When we think about agriculture and agricultural products, what we put into our pet’s bowl is probably not the first thing that comes to mind. Nevertheless, the pet food industry is an important one whose product utilizes many agricultural commodities as inputs. As human demographics shift and evolve, we would expect to see these changes reflected in pet ownership, creating numerous opportunities for the pet food industry.
What Is Pet Food?
Pet food is a generic term that refers to the material we use to nourish our companion animals. There are many variations on the theme of pet food. The term can apply to foods for a variety of pet species, including birds and fish. Some people choose to purchase a complete and balanced pet food at the store, while others prepare food for their pets from raw ingredients in the home. However, for the sake of this article we will be referring to pet food as commercially available dog and cat food.
As food destined for consumption by animals, pet food is actually considered animal feed. As a result, in the United States the sector is regulated by the Food and Drug Administration (FDA). This entity governs what may be included in animal feed and how it must be labeled. In some cases, the rules may be even more stringent for pet food as it is present in the home and therefore has additional human health implications when compared to livestock feed, for example.
In many cases, commercial pet food is made from a variety of ingredients including meats, grains, vegetables, as well as other vitamins and minerals. The pet food industry is often able to make use of inputs that cannot be utilized for human consumption due to issues such as cosmetic flaws or consumer preferences. As a result, the pet food industry helps to make our food chain more efficient, and adds value to products that might otherwise be wasted.
The pet food industry came under the microscope in 2007 when some product was discovered to have been tainted with melamine, a chemical compound found to cause renal failure in pets. The food safety scare led to a widespread recall of pet food, though in the end all pet sicknesses were traced to the products from a single company. This crisis led to even more rigorous oversight of pet food manufacturing and shifting brand loyalties by consumers.
Pet Ownership in the Americas
We know that pets are popular companions in the United States. The American Veterinary Medical Association estimates that in 2012 there were an estimated 70 million dogs and 74 million cats living as companion animals in the United States. They estimate that 36.5% and 30.4% of households own dogs and cats, respectively.
A survey performed earlier this year by market research firm GFK returned some different results. According to the GFK survey, 50% of survey respondents in the US claim to live with dogs, while 39% claim to live with cats. This was higher than the global average for both species which were 33% for dogs and 23% for cats. But what about Latin America?
According to the GFK survey, pet ownership is more widespread in Latin America than in any other region. For example, their results show that for survey respondents from Argentina, 66% claim to live with dogs and 32% with cats. These results are close to those of Mexico, where 64% of respondents claim to live with dogs, and 24% with cats. Even in Brazil, 58% of those surveyed claim to live with dogs and 28% with cats. While these statistics strike me as a bit high, I think they can provide important directional guidance about the region’s affinity for pets.
In addition, we can expect that as the economies in this part of the world develop and incomes rise, people will begin spending more of their disposable income on pet care, including brand name pet food. This will create an important opportunity for exports of pet food from the United States to recipient countries throughout Latin America.
The Pet Food Trade
According to the Food and Agriculture Organization (FAO) of the United Nations, the United States exported 754 million kilograms of pet food in 2013, worth roughly $1.5 billion USD. Though only about 14% of these exports were destined for Latin America on a value basis, the region still represents an important growth opportunity. In fact, over the last ten years, pet food exports from the US to Latin America have been growing at an average annual rate of 10.8%.
Another interesting characteristic of the pet food trade is its dispersion. Over 24 countries in Latin America (including the Caribbean) imported more than $1 million USD worth of pet food in 2013. The top importers in the region that same year, in order, were Mexico, Venezuela, Costa Rica, Colombia, and Chile. Collectively, these 5 countries account for nearly two thirds of US pet food exports to the region, with Mexico being the most important destination by far.
As we have observed with other commodities in earlier blog posts, pet food exports benefit from free trade agreements that the United States has set up with their various trading partners. In this case, NAFTA, CAFTA, the FTA with Chile, and the TPA with Colombia are all helping to promote privileged trade access within the region.
Even though demographic information and economic forecasts predict that Latin America will evolve to be an even stronger export destination for US pet food, the transition will not happen alone. The US industry will need to actively nurture these markets through market access and development programs that facilitate the recognition of, and demand for pet food made in the United States. Education programs will prove critical to help foreign consumers understand the value of commercial pet food products.
The US benefits from a strong reputation for quality for most agricultural products, and pet food is no exception. But every recall and food safety event tarnishes the industry’s credibility and impedes the development of robust export market. Everyone involved in the pet food supply chain must be aware of the gravity of the repercussions of their actions and make sure food safety is a priority. The industry must adopt sensible traceability standards and when food safety scares do occur, they must be addressed swiftly and with an attitude of transparency that will help to heal and enhance consumer confidence in the industry.
Although not often thought of as an agricultural industry, the US pet food sector is vibrant and has many opportunities to grow, particularly in Latin America. The fundamentals are compelling, but the industry’s success will depend on the extent to which they are able to embrace and develop this opportunity going forward.