The market lanes are blurring.
Prime Future 021: The weekly newsletter highlighting tech trends throughout the animal protein value chain.
Last week I mentioned the notion that the lanes are blurring in the animal protein value chain; this week we dig into the evidence behind that claim and why it is so significant.
When I say that everyone is moving into each other’s lanes, here are 5 specific examples:
Animal nutrition = animal health. As the livestock industry continues to make herculean efforts to reduce antibiotic use, we are still at the beginning of the rise of non-medicated feed additives as the alternative, e.g. enzymes, microbiome products, phytogenics, etc. With this rise, the historical delineation of animal health companies as purveyors of only FDA approved drugs and animal nutrition companies as purveyors of minerals and non-medicated feed additives is no longer relevant. Animal health companies are jumping into the non-medicated feed additive space because they have to in order to remain relevant while feed companies are moving into the higher margin feed additive space to margin up their low margin premix or complete feed manufacturing business. All the while new entrants are jumping into the non-medicated feed additive space. It is the absolute wild west right now and the next 5 years will be fascinating.
Retailers as integrators: Costco. Costco built an entire poultry complex in Nebraska to control much of its own supply of the infamous $4.99 rotisserie chickens. We could also talk about Walmart’s dairy, and now beef, supply chain.
Integrators as retailers: Perdue Farms. Perdue Farms is riding that COVID wave, growing its direct to consumer sales channel. While Perdue Farms built the business on its retail brand, this marks the beginning of Perdue Farms selling direct to consumers and puts them in a potentially competitive position with retailers.
Animal health companies as digital service providers: Merck & Zoetis. Zoetis has acquired companies with digital offerings to producers, while Merck recently acquired IdentiGEN who’s ultimate value proposition is for food companies / end users.
Integrators as equipment companies: Tyson Foods. The selection of a former project manager from Alphabet’s Moonshot Factory to lead the $40 Billion company as CEO signals the meat giant is doubling down on robotics & automation for processing plants.
Given these examples that illustrate the complete realignment of competitive spaces and market lines, what are the implications? The lens I look through is to consider the impact on producer profitability and consumer satisfaction, the two anchors in the animal protein value chain. Here are my hypotheses:
More competition among suppliers which is likely to be great for producers and ultimately great for consumers.
More differentiated value propositions with innovation around actual business models, whether that’s in how feed additives are sold or in how producers are paid. Again, likely great for producers and neutral to positive for consumers.
Winners get bigger? I see the argument for both possible outcomes here, either the winners get bigger as their footprint pervades the entire value chain instead of their traditional sandbox OR the competitive scene expands as new entrants find niches to establish themselves in.
More acquirers and investors to drive new innovation throughout the entire value chain. Definitely a net positive.
What are your hypotheses about the implications of the lane blurring trend?
One last way to think of the impact is to look at the global economic pie that today can be cleanly split into the following buckets:
Processing $745B market
Animal health $70B (including companion animal)
Animal nutrition $11B
Animal Genetics $6B
Retail $11 Trillion (of course, not all protein)
Now mix all that up as Costco and Walmart grab some of the $745B, as Zoetis grabs some of the $6B and Nutreco grabs some of the $70B, and so on. Now it’s just a giant $12 T bucket growing 3-4% per year that could be split any number of ways by existing giants and new entrants.
Grab the popcorn and here we go, folks….I told ya it was a fun time to be in animal ag ;-)
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Janette Barnard works to enable technologies throughout the animal protein value chain. Janette is now Managing Principal with Rock Road Consulting, helping companies to launch, source, and fund innovation in animal agriculture. She leveraged her commercial experience with Elanco Animal Health, Cargill, and McDonald’s Global Supply Chain team to launch and grow two animal protein focused startups.
