Re-imagining the feed industry: focus on price, perception and policy
Global agricultural is in turmoil. World trade barriers are coming down. The EU Common Agricultural Policy and the US supports may become a thing of the past, opening up markets and leveling the playing field. BSE cases in Canada and the US have thrown these industries into a quandary, while southeast Asia is reeling from the impact of avian flu.
Natural feed technologies such as those offered by Alltech have never been more in favor. Increasing acceptance of natural feeding strategies reflects the realization that there is no going back to previous methods in today’s consumer-oriented markets. At a recent roundtable discussion sponsored by Alltech in the aquaculture sector, one attendee described the event as “the most exciting discussion in which I have participated in the past 10 years”. Such is the enthusiasm in these markets. We believe that every cloud has a silver lining, but for agriculture the difficult times of these past years can only be turned around if we embrace change and recognize the three key determinants of success: Price competitiveness, Perception of the consumer, and Policies we can depend on to guide us now and in the future.
Success Factor No. 1: Price competitiveness
How can other markets compete given the size of US and Brazilian farms? How can a small country maintain its position? To be successful we must adopt new technologies, which is how Brazil made such remarkable strides forward in a comparatively short period of time.
What are some of the new technologies that can make food animal production more pricecompetitive? The two most important are technologies that improve the efficiency with which we use feed ingredient raw materials, and the other is through improved animal health. 
THE KOJI PROCESS OF SOLID STATE FERMENTATION: LOWERING THE COST OF CONVERTING FEED TO MEAT AND EGGS
Nature ensures utilization of its abundant feedstuffs by placing microbes and animals in symbiosis. In both ruminants and monogastrics, rumen or hindgut microbes digest the structural carbohydrates in fiber to release energy and ultimately to provide protein from microbial cells for animal use. Without the microbe’s ability to produce enzyme arrays, the host animal could not make much use of a vegetable based diet.
Alltech harnessed this symbiosis with a unique fermented koji, which is sold under the name of VegproTM SSF. In the koji fermentation the enzymeproducing microbes are grown on substrates similar to those that food animals consume, which induces the microbe to produce the spectrum of enzymes most appropriate for the job. When added to poultry and pig diets containing oilseed meals such as soya and canola, seven enzyme activities in VegproTM SSF interact to boost release of energy and protein.
Brazilian experience in formulating poultry and pig diets with VegproTM SSF has shown that savings of as much as $10-15 per tonne are possible. As global reliance on shorter supplies of vegetable proteins increases, this technology could be crucial (Table 1). Why? Because the enzymes release the energy in soya and improve protein digestibility. A summary of experience with VegproTM SSF in South America is found in Table 2.
Table 1. The soybean challenge: usage and production growing at different rates.
LOWER PRODUCTION COSTS BY IMPROVING ANIMAL HEALTH
At a recent presentation on the future of American dairy farming, Dr. Steve Koenig pointed out that animal health is the key to success in the future. While he used the dairy farm to illustrate his points, they could be applied to any animal production system.
An example illustrating the impact improved animal health has on productivity is cow longevity. Dairy cows average only two lactations in several regions of the US, while 60% of all sows are culled after only three parities. Given that peak milk production in the dairy cow and peak sow productivity are well after these ages, the amount of lost production is astounding. At an average of 10,000 kg of milk per lactation and 20,000 per lifetime, this means a replacement cost of $0.06/kg of milk - nearly 24% of the total selling price of milk! Imagine any company devoting 20-25% of the sales to replacing the equipment! They could not survive, and nor can we. If an extra lactation can be achieved, replacement cost drops to $0.04/kg or 17% of the total cost (Table 3).
Table 2. More than 50 experiments and 120 companies confirm that the koji enzyme response has a major impact on production economics.
Table 3. Calculated cost of replacing a cow based on two or three lactations.
Sel-Plex® impact on health Cows and sows are culled for reasons of health and reproduction, both of which are at risk when selenium status is marginal; and it is this specific area where Sel-Plex®, organic selenium produced by yeast, can help. Selenium in Sel-Plex® is present in the ideal ratio of selenoamino acids. When mastitis/MMA impact is reduced, and selenium needs for reproduction are met, commercial experience with Sel-Plex is that herd longevity can be increased, however an extra lactation is just one of the benefits noted.
