EM - Food and Beverage Ingredients Emerging Markets To Drive The Future

FOOD AND BEVERAGE INGREDIENTS: EMERGING MARKETS TO DRIVE THE FUTURE
December 2013
INTRODUCTION
SUPPLY AND DEMAND DRIVERS

THE GLOBAL MARKET FOR FOOD AND BEVERAGE INGREDIENTS
EMERGING MARKETS
CATEGORY ANALYSIS ONES TO WATCH
INTRODUCTION
Scope (1)
This report looks at trends in ingredients use by the packaged food and
beverage industries and highlights the importance of emerging markets in driving this category. It starts by discussing the major supply and demand drivers within the ingredients industry before giving a statistical global and regional analysis of sales. It then looks in more detail at market sizes, trends and recent developments in 15 individual ingredients categories, before pinpointing a few key categories to watch in the coming years.
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised.
The emphasis is on added-value or speciality ingredients rather than bulk

commodities. These added-value ingredients are defined as those that are designed and used with a specific benefit in mind, including benefits at both production and consumer level. This covers ingredients that food and beverage manufacturers add to the products core recipe in order to improve taste and texture, to extend shelf life, to enhance healthiness or to improve the image of a finished food (eg giving a natural or ethical profile or delivering a more sophisticated or indulgent image). As a result, it excludes many popular bulk commodities such as sugar, corn sweeteners, flours and basic fats and oils, but includes areas such as cocoa ingredients and botanicals, which are often seen as commodities but which are available in more added-value formats for natural, indulgent and ethical end-products. A full breakdown of category coverage is presented on the next slide.
Supplying ingredients to the global food and beverage industry remains something of a balancing act as ingredients firms respond to multiple trends and influences. This report assesses the most important industry drivers, provides an overview of the market and highlights trends in 15 key added-value ingredients categories. At the same time, it aims the spotlight on the emerging markets and demonstrates just how important these will be to ingredients suppliers in the coming years.
Euromonitor International
INGREDIENTS: FOOD & BEVERAGE INGREDIENTS
PASSPORT 3
INTRODUCTION
Scope (2)
Acidulants and pH control/salts
Botanicals and bioactives
Cocoa ingredients
Colours
Cultures
Emulsifiers
Enzymes
Fats and oils (speciality)

omega-3s and stanol/sterol esters
Flavours and flavour enhancers
Polysaccharides and oligosaccharides
Preservatives and antioxidants
Proteins
Sweeteners (polyols)
Sweeteners (high-intensity)
Vitamins and minerals
PASSPORT 4
INTRODUCTION

EMERGING MARKETS
Supply: Economic challenges and opportunities

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 continue to impact the industrys production costs so manufacturers are constantly seeking ways to cut spending, while the availability of low-cost ingredients supply from the developing world has also become a key issue in many categories. While some companies have established their own production capability in developing markets so as to compete on a more level playing field with low-cost suppliers, other Western ingredients firms have decided to exit more affected categories entirely so as to concentrate on added-value ingredients and complete solutions, using their expertise in a wider range of ingredients to build application-specific blends for their customers. As well as helping product formulators to cut their R&D investment, such blends are also positioned as being more cost effective than purchasing a series of single ingredients. Meanwhile, substitution of one ingredient with another can also help to cut costs and there is a growing focus on ingredients that have more constant price positioning as a way to avoid any severe fluctuations.
Challenges
Higher raw material and energy costs
Competition from low-cost ingredients from the developing world
Opportunities
More application-specific blends and tailor-made ingredients
Ingredients to substitute more expensive or price-volatile options
PASSPORT 6
Supply: Twin approach to sustainability

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 and has accepted that the health of the environment is crucial for global economic survival. Such is the importance 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 to operate their own businesses more sustainably; and at ways to help their customers to do so.
Sustainability
Inside the ingredients business Helping customers
Manage resources responsibly, seek out new renewable raw materials
Reduce carbon footprint and minimise impact on the environment
Deliver ingredients to help reduce processing times or energy/water usage
Deliver ingredients with good all-round sustainability credentials
PASSPORT 7
Supply: Natural is very much the buzzword

Interest in natural products has never been higher in fmcg markets and this is discussed further as a demand driver in a later slide. It must be noted here, though, that this demand for more natural ingredients to replace chemicals and other more highly-processed ingredients is closely tied to the sustainability issue and the exploitation of renewable raw materials. The R&D divisions of the worlds leading ingredients firms are very much focusing their attention on how best to exploit natural resources and this must remain at the forefront of corporate strategies going forward. Western markets are particularly driven by this theme and will likely be the first to experience the latest offerings that ingredient companies can draw from the natural world.
Significant demand for natural ingredients
R&D focused on best ways to exploit natural resources
but rising competition for natural raw materials
However, there is a flip side to this issue in that ingredients companies are no longer the sole customers for the 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, foodand beverage-grade ingredients are also forging a market for themselves in the personal and home care categories.
PASSPORT 8
Supply: The natural paradox of GM

