Fertilizer International 505 Nov-Dec 2021
30 November 2021
Feed phosphates: overview and market update
MARKET REPORT
Feed phosphates: overview and market update
The feed phosphates industry is caught between conflicting trends currently, according to Alberto Persona of the Fertecon fertilizer team at IHS Markit. While the long-term demand-side fundamentals look broadly stable, there is still likely to be a fight for market share due to competition from substitute products and the emergence of new projects.
The role of phosphates in animal nutrition
While the world remains baffled by the sharp rise in fertilizer prices, it is easy to forget about some of the less well-known uses of phosphates. And also how interesting these are! Mono-potassium phosphate and disodium phosphate, for example, are both ingredients in major Covid-19 vaccines – albeit in total measurable quantities of just a few tonnes, given the low concentration used.
Leaving aside this small industrial segment, a much larger non-fertilizer use – one of great significance to the overall P2 O5 industry – is that of ‘feed phosphates’ (Figure 1). More properly known as feed-grade phosphate additives, if we’re going to be precise.
Such a distinction, although it may sound pedantic, is actually an important one. All animals (including humans) receive phosphorus naturally in their diet via the consumption of food crops. After all, if plants take up phosphorus from phosphate fertilizer for growth, it is inevi- table that both human and animals will end up ingesting some of this. Indeed, the majority of the phosphorus needs of livestock is supplied by plant-based sources.
The value of feed phosphates
The question then is: why the need for phosphate-based supplements in animal nutrition? The answer to that is not simply about phosphorus – it’s about another important element, calcium, too.
Combined, these two elements, P and Ca, are the major constituents of bone structure. Therefore, what is important for proper animal development is both the total availability and the relative proportions of these two vital elements. In animal nutrition science, the latter is typically expressed as the Ca:P ratio.
As a consequence, more than 90 percent of global feed phosphate production focusses on three calcium phosphate products:
- Dicalcium phosphate (DCP)
- Monocalcium phosphate (MCP)
- Monodicalcium phosphate (MDCP).
Clearly, a traditional and fully plant-based diet would ensure sufficient P and Ca availability. Livestock has, after all, been farmed for centuries without the need for feed additives. However, the commercial pressures faced by modern, large-scale and intensive livestock farming are very different. The demands of this sector have ensured that feed additives do now have a place in the market. These include the need for rapid bone development and therefore faster weight gain. Thinking with a fertilizer mindset, this is the equivalent of supplying nutrients for higher crop yields.
Identifying the ‘optimal’ Ca:P ratio is, however, a far from easy task. This depends on:
- The species in question, even the specific breed
- Their stage of development
- Their productive purpose
- Even climate conditions.
Breeding animals (e.g., egg-laying chickens, sows and dairy cows) generally have higher calcium phosphate requirements. Younger livestock also benefit more from additives, versus older herd members, as this helps to optimise bone growth during their early development stage. In different climates (e.g., Northern Europe versus Southern Asia), even the same animal breed will biologically process additives at different speeds.
The demand picture is even more complicated. That’s because we need to recognise that ‘digestible’ phosphorus – i.e., the amount of P absorbed during the digestion process – is what’s required and valued by the feed market, not total phosphorus.
While plant-based phosphorus intake may still account for a significant proportion of gross phosphorus intake of livestock, much of this is excreted. The proportion lost in this way will vary, due to the parameters discussed above. But a reasonable ballpark estimate is that around 70 percent of phosphorus intake will be absorbed by livestock while 30 percent is excreted – hence the importance of manure as a fertilizer.
The value of mineral supplements such as feed-grade phosphates, in contrast, is that they are mostly digestible. This is particularly important when dividing demand by species and their different abilities to absorb phosphorus. Ruminants (e.g., cows, sheep, deer etc.) process food first by letting it ferment in the rumen, an additional stomach. This unlocks dietary phosphorus by converting it into a more digestible form. Monogastric animals (e.g., poultry and swine) do not have this ability – meaning the proportion of the phosphorus intake they absorb is correspondingly lower. (These difference in animal abilities to absorb phosphorus are reflected in the relative P-richness of manure flows – possibly a topic for a future article!)
