Gadot forges Chinese joint venture for citric acid

By Jess Halliday

- Last updated on GMT

Related tags Citric acid

Gadot is taking its first ever step outside Israel with a joint
venture to build a new citric acid plant in China - a project that
it expects to yield significant cost advantages thanks to the
fermentation technology of partner Jiangsu Nuobei Biochemical, as
well as doubling its existing capacity.

Ronny Hatcham, Gadot VP business development and marketing, told that Gadot is in a relatively strong strategic position in Israel, with citric acid forming a small but significant part of its business alongside crystalline fructose and minerals. However the company is looking outside the boarders of its home country to secure a competitive advantage in citric acid supply for the future, establishing a US$30m plant in Jiangsu Provice in a joint venture with Jiangsu Nuobei Biochemical. "Looking at the market for the last five years, we saw that suppliers are losing their advantages over the Chinese,"​ said Hacham. "It is important in our business to go where the advantage is - and today the advantage is in China."​ Specifically, Gadot's project will use Jiangsu Nuobei's technology, which uses a non-processed carbohydrate source for fermentation - be it potato, cassava, or corn. In Israel, the process uses white sugar, which is considerably more expensive as it has already done through the purification process. For its part, Gadot brings to the joint venture its purification technology, applied after fermentation. This, Hacham said, will yield a product of the same quality as presently supplied by Gadot. The result, Hatcham said, will be a cost advantage for the final product. Moreover the companies have expressed adherence to environmental protection principles, which are factored into the plant's design. The JV - in which Gadot holds a 51 per cent stake and Jiang Nuobei 49 per cent - will see the Israeli company's citric acid capacity double to 60,000 tonnes. Hacham said that this is seen as the minimum capacity for economies of scale; he said that several stand alone citric acid plants in Ireland, the UK, the Czech Republic and Mexico have closed their doors in recent years as such smaller scale operations are not commercially viable. For instance, in March Tate and Lyle announced the closure of its plant in Selby in the north of England, citing Chinese competition as a cause. While Gadot's existing facility in Israel has a capacity of 30,000 tons, this is not a stand-alone plant, but one that also produces fructose. The plant will produce anhydrous citric acid and citric acid monohydrate - forms of the acid with different water content (0 and 10 per cent respectively), and the salt tri-sodium citrate. The company will be going after the same market as at present - the food and drinks industries, which currently use 80 per cent of the world's citric acid for flavouring and preservative purposes; detergents (10 per cent); pharmaceuticals (five per cent); and industrial uses (five per cent). Most of the product from the JV will be destined for export, primarily to Gadot's biggest markets in Europe and North America. But the company is also looking to develop new markets. A tranche of the product will also be earmarked for the domestic Chinese market. The plant is expected to be online within a year of construction starting.

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