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International Animal Feed Disputes Require Multifaceted Expert Evidence

Special Reports

by Dr Nick Chapman of CWA International Ltd


The animal feed industry is a multifaceted and economically significant global business, encompassing a wide range of products that are shipped in large quantities of sizable value. Given the complexity of the global supply chains involved, there are many risks to the maintenance of commodity quality and thus value. When loss or damage events arise, a sizable claim may arise. In commodity disputes, unlike most other legal disputes, specialist commodity scientists with expertise in many different and varied fields are required to support the dispute resolution process. Their roles are to establish the nature of damage, quantum and cause of the loss, as well as to provide specialist technical advice on the appropriate steps for effective loss mitigation under the time constraints associated with perishable commodities.

The complexity of the global animal feed industry
In recent decades there has been significant growth in the animal feed sector, as the industry has sought to produce the required quantity and quality of animal feed needed to support an increased global demand for meat and animal products. This demand has been largely driven by an increasing global human population, urbanisation and greater consumer purchasing power.

As a result animal feed production is a substantial global industry. The International Feed Industry Federation (IFIF) estimated global commercial animal feed production in 2013 generated US$ 370 billion in turnover1, while the Association of Animal Feed Producers in the UK reported that total global production of commercial animal feed in 2014 was 950 million tonnes2 (see Table 1).

The major solid animal feeds produced globally can generally be considered either as whole grains and seeds (e.g. feed wheat, feed maize/corn and feed barley) or the products from the processing of whole grains and seeds (e.g. wheat bran pellets, soya bean meal, rapeseed meal, corn gluten feed and dried distiller’s grains with solubles).

Although some grain is specifically grown for feed purposes, feed grain such as wheat or corn is often grain that is considered to be surplus to human requirements, of a lower quality such that it is unsuitable for food use, or has become an economically viable feed grain option due to market forces.

However, the majority of animal feeds are derived from the processing of whole grains and seeds. This is particularly true for animal feeds derived from corn and oilseeds, which are the major animal feeds traded globally.

Corn refining to separate the corn kernel into constituent parts that can be used to make a variety of value-added feed products, including corn gluten feed, corn gluten meal and corn germ meal, is a major industry in its own right especially in the USA.

Oilseeds are so-called because of their relatively high oil content per unit mass and, although there are other uses, the majority of oilseeds are crushed to extract the oil from the seeds for food, biofuel or industrial applications. The seed material remaining after the extraction of the oil is commonly referred to as seed cake or meal (or expeller) and this has become a popular animal feed due to its relatively high protein content per unit mass.

The various feed products can be further processed for a particular end-use, either to add further value (e.g. additional protein or fibre) or to achieve a suitable
physical form (e.g. meal or pelletized), or simply to facilitate better handling during onward transport. The intended use of the feed is an important factor in determining the physical form in which the feed is delivered. For example, it is more suitable to feed lambs on whole wheat grains while pellets are considered to be better for cattle3.

The price of feed is partly dependent on its physical form. Meals, cakes and pellets may be expected to have a higher value (sometimes double) than feed grains. This is mainly because the finished feed products have a particular nutritional value that is desired by the consumer. As such, the manufacturers are willing to invest in their added value in order to attract a higher price from consumers for the increased effectiveness of these feed products.

Thus quality is the main determinant of feed price. Even within the different forms of feed, the value is dependent on the quality specifications since these determine its nutritional value and thus its effectiveness as an animal feed. For example, soya bean meal pellets with a high protein content (so called ‘hipro’) may be expected to attract a premium over normal meals because even a slightly higher protein content improves its nutritional value as an animal feed.

Since animal feeds are bought and sold on the basis of their quality, it is imperative that the quality of the feed is maintained within the global supply chain. A
typical global supply chain for whole animal feed grains comprises: the growth and harvest of the grains in the field; on-farm drying and storage; road, rail or barge transfer of smaller grain parcels to a single port terminal; storage at the terminal, blending and assembly into a larger consignment for shipment; loading on board a ship; storage on board the ship during a sea voyage; arrival at the destination and discharge of the cargo from the ship; transfer of the grains, either directly to a factory in the port for processing or further inland by rail, road or barge; processing, packaging, storage and delivery of the final product to the

There are some important pre-shipment differences in the global supply chain for processed animal feeds, as follows: the manufacture of processed animal feed product, often near to or within a port; on site conditioning and storage; loading to a ship, etc. The rest of the supply chain is largely the same as that described above for whole feed grains and seeds.

