Aidan Connolly: 7 insights from The 2018 Alltech Global Feed Survey
Now in its seventh year of analysis, the 2018 Global Feed Survey provides valuable insights into the feed industry. The report serves as a barometer for agriculture as a whole, and demonstrates the economic strength of the countries surveyed.
The following is an edited transcript of Tom Martin’s interview with Aidan Connolly, chief innovation officer and vice president of corporate accounts at Alltech.
Click below to hear the entire interview:
Now in its seventh year of analysis, the Global Feed Survey continues to provide valuable insights into the feed industry, serves as a barometer for agriculture as a whole, and demonstrates the economic strength of the countries surveyed. What can we learn from the 1.068 billion tons of feed produced globally?
Aidan Connolly is chief innovation officer and vice president of corporate accounts at Alltech. He joined Tom Martin to highlight what has been learned from the seventh annual Alltech Global Feed Survey. New to the survey this year is information gathered from the Asia-Pacific region, including countries such as Cambodia and Laos, for a total of 144 countries representing more than 30,000 feed mills.
Tom: The 2017 survey documented world feed production topping 1 billion metric tons, an all-time high for a single year. How does that compare with the findings for the 2018 survey?
Aidan: In the previous year, we had also seen production exceeding 1 billion tons, but this one was a larger number, finishing at almost 1.07 billion tons. That confirmed that those numbers are correct. Of course, the way that we calculate these numbers is through estimates. We ask people to estimate how much feed is produced in each of their countries, and then we collect all that information from our own managers in those 140 plus countries. So, the first year, to see it was over 1 billion tons, was great. To see it again at a bigger number just makes us very sure that we have the right number.
Tom: There had been a 7 percent reduction in feed mills from 2015 to 2016. Obviously, that trend has not continued.
Aidan: Actually, that's not quite true. I believe that the numbers of feed mills are continuing to consolidate and to drop, but we've reclassified quite a number of feed mills that were on farms, smaller scale, in places like Russia, in particular Eastern Europe, by changing our methodology. So, we actually ended up with a larger number of feed mills overall, even though the number of feed mills, I think, continues to drop.
Tom: You have identified seven key findings in the 2018 Alltech Global Feed Survey. Let's take them one by one and begin with what the data reveals about China.
Aidan: Yes. The Chinese feed production was down a little bit. And, in particular, some of the species did see a reduction. Specifically, aquaculture continues to drop. However, we saw a rebound in terms of the feed production for pigs, and that was quite significant. Of course, China is in the process of consolidating its pig farming. We did see a number of the smaller farms being closed over the last two to three years. That has led to a reduction in the number of breeding animals, sows. And overall, there was a reduction in pork production the previous years of about 7 percent. However, this year, feed production went back up. And overall, that had the effect that China in general was about flat.
Tom: These reductions are happening at a time when the Chinese population is going the other direction — is increasing, expanding. Is that cause for concern?
Aidan: No. Feed production is affected by many factors. It's affected by consumption of meat, milk and eggs, but it's also being reduced by the fact that we are genetically selecting animals to be more efficient. And in the Chinese case, they have had a lot of farms that were very inefficient. So, when we talk about closing small chicken farms — in particular, small pig farms, but also ducks, geese, fish farming, etcetera — typically we’re moving toward farms that are much more efficient in how they convert feed into food.
Tom: Russia has registered noteworthy increases in feed production. What's happening in Russia?
Aidan: Russia is a really interesting story. Of course, Mr. Putin, the president, wants to make Russia a strong country, bring it back to some of its glory days and, in particular, is focused on food production. Self-sufficiency of food production is a critical part of that. Russia has been importing a lot of food from the United States, was importing from Europe, and was also importing from Brazil, but it's been exerting its soft power in its ability to restrict the importation, in particular, of chicken and, more recently, of pork and is looking for its own farms to replace that, so they become, if not necessarily self-sufficient, less dependent on imports.
Tom: What is the significance of that independence?
Aidan: The significance for the feed industry is that feed production numbers grew quite significantly this year, by about 14 percent.
That is being seen specifically in terms of pig farms, dairy farms and, to a lesser degree, chicken farms. But in general, it probably will mean for the Russian population more expensive food. But, obviously, that's a decision being taken at the government level in terms of the strategic desires of the government to not be reliant upon people who they often have arguments with.
Tom: Also noted in this year's survey coming on strong is India. Where do you see growth occurring in India's feed production?
Aidan: India’s species are much more restricted because, from a religious and cultural perspective, they don't consume beef. They are relatively limited in their consumption of pork, and even a certain percentage of the population doesn't want to consume chicken. So, eggs have continued to grow. Broiler meat is growing and did grow this year very strongly as well. But milk, in particular, continues to grow. So, those three species are very strong.
India has become a significant exporter of shrimp. We have seen a growth in aqua feeds as well from India. There are some concerns over the use of antibiotics. India is relatively light in terms of its consumption of protein per capita. And if that grows, that will lead to growth in eggs, of chicken meat and, to a lesser degree, of milk.
Tom: Going back to aquaculture, India has more or less defied a global decline in aqua production. What are the country’s strengths in this area?
Aidan: Primarily, it's coming from a relatively low position to start with. It is a low- cost producer. But, specifically in the area of shrimp, a number of viral diseases have afflicted areas such as Ecuador and Thailand. Much of this comes from the desire to grow aquaculture in areas with either rivers or estuaries where the water can quite often move from one farm to another, passing disease from one farm to another. India has not had those diseases to the same degree as other countries, so far. If it continues to remain disease-free, then it can continue to be a very large producer of aquaculture, particularly for export.
