Are animal feed price increases justified?

If the kibble manufacturers recognize increases in raw material and energy costs, the desire to maintain the same level of margins on these products may also explain the soaring prices of these products.

“I don’t understand why these products are increasing so much…” On BFMTV this Monday, December 5, Michel-Edouard Leclerc admitted his confusion at the prices presented to him by animal feed manufacturers. On an A4 sheet that he takes from TV shows to radio studios, you can read the list of his main suppliers with a percentage increase associated with them.

It is in the “petcare” box (pet food) that the figures are the highest: +17% for Nestlé petcare, +39% for Mars petcare. This is not the increase expected in 2023 in stores, but the increase that manufacturers want and will send to distributors when trade negotiations begin, which will end on March 1, 2023.

If E.Leclerc, Carrefour and other Intermarché will try to limit the increase, the price could still end up increasing by 20 to 30% for the consumer, estimates Olivier Dauvers, consumer specialist, after already an increase of 13% in 2022 according to the Iri company . Between 2022 and March 2023, the increase can therefore be between 35 and 45% for animal feed.

An energy-intensive manufacturing process

Are these increases justified by cost increases?

Some small producers recognize price increases, but in these proportions. This is the case with Matthieu Wincker, who founded Ultra Premium Direct in 2015, which produces and sells animal feed products directly.

“We have increases in the cost of raw materials such as grain and especially poultry, but also transport and energy, but we have limited the increase to 8% in 2022”, acknowledges the president of this startup, which should achieve 40 million euros in revenue this year.

If next year he warns that there will be a further price increase of around 10%, we are still far from the prices offered by the two multinationals.

In terms of raw materials, we can mention the 42% increase in poultry due to bird flu, the skyrocketing prices of grains used to produce starch, but also animal fat (+200% in two years) with which the kibble is coated, and which is increasingly monopolized by the oil industry for biofuels.

In addition, the manufacturing process is energy-intensive. The production of kibble is what is called industrial extrusion. The ingredients must be mixed, pressurized at 30 bar, heated to 130°C, before the croquettes thus formed are dried, before being sprayed with fat.

“It is a process that requires energy, but which is also used in certain products for human consumption such as certain aperitif products, soufflés…, recognizes Martin Wincker. On the other hand, our products have very little water (approx. 8%) when finds up to 40% in prepared meat dishes. However, water helps to reduce the price increase because it is one of the rare products that has not increased.”

Two groups have 80% of the market

While manufacturing costs partly explain the expected price increases, the market structure is also questioned.

Michel-Edouard Leclec thus evokes these duopolies in many markets which would set the prices. If they are careful not to mention a deal, he suggests, weak competition would tend to drive up prices.

Almost 80% of the animal feed market is in the hands of the two agri-food giants. Swiss company Nestlé markets Friskies, Felix, Gourmet, One and Pro Plan products in specialty stores under its Purina umbrella brand. On the side of the American Mars, there are the department’s other giants such as Whiskas, Royal Canin, Pedigree or Cesar.

International groups that want to protect their operating margins despite rising costs. At Nestlé, for example, it remained at 17% in the third quarter despite galloping inflation. Mars Inc. for its part, is a company belonging to the family of the same name, it is not required to publish these financial results. Nevertheless, for the year 2021, the company announced a revenue increase of 50%, placing it ahead of Coca-Cola in terms of sales for the first time. Enough to pay generous dividends to the Mars family, two of whose members are among the 20 richest on the planet, according to Bloomberg.

To limit price increases, these companies could have dedicated the margins in values ​​and not in percentages. This is the choice made by Ultra Premium Direct.

“Our margins remain the same, but they have decreased as a percentage of turnover, Martin Wincker acknowledges. We have made this effort to help consumers continue to feed their animals well.”

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