President’s Mid-Year Report
and
“Strategic Inflection Points”

Gary G. Pearl, D.V.M.

Organizations all too often become trapped by their history and try to maneuver into the future by looking through their rearview mirror. To be continually successful organizations, businesses and even industries must constantly test and adjust their missions, their core competencies and core businesses. Their assumptions must be adjusted to be certain that they fit with current reality and that they piece together the obvious.

During rapid change assumptions and theories are unlikely to persist very long. External changes in today’s global environment are especially critical to understand. The basic question that must be constantly answered “is the future catching up with us”. Even more basic, has the future passed us. The issues associated with rendered animal products have certainly been on the fast track of rapid change. The future has been projected very vividly as presenting an environment for an even enhanced rate of change. A future that will be driven by a focus on health, safety and environmental issues as perceived by a consumer-driven economy. These assumptions are not only predictions as nearly all indications qualify then as facts. Has the future passed us by? By all indications, the future has not passed us by as the need for the basic services, the most economical, biosecure and environmentally safe process and utilization for animal by-product production still belongs to rendering. But in my opinion the future is catching up with us.

Dr. Lonnie King, Dean of the College of Veterinary Medicine at Michigan State University and former Director of Plum Island Foreign Animal Disease Laboratory recently spoke at a veterinary conference and quoted from the book “Only the Paranoid Survive” by Andy Grove. Grove coined a phrase – Strategic Inflection Point (SIP). SIP is defined as a time in the life of an industry, business or organization when its very fundamentals are about to change. To quote from that reference “This can be a time to rise to new heights, but it is just as likely to signal the beginning of the end. SIP’s are truly full-scale changes in the way we conduct our work or business. A SIP is a point in time when a critical change occurs and your past successes and strategies may no longer be relevant or effective in either anticipating or responding.” I do not have all of the SIP’s identified for the rendering industry or the future utilization of its resultant products. There are however a number of fundamental factors that I believe are major challenges facing the industry and the research organization with the mission to serve it. Whether the issues can be labeled as SIP’s is a moot point. What is done to rise to greater heights becomes the important result.

Many of these issues were identified prior to the Monday afternoon (May 5, 2003) in which a series of focused discussion and planning that were completed over three days of meetings in which the following basic outline was developed.

IDENTIFICATION OF INDUSTRY ISSUES, IDENTIFIED FACTS, PRIORITIES AND SUGGESTED ACTION PLANS

Issues and Identified facts:
General Feed Industry

• The Ruminant to Ruminant prohibition has drastically altered the image, perception and the utilization of animal protein meals both domestic and internationally.
• Over 40% of feed manufacturing sites do not even have animal byproducts in inventory.
• Animal by-products are stigmatized with variability, contaminants (iron, pentabarbitol, speciation tissues, phosphorus, peroxide, dioxin and other perception and “No-Animal By-Products” marketing programs.
• The number of competing ingredients that also provide the nutrients of protein, fat and minerals are drastically expanding such as Distilled Dried Grains with Solubles from the ethanol industry.
• The infrastructure and research investment by the plant sourced ingredient industries expand each year.
• The rendering industry has invested little in comparison to other industries in promotion, public relations and research. Recently the research directed at the feed and ingredient industry has been even further reduced.
• Consumer perceptions favor plant derived ingredients. Over 13 million households out of the US total of 109M in the US purchase some organic or natural labeled foods. Animal by-products are not perceived to be organic or natural. The species to species perception will continue to become a more important issue. As will the all-vegetarian feed promotion.
• The trace mineral database as well as other nutrient profiles have not been completed for the animal proteins. Variability becomes a serious challenge.
• Regulatory initiatives will continue to reflect “precautionary principle” attitudes which will precipitate negative consumer attitudes to the use of animal by-products. Each generation of consumers will result in an increased number that will eliminate animal protein consumption from their diets.
• Dead stock issues
• There is not an acceptable assay to monitor oxidation in animal protein meals. Peroxide is not acceptable but currently being used as a feed industry indicator for rancidity.

General Action:

1. The industry needs a well-recognized and respected spokesperson.
2. The industry must accept the challenges currently directed to their use as feed ingredients and direct the necessary resources towards them or abandon and let them “die a slow death”. The current research, scientific promotion, technical resources are not sufficient to assure them a place in the future market.
3. Develop assay procedures for determination of the presence and quantification of oxidation in animal by-product proteins especially MBM.
4. Concentrate on developing validation for the safety of our products as value-added to the biosecurity of our food chain by providing, publishing and utilizing sterilization data. A pilot plant must be established at some location to provide the resources to accomplish this objective.
5. Variability of our products must be recognized and more exacting data made available for computer formulation. FPRF needs to be the focal point for scheduling in-vivo assays on a confidential and group contracting arrangement with Dr. Parsons and Dr. Firman for poultry and other laboratories for other species. When done by individual members, data bases do not develop and too many “fingers spoil the pie”.

