As happens every so many years, the broiler and egg industries have entered a new cycle of relatively high feed ingredient prices and must review their operations to remain profitable. Leaving to one side that this increase follows on the heels of the COVID-19 pandemic, this is a situation that many nutritionists and production managers have seen before.
Nevertheless, a few things have changed since the last period of high prices. In developed markets, antibiotic growth promoter withdrawal is largely complete and animal production’s sustainability is a key concern of consumers. The rest of the world is at various stages of change in these areas.
Genetics have continued to improve, nutrition and health technologies have advanced, and precision farming technologies are about to disrupt traditional ways of raising animals and managing supply chains.
Company leaders tend to react to high feed prices with divergent approaches. Some look mainly to cost control, while others take a more holistic view on cost and value. The reality is that, in a competitive industry such as poultry meat and egg production, cost minimization is a prerequisite for profitability and business viability.
There is no escaping that feed is the main production cost. When feed costs increase, the difference between disciplined companies and those that are less so is thrown into focus. However, a blunt approach to cost control is not, necessarily, the best solution.
Allocation is the issue
For integrated companies, the problem is not how to minimize feed costs. Rather, the problem is how to change input allocation – particularly capital and labor – relative to feed so that total production costs are minimized, and animal protein remains competitive.
Feed cost pressures offer opportunities to alter this allocation towards productivity enhancing technologies. We have seen how previous high feed prices accelerated the adoption of technologies such as feed enzymes and near-infrared spectroscopy. Now may be the moment for greater adoption of innovative gut health technologies, or digital and big data applications.
For those companies that are already in a strong position, with evidence-based testing of these new technologies, successfully navigating higher feed costs is simply a matter of speed. For those that are yet to adopt new technologies, catching up become harder when profitability is tight. For companies that are spending excessively in overlapping additives, it is time for simplification.
The solution to high feed costs, however, is not simply new technologies. It is also about altering management practices to use feed less intensively and make greater use of other inputs. This could mean tighter health management systems, staff training, or better facilities to enhance productivity.
Growing the pie
To further overcome increased costs, a complementary and stronger solution is developing products and brands with higher consumer value. If feed costs are eating more of the pie, another option is to grow the pie!
This does not, however, happen overnight. Innovative companies relentlessly offer new choices to consumers and develop new systems and brands that address consumers values, achieving loyalty and price premiums. For these companies, the times when others are afraid to invest and develop new markets are seen as an opportunity for leadership consolidation.
The last year has been utterly unique for the animal production industry, and a remember that resilience beats cost. As the focus shifts back to cost, however, it will be useful to maintain perspective in decision making and to consider the long game, in which, in my view, value also beats cost.
