em - food and beverage ingredients emerging markets to drive the future

8/12/2019 EM - Food and Beverage Ingredients Emerging Markets to Drive the Future

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INTRODUCTION

SUPPLY AND DEMAND DRIVERS

THE GLOBAL MARKET FOR FOOD AND

BEVERAGE INGREDIENTS

EMERGING MARKETS

CATEGORY ANALYSIS

ONES TO WATCH


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Euromonitor International PASSPORT 3INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

Disclaimer

Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

discretion is advised.

Supply ing ingredients to the

global food and beverage

industry remains something of a

balancing act as ingredients

f irms respond to mult iple trends

and inf luences. This report

assesses the most imp ortant

industry driv ers, provides an

overv iew of the market and

highl igh ts trends in 15 keyadded-value ingredients

categories. At the same tim e, it

aims the spotl ight on the

emerging markets and

demons t rates jus t h ow

important these wil l be to

ingredients suppliers in the

coming y ears.

Scope (1)INTRODUCTION

This report looks at trends in ingredients use by the packaged food and

beverage industries and highlights the importance of emerging markets indriving this category. It starts by discussing the major supply and demanddrivers within the ingredients industry before giving a statistical global andregional analysis of sales. It then looks in more detail at market sizes, trendsand recent developments in 15 individual ingredients categories, beforepinpointing a few key categories to watch in the coming years.

The emphasis is on added-value or speciality ingredients rather than bulkcommodities. These added-value ingredients are defined as those that are

designed and used with a specific benefit in mind, including benefits at bothproduction and consumer level. This covers ingredients that food andbeverage manufacturers add to the products core recipe in order to improve

taste and texture, to extend shelf life, to enhance healthiness or to improve theimage of a finished food (eg giving a natural or ethical profile or delivering amore sophisticated or indulgent image). As a result, it excludes many popularbulk commodities such as sugar, corn sweeteners, flours and basic fats andoils, but includes areas such as cocoa ingredients and botanicals, which are

often seen as commodities but which are available in more added-valueformats for natural, indulgent and ethical end-products. A full breakdown ofcategory coverage is presented on the next slide.
http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/


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INTRODUCTION




EMERGING MARKETS

CATEGORY ANALYSIS

ONES TO WATCH


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Challenges

Opportunities

Higher raw material and energycosts

Competition from low-costingredients from the developing

world

More application-specific blendsand tailor-made ingredients

Ingredients to substitute moreexpensive or price-volatile

options

Supply: Economic challenges and opportunitiesSUPPLY AND DEMAND DRIVERS

Continuing economic strife in certain parts of the world is

presenting several challenges to food and beverage suppliers.For example, higher energy and raw material prices continueto impact the industrys production costs so manufacturers are

constantly seeking ways to cut spending, while the availabilityof low-cost ingredients supply from the developing world hasalso become a key issue in many categories.

While some companies have established their own productioncapability in developing markets so as to compete on a more

level playing field with low-cost suppliers, other Westerningredients firms have decided to exit more affected categoriesentirely so as to concentrate on added-value ingredients andcomplete solutions, using their expertise in a wider range ofingredients to build application-specific blends for theircustomers.

As well as helping product formulators to cut their R&Dinvestment, such blends are also positioned as being morecost effective than purchasing a series of single ingredients.Meanwhile, substitution of one ingredient with another can alsohelp to cut costs and there is a growing focus on ingredientsthat have more constant price positioning as a way to avoidany severe fluctuations.


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Sustainability

Inside the ingredients business

Manage resourcesresponsibly, seek outnew renewable raw

materials

Reduce carbonfootprint and

minimise impact onthe environment

Helping customers

Deliver ingredients tohelp reduce

processing times orenergy/water usage

Deliver ingredientswith good all-round

sustainabilitycredentials

Supply: Twin approach to sustainabilitySUPPLY AND DEMAND DRIVERS

Sustainability has become one of the most important issues throughout industry. For many years, economic

growth was tied to environmental degradation but industry is now trying to decouple these two ideas andhas accepted that the health of the environment is crucial for global economic survival. Such is theimportance of this issue that virtually all major ingredients suppliers have sustainability strategies in place.In general, the ingredients industry has taken a twin approach to sustainability: looking both at ways tooperate their own businesses more sustainably; and at ways to help their customers to do so.


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Significant demand for naturalingredients

R&D focused on best ways toexploit natural resources

but rising competition fornatural raw materials

Supply: Natural is very much the buzzwordSUPPLY AND DEMAND DRIVERS

Interest in natural products has never been

higher in fmcg markets and this is discussedfurther as a demand driver in a later slide. It mustbe noted here, though, that this demand for morenatural ingredients to replace chemicals andother more highly-processed ingredients isclosely tied to the sustainability issue and theexploitation of renewable raw materials.

The R&D divisions of the worlds leading

ingredients firms are very much focusing theirattention on how best to exploit natural resourcesand this must remain at the forefront of corporatestrategies going forward. Western markets areparticularly driven by this theme and will likely bethe first to experience the latest offerings thatingredient companies can draw from the naturalworld.

However, there is a flip side to this issue in that ingredients companies are no longer the sole customers forthe worlds natural resources. For example, common cereals, oilseeds and gums are seeing growing

demand from other areas of industry, including the fuel, mining and oil drilling industries. Meanwhile, food-and beverage-grade ingredients are also forging a market for themselves in the personal and home carecategories.


