Cargill Makes Strategic Equity Investment to Advance Plant-Based Feed Additives
Cargill announced that it has entered into a strategic partnership with Delacon - the pioneering global leader in phytogenic (plant-based) feed additives - through an unspecified minority equity investment. Although the financial details of the deal were not disclosed, Chuck Warta, president of Cargill Premix and Nutrition, told the Star Tribune that the investment was the largest investment to date by Cargill in the area of natural animal feed.
Driven by shifting consumer preferences, and a heightened awareness on the part of consumers regarding how livestock are raised and what they are fed, the two companies are aiming to advance the market presence of natural, plant-based feed additives on the global market.
For Austria-based Delacon, which employs natural plant-based ingredients such as extracts, herbs, and spices, the deal with Cargill gives the company the ability to expand its footprint via access to previously untapped global markets, and gives the company access to Cargill’s deep expertise in applied nutrition that will enhance R&D initiatives.
“Our agreement with Cargill represents an opportunity to accelerate growth and invest in Delacon’s future and the future of phytogenic feed additives, as our customers are looking for solutions delivered in a natural, efficient and sustainable way - from feed to food,” said Markus Dedl, chief executive officer of Delacon.
A Reaction to Demand
Alternative protein sources have been increasingly on the radar of consumers, food manufacturers, and investors in recent years. Global protein consumption is expected to climb at a compounded annual growth rate (CAGR) of 1.7 percent, reaching 943 million tons by 2054, according to Lux Research. Over this same time period, alternative protein sources are forecast to command up to a third of the protein market as they fill the void created by slowing growth in meat and seafood production, and demand shifts within the consumer market.
This wave of preference for plant-based proteins by consumers, combined with a deepening knowledge about the food supply chain, has resulted in consumers not only wanting more plant-based proteins in their own diets, but in the diet of the chickens that lay their eggs, and the livestock that are raised for consumption.
“…the growing ranks of novel protein sources and potential replacements appeal to the everyday consumer foreshadowing a profoundly changed marketplace in which what was formerly ‘alternative’ could take over the mainstream,” states the Global Food and Drink Trends Report 2016 issued by Mintel.
Delacon also recognizes that what was once considered an alternative, is now being thought of as mainstream.
“Phytogenics are one of the most promising groups of feed additives, and are turning from a niche market into a mainstream need,” said Dedl in a joint statement announcing the partnership with Cargill. “We are entering a new era of phytogenic feed additives, and the next five years are decisive for the developments in this growing market.”
The movement toward a new mainstream has not been lost on Cargill either, which has been shifting out of the cattle sector in favor of investments that better align with changing consumer preferences.
Last year the company announced its decision to sell its feed yards in Bovina and Dalhart, Texas, to Friona Industries, and in May of this year announced the sale of its two remaining feed yards located in Leoti, Kansas, and Yuma, Colorado, to Green Plains Inc., a vertically integrated ethanol producer with feedlot operations in Kismet, Kansas, and Hereford, Texas, for $36.7 million.
Together with a string of other divestments of lower-margin assets that included the sale of its ag-retail unit to Calgary-based Agrium; the sale of its condiments business to Ventura Foods; its exit from the crop inputs business in Central and Eastern Europe; and the sale of its U.S. pork business to JBS USA in 2015 for $1.45 billion, Cargill was able to build a war chest of capital that the company stated was to be allocated toward investments that will strengthen its North American protein business through the expansion of plant-based proteins, insect proteins, and aquaculture.
“We are committed to being the leading protein provider that nourishes people, animals and the planet in a safe, responsible and sustainable way while exceeding the expectations of our customers,” said John Keating, president of Cargill’s Wichita-based protein business operations and supply chain, in May.
It is the expectations of the customer that are at the tip of the spear when exploring the drivers of this partnership.
“The fundamental trend is the average consumer does care about how their food is produced, and care more and more about the specifics of how the animal was produced, what it ate, was it healthy, was it treated in a respectful way,” Warta told the Star Tribune. “Consumers of animal protein around the world are looking for things they deem as natural. People want to feel good about their food.”