February/March 2009

Food & Pharma Ingredients - Going up or Coming Down?

Until mid 2007 prices for food and pharmaceutical ingredients went downhill all the way. The reason was simple: The Chinese government had decided that food and pharma ingredients represented a strategic industrial sector which they would take over completely. Chinese producers of ingredients sold products to the West at prices below those of Western companies - a practice commonly known as dumping. By a devious system of export rebates the Chinese government subsidised these producers by paying them 'export subsidies' amounting to the difference between the local production cost and the sales price. Though dumping is illegal by WTO and GATT rules, the international community and especially the U.S. did not seem perturbed by this practice arguing that anything that can be done to bolster China's economy was OK.

By mid-2008 this all changed abruptly. The Chinese government felt it was politically smart to reduce their life-threatening levels of air and water pollution in preparation for hosting the 2008 Olympic Games in Beijing. As a result many Chinese plants for vitamin C, penicillin G, citric acid and other food and pharma ingredients were closed resulting in a shortage and higher prices as for example : vitamin C $13.5/kg, amoxicillin $31/kg, citric acid $1/kg to mention only a few.

Apart from the variability in Chinese food ingredients Western companies have been troubled by melamine pollution of milk and soya proteins which resulted in a severe reduction in soya protein exports from China.

The economic recession or 'credit crunch' has affected the food and pharmaceutical industry in Western countries resulting in reduced purchases of ingredients by major companies in this area. Hence there is every likelihood that prices of most ingredients will decline below present levels. At the same time the future of many Chinese producers of ingredients is quite uncertain as China's recession is even worse than in the West. As China has succeeded in eliminating many Western producers this may result in severe shortages of many food an pharma ingredients such as vitamin C, citric acid and various antibiotics.

The outlook is uncertain for ingredient companies as well as for food and pharmaceutical companies perhaps only the fittest will survive. Companies in these industries should continuously monitor prices, producers and production costs. L. Hepner & Associates has prepared many surveys which review latest prices, producers output, and projected markets by 2015 for almost every category of food and pharmaceutical ingredient, as well as capacities of every fermentation company world-wide. We recommend the following surveys:

The Fermentation & Biotechnology Industry
Vitamins [A, B!, B2, B3, B4, B5, B6, C, D2/D3, E]
Citric Acid, Lactic Acid, Gluconic Acid
The Antibiotics Industry