Four Decades of Market Challenges

By Tina Caparella

The U.S. rendering industry often uses comparisons to emphasize the magnitude of material it processes each year, such as “filling up 10,000 new Dallas Cowboy football stadiums.” Back in the first issue of Render magazine nearly 40 years ago, a similar comparison was made but for just one geographical location, not the industry nationwide. It was stated that “if rendering plants in Los Angeles should shut down, the meat scraps, bone, and fat from the area’s packing plants and butcher shops would accumulate at a rate of one million pounds a day – at 40 pounds per cubic foot, enough in a single five-day work week to build a tower 10 foot square as high as the Empire State Building.”

In the last 40 years, the raw material U.S. renderers collect has nearly doubled, from 30 billion pounds in 1972 to an estimated 59 billion pounds today. Of course, this equates to almost double the amount of finished rendered products produced, from 9.5 billion pounds back in the early 1970s to 18.2 billion pounds today. Broken down by product, of the total production in 1972, 3.5 billion pounds were meat and bone meal while some six billion pounds were tallow and grease. In 2010, the yield was a little closer, with 9.4 billion pounds of fats and greases (lard, poultry fat, and yellow grease included) being produced and 8.8 billion pounds of protein meals, including poultry by-product meal and feather meal. Meat and bone meal alone accounted for 4.9 billion pounds of that total.

While the market challenges renderers have endured over the past 40 years have varied and been battled more than once, the industry has always emerged on the other side stronger and more resilient. Here’s a brief look at a few of those trials and tribulations.

Financial Volatility
Financial challenges have always plagued business, from the recession in the mid-1970s, to the current recession of the past few years. Inflation and high unemployment (11 to 12 percent) were a setback for renderers in 1975, as was a significant drop in export markets, with the industry struggling through 1982. The U.S. economy began to move out of the recession in 1983 and rendered product prices saw a brief rise before suffering a collapse in 1985 and 1986, dropping to their lowest level in 15 years due to high production levels that exceeded demand. Prices would eventually rise somewhat and fluctuate for a number of years until reaching close to historic levels in 1995 and 1996 due to strong domestic demand. But at the end of 1997 and early 1998, protein prices suffered another collapse for multiple reasons, including an economic crisis in Asia, which eventually brought down fats and grease prices going into 1999. And global concerns over bovine spongiform encephalopathy (BSE) in the United Kingdom would eventually have an impact on both domestic and international markets.

In January 1997, the European Union prohibited the importation of certain animal protein products, including pet foods, from the United States, and followed that with a ban on tallow. Other embargos on animal proteins and fats in livestock feed and some industrial uses eventually followed and remained in place into 2010, with some relaxation of Europe’s feed bans being seen in 2011. Other countries around the world have put in place tariffs and prohibited the importation of certain rendered products over the years, forcing the U.S. rendering industry to work extra hard at convincing foreign governments using science that U.S. animal proteins and fats are safe feed and industrial ingredients. The battles continue to this day, often toward new bans being put in place or existing ones that still haven’t been lifted.

In an effort to prevent the establishment and amplification of BSE through feed in the United States, the Food and Drug Administration implemented a rule in 1997 that prohibits most mammalian proteins in ruminant feed. The agency then put in place in 2009 an enhanced feed ban after several cases of BSE were found in the United States, the first in late 2003 in an imported cow from Canada. In 2007, Canada implemented an even stricter, specified risk material ban due to the increased number of BSE cases in that country.

It wasn’t BSE that caused rendered product prices to sink to historic lows as the industry entered a new century, but an ever-growing glut of soybean oil and meal. On a bright note, more renderers and allied industries were able to defray high fuel costs somewhat by substituting tallow and yellow grease for natural gas and fuel oil rather than sell them in a depressed marketplace, a practice that is now more widely accepted by local, state, and national environmental agencies.

Prices were rebounding nicely until December 23, 2003, when the first case of BSE was discovered in the United States. Although animal fats and greases suffered only single digit declines over the next several years, protein meal prices plummeted in 2004 and continued to drop for several more years before prices for all rendered products surged anywhere from 30 to 70 percent to record highs in 2007 due to supply/demand factors and a growing biofuels market. Even the export value of rendered products broke a record that year, reaching the $1 billion mark for the first time. But it was short lived.

Supply and demand again played a role in the collapse of rendered product prices in the second half of 2008 and into 2009, although prices strengthened toward the end of the year despite the country being in the grips of a continued recession. And that brings us to the market year of 2010, the year of uncertainty. If history is any indication, there will be many more years of uncertainty.

Long-ago Market Changes
As for product markets 40 years ago, in 1972, a “raging controversy” about detergents and the resulting resurgence of interest in old fashioned soap forced the invisible industry out into the daylight. Beef tallow, which served as the basis for virtually all soaps from yellow laundry bars to the finest, most gentle facial compounds, took a beating in the 1950s and 1960s with the national switch to laundry detergents. Whereas in 1951, 1.1 billion pounds of tallow was used in soap manufacturing, only 603 million pounds of tallow was used in 1970. However, that trend began reversing after an attack launched by ecologists against phosphate detergents and their polluting effects. Sales of laundry soap increased 250 percent in 1972 and although the up-swing continued for a few years, tallow use in soap manufacturing fluctuated in the 1980s and has steadily decreased over the years.

Although the turn away from laundry soap in the 50s and 60s hurt the rendering industry, the growth of a second major end use product in the early 1970s enabled renderers to not only hold their own, but to grow and prosper – high protein meat and bone meal in animal feed. Today, animal feeds, including pet food, remain a major market for animal proteins.

The use of fatty acids in chemicals and plastics also helped the rendering industry as it entered the 1970s. In 1951, 199 million pounds of fatty acids from rendered fats were used in chemistry and plastics; that number jumped to 610 million in 1970, and to 928 million in 1979. Today, fatty acid consumption is at 790 million pounds, a small but steady market for rendered fats and greases.

Export Markets
In 1972, 2.5 billion pounds of U.S. tallow were used domestically, while a whopping 3.5 billion pounds were exported. Tallow was an important agriculture commodity back in the early 1970s, so said the U.S. Department of Agriculture’s Foreign Agriculture Service, not only in dollars, but also in export market penetration. U.S. tallow was exported to about 60 foreign markets and accounted for 80 percent of the world’s imports. But the export markets for U.S. tallow and greases would slowly erode over the next 40 years due to various factors, including competition from other tallow producing countries and animal disease concerns. Nowadays, 3.8 billion pounds of tallow are consumed in the United States, with 1.9 billion pounds exported to around 21 foreign markets, accounting for 40 percent of global trade.

Render did not report exports of meat and bone meal throughout the 1970s, but in 1980, 280 million pounds of meat and bone meal was reportedly exported, a number that would fluctuate often throughout the 1980s, at one point reaching a low of 89 million pounds in 1987. However, meat and bone meal exports began a resurgence in the 1990s, reaching 677 million pounds in 1996 and nearly doubling to 1.2 billion pounds just six years later, the highest the industry would see.

But after the United States found its first case of BSE in late 2003, nearly all ruminant meat and bone meal markets closed, many non-ruminant animal protein markets closed, and some animal fats and greases markets closed. The rendering industry, primarily the National Renderers Association staff, has worked tirelessly to reopen these markets over the past six years, and today, 1.1 billion pounds of animal proteins (including poultry by-product meal) is again being exported, although a small fraction compared to the 6.4 billion pounds used domestically.

Changes…in 40 Years! – April 2011 RENDER | back