Given the complexity of the global animal feed supply chains, there are many risks to the maintenance of cargo quality and thus value. Critical evaluation of the risks involved and their potential impact on feed quality and safety requires specialist commodity expertise in many different and varied fields.

Applying specialist expertise to the analysis of supply chain risks and impacts The risks to feed quality and safety are associated with either the inherent properties of the feed itself or a failure to correctly handle the feed during storage and transport. The following examples are provided as an indication of the complex and multi-faceted nature of the risks, as well as the expertise required to help resolve the associated commercial and legal disputes.

Inherent factors
Feed grains risk deteriorating if not stored at a safe moisture content. An elevated moisture content may arise as a consequence of a number of factors, such as the grains not having been sufficiently dried after harvest, having been subject to ambient conditions within the silos that allowed the formation of condensation or indeed having been directly wetted by an external moisture source (e.g. precipitation or seawater).

The moisture content of grain and the grain temperature, as well as the duration of storage, mainly determine the risk of fungal growth within a consignment of grain. Fungal growth within animal feed (see Photograph 1) is undesirable since it can lead to significant deterioration in quality from heat and additional moisture produced by fungal respiration.

Whether as a result of continuing grain respiration, fungal respiration or elevated moisture content, feed grains can self-heat during storage giving rise to deterioration, agglomeration and difficulties in onward handling of the grains.

Self-heating is the term used to describe the increase in temperature of the stored commodity from the generation of heat without drawing heat from the surroundings. It is considered to comprise biological heating up to a temperature of 55°C, driven by the activity of the plant cells, fungi, insects or mites present, and a chemical heating stage caused by oxidation which can lead to temperatures of 100°C or more4.

Self-heating can progress to the point of combustion with serious risks to the quality of the feed, the integrity of storage facility (e.g. silo, warehouse or ship) and the safety of anyone present (see Photograph 2). In the event of fire in an animal feed cargo, the primary concern is to contain the fire damage until the seat of the fire can be located and removed. However, smoke taint can be a major issue for the palatability of the remaining feed. It is widely accepted that processed animal feeds, such as meals, cakes and pellets, are at increased risk of self-heating during storage. Furthermore, the risk of self-heating is increased with increased moisture and oil content.

The International Maritime Organisation (IMO) publish the International Maritime Solid Bulk Cargoes (IMSBC) Code which aims to facilitate the safe shipment of certain cargoes by providing information concerning the potential hazards associated with their carriage, along with guidelines for their appropriate handling and remedial actions in the event of self-heating on board the ship.

At Appendix 1 of the IMSBC Code there are several sub-categories provided under the heading of ‘seed  cake’, subject to the processing methods and the inherent moisture and oil content. Cargoes that fall under the definition of ‘seed cake’ are specifically listed under each sub-category, but can generally be considered to be those derived from the residues remaining after the extraction of oil from certain cereals, grains and oilseeds and which are shipped in the form of pulp, meals, cake, pellets and expellers. These include a number of major animal feeds.

Those at greatest risk are classified as “SEED CAKE, containing vegetable oil UN 1386 (a) mechanically expelled seeds, containing more than l0% of oil or more
than 20% of oil and moisture combined”. Such cargoes are considered at risk of self-heating to the point of spontaneous combustion and possessing a chemical
hazard which could give rise to a dangerous situation on a ship.

Certain seed cake cargoes are listed under the sub-category “SEED CAKE (non-hazardous)” and are considered by the IMO to be exempt from the IMSBC Code on the provision of certain documentation indicating that the inherent oil and moisture contents of the cargo satisfy the requirements for exemption. Unfortunately, this does not mean that this commodity is without the risk of self-heating (and indeed many do).

