Aroma Part4
Aroma Part4
T79/07/03) FINAL REPORT (Submission Date: 15 September 2004) Part FourReport: Aroma Chemicals Derived from Essential Oils
STUDY CONDUCTED BY: Triumph Venture Capital (Pty) Limited In conjunction with Dr Lorraine Thiel and Mr Fadl Hendricks (the Consultant)
This Report has been prepared in four separate Parts. Each Part is self-contained and selfexplanatory.
Part OneExecutive Summary Part TwoReport: Aroma Chemicals Derived from Effluent from the Paper and Pulp Industry Part ThreeReport: Aroma Chemicals Derived from Petrochemical Feedstocks Part Four Report: Aroma Chemicals Derived from Essential Oils
NOTE: This Study was conducted for and on behalf of FRIDGE. FRIDGE holds the copyright in this report. Whilst care and due diligence has been observed to ensure the accuracy of all information contained herein and the correctness of all conclusions drawn, neither FRIDGE nor the Consultants shall be liable for any harm suffered by any person who relies upon the contents of this report.
INDEX 1 1.1 1.2 1.3 2 2.1 2.2 2.3 3 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3 4.4 4.5 4.6 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 PROJECT HISTORY AND OVERVIEW.............................................................. 1 Brief ................................................................................................................. 1 Decisions on Approach .................................................................................... 1 Definition and Relevance of Essential Oils ...................................................... 2 OVERVIEW OF THE AROMA CHEMICAL INDUSTRY ..................................... 4 The South African Chemical Industry .............................................................. 4 Overview of the International Flavour and Fragrance Industry ........................ 9 The South African Flavour and Fragrance Industry ....................................... 18 ESSENTIAL OIL INDUSTRY AND MARKET ANALYSIS ................................ 20 International Market Overview .................................................................... 20 South African Market Overview .................................................................. 22 South African Market - General Comments ................................................... 25 South African Market - Trade Partners .......................................................... 27 South African Market - Overview for Specific Oils ......................................... 29 VALUE CHAIN.................................................................................................. 43 Value Chain Overview ................................................................................... 43 Agricultural Production................................................................................... 45 Primary processing ........................................................................................ 51 Further Beneficiation...................................................................................... 54 Marketing and Sales ...................................................................................... 58 Value Chain Conclusions............................................................................... 59 CURRENT STATE OF SOUTH AFRICAN ESSENTIAL OIL INDUSTRY ........ 61 Agricultural Stakeholders ............................................................................... 61 Indigenous Essential oils ............................................................................... 64 Secondary Beneficiation and Marketing ........................................................ 65 Fragrance and Flavour houses - Local ......................................................... 66 Fragrance and Flavour houses- International ................................................ 66 Governmental Stakeholders .......................................................................... 67 Grounds of Competitive Advantage ............................................................... 69
General comments on the potential relevance of Co-operatives in the Essential Oil industry. ..................................................................................................................... 76
Recommendation: ....................................................................................................... 77
ATTRACTIVE OPTIONS................................................................................... 80 General Considerations ................................................................................. 80 Attractive Options .......................................................................................... 81 Potential size of industry ................................................................................ 83 SOCIO-ECONOMIC IMPACTS AND BENEFITS ............................................. 87 Job creation ................................................................................................... 87 Creation of a production platform for non-food/industrial crops ..................... 88
9 TECHNOLOGY, INTELLECTUAL PROPERTY, RESEARCH AND DEVELOPMENT ...................................................................................................... 90 9.1 9.2 9.3 9.4 9.5 9.6 10 11 12 13 Standard Technologies .................................................................................. 90 Capital and Operating Costs.......................................................................... 91 New extraction methods ................................................................................ 92 Intellectual Property Issues............................................................................ 94 Research & Development .............................................................................. 95 International R&D - Case Study..................................................................... 97 ENVIRONMENTAL ISSUES ....................................................................... 100 KEY SUCCESS FACTORS......................................................................... 101 CONCLUSIONS .......................................................................................... 104 RECOMMENDATIONS ............................................................................... 109
ANNEXURES: Terms of Reference Milestone Decisions during the Study Schedule of Contacts
The Terms of Reference required that the Consultant consider the potential synergy between a synthetic aroma, fragrance and flavour value chain and a value chain based on the exploitation of South African natural products. This line of enquiry was based on the underlying assumption that South Africa is endowed with a wide diversity of plant material, which offers significant potential for exploitation as a source of aroma, fragrance and flavours fine chemicals. This section of the Study was ancillary to the main focus of the Study, which was the review of a basket of larger volume aroma and flavour chemicals to be derived from petrochemical feedstocks using technology developed by AECI (and now owned by CSIR), with a view to creating the core of a aroma fragrance fine chemical value chain.
1.2
Decisions on Approach
The initial desktop research performed by the Consultant highlighted the fact that although there are many different forms in which natural products enter the flavour and fragrance market, for example teas and tinctures, it is the essential oils industry that provides the chemical components that may form part of a suite of aroma, flavour and fragrance fine or speciality chemicals. The Consultant therefore recommended, and it was accepted, that the focus of this section of the Study be on essential oils. Furthermore, the Consultant determined that the potential for exploiting essential oils from indigenous plant material was limited in the short term but held potential for the medium to long term. However, since the delivery systems for indigenous essential oils would be similar to those required to deliver the internationally accepted essential oils, it was proposed that the Consultant give consideration to the potential of developing the South African essential oils industry in respect of internationally accepted oils, with a view to it enhancing the prospects of developing the aroma, flavour and fragrance industry in South Africa. This approach was agreed. The production system for essential oils is primarily an agricultural one. The down stream beneficiation involves chemical processes of a reasonably simple nature. The complexities arise when one becomes involved in the formulation aspects of the flavour and fragrance industry. From an agricultural perspective, crop selection is a key component of the essential oils industry. This is a reasonably complex issue relating to agronomics (climate, plant characteristics, yields, and organoleptic and chemical considerations). It was agreed
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1.3
Essential oils are naturally occurring volatile products obtained from various parts of plants. Essential oils are usually extracted from the plant material by steam distillation, expression, or solvent extraction. Essential oils are distinguished from the fatty vegetable oils, such as canola and sunflower, by the fact that they evaporate or volatise in contact with the air and they usually possess a strong aroma. These products are complex mixtures of organic chemicals, the nature and relative proportions of which are determined by the genetics of the plant species, environmental factors (e.g. climate) and agricultural factors (e.g. soil conditions, nutrition, time and conditions of harvesting and methods of post harvest handling) and manner of extraction. The amount of oil extractable ranges from an infinitesimal quantity to as much as 1-2% of the dry weight of the plant material distilled. The chemicals present in essential oils may be classified as follows: Hydrocarbons of the general formula (C5H6)n-terpenes; Oxygenated derivatives of these hydrocarbons; Aromatic compounds having a benzenoid structure; and Compounds containing sulphur or nitrogen.
These constituents are synthesized by the plant during its normal development. Their presence can be optimized or manipulated by manipulating the factors mentions above (i.e. environmental factors, agricultural factors and manner of extraction). The essential oils industry is primarily an agricultural industry with the product being sold into several different markets (foods and beverages, aroma and fragrances in foods, nutraceutical applications, medicinal applications, cosmetics and personal hygiene products, pesticides). The technologies for distillation or extraction of the essential oils are reasonable accessible and simple to operate. The essential oils market is growing internationally as
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South Africa has the largest economy on the African continent, accounting for 25% of Africas GDP. The South African chemical industry is driven by the relatively large South African home market, accounting in many instances for the bulk of sub-Saharan African consumption. The South African chemical industry is of substantial economic significance to the country, contributing around 6% to GDP and approximately 25% of its manufacturing sales. It employs approximately 100,000 people. In 2001, the industry had an output of R 62 billion, exports accounting for R 29 billion, approximately 50% of domestic production.1, 2 The chemical and related industry is import-oriented, with export levels approximately half of import levels. In chemicals alone, 57% of the trade deficit pertained to downstream fine chemicals. The industry, the largest of its kind in Africa, is highly complex and widely diversified, ranging from high volume-low value commodity or bulk chemicals through to high value-low volume, complex and highly specialized products. However, whilst the upstream sector is concentrated and well developed, the downstream sector, although diverse, remains underdeveloped. Chemical operations in South Africa focus predominantly on basic upstream chemical manufacturing with major production of liquid fuels, olefins, organic solvents and industrial mineral derivatives and downstream formulation and polymer conversion. There are a few major, integrated companies (companies employing more than 150 people) involved mostly in primary and intermediate manufacturing, with small (companies employing less than 50 people) and medium-size (companies employing between 50 and 150 people) enterprises found mainly in downstream formulation and conversion processes. South Africa has historically had a bias towards upstream commodity chemicals production, as a result of its internal need to guarantee a supply of liquid fuels during period of economic sanctions. The industry focus was on the implementation of technology, rather than the development of technology. The commodity chemical sector is therefore well established, whilst the downstream industry remains comparatively underdeveloped, with relatively low levels of scientific and technological skills available.
Seminar at the Helsinki School of Economics April 10, 2002:The New South Africa: Opportunities for Trade, Investment and Partnership 2 South African Department of Trade and Industry Web-site: Overview of the South African Chemical Industry
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The South African chemicals industry is in the midst of turmoil, and is undergoing a massive transformation process, these changes affecting mainly the downstream chemical sector. The restructuring process of large South African chemical companies due to global economic forces has resulted in a reduction in innovation from within the private sector. Research and development undertaken by large South African companies, with the exception of SASOL and some innovative small firms has shown a significant, measurable decline in the past four years. In many cases this results in many technologies being developed overseas. This trend is supported by the recent offshore listings of several large technology-intensive South African companies followed by the tendency for these companies to source research outside South Africa. This process is resulting in a serious depletion of strategic skills in South Africa. Research and Development expenditure has been declining in the last 5 years, with South Africa undertaking only approximately 0.5% of global research. The percentage of the South African gross national product spent on research and development has declined from 1,1%
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Te c Tr hn an olo sf gy er
Research Research
Development Development
Manufacturing Manufacturing
4 5
UNDP Report: 2001 Technology and Development A National Perspective: Contribution of Research and Innovation to the SA Economy. Adi Paterson (Department of Science and Technology )
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High population growth constantly exceeds the growth in employment demands. This is compounded by the consistent loss of jobs in the formal sector, as the countrys economy moves away from labour-intensive to capital-intensive operations. The labour market is characterized by an oversupply of unskilled workers and a shortage of skilled ones. Furthermore, in South Africa, the distortion of under development and/or disinvestment in the majority of South Africans has resulted in the skewed skills profiles from a racial perspective and in terms of the soft and hard qualifications. An overwhelmingly white, male and aging scientific population is not being replaced by younger groupings more representative of the countrys demographics. A study for the Chemical Industries Sector Education and Training Authority (CHIETA) has found that while black people are predominantly located in the lower-skill occupational categories, 83% of African employees reported receiving no training relevant to work in the previous year, compared with 46% of white employees.6 A HSRC7 study for the CHIETA on the skills needs in the chemical sector in South Africa has indicated that more than two thirds of all the workers in the Chemical Industries Sector are black, but that many top-level decision makers (financial, managing, and related senior management positions) and technically qualified posts (chemical, production, and process engineers etc.) are predominately filled by white males. The average age of workers at all occupational levels, except for that of operators, seems to be increasing, which makes the training of replacements an urgent matter. The fact that employers in the Chemical Industries Sector experience difficulty in recruiting new staff at the managerial, professional and technician level, especially affirmative action candidates, can be ascribed to the low output of graduates in the natural sciences. This is indicated by the fact that South Africa produces about 10 times fewer scientists and engineers compared to typical first-world countries. Figures from the Department of Science and Technology state that only 3.9% of approximately 490,000 learners who wrote Matric exams in 2000 passed mathematics on the higher grade, and 4.7% passed science on the higher grade. The continual plea for access to expatriate skills and capacity by the industry is backed up by statistics that show there are insufficient locally based professionals to meet the demands of the sector in the short term. South African ageing and shrinking human resources in science and technology are not being adequately developed and renewed and the number of A-rated scientists is declining annually. In 1998, 45% of all scientific publications were by authors over the age of 50. This is further compounded by the emigration of senior and junior scientists to further their careers in countries with a more competitive research environment. Innovations, patents and
6 Chieta Report: A Demographic Profile of the Workforce in the Chemical Industries Sector and Sub-sectors May 2002 7 HSRC Chieta Report Skills Needs by the Chemical Industries Sector in South Africa December 2003
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Draft Emerging Biotechnology Roadmap: Department of Science and Technology: November 2003 National Biotechnology Audit: September 2003 10 Chemicals SA 2003: South Africas Petrochemical Industry Globalisation, Restructuring, and Government Policies
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2.2
This section of the report provides an outline of the Flavour and Fragrance industry in a global context. It also serves to describe the position held by aroma chemicals and essential oils in this market. Flavour and fragrance formulations are widely used globally for enhancing, among others, foods, beverages, detergents and pharmaceutical products. Compounded flavour and fragrances are thus complex blends designed to impart either an attractive taste and aroma to processed foods and beverages, or a pleasing scent to consumer products such as perfumes, toiletries, household cleaners etc. The formulations may contain aroma chemicals as well as essential oils and natural extracts. The formulation will also contain solvents, diluents and carriers. Figures 3 and 4 outline the breakdown of the use of flavour and fragrance compositions in the end-markets. 11 Figure 3: Flavours End-Use Market
Snacks 5% Oral hygiene /pharmaceutical 7% Meat 8% Others 5%
Beverages 33%
Confectionery 9%
It is interesting to note that the major use in the flavour market is in beverages. In the fragrance end-use market, over 50% is used in two applications i.e. soaps/detergents and cosmetics/toiletries. These end-use markets are characteristically first-world markets. This
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In 2002, the worldwide flavour and fragrance business, including sales of compounded flavour and fragrance products, aroma chemicals as well as essential oils and natural extracts, was valued at an estimated $ 15.1 billion. 14 The industry is segmented broadly into three areas: 1. Isolation of synthetic and natural aroma chemicals or essential oils/natural products. (Aroma Chemicals are single, chemically defined substances which act on the senses of smell and taste; and essential oils are naturally occurring, volatile products obtained from various parts of plants.) 2. Compounding of these products into formulations tailored to meet specific customer requirements
12 13
Chemical and Engineering News: July 14, 2003 IAL Consultants: 2000 Data; C&EN July 2003; IAL Data 2001 14 Leffingwell and Associates
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Secondary Beneficiation
Primary Processing
Aroma Chemicals
Chemicals
Source: Leffingwell and Associates
Synthesis
Table 1 illustrates the contribution of the various components of this value chain.15 It is worth noting that over 75 % of the industrys value lies in the composition of the flavours and fragrances.