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 of delivering 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 renewable resources, they are produced in a manner that many consider entirely unnatural and some still see GM as a dangerous threat to nature and potentially to human health. Its use adds further complexity to the debate over 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 finished food and beverages in order to satisfy the significant consumer group still sceptical of the issue. GM crop coverage is expanding all the time but demand for non-GM products is also rising and certification is emerging
Global GM Crop Area 2007-2012

200
Million hectares 150 100 50 0 2007 Source: ISAAA 2008 2009 2010 2011 2012
PASSPORT 9
Supply: Ingredient advances require strong R&D investment

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 more healthy 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 compliance with regulation. To satisfy industry needs, many ingredients firms invest fairly large sums in R&D so as to deliver better and better ingredient options to their customers. However, levels of R&D expenditure vary from company to company, being highest among those focused on more technical ingredients and lowest among those with commodity 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. R&D Expenditure by Selected Ingredients Firms 2012-2013
R&D expenditure ( million) 500 400 300 200 100 0 Givaudan BASF (Performance Products) Kerry Group DSM (Nutrition) ADM Tate & Lyle Ingredion 10 8 6 4 2 0 % total revenue
R&D expenditure
% total revenue
PASSPORT 10
Supply: End-use markets slowly consolidate

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 drinks categories are particularly concentrated, with the top 10 companies accounting for around half of total sales in these markets. Packaged food is more fragmented, with the top 10 representing almost 16%, but this is up from under 15% in 2008 as the industry gradually consolidates.
Industry Concentration in End-Use Markets: Share of Top 10 Companies 2008/2012

60 2008 50 % top 10 companies 2012 40
30
20
10
0 Alcoholic drinks Soft drinks Hot drinks Packaged food
Note: Data refer to retail value shares for soft drinks, hot drinks and packaged food and total volume shares for alcoholic drinks
PASSPORT 11
Supply: Regional spread is essential to target large multinationals
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 on globalisation, 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 a result, many manufacturers are looking for more global ingredients delivery, valuing the convenience of a one-stop shop for their international ingredients needs. However, at the same time, they will be highly aware of regional tastes and requirements so ingredients firms must be ready to satisfy specific demands driven by specific local needs and a local presence on the ground can be a significant benefit in this regard.
PASSPORT 12
Demand: Beyond simple nutrition or hydration

Turning to the demand issues that are impacting ingredients markets, adding value is very much the order of the day in the global food and beverage industries, with consumers no longer looking for simple nutrition or 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 trends highlighted below. Health and wellness
Sugar free/reduced calorie Reduced fat
Naturalness
Premiumisation/ Sophistication
Varied and exotic flavours Region-/typespecific ingredients
Convenience
Ethical
Additive free/ clean label
Variety of pack formats and sizes RTD and snacking products
Organic
Superfruits
Fairtrade
Reduced sodium
Botanicals
Long-life products
Vegetarian
Functional/ fortified Sports, energy and lifestyle
Halal/Kosher
PASSPORT 13
Demand: Health and wellness remains an overriding theme

Health and wellness is still perhaps the single most important theme in food and beverage NPD but takes many, many forms, some of which are also closely tied into the development of more natural options. In fact, the naturally healthy food and beverages category is the largest of all the health and wellness markets, worth around US$300 billion worldwide in 2013. Of the three largest health and wellness categories assessed by Euromonitor International, fastest growth over 2013-2018 is forecast to come from fortified/functional and naturally healthy products, which are taking over from more basic better for you food and beverages as the key health and wellness areas for the future.
Global Health and Wellness Markets by Category 2008/2013/2018

450,000
400,000 350,000 300,000 250,000 4.6% CAGR 2013-2018 200,000 150,000 100,000 50,000 0 6.7% CAGR 2013-2018 7.8% CAGR 2013-2018
Retail value (US$ million)
Naturally healthy food and beverages

2008
Fortified/functional food and beverages

2013 2018
Better for you food and beverages
PASSPORT 14
Demand: Naturalness/clean label is the driver of the moment

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 closely related to the resurgence of organics, but in general, it is the amalgamation of numerous concerns and interests in modern society. While many environmental factors weigh into the drive towards natural food and beverages, there is perhaps 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 highly processed products. At the same time, the economic crisis has reminded many consumers of the benefits of 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 is concerned, there is not only a growing focus on natural over synthetic ingredients but also on the number of ingredients featured, and a less is more approach is increasingly common.
Naturalness
Environment
Climate change
Lifestyle
Localisation
Healthier living Simplicity/ back to basics
Sustainability
Organic farming
Nostalgia
PASSPORT 15
Demand: Category impact from health and wellness

Botanicals: Wider use overall, growth in those with specific health profiles Cultures: Probiotics for digestive health Speciality fats and oils: Omega-3 fatty acids for brain and heart health, speciality lipids for weight control Poly/oligosaccharides: Fat replacement, fibre enrichment Proteins: Fortification of sports/energy products, building muscle mass and assisting in weight control, vegetable proteins as meat replacers, soya proteins for heart and womens health Polyol and high-intensity sweeteners: Sugar replacement to reduce calories Vitamins and minerals: Fortification to tackle multiple health issues
Fats and oils: Reduction in hydrogenated trans fats, fat replacement in low-fat foods Sweeteners: Replacement of high-calorific sweeteners
PASSPORT 16
Demand: Category impact from premiumisation and convenience