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GM crop coverage is expanding all the time but demand for non-GM products is also

rising and certification is emerging

Supply: The natural paradox of GMSUPPLY AND DEMAND DRIVERS

0

50

100

150

200

2007 2008 2009 2010 2011 2012

Millionhectares

Global GM Crop Area 2007-2012

Source: ISAAA

Genetically modified (or biotech) crops are certainly paradoxical as far as natural ingredients development

is concerned. The need for more natural raw materials is expanding all the time - not only in terms ofdelivering natural ingredients but in supplying enough ingredients overall to satisfy global nutrition needs.However, while GM crops can help to satisfy this need by allowing more efficient production of renewableresources, they are produced in a manner that many consider entirely unnatural and some still see GM as adangerous threat to nature and potentially to human health. Its use adds further complexity to the debateover what is defined as natural and will inevitably muddy the waters as and when legislation catches up to

the natural wave.

While GM crop areas are expanding all the time, some parts of the world are still very resistant to the issue

(most notably Europe), while even in North America, non-GM logos are now featuring widely on finishedfood and beverages in order to satisfy the significant consumer group still sceptical of the issue.
http://www.euromonitor.com/http://www.euromonitor.com/http://www.gmofreecertified.com/http://www.euromonitor.com/http://www.euromonitor.com/


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Supply: Ingredient advances require strong R&D investmentSUPPLY AND DEMAND DRIVERS

Innovation remains critical to the long-term success of the food and beverage ingredients market,

particularly in developed markets, as there is pressure on suppliers to help their customers deliver morehealthy and high-quality products to the public. Key themes in innovation include health and naturalness,flavour and the taste experience, advances in ingredient delivery, convenient formulations and compliancewith regulation.

To satisfy industry needs, many ingredients firms invest fairly large sums in R&D so as to deliver better andbetter ingredient options to their customers. However, levels of R&D expenditure vary from company tocompany, being highest among those focused on more technical ingredients and lowest among those withcommodity interests. For example, more commodity-orientated ADM spends just 0.1% of its total revenue

on R&D, compared with as much as 9.5% for large flavour houses such as Givaudan.

0

2

4

6

8

10

0

100

200

300

400

500

Givaudan BASF(Performance

Products)

Kerry Group DSM (Nutrition) ADM Tate & Lyle Ingredion

%totalrevenue

R&De

xpenditure(m

illion)

R&D Expenditure by Selected Ingredients Firms 2012-2013

R&D expenditure % total revenue


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Consolidation in the food and beverage industries has increased pressure on ingredients firms to maintain

good relationships with the worlds leading multinational businesses. The soft drinks and alcoholic drinkscategories are particularly concentrated, with the top 10 companies accounting for around half of total salesin these markets. Packaged food is more fragmented, with the top 10 representing almost 16%, but this isup from under 15% in 2008 as the industry gradually consolidates.

Supply: End-use markets slowly consolidateSUPPLY AND DEMAND DRIVERS

Note: Data refer to retail value shares for soft drinks, hot drinks and packaged food and total volume shares for alcoholic drinks

0

10

20

30

40

50

60

Alcoholic drinks Soft drinks Hot drinks Packaged food

%t

op10companies

Industry Concentration in End-Use Markets: Share of Top 10 Companies2008/2012

2008

2012


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Supply: Regional spread is essential to target large multinationalsSUPPLY AND DEMAND DRIVERS

Multinational

customers in

end-use markets

Ingredients

suppliers must

operate

globally

but

understanding

of local needs is

also crucial

The larger, multinational food and beverage businesses are seeing an ever-increasing focus onglobalisation, with some claiming product availability in up to 200 or more countries worldwide, while the

very largest operate their own production and/or sales offices in as many as 100 countries or more. As aresult, many manufacturers are looking for more global ingredients delivery, valuing the convenience of aone-stop shop for their international ingredients needs. However, at the same time, they will be highlyaware of regional tastes and requirements so ingredients firms must be ready to satisfy specificdemands driven by specific local needs and a local presence on the ground can be a significant benefitin this regard.


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Demand: Beyond simple nutrition or hydrationSUPPLY AND DEMAND DRIVERS

Health andwellness

Sugarfree/reducedcalorie

Reduced fat

Reduced sodium

Functional/fortified

Sports, energyand lifestyle

Naturalness

Additive free/clean label

Superfruits

Botanicals

Premiumisation/

Sophistication

Varied and exoticflavours

Region-/type-specific

ingredients

Convenience

Variety of packformats and sizes

RTD andsnacking products

Long-life products

Ethical

Organic

Fairtrade

Vegetarian

Halal/Kosher

Turning to the demand issues that are impacting ingredients markets, adding value is very much the orderof the day in the global food and beverage industries, with consumers no longer looking for simple nutritionor hydration but demanding far more in terms of taste and quality, health and wellness, naturalness,convenience and ethics. Each of these has various impacts on ingredients choices, with key trendshighlighted below.


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Demand: Health and wellness remains an overriding themeSUPPLY AND DEMAND DRIVERS

6.7% CAGR2013-2018

7.8% CAGR2013-2018

4.6% CAGR2013-2018

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Naturally healthy food andbeverages

Fortified/functional foodand beverages

Better for you food andbeverages

Retailvalue(US$m

illion)

Global Health and Wellness Markets by Category

2008/2013/2018

2008 2013 2018

Health and wellness is still

perhaps the single most importanttheme in food and beverage NPDbut takes many, many forms,some of which are also closelytied into the development of morenatural options. In fact, thenaturally healthy food andbeverages category is the largest

of all the health and wellnessmarkets, worth around US$300billion worldwide in 2013.