15
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Aroma Chemicals Essential Oils and Natural Extracts Flavour Compositions Fragrance Compositions TOTAL
Production of aroma chemicals is estimated to be worth $ 1.812 billion. In 2000, the SRI Chemical Economic Handbook report estimated the market for aroma chemicals to be $ 1.766 billion.17 This estimate was based on supply and demand estimates by the major geographic regions. A recent survey by the market research company, Freedonia Group18, forecasts growth in global demand for flavours and fragrances of 5.4% per annum, with the industry reaching $ 18.4 billion in 2004. Market growth will primarily be due to strong growth in the developing regions of Latin America and Asia (excluding Japan). Countries such as China, Brazil, India, Mexico, Vietnam and Chile particularly are experiencing dramatic growth in their foodprocessing and consumer-product industries. It is predicted that the growth in developed markets will in contrast be slow. The developed countries market growth is characterised by trends, which favour less flavour and fragrance-intensive consumer goods, consolidation in end-user industries, strong pressure on price reductions, and market maturity. It is also anticipated that the growth in the essential oil and natural extract market will exceed that in the synthetic aroma chemical market. Large international Flavour and Fragrance houses specialise in the compounding of flavour and fragrance products. A number of these houses also produce selected aroma chemicals for captive use. In addition, some also manufacture personal care active ingredients from captive and purchased aroma chemicals. Generally, success in the formulation and compounding business is dependant on the ability to offer a basket of products, and an ability to respond quickly to ever-changing trends in consumer preference. Most major participants in the Flavour and Fragrance industry operate internationally and maintain a presence in virtually all markets of the globe. The major motivation for this is that the leading Flavour and Fragrance houses are following key end users such as food processors and
16
SRI Chemical Economic Handbook Report: Aroma Chemicals and the Flavour and Fragrance Industry August 2001 17 SRI Chemical Economic Handbook Report: Aroma Chemicals and the Flavour and Fragrance Industry August 2001 18 Freedonia Group News Release 2003
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2. True Isolates: Single aroma chemicals, which are extracted from natural materials and subjected only to further processes of purification. These include the following: anethole, camphor, citral, eugenol, and menthol. 3. Chemically modified derivates: Made by converting isolated products into a different chemical by subjecting them to various chemical processes. This includes the crude sulphonated turpentine derived aroma chemicals such as citral, geraniol and linalool. Crude sulphonated turpentine is a by-product of the Kraft paper pulping process. It also includes vanillin produced from lignin, also a byproduct of the paper pulping process. Aroma chemicals can be classified according to their chemical structure. The main groups and their share of the aroma chemical market are detailed in Table 3. 20 There are about 2,800 aroma chemicals approved for use in flavour and fragrance formulations worldwide. However, only a few hundred are produced in volumes over 50 tons for the merchant market. It is considered that synthetic aroma chemicals constitute 70 75% (by value and volume) of the raw materials used in the flavour and fragrance formulations. The aroma chemicals under consideration in this study fall into the categories of either benzenoids or terpenoids. Table 3: World Consumption of Aroma Chemicals Percentage by Value 34 37 13 16 100 Percentage by Quantity 48 34 7 11 100
The majority of aroma chemical manufacturing is by batch processing, often in multipurpose plants. This is due to the fact that few aroma chemicals are consumed in large enough volumes to justify dedicated equipment. Manufacturers need to shift production from one product to another as the market demand changes. Some aroma chemicals do have a demand in other purposes, however, the application as a flavour and fragrance ingredient usually is the most profitable for these products.
20
SRI Chemical Economic Handbook Report: Aroma Chemicals and the Flavour and Fragrance Industry August 2001
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Flavour and Fragrance Houses: These companies produce the chemicals for their own use in compounds and blends and often also sell them on the merchant market.
Large Diversified Chemical Companies: These companies manufacture aroma chemicals as a minor component of their overall chemical business by upgrading small amounts of their largescale chemical production is to flavour and fragrance specifications. Product is sold to formulators or flavour and fragrance houses; the chemical companies do not themselves sell the products into the end consumer markets.
Medium and Small Chemical Producers: These are companies involved in the synthesis of aroma and other fine chemicals using specialised technical knowledge. (AECI as a producer of a portfolio of fine chemical aroma products would have belonged in this category)
The aroma chemical industry has consistently earned returns in excess of the chemical industry standard. As it is so closely tied to the health, personal care, and food and beverage markets, it is robust, insensitive to commodity cycles, and relatively recession resistant. Success in the production of aroma chemicals is generally characterised by: Consistent product quality An approved organoleptic quality Long-term customer relationships Technology driven cost leadership An ability to research, develop and commercialise aroma chemicals A robust raw material/feedstock position
2.2.2
Essential Oils Essential oils are naturally occurring volatile products obtained from various parts of plants. Essential oils are usually extracted from the plant material by steam distillation, expression, or solvent extraction. Essential oils are distinguished from the fatty vegetable oils, such as canola and sunflower by the fact that they evaporate or
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Although it is possible to isolate aroma chemicals from essential oils this is only done in respect of the major oils, where the economies of scale allow for the natural isolate to compete with the synthetic counterpart. The competition in the major essential oils is stiff with the low cost producers of Asia and South America dominating (particularly Brazil and China). On the other hand, the minor essential oils are traded and used more or less as is. Their attraction is in their complex chemical structure and consequent organoleptic properties they possess. The minor oils are more difficult to produce as they are not produced in plantations and neither can they be highly mechanised. South Africa has a long involvement in the essential oil industry with regards to the production of major essential oils like eucalyptus and citrus oils, supplying some 5% and 2% of the world market respectively.
2.3
The market for flavours and fragrances in South Africa and Sub-Saharan Africa in 1999 and projected for 2004 is shown in Table 4 below. Table 4: Market for Flavours and Fragrance in South and Sub-Saharan Africa: 1999 200421 End-use ($ millions) FLAVOURS Beverages Dairy Snacks/Savoury/Convenience Bakery Confectionary Meat Oral Hygiene/Pharmaceutical Others* TOTAL Growth Rate FRAGRANCE
21
South Africa 1999 18.1 9.3 7.0 6.4 5.2 5.1 3.0 2.6 56.7 2004 21.0 10.9 9.2 6.7 5.6 6.4 4.6 3.1 67.5 3.6%
Sub-Saharan Africa 1999 22.4 8.0 6.8 5.6 6.2 3.5 3.0 4.0 59.5 2004 30.8 10.6 9.7 6.2 6.9 4.7 3.9 4.9 77.8 5.5%
An Overview of the Global Flavours and Fragrances Market: IAL Consultants 2000
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* Including Pet Food and Tobacco #* Includes: Candles, aromatherapy, insecticides etc. In South Africa, the current emergence of the black middle class is having a positive impact on the consumption levels of flavour and fragrance containing compounds. The largest flavours sector in Africa is beverages followed by the dairy section. Higher flavour loads tend to be used in the beverage sectors in the African markets compared to more developed markets. For example, in Western Europe, fruit-flavoured soft drinks typically contain 12% fruit juice, reducing the need for added flavour. In the majority of countries in Africa, no fruit juice is used at all. Although South Africa in general has a food culture similar to the rest of Africa its food processing sector is however more sophisticated than in the rest of Sub-Saharan Africa. Within the fragrance sector, the largest use is in soaps and detergents. Within this sector, washing soap is predominant in the less affluent regions, where the use of washing machines is at nominal levels. Many cosmetics and toiletries multinationals have located production facilities in South Africa as a production base for the Sub-Saharan region. The South African total market in 2004 was therefore predicted to be $ 125.3 million. At an exchange rate of R 7/US$ this is equivalent to R 877 million. This figure for the value of the South African Flavour and Fragrance market in 2004 has been confirmed by industry sources. The regional South and Sub-Saharan African market in 2004 was expected to be in the order of $ 279 million or R1,887 million. Growth in the region is anticipated to continue to be strong, the flavours market growing at 4%.
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There are well over 160 recognised essential oil crops but most are of minor importance in terms of worldwide demand. The top ten crops by volume account for about 80% of the total world market for essential oils.22 The remaining 20% of the world essential oil market comprises over 150 crops. The largest of the internationally traded essential oils are set out in the table below:
Volume (t)
26,000 4,300 4,300 2,830 2,367 2,158 2,092 1,915 1,005 1,000 973 851 800 768 750 725 710 694 563 88 769 tonnes
Value ($ mill)
58.5 34.3 29.8 10.8 21.6 21.6 7.3 7.7 4 4 7.3 17 3.2 6.1 3.0 3.6 49.7 13.9 6.78 $340 mill
22
Agricultural Note AG0656: Dept of Primary Industries/ Dept of Sustainability and Environment Australia
23
Brian A. Lawrence, 1993: A planning scheme to evaluate new aromatic plants for the flavour and fragrance industry
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The major exporters of essential oils are the United States (US), the European Union (EU) and a number of developing countries, the most important of which are China, Indonesia, India and Brazil. In 1998 the EU accounted for 52 per cent of the value of world exports, and the US 13 per cent (UN 1999). Developed countries are the main importers of essential oils, with the EU and the US accounting for 44 per cent and 8 per cent respectively in 1998 (UN 1999). The major consumers are the US (40%), Western Europe (30%) and Japan (7%). The major essential oil world crops are: citrus (US, Brazil, Mexico); mint oils such as peppermint (US), spearmint (US) and cornmint (China, India, South America); and lemon fragrance oils such as citronella, lemongrass and Listsea Cubeba (China, India, South America). Eucalyptus oil is produced in Brazil, China and South Africa, as well as in Australia. Cedarwood oil is confined to North America as a by-product of the timber industry. The clove industry is confined to Indonesia. The major producers of essential oils are Brazil, China, US, Egypt, India, Mexico, Guatemala and Indonesia. All of them, with the exception of US, are developing countries with very low labour costs. The US is prominent in respect of crops that are highly mechanised, such as peppermint. Over the last 50 years, the demand for essential oil products has gradually increased because of a number of factors. Demand for flavouring, perfumery, and aromatherapy materials has risen because of the steep rise in the world population and the emergence of new middle-class societies, particularly in the east. Furthermore, there is an increased demand, by the people of the industrialized countries, for greater variety in their food and a trend towards health and wellness. The increased concern for the environment and for the safety of food has also contributed to the continued growth in demand for naturally derived flavour and fragrance products (such as essential oils). The United Nations International Trade Yearbook24 indicates that trade in essential oils is growing at a rate of approximately 10% per annum. In 1998, world exports of essential oils and related perfumes and flavours were valued at US$ 7 435 million and imports at US$ 6 811 million (UN 1999). Table 2 shows that the value of world trade has increased substantially between 1986 and 1998.
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Table 6: World trade in essential oils and related perfumes and flavours25
1986 US$m Exports Imports 2 149 2 008 1990 US$m 4 122 4 206 1994 US$m 5 051 4 802 1998 US$m 7 435 6 811 198698 % pa 10.9 10.7
These world export and import figures may be misleading as it includes double accounting (imported goods re-exported with or without beneficiation) and a wider range of products than just essential oils. For example, in 1993, industry expert Brian Lawrence estimated the world production of essential oils to be some 56,000 tons with a value of some US$ 500 million, whereas the world export and import figure for 1994 was US$5051million and US$ 4802 million respectively. The value of production of essential oils is approximately 10% of the value of international trade in essential oils and related products as measured by the United Nations Trade Statistics. It is estimated that the world production of essential oils in 2003 was approximately 130 000 tons with a value of approximately US$1 billion26. This is in line with the growth rate of 10% year on year, experienced since the 1980s. Some 50% of the world production of essential oils is used in flavours (predominantly beverages), a further 5% to 10% in phytotherapy and aromatherapy, 20% to 25% in fragrances and 20% to 25% is used for further fractionation for the isolation of aroma chemicals. Within the fragrance category, 70% is used in household products, with another 20% used in toiletries and personal care items and the remaining 10% used in fine fragrances (perfumes).
