After a difficult start to 2009, market conditions for the world’s feed manufacturers have generally improved over the last 12 months. The effects are reflected in the annual reports of the companies covering their most recent full fiscal year. Many describe a gradual easing of the struggle to maintain volumes, against the background of a slow recovery in animal numbers and farm profitability after the successive miseries of high grain prices and economic recession.
The accompanying Table provides our latest review of annual production tonnages for enterprises around the world making at least one million metric tons per year.
A name high on the list - Land O’Lakes Purina - has expressed the view from the US that 2009 had been a challenging year for the feed business. Although the co-operative kept its position as the No. 1 US animal feed manufacturer by size, it saw a 13% drop in livestock feed volumes that was reckoned to be due especially to lower commodity prices in the milk and beef markets. Feed sales for 2009 were US$3.4 billion, down from US$3.9 billion in 2008.
American poultry integrator Tyson Foods produces broiler diets at 33 feed mills in the US. Its chief executive, Donnie Smith, has told stockmarket analysts this year that the company remains optimistic for the 2010-2011 period. It expects favourable domestic market conditions for protein to continue for the remainder of fiscal 2010 and into fiscal 2011, with a lift from increased consumer demand for chicken alongside better cattle and pig prices due to reduced supplies.
Among the big players in other countries, however, there have already been some notable successes in growing feed sales. The Netherlands has provided an example in the shape of De Heus, whose latest annual report showed a 2.2% increase in its domestic Dutch compound feed production to over 1.9 million metric tons thanks especially to higher sales to egg and cattle sectors. The company also reported that, although its domestic feed sales for broilers stagnated in the first six months of 2009, this was followed by strong growth in the second half of the year.
De Heus now reckons to operate in over 45 countries. In fact, under half (11 out of 30) of its feed mills are located in the Netherlands. The total output from all plants in 2009 exceeded 3 million metric tons. Its European business has been further boosted recently by the acquisition by Poland-based De Heus sp.zoo of the animal nutrition activities of Evialis Polska, which produces complete feeds at two Polish locations.
Netherlands-based Nutreco pointed out that while the group’s multinational feed operations suffered a 3.7% decrease in volume in 2009 compared with 2008, this had been due entirely to market weakness in the six months January to June. The decline in the first half year was as large as 7.1%, but was followed by a recovery of 3.4% in the July to December period. Lately, the group has said European feed volumes in the first six months of 2010 continued the more positive trend of the latter part of 2009.
Nutreco was one among several names on our list of the largest feed manufacturers to have made acquisitions in the past year. In its case this particularly involved the purchase of Cargill’s 12 Agribrands animal feed mills and related businesses in Spain and Portugal, representing an annual production of about 700,000 metric tons. Put with the Nutreco group’s existing Spanish operation Nanta, it resulted in its Iberian presence increasing to 28 mills producing about 3.5 million metric tons per year – therefore exceeding the 2.5 million metric tons made annually at the 10 mills of Dutch group member Hendrix.
For Nutreco, there was also the acquisition of a 51% shareholding in Fri-Ribe, a Brazilian animal nutrition and fish feed company, and more recently another move in aquaculture when it took full ownership of Vietnamese fish feed manufacturer Tomboy Aqua Feed that has two mills in Ho Chi Minh City and Long An province making feeds for shrimp and fish.
Cargill, meanwhile, has followed up the opening of its US$12.5 million 250,000 metric tons/year animal feed mill in Efremov, Russia, with the addition of its sixth aquaculture feed mill in Vietnam, the 60,000 tons/year Mekong Delta plant taking the company’s total production capacity at Vietnamese sites to 720,000 metric tons per year. Additionally, Cargill is expanding the capacity of a mill at Sura Mica in Romania to 50,000 metric tons per year and it has joined with a South African feed manufacturer in entering the market in Zambia.
