15 June 2022 – With raw material prices continuing to inch higher and higher, the cost of feed is following suit, putting ever-increasing pressure on feed producer profitability.
To help its customers in Asia successfully navigate these price increases and manage formula costs, Kemin Animal Nutrition and Health introduced its Science Optimized Savings (SOS) programme on the continent last year. The initiative, which combines feed additive solutions with on-the-ground support and analysis services, helps feed makers effectively navigate their reformulation efforts around selected Kemin feed additives to manage costs.
Following on from the success of that programme, Kemin is now gearing up for the launch of SOS 2.0, which aims to help producers realise savings on the manufacturing side of their operations. In this Industry Perspectives, we chat with Alexander de Leon, Head of Technical Services, and K. V. Chandrasekar (Chandru), Marketing Director for Kemin Animal Nutrition and Health, Asia Pacific, to determine what the new programme entails. We also look at the strategy behind setting up SOS 2.0, the savings feed millers can expect to make, and why Kemin should be their preferred partner in managing the challenges that raw material prices can present to their operations.
[Feedinfo] So, let’s look at the situation on the ground. Can you give us an overview of how raw material price increases have affected the cost of feed in the Asian market over the past few years?
Alexander de Leon
[Alexander de Leon] Current estimates are that feed costs have increased by 13%. This 13% increase in feed cost has resulted in a 15% increase in the cost to produce per unit of the animal being grown to harvest weight. This translates into roughly 0.21 US cents per broiler and $20 per head of grower-finishing pig grown to market. This estimate is based solely on the impact of feed cost, and it would be higher if you factor in the increase in the other inputs in producing animals brought about by the conflict in Europe right now.
[Chandru] Adding to that, we operate in more than 15 countries in the region, with each of these having varying import scenarios depending on where they are buying raw materials. The estimated rise in feed costs can be as high as 20% in some countries, and farmers face huge pressure as the production costs are even higher than the farmgate prices of livestock. Apart from the elevated prices and the market tightness, the low quality of feed commodities is also a concern to the farmers.
The additional challenge of commodity oil prices is also putting a lot of pressure on feed mills, integrators, and some of the small farmers in these countries. Both palm oil and soybean oil prices have gone up by more than 30% compared to the last year. Oil quality has been the critical parameter during this vital moment. Kemin’s Customer Laboratory Services (CLS) team have been receiving customer requests for oil profiling services. Also, with Indonesia stopping the export of palm oil and India stopping the export of wheat, we are expecting the prices of raw materials to remain volatile and at high levels.
[Feedinfo] Do you think feed producers on the continent can expect some relief in these prices in the coming months? Or should they prepare themselves for continuing price increases?
[Alexander de Leon] The data for commodity prices shows that they are still expected to remain high. Although the price increases of some ingredients have eased up, many are still on the high side. Formula energy remains a challenge because of the high prices of grains, with wheat at an all-time high putting pressure on the costs of other grains, like corn. Luckily, the oil prices have plateaued, but they remain high, as Chandru mentioned. And there is some relief on the protein side of the formula, thanks to the slightly bearish prices of soybean and soybean meal.
Overall, the forecast from our supply chain department indicates that this whole year will be a challenge with respect to raw material prices. But that said, we are conscious that there is so much uncertainty right now. So, predictions that we make today might change tomorrow.
To answer your question, in order to keep their heads above water, farmers will need to continually explore and challenge their formula and find solutions to help lower formula cost. Every cent that they save is a cent back in profit.
[Feedinfo] Kemin Asia launched its SOS programme last year to help feed producers mitigate the impact of rising raw materials prices. How has the programme used science to help optimise savings?
[Alexander de Leon] Last year, when we saw raw material prices becoming more and more challenging, we stepped back and looked at our portfolio to see what we could go to market with to help customers manage.
The SOS programme was very well received by our customers because of three main reasons:
1) SOS came at a very opportune time. Managing formula cost is always a top priority for our customers, and the programme led to a lot of science on how to challenge feed formulas for savings available
2) It is a programme that is not just based on products alone but includes services too. This allows us to support customers in implementing changes in their feed formulas with precision, and it gives them confidence that these changes will lower feed costs and, at the same time, maintain performance
3) The programme is versatile, and solutions can be tailored to customers’ operations depending on their nutrition system and current raw material availability
[Feedinfo] You’re now gearing up for the launch of SOS 2.0, which you will be offering in addition to SOS. What prompted its creation? What lessons did you learn from the original programme that contributed to this additional version?