Sel-Plex® has implications for health and reproductive efficiency in all food animal species (Table 4). For sows, commercial and university reports have indicated more pigs born alive and more pigs weaned; and a review of poultry data in refereed publications alone demonstrates increased number of chicks hatched (2-4) per broiler breeder hen.
Furthermore, improvements in health make the switch to Sel-Plex® easy. Is this new? No. Dr. Don Mahan at Ohio State predicted this in 1995! The issue is as ever – not whether the new technology will lower costs – it can – but whether the will to make the change in order to reap the benefits exists. Organic selenium – Sel-Plex® – has truly redefined selenium nutrition and indeed vitamin E and ‘antioxidant’ supplementation in general. However, there can be no half measures. Full replacement of sodium selenite at all stages of life is required. Health is a lifelong requirement.
Table 4. Sel-Plex® impact on herd health and productivity.
Knowledge about organic selenium is accumulating at an incredible rate in all disciplines, but agriculture is the sector able to take greatest advantage of it.
Still, it is always best to remember how much we still do not know! Not long ago science only knew of the role of selenium in glutathione peroxidase (GSH-Px). Now we know there are six forms of GSH-Px, and 30-50 selenoproteins. Likewise, we now know that there are a wide range of selenocompounds in plants and yeast, and failure to discount the importance of any of them because we do not today know their function would be absurd.
Nature rarely makes things for no reason. Modern analytical techniques have revealed one reason response differs between selenium yeast sources.
French researchers noted that the profile of selenium compounds differs among commercial selenium sources (Figure 1). Reasons might include differing growth media, pH and temperature conditions and(or) yeast strain. As such, data generated from a product manufactured by one process cannot be extrapolated to another. This why in clearing ‘selenium yeast’ for use in the US following review of Sel-Plex®, FDA defined an allowable product as one made precisely by this process. In effect, the regulators are holding all new products to the standard set by Sel-Plex®.
Key Success Factor No. 2: Perceptions of the consumer
Overcoming the negative perception of the consumer is more difficult to achieve than a reduction in costs. Due to a litany of scares – BSE, Foot and Mouth Disease and dioxin contaminations – the public is often suspicious of modern agriculture. 
The recent mad cow scare in the US illustrates how reluctant as an industry we are to change, and perhaps validates consumer skepticism and the demand for greater scrutiny. Carol Tucker Forman, director of the Food Policy Institute of the Consumer Federation of America, was quoted as saying “the damage to the American meat industry, and therefore the feed industry, costs infinitely more than anything US cattlemen would have to pay to do things right”. But doing things ‘right’ is not something we are always perceived to excel at. Least cost formulations occasionally overrule common sense, and it seems incredible that in a time when markets are asking for total transparency and traceability that one would leave anything to chance, much less take unnecessary risks. As we marvel at the apparent “repeating of the European BSE mistakes” in the US, we remind ourselves that the perception is that many of our problems originate from what and how we feed livestock. This should not be the case; there are a number of alternatives in use in all sectors of the industry. Let’s briefly evaluate ways in which natural feeding programs combat perceptions of food animal agriculture.
Figure 1. Differing proportions of selenium in various fractions of three commercial selenium yeast sources (adapted from Encinar et al., 2003).
PERCEPTION 1: ALL ANIMAL FEED CONTAINS GROWTH-PROMOTING ANTIBIOTICS
Less true each year. While there were never antibiotics in ‘all’ feeds, even those sectors where inclusion was routine such as grow-finish pigs and broiler diets are steadily eliminating AGPs and have replaced them with natural products and programs that promote health and growth.
