Recent survey results indicate a move away from antibiotics in emerging market poultry production. WATT Global Media surveyed poultry feed producers and consumers globally (i.e., nutritionists, consultants, veterinarians, production managers) and 43% of respondents said that more than half of their feed production is now antibiotic-free. Based on the regional breakdown provided, we estimate that emerging markets accounted for 60-75% of survey participants.

Possible divergence from company views. In fiscal 4Q16, Phibro Animal Health (PAHC: $25.54) reported modest growth in sales of medicated feed additives (MFAs) containing antibiotics. Weakness in the US was offset by international growth from emerging markets such as Brazil and China. On the earnings call, Phibro cited emerging markets’ growing populations and need to improve productivity in food production as a long-term driver for their international MFA business. Our read of the survey results is that investors should be cautious assuming that growth in emerging market poultry production will translate into similar growth in MFAs.

Nutritional and specialty feed additive opportunities in EM. Our October 5, 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US highlighted nutritional and specialty feed additives as having significant growth potential. We believe the survey implies a broader opportunity in EMs with two-thirds of survey respondents exploring, testing or using feed additives as antibiotic alternatives. Probiotics and prebiotics usage is also on the rise, supporting our previous view that growth these categories would outpace other additives.

Investment implications. For animal health companies, the survey signals possible checks to future growth in antibiotic use in EMs. Nutritional and specialty feed additives are generally produced by major chemical companies and represent a small portion of overall revenue, but opportunities in the EM appear to be growing. For companies with more concentrated exposure, probiotic and prebiotic feed additives offer the greatest growth potential.

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Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.