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CHAPTER 1 - THE WORLD MARKET
| 2005 sales: US$17,410 million 2005 market growth: +8.1% 2001-2005 CAGR: +7.4% Major product sectors: Antiparasitics, vaccines, anti-infectives Major market regions: North America, Europe Major species sectors: Companion animals, cattle, pigs |
1.1 Economy
Despite rising oil prices, global economic growth has continued to exceed expectations. The 5.3% increase in global GDP recorded in 2004 represented the biggest rise in world economic activity for around 20 years, while an IMF analysis undertaken in April 2006 put global GDP growth for 2005 at 4.8% - notwithstanding the fact that economic expansion in the EU's euro-zone countries slowed to just 1.3%, and that growth in the US fell back to 3.5%.
Emerging markets and developing economies were strong contributors to global expansion. Newly industrialized economies in Asia grew at an average of 4.6%, while expansion in central and eastern Europe, the CIS and Africa was in excess of 5%.
Global GDP growth is expected to remain at rates in excess of 4.5% through 2006 and 2007. Expansion in developed economies will pick up again in 2006, thanks largely to an upturn in the euro-zone area, further strengthening of the Japanese economy and higher growth in both the UK and Canada. Rates of economic expansion will decline modestly in the CIS, China and India, however, reducing the total growth rate for emerging markets and developing countries.
High energy costs and structural imbalances in the global economy - notably the need for some further realignment in currency exchange rates and the growing current account deficit in the US - are among the downside risks that could affect future rates of global growth. The US economy slowed in the final quarter of 2005, and the country's current account deficit rose to 6.4% of GDP. This makes the US vulnerable to any downturn in investor confidence, which could put pressure on the dollar.
1.2 Animal numbers and production
1.2.1 Livestock and poultry
Livestock and poultry are raised worldwide - often at subsistence levels in less developed countries, but more usually to support national demand and, in the case of industrialized countries, export trade. FAO figures estimate that the global cattle population stands at more than 1.3 billion animals, while there are almost 1.1 billion sheep, around 960 million pigs and almost 17 billion chickens.
Cattle, sheep and goats are raised for milk production, leather and wool, in addition to their meat. Similarly, poultry are reared for eggs as well as meat, though pig farming is geared in the main towards meat output. Global milk production is currently equivalent to around 630 million tonnes. Pigs are the leading source of meat production, with over 100 million tonnes of pork produced globally on an annual basis. World production of poultry meat is around 81 million tonnes, while global beef/veal output is approximately 60 million tonnes.
The main contributors to commercial livestock production are located in North America, parts of South America, Europe and Asia. A proportion of output produced in many of these regions is exported, and global trade in meat and dairy produce has reached substantial levels. Cattle, pigs and poultry are the most economically-important species raised commercially.
Cattle
Cattle populations are not always an indicator of milk or meat production. In India, for example, where the total bovine population (including buffalo) is in excess of 300 million, the Hindu faith regards the cow as an important religious symbol, and while cattle are used as draft animals in many rural areas of the country, beef and veal production levels are modest.
Aside from India, Brazil boasts the world's largest cattle herd, with numbers currently standing at around 170 million. There are an estimated 138 million cattle in China, while the US herd numbers approximately 95 million and the 25 EU member states house a total population of 86 million. Numbers are rising in India, China and Brazil, but have declined in both the EU and the US in recent years and are flat in most other leading cattle-producing countries.
Table 1.1: Major cattle herds
| Country | Numbers (million) | % change 2001-05 | |
| | 2001 | 2005 | |
| India 1 | 313.8 | 330.3 | +5.3 |
| Brazil | 150.4 | 169.5 | +12.7 |
| China | 128.7 | 137.8 | +7.1 |
| United States | 97.3 | 95.4 | -2.0 |
| EU-25 | 91.4 | 86.4 | -5.5 |
| Argentina | 50.2 | 50.2 | -- |
| Australia | 27.7 | 27.3 | -1.4 |
| Mexico | 28.4 | 27.6 | -2.8 |
| Russian Federation | 25.5 | 21.1 | -17.3 |
| Canada | 13.6 | 15.1 | +11.0 |
| South Africa | 13.5 | 13.5 | -- |
Global trade in beef and veal has been disrupted in recent years by disease-related trade bans. BSE and foot and mouth disease have had the most significant impact on trade flows. The discovery of BSE cases in a number of European countries, Canada and the US has affected exports from those markets. EU export trade has also been affected by foot and mouth disease outbreaks reported in some member states, while the re-emergence of FMD in Brazil towards the end of 2005 is expected to dampen Brazilian beef export trade in 2006.
