Where the Domesticated Things Are — Why Asia is Central to Alltech’s Strategy and the Business of Feeding the World

Alltech’s European HQ is located in Dublin, Ireland.

(Editor's Note: As this story went to press, Alltech founder Dr. Pearse Lyons died on March 8 at the age of 73. Visit www.alltech.com/pearselyons for more on his life and legacy. The Irish-born entrepreneur's funeral was to be held in Kentucky on St. Patrick's Day, with another funeral mass to be held in Dublin in April.)

According to the Alltech Global Feed Survey’s seventh annual edition, released in January, 31,627 feed mills in the world produce nearly 1.07 billion tons of animal feed a year to feed the untold numbers of animals that in turn feed the globe’s 7.6 billion people.

Alltech, the global animal nutrition and health company based in Lexington, Kentucky, is but one player in that massive food cycle, but an increasingly more powerful one. Launched by Irish scientist Dr. Pearse Lyons in 1980 based on his idea of bringing his yeast fermentation expertise to animal nutrition, the company today employs more than 5,000 people at locations around the world, has taken on a leadership role in career development and entrepreneurship. It’s even followed on Lyons’ original business of selling ingredients into the distilling and brewing industry by launching a thriving side business of its own in brewing and distilling, with an initial establishment in Lexington.

“As disparate as beer may seem from feed additives, it all goes back to a core of yeast fermentation,” says Alltech COO and Executive Vice President Mike Castle, who also serves as CEO of Alltech’s Feed Division. Customer fermentation doesn’t hurt either. “It’s a connector to customers,” he says, and it’s just enjoyable. “Passion and fun have been an important part of the culture that Dr. Lyons has created at Alltech, and the beverage division certainly delivers. Our beer started as a bit of a marketing ploy but it quickly grew into its own business. Last year saw the opening of Pearse Lyons Distillery in Dublin, and we are set to open our second brewery and distillery in Kentucky this year — Dueling Barrels in Pikeville, Kentucky.” 

Castle says Lyons liked Kentucky because it reminded him of home, and over the course of 38 years, the state has become the Lyons family’s home. But the HQ location has more than Thoroughbreds, rolling green hills and spirits going for it. Being near the middle of the country means being near where so much of the livestock in the US lives — and near where the people most knowledgeable about those animals also are raised.

That’s a model Alltech follows throughout the world as it grows organically (the company opened a new office in Phnom Penh, Cambodia, in November) and by acquisition — the company has acquired 14 companies since 2011. Has territorial bias or policy against GMO ever influenced location decisions?

“Surprisingly, it hasn’t affected our decision-making up to this point,” says Castle. “Most of our products are now made with non-genetically-modified organisms. We of course use many plant-based materials in our diets, so we do have GMO in our products in the US, but of course in Europe, we don’t. We have to play in the regulatory framework we’re dealt. We believe the core basis of our products provides greater nutrition value. This is just one regulatory hurdle we have to work through. It’s just something we deal with and move on.”

The moves keep coming. Recent Alltech acquisitions include fish feed specialist Coppens International in the Netherlands, bankrupt feed wagon maker Keenan in Ireland, and, last spring, WestFeeds, based in Billings, Montana, with multiple locations around the state.

“From Montana through Colorado to Illinois and western Kentucky to east Texas — most beef animals are in that slice of the United States,” Castle observes. “Montana is strategically in that beltline, and close to the grain needs of those animals.” Thus the WestFeeds acquisition “ticked a few boxes” for Alltech in terms of being a) where the animals are, b) closer to the grain belt, and c) in a region primed for expansion of Alltech’s existing feed business.

Decades in China Just the Beginning

But when you look at the world’s feed and food needs, Castle says, it’s the other side of the globe where the belt of opportunity is wide.

“China for us is the number one feed output market in the world,” he says, noting the company’s presence there began with sales in the 1980s and a formal establishment in 1994. “We were granted one of the first wholly-owned-foreign-company licenses in the country,” he says. “We’ve always operated in China without a strategic partner. They see Alltech as an industry leader, helping to change and educate the market. Dr. Mark Pearse Lyones, the founder’s son, is the only foreign national to sit on a key Chinese agricultural board.

It starts with the simple growth of animal density. Swine occupy between 20 and 30 percent of the livestock nutrition market, Castle says. But he also notes growth in a class of animals you’d expect to accompany China’s growing middle class: the consumer and pet segment. Asia-Pacific’s pet food production increased by 13 percent in 2017, with China, Thailand and Taiwan as the primary contributors. (Europe increased by 17 percent with Russia, the Czech Republic, Romania, Poland and Hungary leading the way.)