Premiumisation/Sophistication
Botanicals: A natural image is often associated with quality, while unusual botanicals can add sophistication Cocoa ingredients: Key to indulgence development overall, while origin-specific, organic and/or Fairtrade cocoas can give a premium feel Colours: Solutions to improve visual appeal Cultures: Speciality starter cultures for type-specific cheese Emulsifiers: Textural benefits Flavours: More exotic, typespecific, authentic and unusual flavours Poly/oligosaccharides: Textural improvements
Convenience
Acidulants/pH control/salts: Extended shelf lives Emulsifiers: Texture and structure of ready-prepared foods and shelf-life extension Flavours: Key to the taste profile of more convenient prepared foods and RTD beverages Poly/oligosaccharides: Textural benefits in readyprepared foods Preservatives/antioxidants: Extended shelf lives Proteins: Textural benefits in ready-prepared foods
PASSPORT 17
Demand: Category impact from natural and ethical products

Natural products
Botanicals: Wider use Colours: More naturals and colouring foodstuffs Emulsifiers: Replacement with enzymes and other texturisers Flavours/flavour enhancers: More naturals Poly/oligosaccharides: Switch to natural options Sweeteners: Rise of stevia and return to natural sugars
Ethical products
Botanicals: Fairly traded and organic options
Cocoa ingredients: Fairly traded, organic and socially/environmentally responsible options Fats and oils: Sustainable palm oils, plus organic options Sweeteners: Fairly traded, organic and socially/environmentally responsible sugars
Colours: Cut in synthetics Flavours/flavour enhancers: Cut in synthetics Preservatives/ antioxidants: Cut in synthetics Sweeteners: Fewer artificial sweeteners
PASSPORT 18
INTRODUCTION

EMERGING MARKETS
25 million tonnes of value-added ingredients

Looking specifically at 15 added-value and speciality ingredient categories, usage in food and beverage applications totalled 25.1 million tonnes in 2012, equating to a CAGR of 2.8% since 2007, and the market is forecast to rise at the same rate over 2012-2017. Food and beverage applications accounted for more than 82% 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. Importance of Food/Beverage Use Relative to Other Applications 2012
Vitamins and minerals Sweeteners (high-intensity) Sweeteners (polyols) Proteins Preservatives/antioxidants Poly/oligosaccharides Flavours and flavour enhancers Fats and oils (speciality)
Enzymes
Emulsifiers Cultures Colours Cocoa ingredients Botanicals and bioactives Acidulants/pH control/salts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Others 100%
Volume share
Packaged food and beverages Beauty and personal care Home care
PASSPORT 20
Fastest growth in natural and healthy ingredients

The importance of themes surrounding naturalness and health and wellness in the global food and beverages industry is reinforced by growth rates in different ingredients categories, with botanicals and bioactives set to show a particularly strong CAGR of 4.3% over 2012-2017. Similarly, cultures, speciality fats and oils and vitamins and minerals are all projected strong CAGRs of more than 3.5% over the forecast period. Food and Beverage Ingredients: % CAGRs 2012-2017
Acidulants/pH control/salts Botanicals/bioactives
Cocoa ingredients
Colours Cultures Emulsifiers Enzymes

Flavours/flavour enhancers Poly/oligosaccharides/emulsifiers Preservatives/antioxidants Proteins Sweeteners (polyols) Sweeteners (high-intensity) Vitamins and minerals 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
PASSPORT 21
Asia Pacific to drive international volumes

Regionally, the emerging markets all stand out as significant target markets for the future. The Middle East and Africa region has the fastest forecast CAGR of 4.5% over 2012-2017, although Asia Pacific is dominant in terms of absolute volume growth, with its forecast CAGR of 4.4% leading to incremental sales of 2.2 million tonnes between 2012 and 2017. It is already the largest single market for food and beverage ingredients 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 forecast period. As shown in the category-specific slides later, emerging markets are vastly outpacing the developed world in all ingredients areas, with CAGRs that can be two, three or even more than four times faster.
Food and Beverage Ingredients: Growth Prospects by Region 2012-2017

6 % CAGR 2012-2017 5 4 3 2 1
0
-1 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 Absolute volume growth (tonnes) 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
PASSPORT 22
China drives packaged food volumes

It is very difficult to collate combined data for the 15 different ingredient categories on a country-by-country basis but by looking at retail volume sales of the end-use products in the packaged food category, specific target markets can be pinpointed for the future. Most of these lie in emerging markets. In terms of forecast retail volume CAGR over 2013-2018, China continues to show fastest growth with a 7.4% CAGR, ahead of Cameroon 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 the reckoning as strong future growth markets, with slightly slower rates of growth but larger absolute volumes overall. Packaged Food: Top Growth Markets by Packaged Food: Top Growth Markets by Absolute Volume 2013/2018 Volume CAGR 2013-2018
China
Cameroon India Pakistan Vietnam Indonesia Peru Saudi Arabia UAE Morocco China India
Indonesia
Brazil Russia Egypt Saudi Arabia
Algeria
Mexico Vietnam
2 4 % volume CAGR
10,000
20,000
30,000
40,000
Absolute volume growth (000 tonnes)
PASSPORT 23
while India grows fastest in beverages