What drives demand
In general, therefore, monogastric animals tend to benefit more from the addition of feed-grade phosphate additives in their diet, as this effectively supplements their less efficient digestive systems. This is, however, an oversimplification of what is in practice a very sophisticated and precise science. Nevertheless, it does provide a good overall understanding of what drives the demand-side for feed-grade phosphates (Figure 2).
Industry practices can also affect demand patterns. Intensive livestock farming permits better control of animal diets compared to free-range, low-load-rate grazing. This explains the higher adoption rates of phosphate supplements in areas such as North America and Western Europe compared to typically less intensive livestock regions such as Latin America.
Cultural differences and local preferences can also alter demand patterns. Anyone who has ever purchased eggs from a supermarket in China or Japan may have noticed that eggshells in both countries tend to be much thicker. This has arisen from a specific requirement in large-scale food distribution – given that harder eggs are less prone to breakage during long-distance transport – which in turn has resulted in a slight preference for higher-calcium feed additives, e.g. tricalcium phosphate (TCP).
In short, demand for feed-grade phosphates stems from the sophisticated science of animal nutrition. Despite this, there are some clear messages:
- Animals need feed-grade phosphate additives to balance the Ca:P ratio in their diets
- Commercial livestock farming favours greater adoption of phosphate additives.
Market size and demand distribution
Global demand for feed-grade phosphate additives is estimated at around seven million product tonnes– equivalent to about three million tonnes on a P2 O5 basis. This represents about a five percent share of overall phosphorus demand.
However, to repeat an earlier point, we should not forget the large proportion of crops dedicated to feeding livestock. Importantly, around 30-35 percent of the world’s crop output is used as animal feed, according to recent IHS Markit estimates. We therefore need to factor in another 15 million tonnes P2 O5 of phosphorus present in feed crops, based on total phosphate fertilizer demand globally of around 48 million tonnes P2 O5 . When combined with feed-grade phosphate additives, this brings the total phosphate industry exposure to the livestock sector to some 18 million tonnes P2 O5 – a market share of just below 30 percent.
Perhaps unsurprisingly, the geography of feed phosphate demand typically tracks the size of animal stocks – albeit subject to local differences in feed additive requirement and usage – a pattern illustrated by Figure 3. (Please note that we have opted to show all European countries as a single bloc in Figure 3 – country-specific demand would be much lower.)
Another interesting take is to consider geographic differences in feed phosphate demand, but as a proportion of the total requirement for digestible phosphorus (Figure 4). This reveals significant regional differences. While the world average for feed phosphate demand hovers at around 15 percent of total requirement, some regions (e.g., Eastern Asia) feature much higher percentages, while others (e.g., Southern Asia) remain far below the global level.
An important cultural factor – the religious value attached to cows in India – explains the reason for Southern Asia’s relatively low share (10-20%). Yes, the country’s overall herd size is one of the largest globally, yet the vast majority of these animals are not fed according to industrial best-practice.
More of interest, perhaps, is the seemingly paradoxical declining feed phosphate trend in regions such as Eastern Asia, and Latin America to some extent, as these are both areas in which animal stocks have actually been growing. The reason for this decrease is the emergence of competing products – phytase in particular.
Competing products
Phytase is an enzyme which converts dietary phosphorus into digestible phosphates. This is the same enzyme that underpins the digestive process of ruminants – one which has been successfully isolated and commercialized as an additive to the diet of monogastric animals. Increasingly, the digestibility of plant-available phytic phosphates (the main form in cereals and oilseeds) has reduced the need for dietary supplements.
While phytase can indeed win market share against feed-grade phosphate additives (as shown by Figure 4), it is unlikely to displace them completely. This is because, as explained above, part of the importance of feed phosphates is that, as well as providing additional Ca and P, they valuably also skew the Ca:P ratio towards optimal levels. Something that is not achievable through dietary phosphorus alone.
Other competing products in the feed marketplace are fermented grains. These include:
- DDGS (distiller’s dried grains with solubles): a by-product of grain-based bioethanol production and therefore a notable factor in the US market.
- Brewer’s grains: a somewhat less discussed by-product of alcoholic beverages manufacture that is significant in many areas of Europe.
