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on October 26, 2007

Ingredients: a tale of two markets

Will US petfood producers eventually find ingredient shortages and high prices a bigger problem than safety?

Producers around the world are scrambling to find consistent sources for grain-based ingredients. - Debbie Phillips-Donaldson

I write this just a couple days after the Pet Food Institute's (PFI) annual meeting, which featured the initial report from the National Pet Food Commission. PFI formed the commission in April to review the petfood recalls happening in the US then and develop recommendations for the industry and government on how to prevent future incidents.

As of our press time, the commission's recommendations were not formally released, but by the time you receive this issue, we will likely have information available on our website (www.petfoodindustry.com) and in our e-newsletters (also accessible on our site). Meanwhile I can share some highlights.

Communication, safety

Many of the recommendations centered around greater interaction and communication among all relevant stakeholders, including petfood manufacturers, government and feed control agencies and the veterinary community.

Another theme was an emphasis, not surprisingly, on food and ingredient safety. This echoed remarks made earlier in the meeting by Stephen Sundlof, director of the US Food and Drug Administration's Center for Veterinary Medicine. He talked about a task force directed by the US president to look at import safety, including for food. (The report from that committee's work is also due soon.)

For me, this was somewhat of a contrast to another petfood meeting I had attended just days before.

Escalating costs

At a seminar held by Wenger Manufacturing in Istanbul, Turkey, for many of its European petfood-producing customers, discussion during meals and breaks focused on the escalating cost of ingredients, caused by high demand and declining supplies.

Only one person mentioned that the US recalls had an effect on his business; everyone else was worried about how long their companies could continue to absorb those high ingredient prices without passing them along to consumers. Or, if they are already passing them along, whether the humanization and premiumization driving sales growth in mature petfood markets has a ceiling: Just how much will owners be willing to pay for their pets' food?

Feeling more pain

Coincidentally, the issue of USA Today (October 16, 2007) I read on my flight home from my travels included an article on the cost of grain-based ingredients and how that was affecting food-related industries worldwide. The article confirmed what I had heard during the Istanbul event: European food producers are feeling additional pain because European Union policies on imports are much more stringent than those in other parts of the world (for example, not allowing genetically modified grains).

The article also said that producers around the world - including in the US - are scrambling to find consistent sources for grain-based ingredients as crops are affected by bad weather, the increasing human population spurs demand and a growing emphasis on biofuels gobbles up crop yields.

Turning to China?

Will US petfood producers eventually find ingredient shortages and high prices a bigger problem than safety? Will more producers around the world- including even in Europe - be forced to turn to places like China, the source of the contaminated ingredients behind the US recalls, because of its more abundant supplies?

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