Of the three largest health andwellness categories assessed byEuromonitor International, fastestgrowth over 2013-2018 is forecastto come from fortified/functional

and naturally healthy products,which are taking over from morebasic better for you food andbeverages as the key health andwellness areas for the future.


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Demand: Naturalness/clean label is the driver of the momentSUPPLY AND DEMAND DRIVERS

Naturalness

Environment

Climatechange

SustainabilityOrganicfarming

Localisation

Lifestyle

Healthierliving

Simplicity/back tobasics

Nostalgia

The Back to Nature theme has become one of the single most important drivers in international fmcg

markets in recent times, particularly in the countries of the developed world. This trend has been closelyrelated to the resurgence of organics, but in general, it is the amalgamation of numerous concerns andinterests in modern society.

While many environmental factors weigh into the drive towards natural food and beverages, there isperhaps just as much of a consumer focus on lifestyle issues and the image of natural products. In general,products sourced directly from nature are perceived to be healthier and of better quality than more highlyprocessed products. At the same time, the economic crisis has reminded many consumers of the benefitsof going back to basics, with home-made products often proving cheaper as well as delivering a sense of

nostalgia and comfort, ie like mother used to make. Meanwhile, as far as cleaning up product labels isconcerned, there is not only a growing focus on natural over synthetic ingredients but also on the number ofingredients featured, and a less is more approach is increasingly common.


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Demand: Category impact from health and wellnessSUPPLY AND DEMAND DRIVERS

Botanicals: Wider use overall, growth in those with specific healthprofiles

Cultures: Probiotics for digestive health

Speciality fats and oils: Omega-3 fatty acids for brain and hearthealth, speciality lipids for weight control

Poly/oligosaccharides :Fat replacement, fibre enrichment

Proteins:Fortification of sports/energy products, building muscle massand assisting in weight control, vegetable proteins as meat replacers,soya proteins for heart and womens health

Polyol and high-intensity sweeteners:Sugar replacement to reducecalories

Vitamins and minerals:Fortification to tackle multiple health issues

Fats and oils:Reduction in hydrogenated trans fats, fatreplacement in low-fat foods

Sweeteners:Replacement of high-calorific sweeteners


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Premiumisation/Sophistication Convenience

Botanicals:A natural image isoften associated with quality, whileunusual botanicals can addsophistication

Cocoa ingredients:Key toindulgence development overall,while origin-specific, organic and/or

Fairtrade cocoas can give apremium feel

Colours:Solutions to improvevisual appeal

Cultures:Speciality starter culturesfor type-specific cheese

Emulsifiers: Textural benefits

Flavours:More exotic, type-specific, authentic and unusualflavours

Poly/oligosaccharides :Texturalimprovements

Acidulants/pH control/salts:Extended shelf lives

Emulsifiers:Texture andstructure of ready-preparedfoods and shelf-life extension

Flavours:Key to the taste

profile of more convenientprepared foods and RTDbeverages

Poly/oligosaccharides:Textural benefits in ready-prepared foods

Preservatives/antioxidants :Extended shelf lives

Proteins: Textural benefits inready-prepared foods

Demand: Category impact from premiumisation and convenienceSUPPLY AND DEMAND DRIVERS


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Natural products

Ethical products

Botanicals:Fairly tradedand organic options

Cocoa ingredients:Fairlytraded, organic andsocially/environmentally

responsible options

Fats and oils:Sustainablepalm oils, plus organicoptions

Sweeteners: Fairlytraded, organic andsocially/environmentallyresponsible sugars

Demand: Category impact from natural and ethical productsSUPPLY AND DEMAND DRIVERS

Botanicals: Wider use

Colours: More naturals andcolouring foodstuffs

Emulsifiers: Replacement withenzymes and other texturisers

Flavours/flavour enhancers:More naturals

Poly/oligosaccharides : Switchto natural options

Sweeteners: Rise of stevia andreturn to natural sugars

Colours:Cut in synthetics

Flavours/flavour enhancers:

Cut in syntheticsPreservatives/ antioxidants:Cutin synthetics

Sweeteners:Fewer artificialsweeteners


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INTRODUCTION




EMERGING MARKETS

CATEGORY ANALYSIS

ONES TO WATCH


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25 million tonnes of value-added ingredientsTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Acidulants/pH control/salts

Botanicals and bioactives

Cocoa ingredients

Colours

Cultures

Emulsifiers

Enzymes

Fats and oils (speciality)

Flavours and flavour enhancers

Poly/oligosaccharides

Preservatives/antioxidantsProteins

Sweeteners (polyols)

Sweeteners (high-intensity)

Vitamins and minerals

Volume share

Importance of Food/Beverage Use Relative to Other Applications 2012

Packaged food and beverages Beauty and personal care Home care Others

Looking specifically at 15 added-value and speciality ingredient categories, usage in food and beverageapplications totalled 25.1 million tonnes in 2012, equating to a CAGR of 2.8% since 2007, and the market isforecast to rise at the same rate over 2012-2017. Food and beverage applications accounted for more than82% of total use of these ingredients, although penetration varies from category to category, ranging from

just 32% of enzymes usage to 100% of cultures and speciality fats and oils volumes.