As their names suggest, these grains have been industrially fermented in a digestion stage that is necessary for both the above brewing processes. This has the effect of increasing the bioavailability of the phosphorus components in the process residues. Again, as with phytase, the adoption of fermented grains is subject to limits. Yet competition between alternative products options clearly can affect the overall choices made by feed producers across the full portfolio.
Demand prospects on the bright side
Another question arises when discussing the significance of competing products: will feed phosphate demand grow, flatline, or even decline?
Well, the latest estimates from the Fertecon team at IHS Markit suggest an overall positive demand outlook. Growth looks likely in those markets that are currently consuming feed phosphates at a sub-optimal level. This growth, in turn, should more than offset market pressures from substitute products.
This forecast is, however, subject to significant downside risks, as follows:
- A sharper than expected dietary shift away from meat consumption towards plant-based foods could reduce the overall size of the livestock industry.This could see P2 O5 use globally move away from feed-grade additives, possibly towards fertilizers.
- Bioethanol production incentives could increase further the availability of DDGS, e.g. in China.
- The growth in organic-certified farming could also reduce demand for additive products classed as ineligible by organic regulations.
Nonetheless, we still expect overall demand growth in the feed phosphates market, spurred on by a rising population and a still-growing appetite for animal protein in the diets of people in emerging economies – even if the rate of growth is slightly less than proportional to the expected growth in animal stocks. On top of this, we also expect to see a good boost in demand for aquaculture-grade products from the growing adoption of fish farming and commercial algae production. Although a niche segment in the feed industry, this is of growing significance.
New product development and technologies will also have a role to play in future. Over the past few years, developments in feed-grade magnesium phosphate production (in Europe, for example) have been supported by the lack of magnesium identified in animal diets. Quality control will remain key too. In particular, ensuring consistent quality and control over impurities – most crucially fluorine – will become an increasingly important driver of success, especially in markets where further demand growth will be smaller and competition between suppliers intensifies.
The supply side – projects & costs
Our assessment of the feed industry would not be complete without a look at its supply side. In 2020, the European industry was hit by the bankruptcy of Belgium’s EcoPhos – a significant producer and a company heavily involved in developing new production technologies based on hydrochloric acid chemistry. Its production site in Devnya (Bulgaria) has been acquired by local fertilizer company Agropolychim, while both its main production site in Vlaardingen (Netherlands) and its recently built complex in Dunkerque (France) are set to be decommissioned.
Importantly, the R&D efforts of EcoPhos have not been lost. Fellow Belgian company Prayon, a global powerhouse in phosphate processing technology and licensing, has acquired the rights to EcoPhos patents. This could provide further momentum for projects based on the EcoPhos process – for example, a large-scale DCP plant is expected to be commissioned by Evergrow in Egypt in the second-quarter of next year.
Further feed phosphate capacity growth is also expected over the next years in:
- Russia (PhosAgro) l China (various players, notably Chan-hen, Lomon and Anning Jindi)
- Brazil (ex-Yara, now EuroChem) l Potentially Kazakhstan (EuroChem), although much of the resulting DCP is likely to be dedicated to the production of phosphoric acid using the EcoPhos Module 4 process.
We expect the scenario of lukewarm demand growth mixed with growing capacity to put pressure on high-cost producers, particularly those reliant on purchasing phosphoric acid. The recent rise in phosphoric acid prices, primarily driven by fertilizer market dynamics, is causing a major headache in Europe, as feed phosphate producers are not always able to transfer higher input costs to their customers by raising prices (Figure 5).
These cost pressures have been compounded by the parallel rise in crop prices, as these add to production costs, even for manufacturers of feed blends who are the main actual buyers of feed-grade phosphate additives. Prices of livestock products (meat, dairy, eggs), meanwhile, have also increased. While this has increased the ability of farmers to pay for their feed needs, the prolonged nature of the price hike for animal nutrition products (including phosphates and crops) is starting to affect margins for distributors and farmers alike. This may well cause a significant degree of demand disruption, adding yet further pressure onto feed phosphate suppliers.
Conclusions
In summary, the feed phosphates industry is caught between conflicting trends currently. While the long-term demand-side fundamentals look broadly stable, there is likely to be a fight for market share due to competition from substitute products and the emergence of new projects. In the meantime, sensible expectations of short-term demand disruption will provide a window of opportunity for industry restructuring.
