29 October 2021 - Limited supplies of raw materials, delivery delays and rising costs of production have created a challenging environment for feed companies across the world in recent months, and the situation is showing little signs of improving.
In this roundtable, which continues on from key discussions and presentations held at the recent Feedinfo Summit in Geneva regarding supply chain complications, we check in with a few animal feed industry leaders for more on how they are handling these disruptions, adapting their production processes to meet customer needs, and how long they see these supply chain disruptions lasting.
Below we hear from François Gautier, Managing Director at ID4FEED, Robert Alber, VP of Animal Nutrition at Alzchem, and the leadership team at Innovad, which includes CEO, Ben Letor, Procurement Director, Francois Geboes, and Sales Director, Massimo Neri.
[Feedinfo] Given the ongoing disruptions to raw material supply throughout the animal nutrition industry, what have you done to mitigate these problems and adapt to continue meeting demand?
[Massimo Neri, Innovad] To retain business and clients in these circumstances, the first priority is to ensure you have enough raw material, which means intensive sourcing, negotiation, and undoubtedly paying higher costs. The choice for absorbing reduced margins and even taking losses on contracted business is very tough, especially when supply agreements are not always being honoured.
We have managed the current situation in three ways: by absorbing the extra costs, differentiating our suppliers, and moving — where possible — to European suppliers. Adapting our sourcing practices and focusing our new product developments on ingredients available within the EU has helped considerably. Meanwhile, securing a higher inventory, building an extra buffer to reduce delivery delays, and shifting our production flows has ensured we have been able to meet customer needs.
[François Gautier, ID4FEED] As experts in phytogenics, we are committed to ensuring that all of our products support our customers’ requirements. We are focused on a limited amount of plants, and we control the value chain in order to avoid shortages. We are very proud to say we have controlled most of our prices for the past two years, especially on our biggest product, ID PHYT CAPCIN.
[Robert Alber, Alzchem] Three years ago we started reducing our sourcing from China and made sure we had at least one western supplier for our key raw materials. Given that our production only takes place in Germany, we have not faced severe supply problems. However, we have been forced to pass on cost increases to customers.
[Feedinfo] Is the move to using a greater quantity of local or alternative raw ingredients sufficient at offsetting the supply chain issues at present?
[Ben Letor, Innovad] In today’s turbulent market, inventory efficiency and rotation are no longer the most important criteria. What is key is being able to find and secure enough volumes of raw materials, which can be in short supply, in a timely way. Sourcing alternative raw materials and suppliers can be time consuming, as we have strict quality control and approval systems in place that must be adhered to.
It is not just about sourcing alternative or local ingredients, however. We need to make sure that all of our departments, from quality and certification to procurement, production and planning, are aligned towards sustaining clients. Swift coordination and acting as a team to deliver on services is what is going to make companies successful in this new, hectic global supply chain.
[François Gautier, ID4FEED] Local, where possible, is a good idea and is definitely progressing for some ingredients and equipment. However, in the phytogenic world not all plants can be grown in every condition. Some need a tropical environment, for example, that cannot easily be implemented in all climates.
[Robert Alber, Alzchem] Buying from Western sources does reduce supply chain issues, especially if these sources are not buying Chinese-produced inputs themselves. Sourcing more locally means logistics tend to be easier to manage and contracts are more likely to be complied with. Thanks to this approach we have been able to fulfil all of our customers’ requirements.
[Feedinfo] How do you see the uncertainties around raw material supply persisting? Do you have an expected timescale for problems to ease?
[Robert Alber, Alzchem] With Christmas, the Chinese New Year and the winter Olympics around the corner, we do not expect to see a substantial improvement in the situation before April 2022. A big concern remains logistics and having sufficient empty containers available when and where people need them may take until end of next year.
For cereals — the biggest cost factor in feed — the situation remains unclear since market conditions in China and harvest expectations are varying considerably. A big question mark remains consumer behaviour; with roaring inflation, transport bottlenecks and reports about empty supermarket shelves, we risk seeing panic buying that an already stressed supply chain might struggle to handle. We do not expect substantial improvement of the situation before the second half of next year. Good planning, buying local and being flexible will remain prerequisites to weather this storm.
[Francois Geboes, Innovad] It is clear that the entire global system, from industry and logistics to climate and politics, is heavily disrupted, and those disruptions are unlikely to be around beyond 2022. An additional worry is that the increased costs in raw materials and transportation could lead to a risk of speculation should cost prices start to fall.
As a company, our strategy will have to adapt to take these challenges into account; while they are disruptive, they are an opportunity to change and develop our product offering. Less chemical dependence from China and more natural, plant-based and locally-sourced ingredients will be the way forward.
Published in association with ID4FEED, Alzchem and Innovad
