Methane-Reducing Feed Additive Creates Revenue Streams

With FDA’s review complete, Elanco’s Bovaer is getting ready for the U.S. marketplace. But the methane-reducing feed additive’s success will be as much about economic as environmental sustainability, said Katie Cook, Elanco's Vice President of Livestock Sustainability and Farm Animal Marketing, in a Dairy Defined podcast released today. 

“The biggest thing, and the thing that's most important, is not only are we making sure that we're providing an environmental sustainability practice to our producers, but most importantly we're providing them with additional profitability,” Cook said. “It's a key tool as we think about telling our dairy story and the value that our dairy products bring to consumers. But more importantly, as a producer, it's also giving you an additional revenue stream as we think about the economic viability of our farms' longer term.”

Transcript

Alan Bjerga: Hello, and welcome to the Dairy Defined Podcast. And speaking of welcome, dairy farmers got good news in May, as the US Food and Drug Administration announced it's allowing Elanco's Bovaer to move forward into the marketplace. The feed additive, which reduces cow enteric emissions, is a long-awaited development that could put US dairy on firmer footing as it pursues industry net-zero goals, and it also aids competition in global markets.

Joining us is Katie Cook. She's Elanco's Vice President of Livestock Sustainability and Farm Animal Marketing. She grew up on a purebred cow-calf operation in Michigan, holds a Michigan State University dual degree in animal science and marketing, along with additional degrees from Indiana and Purdue Universities. She's held positions at Elanco from Oklahoma to Canada, where she was Elanco Canada's General Manager. But she's back in Indiana, where she currently leads Elanco's Global Farm Animal Innovation and Cattle Teams alongside other responsibilities. Katie Cook, thank you for joining us.

Katie Cook: Thanks for having me. Excited to be here.

Alan Bjerga: Tell us about Bovaer. What does it do? How does it work?

Katie Cook: So, as you mentioned, FDA has completed its review of the safety and effectiveness data of Bovaer, and we are really excited to be bringing this to our US dairy producers here in the very near future. So as you mentioned, it's one of the most tested and accepted feeding ingredients for reducing enteric methane emissions in lactating dairy cattle. And it does this without negatively impacting the quantity or the quality of milk, which is really exciting and important for our dairy producers as we think about the day-to-day operations. So you also ask how does it work? Well, it works by suppressing the enzyme in the cow's rumen that forms methane. So to put it in very practical terms, if a producer was to feed one tablespoon of Bovaer per lactating dairy cow per day throughout the year, it can reduce methane by approximately 30% or 1.2 metric tons of carbon dioxide equivalent emissions annually per cow.

Alan Bjerga: What's the value for a dairy producer in this?

Katie Cook: Yeah, so as you think about the dairy producer, it's a couple different things. I think the biggest thing and the thing that's most important is not only are we making sure that we're providing an environmental sustainability practice to our producers, but most importantly we're providing them with additional profitability. So as we think about this, feeding Bovaer gives them one of the first tools that's really truly scalable and credible for dairy farmers to implement on their farm to show that they're being good stewards, but it's going to provide about at least a $20-per-head return on an annual basis when we look at how do we monetize the carbon marketplace, take advantage of some government incentives and other pieces. So it's a key tool as we think about telling our dairy story and the value that our dairy products bring to consumers. But more importantly, as a producer, it's also giving you an additional revenue stream as we think about the economic viability of our farms' longer term.

Alan Bjerga: I want to get more into that economic viability question because when I hear farmers talk about this and I hear skepticism, it's always, "Hey, everyone's in favor of sustainability. That's all great, but this has to work for my balance sheet." How does this fit on a balance sheet right now? Give us an example of how this could work in the real world.

Katie Cook: So that's a really good question, and we're answering those a lot right now and very transparently working through some of the final details of it. But high level, as we think about it, it's a feed ingredient that a producer's going to mix into their feed ration on a daily basis. So just like you would any other feed ingredient, you purchase it from your feed mill and you mix it into your feed. And then what happens on the backside that we're working on is there's two different checks essentially, well, three that I'll say, right? So you still get your check for your milk that you would get on your normal basis, but now you're going to get two additional checks when you think about selling your carbon reduction. And that's going to come from two different places. One is the carbon marketplace from an organization called Appian, which is the first carbon insetting marketplace here in the US. And the second component is going to be government incentives that will come from most likely your processor. There may be some other players in that as well.

But what that will do, and our intent is we'll start quarterly with making sure we get that paid back, but the intent over time is that monthly you, as a dairy producer, will be receiving a carbon credit check from Appian. And if I use just round numbers of what we're thinking about from a Bovaer perspective, if we sell it around $85 per metric ton of carbon, you would be getting that carbon check every month for the cows that you had and the reductions that you make, and then you would get the government incentives. So what we've worked with is with the NRCS office from a federal perspective and now working with the states to get that approved, and it's about $83 per cow per year from a government incentive standpoint and so working with a number of organizations to make sure that you're getting that check spread out over the course of the year and not just getting it on an annual basis so that you get that turn on cash fairly quickly.