Bio-Mos® was introduced to the marketplace at Alltech’s 1992 international feed industry symposium. The past 14 years have seen numerous successful trials and in the past 12 months meta-analysis summaries of the data in studies with weanling pigs, broilers and turkeys have been published (Pettigrew 2003; Hooge, 2003a; Hooge, 2003b). One researcher working on modeling approaches to use in evaluating Bio-Mos® confirmed that he has found nearly 300 publications in this area (G. Rosen, personal communication). The resounding conclusion: the product is stable in feed, acceptable to the consumer, and works as well if not better than AGPs in comparison studies and on commercial farms. Analysis of the broiler data show a 2% improvement in FCR, a 2% improvement in weight gain, and a 20% decrease in mortality. It clearly has lived up to its motto: Bio-Mos®: Performs.
Promise. Its mode of action targets intestinal health and immune modulation. The mannan fraction of Bio- Mos® carbohydrates provides a ‘decoy’ to which pathogens adhere, thereby avoiding intestinal epithelial colonization, which in turn leads to healthier villi and more absorption of nutrients. Immune responses are modulated (as opposed to stimulated directly), leaving the animal more prepared when exposed to pathogens.
The message with Bio-Mos® is that animal health, beginning with gut health, is the key to success.
PERCEPTION: AGRICULTURE POLLUTES
The latest restriction to be placed on animal production in an increasing number of markets is the mandated reduction in dietary copper and zinc in order to prevent accumulation in soil profiles (Figure 2). Supranutritional levels have traditionally been included in monogastric diets, especially those fed pigs, to reduce enteric disorders. Mandated reductions, however, allow only nutritional minimums at a time when many are questioning whether such levels are adequate to meet demands of modern genetic lines.
Figure 2. Changes in trace mineral allowances for food animal diets in Europe.
Can animal health and productivity survive with reductions of critical trace minerals to 20-30% of their current levels? The answer is yes, providing that dietary trace minerals are supplied in forms best suited to the intestinal environment and absorptive mechanisms. Before reaching the site of absorption (the enterocyte membrane) ingested minerals first encounter an unstirred water layer and then a mucus layer with an intense negative charge (Figure 3). This means that though the enterocyte membrane is very thin, the mineral must first traverse two layers, which are orders of magnitude thicker than the absorptive surface itself. For inorganic metal ions such as Cu, Zn, Mn and Fe, an immediate danger is so-called ‘hydroxy-polymerization’ whereby the increasing pH in the small intestine, and particularly in the unstirred water layer, causes them to form large insoluble metal hydroxides that cannot be absorbed.
The negatively charged mucus layer presents another barrier against the passage of inorganic metal ions and evolved as a protective mechanism against toxic elements such as aluminum (Al3+). Because of the intense negatively charged nature of this layer, the strength of metal cation binding can be described as follows; M3+ > M2+ > M+ (where M represents a metal ion). Essentially, toxic elements such as Al3+ are bound so tightly that they rarely manage to traverse this layer and are sloughed off as the layer is replaced. As the charge on the metal ion decreases, inorganic metal ions (which have avoided hydroxy polymerization) may traverse the layer, but at relatively slow rates. This is basically why ferric iron (Fe 3+) must first be reduced to ferrous iron (Fe2+) before it can be absorbed.
Feeding essential trace metals in the form of Bioplexes circumvents these problems by a) completely avoiding the risk of hydroxy polymerization reactions, and b) speeding the rate of passage of the metal ion across the negatively charged mucus layer by presenting it in a reduced charge or electrically neutral form (Figure 4).
When dietary trace minerals are in this form, the nutritional minimums mandated by environmental laws are able to meet the needs of modern, highly prolific genetic lines. In studies comparing Bioplex™ and inorganic zinc for grow-finish pigs Fremaut (2003) demonstrated that Bioplex™ Zn supplied at 30% of the inorganic Zn level resulted in improved daily gain while the environmental goal of reduced excretion was accomplished. 
Figure 3. Barriers to absorption of highly charged inorganic cations: formation of unabsorbable hydroxy polymers in the unstirred water layer and adherence to the negatively-charged mucus layer.
Figure 4. General structure of a Bioplex trace mineral.
PERCEPTION: RENDERED ANIMAL BYPRODUCTS IN FEED – DO WE HAVE AN ALTERNATIVE?
