July 16, 2015
A maturing market for feed additives and livestock supplements
Although everything from lower feed costs to China's recession is putting the brakes on livestock supplements' expansion, markets as diverse as America and Vietnam promise much growth momentum ahead.
By Eric J. BROOKS
An eFeedLink Hot Topic
Although the feed additive and livestock supplement market continues to grow several times faster than either feed or livestock production, it has also stabilizing into certain patterns and structures. With the uptake of sustainable, antibiotic substitutes approaching maturity in large markets such as the EU, the overall growth rate exceeds that of meat demand by several times, but has fallen below 10% per annum. Over the short-term, the rise of recessionary economic conditions in fast growing markets from China to Brazil could lower the growth rate even more over the next year or two.
The exact growth rate is however, open to interpretation. On one hand, according to MarketsandMarkets, the world feed additive market is valued at approximately US$18.1 billion in 2015. Going forward, it is expected to grow at a 3.8% annual rate, totaling approximately US$21.8 billion by 2020.
Low feed costs slow down growth
On the other hand, Mordor Intelligence released a study which includes the large feed enzyme segment. This makes its estimate of the market a larger US$20 billion in 2013 and projects it to grow at a 4.7% annual rate to US$30 billion by 2020. In particular, the segment of traditional feed digestibility enzymes (eg. Protease, amylase, etc.) is expected to grow by 7.3% annually.
Mordor's forecasts however, still works on assumptions made during the last decade of high feed costs. With feed costs forecast to stay low for some time, there is less incentive for livestock farms to use the alternative feed inputs, which would have required a higher level of feed enzyme supplementation. Hence, it would not be surprising if the segment for enzymes that enhance feed grain digestibility comes in below forecasts.
Despite such conflicting opinions and different parameters placed on the feed supplement's size and product scope, several underlying trends are clear.
First, unlike the heady mid-2000s when the EU had just banned AGPs, the sector's growth is visibly decelerating. Only in certain, fast growing Asia Pacific markets such as Vietnam, Indonesia and India is overall demand for feed supplements across all classes to grow by more than 10% annually.
Second, antibiotics and vitamins, which once accounted for much of the market's value are now minority shares among many (antibiotics, probiotics, acidifiers, phytonutrients, amino acids, specialty feed additives, feed enzymes).
From more than 40% of revenues two decades ago, the antibiotic segment's share is now estimated by MarketsandMarkets at 13% and accounts for US$3.6 billion of revenue this year. Its share will only fall to 12% by 2020, when it is expected to account for approximately US$4.5 million in revenue.
--But even so, we see huge disparities in the proportion of the market accounted for by antibiotics. According to Grandview Research, whereas antibiotics only account for 7% of EU supplement expenditures, in Vietnam, they account for 36%, some three times higher than the overall world average.
Collective approach to AGP substitution
Having resisted legal restrictions on its use in the face of tightening laws in the EU, Japan and South Korea, North America's world leading livestock production makes it account for nearly 30% of worldwide livestock antibiotic use –a proportion that will fall at the expense of rising Asian consumption in years to come.
Furthermore, although America's ongoing, voluntary phasing out of antibiotic growth promoters (AGPs) will accelerate their market share decline, this is being greatly offset by rising antibiotic usage in developing countries. For this reason, antibiotics will only fall significantly below a tenth of supplement revenues when large Asian countries like China and India bring in EU style restrictions on their usage. By 2020. Asia Pacific has probably overtaken North America in market share this year, and will account for a leading 35% of the world supplement market by 2020.
Third, developing countries stuck in 20th century livestock rearing paradigms notwithstanding, the substitution of acidifiers, phytogenic compounds and probiotics in place of AGPs is approaching maturity in Europe, expanding rapidly in Asia, and has a new frontier in America, where the old livestock paradigm is now under considerable stress.
Fourth, while the market for antibiotics still has life in it, it is being overtaken by probiotics. Already estimated by MarketsandMarkets at US$2.87 billion in 2014 and US$3.2 billion this year, probiotics already equals 90% of livestock antibiotic annual revenues. Projected to grow at an 11.6% annual rate, by 2020, probiotics are expected to account for US$5.55 billion or approximately 25% more than what antibiotics will earn that year.
