Animal feed is food for domesticated animals generally raised for milk, egg and meat. The global animal feed industry was estimated to be around $460 billion in 2016. The animal feed industry has experienced a healthy growth in the past 5 years, riding on the back of an increase in animal products consumption globally. The Y-O-Y rise in animal products consumption can be attributed to population growth, changing lifestyle and dietary habits, this led to increased demand for animal feed.
Although the livestock animals were usually fed roughage and agricultural waste, the focus shifted on scientifically curated animal feed in the past few years due to a variety of reasons. The primary one was greater awareness on a range of nutrients in appropriate proportion for raising healthier, disease free and high meat, milk, egg yielding livestock. Thus, the global animal feed tonnage grew at a CAGR of 3.5% between 2011-16. This was higher than the growth of 1.9% animal population during the period. The animal feed consumption per million live animals’ heads grew to 34.9 (‘000 MT in 2016) from 32.4 (‘000 MT in 2011) registering a CAGR of 1.5% during the above period.
The animal feed manufacturing industry is highly regional mainly due to different feed curation requirements for different regional animal sub-species. Furthermore, the animal feed industry is also constrained by the low shelf life of animal feed and high transportation costs (owing to bulk volume). The feed manufacturing industry does not have high entry barriers. This has resulted in a large number of local animal feed manufacturers in most regions and thereby, made exports uncompetitive.
However, the animal feed industry has been growing at the global levels, the performance of a company is dependent on various localised factors such as the type of feed produced for livestock, the primary raw material used, country of operation, etc. Televisory analysed the data of Avanti Feeds Ltd. (AFL), Lee Feed Mill Public Company Ltd. (LFM), Ridley Corporation (RC) and Zambeef Products Plc (ZPP). These firms performance was examined in the backdrop of a positive industry trend. The below tables provides a brief background of operations of the firms.
The AFL and ZPP registered a healthy growth in the last 5 years and this was marked by a CAGR of 47.1% and 12.3% respectively. The double-digit growth for AFL (2011-15) was supported by increasing shrimp aquaculture, riding high on a healthy export demand. The Indian shrimp exports were estimated to grow at a CAGR of 24% during the above-mentioned period. Nevertheless, the feed sales volume for AFL moderated to 8.2% (2016) because of an insufficient rainfall. This led to a shortage of water for cultivation coupled with diseases impacting the Indian shrimp culture. The Indian shrimp exports were also impacted by the hike in anti-dumping duty by the USA (contributing around ~40% of the total exports) to ~4.98% from 2.96%. Consequently, the Indian shrimp exports grew at 4.4% in 2016. A healthy sales volume growth for ZPP was driven by a CAGR of ~8% and ~10% for broilers and layers in Zambia. Although, the LFM registered a stagnant sales volume until 2013, this was followed by a 14% volumetric decline in 2014 and marginal recovery of around ~2% in 2015. The decline in sales volume for LFM can be explained through lower shrimp feed sales from Thailand’s shrimp aquaculture market. This reduced around 40%, Y-O-Y in 2014 due to early mortality syndrome epidemic. The decline in shrimp feed sales (~aquatic animal feed contributed around 50% of total sales for LFM) was partially compensated by an increase in land animal feed.
The RC sales volume largely remained range bound during the period as the company manufactures feed for nearly all type of livestock and aquatic animals. Thus, any downturn in a particular animal segment over the years has been compensated by higher offtake in other categories. Therefore, it can be concluded that while the animal cultivation industry has been growing at a global scale, the performance of companies was impacted by the type of animal feed manufactured and the regions served. Hence, it can be stated that animal rearing is vulnerable to the environmental, political and economic factors. The key to sustained performance lies in diversifying in terms of regions and variety of livestock feed being manufactured.
An analysis of the realization per MT for the companies reveal an interesting fact, the realizations are dependent on the type of animal feed being manufactured. The pricing trend for the animal feed has an inverse relation with the feed conversion ratio. The feed conversion ratio (FCR) can be explained as animal’s efficiency in converting feed into desired output, thus, higher the FCR, lower the feed to meat conversion and vice-versa. The highest realization per MT was for AFL, which is into shrimp feed manufacturing followed by LFM (50:50 contributions from land and aquatic animal feed) and ZPP (~75% from poultry feed). The lowest realization was for RC, which is into higher FCR species such as pig, beef besides other animals.
Therefore, an inference can be drawn that animal feeds for large size animals, which require a huge volume of feed draws a lower market price as compared to feed for smaller sized animals with lower FCR. Moreover, as shown in the below chart, the operating margins were the highest for AFL owing to more profitable shrimp feed. This was closely followed by LFM until 2013, thereafter LFM’s profitability declined as the shrimp feed sales volume decreased, leading to higher overheads. The operating profitability was lower for RC since it is primarily into lesser profit animal feed segments such as pig, cattle, etc.
A further analysis of the operating profits for these companies in the background of key raw material prices shows that as the prices for the key raw materials, soybean meal and corn declined between 2012-16. The RC and AFL showed improvement in operating margins, benefiting from lower input costs, while LFM’s operating profitability was hit due to declining sales volume from more profitable shrimp feed segment and higher fixed overheads. In addition, animal feed manufacturing companies largely operate domestically, thereby, deal in local currency. The two key raw materials which are largely produced in the US and China and are imported by other countries. Thus, the animal feed manufacturing companies are highly exposed to the risk of foreign exchange.
Therefore, owing to growing population and increasing disposable income, the demand for animal products is estimated to grow by 70% by 2050. This, in turn, would translate into high demand for more nutritious and effective animal feed. Thus, the long-term outlook for global animal feed industry appears to be positive. However, the regional animal feed remains exposed to a variety of risks such as fluctuations in raw material prices, unfavourable weather for the rearing of livestock and disease outbreak in these animals, which leads to banning from importing nations.
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