Looking at beverages (covering soft drinks and alcoholic drinks only as hot drinks data are not comparable in volume terms), fastest growth is coming from the Indian and Vietnamese markets, both of which are forecast 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 and Mexico. The US also features in this ranking, which indicates the continued importance of developed markets thanks to their sheer size and the level of innovation and value-added development that they support. Beverages: Top Growth Markets by Beverages: Top Growth Markets by Volume 2012-2017 Volume CAGR 2012-2017
India Vietnam Azerbaijan Morocco Tunisia Pakistan China Cameroon Egypt Indonesia 0 5 10 15 20 China India Mexico Brazil Indonesia US Turkey Vietnam Saudi Arabia Russia 0 10,000 20,000 30,000 40,000
% volume CAGR
Absolute volume growth (million litres)
PASSPORT 24
Regional background and ingredient focus

Emerging regions AP and MEA Rising demand for all types of food and beverages, prompted by population growth, increased urbanisation and rising incomes. Greater diversity; rising interest in highly-processed, convenient and sophisticated products. Second-tier region LA Settled between the emerging and developed worlds in terms of forecast growth. Heavily influenced by trends in North America; seeing growing demand for more added-value speciality concepts. Developed regions NA, WE, AU and EE Projected only slow growth, but these mature markets cannot be overlooked as they consume large volumes of finished products and drive NPD. In order to generate growth, there is a strong focus on innovation.
Growing need for all types of ingredients, including commodities, but with a steady move towards more addedvalue and speciality products as markets continue to evolve.
As markets continue to mature, it is likely that the best prospects for future growth will lie in the more added-value ingredient categories, although basic commodities will continue to benefit from overall volume increases.
Ingredients supply should focus on added value and innovation. Naturalness has also become an overriding theme in recent times and is likely to continue to drive ingredient development and demands.
PASSPORT 25
INTRODUCTION

EMERGING MARKETS
EMERGING MARKETS
Asia Pacific represents well over one third of global ingredient use
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 the opportunities that this region offers.
Importance of Asia Pacific within Food and Beverage Ingredients 2012/2017

2012
Asia Pacific
Australasia
2017
36.8%
Eastern Europe Latin America Middle East & Africa North America Western Europe
39.8%
PASSPORT 27
EMERGING MARKETS
Asia Pacific: Key drivers and impact on ingredients

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 than specific 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
PASSPORT 28
EMERGING MARKETS
Middle East and Africa playing catch-up in added-value ingredients

Usage of added-value food and beverage ingredients in the Middle East & Africa totalled 1.5 million tonnes in 2012, equivalent to 6.1% of the global total. Although growth will be strong, the category is still lagging behind other regions with regard to added-value ingredients rather than commodities. Its share of the global total should reach 6.6% by 2017.
Importance of Middle East and Africa within Food and Beverage Ingredients 2012/2017
2012 2017
Asia Pacific Australasia Eastern Europe
Latin America
Middle East & Africa North America
6.1%
Western Europe
6.6%
PASSPORT 29
EMERGING MARKETS
Middle East and Africa: Key drivers and impact on ingredients

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
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 regional flavours
PASSPORT 30
EMERGING MARKETS
Latin America is fourth largest regional market

Latin America is already the worlds fourth largest market for added-value ingredients with usage of 2.8 million tonnes in 2012. Its share of the global total was 11.3% in 2012, a figure that will rise to 11.6% by 2017. Even though Latin America will be the third fastest growth market in terms of forecast CAGR such is the 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

2012
Asia Pacific Australasia Eastern Europe Latin America Middle East & Africa North America Western Europe
2017
11.3%
11.6%
PASSPORT 31
EMERGING MARKETS
Latin America: Key drivers and impact on ingredients

Key market drivers
Many markets more developed than Asia or Middle East; strongly influenced by North America Youthful population that is more savvy and adventurous in product choice Socioeconomic mobility, more middle-income families with higher spending power Greater emphasis on convenience, including more highly-processed and single-serve Health and wellness tends to target general wellbeing and guilt-free indulgence Naturals are in demand Global sporting events in Brazil in 2014 and 2016 will generate sales and NPD
Good growth across the board, both commodity and added-value More adventurous flavour choices, particularly among the young, so ingredient NPD should target snacks, convenience foods, soft drinks, etc Cues from North America will continue to drive demand for healthy and natural ingredients
PASSPORT 32
INTRODUCTION

EMERGING MARKETS
CATEGORY ANALYSIS
Acidulants/pH control/salts
Health and wellness opportunities
5,704,246 tonnes in 2012 +1.9% CAGR 2007-2012
Concerns over sodium intake are boosting demand for alternatives, 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 the coconut 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 growth in natural, fruit-based beverages will actually increase demand for acidulants.
Forecast CAGR +2.5% 2012-2017
Forecast CAGR 2012-2017