Individual Species

Dairy

• Other than blood meal and feather meal the use of animal protein is extremely limited. Porcine MBM has not been accepted by dairymen for routine use.
• Animal fats due to digestibility, fat depression and dry matter intake issues are being eliminated from dairy rations in favor of full fat soybeans and hydrogenated fats.
• There is an opportunity to develop specific fatty acid designer fats.
• Additionally the patent for hydrogenated fats cannot be defended and thus may provide an opportunity.

Action:

1. There is very little need to currently pursue research objectives for diary rations with animal protein.
2. Unless new basic data are generated to guide animal fat utilization to improve digestibility, solve fat depression and DMI reductions there is little need to pursue research objectives for dairy rations with animal fats.
3. There still remains geographical differences in the acceptance, utilization and non-empirical data acceptance for the benefit of animal fat inclusion in dairy rations. “If it ain’t broke don’t fix it”.
4. Utilize the expertise and consulting guidance of Drs. Ric Grummer and Thomas Jenkins.

Beef

• Fat is still an acceptable ingredient in most feedlot rations.
• The concentration of cattle finishing in fewer lots dictates that marketing be focused and likewise concentrated.
• The ruminant prohibition has negated any current need for animal protein work in beef.
• Enhanced availability and competition from plant by products that provide protein, energy and minerals will continue to depress markets for all ruminant usage and perhaps animal byproducts for all species.
• Animal Fat usage to complement lower energy ingredients for growing beef or range animals is still a viable market.

Action

1. Forget animal protein research for beef.
2. Develop a “Usage of fat in Beef Cattle Rations” document summarizing past research authored by Dr. Terry Klopfenstein and co-authored by the selection of Dr. Klopfenstein.

Poultry

• Nearly 70% of broiler feed specifications and decisions are made by 5 to 7 nutritionists.
• The reasons given for not using animal proteins in poultry rations are:
• Safety, efficacy, cost/relative cost, availability, nutrient availability issues, variation of products, dietary formulation constraints and lack of education.
• Poultry commands approximate 43% of the animal protein ingredients.
• The rendering industry and the poultry industry are not taking advantage of the opportunities that exist to utilize by-product ingredients in poultry. The rendering industry is not promoting. The poultry industry is not applying the economic benefits.

Action

1. Utilize Dr. Roy Brister in identifying 10-12 key industry poultry nutritionists to which specific information – technical information can be directed.
2. Develop a poultry seminar utilizing FPRF, grantees and past grantees to discuss issues and provide animal by-product data and information to the above select group.
3. The peroxide issues must be resolved.
4. Consign product samples for Cecectomized Rooster Assays with FPRF.
5. See Education section in Academic and Professional Training.

Companion Animal

• Cats are true carnivores.
• Dogs are omnivores.
• Animal by-products are well positioned for pet-food ingredients due to their physical contributions to stool consistency and volume. Plant ingredients are certainly testing the market but have several limitations due to above factors.
• Pet food continues to experience a 4.6% annual growth and currently utilizes 23% of animal by-product protein ingredients.
• Pet Food manufacturers all have their own research facilities but constrained to non-invasive research studies. This prevents in-vivo bioavailability studies.
• FPRF sponsored and published the correlation between the digestibility in the dog when compared to rooster digestibility values.
• Neutraceuticals are important to the pet-food market.
• The treats market continues to present opportunities.
• Quality is especially important in companion animal i.e. peroxide, variability, digestibility, ash and product mixtures. Levels of 2% blood meal in dog food causes vomiting reflexes.

Action

1. Utilize Dr. Fahey and Dr. Parsons in preparing a document on the bioavailability of rendered animal by-products emphasizing the 2003 NRC publication and the FPRF work.
2. Explore other tissues that provide treat and/or neutraceutical products.
3. Submit specialized tissues for glucosamine and chondrioitin assays. Human grade products are derived from bovine trachea. Thus cartilage of all types such as swine rib cartilage, sternum, poultry keel bones may be possible sources.
4. Concentrate on product quality as an industry. Have you noticed the feather meal industry promotions to the ruminant market in the past? Is there too much competition among suppliers to promote “Meat and Bone Meal” as a quality, safe, excellent ingredient for companion animal diets?

