The market for ingredients made without genetic engineering, also known as non-GMO ingredients, has enjoyed rapid growth in recent years. Factors such as well-organized marketing interests, the expansion of brands and niche stores, and increasing consumer interest have collided to catalyze the market's remarkable rise. After climbing to $200 billion in sales in 2014 the market is expected to notch $330 billion in sales by 2019. Despite the success, one major obstacle has proven difficult to overcome: a lack of non-GMO animal feed.
The absence of reliable feed suppliers has put pressure on major consumer brands such as Starbucks (NASDAQ:SBUX) and Unilever's (NYSE:UL) Ben & Jerry's, caused confusion among consumers, and led to infighting among non-GMO stakeholders. Now the market is hoping that a new product line from Bunge (NYSE:BG), one of the world's largest grain and feed distributors, can deliver a much-needed solution -- but there's catch.
If you feed a cow a GMO...
This may not seem like a big deal until you ask one question: If an animal is fed corn or soybean that was genetically engineered, should the milk or meat or eggs produced by the animal be considered non-GMO? Regulators and marketers have balked at how best to answer the question, while some NGOs are learning that having the loudest megaphone can backfire when you don't have all the answers for consumers. After digging itself into a hole on the issue, GMO Inside decided to climb out by creating a double standard.
The NGO, with a stated mission of "eliminating genetically engineered foods" from the market, has pressured Starbucks to source only non-GMO animal feed for its dairy products. The bold stance is held despite giving Ben & Jerry's a free pass because the use of genetically engineered ingredients in animal feed is "common practice." No wonder consumers are confused.
Starbucks has argued that it offers organic and Non-GMO Project Verified products in its stores, and that asking its dairy suppliers to switch to non-GMO animal feed is impossible because there isn't enough to go around. That is true, and it's the same explanation offered by Ben & Jerry's. The difference is that Starbucks has a global supply chain and the financial power to move -- and in this case, create -- markets, which is why NGOs are focusing their energy on the company.
If only there were a reliable supplier of non-GMO animal feed...
Bunge to the rescue
How we got here is simple to understand. Most farmers rely on biotech crops as tools that allow them to more easily control weeds and insect pests. In 2015, nearly 94% of America's soybean crop and 92% of America's corn crop contained at least one engineered genetic trait, and the biggest destination for each crop is animal feed. In fact, only 11% of America's corn crop becomes human food, while 45% is dedicated to animal feed applications and the remainder is hauled away for ethanol production.
While it may be easy for a consumer brand to shuffle out minor corn and soy ingredients to transition to non-GMO human food products, the proliferation of genetically engineered crops has made it nearly impossible to source non-GMO animal feed. Enter Bunge.
After two years of development the agricultural products company has created a non-GMO corn hominy feed, which is a co-product comprising a mixture of corn components that are leftover after the milling process. Bunge expects the new animal feed, which is Non-GMO Project Verified, to be sold to egg producers, broiler producers, and dairy farms. A single facility in Nebraska will be used initially, but the goal of the program was to create a market-ready, reliable, and scaleable process for responding to growing demand.
Bunge's size and balance sheet make it uniquely suited to take the lead in non-GMO animal feed, which is virtually an untapped market. While expanding the supply could make it easier for larger brands such as Starbucks or Ben & Jerry's to work with suppliers that use only non-GMO animal feed, any market shift may not resolve the confusion among consumers.
There's a catch
As noted above, the question concerning "if you feed a cow a GMO..." has created a few issues for the non-GMO market. Ironically, it's a problem that was created by the industry itself. (In fact, there is no federal definition for "non-GMO".) Most regulations, from the GMO labeling law recently passed in Vermont to the precautionary principle-friendly legislation in Europe, don't bother to address animal feed. This is inherently different from regulations (and proposed regulations) governing the disclosure of genetically engineered ingredients in human food.
In 2016 numerous consumer brands have begun to voluntarily label products that contain such ingredients; partly to get ahead of any future laws, partly to respond to consumers, and partly because a nationwide labeling law looks very unlikely anytime soon. The same sense of urgency simply doesn't exist for disclosing the source of animal feed, and it seems likely that many brands will use the same rationale to decide against sourcing non-GMO animal feed.
What does it mean for investors?
Of course, some brands will transition to non-GMO animal feed if supply and reliability obstacles are overcome. Ben & Jerry's has publicly stated as much. But if there is no legal definition of "non-GMO", then why should Starbucks pay a premium for non-GMO animal feed only to pass the price increase on to consumers? Do enough Starbucks customers care that deeply about the issue to stomach eventual price increases? In other words, while there is plenty of room for Bunge to grow the market, current regulations suggest that non-GMO animal feed will remain a niche product for the foreseeable future.