Antibiotic Free Production - Opportunity for AH Players

Charlie Munger – famous stock market expert and investment guru once opined that:

Too little attention (is given to) in economics to second order and even higher order effects. This defect is quite understandable, because consequences have consequences and consequences of the consequences have consequences and so on.

Our beloved AH industry has a lot to learn from this message – one such learning could be in shape of an opportunity presented by gradual shift of food animal producers towards antibiotic free production.

Based on a survey reported by Rennier (Rennier 2016) - 12% of the US broiler-feed produced in 2015 was already associated with “no antibiotics ever” programs. Several major companies have antibiotic-free (ABF) broilers in their portfolio at various levels. Two prominent examples being Purdue Farms’ and Fieldale Farms, both of which are 100% ABF.

And Tyson foods plans to reach complete ABF status by end of 2017.These early adopters have proven that the system is a viable and sustainable model in the US food industry.

In anticipation of a significant shift in consumer sentiment as well as activism by the regulatory authorities across major countries including emerging markets, most commercial food animal producers are developing several options for future including aligning their rearing processes to be compliant as well as equally commercially successful.

Herein lies the opportunity for leading animal health companies – as some of these leaders could do very well to latch on and consider including AGP replacements / alternatives in portfolio. Such an approach has the potential to result in multiple benefits at multiple levels as illustrated below:

1. Redeem / Repair the reputation – Almost all the top 10 companies in our AH industry have antibiotics, antimicrobials and to an extent anticoccidials, as significant part of portfolios. Most of these products may not be promoted as “growth promoters”, are essential for treatment and wellbeing of animals and companies have stewardship policies in place.

However, customer perception matters more than the reality and animal health companies are maligned for this perception. Having AGP alternatives will only help strengthen the image of companies apart from yielding commercial business benefits. In addition, this approach could also help leading players meet their CSR targets smartly

2. Sound commercial benefits – AGP alternatives are already a “clear and present opportunity” which will only swell in size with time. Leading AH players with deep market penetration and strong customer relations build over time have the opportunity to capitalize big time.

Significantly lesser R&D and product development expenses on AGP alternatives could lead to disproportionately higher returns. Leading AH players are better positioned to gain from existing deeper access to markets, can capitalize on customer relations built over time and offer sales reps an additional argument in armory

3. Step towards “Total Animal Health” – As animal nutrition gains increasing importance in an ABF production system and rightfully so – leading players have an opportunity to lead the concept of “total animal health”.

Complementary co-existence of nutritionals and therapeutics is the way forward for an industry seeking additional avenues of business growth. Phytogenic based AGP alternatives are a fast growing segment and an opportunity worth exploring for an industry looking for new product ideas

4. Portfolio compatibility – AGP alternatives, a majority of which are phytogenics in origin broadly tick all the right boxes for an effective inclusion in portfolios of leading players.

With the promise of efficacy coupled with no risk of development of resistance and free of withdrawal period requirements – phytogenic AGP alternatives are a marketers’ dream and hence increased interest

AH Industry is increasingly a pari-mutuel system wherein one is betting against other smart competitors. In such a system – it only pays well to think differently and find opportunities in adversities such as declining usage of antibiotics and adoption of ABF production systems.

Thinking about first order effect of ban on antibiotics in animal feed is easy – however, thinking about second or higher order effects is hard. And this is where bigger opportunities lie for contrarian thinkers – a la Charlie Munger.

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