While the antibiotic issue can be put aside safely with a tried and proven replacement, and bioplexing allows lower trace mineral levels, this cannot be said of animal by-products. In the US alone, 35 million cattle are processed every year. What could we possibly do with the waste protein and fat? Europe has grappled with this problem, but if the US reduces its use of animal by-products, the impact on protein prices will be enormous.
New plant and yeast protein sources: The ‘Biorefinery’
The nutritional, cost and environmental problems of not recycling animal by-products has no simple solution, but perhaps the ‘biorefinery concept’, at work in the rapidly expanding fuel ethanol industry, can provide a useful alternative protein source. Fuel ethanol is produced in either the grain dry milling or wet-milling process, using a variety of starch and sugar substrates across the globe. Grain dry mills currently produce ethanol, distiller’s dried grains with solubles (DDGS) and CO2. Removal of the starch for fermentation to ethanol leaves the protein, minerals and fat concentrated in co-products currently used in animal feeding, primarily ruminants but increasingly in monogastrics. With ~30% CP, energy equal to the original grain owing to concentration of fat and ~0.7% phosphorus (90% of which is available), these co-products have much to offer the food animal industry in terms of addressing a protein shortage, but can we improve them further? The ‘biorefinery’ approach to processing starch/sugar sources says yes!
Dry mill ethanol plants using corn produce about 30 kgs of DDGS for each 100 kgs of corn ground. A ‘biorefinery’, in contrast to an ‘ethanol plant’ integrates process streams such that a number of products are produced, with ethanol being only one of potentially many. Options for further processing of spent grains and solubles include secondary fermentations to increase protein content, boost lysine content as much as 3-fold and decrease the indigestible fiber. Enzymatic hydrolysis of DDG and/or solubles is another approach to add flexibility. Ethanol producers seeking to expand the market for distillery co-products have begun integrating processes that ‘referment’ a portion of the solubles and spent grains to provide specialty ruminant products such as VA101 Figure 5). Such directions go well beyond simply upgrading a ‘by-product’.
Alltech is essentially a yeast biorefinery (Figure 6), constantly examining ways of utilizing yeast or their components. In applying the biorefinery concept to our use of yeast; so another high quality protein for animal feeds arises. In addition to a wide range of specialty yeast applications from animal feeds to ethanol, processes that utilize cell wall fractions in production of Bio-Mos® and Mycosorb® yield a form of yeast extract, which includes the highly nutritious cell contents. It is this extract that is processed into NuProTM, a yeast protein high in nucleotides with application in a broad spectrum of specialty diets, particularly those for neonates of all species.
The lesson of NuPro™, however, is not just that possible new proteins are available in increasing quantities; the message is that innovative research and process results in innovative products if we think outside the box and develop new technologies.
PERCEPTION: ‘MYCOTOXINS ARE NOT IN ANIMAL FEEDS SO WE ARE DOING NOTHING ABOUT THEM’
Like other food safety issues, mycotoxins are a subject that consumers can be expected to be increasingly familiar with in upcoming years.
Regulators are extending guidelines to include mycotoxins other than aflatoxin as science provides more and more information about these toxins.
The increasing scientific information about toxin chemistry and function provides us an advantage, however, since it gives us an ability to solve the problem. Knowledge about mycotoxin structural chemistry provides clues useful in building adsorbents.
The 3-dimensional structure of yeast cell wall glucan, the starting material for Mycosorb®, can be manipulated to optimize toxin-cell wall interaction making a ‘glucan web’ to prevent toxins from affecting the animal or its products (Figure 7).
Figure 7. Three dimensional structure of yeast cell glucan.
Figure 5. From distillery to biorefinery.
Figure 6. A yeast biorefinery.
Comparing commercially available adsorbents has become a necessity for feed manufacturers. Table 5 contains a 7-point guideline for evaluating such products.
Table 5. 7-point comparison for mycotoxin adsorbents.
