Consolidation marks food fermentation industry

Pitched at €10.97 billion in 2004, the global market for fermentation products, that includes enzymes, amino acids, citric acid and xanthan gum, is expected to rise by 4.8 per cent per year, to reach €13.6 billion in 2009.

"DSM is considered to be by far the largest fermentation company in terms of value produced, while Ajinomoto is leading in volume terms,"​ says Ulrich März, author of a new report from Business Communications Company.

All fermentation products are based on the conversion of sugars, by a bacteria of fungi, to create the raw material for the finished ingredient. The majority of the energy sources come from cereals, corn or wheat based.

According to BCC, amino acids is the second, and fastest growing category behind antibiotics, in the fermentation league, with strong growth of 7.2 per cent throughout the forecast period.

Lysine and monosodium glutamate (MSG) are the largest products in this category, and the total market value for amino acids, including threonine and tryptophan, is estimated to be in the range of $3.5 billion (€2.68bn) in 2004.

Due to increasing consumption, but also expected price increases for the products, the market in 2009 is expected to rise to about $5 billion.

"Demand for lysine, a key feed ingredient, and MSG continue to drive demand for amino acids. At about one million tons, MSG sees strong volumes, mostly pulling from Asia,"​ März tells FoodNavigator.com.

Japanese firm Ajinomoto dominates the amino acid market, with more than 25 per cent of the market for lysine alone and 30 per cent of the MSG. ADM and BASF also figure in the handful of players that dominate the landscape.

The category of organic acids is dominated by citric acid, with production estimated at 1.4 million tons in 2004. Due to the numerous applications of citric acid in food, and in industrial use, consumption is expected to grow strongly, and considering slight price increases until 2009, the market value for citric acid will exceed $2 billion (€1.53bn).

Prospects are bright for citric acid, says Marz, with volume growth of about 4 to 5 per cent. Cheap, at about $1 to $1.3 a kilo, the product gives a great taste and extremely popular, for example, in beverages, he adds.

Chinese companies are contributing to the price erosion, pushing ever more competitive prices onto the market place. According to the report, the Chinese have about 30 to 40 per cent of the citric acid market. ADM, Tate & Lyle, Jungbunzlauer and Cargill dominate the rest.

In contrast to decent growth for citric acid, enzymes, a further fermentation food category, can expect to see just 2 to 3 per cent growth.

While the volumes of pure enzyme protein produced are very small, their value reached over $2 billion (€1.53bn) in 2004.

"There is no reason to assume that enzyme use will decrease in the future and considering the development of the various application sectors, the enzyme market in 2009 is estimated to be in the range of $2.4 billion,"​ comments Marz.

Danish firm Novozymes dominates the enzyme market with about a 50 to 60 per cent share, adds the analyst. With 30 per cent, US biotech firm Genencor, falls into second place. But news yesterday that Danisco is to acquire Genencor, in which it already has a stake, will push Danisco into the number two position.

Xanthan, as the most prominent product in the thickeners segment, became popular to food producers and especially in industrial applications, resulting in a market value of $355 million in 2004.

Volume growth in the past was very strong but was partly balanced out by a dramatic price decrease. The period of price erosion is thought to be over, say the analysts, and further volume increase could drive the total market value up to $400 million in 2009.

Again, the Chinese are now strong in the xanthan market, squeezing non-Chinese suppliers on price. Building up critical mass to tackle this increase in competition, the industry is likely to see an increase in consolidation as fermentation firms link up to face the price erosion.

Across all fermentation products, Dutch firm DSM comes in as the largest company in terms of value. This is mainly due to its strong presence in non-food market of antibiotics. Since its acquisition of Roche, the firm also has a stronger slice of citric acid and vitamin C, another fermentation product, markets.

Ajinomoto and Novozymes follow near behind. ADM runs ahead of Cargill and UK firm Tate & Lyle, both on a par, in terms of fermentation products. But the threat to market share will continue from the East. "True Chinese companies hold a market share of 11 per cent in terms of value; however, in terms of volume they represent a share of over 30 per cent,"​ Marz comments.