The Challenging Feed Business

The feed segment has always been a promoter and supporter of the aquaculture industry from providing quality feed, technical service to credit to farmers. The past 4 years have seen a very startle change in the challenges and can be divided into two phases. The recent Alltech Feed survey for 2023 showed a 4% drop in aquafeed consumption compared to the previous year. Market prices of shrimp and fish have overtaken feed cost as the major concern for the industry. Today, not only is the feed segment suffering, but there is also little interest in their plight. How do we make sense of this?

Let us review the two phases. The years 2021-2022 saw feed ingredient prices escalate due to the Ukraine war, Covid lockdown and consequential supply chain woes. Companies were forced to increase feed prices but were always behind the curve leading to losses. In certain countries, feed companies were not allowed to increase prices without government approval. This resulted in raw material prices exceeding 90% of the net unit selling prices of feed. However, 2023 saw a significant easing in many feed ingredient prices and feed prices dropped accordingly, but feed demand has also dropped affecting mill capacity utilisation and hence economies of scale in production cost. Asia has been particularly affected as the prices of its major export species i.e. shrimp, tilapia and pangasius have dropped as supply exceeds demand. Many shrimp farmers have either skipped cycles or reduced stocking densities resulting in lower feed demand. The challenge has now changed from negative margins to a loss of volume.

There are new challenges and innovations coming onstream so how do we navigate this business?

The new challenge comes in the form of sustainability which costs money and seems to sit squarely on the shoulders of the feed segment today. But the major question is what is the definition of sustainability and how does one measure this? This has been continuously asked from the Global Shrimp Forum 2023 and The Aquaculture Round Table Series (TARS) 2023. Many have proposed Life Cycle Assessments in terms of CO2 emitted per kg of commodity but the assumptions for this measure require fine tuning. Then how do we spread the cost increase along the supply chain? The consumer wants it but may not be willing to pay for it.

The feed segment is not standing still – there are innovations.

1. Smart feeding with autofeeders is a key process to improving efficiency, reducing sludge buildup in ponds, and reducing pollution in cage farming. However, the uptake has been slow in Asia. One argument is that Asian aquaculture is fragmented and comprises many smaller farmers who are reluctant to pay for such services.

2. Low crude protein shrimp feeds based on precision nutrition can reduce feed cost. Within Asia, Indonesia has been leading with this concept which has helped reduce feed cost, cost of production and pond pollution.

3. R&D for marine fish species. If Asia wants to develop the barramundi as its major marine species, then more precise nutrition must go into feeds specific for various stages of the life cycle.

4. Alternative feed ingredients. The growth in aquaculture feeds will require more feed ingredients. Fishmeal and marine sourced ingredients will become strategic and must be supplemented by high protein meal from plant sources, co-products from renewable energy, insect meals and single cell proteins.

5. The argument for and against GMO feed ingredients must be fact based, balanced, and viewed holistically. Without GMO soy and corn today, there will be insufficient feed ingredients to feed our livestock and aquaculture industries. Imagine the rise in feed cost for producers and the price for the consumers?

6. Functional feed is a competitive business. Uptake has been slower than anticipated in Asia due to two major reasons. Poor understanding in its use as a preventive measure and consequential lack of trust on the part of farmers. It is viewed by farmers as insurance, and many are willing to take the risk when margins become negative. The hope is for the new generation of farmers who are willing to focus on improving productivity and not cost saving.

There is no doubt that the business is more challenging than usual but this pullback in aquafeed demand is only temporary, and the industry must be prepared for the next phase of growth.