3.8%
There will be some substitution as acidulants are adjusted to complement other natural ingredients, eg stevia.
Competitive challenge from the East
0.7%
Competition from the developing world has hit Western suppliers, resulting in legal challenges and higher import duties in some areas.
Emerging markets
Developed world
Some Western firms have cut their losses and switched focus, with exits from citric acid and more interest in lactic acid.
INGREDIENTS: FOOD & BEVERAGE INGREDIENTS PASSPORT 34
CATEGORY ANALYSIS
Botanicals and bioactives

Essential components in many products
2,659,081 tonnes in 2012 +6.9% CAGR 2007-2012
Many plant extracts are essential components in finished food and beverages, eg kola nuts in cola, blue agave in tequila, tea extracts in RTD teas. Delivering specific additive roles Many botanicals can also deliver a specific role in food and beverage formulations so there is overlap with other additive categories, eg flavours, colours, sweeteners and antioxidants. Top of the tree in natural credentials Plant extracts can also be used simply to add value through delivering a more generally natural positioning. Close ties between naturalness and health Others top off their naturalness with an added health or functional positioning, eg green tea extract as a healthy antioxidant, ginseng for energy, etc.

5.9%
2.0%
With health and naturalness so important in food and beverage NPD, more and more functional extracts will emerge. While many rely solely on consumers perception of healthiness, those wanting to make firmer claims will need strong scientific backing as health claims regulation becomes ever tighter.
Emerging markets
Developed world
CATEGORY ANALYSIS
Cocoa ingredients
Premiumisation and affordable indulgence
3,280,942 tonnes in 2012 +1.4% CAGR 2007-2012
The use of chocolate or cocoa is an easy way to add value to food and beverages, while using dark chocolate ingredients and origin-specific cocoas enhances the sophisticated image. More Fairtrade and organic cocoas Using Fairtrade or organic cocoa can also premiumise products as well as tapping consumers ethical views. Regional variation in end-use trends In emerging markets, confectionery applications still dominate but the developed world has more diverse usage, eg in desserts, ice cream and beverages, all of which use chocolate for greater indulgence. Cost concerns could drive alternatives

4.3%
Price volatility can affect this market (despite ongoing sustainability projects) and there is some competition from alternatives such as cocoa butter equivalents.
1.0%
Consolidating industry Consolidation in the cocoa industry continues, with both Cargill and Barry Callebaut making key acquisitions in the past few years. There are currently talks ongoing between ADM and Cargill about a purchase of the formers cocoa operations.
Emerging markets
Developed world
CATEGORY ANALYSIS
Colours
Global need for naturals
464,289 tonnes in 2012 +1.3% CAGR 2007-2012
The drive towards natural ingredients began with natural flavours and colours and colours remain at the forefront of naturals development in all parts of the world. More colouring foodstuffs Colouring foodstuffs are very much the story of the day and are increasingly taking the place of colour compounds. They can appear 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 colour compounds, however, so there is growing need for technical improvements. In addition, their use has led to corresponding growth in demand for more natural stabilisers and emulsifiers. Strict legislation Colours are more affected by legislative intervention than many other ingredients and some synthetics are outlawed completely in certain countries. There are also calls for greater regulation of colouring foodstuffs, which could impact on this thriving sector.

3.7%
0.1% Emerging markets Developed world
Exclusion of colour entirely Complete exclusion of colour in beverages can also enhance a products natural image, so is becoming more popular.
PASSPORT 37
CATEGORY ANALYSIS
Cultures
More application-specific cultures
1,016,760 tonnes in 2012 +3.6% CAGR 2007-2012
In dairy and cheese cultures in particular, more applicationoriented cultures are now available for the preparation of specific products, eg sour cream, Indian dahi, Swiss cheese, etc. Tapping local needs The use of application-specific cultures also taps into the need for different ingredients to satisfy the different local preferences of regional populations. Probiotics boom but regulation becomes tighter Probiotic cultures are a driving force in culture demand; they are no longer limited to yoghurts and dairy beverages but have spread their wings into a wider range of food and beverages, eg fruit juices and even coffee and tea.

6.8%
However, tighter health claims regulation in Europe has affected the way that some probiotic products are marketed. Fewer claims are now allowed in the EU, while Canadian regulators have also clamped down.
1.3%
A cost-saving role Another potential benefit of cultures is their role in increasing yields, particularly in cheeses. Higher yields can greatly assist dairy manufacturers in cutting costs.
Emerging markets
Developed world
PASSPORT 38
CATEGORY ANALYSIS
Emulsifiers
Threat from clean-label trend
842,430 tonnes in 2012 +1.2% CAGR 2007-2012
The biggest issue in use of emulsifiers is the threat from cleaner labelling. Many emulsifiers are chemicals or have names that sound chemical in nature. Sustainability concerns Sustainability is another key theme. Many popular emulsifiers are derived from palm oil and more and more suppliers are looking to use palm oil that has been certified as sustainable and not damaging to the environment. At the same time, non-GM lecithin sourced from sunflower oil is now available as an alternative to soya-derived ingredients. Convenience of complete solutions The growing need for tailor-made and complete ingredient solutions is impacting emulsifiers, with many emulsifiers now featuring in ready-made blends, often combined with enzymes or textural ingredients, to deliver the optimum solutions for customers specific needs.