3.2
South Africa has a well-developed chemical and consumer products manufacturing industry which has a demand for fragrances (mostly synthetic aroma chemicals) and has a well developed food processing industry demanding flavours.
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26
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27 28
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Volumes (p.a.)
Minor Oils
Rose Geranium Lavender /Lavendin Jasmine Rosemary Chamomile Tagetes Buchu Artemesia
TOTAL
With regards to unique indigenous essential oils, South Africa has several species which have obtained international acceptance and many that have not. South African indigenous plants which are being cultivated or harvested in the wild for their essential oils include: Buchu, Artemesia and Tagettes (the latter, although not originally indigenous is now endemic). Not all of these are used in the flavour and fragrance industries, for example Buchu is also used in medicinal preparations. Other uniquely South African offerings include Cape Chamomile, Cape May Oil and Cape Snow Bush. These and other products are largely exported in a few kilograms per annum to speciality buyers in US and Europe.
However, the potential for the commercial exploitation of South African flora may be significant. The world flavour and fragrance industry is driven by novelty and the international F&F houses, like Givaudan, send out fragrance and flavour hunters worldwide. The Givaudan groups are called Scenttrek or TasteTrek5 (depending on focus), and they have travelled to countries such as French Guyana, Gabon, Madagascar, Papua New Guinea and South Africa to investigate and take samples of indigenous flavours and
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Industry Sources
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3.3
The analysis of the local essential oils market is difficult because of the lack of quality information. The import and export figures kept by DTI and SARS (Customs & Excise) are generally not that informative. The figures more accurately deal with products such as Orange, Lemon, Lime, Geranium, Lavender, Jasmine and Peppermint, but do not deal with important products like Eucalyptus, Chamomile and Lemongrass. The latter products are bundled under the category Other. The Other category is relatively large. For 2003 the
30
Coetzee, C., E. Jefthas, and E. Reinten. 1999. Indigenous plant genetic resources of South Africa. p. 160163. In: J. Janick (ed.), Perspectives on new crops and new uses. ASHS Press, Alexandria, VA. 31 Van Wyk, B-E., B. Van Oudtshoorn, and N. Gericke. 1997. Medicinal plants of South Africa. Briza Publ., South Africa.
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3.4
The key producers of essential oils world-wide are mostly developing economies (e.g. India, China, Brazil, Indonesia, Mexico, Egypt and Morocco), with the key exception being USA (peppermint and other mints). It is estimated that 65% of the world production of essential oils is produced by developing countries. However, in respect of essential oils, South Africa imports mostly from US (32.9%), Britain (15.8%), France (10%), together with India (11%) and China (5%).
Table 8: South African Essential Oil Trade Partners Imports 200333 Country
United States United Kingdom India France China Netherlands Australia Spain Switzerland Zimbabwe Cuba Germany Italy Indonesia
Percentage
32.88 15.78 11.85 10.81 4.99 4.23 2.65 2.64 1.89 1.71 1.71 1.71 1.61 1.13
Malawi
Other
48,563
234,147
0.73
3.68
TOTAL
6,608,097
100%
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The above figures (Table 8) reflect at least two aspects of the market. Firstly, the developed world (particularly US and Europe) dominates the flavour and fragrance industry, in particular the formulation of compounds for end-use. The majority of the worlds primary production is imported by US and Europe, beneficiated there and exported to the rest of the world. Secondly, countries tend to import commodities from their traditional trade partners. With regards to South African exports, the figures (Table 9 below) illustrate how the economic periphery (developing nations) provides primary materials to the economic hubs (developed nations). There are two primary features of South African exports. The first is that the majority of produce goes to Europe (49%), US (24%) and Japan (4.5%). The second is that South Africa, in turn being a regional economic hub, plays a role in on-selling product to African markets (e.g. Zimbabwe, Zambia, Mozambique, Angola and the like some 7% in 2003).
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3.5
General Comments Essential oils share a common value chain. However, each essential oil has its own particular dynamics. This depends on how and where it is produced (both nationally and internationally) and what its end uses are. In some instances it is clear where the oil is being sold (e.g. Eucalyptus, Citrus and Buchu). However because of the small quantities, it is difficult to track the sales of many of the South African essential oils as they are sold locally to small traders or into the growing aromatherapy market. Below are a series of market-related monographs on each of the essential oils currently commercially produced in South Africa. Orange Citrus oils are produced as a by-product of the citrus fruit and fresh fruit juice market. South Africa is a net exporter of orange oils (as it is of fresh fruit). Orange oils are usually cold pressed (and not steam distilled). The main producers are the fruit producing co-operatives: Associated Fruit Producers, Valor Co-Op, Granor Passi, Onderberg Verwerkings Co-Op, Magalies Co-Op and Letaba Co-Op. Recently, a well established producer (Dickon Hall) went out of business as a result of the down turn in the markets. A large portion of production is purchased by a local company, Teubes (Pty) Limited (Gauteng Province), for further processing and fractionation, the rest is exported. The citrus flavours generally are used in the softdrink and confectionary industries. Internationally, the orange oil and limonene markets are dominated by a few big players. Brazil is the main competitor, producing 45% of the worlds citrus oil, and has a strong effect on the market. South Africa supplies about 2% of world demand.
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The price of orange oils has been steadily on the rise going from R4/kg in 1999 to R20/kg in 2003. The price is driven by the current shortage of orange oil on the international market. This is expected to change in the future as India is known to have established more orange plantations over the last few years. When these plantations come into production the price is expected to drop to about R8/kg. Lemon Citrus oils are produced as a by-product of the citrus fruit and fresh fruit juice market. South Africa is a net exporter of lemon oils (as it is of fresh fruit). The main producers are Associated Fruit Producers, Valor Co-Op, Granor Passi, Onderberg Verwerkings Co-Op, Magalies Co-Op and Letaba Co-Op. A large portion of production is purchased by Teubes for further processing and fractionation, the rest is exported. The citrus flavours generally are used in the softdrink industry, for example, Coca Cola. Besides beverages and confectionery, Lemon oil is also used in fragrances, where it provides a top note.
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Lime Citrus oils are produced as a by-product of the citrus fruit and fresh fruit juice market. South Africa is a net exporter of lime oils (as it is of fresh fruit). The main producers are Associated Fruit Producers, Valor Co-Op, Granor Passi, Onderberg Verwerkings Co-Op, Magalies CoOp and Letaba Co-Op. A large portion of production is purchased by Teubes for further processing and fractionation, the rest is exported. The citrus flavours generally are used in the softdrink industry.
The current price for lime oil is approximately 50 cents/kg. The price for lime oil was R38/kg in 1999. Even with exchange rate differentials, this demonstrates the cyclical and volatile nature of the commodity prices
Eucalyptus (Cineole-type) The species grown in South Africa since the 1950s is Eucalyptus Smithi . It is grown in the Eastern regions of Southern Africa (including Swaziland) from Kwa-Zulu Natal to Limpopo Province. This Eucalyptus produces a cineole-type oil. Cineole-type oil is predominantly
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SARS (Customs & Excise) It is noted that the export figure fro 2000 appears anomolous
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US and the EU are the largest importers of eucalyptus (some 400t and 1800t respectively in 1990). The current market price is approximately $5.00/kg. Prices are continually under pressure as a result of the huge supply from China. Discussions with local producers indicate that at the current price levels and with the stronger Rand it is impossible to compete with the Chinese. Some of the larger producers have been able to turn from exports to supplying local markets, particularly for medicinal use. Larger South African producers produce in excess of 60 tons of oil per annum, but the average production per farmer is between 20 to 30 tons.
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Processing, refinement and value addition of non-wood forest products T de Silva and CK Atal, FOA 39 Processing, refinement and value addition of non-wood forest products T de Silva and CK Atal, FOA 40 DTI Export Figures (2002) 41 Processing, refinement and value addition of non-wood forest products T de Silva and CK Atal, FOA
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Lavender/Lavandin There are three types of lavender commonly on the market: Lavandula angustifolia or true lavender (which fetches the highest price on world markets, but has a lower yield per hectare); Lavandula spika or spike lavender (which fetches a fair price but has a smaller market); and o (which has the lowest price on international markets, but gives the highest yields per hectare and is hardier).
The South African Customs & Excise figures combine Lavender and Lavandin. The world production of high quality Lavender oil is estimated to be about 200 tons per annum. World production of Spike Lavender oil is estimated at 150 tons to 200 tons per annum. World production of Lavandin oil is estimated at about 1000 tons per annum. The prices obtained for lavender oils vary widely based on quality and batch size. A good quality Lavender oil may sell for R1500/kg. Lavandin oil on the other hand sells for approximately R200/kg. Success in Lavender oil depends on the correct genetic material. Linalool acetate and linalool are the key determinants, and there must be no camphor and only traces of cineol. Local varieties tend to be high in camphor, which is not acceptable on world markets. Lavender oils are used in the fragrance, perfumery (giving a middle note) and aromatherapy industries. Lavender is used extensively in household cleaning products for the strong fresh fragrance.
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3 5 3 2 0 ( $ 76)4'1 )&'%#" !
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Most Lavender oil is imported to South Africa from Britain or France (both countries having a long standing tradition in Lavender). The South African export figures include re-exports to other African countries (e.g. Kenya Malawi, Zimbabwe and Zambia). Genuine export of South African product is estimated as being in the region of 600kg per annum (some of which is re-imported from France and Britain in formulations).
Table 15: South African Lavender and Lavandin Imports and Exports43
Year 1999 2000 2001 2002 2003 Import (kg) 5,132 14,470 4,686 7,110 4,333 Export (kg) 70 556 30 287 1,990
The price of Lavender can fluctuate tremendously, for example in 2000 10,250 kg of oil was imported from Australia at R14/kg when the average price for lavender from England and France, over the same period, was R170/kg. The average export price in 2003 of Lavender oil was R648/kg with the prices going over R2000/kg for exports to the Netherlands and Germany (both known for paying a premium for organically certified oils). However, the floor price for non-organic oil is generally accepted as R300/kg. Estimated production for 2004 is 1200 kg and 3.700kg for 2005 (there are many young plantings). There is a significant amount of lavender being grown in the Cape and the Midlands of Kwa-Zulu Natal. Jasmine Jasmine is used in perfumery, inclusive of household cleaning products. Jasmine gives a lingering base note. Imports of Jasmine, although in small quantities, come from France or Britain. Jasmine will, generally, be imported in finished fragrance products and will not reflect on the essential oil statistics.
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The large exports of Jasmine in 2001 and 2003 were to France. This may well have been attributable to Robertet in Rustenberg. It is possible to stockpile essential oils as they have a long shelf-life, if kept under the right conditions. Robertet of France took over Rollan Essential Oils in Rustenberg as one of its international subsidiaries. Robertet Aromatics produces (and contracts farmers to produce) Jasmine and Tagetes oils and extracts. All of the production is sent to France to be standardized and used in fragrances. Robertet is a family business now listed on the Paris bourse. It has an annual turnover of Euro 200 million and subsidiaries on five continents. The export price of Jasmine over the period 1999 to 2003 ranged between R600-R650/kg. Lemon grass There are two types of lemon grass: Cymbopogon citrates and Cymbopogon flexuosus. Lemon grass oil is well supplied by China, India, Sri Lanka and Madagascar. Nevertheless there is a good international market, but supplies must be consistent and have sufficient volume. Lemon grass requires well drained soil, and sunny hot humid conditions and is grown in Mpumalanga. C. citrates grows better below 750 metres and C. flexuosus is better at higher
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Chamomile (Roman and German) There are two types of Chamomile: Roman and German. German Chamomile is more highly sought after and has a blue hue as a result of its Azulene content. Very little Chamomile is produced in South Africa ((estimated at about 30kg to 40kg per annum). The world market is also very small at an estimated 20 tons per annum. However, it is a highly profitable crop and there are community programs in the Eastern Cape that are scheduled to produce German Chamomile within the next two years. There are also large plantations in Lesotho that are currently exporting between 300kg to 400kg per annum directly to the international market. Depending on the type and whether it is organically certified or not, Roman Chamomile prices range from R1500/kg to R3000/kg and German Chamomile from R5000/kg to R10,000/kg. The University of the North-West (formerly Potchefstroom University) has a project involving the supercritical extraction of Roman and German Chamomile oils. This improves the quality of the oils.
Peppermint Peppermint (Mentha piperita) is used primarily in beverages and confectionaries and in personal hygiene products, such toothpaste. These are staples; hence the reasonably steady rate of imports year on year. The largest producer of peppermint oils world wide is the United States (production is highly mechanized). Peppermint can only be grown at certain latitudes (which would limit production, in South Africa, to the Southern Cape). South Africa imports over 90% of its requirements from the US and Britain. The price of peppermint oil has been reasonably stable over the five year period (1999 to 2003). Peppermint is sold locally at between R90/kg and R120/kg. The product is a commodity and the market is mature. Mint formulations are strictly adhered to and as a consequence most Copyright FRIDGE (2004) Page 37
The University of the North-West (formerly Potchefstroom University) has a project involving the supercritical extraction of peppermint oil. This improves the quality of the oils.
Other mint The largest of the other mints appears to be spearmint (Mentha Spicata). In general spearmint is used in confectionaries and in personal hygiene products like toothpaste. Spearmint is also a staple; hence the reasonably steady rate of imports year on year. The largest producer of mint-related oils is the USA (Northwest) and Canada. The mints market is mature and formulations are strictly adhered to. As a consequence most mint imports are already formulated.
