By Ivana Sekularac
AMSTERDAM (Reuters) - Europe's animal feed suppliers can make only marginal adjustments to cope with soaring global grain prices, with scant substitutes at their disposal, and are passing rising costs on to farmers.
As costs rise faster than meat prices, the squeeze on farmers may become so severe that a number could be forced to cull their herds.
Global corn and wheat prices rose about 50 percent and soybeans by around 20 percent in the six weeks to the end of July as U.S. crops were hit by heat and drought. Analysts say pricing pressures are now shifting to feed wheat, which could rise faster than milling wheat.
"The animals need energy, and I don't think that the carbohydrates they get from grains could be replaced with anything else. I don't think we can grow plants with the same content of digestible energy as grains," said Sam Millet, a researcher at the Belgium Institute for Agricultural and Fisheries Research (ILVO).
In Spain, Europe's major pork producer, farmers are particularly vulnerable because its animal feed industry relies on imports.
"The situation is very, very, very worrying. Some of the big farmers will be able to cope by cutting production to bear the price rise, but some of the smaller farms have already reached a point of no return," said Javier Alejandre, an analyst at Spain's Union de Pequenos Agricultores y Ganaderos (UPA).
Grains typically account for more than 50 percent of animal feed formulas for pigs, poultry and cattle, and protein sourced from oilseeds such as rapeseed and soybeans makes up another 25 percent. The rest consists of minerals and additives.
Compound feed producers are looking for any possible combination to lower input costs and protect farmers and consumers from volatile commodity prices, traders said.
"They really have limited wriggle room," a European trader said.
SUBSTITUTES
John Brennan, director of research and development for animal nutrition at Nutreco, said the Dutch feed producer aimed to reduce the impact of high grain prices by turning to by-products of the food and beer industry, which in the Netherlands means mostly distillers' grains.
"The use of these (by-products) is limited and linked to availability," he said, adding that they cannot be transported over long distances.
"In North America where we have growth of the ethanol industry, we have increased availability of distilled grains and we use it as feedstock."
Brennan said the biggest savings have come from additives - mixes of vitamins, minerals, emulsifiers and some chemicals. They improve the nutritional value, taste, colour or digestion and change the way that grains are absorbed.
"That's where the revolution is taking place," he added.
Recently developed blends have led to cost savings of 10 percent for ruminants' feed, but cost savings for pig and poultry feed were much lower, Brennan said.
Researcher Millet also cited the use of additives to make carbohydrates in grains more digestible for animals, giving them more energy.
"That way pigs eat less," he said.
GO OUT OF BUSINESS?
Farmer groups in France have said that higher feed costs have already been passed on to animal breeders.
Christiane Lambert, vice president of France's largest farm union FNSEA, estimated that feed now accounts for 70 percent of the production cost of pork, up from 60 percent a few months ago.
"The price of feed has risen by more than the price of pork," she said. "The risk is that some of the producers will go out of business."
FNSEA wants supermarkets to pass the higher costs on to consumers in meat prices. Its head said last month he would ask the French body that monitors food prices and margins to start talks with retailers.
In France, a large barley crop this year and the possibility of a higher-than-normal share of feed grain in the wheat harvest due to heavy rain could offer some relief, feed companies said.
But high prices still have extended to all major feed ingredients including other grains and additives.
"Finding substitutes for grains is not an easy job, and the only solution I see is to have fewer animals," a Dutch trader said.
For the long term, one proposal to increase the meat supply regardless of feed costs involves the development of synthetic meat, in which cells from a live animal are used to grow muscle tissue in a laboratory.
"Although this is currently a very expensive way to produce a piece of pork, it offers the potential to feed millions of people cheaply in the future in a resource-efficient manner," said Fidelity Worldwide Investment in a commodity report.
"Given the predicted growth in meat consumption in developing countries and the incredibly resource-intensive nature of production, this may become an environmentally acceptable option as pressures intensify and ?traditional' meat becomes more and more expensive."
(Additional reporting by Sarah McFarlane in London, Nigel Davies in Madrid and Valerie Parent and Francois Charlottin in Paris editing by Jane Baird)
