) and phytogenics (US$0.58 billion) collectively account for US$6.67 billion in sales. Collectively, they will account for almost twice as much revenues as antibiotics by the mid-2020s.
 
Led by propionic acid and with large shares also accounted by formic, citric, sorbic, malic and lactic acids, feed acidifiers are growing at a 5.1% annual rate, from US$2.59 billion in 2017 to US$3.33 billion by 2022 and approximately US$3.9 billion by 2025. By promoting the growth of beneficial bacteria and minimizing pathogen flora, acidifiers play an ideal complimentary role to probiotics, with which they are often administered.
 
A newer (and still researched) development is the blending together of different organic acidifiers in ratios that produce synergistic productivity increases in a given livestock species. Growing at a faster rate than singular compounds, acidifiers made of compounds blended to livestock specific, proprietary ratios are expected to dominate the market by the early 2020s.
 
Less widely used, still under intensively research but growing rapidly, phytogenics are another leg of the emerging NGP paradigm that compliments both probiotics and acidifiers.  From US$580 million in 2017, they are the fastest growing animal health line, expanding at an 8.8% annual rate, to a projected US$963 million by 2022.
 
The essential oils segment derived from aromatic plants such as oregano, cinnamon and lemongrass accounted for the largest phytogenics market share. This can be attributed to both the ban on the use of AGPs and also solid scientific results: Lemongrass extracts are proven to have AGP growth enhancing properties similar to those of tetracycline. Similarly, oregano extracts are as effective as monensin in promoting growth. Results comparable to equivalent AGPs have been obtained with everything from cinnamon to primrose oil.
 
With essential oils leading the way, poultry was the livestock line most likely to use phytogenics. Not only are poultry the first livestock line to achieve the mass production of antibiotic-free meat Moreover, the potent, proven antimicrobial, antiviral and antioxidant properties led to them being strategically used in Europe and South Korea, when legislation banned AGPs in those jurisdictions.
 
Led by high demand from regional leading edge integrators such as Thailand's CP or South Korea's CJ, Asia Pacific is attracting considerable investment in local production facilities from leading firms such as America's Cargill, Austria's Biomin or China-based Addisseo.
 
Unfortunately, while phytogenics' short shelf life has driven producer investment into large developing countries, their high cost and perishability hold back their acceptance in India, Africa and South America, where adequate distribution infrastructure cannot be taken for granted.
 
At the same time, the raw herbal crops from which such aromatic phytogenics are made cannot be grown in all developing country climates. Should a large proportion need to be imported, creating a regional supply of such compounds is then also at the mercy of currency fluctuations.
 
This together with their high cost is expected to keep phytogenic a critical, very important but undersized part of the AGP replacement paradigm.
 
Natural palatants to outpace sweeteners, synthetics
 
Different in form and function from phytogenics (and not always plant-based), palatants and sweeteners have been accepted for a longer time than essential oil based plant derivatives. Hence, they are closer to maturity and will grow at a slower rate of 3.4% annually. From US$1.236 billion in 2017, they are expected to total US$1.463 billion in 2022.
 
With sweeteners closer to maturity, palatants lead the growth of this animal health line. Due to their lower cost, longer shelf and resistance to heat damage during feed pellet formation, dry palatants and sweeteners have a long-term advantage over their liquid form equivalents. A worldwide movement towards sustainable natural livestock supplements and a noted animal bias against synthetic sweeteners and flavoring agents put those derived from non-natural sources at a long-term disadvantage.
 
Mycotoxins complement anti-inflammatory NGPs
 
While not a directly involved in the mass substitution of NGPs in place of AGPs, mycotoxin binders also have an important role to play in the emerging sustainable agribusiness model. By reducing the immune system damage and inflammation caused by fungi contaminated, lower quality feed, mycotoxin antidotes play an essential role in everything from animal performance to livestock fertility.
 
Led by its dominant but mature and slower growing European home base, the market for mycotoxin binders and treatment agents is projected to grow at a CAGR of 3.6% from US$2.16 billion in 2017 to an estimated US$2.77 Billion by 2022.
 
Within the mycotoxin treatment category, toxin binders accounted for the largest subcategory. These are widely used in poultry and swine diets due to the high risk of mycotoxin contamination in these animals. By preventing animals from falling prey to seasonal disease outbreaks and maintaining their fertility at high levels, the cost of using mycotoxins often pays for itself.
 
BRICs, Southeast Asia drive the future
 
Going forward, several factors could stimulate or hold back these projections. Chief among these are booms, recessions, disease outbreaks or new regulations on AGPs in the fast-growing 'BRIC' countries (Brazil, Russia, India, China). Three of these high population, rapidly expanding markets are located in Asia-Pacific, the other in meat exporting South America. Together with Southeast Asia, they are the main driver of world feed demand growth, ultimately determining how fast the world health market grows, and which product lines will prosper the most.
 


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