Factors affecting the costs of Natural Ingredients for Flavours
In 2008, the European Parliament introduced Regulation EC 1334/2008 covering flavourings and certain ingredients with flavouring properties. This was intended to satisfy consumer groups and make the content of flavours easier to understand. This legislation removed the definition of artificial as well as the designation of “Nature Identical” available since 1988 but did redefine the requirements for natural status in flavourings.
EC 1334/2008 describes clearly the definition of natural for flavours, the ingredients that can be used in natural flavours, how the ingredients can be made and how the final flavour must be described.
The immediate impact was to remove certain lower cost ingredients, we previously accepted as natural, due to changes in the approved manufacturing methods, Vanillin being a perfect example. At the time, flavour companies freely used vanillin derived from eugenol extracted from clove. This process involved high temperatures and a catalyst and didn’t meet the requirements of the new legislation. The only approved alternatives were vanillin extracted from vanilla beans (an expensive and low yielding process) or vanillin production, by a two-stage fermentation process starting from ferulic acid extracted from rice bran oil, this being about 20 times the cost of eugenol derived vanillin at the time.
The result was that flavour companies passed on the increased cost to their customers or they continued to use the cheaper, now non-natural, option and declare their flavours as natural…effectively committing fraud. Several companies chose this latter route finding the conversation with their customers about significantly increased costs too difficult to handle.
“Over the last 10 years the costs of the ferulic acid option for vanillin have decreased markedly due to advances in the biotechnology and the increased volume of production. Lower cost meant increased demand and further pressures on prices and availability of course, eventually arriving at a happy medium of sorts.”
To fully understand what is happening though, we need to look back further at how the industry developed over the last 30 years and results in the issues we have today, affecting the availability and cost of other natural materials we need for natural flavour creation and manufacture.
Understandably, customers requesting their suppliers reduce costs of flavours resulted in pressure down the supply chain onto ingredient manufacturers. In the 70’ and 80’s this was largely synthetic aroma chemical manufacture and the cheapest materials were being produced outside the major markets of Europe and the USA, principally in China. As western Flavour (and Fragrance) companies turned their attention to and bought from producers in China, the Chinese chemical industry grew at the expense of producers in Europe and the USA. Over the intervening years, China invested in appropriate technology and, in responding to western market demand, commenced development and production of natural aroma chemicals for flavours.
One of the reasons that Western manufacturers were more expensive was their required compliance with legislation that covered working conditions, safety, wages and effluent treatment. One company I worked with at the time in Europe, had a water/effluent treatment plant that cost €5 million to build and €1 Million/year to run. They were closing down their factory because they couldn’t compete with Chinese factories that had no demand to comply with environmental legislation or unions to negotiate with.
Despite the criticism levelled at the burgeoning Chinese chemical industry on both safety concerns and environmental impact, Western companies continued to purchase from them. simply because it was cheaper.
Eventually, the Chinese Government acknowledged the need to improve the environmental impact of the indigenous chemical industry and implemented wide sweeping legislation in 2017, summarily closing down 14,000 factories almost overnight and without warning. This process has continued since.
All branches of the chemical industry were affected, not only those manufacturing flavour materials, but also those that produced feedstocks for the industry.
One additional aspect of the new Chinese legislation that directly affects the flavour industry, roughly translates as “Stinky Odour”. Anyone detecting an aroma can complain and have the factory producing it closed down pending investigation. An awkward aspect this, as naturally enough, materials useful for the creation of flavours and fragrances, are usually relatively volatile and possess an aroma, and given how subjective the perception of odour is, leads to unnecessary closing of facilities.
Meanwhile, it appears that safety of Chinese production has yet to be improved as significantly. Witness the regular fires and explosions in chemical plants across the country that also result in suspension of various production processes whilst the cause is identified.
The result, reduced availability and increased prices. Given that quality has also improved…we have simply moved production of natural ingredients from Europe and the USA, where they are mostly needed, to China…adding the costs of shipping and importing...let alone the influences of politics, exchange rates and trade negotiations.
Whilst, frustrating at times, we are all in it together and having avoided the “B” word so far, for those of us in the UK, Brexit isn’t going to make this any easier.
- Steve Pearce. CEO