Swine

• The mentality for swine ration formulation is corn-soy.
• The quantity of swine feed manufactured by the controlled market sector is growing rapidly while the commercial swine feed market is shrinking.
• Animal by-product ingredients have greater opportunities in central mills serving specialized swine markets.
• Animal fats have greater opportunity in swine feeds than the market currently commands.
  • - Beneficial to pork quality.
  • - Complimentary to ractopamine and other partitioning agents.
  • - Can be adapted to building systems capable of programming diets to specific groups such as Farmweld Systems.
  • - Sow Market Staging Diets.
  • - The traditional benefits for energy contributions for formulating diets are still very important but not promoted or utilized to its potential especially to complement lower energy ingredients.
• Swine producers, often encouraged by veterinarians, have biosecurity concerns relating to animal byproducts and the possibility of disease transmission (both protein and fat).
• Swine operations have been a primary industry to adopt alternative methods for fallen animal disposal (composting).
• Formulation of swine rations is rapidly following the trends established for poultry to include computer best cost models. There are several limiting data bases for animal byproducts such as ME and true digestible amino acids.
• The Swine Specialist on the FPRF Research Committee has resigned. (Dr. Randy Walker)
• Plant byproducts are becoming more available for use in swine rations as well as other species. In fact, Corn Gluten and Distillers Dried Grains with solubles are now being formulated into specific proprietary products for swine (LG Golden DDGS Supplement). These byproduct ingredients are occupying bin space previously filled with MBM.

Action

1. There is need to present data that rendering will inactivate the primary microorganisms of concern to the swine industry.
2. Metabolizable energy values are currently within a project objective. The true ileal metabolizable amino acid values are limited and still questioned by swine nutritionists. Research is expensive, arduous but is required.
3. A Swine Specialist/Consultant appointment to the Research Committee is needed. (Recommendations?)
4. Fat usage in all phases of swine production needs definition. A current review of the literature concentrating on modern lean gain genetics and the availability of partitioning agents warrants the assistance of a consultant.

Aquaculture

• Aquaculture feeds are expanding rapidly. Growth is much more evident internationally as compared to North America. Canada has experienced greater increases than U.S. The current and future market is the export opportunities i.e. Asia and Latin America.
• There are over 200 farm raised species of aquaculture. There are some similar nutrient requirements but numerous species specific needs are evident.
• FPRF is currently sponsoring international aquaculture research. Communication and projects are difficult to manage.
• Research has and continues to concentrate on ingredient replacements rather than nutrient requirements and ingredient nutrient content.
• FPRF has sponsored projects with most of the worlds recognized aquaculture nutrition authorities.

Action

1. Primary species of high volume production must remain the focus.

• US Catfish though large offers limited opportunities.
• Catfish internationally is expected to grow 5% annually.
• The major species with annual growth predictions are:
  • Carp 7% (on a global basis represents 48% of all aquaculture feeds)
  • Tilapia 7%
  • Marine Shrimp/Crab 5%
  • Salmon 5%
  • Marine Fish (Bass, bream, yellow tail, grouper, mullet) 5%
  • Trout 3%
• Other possible species include cod, flounder, turbot and halibut.

2. Develop an infrastructure to more effectively conduct aquaculture projects internationally.

3. Expand the nutritional consultants activities in aquaculture.

Academic and Professional Perception and Knowledge

• The knowledge of animal by-product ingredients among the animal science student, university faculty, veterinary students and veterinarians is not very extensive.
• The student population is primarily non-rural.
• Even students originating from beef farms have negative biases. The cattle industry including its associations favors the ruminant ban and places little emphasis on the byproducts.
• There is a total disconnect between students, animal production and animal byproducts.
• Faculty with byproduct knowledge and experience are retiring and in many instances their positions are not being filled.
• There is not a lot of curriculum time spent on animal byproducts.
• Veterinary students are likewise primarily non-rural, female, with tendencies toward “Don’t feed ground up animals to animals” attitudes.
• As students graduate these attitudes persist as they enter practice.
• The past research project support has averaged from $15,000 to $20,000 per project year.
• Currently the cost per graduate student is $24,000 to $32,000 per year which with other associative costs require research projects to be funded in the $50 - $60,000 range to gain appreciable interest.
• Grant proposals are time consuming to prepare and submit. Thus proposals are now being directed to a more certain outcome than animal byproduct objectives.
• FPRF, US Protein and Fat Council and other commodity funding organizations are not receiving by-product proposals consistent with past experiences.
• Several organizations are encouraging pre-proposals.
• Curricula at universities are becoming more specialized, i.e. University of Illinois offers a Companion Animal Course that is separate from the Introductory Nutrition Course.
• But in most animal science curricula the courses are fairly well regimented and not a lot of room for specialty products. Animal byproducts are considered as specialty products.
• The industry is not a cohesive entity in its information flow and publication sustainability, relating to image and public relations awareness. All of its organizations communicate effectively within the industry but not extensively outside the industry other than on an individual company basis.
• FPRF is currently not sponsoring the project load with animal ingredient objectives as in the past. In fact very limited numbers. Thus we are loosing spokespersons both from the principle investigator, the grad student and the presentations made at scientific meetings.