Castor meal is typically used as a rich source of protein in chicken feed and has a separate entry under the IMSBC Code because it carries an allergenic hazard for those engaged in handling it. Following extraction of castor oil, the remaining castor bean meal can contain the toxic glycoprotein ricin and can give rise to severe irritation of the skin, eyes and mucous membranes in some individuals exposed to the dust associated with the handling of these cargoes within the supply chain.

Given the nature of the supply chain, contamination of animal feeds with other foreign matter is common. For example, in the case of feed grains there may be a risk of contamination during harvest with poisonous seeds that may be injurious to the animal. The same is true to varying degreesfor contamination of animal feed with debris, e.g. soil, stones, plastic or metal, which may occur at any point within the supply chain.

The dangers of toxic contaminants have been known for some time and maximum acceptable limits have been established for a range of feedstuffs. For example, it is acknowledged that animal feeds can carry the risk of Salmonella contamination, typically originating from bird or  rodent droppings that have come into contact with the commodity during handling or storage. Perhaps the most well known in the feed industry are mycotoxins. Although by no means an inevitable outcome of fungal growth, under certain conditions, fungi can produce colourless, tasteless and odourless potent carcinogenic toxins known as mycotoxins. Their presence in animal feed can have a direct harmful effect on the animal consuming the affected feed but there can also be an associated food safety risk. For example, mycotoxins pass into the milk of cattle that have consumed contaminated feed grain.

Contamination of processed animal feeds with dioxins or polychlorinated biphenyls (PCBs) can also present a potentially toxic hazard. These compounds are often unintentionally formed as by-products of chemical processes taking place within the environment surrounding the field.

Although these compounds are lipophilic (i.e. oil loving) and would be expected to be removed with the oil component of the seeds, where contamination of the whole seed has occurred from exposure to an environmental source, a quantity of these contaminants may remain in the seed cake since the oil extraction process would not be expected to be 100% efficient. This is of concern since these compounds are highly toxic to animals and humans and due to their lipophilic properties bioaccumulate in fatty tissues.

Storage pests
A failure to securely store animal feed can result in bird and rodent pests gaining access to the silos and warehouses used to store the feed before and after
shipment. This is a particular problem in large silo or warehouse complexes at the port terminal.

Fumigation of the silo or warehouses used to store the commodity before or after shipment may be undertaken to minimise the risk of deterioration in quality from insect activity during storage. However, an efficacious fumigation will be just as effective at killing any birds or rodents present.

It is for this reason quite common to find bird or rodent cadavers in large shipments of animal feed (see Photograph 3). In some cases, e.g. where an unknown bird infestation has been present at the time of the fumigation, the number of cadavers can be excessively high and give rise to concerns about the safety of the feed for its intended use.

To minimise the risk of deterioration from insect activity during the voyage and to assist with the importing phytosanitary requirements, most shipments of animal feed are subject to an in-transit fumigation on board the ship after completion of the cargo loading operations. This is typically undertaken using the fumigant phosphine and requires the complete sealing of the cargo spaces for a specified period of time.

Unfortunately, fumigations on board a ship regularly fail and quality issues associated with the presence of live insects are common. In some instances, the incorrect application of the fumigant can lead to major problems. While under-dosing can permit insects to develop during the voyage, incorrect distribution of the fumigation formulation can lead to heating, fire and even explosions.

Marine transport risks
While many of the risks already discussed are also applicable to marine transport of animal feed commodities, two important risks specific to their marine transport relate to exposure of the commodity to external sources of moisture and heat associated with being stored on board a ship.

As has always been the case with carriage by sea, there is a risk of damage to the commodities from ingress of seawater. Ingress into the holds may occur from above, e.g. if there is an issue with the integrity of the ship’s hatch covers or if the ship experiences severe sea conditions during the voyage, but may also occur from below via the bilge wells, or additionally from burst ballast tanks adjacent to the cargo space.

The pattern of cargo damage is important in assessing the likely source of seawater. Ingress from above is typically characterised by columns of mouldy and agglomerated feed which are surrounded by otherwise sound feed (see Photograph 4), while significant ingress via the bilge wells may uniformly effect the entire bottom layer of the feed stored within the affected hold.