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The exports from South Africa mostly constitute re-export sales to Zimbabwe. Although still commodities, other mints tend to fetch, on average, a higher price than peppermint (between R150 and R250/kg over the period 1999 to 2003). Rosemary Rosemary is grown extensively, but a large proportion of the product is sold fresh or dried. It is estimated that producers of Rosemary oil in the Cape are producing 400 to 500kg per annum. There are a few producers in the Gauteng area. The bulk price for Rosemary oil is approximately R300/kg.
Tagetes Khakibush (Tagetes minuta) is a South American plant that is now endemic in many parts of the world, including most of South Africa. The general consensus is that Khakibush is easy to grow. The crux is to successfully distill the oil and to have a market. The essential oil (commercially known as Tagetes or Tagets) is used in perfumery and as a flavourant in food, beverages and tobacco. It has unique compounds and there is no suitable substitute for true Tagetes oil. The world market for Tagetes is estimated at between 8 to 11 tons per annum. Zimbabwe use to be a large producer, but now South Africa is taking up the slack. It is estimated that South Africa produces some 6 to 7 tons per annum. The current price of Tagetes (April 2004) is between R400/kg and R700/kg, although prices as high as R1000/kg are being asked locally (which is considered by some in the industry as being too high). There is a view that there is an oversupply of Tagetes and this is driving down the market prices. Some committed producers argue that there are large variations in
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Buchu Buchu is a perennial shrub with woody branches. There are several varieties of Buchu the most well-known of which are the Agothosma betulina and Agothosma crenulata. The round-leaf Buchu (A. betulina) is the most used for essential oil. Buchu is restricted to South Africa and is a typical component of the Cape Fynbos. Buchu is both wild-harvested and cultivated in the Cape. Attempts have been, and are being, made to grow Buchu elsewhere (for example Australia). However, it is difficult to cultivate wild plants outside of the natural habitat, for example, attempts to grow Buchu in Mpumalanga have shown that Buchu is susceptible to fungus. Buchu has been used for medicinal and cosmetic purposes for centuries. More recently it is sought after for its application in the food industry. Round-leaf Buchu contains valuable essential oil rich in isomenthone and diosphenols. It is also contains sulphur compounds that give it a characteristic black-current smell and flavour.46 The oil is also used in perfumes and colognes for fruity notes. The South African Buchu industry has had mixed fortunes in the past and is considered to be in danger of substitution once again unless the prices drop. In the last century, it was much in demand in Europe until the 1960s onset of the synthetic flavour market. Cheaper, easier synthetic options pushed Buchu off the international map, and it was only in the late 1980s and 1990s, with Germanys burgeoning consumer interest in things natural, that Buchu made its current comeback. The exports of Buchu both of oil and dried product amounted to R20 million in 200047. Dr Cobus Coetsee, formerly of the Agricultural Research Council (ARC), estimates that the world market is potentially worth R100 million. Ninety per cent of product is exported. The majority of this is exported to Germany, which pays a premium for natural product. The current price of Buchu oil is between R7,000/kg and R15,000/kg, depending on its quality. This is about twice the price of some of the more expensive essential oils like German Chamomile. The price is driven by scarcity of supply and the continued high demand. However, it is generally held view that the price of Buchu is too high and that this will undermine the market by forcing users to turn to substitutes.
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Other indigenous essential oils There are many initiatives aimed at producing novel indigenous essential oils. These include the Cape Chamomile (Eriocephalus punctulatus) and Cape Snowbush (Eriocephalus africanus ). However these are very small enterprises located mostly in the Cape, where they take advantage of the uniqueness of the Cape Fynbos. Essential oils produced in this way are exported in very small quantities (a few kilograms per annum) to specialty/novelty buyers in USA and Europe. These oils are sold for between R2600/kg to R3900/kg. The large traditional buyers of oils are generally not interested in novelty oils as they have no mass market application. This creates a chicken and egg situation. It is not economic to step-up production without a market and there is no market without significant volumes of production and market acceptance. One way of overcoming this, in the long-term, is to develop a local industry capable and interested in beneficiating its own oils. This would
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Other Unique South African Plant Products sold in large quantities Along with Buchu, there are other indigenous plants that are traded extensively on the international market (i.e. volumes measured in tons). These include teas such as Rooibos and Honeybush and extracts such as Aloe gels from the Cape Aloe Ferox. These are also large markets and are qualitatively different from the products referred to so far. However, only Buchu produces an essential oil used in the flavour and fragrance industry. Together with rooibos and honeybush tea, buchu is one of three South African medicinal plants used in international medicine and is recognised by the British Pharmacopoeia Martingdales.
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4 VALUE CHAIN
4.1
With regards to applications in the flavour and fragrance industry, the essential oils are used either as is, which is the case with the minor or smaller oils (e.g. geranium), or they are further processed in order to produce natural isolates, which compete with or enhance synthetic aroma chemicals. The latter only relates to some 20 to 25% of essential oils. The essential oil value chain and the manner in which it integrates with the aroma chemical value chain is described in the Figure below. Figure 6 : Essential Oil and Aroma Chemical Value Chain to Flavours and Fragrances
Purification
Further Chemical/ biological modification Compounded Flavours and Fragrances - Foods - Cosmetics - Toiletries - etc.
Aroma Chemicals
Chemicals
The stages in the essential oils value chain (and the relevant issues) may be briefly summarised as follows:
D B@9 ECA%8
1. Crop selection: a. Knowledge of local soils and climatological conditions; b. Knowledge of appropriate crops (esp. correct genotypes) c. Knowledge of markets (prices and customers) 2. Crop Cultivation (beginning with pilot scale and scaling up): a. Sourcing of plant material (seeds or seedlings) b. Planting c. Crop management (pests and irrigation) d. Harvesting 3. Primary Processing (e.g. Drying, distillation) a. Quantities (economic yields) b. Qualities (chemical and sensory qualities) c. Certification (e.g. standard testing or organic certification) 4. Further beneficiation (e.g. Rectification, Fractionating, Formulations) 5. Sales and marketing a. Market knowledge b. Market reputation c. Market access [Note: as will be discussed later, very often the further beneficiation and the sales and marketing go hand in hand as the chemist responds to the market needs] It is not possible to consider essential oil production and beneficiation in South Africa, or indeed in any country, without considering the complete value chain. A large component of the value chain is agricultural. As will be discussed later, some of the main obstacles to growing the essential oils industry in South Africa have arisen from the institutional and structural disconnects between agriculture and industrial beneficiation (e.g. funding available for either traditional farming (food crops) or chemical manufacturing, but not for essential oil production, which falls in between). Fortunately this is changing. Industry stakeholders are unanimous in their view that unless the volumes of quality oils are increased the economies of scale required to encourage later stage innovation and
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4.2
Agricultural Production
Crop selection The raw materials for the production of essential oils are plants and there are two generic sources of these materials: 1) wild harvesting or 2) cultivated plants. Most of the generally accepted essential oils are derived from cultivated plants. It is the process of cultivation that allows for the greater supply of oils (with consistent qualities) which in turn assists in supporting demand for the oil. Those indigenous plants that are in large demand are the subject of studies and trials to put these crops under cultivation. Most indigenous plant material used for the export market is now cultivated (e.g. over 50% of Buchu is now cultivated). There is a misconception that there is a ready market for new products, previously unknown in trade. The reality is that the fragrance and flavours industry is very conservative, making the likelihood of success with a new essential oil very small. Any acceptance of a new essential oil product would need to go hand in hand with new product development. This will not be done unless there are clear benefits and the new essential oil product can be produced in the desired quantities at the required specification. Accordingly, the American
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Crop
Pelargonium (Geranium) Lemon grass Lavender Rosemary Spearmint Chamomile Citrus Tagettes
Kwazulu-Natal
Eucalyptus Lemon grass Pelargonium (Geranium) Rosemary Lavender Spearmint Oil Tagettes
Jasmine Pelargonium (Geranium) Lavender Rosemary Spearmint Oil Peppermint Oil Tagettes Citrus Lavender Rosemary Pelargonium (Geranium) Chamomile Peppermint Tagettes
Cape
Selection of Indigenous crops With regards to crop selection in respect of indigenous plants, the matter is simplified. The key criterion is the market. Thereafter selection of the crop must generally follow the
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Crop Cultivation Availability of Plant material One of the key inhibiting factors for essential oil production is the lack of reliable plant material. Much time and money has been wasted planting crops of the wrong geno-type. Different varieties of the same crop species can contain varying concentrations of the active ingredients and changing growing conditions can alter the content of the active ingredients. The extent of this variability has largely been determined through trial and error, sometimes at great cost. This explains some of the secrecy inherent in the industry. Even once the correct plant material has been identified it is often in short supply. Producers spoken to have explained that often the scaling-up process (from pilot to full production or expansion of production) is retarded by the lack of availability of seed or seedlings. It is for this reason that farmers and producer organizations, such as South African Essential Oils
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Each crop has its own peculiarities. With regards to exotic crops, these features are reasonably well documented. One of the key constraints is accessibility of information and education. Organizations such as SAEOPA, BioAfrica, CSIR and ARC provide such support to producers, on various terms.
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The two above factors are the key drivers towards increased cultivation of indigenous plants. If one is able to establish standard cultivars and generally accepted farming and harvesting methods one is able to ensure quality and a sustainable supply for the long term. Besides the commercial rationale, there is also a strong environmental conservation lobby behind the move from wild harvesting to cultivation. The phrase that has been coined is cultivation for conservation. One of the challenges in developing new essential oil crops or in establishing a new geographical area for the production of an essential oil already on the market is procuring or developing genetic lines with the suitable agronomic characteristics and desirable chemical constituents. The evaluation of a large and diverse germplasm collection thus becomes the first step in new crop development. This stage alone can take many years.
Key Drivers in respect of Agricultural Production Purchasers, particularly in the European market (the most important market for South African essential oils) are specifically looking for adherence to Good Agricultural Practices (GAP). These act as barriers to entry to products from emerging markets. The key components here are: Properly documented standards and procedures for each crop type; Education and training in general agricultural management for developing farmers and communities; and Education in respect of the management of essential oil crops.
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4.3
Primary processing
Introduction to general process The essential oils from aromatic plants are volatile and thus, lend themselves to several methods of extraction such as hydrodistillation, water and steam distillation, direct steam distillation, and solvent extraction53. The specific extraction method employed is dependent upon the plant material to be distilled and the desired end-product. Plant products can be sold as harvested, or dried, or powdered. Produce can also be processed to extract oils on site. Many essential oils are made simply by placing the leaves and other plant parts whole into a steam distillation pot. In South Africa, the majority of extraction is done in steam distillation pots situated on or near the producing farms. The oils are mostly sold in this form without further processing. In many instances the producers
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Quality, standards and testing: The primary objective of primary processing is to achieve the best quality and quantity of product. For this reason standards and testing are important. The basic usefulness of standards for essential oils is as an aid for better trade. Standards can be used to help determine the authenticity, geographical origin and quality of the oils. They provide differentiation for the supplier and comfort for the purchaser.
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The specification defines the limits for the measurement of the various parameters for the particular oil. Traditionally there have been physical determinations such as density, optical rotation, refractive index, solubility in alcohol and chemical determinations of major or other components of interest. The analysis of essential oils is best carried out by Gas Liquid Chromatography (GLC) and would be used to give detailed information on the composition of individual oils, as well as to confirm the absence or upper level of contaminants, solvents or undesirable components. This analysis in effect becomes the guarantee and is used to establish both price and comparability. Any standard must also include a definition of the actual method of analysis used since this can affect the outcomes of any analysis. This is particularly important in trying to establish GLC fingerprints or profiles of essential oils. The same method of analysis must be used for any comparative analysis involving different laboratories to get good interlaboratory reproducibility. This enhances the credibility of such standards and testing. The flavour and fragrance industry is run largely on reputation, for consistency in quality and characteristics. If countries and companies gain a good reputation in this regard they should be better able to compete successfully at the international level. With regards to indigenous products, it is important to establish an internationally recognized standard. This was one of the ways in which Australia recovered in the Tea Tree Oil market (by setting and marketing a standard that benefits Australian producers in the world market). In such an instance, the specifications used by the South African industry would include a chromatographic profile for the oil which sets out limits for the representative and characteristic components of the oil. Such profiles could then be presented to bodies, such as the United States FDA or FEMA, to be adopted as the standard profile for the product. It is very likely that an existing set of specifications would be adopted rather than incurring the time and expense of proposing yet another set of standards, particularly if this standard is provided by a reputable national body. It is in the best interests of the South African essential oil producers to be pro-active and to ensure that any proposed specifications are realistic and meet the needs of the producers, traders and end-users. An appropriate mechanism for doing this may be through the South African Bureau of Standards (SABS), or similar organization which is a member of the ISO.
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Overview The use of essential oils, in the fragrance market in particular, is a complex affair. A Frenchman by the name of Piesse devised a system whereby fragrances are compared to notes on a musical scale. Accordingly, essential oils may be classified into top, middle and base notes. For example, the top notes are light and fresh and would include lemon and Eucalyptus. These fragrances are immediately apparent as they are of high volatility. Whereas, on the other hand, base notes are rich heavy scents that linger and would include Myrrh and Jasmine. Since essential oils are a complex of chemical compounds it is possible to manipulate the components to bring out a certain desired quality. This may be done by a process of fractionating. It is also possible to split the essential oil into its chemical components and thus isolating a chemical constituent. Furthermore, it may be that particular oil has a still note as a result of degradation during the initial extraction process. In these cases it is possible to rectify the oil. The process of rectification may consist of one or more of the following:
removal of moisture, colour and sediments; removal of compounds in order to improve the odour characteristics, stability and sustainability; isolation of compounds that are highly valued; enrich the oils by removing or adding other fractions.