3.2%
0.7%
Health and wellness contribution In line with this, emulsifiers can tap into a number of health and wellness trends, being suitable components within fat replacement solutions or gluten-free formulations.
Emerging markets
Developed world
PASSPORT 39
CATEGORY ANALYSIS
Enzymes
Cleanest of clean-label ingredients It is difficult to assess enzymes volumes owing to their use in processing rather than in finished food and beverages. At the same time, though, this means that they are not present in finished products and do not need to be declared on product labels. Some consumer bodies are pushing for this to change but for now this is a key selling point.
34,188 tonnes in 2012 +0.5% CAGR 2007-2012
Specialities for specific roles

Many enzymes are now positioned with specific applications and processes in mind, eg cake enzymes or those to reduce acrylamide levels in baked goods. Gluten- and lactose-free opportunities In addition, enzymes can play an important role in the development of 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

2.5%
Emerging markets
-0.2% Developed world
Enzymes role in helping to extend shelf lives also gives them strong sustainability credentials as they can help to cut wastage.
CATEGORY ANALYSIS

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

4.3%
While some fats and oils are attracting the wrong kind of attention, there are also a number of shining lights in this arena. Stanol/sterol esters are still being used in a range of cholesterollowering products, but it is omega-3 fatty acids that have really stood out in recent times, driven by a natural image associated with their marine sourcing and growing consumer awareness of their potential health benefits. Tapping new sources Marine raw materials, ie fish and algae, remain the most important sources of omega-3 fatty acids but interest in shortchain omega-3s from plants is increasing all the time and greater attention is being paid to exploitation of new plant sources. In addition, there are a number of other speciality oils that are finding favour in health and wellness applications, such as the weight loss ingredient conjugated linoleic acid (CLA). Challenge of fats image While certain fat derivatives have managed to establish themselves in the health and wellness arena, the healthy eating drive poses many challenges for the wider fats market as fat has a generally poor health image among consumers.
3.2%
Emerging markets
Developed world
PASSPORT 41
CATEGORY ANALYSIS
Flavours and flavour enhancers

Naturalness is key
3,544,083 tonnes in 2012 +1.8% CAGR 2007-2012
Claims of naturalness will be vital for ongoing success in the flavours and flavour enhancers markets. Supporting health and wellness development Flavour technology is vital to support the health and wellness industry in order to deliver on taste when other key ingredients have been either added or removed. Low-sodium foods and those 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 to track down new and sustainable sources of flavour from nature. Convenience foods drive savoury demand Savoury flavours have been performing well in recent times as convenience foods continue to flourish. More value-added and speciality flavours

1.9%
0.8%
In sweet flavours, premium products are driving demand, with exotic flavours, speciality blends, and type- and region-specific flavours all being used to add value to a finished food or drink. Strength of flavour There can be regional variation in flavour strength preferences.
Emerging markets
Developed world
PASSPORT 42
CATEGORY ANALYSIS
Polysaccharides and oligosaccharides

Roles in texturising and health and wellness
4,566,682 tonnes in 2012 +3.9% CAGR 2007-2012
This category brings together a diverse range of ingredients with various 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 major ingredients in this arena are sourced from natural raw materials, which is a strong selling point. At industry level, sustainability remains an important concern as suppliers look to maintain a positive 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 certain poly and oligosaccharides can play in helping to stabilise products using other natural ingredients, eg colours or flavours.

5.0%
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 puts pressure on global supplies so alternatives have been popular. Convenient solutions
Emerging markets Developed world
1.1%
Complete ingredient blends targeting specific textural needs often feature poly and oligosaccharides as core ingredients.
CATEGORY ANALYSIS
Preservatives and antioxidants

Chemical sourcing is a negative
219,691 tonnes in 2012 +1.2% CAGR 2007-2012
Many preservation and antioxidant ingredients have traditionally been chemical in nature, which is something of a stumbling block in the modern market, particularly in the West. Growing need for longer shelf lives assures future demand so there is a clear 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 chemicals while delivering the same level of efficacy. Herbal antioxidants performing well Many of the more effective naturals are found in the antioxidants arena, with rosemary extract and certain other herbal sources, finding increasing favour in this marketplace. Meanwhile, recent evidence suggests that even some flavour blends can serve a dual role in terms of flavour and shelf life extension.