Another common form of moisture damage to feed cargoes during marine shipment arises from condensation or so called ‘sweat’ damage. This type of damage typically arises from the incorrect application of cargo ventilation by the crew and often has a characteristic pattern (see Photograph 5). For example, so called ‘ship’s sweat’ is often characterised by black lines of damage on the feed surface directly beneath the structures of the hold on which moisture has condensed and dripped onto the feed.

The purpose of appropriate cargo ventilation is to remove warm moist air from the headspace of the cargo hold, in order to minimise the risk of moisture damage at the surface of the cargo stow. The risk of this kind of damage is increased for feed grains, since they continue to respire during storage, or feeds that are self-heating, but in any case the risk is dependent on the cargo temperatures and the ambient conditions during the voyage.

There are several external sources of heat associated with a ship that may give rise to quality issues during the marine transport of animal feeds.

By far the most common external source of heat damage to animal feed cargoes is related to the heating of fuel oil in storage tanks and pipelines adjacent to the cargo spaces. Depending on the extent of heating, cargo may be lightly caked or completely charred, but the damage often has a characteristic pattern that coincides with the location of the heated tanks or pipelines (see Photograph 6).

Evaluating the impact of the alleged damage
Whether due to the inherent properties of the cargo or an external source of heat or moisture, heat damage to animal feeds can be a major problem based on potential issues of discolouration and decreased nutritional value.

Heating of many animal feeds is often accompanied by a darkening in colour. Soya bean meal is expected to be a creamy or golden yellow colour but may darken, possibly even to a brown or black colouration, on heating which can negatively impact on its saleability. That being said if the meal is to be mixed with other ingredients to form a compound animal feed then the impact of discolouration may be limited, especially if the additional ingredients are dark in colour.

Heating of soya bean meal can also have a negative effect on nutritional value and thus feed effectiveness. At high temperatures this is related to the influence of the Maillard reaction on the amino acid availability, but also the quality of the available protein that alters with denaturation. However, soya bean meal used for pig feed is often subject to heating or a ‘toasting’ step which is required to destroy anti-nutritional factors such as trypsin inhibitors that impair protein digestion. Therefore, a specific knowledge of the entire supply chain is central to interpreting the impact of an alleged loss.

On the other hand, variation in colour can be an intrinsic property of the cargo rather than attributable to a source of heat associated with  incorrect storage or transportation. For example, the particular steps intrinsic to the production of corn gluten feed pellets yield pellets of a particular colour. The assembly of a single large shipment of corn gluten feed pellets from smaller parcels of pellets produced at different sites can result in obvious visual variation when mixed together (see Photograph 7).

In evaluating an alleged loss event, a sound understanding of the scientific basis of quality assurance is required. It can be common for an entire cargo to be rejected on the basis of laboratory testing one sample and reviewing the results against contractual quality specifications, national importing standards or scientific literature concerning a particular form of damage.

Correct sampling and testing of the cargo is therefore critical. Analysing a single spot sample of the worst damaged cargo and rejecting the entirety of the cargo on that basis is not likely to be a reasonable approach to take.

By contrast, when investigating causation it may be appropriate to analyse a single spot sample of the worst damage, e.g. when investigating wetting damage to determine whether or not the characteristic ionic fingerprint of seawater is present.

To establish the overall quality of a consignment, a well-designed representative sampling protocol for the commodity concerned must be applied in accordance with a recognized method. Only by doing so can a known quantity of cargo with a known quality be established. That quality can then be assessed against the applicable specifications to determine whether or not the alleged dispute is supported by evidence that will withstand scrutiny.

Applying specialist expertise to a distinctive claims industry
When loss or damage arises in the global feed trade, substantial financial losses can be incurred due to the large quantities involved. It is not unusual for a single shipment of animal feed to be 50,000 mt and worth tens of millions of dollars, so even a limited degree of damage can have commercially significant repercussions.

In a scenario where a sizable loss is subject to formal dispute resolution, expert evidence in relation to quantum, causation, liability and mitigation will be sought, involving advice, formal reporting and/or delivering oral evidence.