Fifth, the industry is gradually using a combined approach of several different chemical compounds to substitute in place of antibiotic growth promoters. It will continue to use these supplement classes in place of AGPs and sometimes, even in a synergistic manner with AGPs, particularly in developing countries like China.
As AGPs slowly lose their mark foothold, the global phytonutrients market, valued at approximately US$3.27 billion this year, is projected to reach $4.63 billion in 2020, with a CAGR of 7.2% from 2015 to 2020. As it is a newer segment than palatants or acidifiers, its growth will be led by early adopter markets, especially Europe and North America.
The global market for feed acidifiers in terms of revenue was estimated to be worth around $2.03 billion in 2013, US$2.25 billion this year and is projected to reach $2.88 billion by 2018, growing at the CAGR of 5.2% from now to 2018 and 5.0% thereafter.
Collectively, AGPs, acidifiers, plant-based compounds and probiotics already total US$8.8 billion of revenues this and will total US$12.2 billion by 2020. Although this is several times the sum estimated to be spent on antibiotics in 2020, due to the higher unit price of sustainable, non-traditional supplements, it does not mean that they will have collectively dethroned antibiotics by that time, though they are certainly catching up in volume terms too.
However, not all fast growing product lines are new segments. Though it has been around a long time, The global market for feed amino acids, in terms of value, was estimated to be worth around $4.89 billion this year, is projected to grow at a CAGR of 5.4% to $5.73 billion by 2018, and amount to US$6.34 billion by 2020.
Market goes south and east
Thanks to China's ownership of half the world's swine and third largest poultry sector, Asia-Pacific is the largest consumer of amino acids in the world, accounting for more than 34% of the consumption. It is expected to marginally increase its share of world amino acid revenues for another decade before yielding to Africa, which should be growing rapidly by that time.
Finally, with palatability-based supplements that encourage feed consumption accounting for a majority of its sales, the specialty feed additives market will maintain its market leading size. From US$9.55 billion today, it is projected to reach $11.9 Billion by 2020, with a CAGR of 4.5% over the next five years.
While palatants are expected to maintain their leading role within specialty feed additives, feed yeasts are projected to grow twice as quickly, near 10% per annum. Led by restrictions on AGP use in the EU, Japan and South Korea, MarketsandMarkets notes that East Asia and Europe accounted for 51.3% feed yeast consumption, with Asian nations such as China, India and Vietnam expected to take over as growth drivers. . However, while the supplement market's overall growth rate continues to decelerate, the locus of its expansion continues to shift towards the south and east. According to Transparency Market Research, Brazil, China, India and Southeast Asia accounted for approximately 28% of feed additive market growth in 2011, approximately 39% this year and nearly half the feed supplement market's expansion by 2020.
Will there be a poultry upset?
With regards to protein lines, poultry remains the most lucrative livestock segment, and is estimated by Mordor to account for 35% of supplement revenues. While the ongoing consolidation of poultry rearing and processing everywhere from Brazil to Vietnam will certainly sustain this sector's demand growth for supplements, there is one item too new to be mentioned in any of the above mentioned market reports:
Poultry is more likely than any other meat line to see its supplement usage change over time. The world's fastest growing meat line is also its most disease plagued. Until now, avian influenza mostly afflicted developing countries but with America suffering large losses, we can expect to see changes in the way poultry is raised in years to come. Changes in the way we protect chickens for disease may very well be followed by new practices encompassing everything from vaccinations to housing population density, vaccines and the role of fungal toxins in their disease susceptibility. Hence, the changes which are coming to the way poultry is raised may cause a sudden increase or decrease in the various supplement classes administered to them.
Overall, the market's geographic divisions also represent different phases of the supplement learning curve. Europe, the most mature market, is furthest along the learning curve. In that same vein, the market's greatest potential for stronger-than-expected growth comes from America, where everything from changing US FDA guidelines to increasing consumer pressure is forcing integrators to start restructuring the way poultry, ruminants and swine are being raised.
All this implies that while falling feed prices certainly dented the expected growth rate of livestock supplements, there is also a lot of upside potential that could render these forecasts conservative. In particular, a faster-than-expected voluntary movement away from AGPs in America, promising poultry consumption growth curves everywhere from India to Vietnam are coinciding with an unannounced (but underway) search for a more permanent solution to bird flu. These intersecting factors may provide sufficient upside potential to exceed the 4% to 5% growth forecasts now making the rounds.
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