This is the crux of the further beneficiation of essential oils. Although it is possible to isolate individual aroma chemicals from essential oils (true isolates), this is only done in respect of 20% to 25% of the oils produced (and then only from the major oils where there are economies of scale). The majority of oils are used as is in their complete complex form. The processes used for primary beneficiation through to secondary beneficiation are described in the figure below:
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The technology for these processes is relatively simple and inexpensive. Furthermore the equipment is multi-purpose and once the investment has been made the producer can switch from one oil to another. The robustness of a business established in this segment of the value chain is dependent on its ability to provide a basket of oils to customers. Therefore this type of business is driven by a market focus and must be responsive to customer demand. In most cases, these further beneficiation processes are performed with the assistance of an olfactory expert. These are persons with a technical or scientific background (usually chemistry or food science) who have been trained to use their sense of taste and smell to analyse flavors and fragrances. This allows for the human sense experience to be correlated with the chemical analysis. There is an acknowledged shortage of such persons in South Africa and it is general accepted that such persons need to gain experience overseas with one of the large flavour and fragrance companies (for example Aubrey Parsons, one of South Africas pre-eminent industry experts is ex-Haarman & Reimer). In Europe, involvement in flavors and fragrance industry is often a family affair because of the nuances and artistry involved.
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Processing, refinement and value addition of non-wood forest products, T de Silva and CK Atal, published by FOA
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In an industry as small as the current South African industry there is very little scope for down stream beneficiation. Where there are bulk oils (e.g. eucalyptus and citrus) these are used to isolate chemicals that compete with synthetically derived aroma chemicals (e.g. cineole from Eucalyptus). However, for the rest there is very little scope for beneficiation. The reasons for this may be summarized as follows: Natural isolates have to compete directly with synthetic equivalents. speaking the cost/benefit analysis favours the synthetic products. Generally
Depending on the application, very often the attraction of an essential oil is in its complexity. Often, it is not clear what molecule in fact yields the desired characteristic, or how the various molecules interact to provide the desired characteristic. Accordingly, essential oils are often use as is (perhaps with some dilution). The additional cost of isolating an active ingredient or increasing the concentration is not offset by a commensurate increase in potential selling price. The additional cost makes the end-product too expensive with no real discernable benefits to the endusers. The quantities of oils being produced do not provide sufficient feedstocks to sustain significant investment in further beneficiation processes. This is demonstrated by the fact that South Africa really only has one company that processes essential oils for further value addition (Teubes (Pty) Limited). Most buyers prefer to perform the rectification or isolation themselves as this is core to their processes and their value addition. Accordingly, whilst one is relying on exports and there are few local users of the oils, the opportunities for beneficiation are limited.
The other area of local downstream beneficiation lies in the actual end-use of the essential oils either in food and beverages or applications in personal care and hygiene products. At present the main local downstream beneficiation of aroma chemicals and essential oils is concentrated in the flavour and colouring market for the production of foodstuffs and beverages. There are approximately a dozen such small and medium sized companies in
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4.5
Introduction The previous step in the value chain is often closely related to the marketing and sales function. This is because the market requires knowledgeable suppliers and attentive service. Furthermore, there are an increasing number of regulatory regimes which producers must keep in mind, for example the EU has recently published a list of allergens which includes chemicals found in essential oils.55 The aroma chemical and essential oils industries are characterised by the difficulty of breaking into the international market. There has been a marked consolidation of the industry, with many chemical companies, as well as manufacturers of consumer products, disposing of their flavour and fragrance divisions to the large flavour and fragrance houses, as each industry focuses on its core business. There has also been consolidation in the end user market (the manufacturers of consumer products) as margins have been squeezed by
55
See Appendix I
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4.6
What is interesting is that a review of international literature indicates that the issues confronting any country endeavouring to upgrade its essential oils industry are very similar. The American FOA identified the following as the most crucial challenges faced by developing countries endeavouring to grow industries in non-wood forest products:56 (The italics are ours for the purposes of emphasis)
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Processing, refinement and value addition of non-wood forest products T de Silva and CK Atal, FOA
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Lack of research on development of high yielding varieties, domestication etc; Inefficient processing techniques leading to low yields and poor quality products; Poor quality control procedures; Lack of R&D on product and process development; Difficulties in marketing; Lack of local market for primary processed products; Lack of downstream processing facilities; Lack of trained personnel and equipment; Lack of facilities to fabricate equipment locally; Lack of access to latest technological and market information.
Of interest here is the identification of the other factors of production (besides the agricultural) that are necessary for the successful growth of a national industry (those in italics). The largest components are access to markets and market information that drives processes and innovation. A number of these shortfalls will be highlighted in the next section which deals with the current state of the South African essential oils industry.
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PART 4 AROMA CHEMICALS DERIVED FROM ESSENTIAL OILS 5 CURRENT STATE OF SOUTH AFRICAN ESSENTIAL OIL INDUSTRY
5.1 Agricultural Stakeholders
Once again one needs to distinguish the South African bulk essential oils (e.g. citrus and eucalyptus) from the smaller essential oils e.g. (geranium, lavender and chamomile). The former is largely self-sufficient and established. For example, the eucalyptus oil industry in South Africa is about 70 years old and commands some 5% of the world market. The latter is relatively new in South Africa. Historically, it was the CSIR that pioneered the growth of the industry in the smaller essential oils. The CSIRs stated aim was to promote higher value industrial crops that would have rural development potential. The growth of the South African essential oils industry has been largely haphazard. The industry is very fragmented. It is being driven by two main factors. Firstly, commercial farmers are seeking alternative high value crops to diversify risk and increase profitability. Secondly, rural communities, Government and NGOs are seeking high value crops that can be produced on a co-operative basis thereby creating jobs in economically depressed rural areas. The South African essential oils industry comprises over 100 small producers of which only a dozen, or so, of the commercial farmers and a couple of community projects are regular producers. Most oil production is in the Limpopo and Mpumalanga regions, Kwazulu-Natal and the Cape. A key indicator of the current size of the South African industry is the number of operational distillation facilities. According to the South African Essential Oil Producers Association (SAEOPA) there are approximately 33 commercial stills in operation in South Africa, most of which are in the range from 250kg to 500kg units. Most of these stills would be considered to be of sub- economic size.
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Historically, the CSIR has had the most experience with the South African essential oils industry. The Agricultural Research Council (ARC), on the other hand, has had little focused involvement, only getting involved in isolated instances when individual researchers have had the inclination and the budget. The CSIR has met with mixed success in the promotion of the industry. One of the difficulties that the CSIR has faced is balancing its role as a publicly funded research institution and its responsibility to be partially self-funded. On the one hand CSIR is a publicly funded institution from which research should be made available to the public. On the other hand, the CSIR is expected to generate supplementary funding from other sources (mostly of a private nature). This latter position requires that they adopt a proprietary stance with regards to information and research outputs in order to have a basis for transacting with the private sector. This ambiguity has affected the industry negatively (causing mistrust and lack of exchange of information). Many farmers and other stakeholders have resented having to pay consulting fees to the CSIR to access information on the essential oil industry. The South African Essential Oils Producer Association (SAEOPA) was formed in 2000 as an alternative to the CSIR as a source of know-how for current and potential producers. SAEOPA began in Mpumalanga, but since 2003 has a branch in each of Kwazulu-Natal and the Western Cape. SAEOPA is a voluntary association, with a board, and administered on a part-time basis using small annual subscriptions (currently, R250.00 per member). SAEOPA was established as an alternative to the CSIR and Biosys Plant Extracts, which were the original promoters of the industry in South Africa. It appears that some producers resented the fact that the CSIR, as a public research institution, was charging farmers commercial consulting rates for the disclosure of basic industry information. SAEOPAs stated objective is to support its members, who primarily comprise producers of essential oils. By pooling their information and experiences, the members hope to promote the industry and the
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As a general observation, the study has revealed that there have been many disparate projects and studies conducted by various institutions at various levels (e.g. CSIR nationally and the Provincial Departments of Agricultural regionally). Furthermore, the National Botanical Institute (NBI) has information regarding South African flora and biomes and the National Department of Agriculture has the details of soil profiles and climatic conditions. There are also centres of knowledge developing, such as at Cedara Agricultural College in Kwazulu Natal, where local commercial producers are interacting with researchers. On the whole, information is considered to be available but not readily accessible. There is a need to catalogue and consolidate the information gathered by public institutions over the years. The largest immediate player in the South African essential oil market is Biosys Plant Extracts (Pty) Limited. Biosys began as a collaborative effort between CSIR and a British company, Biosys Limited in 1998. It was the recognition of the constraints of entering the international market that caused the CSIR to form an alliance with the British company Biosys Limited. Out of this alliance Biosys Plant Extracts (Pty) Limited (a foreign owned South African company) was formed. Biosys Plant Extracts still works closely with CSIR, but is now wholly independent of the CSIR. Biosys acts as a technical and marketing agent for essential oil producers, thereby meeting the issues identified by SAEOPA (mentioned above). Given the difficulties of breaking into the international market, Biosys has strategically focused on established essential oil markets and has steered clear of experimenting with new oils. Biosys focus is predominantly on the agricultural component of the value chain as it has identified this as a critical component for meeting the requirements of international buyers. In particular, Biosys assists producers with obtaining Organic Certification. As an intermediary, Biosys endeavors to match successful producers to pre-identified buyers, thus ensuring consistent and reliable markets for its clients (both the buyers and producers). This relational approach places inflexibility on the market but benefits those who have made the investment and have secured the market. Biosys currently Copyright FRIDGE (2004) Page 63
5.2
There is a distinct industry in indigenous essential oils. However, besides Buchu, this segment is very small and predominantly focused in the Cape. The Buchu industry is fragmented with both cultivated and wild harvested plant material being used. There is also a lot of illegal harvesting taking place. The Buchu industry is considered to be facing a crisis in that demand is high and is pressing prices so high that substitute products may well be sought. There are quite a number of small indigenous essential oil producing companies, the most prominent of which is Grassroots Natural Products (Pty) Limited. The indigenous essential oils market is also tied in with the broader industry for plant extracts, for example Afriplex (Pty) Limited is predominantly involved in teas (Rooibos and Honeybush) and tinctures, but also deals with essential oils derived from the Cape fynbos. Most indigenous essential oils are either sold in small quantities directly to select buyers in Europe and the US or to Teubes (Pty) Limited. The indigenous essential oil industry in South Africa is primarily a cottage industry. The exploitation of indigenous plant material holds some interest for rural development. Those indigenous plants that are wild harvested are often harvested by rural communities, either on their own land or that of a commercial farmer (who then shares in the revenue). There are a number of projects being undertaken, for example Buchu cultivation under the auspices of Cape Nature Conservation, to take these rural communities into the new cultivation projects as a means of rural development and upliftment. This process of moving towards cultivation will ensure the long term sustainability of these industries and enable rural communities to create wealth from indigenous knowledge. The CSIR has continued its involvement with essential oils (separate from Biosys) to the extent that this involves the
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5.3
South Africa generally has a strong competence in chemical production. This is evidenced by the availability of toll or contract manufacturing facilities, used in generic drug and cosmetics manufacture. However, there are a limited number of persons who process essential oils. It is estimated that Teubes (Pty) Limited, of Gauteng, processes some 90% of the South African essential oils. Oils are bought from producers across South Africa at prices determined in accordance with the quantity and quality. Clive Teubes is a chemist (ex-AECI) with over twenty years in the aroma chemical, flavour and fragrance industry. Clive Teubes acknowledges that it took him over ten years to gain the market knowledge and access he now has. The main market of essential oils is the export market. The difficulty is getting access to the international flavour and fragrance houses. The international companies are looking for producers who will stay the distance. Therefore relationships take a long time to develop. However, the experience of Teubes is that it is possible to access the large flavour and fragrance houses in Japan, Europe and the USA. In order to do this Teubes has had to develop the capacity (perhaps the best developed in South Africa) to analyse and categorise oils (using analytical chemistry and a panel of organoleptic specialists) and to rectify oils. Great care is taken to meet the technical and organoleptic requirements of the international buyer. With regards to the local market (which is limited), Teubes complements its export business in essential oils with the production of basic synthetic aroma chemicals products (primarily flavours) which Teubes supplies to local manufacturers as import substitutes. Teubes approach is essentially market driven, responding to market needs making use of Southern African natural resources. Teubes brands itself as an out of Africa company and leverages natural resources from other essential oil producing countries (e.g. Madagascar, Kenya, Zambia and Rwanda) in order to broaden its suite of products. The Teubes plant and equipment are multipurpose and operations are flexible. This allows Teubes to respond to market demands and survive fluctuations. Afriplex (Pty) Limited, of the Western Cape, is predominantly concerned with producing plant extracts, teas and tinctures. However, it does process some essential oils but these are limited to those coming from the Cape fynbos, in particular Buchu oil. Afriplex is in partnership with Cape Nature Conservation in respect of the Elandskloof community Buchu project. Although Afriplex has focused more on teas and tinctures it does have the commercial capacity to make supercritical extractions (the only commercial scale facility in
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5.4
South Africa does have some local formulators. They are predominantly in the food and flavours industries. According to industry estimates there are approximately a dozen such companies, which contribute some 20% of the local production of flavour compounds (approximately R120 million turnover per annum). These include such companies as Cranbrook Flavours, Flavourcraft and Janderee. South Africa produces a negligible amount of fragrance compounds. South Africa has an association, the South African Association of the Flavour and Fragrance Industry (SAAFFI), which represents the interests of the industry. The 27 members represent local and international players, producers and customers. The majority of flavour and fragrance compounds are imported and used directly by manufacturers. There is a limited amount of formulation in South Africa. In most cases, formualtion processes are performed with the assistance of an olfactory expert. There are only a handful of such people working in South Africa. Some small local flavour formulators, supplying the snack market in particular, are of the view that the use of nature identical chemicals that meet local taste are the future growth areas in the South African food industry, as these chemicals are not subject to the vagaries of agricultural production.