Contemporaneous evidence gathered by the specialists for the commodity and damage incident subject to the dispute or their expert opinion formed from the available information, will form the basis of the expert evidence.

In commodity disputes, unlike most other legal disputes, specialist commodity scientists with expertise in many different and varied fields are required to support the dispute resolution process when claims arise within the complex and multifaceted animal feed supply chains.

Furthermore, there are often many parties involved in a dispute regarding a single shipment. These may include the buyer, the seller, the ship, the charterer(s) of the vessel, as well as their legal counterparts, their insurers (and sometimes reinsurers) and the relevant governmental authorities. Often not all of the parties involved are known at the time of the incident.

Each commercial party can be expected to appoint a surveyor to assess their loss and exposure, but also to protect their interests by limiting the release of
sensitive evidence on the ground. This complexity can make resolving a formal dispute even more difficult.

Given the global nature of the animal feed trade, a claim can be truly international. The dispute may arise in a foreign country, about which the parties involved know little with regards to the governing regulations, standards and legal proceedings. It is common for some claims to be subject to local jurisdiction and local legal representation must be appointed. Furthermore, depending on the jurisdiction, the burden of proof in supporting or rejecting a claim can fall on different parties.

As a result of the many different factors affecting the market value of a particular feed commodity, fluctuations in value between purchase and delivery can result in claims that may be unfounded or unsubstantiated. Tackling such claims locally, where the buyer can be a powerful player with a better understanding of the local customs, can prove difficult and requires specialist knowledge as well as a degree of diplomacy.

However, the single most important difference when compared to other legal arenas is that the majority of animal feeds are perishable. As a result there are significant time-constraints on successful loss mitigation when damage occurs. As well as forensically investigating quantum, causation and liability, the specialist cargo scientist must provide timely technical advice as incidents unfold in order to prevent costly escalation.

In an ideal world an alleged loss incident will be dealt with logically and sensibly onsite, in a timely manner and with minimal losses. Unfortunately, this is not always the course of action due to the complex nature of disputes that arise in the global trade of animal feeds. In such cases, the timely application of specialist expertise can assist with successful international dispute resolution.

Cited references
1. The International Feed Industry Federation (IFIF) Annual Report 2012/2013.

2. The Association of Animal Feed Producers in the UK, 2013, Industry Report for 2014 and Beyond.

3. Feedipedia: www.feedipedia.org

4. J.T. Mills, 1989, Spoilage and heating of stored agricultural products.

About the author
Dr Nick Chapman is a Consultant Scientist in the Food and Other Dry Agricultural Commodities Department at CWA International Ltd. He has extensive experience of the investigation of damage and loss incidents arising from the storage and transport of a range of feeds, foods and other agricultural commodities worldwide, including those arising from inherent and external factors. He has particular knowledge of cereals, oilseeds and animal feeds.

About CWA International Ltd
For more than 35 years CWA has been providing a first-class consultancy service to clients involved in the international trade of commodities, including those active in shipping, insurance and reinsurance, as well as their legal counterparts.

Our departments possess specialist knowledge of all aspects of their respective industries including technical, scientific, logistical, commercial and market factors, making them well equipped to advise on causation, quantum, mitigation, and environmental impact.

We only deploy well-qualified experienced staff, including chemical and mining engineers, petroleum chemists, food scientists, risk analysts, master mariners and cargo surveyors, to provide technical advice on risks, damages and loss across the international trade of commodities including production, handling, storage, marine transportation, and distribution.

We undertake forensic investigations worldwide, typically onsite after the incident or remotely through the study of the available documentation and evidence. Our senior consultants regularly assist with dispute resolution, giving expert evidence in the High Court, in arbitrations worldwide and in mediations. We regularly provide technical assistance on unfolding incidents and operate on a 24/7 basis, 365 days a year, to provide urgent specialist advice to clients exposed to high damage incidents or faced with potential costly escalation.

For more information on our expertise and services offered please visit our website at www.cwa.international or call 020 7242 8444 to discuss your needs.

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