Mycosorb®, with its low inclusion rate and structure adapted to adsorb a range of mycotoxins including aflatoxin, zearalenone, T-2 and DON, is rapidly becoming the adsorbent of choice global. Protected by three patents, Mycosorb® has unlimited potential as we learn more about its structure and how modifications can increase adsorption of both known and newly-identified mycotoxins. Again, the appliance of science to solve a practical problem.
The fact is that the technology is available to prevent mycotoxins from having an impact at even the animal level, which means that toxins from this source need not threaten food safety in either perception or reality.
Key Success Factor No. 3: Designing policies for the future: transparency and innovation
Even if we adequately address price competitiveness and consumer perception, in order to be sustainable we need policies that maintain transparency and spur innovation in both products and business strategies.
A key step in defining those policies is deciding where we stand with regard to change: are we going to be proactive or reactive? Is it something that is going to happen to us or will it be something we make happen?
CHANGE IS CONSTANT
Change is inevitable in the dynamic animal feed market, and failure to change has been the death knell of many enterprises. Once we accept that change is a constant, our main decisions revolve around how to deal with change. We can either embrace change and move forward, or we can ignore it until change is forced upon us.
Two large companies whose strategies for change are apparent to us all are McDonald’s® and Starbucks®. The fast-food industry ‘re-invented’ eating out; and for years seemed immune to recession.
Recently they have begun to feel the pinch as they have watched consumers ‘re-invent’ what is ‘good’ about food. As a result McDonald’s® stopped buying beef produced using antibiotic growth promoters, they refuse genetically modified potatoes, and in Great Britain have begun to provide organic milk. US McDonald’s® franchises offer ‘Atkins-friendly’ meals for the growing number of carbohydrate-counting customers. Is this a case of McDonald’s® being proactive about changing menus, or are they being reactive when forced to change?
Starbucks® ‘re-invented’ stopping for a cup of coffee with huge success, but now they have begun to add ‘Fair Trade’ and environmentally friendly products.
With Conservation International they have collaborated on a project to encourage sustainable agricultural practices and biodiversity through the production of shade-grown coffee, which follows the Institution of Coffee Purchasing’s guidelines. Is Starbucks listening to the consumer or is Starbucks® being proactive?
The changes in McDonald’s® and Starbucks® are examples of transparency and proactive efforts to offer products modern customers are interested in buying.
They want customers to know of their commitments to food quality, safety and sustainable agricultural practices. Is our industry just as proactive? Have we lost sight of what Dan Glickman (former US Secretary of Agriculture) advised at the Alltech International Feed Industry Symposium in 2000 – “Tell us what you want and we will grow it”?
AVOIDING THE SAMENESS TRAP: DIFFERENTIATE WITH PEOPLE AND PRODUCTS
In order to be sustainable, companies must avoid the ‘sameness trap’ described in Funky Business by Nordström and Ridderstråle (2000). They describe an oversupplied world of similar companies, employing similar people, with similar educational backgrounds, coming up with similar ideas, producing similar things, with similar prices and similar quality. Does this sound like our industry? It does, and it underscores our need to differentiate.
We need to create new solutions to problems and in doing so create profit and success for ourselves and our partners. We can make our companies, and hence our industry, different and make them stand out in the industry.
The people factor: exceptional people help companies differentiate
‘Our people make the difference’ must be more than a well-meaning cliché. Many business commentators believe that we are entering an era where the ‘war for talent’ is the most important battle that will be fought. When land was the important asset, countries battled for it, now that talent is the important asset for business success, companies will battle for talent.
Paul Allaire, former CEO at Xerox®, calls it “the brawl with no rules”.
What kinds of talents are we looking for? It is one of the fundamental roles of the leader that he/she develop the talent around him/her. Inside rapidlygrowing Alltech the need to ensure that the next generation of leaders is in place has been acute. We have key questions to ask potential employees – the most important of which is: What are you passionate about? There is no right or wrong answer, it is simply important to find people with the energy and drive for accomplishment. We have successfully made the transition from a small local player into a mediumsized global enterprise. The next challenge for our people and for our industry involves becoming the industry standard bearer. Part of our future success will be due to recruiting talented and diverse individuals from across the world, including a greater proportion of women, a group whose skills and management styles have been underutilized in agribusiness.