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Fastest growth in natural and healthy ingredientsTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Vitamins and minerals

Sweeteners (high-intensity)

Sweeteners (polyols)

Proteins

Preservatives/antioxidants

Poly/oligosaccharides/emulsifiers

Flavours/flavour enhancers

Fats and oils (speciality)

Enzymes

Emulsifiers

Cultures

Colours

Cocoa ingredients

Botanicals/bioactives

Acidulants/pH control/salts

Food and Beverage Ingredients:% CAGRs 2012-2017

The importance of themes surrounding naturalness and health and wellness in the global food andbeverages industry is reinforced by growth rates in different ingredients categories, with botanicals andbioactives set to show a particularly strong CAGR of 4.3% over 2012-2017. Similarly, cultures, specialityfats and oils and vitamins and minerals are all projected strong CAGRs of more than 3.5% over the forecastperiod.


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Asia Pacific to drive international volumesTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

-1

0

1

2

3

4

5

6

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

%C

AGR2012-2017

Absolute volume growth (tonnes) 2012/2017

Food and Beverage Ingredients: Growth Prospects by Region 2012-2017

Asia Pacific Latin America Middle East and Africa Western Europe Australasia North America Eastern Europe

Note: Bubble size indicates total volume sales (in tonnes) of the 15 major ingredient categories in each region in 2012

Regionally, the emerging markets all stand out as significant target markets for the future. The Middle Eastand Africa region has the fastest forecast CAGR of 4.5% over 2012-2017, although Asia Pacific isdominant in terms of absolute volume growth, with its forecast CAGR of 4.4% leading to incremental salesof 2.2 million tonnes between 2012 and 2017. It is already the largest single market for food and beverageingredients and will only become more so in the coming years. Meanwhile, the worlds most developed

markets - North America and Western Europe - are projected CAGRs of less than 1% over the forecastperiod. As shown in the category-specific slides later, emerging markets are vastly outpacing the developedworld in all ingredients areas, with CAGRs that can be two, three or even more than four times faster.


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0 2 4 6 8

China

Cameroon

India

Pakistan

Vietnam

Indonesia

Peru

Saudi Arabia

UAE

Morocco

% volume CAGR

Packaged Food: Top Growth Markets byVolume CAGR 2013-2018

China drives packaged food volumesTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

0 10,000 20,000 30,000 40,000

China

India

Indonesia

Brazil

Russia

Egypt

Saudi ArabiaAlgeria

Mexico

Vietnam

Absolute volume growth (000 tonnes)

Packaged Food: Top Growth Markets byAbsolute Volume 2013/2018

It is very difficult to collate combined data for the 15 different ingredient categories on a country-by-countrybasis but by looking at retail volume sales of the end-use products in the packaged food category, specifictarget markets can be pinpointed for the future. Most of these lie in emerging markets. In terms of forecastretail volume CAGR over 2013-2018, China continues to show fastest growth with a 7.4% CAGR, ahead ofCameroon with 6.8%, India with 6.4% and Pakistan with 6%. Of the 10 countries with the fastest CAGRs,five are located in Asia Pacific, four in the Middle East & Africa and one in Latin America.

In terms of absolute retail volume growth, Brazil, Russia, Egypt, Algeria and Mexico also enter thereckoning as strong future growth markets, with slightly slower rates of growth but larger absolute volumesoverall.


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0 5 10 15 20

India

Vietnam

Azerbaijan

Morocco

Tunisia

Pakistan

China

Cameroon

Egypt

Indonesia

% volume CAGR

Beverages: Top Growth Markets by

Volume CAGR 2012-2017

while India grows fastest in beveragesTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

0 10,000 20,000 30,000 40,000

China

India

Mexico

Brazil

Indonesia

US

Turkey

Vietnam

Saudi Arabia

Russia

Absolute volume growth (million litres)

Beverages: Top Growth Markets by

Volume 2012-2017

Looking at beverages (covering soft drinks and alcoholic drinks only as hot drinks data are not comparablein volume terms), fastest growth is coming from the Indian and Vietnamese markets, both of which areforecast double-digit volume CAGRs over 2012-2017. Several smaller markets follow, including Azerbaijan,Morocco and Tunisia, with China ranked seventh.

In terms of absolute retail volume growth, however, China leaps to the top of the table, ahead of India andMexico. The US also features in this ranking, which indicates the continued importance of developedmarkets thanks to their sheer size and the level of innovation and value-added development that theysupport.


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Emerging regions

AP and MEA

Projected only slow growth,but these mature marketscannot be overlooked as theyconsume large volumes offinished products and driveNPD.

In order to generate growth,

there is a strong focus oninnovation.

Ingredients supply should

focus on added value andinnovation. Naturalness hasalso become an overridingtheme in recent times and islikely to continue to driveingredient development anddemands.

Developed regions

NA, WE, AU and EE

Settled between the emergingand developed worlds in termsof forecast growth.

Heavily influenced by trends inNorth America; seeing growingdemand for more added-valuespeciality concepts.

As markets continue tomature, it is likely that the best

prospects for future growth willlie in the more added-valueingredient categories, althoughbasic commodities willcontinue to benefit from overallvolume increases.

Second-tier region

LA

Regional background and ingredient focusTHE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS

Rising demand for all types offood and beverages, promptedby population growth,increased urbanisation andrising incomes.

Greater diversity; risinginterest in highly-processed,

convenient and sophisticatedproducts.

Growing need for all types ofingredients, includingcommodities, but with a steadymove towards more added-value and speciality productsas markets continue to evolve.


