Mad Cow Scare Boosts Dicalcium Phosphate Sales

15 January 2001 00:00  [Source: ICB Americas]

by Sean Milmo

A crisis of confidence among European consumers in the beef industry from fears about the spread of bovine spongiform encephalopathy (BSE), or mad cow's disease, has hit suppliers of chemicals derived from animal sources.

But at the same time it is boosting sales of feed phosphates, particularly dicalcium phosphate (DCP), as a result of a European Union (EU) ban on meat and bone meal being fed to cattle, pigs and poultry.

The ban is one of a number of restrictions introduced by the EU in an effort to stem the incidence of BSE and to calm fears among consumers worried about links between the condition and the fatal human brain disease Creutzfeldt-Jakob Disease (CJD).

The EU measures could reduce supplies of raw materials for some bovine-derived products. Pharmaceutical companies have warned that a tightening of certification rules covering the provision of bovine materials could cause them difficulties.

Gelatine producers claim that there could be shortages of bovine-sourced gelatine. This would be caused by a sharp drop in cattle being slaughtered because so many Europeans have stopped eating beef as a result of the scare.

Consumption has gone down between 20 percent and 50 percent in the major beef-eating countries of Germany, France, Italy and Spain, after new tests revealed a sudden rise in the number of BSE cases, some of them in countries previously thought to be free of the disease.

The discovery of the first cases in Germany has shattered public trust in the beef sector, with some slaughterhouses operating at around 10 percent of their capacity.

The slaughter rate across the EU has fallen even further after the introduction of a program from January 1 requiring all cattle aged over 30 months be tested for BSE before being allowed to enter the food chain. The new checking systems are unlikely to be operating efficiently for many months.

"There is going to be a problem getting enough raw material for bovine-sourced gelatine in Europe," says Michael Tepp-ner, group vice-president, corporate communications at DGF Stoess, Germany.

"There has a been small increase in the slaughtering of pigs in Europe, but the extra availability of porcine material has not been enough to offset the decrease in bovine supplies," he says. "The main problem could be in supplies of gelatine for photographic applications, which mainly comes from bovine sources. Some pharmaceutical-grade gelatine is also derived from bovine material."

Stoess, the parent company of the Gelita Group, is able to make up for a deficit in supplies in Europe by importing products from its two subsidiaries in the Americas--Kind & Knox, Sioux, Iowa, and Sargel, Mococa, Brazil.

Nonetheless, it warns that gelatine prices may have to go up shortly, not only because of the BSE debacle but also because of rising production costs. Gelatine prices in Europe went up by an average of 10 percent last year even before the latest crisis.

"These current raw material difficulties follow big increases in the price of natural gas, of which we use a lot in our production processes," Mr. Teppner explains.

In response to anxieties among consumers about the sources of animal-derived materials, customers of suppliers, such as gelatine producers, are being more rigorous about documentation that shows that products are safe.

In particular, they are being more meticulous about certification confirming that products are not linked to specified risk materials (SRMs), such as the brain and skull of cattle. The EU has recently extended SRMs to include the entire intestines of bovines of all ages.

Pharmaceutical companies, which have been complying with EU guidelines on bovine-sourced materials for several years following the first outbreak of BSE in the UK, are having to provide documentation when previously it was not required. "What is new is that compliance with the BSE guidelines has to be formally demonstrated now," says Throm Siegfried, production quality and environment manager at the German association of research-based pharmaceutical companies (VFA). Many VFA member companies are finding that suppliers at present are not able to provide certificates, he adds.

The European pharmaceutical industry is concerned that the BSE scare may increase pressure on the EU to bring in legislation on manufacturing standards for excipients such as gelatine.

The European Commission, the EU executive, is due this year to draw up a directive or regulations making good manufacturing practices (GMP) obligatory for the production of pharmaceutical intermediates and active ingredients (APIs). This could now be extended to cover excipients.

"This directive should address only APIs and not excipients," says Mr. Siegfried. "Otherwise the workload of plant inspectors would be overwhelming."

For European feed phosphate producers, their biggest concern at the moment is whether they will be able to take full advantage of what is likely to be a sizeable growth in demand following the EU ban on meat and bone meal in animal feed.

The ban was introduced on January 1 for six months, but it is thought highly likely that it will be made permanent. DCP prices have already gone up this month by around 10 percent in many EU countries.

"It is hard to estimate what the increase in demand for feed phosphates will be at present, but it will probably be between 10 percent and 20 percent or even higher," says Sven-Ulaf Malkvist, business manager for feed phosphates at Kemira, Europe's second largest producer.

A surge in demand for feed phosphates in the UK after the banning of meat and bone meal in all animal feed in 1996 because of discovery of links between BSE and CJD could indicate what will now happen in the rest of the EU. The UK has had by far the highest incidence of BSE in Europe with around 180,000 cases by the end of last year, well ahead of Ireland with 540, Portugal with 470 and Switzerland with 360.

"Consumption of feed phosphates almost doubled after the ban in 1996 and then settled down to an overall rise of 70 percent," says Willy Dawson, general manager of Britphos, the UK subsidiary of Tessenderlo, the European market leader in DCP.

The EU estimates that around 3 million metric tons of meat and bone meal were used in animal feed last year. As much as 10 percent of the meal consisted of phosphorus, signifying that the extra feed phosphate required could be 300,000 million tons, or almost 30 percent of a market of 1.1 million tons per year.

"The extra demand is unlikely to be as high as that because patterns of use of meat and bone vary across Europe while the phosphorus content can be much lower than 10 percent," says one DCP marketing manager.

If demand for DCP soars, EU producers could have problems meeting demand in a market in which imports only have a relatively small share. Tessenderlo with annual capacity of 700,000 tons and Kemira with 200,000 tons account for the vast majority of the EU output, although players like Timac of France have comparatively high regional sales.

Rotem Amfert Negev, a subsidiary of Israeli Chemicals which already has a small DCP plant in Haifa, Israel, serving the domestic market, believes the current rise in demand will provide a useful platform for its entry into the European feed phosphates market.

The company recently bought an 80,000 ton-a-year DCP facility from the Turkish company Opal, which a few years ago took over the plant from BASF and had it dismantled and transported from Ludwigshafen, Germany, to a site in northwestern Turkey.

"The majority of the output will be targeted at the European market, in particular southern Europe," says a Rotem official. "The BSE crisis will make our entrance into Europe easier because otherwise we would have faced a tough battle in a highly competitive market."

Rotem says that it has the competitive advantage of being back integrated into phosphoric acid, unlike Tessenderlo and most other EU producers of feed phosphates, with the exception of Kemira.

If its move into the European DCP market is successful, it may build a feed phosphate plant at Amsterdam where it already has a 600,000 ton-a-year nitrogen-phosphorus-potash (NPK) fertilizer unit.

The ban on meat and bone meal could also open the way to new customers for producers of phytase, the enzyme which enables animals to absorb phosphorus from vegetable ingredients in feeds.

"This presents new opportunities for us, but at the moment, it is impossible to forecast how much we will benefit from the ban," says Lars Dalgaard Andersen, director of the feeds unit at Novozymes, the enzymes operation of the Novo Group, Denmark. "Feed producers and farmers will now have a straight choice between mono and dicalcium phosphates and phytase as a source of phosphorus. Phytase is now highly cost competitive with phosphates and provides a more environmentally friendly alternative."

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