Tom: What are the trends in aquaculture feed production, and in what parts of the world is growth strong right now? Where is it lagging?
Aid an: We had a lot of controversy in this survey about the aquaculture numbers, particularly following last year, when we also saw that the aqua production was flat. Much of the discussion about aquaculture is about the fact that we are consuming more and more farmed fish, and that undoubtedly is true, and that is displacing our part of the requirement for replacing the fish from the sea. What we are seeing, however, is that the largest producers of fish in the world — typically China represents about 50 percent of the world's production of fish, Asia represents overall about 65 to 70 percent — in those parts of the world, we are seeing a reduction in the feed production for farmed fish, for aquaculture.
We believe that in the case of China, it’s being driven very much by government policies and, to a lesser degree, by the economics of larger, more efficient farms. We are seeing some changes from a cultural perspective: people consuming less fish at banquets, etcetera. In the rest of Asia, many of the numbers we saw related to disease.
Globally, however, aquaculture did grow. So, if you look at salmon, trout, sea bass, seabream, if you look at tilapia in countries — Europe, in particular — we do see a continued growth. What you have is the drop in Asia being offset by strong growth in other parts of the world. I would also continue to underline that, as aquaculture becomes more efficient, as it's become more modern, it has required less feed to produce the same amount of weight.
Tom: For a number of years now, the survey has tracked a pretty steady growth curve in the African feed market. What accounts for this?
Aidan: African economic growth continues to be strong. It's coming from quite a low level, though the economic growth is also spread across many countries. It's not coming from any particular country. So, on a yearly basis, we are seeing that the African continent is growing by, in excess of global averages, probably somewhere between 5 and 7 percent in terms of GDP, and that is widespread.
In particular, we saw a very strong year in Nigeria. Of course, Nigeria is expected to be the world's third-largest population by 2050, exceeding the United States, exceeding Indonesia, exceeding other countries in the world, just following China and India. So, it's not surprising that we will continue to see an increase in protein consumption there. However, the cost of protein continues to be very expensive in Africa. Nigeria in particular, but also many of other countries, did report extremely high feed prices. And high feed prices mean high prices for eggs, meat and milk.
Tom: As mentioned in the introduction, new to the 2018 survey is information gathered from the Asia-Pacific region. What did you find?
Aidan: Really, we’ve just been digging in every year deeper and deeper into establishing which countries produce feeds. Now, not surprisingly, we continue to skip a few: Andorra, for argument’s sake; Monaco is just famous mainly for gambling; Vatican City, which is mainly famous as a city-state for the Vatican.
Nonetheless, of those 200 plus countries in the world, we think we've gotten to almost every single country that's producing feed in any significant, or even less significant, manner. We added in a few more countries this year. Those were in Asia, but they don't add to anything more than just creating a database of information, which is stronger and more robust.
Tom: There seems to have been steady growth in the equine industry, and it looks like it's happening nearly everywhere. What's going on there?
Aidan: The consumption of horse feed, of course, is driven primarily by the economics of the world, and last year was a good year. I know some of our listeners may feel that maybe their pockets didn't feel quite as full in terms of cash. But globally, it was a good year for the world economy. And in fact, for this coming year, the Economist magazine is predicting that only four countries in the world will not grow, and two of those were Venezuela and North Korea. So, you can see that we are in a period of general global economic growth that is leading to a larger middle class. It's leading to more people moving to a city, so more urbanization. And those typically are favorable trends for horse production.
It has been quite hard to capture data relating to horses — not entirely sure why this is. People seem to be quite secretive, even in the United States, about how much horse feed they produce. So, we have struggled to be accurate in our estimates. I think this year's estimates were more accurate than previous years. I know the American Feed Industry Association issued a number that was much larger than ours but included forages, included other forms of feeds that of course don't go through feed mills. But, in general, I would say economic growth is lifting the tide and is helping the horse feed industry.
Tom: And you mentioned money in pockets. What does the survey reveal about feed costs?
Aidan: Feed costs, thankfully, have remained low, and I say “thankfully” because feed represents about 70 percent of the cost of the production for chickens, pigs, also for eggs, milk and aquaculture. So, effectively, for every protein that we consume, feed represents most of the life cost of that. And of course, when you further process it, it still continues to be a very significant contributor.
Feed costs were low last year and remained low this year, by historic standards. Of course, in real terms, that means that they continue to drop, and that is directly correlated to the price of corn, soybeans, to a lesser degree, other forms of cereals such as wheat and barley, and other forms of protein such as canola, etcetera. That relates to the fact that we've had tremendous harvests. And even in years that we've got droughts, when it appears that we haven't done as well in the middle of the growth cycle as we expect, we still seem to take a lot out of the field, which has been good for farmers. It’s been good for feed. And, eventually, that means it's good for consumers.
Tom: As you keep your eye on current trends, do you have any early forecasting of what we'll see in the 2019 survey?
Aidan: If you look at some of these economic forecasts, it looks like consumers will continue to see their affluence grow. Certainly, we will see economic growth, which we hope will translate into consumer benefits. If that means that feed costs are low, food costs are low, and we can expect that harvests continue to contribute more and more to the silos of the world, I think it could be an excellent year for the feed industry.
Tom: Aidan Connolly, chief innovation officer and vice president of corporate accounts at Alltech. Thank you for joining us, Aidan.
Aidan: Thank you, Tom.