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INTRODUCTION



BEVERAGE INGREDIENTSEMERGING MARKETS

CATEGORY ANALYSIS

ONES TO WATCH


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2012

Asia Pacific

Australasia

Eastern Europe

Latin America

Middle East & Africa

North America

Western Europe

36.8%

Asia Pacific represents well over one third of global ingredient useEMERGING MARKETS

Asia Pacific is the worlds largest market for food and beverage ingredients, representing almost 37% of

global volume in 2012, equivalent to almost 9.3 million tonnes. The regions share is forecast to increase to

almost 40% by 2017. As a result, it is vital that ingredient companies are well placed to cash in on theopportunities that this region offers.

Importance of Asia Pacific within Food and Beverage Ingredients 2012/2017

2017

39.8%


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Asia Pacific: Key drivers and impact on ingredientsEMERGING MARKETS

Key market drivers

Burgeoning economies, greater spending power

Growing populations and more youthful demographic

Increased urbanisation means more access to modern retail and fmcg

Westernisation of fmcg markets

Different eating and drinking culture, products unusual to the West

Interest in health and wellness is on the increase, with focus on general wellbeing rather thanspecific health issues

China on the brink? Suggestions that the strong economy is heading for a slowdown

Impact on ingredients

Rising demand for all types of ingredients, including commodities More speciality and added-value ingredients

Experimentation with flavour

Local eating habits result in different ingredient needs

Region-wide focus required; do not put all eggs in Chinese basket


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2012

Asia Pacific

Australasia

Eastern Europe

Latin America


North America

Western Europe6.1%

Middle East and Africa playing catch-up in added-value ingredientsEMERGING MARKETS

Usage of added-value food and beverage ingredients in the Middle East & Africa totalled 1.5 million tonnesin 2012, equivalent to 6.1% of the global total. Although growth will be strong, the category is still laggingbehind other regions with regard to added-value ingredients rather than commodities. Its share of the globaltotal should reach 6.6% by 2017.

Importance of Middle East and Africa within Food and Beverage Ingredients 2012/2017

2017

6.6%


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Middle East and Africa: Key drivers and impact on ingredientsEMERGING MARKETS

Key market drivers

Many similar to those seen in Asia Pacific

Burgeoning economies, greater spending power

Growing populations, youthful demographic, increased urbanisation

Westernisation of fmcg markets, with Asian themes also popular

Interest in health and wellness is on the increase, with a focus on general wellbeing rather

than obesity or other specific health issues Local tastes, climate and religion impact on end-use markets

Turbulent political situation in some countries

Impact on ingredients

Rising demand for all types of ingredients, including commodities More speciality and added-value ingredients

Interest in more natural and health and wellness ingredients

Strong local needs will ensure significant demand for locally-sourced ingredients and regionalflavours


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2012

Asia Pacific

Australasia

Eastern Europe

Latin America


North America

Western Europe

Latin America is fourth largest regional marketEMERGING MARKETS

Latin America is already the worlds fourth largest market for added-value ingredients with usage of 2.8million tonnes in 2012. Its share of the global total was 11.3% in 2012, a figure that will rise to 11.6% by2017. Even though Latin America will be the third fastest growth market in terms of forecast CAGR such isthe dominance of Asia Pacific in overall market growth that this regions share will not increase significantly.

Importance of Latin America within Food and Beverage Ingredients 2012/2017

2017

11.6%11.3%


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INTRODUCTION




CATEGORY ANALYSIS

ONES TO WATCH


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5,704,246 tonnes in 2012+1.9% CAGR 2007-2012

Forecast CAGR +2.5%

2012-2017

Acidulants/pH control/saltsCATEGORY ANALYSIS

3.8%

0.7%

Emerging markets Developed world

Forecast CAGR 2012-2017

Health and wellness opportunities

Concerns over sodium intake are boosting demand foralternatives, such as potassium chloride.

Salts are an important part of sports drinks formulation.

Salts can also be used as mineral fortification ingredients.Potassium salts could become more popular in the future as thecoconut water fad boosts awareness.

Concerns over phosphate intakes and calls for nutrition labelling

will boost demand for alternatives.The natural wave

Unlikely to suffer from the drive towards naturals and the growthin natural, fruit-based beverages will actually increase demandfor acidulants.

There will be some substitution as acidulants are adjusted tocomplement other natural ingredients, eg stevia.

Competitive challenge from the East Competition from the developing world has hit Westernsuppliers, resulting in legal challenges and higher import dutiesin some areas.

Some Western firms have cut their losses and switched focus,with exits from citric acid and more interest in lactic acid.


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2,659,081 tonnes in 2012+6.9% CAGR 2007-2012

Forecast CAGR +4.3%

2012-2017

Botanicals and bioactivesCATEGORY ANALYSIS

5.9%

2.0%



Essential components in many products

Many plant extracts are essential components in finished foodand beverages, eg kola nuts in cola, blue agave in tequila, teaextracts in RTD teas.

Delivering specific additive roles

Many botanicals can also deliver a specific role in food andbeverage formulations so there is overlap with other additivecategories, eg flavours, colours, sweeteners and antioxidants.

Top of the tree in natural credentials

Plant extracts can also be used simply to add value throughdelivering a more generally natural positioning.

Close ties between naturalness and health

Others top off their naturalness with an added health orfunctional positioning, eg green tea extract as a healthyantioxidant, ginseng for energy, etc.

With health and naturalness so important in food andbeverage NPD, more and more functional extracts will emerge.

While many rely solely on consumers perception of

healthiness, those wanting to make firmer claims will needstrong scientific backing as health claims regulation becomesever tighter.