The company’s presence in China, however, goes beyond just seizing market opportunity.

“They want our expertise there, and we reciprocate,” Castle says. And because Alltech operates in a tech-driven arena where distinct industry categories such as pharma, chemical and natural additives overlap, there is ample opportunity to interact with leading Chinese researchers and universities intent on bringing that technology to an agricultural sector and population unfamiliar with it. Asked about the younger generations there, Castle says the large pool of talent from millennial to Generation X includes people who are “very tech-savvy, entrepreneurial and open-minded.” That means that, unlike Americans and Europeans who tend to look inward first, Asian cultures look outward first for solutions and ideas.

“You tend to see a broad range of solutions,” he says. “They’re not about having it home-grown. They’re humble about saying, ‘Wherever it works in the world, we’re willing to adapt,’ ” a principle also intrinsic to Alltech.

After starting with an office in a small town outside Beijing, the company moved its Chinese HQ to Beijing proper to be close to key government agencies and officials. The main manufacturing facility is in the port city of Tianjin. “At the time we purchased and remodeled and developed it, it was very much a heavy industrial zone on the port,” Castle says, “but all the ag players were moving in.” The hour-and-a-half drive was convenient for Alltech senior staff to commute back and forth. Today it’s become more medium industrial and tech-savvy, he says, with a lot of talent and foreign companies from Ford to Apple having invested there. The company’s next big investment in China, says spokesperson Susanna Elliott, will come by 2020 with a new plant in the south of the republic for trace minerals and pre-mixes.

Partners and Talent

Alltech has a unique partnership with Chinese conglomerate Haier’s financial services arm in establishing a financing operation that helps farms get access to capital for purchasing equipment. “We’re constantly reinvesting in that market,” Castle says. The Chinese government’s food safety push around 2007 only helped, as the government reined in the thousands of licenses it granted to animal producers, acted swiftly and harshly with penalties for non-compliance with regulations, and encouraged consolidation.

Alltech, whose Chinese portfolio includes a complex in Tianjin and an office in Beijing, was invited by Nestle and the Chinese government to be part of a dairy farming institute in Shuangcheng, Heilongjiang Province.

“It put us in a better position from a business perspective,” Castle notes, “because we could work with those larger companies, with the latest and greatest technology.” He notes that Alltech’s quality system is the same worldwide, with standards superseding those of the US, Japan and Europe.

Castle notes that there are dozens of cities larger than, say, Chicago in China, including many situated near the agricultural zones in the west and southwest of the country.

“There is a growing talent pool in those areas, and a lot of people find those cities much less expensive than Beijing or Hong Kong,” he says of these new cities that still sport populations in the millions. “There are also a lot of towns of 100,000 to 400,000 — and even up to 700,000 — like a Lexington or Cincinnati or Louisville. They’re very comfortable for people to live in, and I tend to think those cities will continue to outgrow some of the major cities, and that quality of life will become more important to Chinese citizens. As more and more technology and creature comforts grow there, it will become hard to get in the major cities.” The sticker shock in terms of prices for housing and food already has set in, he says. “Twelve or 13 years ago it was very cheap to spend time in China,” he says. “Those days are gone.”

Executive Vice President and COO Mike Castle also serves as CEO of Alltech’s Feed Division.

Thus the opportunity for companies and talent alike may fall to those smaller cities, especially those aligned with China’s One Belt, One Road initiative. Castle says it will be “interesting” to see what infrastructure actually takes shape along this planned rail, road and commerce path between Asia and Europe. “I think you will see almost an entire empire span this new connected one belt, one road,” he says. “There will be a lot of opportunities to locate strategically along that.”

Education & Entrepreneurs

Asked how clusters such as the ag-tech cluster launched in North Carolina’s Research Triangle Park by Alexandria Real Estate Equities and its founder Joel Marcus work to help grow business while decreasing world hunger, Castle says, “Anything we can do that helps promote education or feeding the world in a natural way, we try to align behind and support.”

Again he turns to China for an innovative cluster example, involving a joint-venture research facility Nestlé set up with the government to promote dairy technology and best farming practices. Alltech was invited in to help with quality and marketing aspects. Functioning like a public-private partnership, the cluster has raised money to build model farms of various scales from 250 cows to thousands.