5.5
The local flavour and fragrance market is dominated by the international players. They account for almost all of the fragrance compounds and formulations and at least 80% of the flavour compounds and formulations. The local subsidiaries of the large flavour and fragrance houses such as IFF, Symrise, Quest and Firmenich are part of their groups global buying strategy. They purchase the best and the cheapest internationally. In this way they are able to give the best prices to local customers even for relatively small quantities. To the extent that they have to formulate for end-users this is done in United States, Europe or Japan. Little to no development is done in South Africa or any other peripheral market. Generally speaking, the local companies do not have any production facilities. They act as sales and marketing centers in the local markets. The local companies may act as a conduit
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5.6
Governmental Stakeholders
The National Department of Agriculture (NDA) has recently established a department to give consideration to new industrial crops, including essential oils. The post was recently created and an appointment made in July 2004. The direction to be taken by the NDA has not yet been determined. Agricultural Research Council (ARC) reports to the Minister of Agriculture and has as its primary focus research into food-crops. However, the ARC does have a unit in Rustenberg which focuses on industrial crops, particularly tobacco and cotton. On the whole, besides some work on Buchu, conducted in at the ARC unit in Elsenberg, Western Cape, the ARC has not paid much attention to essential oil crops. The ARC has advised that there is no map of the growing regions in South Africa. In order to get information one has to approach various different government departments. Dr Cobus Coetsee, formerly of the ARC, advised that most information is available but not really accessible to the public. For example, the National Botanical Institute (NBI) can provide information on the occurrence of indigenous species and some provincial Agricultural Departments can advise on commercial
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The government institution that has given the most attention to essential oil production is the CSIR. As mentioned above, it was the CSIRs realisation that market access for essential oils was difficult that it established Biosys Plant Extracts (Pty) Limited in conjunction with a British company. The CSIR has done work, together with commercial farmers and communal farmers, on a wide range of oils, including geranium, chamomile, lavender, peppermint and lemongrass. This work is now largely in the hands of Biosys, but CSIR retains an interest where essential oil production is undertaken by rural communities, where CSIR provides consulting services to the project.
The Department of Science and Technology (DST) has also identified essential oil production as an important priority. Its interest in the industry is largely channeled through three initiatives. The first is the work of the CSIR (in particularly community projects, such as Giyani, Driekoppes, Badplaas and Pacaltsdorp). Secondly is the work of the Institute for Natural Resources (At the University of Kwa-Zulu Natal University) in Kwa-Zulu Natal. Thirdly, is through the new chemical sector incubator (Chemin) situated in Port Elizabeth. Chemin has successfully piloted an essential oil project in the Oliver Tambo Municipal area in conjunction with the local authority. The DST has plans to roll-out further community based essential oil programs in the coming year.
The CSIR (Bioprospecting Division), the Institute for Natural Resources (INR) (in KwaZulu Natal) and the ARC and others have various programs in place that are focussed on promoting the commercial exploitation of South Africas natural resources. Using indigenous knowledge systems as the basis for plant selection, it is possible for scientific and commercial players to identify new entrants into the international flavour and fragrance market. This however is a long term process as the market is conservative. The focus of most of the research is on medicinal uses of indigenous plants and not flavours and fragrances. Funding for such research is inhibited by the current size and profile of the industry. The DTI, in particular Trade and Investment South Africa (TISA), has a chemical sector desk that has identified essential oil exports as a potential growth area. DTI has been working together with SAEOPA in order to improve the international profile of the South African industry. SAEOPA has sent representatives on trade missions to various trade fairs, with
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5.7
There are no particular inimitable grounds upon which South Africa can claim competitive advantage in the global essential oils industry. However, whenever South African industry representatives are overseas they regularly receive queries about the South African essential oils industry. There appear to be a combination of factors that are in South Africas favour as a player in the global market. These include: Being in the Southern Hemisphere many of the worlds growing regions are in the Northern Hemisphere and the effects of the seasons makes Southern Hemisphere suppliers attractive. Having traditionally strong trade links with Europe - as a major importer of flavour and fragrance materials. Already being established as a world class agricultural producer in a wide range of products. Having a diverse climate with a range of biomes - thus allowing for a good selection of essential oil crops to be grown. Having good quality soils being largely uncontaminated by centuries of exploitation as is the case in the developed world.
The only other grounds of competitive advantage, in the long term, may be access to unique plant materials which could provide a platform for the creation of new markets in which South Africa could dominate. Such domination would need to be based on good science, established trade links and reputation, all of which may be established in advance. Competitive advantage is something that may be created by properly organising the industry and creating the necessary factors for success.
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6.1
General comments
Over time, various South African organizations have gathered data with regards to the actual cost of production of essential oils in the South African. These include organizations such as Biosys Plant Extracts (Pty) Limited, CSIR, SAEOPA and BioAfrica59. Much of this information was and is being gathered on the basis of trial and error activities and the results are considered to be confidential. Furthermore, farmers are notorious for cross-subsidizing crops within their farming unit and thus detailed costs of production are often difficult to determine. The best source of information may be the community-based projects where the rigors of project management should produce more accurate data. From international literature and local experience it is possible to determine the general parameters concerning yield and returns. For example, CSIR has provided the following figures for Geranium -Pelargonium Graveolens (Conventionally grown) 60:
Naturally, the parameters need to be adapted to reflect the current exchange rate and the current market price. So for example, the US$ price has since gone up to about $90/kg, and the Rand has strengthened against the US Dollar. However, at a R/$ exchange rate of R7 to the US$, the annual income per hectare is still approximately R28,000.00. The estimated cost of cultivation per hectare is about R10, 000.00/hectare. This yields a profit per hectare of R18,000.00 per annum, which for a stand of 20 hectares translates into a gross profit of R182,400 per annum. This analysis does not take into consideration the operational costs and the initial start-up costs.
59 60
See example of SAEOPA information sheet on Lemon grass Appendix A Additional figures provided in Appendix B
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In order to perform a sensible economic analysis one needs to generate a financial model literally from the ground up. One begins with the analysis of the available farming area and what crops it can produce. This requires detailed consideration of the agricultural aspects of essential oil production, which are beyond the scope of this Study. Accordingly, this Study doe not include a detailed economic analysis of the product of the various oils. However, although each farm and each crop has its own particular economic parameters, the general economic considerations are quite generic. To this end the Consultant has compiled a check list of issues to be considered when constructing a business plan for an essential oil crop. (See Appendix C). Furthermore, the rest of this section of the report highlights some of the generic economic considerations affecting essential oil production.
6.2
Economic decisions
Although the decision to farm essential oils must be an economic one, there are several varied reasons for producers undertaking essential oil production. Agricultural is a risky undertaking and therefore market-risk management and crop diversification play a particular role. Some of the considerations prompting a producer to enter into the essential oils industry include: A diversification of agricultural production; Relatively small area under crops (20 to 50 hectares); The produce, if stored under the right conditions, can be held for extended periods of time; Since the crops are not edible they are not subject to theft; It is a higher value crop, though prices fluctuate; Crops can be versatile (e.g. lavender can be sold fresh, dry or as an essential oil); Interest in distillation process and the end products (products can be sold directly into niche markets like aromatherapy); and The market is a specialty market and buyers tend to be more loyal to producers.
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6.3
One of the key barriers to entry into the essential oil industry is the start-up costs. Besides the considerations set out in the checklist, there are several rules of thumb that have been determined: The basic economic unit of production is 20 to 25 hectares (ensuring sufficient material through the distillation unit); The land should be irrigated; and The optimal still size should be approximately one ton.
The extent of the outlay is dependent on what infrastructure is already available. The key costs here are: the cost of irrigation, which may cost up to R10,000/hectare to establish; the cost of a distillation unit, which may cost up to R500,000; and the cost of establishing the crop, costing approximately R9,000/hectare (most are perennial).
With regards to the still, there are several technology options available but the consensus is that stills should be manufactured from stainless steel and steam distillation process should be used. This is not the cheapest option but is the most economical in the long-run. Furthermore, short cuts on the distillation unit could render the oils unmarketable. The estimated cost of a one ton still (together with boiler, condenser, Florentine flask and mechanical hoist) is R500.000.00. The cost of the distillation unit is one of the key barriers to entry for most farmers. However this can be mitigated where farmers share facilities on a toll basis. The potential prohibitive cost of a distillation unit is one of the impetuses for the need to develop a suitable mobile distilling unit that can be leased to a farmer or community until they are persuaded of the viability of the crop.
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A similar process is being followed in the Eastern Cape, in a community based project, where the process is: Pilot for training and plant propagation Phase one larger scale production (60 ha and four crops) Phase Two transition to organic production (60ha)
6.4
To date the development of essential oil production has been financed in one of two ways: In the case of existing commercial farmers, this has been financed by revenue from existing operations or by borrowing from existing financiers (e.g. overdraft).
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There is a third type of financial support that is emerging. This is where buyers of the oils are either jointly investing in distillation equipment or lending distillation equipment to the producer, thereby sharing in the establishment costs and sharing the risks. There are several state organizations or schemes that may be of relevance to a person wishing to initiate an essential oils business. However, the Consultant is not aware of any instances to date where commercial farmers have raised finance from any of the state funding institutions (e.g. The Enterprise Organisation (TEO), Industrial Development Corporation (IDC) or Land Bank). In theory, the Land Bank is best positioned for lending to a farmer wishing to establish an essential oil production capacity. However, the experience of SAEOPA members is that the Land Bank expects the farmer to put up 50% of the financing up-front and that this has prohibited accelerated start-up. Farmers therefore slowly scale-up using their own resources over time. This has been found to be slow and onerous since there is a need to get to the minimum operating level of 20 to 25 hectares as soon as possible. There are two main startup costs that tend to be significant hurdles for farmers, the equivalent of which the Land Bank is known to finance in other ventures (e.g. fruit growing). The first is the establishment of the crops. The second is the upfront investment in distillation equipment. It appears to be the perceived risk of the essential oil industry that makes the Land Bank wary. This may be mitigated by other types of government or parastatal support to the industry.
6.5
Consideration has been given to the possible introduction of special producer focused incentives for the essential oil industry; however, internationally these have not proven to be effective. In fact incentives create perverse incentives enticing players into an industry for
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6.6
Historically, Co-operatives have been successfully utilised in the creation of the South African agricultural sector. Co-operatives have historically been managed by the National Department of Agriculture. This is about to change. The introduction of the new Cooperatives Bill could herald a new generation of co-operatives in South Africa. In terms of the proposed Bill, the DTI will take over responsibility for co-operative structures and these will be administered by CIPRO (Company and Intellectual Property Rights Office). Informal, contractual, co-operative structures have been successfully used for a number of new style agricultural ventures (for example, flower growing and fish farming). Cooperatives are useful for the following reasons: They help integrate various stages of the supply chain for mutual benefit; They mitigate risks for small producers; They mitigate risks for potential financiers; They mitigate risks for end-buyers.
With many agricultural ventures there can be a significant premium earned by those intermediaries that sell produce into the international or local market. This benefit may not always be shared with the primary producers. Accordingly, there is a mismatch between risk and reward and new industries may never get off the ground unless the benefits of the final sales are in some manner shared with the primary producers. This dilemma has already been felt in the local essential oil industry. Growers feel aggrieved at the difference in price received at the farm gate when compared with the export prices. Exporters on the other hand are concerned that growers do not appreciate the time and effort required to match oils
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Recommendation: In the event that the Bill is enacted, there will be a need to investigate the detailed application of Co-operatives for use in the essential oils industry. In general, these co-operatives would probably be regionally based (as opposed to crop based) and have the following components:
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It may be that, in the initial stages, the co-operative makes use of the Primary and Secondary Co-operative Structures proposed by the Bill. That would mean that a smaller geographically located group of growers, with a distillation facility, could form a Primary Co-operative, which in turn could be a member of a Secondary Co-operative which owns the bulk storage, testing and marketing facilities. The Secondary Co-operative could service the higher needs of a number of participating Primary Co-operatives. It is foreseeable that, if, for example, certain Secondary Co-ops are known for different oils types, Secondary Co-ops could form a Federal Co-op to better promote those particular oils at a national and international level (alternatively Secondary Co-ops could form a Federal Co-op at Provincial level to coincide with Provincial assistance programs). In turn Federal Co-ops could form a national cooperative apex organisation to promote South African essential oils nationally and internationally. The following diagram illustrates the potential application of the Co-operative structure to an essential oil industry in South Africa:
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Grower Growers
Grower Growers
Grower Growers
Grower Growers
The structures proposed by the Bill are flexible and lend themselves to commercial innovation. As co-operatives grow in size the functionality may change. For example, there may be potential for value addition such as producing isolates. This could occur at the Secondary Co-op or Federal Co-op level. Co-operatives could be structured to coincide with support structures provided by national and provincial government agencies.