FOSTER INNOVATION
In the ‘over-supplied world’ described by Nordström and Ridderstråle, ideas are what separate successful companies (and individuals) from failures. Another important element of the future viability of our industry will be our ability to give consumers not only what they want, but more importantly what they did not realize they wanted. The new competition will take place not only in terms of market share, but more importantly in newly created markets.
Innovation, while a term vastly overused, is a competency that Alltech and all companies need to excel at in order to prosper.
I was once asked how it could be possible to take a commodity item like milk and make it unique – a value-added product. Is it simple? No. Is it possible? Absolutely. We created a slogan: ‘A milk for all ages’.
For the young, a lactoferrin-rich milk for the lactoseintolerant.
For teenagers, perhaps higher calcium levels for growing bones; while low fat, high omega- 3 and high cholesterol-blocking statin might form part of ‘milk for middle ages’. For all ages, enrichment with selenium through Sel-Plex® in the cow’s diet to fight against cancer. A Korean company went further and changed the name from milk to SELK to emphasize selenium enrichment.
The size of a company is irrelevant when it comes to innovation. The tiny New Zealand dairy co-operative, Tatua, with only 30,000 cows is still the world’s most profitable, largely due to the value-added dairy products it offers such as lactoferrin for infant formulas and lactoperoxidase as a natural sterilant.
Alltech’s Bioscience Centers, where scientists complete research toward MSc and PhD degrees while working with Alltech’s research group, are at the hub of our innovation. We support these scientists’ efforts and encourage creative thinking. Over time, 9 PhD and 42 MSc students contributed to the research on Yea-Sacc1026®, now the world’s No. 1 natural rumen modifier, which is the reason we understand its mode of action so well. A good example of the impact of this work is the recently obtained EU approval for Yea-Sacc1026® in horses. In the US alone we support work being conducted by 36 doctoral candidates and have 135 ongoing projects in Europe.
Summary
Re-imagining the feed industry means re-imagining our companies: our goals and what we stand for, our people and the corporate environment we create. We must ask and answer carefully the questions ‘Are we fostering the creativity we need to carry the company into the future? Do our products and research directions address industry needs for price competitiveness and consumer perception? Are the policies sustainable?
At Alltech, we recognize the importance of ongoing discussion of these questions in building a dynamic corporate culture. It has allowed us to focus on core competencies to develop a ‘Big 6’ list of product directions while giving us the freedom to find ways to expand to a ‘Big 8’ or ‘Big 10’.
Another result of this corporate dynamic is the growing role of the Bioscience Centers as hubs of innovation, both in scientific exploration and in the structure of modern corporate agricultural researchour relationships with other research groups at universities and institutes.
The process is exciting; and it is providing products that have increasing importance across the world in the areas of animal health, performance and reproductive efficiency, and consumer perception of food animal products. Clearly decisions we make surrounding Price, Perception and Policy define ultimately where each of our companies will be in 10, 20 or 30 years’ time.
References
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Fremaut, D. 2003. Trace mineral proteinates in modern pig production: reducing mineral excretion without sacrificing performance. In: Nutritional Biotechnology in the Feed and Food Industries, Proceedings of Alltech’s 19th Annual Symposium (K.A. Jacques and T.P. Lyons, eds). Nottingham University Press, UK, pp. 171.
Hooge, D.M. 2004a. Meta-analysis of broiler chicken pen trials evaluating dietary mannan oligosaccharide, 1993-2003. Intl J. Poult. Sci. 3(3):163-174.
Hooge, D.M. 2004b. Turkey pen trials with dietary mannan oligosaccharide: meta-analysis, 1993-2003. Intl J. Poult. Sci. 3(3):179-188.
Nordström, K.A. and J. Ridderstråle. 2000. Funky Business - Talent makes capital dance. Financial Times Prentice Hall, New Jersey.
Pettigrew, J.E. 2000. Mannan oligosaccharides’ effects on performance reviewed. Feedstuffs 52 (December 25).