Action

1. Identify specific researchers for each species.
2. Develop and implement a training, introductory model lesson plan, profile of animal by-product ingredients, an image building series of technical information regarding rendering and its ingredient products for both animal science and veterinary schools.
3. The training and awareness activities need to go beyond publishing a book.
4. Identify and utilize the services of recently retired professors, emeritus professors as university spokespersons. There are approximately 18-20 targeted animal science schools and 32 veterinary colleges in the US and Canada.
5. Develop and provide informational support and training for 2-4 selected spokespersons to each conduct presentations, during a 6 to 8 week period/year at an estimated $7,500.00 per person, concentrating on graduate seminars.

Dr. Jerry Sells – Iowa State
Dr. Bud Harmon – Purdue University
Dr. James Denton – University of Arkansas
Dr. Virgil Hayes – University of Kentucky
Dr. Larry Satter – University of Wisconsin
Others –

6. The concept of an “Animal Co-Products Research Center” to be detailed later in this document would be expected to provide resource spokespersons and image/public relations assets.

Bioenergy: Biofuels/Biodiesel

• Feedstock issues have received some reconciliation but are still unresolved on many fronts.
• Current activities must focus on:
  • Legislative
  • Regulatory
  • Certification
  • Defensive Research
• As more member companies become producers and marketers, research and technical requirements of FPRF are changing.
• FPRF has an established, working Biodiesel Advisory Board.

Action

1. FPRF must receive guidance from the Biodiesel Advisory Board concerning non-proprietary research needs and wants.
2. California Air Resources Board certification projects are in progress. There is need to assure feedstock neutral results.
3. FPRF must receive guidance from NRA concerning the technical and data requirements to support legislative and regulatory activities both current and in the future.
4. A chairperson should be appointed to guide the Biodiesel Advisory Board.

Biosecurity and Feed/Food Safety

• The biosecurity image of animal byproducts has been traditionally judged by its salmonella inferences but more recently by BSE/TSE issues. These issues continue to plaque the image and food/feed safety judgments towards the industries products.
• The real or perceived safety issues has placed limitations on the use and markets for the industries ingredients both domestic and international. These will continue to be issues in both feed ingredient and non-feed uses.
• There are over 1650 human disease conditions known today. Over 60% are caused by pathogens that also infect a variety of animals. Eighty percent (80%) of all animal pathogens are termed multi-host pathogens. In the past 2 decades 75% of the 30 new human diseases are zoonotic diseases which are either directly or indirectly transmitted by animals.
• These facts bring into further questions the alternatives to rendering but also places a burden on our rendering industry to provide data and assurances as to our products safety.
• The resources and infrastructure are not in place to conduct the necessary research to address all of the safety and biosecurity related priorities.
• Researching TSE’s and specifically BSE is complex, extremely costly and most aspects are beyond the industries resources.
• Confirmed BSE in North America has not at this time determined its effect on product and industry issues.

Action

1. The development of safety data for microbial and chemical contaminants should become a much higher priority but will require investments and resources beyond FPRF’s current capabilities
2. The minimum requirements are pilot processing capabilities that best represents the time/temperature, physical processes of rendering, access to specific microorganisms and the capabilities for laboratory detection of pathogenic organisms.
3. Research should be continued to be monitored for all aspects of TSE transmission, inactivation , tissue speciation and diagnostic analyses.
4. A project is being sponsored to acquire comparative analyses of possible cofactors that may precipitate TSE transmission or infections.
5. A project is being initiated to develop analytical procedures to detect ovine, porcine and cervid tissue as an economical, rapid test, compliance mechanism for animal byproducts. A ruminant analyses kit is currently available for both feed and ingredients.
6. Analytical methods for responding to the issues of chemical contamination or quality monitoring of animal by-product ingredients such as peroxides are not available and needs to be developed. A priority listing of needed assay development should be developed.