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3,280,942 tonnes in 2012+1.4% CAGR 2007-2012

Forecast CAGR +2.1%

2012-2017

Cocoa ingredientsCATEGORY ANALYSIS

4.3%

1.0%



Premiumisation and affordable indulgence

The use of chocolate or cocoa is an easy way to add value tofood and beverages, while using dark chocolate ingredientsand origin-specific cocoas enhances the sophisticated image.

More Fairtrade and organic cocoas

Using Fairtrade or organic cocoa can also premiumiseproducts as well as tapping consumers ethical views.

Regional variation in end-use trends

In emerging markets, confectionery applications still dominatebut the developed world has more diverse usage, eg indesserts, ice cream and beverages, all of which use chocolatefor greater indulgence.

Cost concerns could drive alternatives

Price volatility can affect this market (despite ongoingsustainability projects) and there is some competition fromalternatives such as cocoa butter equivalents.

Consolidating industry

Consolidation in the cocoa industry continues, with both Cargilland Barry Callebaut making key acquisitions in the past fewyears. There are currently talks ongoing between ADM andCargill about a purchase of the formers cocoa operations.


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464,289 tonnes in 2012+1.3% CAGR 2007-2012

Forecast CAGR +1.8%

2012-2017

ColoursCATEGORY ANALYSIS

3.7%

0.1%



Global need for naturals

The drive towards natural ingredients began with naturalflavours and colours and colours remain at the forefront ofnaturals development in all parts of the world.

More colouring foodstuffs

Colouring foodstuffs are very much the story of the day and areincreasingly taking the place of colour compounds. They canappear on product labels as vegetable extracts, juices, spices,etc, so they can help to clean up ingredients lists.

They can be a lot less stable than ready-made colourcompounds, however, so there is growing need for technicalimprovements. In addition, their use has led to correspondinggrowth in demand for more natural stabilisers and emulsifiers.

Strict legislation

Colours are more affected by legislative intervention than manyother ingredients and some synthetics are outlawed completely

in certain countries. There are also calls for greater regulation ofcolouring foodstuffs, which could impact on this thriving sector.

Exclusion of colour entirely

Complete exclusion of colour in beverages can also enhance aproducts natural image, so is becoming more popular.


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1,016,760 tonnes in 2012+3.6% CAGR 2007-2012

Forecast CAGR +3.6%

2012-2017

CulturesCATEGORY ANALYSIS

6.8%

1.3%



More application-specific cultures

In dairy and cheese cultures in particular, more application-oriented cultures are now available for the preparation of specificproducts, eg sour cream, Indian dahi, Swiss cheese, etc.

Tapping local needs

The use of application-specific cultures also taps into the needfor different ingredients to satisfy the different local preferencesof regional populations.

Probiotics boom but regulation becomes tighter

Probiotic cultures are a driving force in culture demand; they areno longer limited to yoghurts and dairy beverages but havespread their wings into a wider range of food and beverages, egfruit juices and even coffee and tea.

However, tighter health claims regulation in Europe has affectedthe way that some probiotic products are marketed. Fewerclaims are now allowed in the EU, while Canadian regulators

have also clamped down.A cost-saving role

Another potential benefit of cultures is their role in increasingyields, particularly in cheeses. Higher yields can greatly assistdairy manufacturers in cutting costs.


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34,188 tonnes in 2012+0.5% CAGR 2007-2012

Forecast CAGR +1.1%

2012-2017

EnzymesCATEGORY ANALYSIS

2.5%

-0.2%Emerging markets Developed world


Cleanest of clean-label ingredients

It is difficult to assess enzymes volumes owing to their use inprocessing rather than in finished food and beverages. At the sametime, though, this means that they are not present in finishedproducts and do not need to be declared on product labels. Someconsumer bodies are pushing for this to change but for now this is akey selling point.

Specialities for specific roles

Many enzymes are now positioned with specific applications and

processes in mind, eg cake enzymes or those to reduce acrylamidelevels in baked goods.

Gluten- and lactose-free opportunities

In addition, enzymes can play an important role in the developmentof free from food and beverages, with certain enzymes being used

in the production of gluten- or lactose-free products.

Used in convenient blends

Enzymes are used in a range of functional ingredient solutions,often blended with emulsifiers or other textural ingredients.

Sustainability credentials

Enzymes role in helping to extend shelf lives also gives them

strong sustainability credentials as they can help to cut wastage.


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40,578 tonnes in 2012+4.7% CAGR 2007-2012

Forecast CAGR +3.5%

2012-2017

Fats and oils (speciality)CATEGORY ANALYSIS

4.3%

3.2%



Active health ingredients

While some fats and oils are attracting the wrong kind ofattention, there are also a number of shining lights in this arena.Stanol/sterol esters are still being used in a range of cholesterol-lowering products, but it is omega-3 fatty acids that have reallystood out in recent times, driven by a natural image associatedwith their marine sourcing and growing consumer awareness oftheir potential health benefits.

Tapping new sources

Marine raw materials, ie fish and algae, remain the mostimportant sources of omega-3 fatty acids but interest in short-chain omega-3s from plants is increasing all the time and greaterattention is being paid to exploitation of new plant sources.

In addition, there are a number of other speciality oils that arefinding favour in health and wellness applications, such as theweight loss ingredient conjugated linoleic acid (CLA).

Challenge of fats image While certain fat derivatives have managed to establishthemselves in the health and wellness arena, the healthy eatingdrive poses many challenges for the wider fats market as fat hasa generally poor health image among consumers.


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3,544,083 tonnes in 2012+1.8% CAGR 2007-2012

Forecast CAGR +1.6%

2012-2017

Flavours and flavour enhancersCATEGORY ANALYSIS

1.9%

0.8%



Naturalness is key

Claims of naturalness will be vital for ongoing success in theflavours and flavour enhancers markets.