Table 1.2: Major beef and veal exporters
| Country | Exports ('000 tonnes) | % change 2001-05 | |
| | 2001 | 2005 | |
| Brazil | 748 | 1,867 | +149.6 |
| Australia | 1,399 | 1,413 | +1.0 |
| India 1 | 370 | 620 | +67.6 |
| New Zealand | 496 | 589 | +18.8 |
| Canada | 575 | 553 | -3.8 |
| Argentina | 169 | 759 | +349.1 |
| Uruguay | 145 | 460 | +217.2 |
| EU-25 | 502 | 250 | -50.2 |
| US | 1,029 | 313 | -69.6 |
The most significant development in trade volume terms has been the closure of export markets to US beef as a result of that country's first reported BSE cases. The US shipped over 1.1 million tonnes of beef and veal in 2003, but that figure fell to just 200,000 tonnes in 2004. Brazil is now the world's leading exporter of beef and veal, shipping over 1.8 million tonnes in 2005 (more than double the figure reported just three years earlier). With US trade still hampered by BSE, Australia is the second biggest exporter in the sector. Japan and Russia are the world's biggest importers, receiving 700,000 tonnes and 680,000 tonnes, respectively, in 2005.
Aside from Brazil, exports have risen most sharply in India, Argentina and Uruguay since the beginning of the decade. The government in Argentina recently imposed a ban on most beef exports, however, in a bid to protect local supplies. Shipments will fall back in 2006 as a result.
Pigs
China boasts the world's largest pig herd, numbering an estimated 482 million animals. Numbers there have risen by around 8% since 2001, and are continuing to increase. The EU herd, which numbers approximately 151 million animals, is static, with numbers declining in some member states but on expanding modestly in others. The regional herd has been expanded significantly following the accession of new member states to the union in 2004.
The US herd has increased moderately in recent years, and currently stands at 61 million. Brazil is the only other country with a pig herd numbering over 20 million animals. Several newly industrialized Asian countries boast substantial herds, however, while pig production has traditionally been a major contributor to Japan's livestock agriculture economy.
As in the beef and veal sector, Japan and the Russian Federation are the two biggest target markets for exporters of pig meat, importing around 2 million tonnes between them in 2005. Mexico, Hong Kong and South Korea are other major destinations for exported pork.
Table 1.3: Major pig herds
| Country | Numbers (million) | % change 2001-05 | |
| | 2001 | 2005 | |
| China | 446.8 | 481.9 | +7.9 |
| EU-25 | 152.8 | 151.1 | -1.1 |
| US | 59.1 | 61.0 | +3.2 |
| Brazil | 32.4 | 32.3 | -0.3 |
| Russian Federation | 15.8 | 16.5 | +4.4 |
| Canada | 13.6 | 14.7 | +8.1 |
| Philippines | 11.7 | 12.1 | +3.4 |
| Mexico | 10.6 | 10.3 | -2.8 |
| Japan | 9.8 | 9.6 | -2.0 |
| South Korea | 7.4 | 8.0 | +8.1 |
| Taiwan | 7.5 | 6.8 | -9.3 |
The EU is the leading exporter of pig meat, though a significant proportion of the 1.4 million tonnes shipped in 2005 involved trade between fellow member states. The US exported 1.2 million tonnes of pork in 2005, while Canada also exported over one million tonnes. Brazil and China are the world's next biggest exporters of pig meat. Table 1.4: Major pork exporters
| Country | Exports ('000 tonnes) | % change 2001-05 | |
| | 2001 | 2005 | |
| EU-25 | 1,135 | 1,380 | +21.6 |
| United States | 707 | 1,207 | +70.7 |
| Canada | 728 | 1,083 | +48.8 |
| Brazil | 337 | 761 | +125.8 |
| China | 139 | 331 | +138.1 |
Poultry
Poultry meat has become increasingly popular with consumers in many countries across the world, and both production and trade volumes have risen rapidly in the past 20 years. Broiler meat is by far the most extensively traded commodity in this sector of the market, though trade in turkey, duck and goose meat has also increased significantly.