6.5%
1.9%
Processing technologies could replace some needs Advances in processing technologies, including high-pressure and pulsed-light processes, as well as packaging technologies could help to reduce the need for preservatives.
Emerging markets
Developed world
PASSPORT 44
CATEGORY ANALYSIS
Proteins
Growing health and wellness focus
1,858,323 tonnes in 2012 +3.1% CAGR 2007-2012
Although most proteins are still used for textural purposes, there is a growing focus on their role in health and wellness and sports recovery. Many sports drinks now contain added proteins, while this trend has extended into nutritional snack bars. At the same time, protein has started to make its presence felt as a healthy, functional ingredient in more mainstream food and beverages, particularly in the US. Its role in weight management and satiety is another issue that will drive future demand. New plant proteins emerging

5.8%
Dairy and soya are the most important sources of protein but the market is becoming increasingly diverse as more plant sources are tapped. For example, pea protein has been a growing category in recent years, while rice, potato, flax and various other plants are also being explored for a new generation of protein ingredients. Algal sources could also offer potential.
More gelatin and gluten replacement Unpopular and expensive proteins are increasingly being substituted. For example, gelatin suffers from price volatility and is not suitable for vegetarians, while egg prices can also be prohibitive at times. Similarly, the drive towards gluten-free foods means that gluten is very much out of favour at present.
1.0%
Emerging markets
Developed world
CATEGORY ANALYSIS
Sweeteners (polyols)
Sugar-free and low-calorie still important
702,533 tonnes in 2012 +2.1% CAGR 2007-2012
Within the health and wellness market, sugar and calorie reduction remain significant issues in the modern world as obesity continues to be a leading cause of illness and death. As a result, there is assured demand for sweetening ingredients that can contribute to lower calorie counts. But naturalness is impacting across the board However, there is a concerted trend towards more natural food and beverages and this is affecting the choice of sweetener, with natural sweeteners such as stevia performing well, while other suppliers are shifting away from HFCS and returning to basic sugars 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-free products remain popular and many still rely heavily on polyols. However, the advent of stevia has led to a new focus on natural products with reduced- rather than zero-calorie contents, often using sweetener blends combining stevia with natural bulk sweeteners such as sucrose or erythritol.

4.0%
0.3%
Emerging markets
Developed world
PASSPORT 46
CATEGORY ANALYSIS
Sweeteners (high-intensity)
Sugar-free and low-calorie still important
39,889 tonnes in 2012 +2.6% CAGR 2007-2012
As mentioned in the previous slide, sugar and calorie reduction remain significant issues in health and wellness so there is assured future demand for sugar replacers. Naturalness is driving sweetener choice The natural wave is driving sweetener choice, with a shift away from chemical sweeteners and processed corn sweeteners. Stevia first in a new generation? The rapid success of stevia, particularly in North America, has prompted a wider search for other plant-derived sweeteners, with monk fruit extract emerging as a key competitor. Other plant sources 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 are posing competition to completely calorie-free products. Strict legislative environment

3.6%
1.1%
Emerging markets
Developed world
Legislation of high-intensity sweeteners is something of a minefield for suppliers, with differing opinions around the world. Another issue that could muddy the waters in the future is the definition of the term natural; if this is ever defined properly it could affect natural sweeteners such as stevia and monk fruit.
PASSPORT 47
CATEGORY ANALYSIS
Vitamins and minerals

Fortification has become the norm in some categories
180,209 tonnes in 2012 +3.5% CAGR 2007-2012

5.3%
Fortification with vitamins and minerals has become the norm rather than the exception in many categories, eg many breakfast cereals use vitamins as standard, while the US milk market is dominated by products with vitamin D. There have even been moves in some countries to introduce mandatory fortification of staple foods. In many free from foods, nutrients are also added as standard, with most non-dairy milks containing calcium and vitamin D. Energy wave has boosted B vitamins
Energy drinks have become a major market for B vitamins in recent years, particularly drinks with a more natural positioning.
Immune to changes in health claims Changes to health claims legislation, most notably in the EU, have had no impact on vitamins as traditional claims are all supported by enough science to warrant continued approval.
Vitamin K has potential

1.4%
Emerging markets
Developed world
Vitamin K could be an interesting ingredient for the future. Its use is currently driven by dietary supplements but as consumer awareness increases, it could well feature more prominently in more mainstream vitamin-fortified food and beverages.
PASSPORT 48
INTRODUCTION

EMERGING MARKETS
ONES TO WATCH
Algal ingredients
This review of trends and developments impacting specific ingredients has mentioned a number of key areas 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 certainly appears to be an area apt for further investment as algal ingredients can target many different applications and needs and could also be among the most sustainable of all the worlds natural resources. Diverse opportunities The food industry already uses seaweed-based hydrocolloids, such as carrageenan and alginates, while microalgae are important raw materials for omega-3s and spirulina (a cyanobacteria) is becoming important as a natural colour. However, there is believed to be significant scope for further diversification in algal products (particularly from microalgae), including opportunities in oils, flours and proteins as well as functional food ingredients. Multiple health benefits There are believed to be many opportunities for algal ingredients in functional and healthy foods, with suggestions that algae can play a role in anti-inflammatory and antiobesity health functions, as well as helping to reduce cholesterol, lower blood pressure, manage blood sugar levels and contribute to skin health. Sustainability credentials Microalgae in particular have vast sustainability credentials. They do not need fertilisers, feeding mainly on sunlight and waste carbon dioxide, so they can be carbon neutral or even negative. They also release more oxygen than other plants. Thriving in dry and hot weather, microalgae can also be grown on land that is otherwise unsuitable for agriculture, while compared with other crops, algaculture uses less land area for higher yields.
PASSPORT 50
ONES TO WATCH
New-generation flours and proteins