Supporting health and wellness development

Flavour technology is vital to support the health and wellnessindustry in order to deliver on taste when other key ingredientshave been either added or removed. Low-sodium foods andthose sweetened with stevia are areas of interest at present.

R&D into new sustainable sources

The flavour industry continues to invest in R&D as it looks totrack down new and sustainable sources of flavour from nature.

Convenience foods drive savoury demand

Savoury flavours have been performing well in recent times asconvenience foods continue to flourish.

More value-added and speciality flavours

In sweet flavours, premium products are driving demand, withexotic flavours, speciality blends, and type- and region-specificflavours all being used to add value to a finished food or drink.

Strength of flavour

There can be regional variation in flavour strength preferences.


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4,566,682 tonnes in 2012+3.9% CAGR 2007-2012

Forecast CAGR +3.6%

2012-2017

Polysaccharides and oligosaccharidesCATEGORY ANALYSIS

5.0%

1.1%



Roles in texturising and health and wellness

This category brings together a diverse range of ingredients withvarious roles to play in terms of texturising and health provision.

Naturalness is a key selling point

Natural sourcing is a key issue and many of the majoringredients in this arena are sourced from natural raw materials,which is a strong selling point. At industry level, sustainabilityremains an important concern as suppliers look to maintain apositive image as responsible exploiters of natural raw materials.

Helping to formulate with other natural ingredients

Another issue that impacts this market is the role that certainpoly and oligosaccharides can play in helping to stabiliseproducts using other natural ingredients, eg colours or flavours.

Replacement of more costly ingredients

Price fluctuation within this market can impact manufacturers

choices. For example, guar prices have been highly volatile in

recent times as demand from the oil drilling industry putspressure on global supplies so alternatives have been popular.

Convenient solutions

Complete ingredient blends targeting specific textural needsoften feature poly and oligosaccharides as core ingredients.


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219,691 tonnes in 2012+1.2% CAGR 2007-2012

Forecast CAGR +3.8%

2012-2017

Preservatives and antioxidantsCATEGORY ANALYSIS

6.5%

1.9%



Chemical sourcing is a negative

Many preservation and antioxidant ingredients have traditionallybeen chemical in nature, which is something of a stumblingblock in the modern market, particularly in the West. Growingneed for longer shelf lives assures future demand so there is aclear need for more natural alternatives.

Lack of efficient alternatives

Although more natural preservatives are becoming available,there is not a significant pool of ingredients that can be used as

direct replacements for some of the more popular chemicalswhile delivering the same level of efficacy.

Herbal antioxidants performing well

Many of the more effective naturals are found in the antioxidantsarena, with rosemary extract and certain other herbal sources,finding increasing favour in this marketplace. Meanwhile, recentevidence suggests that even some flavour blends can serve a

dual role in terms of flavour and shelf life extension.Processing technologies could replace some needs

Advances in processing technologies, including high-pressureand pulsed-light processes, as well as packaging technologiescould help to reduce the need for preservatives.


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1,858,323 tonnes in 2012+3.1% CAGR 2007-2012

Forecast CAGR +3.2%

2012-2017

ProteinsCATEGORY ANALYSIS

5.8%

1.0%



Growing health and wellness focus

Although most proteins are still used for textural purposes, thereis a growing focus on their role in health and wellness and sportsrecovery. Many sports drinks now contain added proteins, whilethis trend has extended into nutritional snack bars.

At the same time, protein has started to make its presence feltas a healthy, functional ingredient in more mainstream food andbeverages, particularly in the US. Its role in weight managementand satiety is another issue that will drive future demand.

New plant proteins emerging

Dairy and soya are the most important sources of protein but themarket is becoming increasingly diverse as more plant sourcesare tapped. For example, pea protein has been a growingcategory in recent years, while rice, potato, flax and variousother plants are also being explored for a new generation ofprotein ingredients. Algal sources could also offer potential.

More gelatin and gluten replacement Unpopular and expensive proteins are increasingly beingsubstituted. For example, gelatin suffers from price volatility andis not suitable for vegetarians, while egg prices can also beprohibitive at times. Similarly, the drive towards gluten-free foodsmeans that gluten is very much out of favour at present.


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702,533 tonnes in 2012+2.1% CAGR 2007-2012

Forecast CAGR +1.9%

2012-2017

Sweeteners (polyols)CATEGORY ANALYSIS

4.0%

0.3%



Sugar-free and low-calorie still important

Within the health and wellness market, sugar and caloriereduction remain significant issues in the modern world asobesity continues to be a leading cause of illness and death. Asa result, there is assured demand for sweetening ingredientsthat can contribute to lower calorie counts.

But naturalness is impacting across the board

However, there is a concerted trend towards more natural foodand beverages and this is affecting the choice of sweetener, with

natural sweeteners such as stevia performing well, while othersuppliers are shifting away from HFCS and returning to basicsugars and syrups. Polyol sweeteners may be affected by this,although some make natural claims of their own, eg erythritol,which is widely blended with stevia in tabletop products.

Reduced-calorie naturals vs calorie-free

Although calorie control remains important to consumers, their

approach to this issue is changing. Completely calorie-freeproducts remain popular and many still rely heavily on polyols.However, the advent of stevia has led to a new focus on naturalproducts with reduced- rather than zero-calorie contents, oftenusing sweetener blends combining stevia with natural bulksweeteners such as sucrose or erythritol.