Non Food/Non Feed Opportunities and Priorities

Report on Workshop Session is awaiting Dr. Davis Clement’s summarization from the May 6th Meeting.

Animal Co-Products Research Center

A proposal was distributed and discussed on May 7, 2003 by Clemson University staff for an “Animal Co-Products Research Center” to be developed between FPRF and Clemson. That proposal material should be used to provide inputs to be received no later than June 6, 2003. Should you not have a copy of the distributed proposal please advise. Your inputs are specifically requested on the following:

Proposed Membership in Research Center

All members would be required to be members of FPRF. However, members of FPRF would not have to be members of the Center.

Proposed Four Levels of Membership in Research Center

• Partner Member $10,000 +
• Advisor Member $5,000 to $9,999
• Associate Member $2,500
• Individual Member $250
• Dues could be “paid” by in-kind
• Donations of equipment

Proposed Four Levels of Membership in Research Center

• Partner Member 3 votes for every $10K
• Advisor Member 1 vote
• Associate Member 0 vote
• Individual Member 0 vote

Proposed Organizational Structure of Executive Board

1. Center Director and Chairman of the Board
2. Vice Chairman of the Board
3. Three additional Clemson faculty members
4. The Chariman of he Board of FPRF
5. Two At-Large Members from the Center
6. The Dean of the College of Agriculture, Forestry and Life Sciences at Clemson University

Research Advisory Board (RAB)

Nine member board elected from the membership Will recommend research priorities for the Center as an Recommended Annual Research Program.

Funding

Propose that a guaranteed base funding be provided by FPRF as negotiated. (Amount?) Base funding will allow continuity of programs including graduate student stipends, hired employees, equipment maintenance and research supplies.

Funding

Propose that one-half of membership fees be used for the Research Center

Base + ½ Membership fees?

Funds Generation

Funds generated in the Center will be used to purchase Equipment and supplies, fund new positions, and pay Equipment maintenance fees for equipment used specifically for Center research in the Core facility.

Ownership

Propose that FPRF will retain ownership of any equipment purchased during the initial five years.

If the membership chooses to build a facility for the Center before or at the end of this five-year period, ownership of the equipment would transfer to the Center.

Overhead Waiver by Clemson University

It is recommended that FPRF require:

For a period of five years Clemson University agree to waive overhead charges for any donated Center funds, membership fees, FPRF base funding and patent license fees. Overhead rates will be retained from federal and state grants.

Intellectual Property and Confidentiality

It is recommended that FPRF require:

• First right of refusal for any intellectual property developed under the auspices of the center.
• The first right of refusal to patents but would bear the cost of patenting process
• A negotiated schedule be developed for sharing patent income.

Other Inputs?

Other desired information with recognition that a business plan needs to be finalized?

• What benefits do you perceive?
• What Challenges do you envision?
• Comments?

Your response to the Animal Co-Products Research Center section is requested by June 6, 2003.

To be directed to:

Mr. Don Davis
Central Bi-Products Co.
P. O. Box 319
Redwood Falls, MN 56283-0319
507-637-4235 (FAX: 507-637-4267)
dwdavis@centralbi.com

or

Dr. Gary G. Pearl (Ex Officio)
16551 Old Colonial Road
Bloomington, IL 61704
309-829-7744 (FAX: 309-829-5147)
info@fprf.org

Action:

1. Obtain inputs from the Board of Directors and membership as per the outline requests.
2. Don Davis, FPRF Chairman has established a Steering Committee
3. Following the BOD responses due to Don Davis or Dr. Gary Pearl by June 6th, points of clarification will be provided to Clemson.
4. Additionally a meeting of the Steering Committee and Clemson staff will be scheduled.
5. Business plan to be developed.

Summary

Research Infrastructure/Control/Response
- The primary objectives must address the arenas of:

• Biosecurity and demonstration of safe processes and products
• New product development with emphasis on non food/non feed utilizations
• Analytical technology and adaptation to nanotechnology
• Nutrition in core market segments

Action:

1. We must shift from independence to a new level of interdependency
2. We must formulate a common strategy
3. We must multiply our resources and our support dependency
   a) FPRF is too dependent upon a few with over 60% of funding from 9 members.
   b) Must seek partnerships by using Grants/Aid Programs
   c) Must be willing to provide industry support and seek new partner with allied industries.
   d) Must partner with governmental agencies and academic institutions.
4. Must be much more responsive and aggressive in our industries actions in acquiring and utilizing research.
5. Develop a decision and plan for a proposed Animal Co-Products Research Center.

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