“Farmers from around the country can come see the different stages,” says Castle, “and they can see the progression of their business.” The project is one of the ways Alltech meets some of its social responsibilities. “It’s hard to judge their success on a financial model,” he says. “That’s not a goal. It’s designed to improve farmer performance. And if we talk milk productivity in China, yes, it has improved. I think what they have done has been quite groundbreaking in the ag space. And for the producers, some of whom I’ve spoken with, it makes a lasting impression.”

Another cluster of sorts is the ag accelerator program the company runs out of the Dogpatch Labs site in Ireland. In November, the company announced it will select another cohort from around the world to participate in the three-month Pearse Lyons Accelerator program, which concludes with a main-stage appearance at the company’s annual ONE: The Alltech Ideas Conference in Lexington, where the startups get to present to more than 4,000 attendees and some of the premier thought leaders in the world. Last year’s 10 startups from Australia, Canada, China, Indonesia, Israel, Ireland and the US — chosen from among 183 applicants from 38 countries — collectively added $50 million in new qualified sales leads across 28 international markets by the end of the accelerator. Agri-tech investment is growing at an exponential rate, say the experts, with $9.65 billion invested in agri-tech startups between 2013 and early 2017.

At the same time, the company fosters a spirit of corporate entrepreneurialism, based on the same sort of spirit that animated Lyons to start his company with a mere $10,000. 

“Alltech has been great about bringing in talented people and giving them freedom to make mistakes, to make a path, to go where others have been afraid to go,” Castle says, noting the organization’s flat hierarchy, which makes it easy to identify and shine the spotlight on star performers. “Without that, none of our training and development programs work. To be innovative — and that’s our number one goal — we have to have a culture that’s much more entrepreneurial than our competitors’.”

On the Horizon

Career development and mini-MBA programs are among the tools Alltech uses to coax the best and brightest into future leaders. Where might those leaders end up in the company or on the globe? It circles back to that annual feed survey, which gets the attention of economists because of the direct correlations between feed; meat, milk and egg production; and the middle class.

“We look at this survey as a way to project out five or 10 years, Castle says. “It’s no secret — parts of South and Southeast Asia are looking very strong, growing and improving. And some, given the media attention in Europe and the US, might catch people a little off guard, like Russia, which is performing better than expected. Most of the growth in Southeast Asia is just driven by sheer population and middle-class growth.”

In Cambodia, for instance, domestic feed production has doubled in tonnage since 2013, and it is expected that it will double again within the next three to four years. Swine and poultry are the strongest species sectors, with more than 27 million poultry and nearly 2.5 million pigs raised in the country. Another new market is Mongolia.

The location on the long-term horizon, Castle says, is Africa. Yes, the infrastructure is not yet there to develop a dominant ag economy. But everything else is.

As it happens, Dr. Akinwumi Adesina, president of the African Development Bank, spoke of just such a development at the USDA’s 94th Agriculture Outlook Forum in Arlington, Virginia, in February, where he said agriculture is “a huge wealth-creating sector that is primed to unleash new economic opportunities that will lift hundreds of millions of people out of poverty.”

In addition to holding an Africa Investment Forum in Johannesburg in November 2018, the ADB also is pioneering the establishment of Staple Crop Processing Zones in 10 African countries, expected to transform rural economies into zones of economic prosperity through agricultural industrialization and an accompanying rise in the value chain.

“Think about it,” Adesina told his influential audience. “The size of the food and agriculture market in Africa will rise to US $1 trillion by 2030. This is the time for US agri-businesses to invest in Africa, and for good reason: Think of a continent where McKinsey projects household consumption is expected to reach nearly $2.1 trillion and business-to-business expenditure will reach $3.5 trillion by 2025. Think of a continent brimming with 840 million youth, the youngest population in the world, by 2050.”

Castle and his colleagues have been thinking about it for a while.

“Look at weather, the ability to raise grain, the land to have animals — it’s ripe to be the most dominant ag player in the world,” he says of Africa. “But without infrastructure, there’s no way to pull that off. We do business there today — for over 25 years in some countries — but for us it’s wait to see the infrastructure develop. As that begins to develop and there’s good flow in and out, it becomes ripe, and we come on the back of that quickly, with our additive business.”

The infrastructure is on its way, fed by billions in capital from the People’s Republic of China.

Oleg Korol, CEO, Tevatronic, was one of 10 ag tech companies selected to be part of the inaugural Pearse Lyons Accelerator Program in 2017.