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39,889 tonnes in 2012+2.6% CAGR 2007-2012

Forecast CAGR +2.1%

2012-2017

Sweeteners (high-intensity)CATEGORY ANALYSIS

3.6%

1.1%



Sugar-free and low-calorie still important

As mentioned in the previous slide, sugar and calorie reductionremain significant issues in health and wellness so there isassured future demand for sugar replacers.

Naturalness is driving sweetener choice

The natural wave is driving sweetener choice, with a shift awayfrom chemical sweeteners and processed corn sweeteners.

Stevia first in a new generation?

The rapid success of stevia, particularly in North America, hasprompted a wider search for other plant-derived sweeteners,with monk fruit extract emerging as a key competitor. Other plantsources are being explored for the future (see Ones to Watch).

Reduced-calorie naturals vs calorie-free

As highlighted in the previous slide, reduced-calorie naturals areposing competition to completely calorie-free products.

Strict legislative environment

Legislation of high-intensity sweeteners is something of aminefield for suppliers, with differing opinions around the world.

Another issue that could muddy the waters in the future is thedefinition of the term natural; if this is ever defined properly it

could affect natural sweeteners such as stevia and monk fruit.


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INTRODUCTION




CATEGORY ANALYSIS

ONES TO WATCH


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The food industry already usesseaweed-based hydrocolloids,

such as carrageenan andalginates, while microalgae areimportant raw materials foromega-3s and spirulina (acyanobacteria) is becomingimportant as a natural colour.However, there is believed to besignificant scope for further

diversification in algal products(particularly from microalgae),including opportunities in oils,flours and proteins as well asfunctional food ingredients.

Diverse opportunities

Microalgae in particular havevast sustainability credentials.

They do not need fertilisers,feeding mainly on sunlight andwaste carbon dioxide, so theycan be carbon neutral or evennegative. They also releasemore oxygen than other plants.Thriving in dry and hot weather,microalgae can also be grown

on land that is otherwiseunsuitable for agriculture, whilecompared with other crops,algaculture uses less land areafor higher yields.

Sustainability credentials

There are believed to be manyopportunities for algal

ingredients in functional andhealthy foods, with suggestionsthat algae can play a role inanti-inflammatory and anti-obesity health functions, as wellas helping to reduce cholesterol,lower blood pressure, manageblood sugar levels and

contribute to skin health.

Multiple health benefits

Algal ingredientsONES TO WATCH

This review of trends and developments impacting specific ingredients has mentioned a number of keyareas that are believed to be ripe for future expansion. One which could be of particular interest in the

coming years is the algal ingredients category. Given the worlds focus on sustainability, this certainlyappears to be an area apt for further investment as algal ingredients can target many different applicationsand needs and could also be among the most sustainable of all the worlds natural resources.


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Free from trend drives wheat flour alternatives Protein health trend drives ingredient innovation

Although widely considered as commodities, flourswarrant a mention here owing to several key trendsimpacting on usage.

The move towards gluten-free products and theassociated shift away from wheat flour has beenparticularly significant. As well as core bakerymarkets, this is also affecting other areas, such assnack foods, with North America having seen highlevels of non-wheat NPD in recent years, with riceand bean flours finding favour in everyday naturaland healthy snacks as well as gluten-free options.

Also allied to the free from trend is the growth in

non-dairy milks and plant-based flours are key tothese formulations.

In line with these trends, the industry is looking to

tap new, relatively unexploited plant sources for thenext generation of flour ingredients. For example,algal flour is now offered by Roquette, while therehas been ongoing research into peanut flour andits suitability for use in dry beverage applications.

As highlighted in the analysis of protein trends inan earlier slide, most proteins are still used fortextural purposes but there is a growing focus ontheir role in health and wellness.

This has raised the importance of proteiningredients as a whole and is driving ingredientinnovators to explore new opportunities in thisarea. While dairy and soya are the most importantsources of protein ingredients, the market issteadily diversifying as more plant sources aretapped.

Pea protein has been a pioneer in new-generationplant proteins and could well be followed intocommercial success by rice, potato and flaxproteins.

Meanwhile, algae are again seen to havesomething to offer in this regard and somecompanies are already exploring development ofalgal proteins.

New-generation flours and proteinsONES TO WATCH


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Aztec sweet

herb

Wheelwingnut

Soap nut

Miracle berry

Lerp psyllid

Natural sweetenersONES TO WATCH

There are numerous botanicals that are attracting the attention of theedible ingredients industry and many will make their presence felt in

the coming years. Sweetening is perhaps the most interesting areagiven the impact stevia had on its arrival in Western markets and thesubsequent launch of monk fruit extract. There are several other plantextracts that are being investigated as potential sweeteners for thefuture, although none have yet been approved for use in majormarkets.

These include Aztec sweet herb, which contains a sweet compoundcalled hernandulcin and has been used historically as a naturalsweetener and medicinal herb in Mexico and Central America. InChina, the wheel wingnut tree has been used in traditional medicinesand contains glycosides that are 50-100 times sweeter than sugar.Soap nut is also being explored as a sweetener in China and Japan,while the miraculin component of miracle berry is also being used inJapan as it can change the perception of taste and deliver a sweettaste to sour or acidic foods.

One of the more unusual suggestions for the future of sweetening isthat it could lie in the insect world. A certain variety of psyllid insectfound mainly in Australia secretes something called a lerp, which issweet to the taste and popular with local birds. However, althoughentirely natural, it may be something of a stretch to convince thegeneral public to eat a sweetener derived from insect secretions.


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