[Alexander de Leon] This is a good question. So, SOS 1.0 (our first SOS programme) is about realising savings in formula costs. But that is not looking at the big picture because feed cost has another factor driving the price; manufacturing. SOS 2.0 goes back a step, helping customers save in the feed manufacturing process and their formula. By challenging the status quo of these two aspects of feed cost, we can help customers save more per animal unit they produce without sacrificing performance.
[Chandru] Another thing that I would like to add is that SOS 1.0 gave us a lot of experience working closely with customers. That provided us with the confidence to expand into SOS 2.0 and help them on the feed manufacturing side.
Significant savings can be unlocked in the feed manufacturing process, and we have excellent solutions that can realise and support this. So, SOS 2.0 is a complete package. As Alex mentioned earlier, it can be tailored to the customers depending on whether they are looking at savings on their feed formula, manufacturing, or both.
K. V. Chandrasekar (Chandru)
[Feedinfo] What exactly are the feed milling and feed additive solutions you are proposing as part of SOS 2.0? And how do they work together to help mitigate the rising costs of raw materials?
[Alexander de Leon] SOS 2.0 is centred around our millSMART™ programme for increasing feed mill efficiency and animal nutrition solutions revolving around our biosurfactant, LYSOFORTE™ and enzyme products working on improving the energy value of raw materials.
The millSMART™ aspect of the programme increases efficiency by lowering the propensity of shrink during the feed manufacturing process, increasing milling efficiency and product quality. The animal nutrition element stops the loss of nutrients from anti-nutritional factors and further reduces the loss of nutrients by making animals more efficient in digesting and absorbing nutrients. In a nutshell, the animal nutrition piece of the solution helps squeeze more nutrients out of the feed we give to our animals.
[Chandru] Kemin boasts a leading role in the research and application of bio-emulsifiers, which can come in handy during this challenging time. For example, Kemin’s answer to lipid digestion improvement, LYSOFORTE™, aids in lipid emulsification and improves the absorption of fat and other nutrients. Moreover, Kemin is one of the first few companies to develop a genuine multi-protease that can help enhance protein and amino acid digestibility by around 4% to 5% in monogastric animals. With these innovative solutions, Kemin could help feed producers have more leeway in dealing with high raw material costs and generally save U$7-10 per mt of feed.
[Feedinfo] Let’s talk a bit more about the numbers. What kind of impact can these solutions have on feed producer profitability and operations?
[Alexander de Leon] So, in terms of profitability, our current bottom-line impact estimates show that the cost to produce per animal unit is around 0.01 US cents per bird using the millSMART™ programme. And if we were to include the nutritional solutions we are proposing as part of SOS 2.0, it will rise to around 0.05 US cents per bird. For pigs, it will be about $1 using just the millSMART™ programme, and if combined with nutritional solutions, it can jump to around $2 per head of pig sold.
[Feedinfo] We’ve talked a lot about products, but let’s now look at the services offered as part of your two SOS programmes. What is Kemin offering customers in Asia during the raw material price crisis?
[Alexander de Leon] I want to emphasise what makes the solutions we are offering work for our customers are the services that come with them. By listening to our customers and working with them to identify their needs, we can give them a suitable recommendation on whether to go for SOS 1.0 or SOS 2.0.
In fact, our services are key to building successful partnerships with our customers. Through our boots-on-the-ground model, we can work with customers to answer their specific business challenges. Our Technical Services team, which comprises animal nutritionists and veterinarians, can build tailormade solutions for customer operations. Our Customer Laboratory Services team increases our customers’ capabilities by helping to analyse and address their problems. And engineers from our Kemin Application Services team ensure that our delivery systems are installed and maintained properly so that our solutions work at their best. All these services can help our customers apply, measure, and monitor the effectiveness of the solutions we are recommending.
[Chandru] I agree with Alex. The support we provide to customers is key to the SOS programmes and Kemin as a business. Customers can benefit from not just the product alone but also Kemin’s services. So, even at the farm level, we can conduct an audit to see how the birds or pigs perform and suggest cost-saving approaches. Our value-added services differentiate Kemin from many other feed additive companies operating in the region.
Additionally, from a supply chain perspective, Kemin has the advantage of having its production facilities located closer to the market. We have a manufacturing facility in Singapore, which supplies products to most of the 15 countries we operate, other than China and India, which have their respective manufacturing facilities. So, in terms of supply chain resilience in the region, we have a huge advantage over other companies that have to ship products from other regions, like the US or Europe. We also have regionally supported laboratories, so in terms of laboratory support, we have people and facilities close to the market to solve customer problems in these regions. All of that makes a big difference in our approach to customer service and satisfaction.
Published in association with Kemin Animal Nutrition and Health