What is fuelling the pet food industry?
Pets are progressively playing an important role in both single and family life, particularly now – at the time of writing this blog – where people around the world are spending more time at home rather than at the office. Studies have shown that pet ownership can boost healthy lifestyles and help reduce stress, blood pleasure, cholesterol, and feelings of loneliness (CDC, 2019). Subsequently, the introduction of ‘puppy therapy’ at universities such as the London School of Economics (LSE) has been a popular pass time for students to take a break from their studies and unwind with some ‘furry friends’. Similar initiatives are in place with a myriad of institutions ranging from universities to retirement homes to rehabilitation centres that have enhanced this notion of ‘pet humanisation’, which is the idea that people are increasingly treating their pet(s) as part of the family and making a conscious effort to provide high quality care and feed to their companions.
Pet humanisation is the driving force of the pet food industry over the past decade as consumers are proactively demanding higher quality pet foods and nutrition advice. PetPedia surveys found that 61% of US pet owners are willing to pay more for pet foods that target their pets’ dietary needs, and the study also reveals that 73% of respondents buy their pet food online (PetPedia, 2021). In fact, Australians spend the most on their pet food globally on a per capita basis, see figure 1. This may be because Australia has one of the highest pet ownership rates in the world with Animal Medicines Australia estimating that roughly 67% of Australian households have a pet with the estimated number of pets to be close to 29 million, which is more than the Australian population. Contrasting with other countries like the U.S. and the U.K. where pet ownership rates are approximately 55% and 40% of households, respectively (Animal Medicines Australia, 2019).
Figure 1 Pet food sales per capital ranking (authors own illustration, Statista 2020)
However, what is interesting to see is that Australians are increasingly paying more per kilogram of pet food sold over time, see figure 2. This suggests that consumers are gradually opting for these ‘premium’ pet food products, which supports the pet humanisation narrative and pet food producers like Royal Canin (MARS Petcare brand) who tailor their premium dog food products down to the breed. Moreover, the performance of the pet food industry has been historically known for its resilience in economic downturns and recessions. 2020 was no different as we saw the increased uptake of pets from shelters as people around the world prepared for transition to home-living, which sent sales of wet pet food categories at MARS Petcare 1.5x more than the previous year (Phillips-Donaldson, 2021). These figures highlight the key shifts in consumer preferences that profoundly impact pet food producer’s product positioning and marketing, particularly as pet owners are spending more time online researching nutrition requirements of their pets and their willingness to pay a premium to accommodate those ‘appropriate’ nutrition requirements.
Figure 2 Revenue/kg of pet food sold in Australia (authors own illustration, Statista 2020)
What is premium pet food?
Premium and super premium pet food is broadly made up of a ‘complete’ nutrient base that contains no artificial flavours, growth hormones, antibiotics, or preservatives but will generally incorporate fresh meat, poultry, fish, grains or legumes and a blend of vegetables. However, the regulations defining what premium pet food is are loosely defined and pet food producers have been actively responding to consumer trends. A popular trend is BEG diets that are boutique diets made from exotic meats (duck, kangaroo, venison etc) and grain-free (Animal Medical Hospital, 2019). Pet food producers that are following these trends such as BEG diets or pet foods that primarily consist of human grade meat, poultry, and fish tend to overlook the environmental impact as well as being linked to the rise in cases of heart disease in pets.
The overlooked environmental and ethical impact
What is often overlooked by consumers is the additional strain on global food systems and environmental impact from the production of primarily human grade ingredients in pet food. This is because the left-over animal by-products would otherwise go to waste in landfills that would then emit vast amounts of carbon dioxide and methane (WWF, 2016). Moreover, the production of human grade pet food would suggest that producers must use more water and land resources to produce an additional kg of animal products for petfood. Relative to human grade pet food is the more sustainable production method, which is made from animal by-products (Alphia, 2021; WWF, 2016). Animal by-products in pet food are rendered to produce a nutritional and economical feed ingredient, hence, the differences in nutrient quality between the ‘grade’ of animal products may not be that dissimilar.
However, Murray, et al., (1997) found that may not necessarily be the case. They found that rendered by-products actually reduces the nutrient value relative to raw pet food that is due to the high degrees of heat used in the rendering process. This suggests that rendered pet food would require additional nutritional additives to make up the desired diet and enhance food digestibility. Moreover, consumers have raised ethical concerns regarding the processing of diseased animal by-products that end up in pet food. This highlights the myriad of trade-offs and considerations from the perspective of the pet owner and pet food producer in determining what is best for their end consumer i.e., the dog, cat etc.
Health concerns?
The higher proportion of animal products in pet food relative to plant-based nutrients that make up the pet food is concerning since it can lead to various nutrient deficiencies that enhance the risk of heart disease like dilated cardiomyopathy (DCM) in pets (Dunne, 2020). Historically, a key link to DCM was the low levels of an amino acid called taurine in cats. Taurine is an important nutrient sourced primarily from animal-based proteins that supports heart muscle health, and it was found that cats could were unable to absorb all the taurine in processed diets and/or were unable to synthesize the deficit between absorption and requirement (Hayes & Trautwein, 1989). Since this discovery in the 1980’s, pet food producers have now increased taurine content such that DCM has become less prevalent from this nutrient deficiency.
However, what is concerning today is that the number of DCM cases is on the rise again and it is not because of a taurine deficiency. Freeman, (2018) found in her clinic that 90% of dogs with DCM had normal taurine levels however, found that the majority these dogs were being fed on a BEG diet. Freeman subsequently found that some of these dogs with DCM improved when their diet changed to more traditional and ‘complete’ pet food diet. This highlights the inconsistencies prevalent in pet food producer marketing who, in some cases are marketing diets for our companions that may be nutritionally insufficient, environmentally damaging, and/or ethically unsound.
Nonetheless, pet humanisation does and will continue to play a crucial performance driving role for the pet food industry. However, what is important to understand is that the industry is loosely regulated and some diets that are advertised as being ‘complete’ may not be suitable for your own pet(s) who have their own distinct characteristics and nutrition requirements. Companies like MARS Petcare are addressing this gap as their brand ‘Royal Canin’ who provide pet foods that are made for specifc dog breeds. Smaller players in the pet food industry tend to differentiate themselves by providing a more bespoke buyer experience through consultations and tailoring pet food accordingly.
Going forward, regulators should consider implementing tighter marketing controls of pet food products that is aimed to address the apparent information asymmetry. However, in the interim, pet owners should speak with their veterinarian as a smart alternative to inform themselves on the different characteristics and nutrition requirements of their pet(s) as well as taking a closer look at the nutrient balance and digestibility factors of pet foods purchased.
What AgFood Opportunities Fund is doing?
The AgFood Opportunities Fund is engaged with established and emerging raw material suppliers who are enhancing the production of sustainable and scalable animal nutrition. One of our cornerstone investments Ridleys Incorporated (RIC: ASX), which has returned 28% over the past 12 months and covers the entire spectrum of animal nutrition. RIC has enhanced its position as a global leader in animal nutrition and is at the forefront of feed research, utilising their nutritional experts across a myriad of animal species to improve their feed products that aims to improve livestock performance. Furthermore, the AgFood Opportunities Fund welcomes the discussion with Australasian pet food brands who believe they are scalable and are addressing the market gaps in sustainable and nutritious pet food. The fund continues to assess available and innovative technologies and producers in both the listed and unlisted space to enhance partnering opportunities and address the sustainability and ethical demands of the pet food industry.
Bibliography
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