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What's New February/March 2007
Upstairs and Downstairs
2006 was a mixed year for food ingredients and dietary supplements. The good news is that the food, pharmaceutical and
nutraceutical industries have increased consumption of ingredients and supplements but the bad news is that prices
continue downwards - Upstairs for high volumes but downstairs for low prices.
To the man-on-the-moon visiting planet earth this bizarre state-of-affairs is difficult to comprehend. Anybody
involved in the technical or business aspects of these industries will admit that the past year or two have become
aware of significant cost increases for utilities [oil, gas, electricity] and carbohydrate feedstocks [molasses,
starch, glucose] and as a consequence the production cost of most fermentation-derived products such as citric acid
has increased. In addition Western producers are faced with the cost of environmental treatment of wastes from these
processes and will soon face an additional cost hurdle drawn up by the European Union namely REACH legislation to
ensure safety within production plants. Chinese producers are not bothered by environmental issues nor by REACH type
legislation. Their prices continue to fall through the floor as demonstrated by the 2007 prices for two widely-used
ingredients:
- citric acid $0.8/kg, compared with $2.5/kg in 1997
In this politically correct era of 'friendship with China at all costs' we are not permitted to describe such practices
as 'dumping'. But if any other country, Taiwan , S. Korea or Turkey sold products below production cost would face
the full onslaught and l censure from the World Trade Organisation and other bodies established to ensure a level
playing field in global trade and commerce whether by companies in Western countries or companies in developing countries.
No Western producer can survive this climate of Chinese price cutting. As a consequence many major producers of
food ingredients [e.g. organic acids, vitamins nutraceuticals] have shut down their production plants and source these
ingredients from China. It must be hoped that Western consumers will not re-awake one day to face soaring prices for
these products available from only one source, which is neither European, N. American nor Japanese. Yes, you've
guessed who will take over the entire market.
Our latest surveys deal with these production costs, sales prices and the increasing penetration of Chinese
companies into this area.
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L. Hepner & Associates