9 June 2022 - More than 100 days into the Russia-Ukraine war and the conflict has significantly impacted the cost and availability of some raw materials.
First, feed additives producers’ costs are going up, as production of many of them requires large amounts of energy, for which prices have risen sharply since the outbreak of the war. Second, grains (such as corn), often used as substrates for the production of many additives, have also seen all-time high prices. If we also factor in increased freight prices and other input costs, it becomes clear in turn that the cost of producing feed additives will climb too.
At VIV Europe in Utrecht last week, different actors within the Dutch animal nutrition space, from compound feed manufacturers to additive producers, shared their views on the market environment.
Customer behaviour
“It is very challenging. Prices are sky high. Some customers are thinking of taking a break and that could be a loss in business,” warned Huub Fransen, owner of Fransen Gerrits. “Fortunately, our own business has been stable.”
Pieter Wolleswinkel, COO and Head of ForFarmers Netherlands, analysed the situation a bit more: “Feed costs are a matter of concern. The swine sector and pig prices right now give us big concerns. Price increases for some commodities are continuing and post-harvest prices in some cases are at the same high levels as pre-harvest. The market is tense. We can expect major tensions for the next 4-5 months and then prolonged effects.”
“The flow of commodities from Ukraine may improve somewhat. It’s looking slightly brighter than before. We can expect major tensions for the next 4-5 months and then prolonged effects. However, we are getting a better view each day,” he added.
At specialty ingredient and additive level, the concerns are also naturally geared towards offsetting the extra costs, and towards customers’ willingness to accept higher prices, and how to advise them should they decided to look for alternative, cheaper supplies.
Aart Mateboer, EVP Animal Nutrition at Perstorp, said: “The industry is really suffering and is focused on cost. Some customers of the industry are certainly more selective with their purchases. The pig sector in particular is hard-hit.”
“The market is difficult now. Our customers will face issues in the short-term as prices go up. Pork and egg aren’t profitable markets. The industry will need to get used to higher price levels. Meat, milk and egg prices need to go up too. We can expect less demand for animal protein products in the next 6-12 months, especially in countries with less disposable income,” added Richard Maatman, Managing Director Europe, Central-Asia & Middle East for Trouw Nutrition.
David Nickell, Vice President Sustainability & Business Solutions at DSM, Animal Nutrition & Health, also said: “In general, high feed material prices encourage growers to explore alternative feed ingredients that offer lower cost and are more locally available. However, growers should be aware that alternatives, especially processed by-products, can introduce digestibility issues and anti-nutritional factors that pose additional risk and expense to farming operations due to lower animal performance or impaired health.”
Hamish Irving, Global Marketing Director, Danisco Animal Nutrition & Health, concurred: “From a feed producer’s point of view, a higher inclusion of cheaper raw materials, often lower quality and locally sourced, is a logical choice to keep rising feed prices under control. Usually, these raw materials pose a challenge as they are often harder for the animals to digest due to higher indigestible fibre content and greater nutrient complexity. We have been working on solutions to counter these challenges.”
Or as Daniela Calleri, BASF Business Management Animal Nutrition, put it: “In view of the currently prevailing shortage of feed raw materials, it is a matter of making the best possible use of nutrients.”
Bert van Bremen, owner of EFS-Holland, a Dutch company which supplies salmon oil and other health ingredients, provided some examples: “It’s a very big challenge. Costs to produce our main product, salmon oil, have almost doubled. Some of our suppliers have even stopped producing. Salmon oil competes with vegetable oils, and we see customers switching to salmon oil. However, there is an availability issue. For example, a salmon oil supplier’s factory in Latvia has stopped producing.”
“So, we are looking for other sources. We need to move forward,” he stated.
Passing on the costs
Some of the companies interviewed by Feedinfo shared their experiences in passing on the costs.
For instance, Danisco Animal Nutrition & Health’s Hamish Irving, pointed out that the recent geopolitical events have worsened an already difficult situation– both in terms of prices and shortages.
“Danisco Animal Nutrition & Health has historically been able to offset increases in input costs through efficiency gains. Regrettably, sustained inflationary pressures meant we couldn’t continue to absorb these additional costs. By taking the difficult - yet necessary – decision to raise prices last year, we can continue to serve our customers and make long term investments in R&D,” he said.
BASF Animal Nutrition has also increased some of its prices. As Daniela Calleri explained: “Energy costs have already risen sharply in recent months. Approximately 50% of additional costs resulting from the further increase in natural gas price was incurred in Q4 alone. BASF had to pass on the higher energy, raw materials, and logistics costs through price increases across the animal nutrition portfolio.”
So did Perstorp Animal Nutrition: “We thought we had hit the peak, but the war has pushed costs to even higher levels. It will remain an uncertain period for the foreseeable future. At Perstorp, we have maintained good levels of business. We were forced to increase our prices. There was naturally a mixed reaction from our customers. However, they continue to see the value in our products,” commented Mateboer.
However, passing on the costs is oftentimes not a straightforward process.
“The big price increases cannot always be passed on to the market immediately; all players in the chain have to sometimes partly buffer the price increases,” said Henk Botter, Commercial Director at Denkavit.
Giving a bit more detail, David Nickell said: “We currently see more cost inflation especially in energy, logistics and input materials. It is too early to assess the magnitude of these increases. Spot prices are very volatile for energy and raw materials, and we need to see where these prices ultimately land. The good news is that most cost increases are coming through with a delay which gives us time to see where we stand and to take pricing actions, which we take seriously and only after careful, thoughtful consideration. We have seen we can pass on the required price increases to the market to offset the higher costs we saw at the beginning of the year to continue to deliver products and services to our customers without risk of delay or interruption, and at the high level of quality they trust.”
Companies were also happy to report that relationships with customers and suppliers have been solid despite the difficulties.
Richard Maatman, for example, said: “At Trouw Nutrition, we cannot complain. We have the advantage of being a global player. We have not let down any customers. So far, so good. But it hasn’t been easy.”
Botter echoed the sentiment: “We have long-term relationships with our suppliers, working often in partnerships, and that pays back in difficult times like we have now. Supply has been tight, but we always were able to supply our customers without any disruptions.”
“For us, availability is the issue, not cost, as at Barentz Animal Nutrition we are the ‘man in the middle’,” added Tim Lemeer, Vice President Animal Nutrition at Barentz. “Our challenge is to provide insight and the right price which secures us a margin but also makes the customer willing to buy. To have a global and local presence is our distinguishing factor and we certainly have seen this been amplified in the current context. Our competitors have suffered from delays, while we have moved into a so-called ‘trusted supplier space’.”
But no matter who your company is, the current context is bad situation for all the market.
“There is no doubt about it,” confirmed Lemeer. “We see farmers leaving the market and customers waiting for easier times.”