Free from trend drives wheat flour alternatives Although widely considered as commodities, flours warrant a mention here owing to several key trends impacting on usage. The move towards gluten-free products and the associated shift away from wheat flour has been particularly significant. As well as core bakery markets, this is also affecting other areas, such as snack foods, with North America having seen high levels of non-wheat NPD in recent years, with rice and bean flours finding favour in everyday natural and 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 to these formulations. In line with these trends, the industry is looking to tap new, relatively unexploited plant sources for the next generation of flour ingredients. For example, algal flour is now offered by Roquette, while there has been ongoing research into peanut flour and its suitability for use in dry beverage applications. Protein health trend drives ingredient innovation As highlighted in the analysis of protein trends in an earlier slide, most proteins are still used for textural purposes but there is a growing focus on their role in health and wellness. This has raised the importance of protein ingredients as a whole and is driving ingredient innovators to explore new opportunities in this area. While dairy and soya are the most important sources of protein ingredients, the market is steadily diversifying as more plant sources are tapped. Pea protein has been a pioneer in new-generation plant proteins and could well be followed into commercial success by rice, potato and flax proteins.
Meanwhile, algae are again seen to have something to offer in this regard and some companies are already exploring development of algal proteins.
PASSPORT 51
ONES TO WATCH
Natural sweeteners
There are numerous botanicals that are attracting the attention of the edible ingredients industry and many will make their presence felt in the coming years. Sweetening is perhaps the most interesting area given the impact stevia had on its arrival in Western markets and the subsequent launch of monk fruit extract. There are several other plant extracts that are being investigated as potential sweeteners for the future, although none have yet been approved for use in major markets. These include Aztec sweet herb, which contains a sweet compound called hernandulcin and has been used historically as a natural sweetener and medicinal herb in Mexico and Central America. In China, the wheel wingnut tree has been used in traditional medicines and 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 in Japan as it can change the perception of taste and deliver a sweet taste to sour or acidic foods.
Aztec sweet herb
Wheel wingnut
Soap nut
Miracle berry
One of the more unusual suggestions for the future of sweetening is that it could lie in the insect world. A certain variety of psyllid insect found mainly in Australia secretes something called a lerp, which is sweet to the taste and popular with local birds. However, although entirely natural, it may be something of a stretch to convince the general public to eat a sweetener derived from insect secretions.
Euromonitor International INGREDIENTS: FOOD & BEVERAGE INGREDIENTS
Lerp psyllid
PASSPORT 52
Experience more...
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PASSPORT 53

EM - Food and Beverage Ingredients Emerging Markets To Drive The Future

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FOOD AND BEVERAGE INGREDIENTS: EMERGING MARKETS TO DRIVE THE FUTURE

SUPPLY AND DEMAND DRIVERS

The emphasis is on added-value or speciality ingredients rather than bulk

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

Acidulants and pH control/salts

Botanicals and bioactives

Fats and oils (speciality)

Flavours and flavour enhancers

Polysaccharides and oligosaccharides

Preservatives and antioxidants

Vitamins and minerals

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

SUPPLY AND DEMAND DRIVERS

Supply: Economic challenges and opportunities

Competition from low-cost ingredients from the developing world

Ingredients to substitute more expensive or price-volatile options

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: Twin approach to sustainability

Manage resources responsibly, seek out new renewable raw materials

Reduce carbon footprint and minimise impact on the environment

Deliver ingredients to help reduce processing times or energy/water usage

Deliver ingredients with good all-round sustainability credentials

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: Natural is very much the buzzword

Significant demand for natural ingredients

R&D focused on best ways to exploit natural resources

but rising competition for natural raw materials

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: The natural paradox of GM

Global GM Crop Area 2007-2012

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: Ingredient advances require strong R&D investment

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: End-use markets slowly consolidate

Industry Concentration in End-Use Markets: Share of Top 10 Companies 2008/2012

0 Alcoholic drinks Soft drinks Hot drinks Packaged food

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Supply: Regional spread is essential to target large multinationals

Multinational customers in end-use markets

Ingredients suppliers must operate globally

but understanding of local needs is also crucial

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Demand: Beyond simple nutrition or hydration

Additive free/ clean label

Variety of pack formats and sizes RTD and snacking products

Functional/ fortified Sports, energy and lifestyle

INGREDIENTS: FOOD & BEVERAGE INGREDIENTS

SUPPLY AND DEMAND DRIVERS

Demand: Health and wellness remains an overriding theme

Global Health and Wellness Markets by Category 2008/2013/2018

Retail value (US$ million)

Naturally healthy food and beverages

Fortified/functional food and beverages

Better for you food and beverages