More recently, demand for poultry meat has been affected by the spread of highly pathogenic avian influenza strains. These were confined initially to countries in Asia, but the disease has begun to spread increasingly beyond Asia in the past 12 months, and has now been reported in several European countries. Most European outbreaks have been in wild birds to date, but commercial poultry flocks have also been affected, and further outbreaks are anticipated.
Confirmation of infection with the H5N1 strain of the AI virus has serious implications for trade in poultry products. To date, however, the world's two biggest exporters of poultry meat - the US and Brazil - have remained free from infection with that strain of the virus. Brazil shipped over 2.7 million tonnes of broiler meat for export in 2005 (up from just 1.2 million tonnes as recently as 2001), while US exports totalled 2.3 million tonnes. Russia and China are the main recipients, importing 1.2 million tonnes and 750,000 tonnes, respectively, in 2005. Saudi Arabia and Mexico are also significant importers.
Table 1.5: Major broiler meat exporters
| Country | Exports ('000 tonnes) | % change 2001-05 | |
| | 2001 | 2005 | |
| Brazil | 1,226 | 2,739 | +123.4 |
| United States | 2,520 | 2,335 | -7.3 |
| EU-25 | 726 | 740 | +1.9 |
| China | 489 | 331 | -32.3 |
| Thailand | 392 | 240 | -38.8 |
| Argentina | 13 | 110 | NM |
| Canada | 69 | 100 | +44.9 |
Companion animals
While veterinary products are used in a wide variety of other companion animal species, this segment of the market is dominated by pharmaceuticals and biologicals for use in dogs, cats and horses - though horses are also used as draft animals or raised for meat in a number of countries.
As in the livestock sector, small animal populations do not always provide an accurate pointer to the level of demand for animal health inputs. In some countries, feral animals or strays account for a significant proportion of total populations, while in many developing economies, the ability of owners to meet the cost of regular veterinary attention and animal health inputs for their pets is limited. In Brazil, for example, some estimates put the total canine population at around 28 million, but less than 20% of all dogs receive regular veterinary treatment.
A substantial proportion of household pets in developed countries do receive both preventative and curative treatment for a range of diseases and health problems, and it is in these markets that the vast majority of companion animal product sales are generated. Indeed, well over 80% of sales in this segment of the market are realized in just ten markets, with the US alone responsible for over half of the total.
Small animal populations in the US have continued to rise in recent years. Dog numbers have increased by over 3% since the beginning of the decade, and now stand at over 61 million, while cat numbers have risen by 4% in the same period, and now total 78 million. Both dog and cat populations are also on the increase in Japan, but while feline numbers continue to rise in most European countries, canine populations have flattened out or declined from peak levels recorded in the 1990s.
Table 1.6: Small animal populations
Source: Industry association figures and Animal Pharm Reports.
1.3 Animal health products market
1.3.1 Market size and recent development
Excluding nutritional feed additives, the world market for animal health products was worth US$17.4 billion in 2005 - just over 8% higher than the year-earlier total. Dollar-based growth in the sector has increased sharply since 2002, with some US$4 billion added to global sales values inside three years.
Table 1.7: Development of the world market, 2001-2005
1Excluding nutritional feed additives; international market values converted to US dollars at average annual rates of exchange; Source: Animal Pharm Reports.
(US$ million) 1
Much of that apparent growth has been the result of exchange rate factors, with the weakness of the dollar inflating international sales on conversion to the US currency. Underlying growth has also picked up, however, with demand for animal health inputs strengthening in a number of major markets, and new product launches boosting sales values in both the livestock and companion animal sectors.
1.3.2 Market structure by region
The market is dominated by developed countries in which livestock and poultry are raised on an industrial scale, and in which high disposable incomes encourage substantial levels of spending on companion animals. Around 40% of global sales are generated in North America, where the US is the pre-eminent national market, while countries in Western Europe are responsible for over a quarter of total market value, with France, the UK, Germany, Spain and Italy all contributing significantly to the regional sales total.
Table 1.8: World market structure by region
(US$ million)