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ATTRACTIVE OPTIONS
7.1
General Considerations
Careful thought has been given to the selection of essential oils that would make attractive options for commercial production. It is possible to perform a theoretical economic analysis of each essential oil that can be successfully grown in South African and then to rank them in accordance with their current and predicted profitability. However there are so many variables at work that such an exercise would be largely academic. Furthermore, agricultural decisions are quite complex. In 1934 EW Bovill, then chief executive of RC Treatt, quoted a Senior Agricultural chemist of Kenya The production of essential oils is perhaps more chancy than most farming propositions; it most certainly requires more attention and supervision than most, and, with certain rare exceptions, does not pay much more highly63. He was discussing why farmers are interested in essential oil crops. To his way of thinking the only economic benefit was the high value in proportion to their bulk which makes essential oils easy to store and transport. Other than that their interest was largely related to the novelty of the process of distillation and the agreeable nature of the finished product. The essential oils industry has producers that come and go, but some stay. It is those that stay that make the industry what it is. Any successful promotion of the industry should bear this in mind. Accordingly, it is important to begin with the producer. Whether the producer is a commercial farmer or a communal farmer, there needs to be a level of commitment. The choice to farm essential oil crops must be based on a realistic understanding of the opportunities and constraints of the crops. Farming is as much a way of life as it is a business proposition. In order for essential oil crops to be successfully grown in South Africa it is generally understood that the crops must be irrigated. This already suggests that farming areas must already be under irrigation or have access to good supplies of water. Irrigation is costly but allows the producer a significant number of options with regards to crop choices (many of which yield similar returns to essential oils). In addition, the producer needs to invest in a distillation unit, which may cost up to R500,000.00. Accordingly, any person wishing to promote the production of essential oils needs to identify suitable land and suitable farmers.
63
Published again 66 years later in Perfumer& Flavourist Sept/Oct 2000 and annotated by his grandson H Bovill the managing director of Treatt PLC.
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7.2
Attractive Options
With the above in mind, the Consultant has not endeavored to perform a comprehensive economic analysis of a potential basket of essential oil crops and, thereafter, attempt to select a handful of very attractive products. The emphasis must be on the long term creation of a sustainable producer base for a wide range of oils. From a national perspective there are appear to be two approaches which one could take towards selecting essential oil crops as attractive options:
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The benefit of the former approach is that there is a focus of resources and quicker learning takes place. This can put South Africa on the map with regards to production of a particular essential oil. However, the down side of such an approach is the possibility of creating a glut in supply and thereby damaging the very industry one is trying to foster. This has been the predicament faced by many of the South East Asian producers. As it is, some industry experts are expressing concern about the focus on Rose Geranium in the South African industry and are advocating a wider range of oils be promoted for the long term stability of the industry. It is proposed that there be some measure of focus but on a basket of oils. After discussions with industry players, particularly buyers and agents, the Consultant has compiled several lists. These are attached as Appendix D . Lists A and B are based on buyers experiences in the local and international market. List C represents a broader selection of oils that would be of use to a person in the flavour and fragrance formulations business. The Consultant has compiled a primary and secondary list based on the aforementioned lists (Table 25 below). The primary list should be seen as the mainstream crops for which there is more than adequate market knowledge and technical support available to see immediate success. The secondary list contains those additional oils that may be of interest for those wishing to broaden the base of essential oil production in South Africa. In compiling the Lists, the Consultant has avoided the bulk mature markets (such as eucalyptus, mints and citrus). South Africa already has a significant presence in both eucalyptus and citrus oils market, but these markets are always under pressure from low cost producers.
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7.3
Introduction It is difficult to estimate the potential size of any future essential oil industry in South Africa. The industry is essentially agriculturally based and the current Study does not encompass the agricultural component. Furthermore, the essential oil industry encompasses many different products with many with different attributes. It must be born in mind that the current analysis excludes the bulk essential oils such as eucalyptus and citrus oils. These are mature industries (high volumes low price) in which South Africa already has a significant international presence. For example, in 2003 South Africa exported approximately 485 tons and 300 tons of citrus and eucalyptus essential oil respectively (some 2% and 5% of the world market respectively). The focus of this Study is the smaller essential oils, particularly those set out in Table 25 above.
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Inherent Market Constraints The possible constraint will be the size of the international market for the products being produced. The market sizes for the smaller essential oils are not readily ascertainable. They range from as little as 10 tons per annum (e.g. Chamomile) to over 500 tons per annum (e.g. Geranium). In consultation with local market stakeholders it has been determined that the above estimate is not unrealistic if one considers the South African experience to date and the niche nature of some of the oils and the prices that they can fetch (particularly when they are organically certified). The following table gives an indication of the potential of the South African essential oils industry (in the selected crops) over the next five years:
Table 26: Estimated Potential size of South African Essential Oil industry in five years
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The volume and the value of this suite of essential oil products is approximately 140 tons and at a value of approximately R200 million per annum. It is noted that Buchu is expected to pay a dominant role.
Conclusions Although, the question of the potential size of the essential oil industry is difficult to estimate, it is considered that an industry of some additional 150 tons per annum is not unrealistic. The value of the industry per annum may well be understated if the higher value crops are targeted for production.
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8.1
Job creation
Chemical Sector The chemical sector employment that could potentially be created by the growth of the essential oil industry would have to be determined from the resulting potential growth of the Flavour and Fragrances industry in South Africa. This would be a long term benefit. However, the secondary beneficiation stage of the essential oil industry has a lot in common with other specialty chemical segments. The types of jobs that would typically be created are those that relate to the Fine and Specialty Chemical sector. According to the Chemical Sector Skills Development Plan, the skills requirements in this sub-sector are process operators, formulation technicians, plant superintendents, warehousing & distribution, engineering & maintenance. The skills development plan further notes that there is also general shortage of R & D technicians in the sub-sector. Besides the general technical skills required, the flavor and fragrance industry (even as it relates to a young essential oils industry) has some additional and very specific skill requirements. The flavour and fragrance formulation industry requires specific skills in the area of chemistry as it relates organoleptic discrimination and analysis. These skills are also required in order to successfully establish the South African essential oil industry.
Agricultural Sector In addition to the above, one cannot loose sight of the fact that the agricultural component of essential oils industry will have an impact on employment. Some of these jobs include analytical chemists and laboratory technicians. Agriculture is traditionally a creator of a significant number of employment opportunities for relatively unskilled persons, albeit at relatively low wages. Currently, agricultural accounts for some 6% of South Africas GDP and 9% of its employment. This is considered low by comparison to other emerging markets.66 The historic, and continuing, exclusion of the majority of the population from involvement in commercial agriculture is one of the causes for
66
Policies to Promote Growth and Employment in South Africa JD Lewis, July 2001, World Bank, Discussion Paper 16 ,
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Based on consultation with industry players it is estimated that for every 1 hectare under cultivation one creates 1 semiskilled job and for every 20 hectare unit one creates one skilled job. This is particularly the case where one is wishing to move to organic farming techniques. If one accepts the premise that the potential of the South African essential oil industry (excluding the existing market in bulk oils) could be approximately R125 million originating from some 3000 hectares cultivated, then the industry could create some 3000 semi-skilled and 150 skilled positions. These estimates are similar to those produced by applying the coefficients determined by the World Bank, and derived from the table in Appendix F. The coefficients set out in the table below apply to each R1 million of output thus providing a job creation estimate across a range of employment categories:
Table 27: Agricultural Job Creation in the Potential Essential Oil Industry67
Employment Type DIRECT JOBS Professional Skilled Semi-skilled Informal TOTAL DIRECT 0.08 1.00 16.65 0.69 18.42 10.02 125.22 2084.85 86.40 2306.48 Factor Jobs
8.2
One of the more interesting, and perhaps significant, potential benefits of developing the essential oils industry in South Africa is that it could provide a production platform for the cultivation of other non-food crops such as indigenous plants grown for the extraction of their flavour, fragrance or medicinal properties.
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PART 4 AROMA CHEMICALS DERIVED FROM ESSENTIAL OILS 9 TECHNOLOGY, INTELLECTUAL PROPERTY, RESEARCH AND DEVELOPMENT
9.1
Standard Technologies
There are several options available for the extraction of essential oils from plant material. By far the most common locally (and internationally) is steam distillation. All the crops in Lists A and B of Appendix D can be distilled by steam distillation. In the steam distillation process, steam is generated in a boiler and is piped into the bottom of the still vessel which contains the plant material. As the steam rises through the plant material the volatile essential oils are released and are carried upwards with the steam and pass from the top of the still through a condenser. The condenser is continually cooled by cold water passing through a system of internal tubing. This cools the steam (water and oil mix) into a liquid. The water and oil mixture flow into a separator (usually a Florentine flask) where the oil, generally having a specific gravity less than water, floats to the surface and is collected. The water is collected separately as hydrolats and the oil is further dried to remove any excess water. The oil is then bottled in opaque jars (preferably glass or aluminium) and kept at cool temperatures. Most oils suffer a degradation of quality if they are exposed to sunlight or high temperatures. The key components of a steam distilling unit are: The boiler to generate steam ; The still for holding the plant material to be steamed; The condenser for distilling the steam into oil and water; and The separator (usually a Florentine flask) used to separate the water from the oil.
Although the technology is reasonably simple the distillation process needs to be wellmanaged and there are several factors that can impact on the yield and quality of the oil: Besides the harvesting issues (such as time of harvest), there are the post harvest treatment of materials which varies from crop to crop. Some crops benefit from a little drying as this reduces the water content and thereby exposing the oil glands more effectively. Other materials need to be distilled fresh as they quickly degrade and loose their volatile components.
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The heat and pressure under which distillation occurs is important as it can effect yields and the composition of the oil. It is possible to overheat or burn oils and thereby change their composition. The time of distillation impacts on cost of production. The efficiency curve for oil extraction implies that a distillation time beyond one hour is inefficient. Proper packing of plant material is important to ensure that the steam rises uniformly through the charge. This affects yields. A good head of steam and good flow rate are required to achieve good yields.
Accordingly, distillation needs supervision and the parameters need to be measured and matched against the analysis of batches of oil, which then provides feedback on the success of the distillation process. There is a lot of literature and opinion concerning still design and operation68. Detailed information can also be acquired from reputable sources like Agrelek (who provide technical support to those using electricity for agricultural purposes) and those companies that manufacture stills and related equipment.
9.2
Costs of a standard distillation unit with a one ton still, with boiler and condenser is approximately R500,000. There are cheaper options but these are not advised. The cost is not a result of the components being imported (they are not), but because they are best made out of stainless steel. The stills are made locally by engineering works. The other components the boiler and the condenser and Florentine flasks are purchased off the shelf. There is also an occasional secondhand market for distillation equipment. In some markets, in order to upgrade oil quality and returns to the growers, governments have introduced cheap but effective stills (e.g. Sri Lanka, Indonesia and Bhutan). Consideration could be given to research into a government issue still and whether or not this would provide any economic benefits.
68
See for example Appendix F an interesting extract from a consulting report done by CL Green for the Cambodian Government
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The distillation costs (excluding capital costs) only make up some 1% of the cost of producing the oil. If one includes the capital costs this rises to almost 30% for a 25 hectare operation. However, once the producer scales up to 50 hectares this percentage drops to around 10%. The estimated cost per charge (one ton still) is R120.69
9.3
All methods of distillation can be performed at above or below atmospheric pressure and this can impact on the composition of the oil. Some oils are deliberately extracted in a vacuum so as to enhance the occurrence of certain chemical compounds. These technologies are used in the secondary beneficiation processes, where further distillation under varying temperatures and pressures, allows for the isolation of selected components of the oil. In mature oils markets (such as the citrus oil industry) the modern extraction plants are fully computerized and can produce oils whose composition is accurately controlled and which conform to pre-determined standards and end user requirements70. Carbon Dioxide-extracted essential oils were conceived during the search for a complete replication of nature by extracting without damage or adulteration. The heat involved in normal extraction does effect the composition of the essential oil. CO2 when at sub-ambient temperatures is liquid and acts as a natural solvent. The critical point for CO2 is at 31oC and at pressure 73.8 bar. Sub-critical Liquefied CO2 (between -55 and 31 oC and 5 to 74 bar) behaves as a non-polar solvent. CO2 operating in the normal working conditions, between 0 and 10 oC and 50 to 80 bar, acts as a selective solvent. In this range, CO2 has the density of fluids, low viscosity and the diffusion properties of gas. By varying the temperature and pressure within a range one can be selective about the substrate of extraction. As a solvent, CO2 is odourless, tasteless, colourless and easy
69 70
Parameters provided by Biosys Plant Extracts (Pty) Limited Swaine and Swaine (1988) Citrus oils: processing, technology and applications. Perfume & Flavourist 13(6), 1-20
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Research on the technology began in the 1960s and reached its peek in the 1980s. The outstanding task for todays researcher is to apply the technology to actual materials and to document the effects and benefits of the technology to industry. Even worldwide, the technology is not used for many essential oil products and in fact is used mostly in specialized food technology applications, such as removing caffeine from coffee beans.
