19. Product mix pricing strategies. By-product pricing.

By-product pricing - a pricing method used in situations where a saleable by-product results in the manufacturing process. If the by-product has little value, and is costly to dispose of, it will probably not affect the pricing of the main product; if, on the other hand, the by-product has significant value, the manufacturer may derive a competitive advantage by charging a lower price for its main product.

Examples of by-products from the food & drink manufacturing
In addition to their core products, food & drink companies produce a wide range of other
products, which are highly appreciated by other economic sectors as important
economic input in well-established and regulated application areas.

Example 1 – Animal Feed
F&D sector (by-)products are a key source of protein-rich animal feed:
Among the 85 mio. t of (by-)products from the F&D sector used for animal feeding each
year, about 60 mio. t are used by the EU feed industry for the production of compound
feed, while the rest is supplied directly to farmers. The use of these by-products in
animal feed is extensively regulated in Regulation 178/2002 on food law and Directive
98/67/EC on feedingstuffs, addressing food and feed safety, consumer protection,
animal and plant health and the environment.
Sugar beet: 
The companies in the European sugar industry process some 110 million tonnes of beet
every year, producing 17 million tonnes of sugar. However, beet processing in sugar
factories generates not only sugar (representing about 14-16% of fresh sugar beet
weight) but also a considerable number of other products which meet legislation,
specifications and quality controls and which therefore fully meet the requirements for
being classified as products. 
The leading non-sugar product is thereby beet pulp, which is an excellent and long
recognised cattle feed product which is highly appreciated by farmers due to its high
energetic value. Beet pulp originates from cleaned and sliced sugar beets (so-called
“cossettes”) when the sugar is dissolved with warm water. It is thus of pure plant origin.
Beet pulp is either used as part of compound feed products or fed directly.

By-products from starch production: 
Over the 2003/2004 campaign year, the processing of corn by members of AAF
(representing the European starch industry) resulted in approximately 1,3 million tonnes
of fiber and protein fractions. Both fractions are internationally well-defined products
(corn gluten feed and corn gluten meal), and have been recognized and appreciated for
decades as input for animal feed formulations (used e.g. in dairy cows and pig diets
both as a source of energy and proteins). Simultaneously, approximately 380 000 tons
of corn germs were generated as output. Corn germs are either pressed and refined
into cooking oil or sold as such for animal feed formulations. 
Wheat processing by AAF members over the same period resulted in about 470 000 tons
of wheat protein. These proteins are predominantly used in the bakery sector and thus
meet stringent food quality specifications. Another part of these proteins are inputs for
animal feed formulations, thereby meeting the elaborate EU feed legislation currently in
Wheat is also often used for ethanol production, which results in an output of the so-called
"still bottoms ", being a well-known protein-rich fraction with animal feed as destination.
By-products from malt production:
Each year, the European malting industry produces about 8,3 million tons of malt from
barley. This malting process leads to the creation of different types of by-products:
cereal screenings, malt screenings, malt rootlets, cereal fines (see Guide for Good
Hygiene Practices for the Malting Companies in Europe, March 2006). It generates
yearly about 500 000 tons of by-products, the vast majority of which is sold to the feed
industry as feed ingredient.