Other big players further developing their interest in Vietnam include Indonesia’s Japfa Comfeed, which will soon operate four Vietnamese feed plants with the opening of a 4,000 metric tons/week mill in Binh Thuan province. Directors of Japfa Comfeed have indicated a target of growing in Vietnam over the next five years to the production of one million tons of feed annually. Also from Indonesia is publicly-listed PT Malindo Feedmill, which has made news twice over - once when a 1.3% equity interest was bought by Leong Hup Holdings Bhd of Malaysia and again when it said its new US$10.8 million Indonesian mill being opened this year could produce 360,000 metric tons annually, virtually doubling the company’s present production capacity. The plant is due to start supplying the Sumatra and West Java areas of the country by the end of 2010.
The biggest feed-producing conglomerate both in Asia and worldwide – Charoen Pokphand Foods (CPF) of Thailand – was described recently by chief executive Adirek Sripratak as being on course to raise annual sales from last year’s nearly US$5 billion to a new high of US$5.6 billion. CPF has invested in a succession of new markets including Russia and parts of Africa and also India. It calculates that the 150,000 metric tons/year output in 2010 from its three Indian aquafeed mills puts it in Number One spot in aquaculture nationally.
But probably the biggest headline of the past year came when a report quoted Virote Kumpeera, of related company Bangkok Feedmill, as saying that the CP group’s mills in all countries in 2009 represented a combined manufacturing capacity of 24 million metric tons per year. What is more, he indicated that the latest mill-building projects would be increasing the group’s potential annual feed tonnage to 25.2 million tons. At this level its nearest competitor may soon be another Asian company in the form of New Hope from China. A statement from New Hope this year has suggested that the fast-growing group was likely to increase its total feed production from 13 million metric tons in 2009 to more than 16 million tons in 2010.
Consolidation and competition
Acquisitions and expansion by feed manufacturers around the world have been joined by more mergers, as enterprises seek the size and structure they will need to face future market conditions. Recently, for example, members of Dutch farm co-operatives Cehave Landbouwbelang and Agrifirm approved a plan to merge into a new co-op to be known as Agrifirm. Together, the founding organisations will give it a feed presence of about 4.5 million metric tons per year. A large slice of their combined activities is being integrated into new subsidiary companies called Agrifirm Feed and Agrifirm Plant that will enter the market in January.
Cehave Landbouwbelang could already claim to be one of the larger animal nutrition businesses in Europe, achieving a total feed volume in 2009 of 4.2 million metric tons that included nearly 2.63 million tons of compounds. With production sites in the Netherlands, Belgium, Germany, Hungary, Poland and China, it is a global exporter of premixes, nutritional supplements and concentrates.
Within the past few months it has moved to market leadership in Hungary, its local subsidiary Kabai Táp acquiring Hungarian feed manufacturer Pannonmill-Takarmány from Austrian group LLI (Leipnik-Lundenburger Invest Beteiligungs AG). Pannonmill’s two mills can make 70,000 metric tons of compound feeds per year, raising the total annual feed manufacturing capacity of Cehave Landbouwbelang's Feed Hungary to 200,000 tons. The co-op also has been re-organising its Feed Netherlands and Feed Germany operations to reduce costs and boost future effectiveness.
The challenge it has identified in Europe, in remarks echoed by other European players, is the growing competition to the industrialised compounds trade from on-farm feed mixing. Its annual report for 2009 spoke of Dutch pig-producer farmers in particular responding to cost pressures by making their own feeds. Future volumes were also suggested to be at risk from European Union rules on animal welfare.
Cehave reported that its sales of poultry feeds in the Netherlands had dropped by 14% compared with 2008, partly because of a continuing decrease in the national number of chickens as producers invested in new husbandry systems that required a larger surface area per bird.
Swedish co-op Lantmännen Lantbruk has a partnership agreement with Cehave subsidiary CCL on testing and development of feeds. Lantmännen, itself producing over a million metric tons of feeds again in 2009, similarly warned in its annual report about the trend to more on-farm feed production and resulting lower volumes for compound mills. The report added, the lower volumes mean that the feed business needs to optimise operations to remain competitive. In Lantmännen feed operations this has meant some mill adjustments, but also a renewed focus on differentiated products such as by offering specific feed types to climate-conscious farmers. A range called Notfor Nara was launched with the guarantee that none of the ingredients used had been grown outside Europe.