Alan Bjerga: Well, and looking at that government incentive component, dairy farmers care about sustainability, so does the consumer, so does public policy. Where is that government incentive component at this moment, and what are we trying to get toward in terms of encouraging farmers to really be the boots on the ground pursuing a goal that everyone is sharing?

Katie Cook: Yeah. So when we think about the government incentives, it's one of those things that we see as really starting the fly wheel. So as you think about Bovaer and other innovations that come to the marketplace, how do we get it started? How do you get the carbon marketplace up and running? And one of those key things that we need to do is, one, bridge that gap here in the interim with the government incentives as we get a viable, resilient carbon marketplace that we anticipate will be here for years to come. But in the short term, over the next few years, we do need the government incentives to play a role in that place to get it jump-started, to bring the food companies here to the US to want to participate in this carbon marketplace and create that additional value stream for you guys as producers.

Alan Bjerga: Pulling back on this a little more broad brush, tell us about Elanco's commitment to sustainability and why you are even focused in this area.

Katie Cook: So Elanco has been, and as you mentioned, many of us have been a part of this industry. We either grew up in it or been in it for 60 plus years as Elanco, as an organization, has been.

Alan Bjerga: You have not been involved in it for 60 plus years, right?

Katie Cook: I have not.

Alan Bjerga: Okay. Just clarifying.

Katie Cook: Good clarifying. Yeah. Elanco has been around 60 plus years. I have not quite been around 60 plus years, but did grow up in the agriculture industry. And what I would say is we're very committed to the farm animal space. We're very committed to the dairy producer. And as we look at what is the longevity of the industry, not just our business, but for you guys as producers, is we truly believe that continuing to find additional ways of adding value to your operations is really important. And so sustainability is that next key, as you mentioned, trend that we see from a consumer and a policy standpoint, and there's an opportunity for us to lean into that space and change it from us being the villain or the problem is what you see most of the time to actually being one of the solutions. And so what Elanco is focusing on doing is helping to not only bring innovations to the marketplace that allow you to reduce the carbon footprint, but also allow you to measure and monetize those and ultimately bring the additional value stream.

So we look at that in four different ways. One is how do you continue to bring the innovations? Bovaer is one of those latest innovations that we're bringing to the marketplace. The second place is how do we help you measure it? So Uplook is a carbon calculator tool that we've created that takes your on-farm data that you're already collecting and helps you understand your carbon footprint and then create a credible carbon unit by implementing interventions such as Bovaer and then helping you monetize. So that's where we help seed investment in Appian, but also working with other partners on creating those carbon marketplaces and other ways to create incentives for you.

And then finally, the other part is around advocacy and how do we continue to change the narrative? So the efforts that we really started with at first when getting policy around getting innovations into your hands sooner, getting some government incentives to allow us to jump-start this marketplace. But ultimately it's really around how do we continue to shift the narrative around animal protein, around our milk products, and really show the role that livestock can play in mitigating climate change and ensuring our social license to operate for the future.

Alan Bjerga: So you're a dairy producer. You're listening to this and you're like, "Okay, Elanco, sign me up." How do you prepare to implement Bovaer on your operation, and what sort of timelines are we talking about?

Katie Cook: Yeah, that's a really good question. So I'd say there's two things that you really need to do when you think about preparing. One is you have to be able to measure it, and two, getting access to those government funds. So if we start with one, how do you measure it? So one, I would say contact your local Elanco rep. If you don't know who your local Elanco rep is, contact your local feed mill and they can help put you in contact with that. But what we'll do is get you started on Uplook. The old adage used to be you can't manage what you can't measure. The new adage is you can't monetize what you can't measure. And so getting you enrolled on our Uplook system is really critical, and that's something you can do before you actually have Bovaer in your hands and actually feeding it. So we'll work with you on getting into your systems, getting you enrolled, getting all of that connected.

The second component, which is equally important, is getting access to the government incentives. And so that's where we'd say, reach out to your processors and your co-ops in your area. Ask them if they have some of these government incentives. There's a number of different ones available. And they can get you connected and started in that process as we start to enroll producers in that. So that way when Bovaer is available in each of the states, you will be ready to go and we can move that forward.

And then your third question was around timing. We are actively, as we mentioned, right, the FDA has completed its review for safety and effectiveness. As part of that process, we're currently going through the state registrations, as it's being viewed as a feed ingredient. So we anticipate here this summer that we will have product available in the marketplace for you to start feeding on your farm.

Alan Bjerga: We've been speaking with Katie Cook. She's Elanco's Vice President of Livestock Sustainability and Farm Animal Marketing. Katie, before we let you go, is there anything else you'd like to add?

Katie Cook: I would just say thank you for the opportunity, and we're super excited here at Elanco to be a part of the dairy industry and continue to make sure that we're not only providing a safe and nutritious product, but now being able to play a role in sustainability and provide some credibility to the industry, but also more importantly, bring some additional profitability back to your bottom line. So excited to partner with all of you guys in the future,

Alan Bjerga: And thank you for joining us. And thank you for joining us, whether you're a potential Bovaer customer or not, on the Dairy Defined Podcast. We can be found and subscribed to on Apple Podcasts, Spotify, Google Podcasts, and Amazon Music under the podcast name Dairy Defined. Thank you all for joining us. We'll be back soon.