71
David A Moyler, Liquid CO2 extraction in the flavour and fragrance industries ,Chemistry and Industry, 17 October 1988
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9.4
In respect of the production of essential oils, the intellectual property issues fall into three categories: Agronomic Distillation Market Knowledge
The intellectual property issues are more a matter of trade secrets and are not of the nature of constraints relating to patented processes. On the whole there is a lot of general published information available on crops (even technical information on agronomy and oil composition). With regards to the agronomy the intellectual property is more about lessons learned in the field. Even with regards to distillation, the state of the art is public knowledge and has been for many years. There may be some registered designs where persons have innovated around layout and design. However, the engineering firms that manufacture the stills locally are qualified and experienced in design of this equipment. The other key technology is the steam boiler. This too is old technology and suppliers are able to provide advice. The true intellectual property in the supply chain rests predominantly in the market knowledge and the ability to interact with Flavour and Fragrance houses. Although this knowledge is not proprietary it is difficult to acquire. To be successful one needs chemistry and organoleptic skills and experience in order to analyze oils and match them to prospective buyers. The essential oils industry, as well other flavour and fragrance segments, requires a unique combination of science and art. Taste and smell are complex senses and different cultures and markets have different requirements. Since the market is sample driven it is important to know where to send the particular oil to. Successful players in the market develop a library of essential oils and the requirements of the various markets.
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The area where intellectual property rights issues may arise is the area of the exploitation of indigenous plants, where use is made of indigenous knowledge to arrive at commercial applications. This matter came to the South African publics attention in the case of the appetite suppressant drug P57 which was derived using the indigenous knowledge of the Khoi people. The developers of P57 were obliged to recognise the interests of the indigenous people. It is now recognised that indigenous knowledge of a plant and its uses represents a significant step and a cost saving in the process of bringing a new product to the world market. At present no legislation exists to cover these issues, but a proposed law to be known as the "Protection of Indigenous Knowledge Act" is being prepared to advance the promotion and protection of indigenous knowledge. 72 The purpose of the act is not to prohibit the exploitation of indigenous plants but seeks to promote and develop the use of indigenous genetic material, by ensuring that the rights of the lawful owners of the initial knowledge are taken into consideration as the plant material is commercially exploited. It is hoped that the proposed legislation will contribute to documenting indigenous knowledge and to providing a platform for commercialisation. The key to the legislations success will be whether or not it can provide a clear mechanism for the creation of legally defensible intellectual rights and a mechanism for licensing these rights to commercial entities for commercialisation.
9.5
The potential for research and development falls into several categories. For the purposes of this Study we are not specifically considering the body of research that has to be undertaken or continued with regards to the agronomy of essential oil production, however this is fundamental and cannot be totally ignored. This category would include matters such as: The selection of correct plant types for propagation; The investigation of pathogens and pests related to each plant species; The identification of organic methods of pest control and fertilization; The investigation of agricultural best practice with regards to planting, cultivating and harvesting
72
Coetzee, C., E. Jefthas, and E. Reinten. 1999. Indigenous plant genetic resources of South Africa. p. 160163. In: J. Janick (ed.), Perspectives on new crops and new uses. ASHS Press, Alexandria, VA.
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The first category concerns the development of standard distillation unit designs that suite South African conditions, mostly with regards to fuel sources and their method of use in the field. As has been stated previously the technology is public knowledge. However, there has been some learning with regards to dimension and configuration of units. The cost issue also needs some attention. Most stills have been built to user specification by an engineering works. Unless there is a larger demand for units it is unlikely that anyone will try and improve the still production process and reduce costs. This could be an area for some R&D spending in conjunction with a reputable engineering works and industry players. Another area is the design and production of mobile or portable stills. Various industry players (e.g. Teubes and Biosys) are considering this because the initial cost of a distillation unit is a barrier to introducing a new producer to the essential oils industry. The economics of such a mobile unit require that it be quite large and therefore requires significant innovation to optimize the design. In addition, the Consultant was advised that there was a minor issue which may be of some significance in projects where there is water scarcity. The condensing process relies on cold water. Unless the cold water is chilled it cannot be recycled and is disposed of. Some technically advanced installations have chillers and the water is recycled, alternative use is made of cooling towers. On some projects the warm water is simply disposed of and fresh cold water is used. This may not always be economically or environmentally appropriate. This matter may require some research.
The second category is concerned with addressing the problem that farmers face in the field. With most other crops the farmer can assess progress by physical examination of the plant or fruit. With essential oils there can be a marked difference in the yield and composition of the oil from one season to the next. Moisture, daylight and temperature can all significantly impact on the important components of the oil. International Industry expert, Brian Lawrence (who has a regular column in the Perfumer & Flavorist) routinely publishes comparisons
The development of distillation technologies that are best suited, both technically and economically to the South African environment. The development of methods of infield testing (e.g. to measure essential oil qualities in the field, useful in determining the best times to harvest plant material). The development of a body of knowledge around South African indigenous plants, as they relate to the F&F industry (particularly information relating to toxicity and allergens).
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9.6
The Australians are known for the deliberate manner in which they tackle development matters. Their treatment of the essential oils industry is no exception. Essential oils is a relatively new industry for Australia (other than eucalyptus oils). The Australian Rural Industries Research & Development Corporation (RIRDC) is a Government organization that
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The content of the RIRDC Plan and the fact that it exists at all is of interest. The previous plan had dealt with the issues of: Increasing productivity (through plant breeding, agronomy and plant protection) Improving harvesting and post-harvest handling, and extraction Establishing a stable grower base Implementing quality assurance and control programs.
The priorities identified for the next period (i.e. for 2002-2006) were: Improved market information (particularly future trends) Improved products (encourage development and distribution of improved genetic material) Improved production systems (especially pest/weed/disease control) Regulatory approvals (regarding indigenous products, assist registration through organizations such as FEMA, by providing research information) Improved post harvest treatment of plant material (improve quality by sophisticated extraction and treatment so as to differentiate from low cost competitors) Develop the industry (overcome effects of fragmentation by supporting growers organizations, improved communication and setting of national standards)
The RIRDC had originally focused on some seven essential oil crops but has generated a secondary list of some twenty more that are now to receive more attention (interestingly the secondary list includes Buchu).
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The content of the RIRDC Essential Oils and Plant Extracts Program illustrates that the issues facing the South African industry are similar to those faced in other nations. What is challenging is the concerted effort that some nations put behind fledgling industries, not necessarily by way of subsidies or price protection but by helping create capacity, knowledge and competitive advantage. One of the key features of the RIRDC Program is the policy that there is full disclosure and dissemination of research findings, with the expressed objective of raising the overall knowledge-base of the local industry. It is suggested that South Africa adopt this type of approach to attractive industries such as the essential oils industry and other non-food crops.
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10 ENVIRONMENTAL ISSUES
The primary impact of essential oil production is agricultural. Accordingly, the main environmental impact is during the agricultural stage. Although this stage of production falls outside the scope of this study the following points are noted: Soil erosion caused by poor agricultural practices; The use of non-organic fertilizers and pesticides; The impact of agriculture on natural fauna and flora; and Water usage.
None of the above are unique to essential oil crops and are dealt with already by the Departments of Agriculture and Environmental Affairs. One environmental matter that does arise in respect of essential oils, where these are derived from cultivating indigenous plants, is the problem of introducing foreign plant materials into an area. This can negatively impact the biodiversity and integrity of ecosystems. This matter is currently adequately controlled by a system of permits, however it may require additional consideration if this segment of the industry were to grow significantly. In the later stage beneficiation the handling of chemical compounds may have some environmental impacts but these are negligible and there are no high volume waste streams.
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1.
There must be a sustainable and significant quantity of essential oil being produced. Each oil has it critical mass, at which point a local supplier/s will get the attention of an international buyer. This requires: Availability of good genetic material Good production systems (nutrition and plant care) Good post harvest treatment Good distillation practices Good storage and handling practices
2.
The essential oils must be consistently of the correct quality. Besides the horticultural issues, there needs to be careful quality control with no indication of adulteration, contamination or degradation. The delivery of poor quality oils is unforgivable. The requirements here are similar to those relating to quantity. The two aspects go hand in hand. There must be a market focus. For technical and marketing reasons, it is important for local players to have a good knowledge of the international industry. It is important to cultivate close relationships with international buyers, particularly the dozen or so large flavour and fragrance houses. The industry is characterised by close relationships and high levels of trust. Although breaking into a market may be difficult, once one is an accepted supplier customer loyalty is possible to maintain. Long term relationships must be valued over short term sales considerations. This requires: A good reputation in the market place, both as individual companies and as a producing region (committed for the long term) Knowledge of regulatory parameters and trends The setting of national quality standards and testing procedures Understanding of the market dynamics, nuances and segmentation National marketing campaign and international presence
3.
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In addition to the aforegoing, and as an illustration of how others view the industry, Biosys Plant Extracts (Pty) Limited has identified a number of key success factors74 in establishing an essential oil business in South Africa. These are: Obtaining reliable market and technical information during the early stages of the project. Obtaining the planting stock with the correct genetic characteristics to obtain the oil with the correct chemical composition and in sufficiently high yields. Establishing a sufficient critical mass to form relationships with overseas buyers in international markets. Consistent quality and specifications of the essential oil Understanding the cyclical nature of the profitability of the local and international essential oil market.
Furthermore, in contrast, the American FOA has identified the following as the most crucial challenges faced by most developing countries endeavouring to grow industries in non-wood forest products (which of course can be converted into key success factors, which are captured above):75
74 75
Poor harvesting (indiscriminate) and post-harvest treatment practices; Lack of research on development of high yielding varieties, domestication etc; Inefficient processing techniques leading to low yields and poor quality products; Poor quality control procedures; Lack of R&D on product and process development; Difficulties in marketing; Lack of local market for primary processed products; Lack of downstream processing facilities;
www.biosys.co.za/genintro.htm Processing, refinement and value addition of non-wood forest products T de Silva and CK Atal, FOA
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Lack of trained personnel and equipment; Lack of facilities to fabricate equipment locally; Lack of access to latest technological and market information.
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However, in spite of these competitive advantages and substantial interest from international buyers, South Africa has not yet established itself in the international essential oils market. The CSIR initiated the interest in the essential oil industry almost ten years ago, doing research work in conjunction with local commercial farmers. However, over time various technical difficulties were encountered and many producers began to feel that the CSIRs consulting terms were too onerous. As a result, an independent association, the South African Essential Oils Producer Association, was formed in 2000 in the Mpumalanga Province and now has a branch in each of the Kwazulu Natal and Western Cape Provinces. The Association has achieved some nominal success, but is generally considered by stakeholders to be under funded and disorganised. The Association endeavours to provide basic production information and support to growers. The Association has identified that the main industry constraints are achieving sufficient production volumes, so as to attract international buyers, and access to chemical analytical facilities to monitor and control quality. The CSIR has reduced its involvement significantly, although it retains some peripheral involvement in that it supports some community development projects (e.g. Giyani in the Limpopo Province). No one organisation has taken over the CSIRs role as lead agent in promoting the essential oil industry from a research and development perspective. Each of the Agricultural Research Council and the National Botanical Institute has some peripheral involvement (the later in the case of indigenous plant species). There are several other institutions, most linked to Universities (such as the Natural Resource Institute at the University of Kwazulu- Natal), which have ad hoc programs that producers can draw support from. However, there is no concerted public research and development program and practically no publicly available information. There are various Government Departments (inclusive of the Department of Industry, the National Department of Agriculture and the Department of Science and Technology) that have newly established posts focusing on the essential oil industry, but these have not yet been co-ordinated. The fragmentation and lack of co-ordination in the industry are constraining factors on the growth of the industry.
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4.
Sales and marketing Most end users have a very specific specification for their ingredients and formulations are often developed around a certain source of the ingredients. Breaking into this market is therefore difficult. However, once relationships have been developed stability of off-take is assured, provided that the specifications continue to be met.
The issues confronting developing countries endeavouring to upgrade their essential oils industry are very similar. Analysis of these issues as well as the value chain above, has led
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Consideration was given to the selection of essential oils that would make attractive options for commercial production in South Africa. Whilst it is theoretically possible to perform an economic analysis of all the oils that could potentially be grown in South Africa and then to rank these by profitability, there are so many variables that the exercise would be largely academic. Furthermore, agricultural decisions are quite complex. The Study has therefore focused on the creation of a long-term sustainable producer base for a wide range of oils and compiled a Primary and Secondary list. The Primary List contains the mainstream crops with sufficient market knowledge and technical support available to see success in the short-term. The Secondary List contains oils that may be of interest to broaden the production base in South Africa. The list excludes bulk oils (such as eucalyptus and citrus) as South Africa already has a significant presence in these markets. Based on these lists, it is estimated that South Africa could generate an additional R125 million per annum in turnover over the next three to five years. Job creation resulting from the development of this industry will predominantly be in the agricultural sector; however it will provide approximately 10 jobs in the downstream chemical processing areas of analytical chemists, laboratory assistants and process operators.
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Table 28: Proposed list of attractive essential oil crops Proposed Primary List
Geranium Roman Chamomile German Chamomile Rosemary Oil (verbenone type and cineol type) Lemon Balm (Melissa) Marjoram Thyme oil Basil oil Lavender Oil Lavandin Oil Lemon grass Buchu
The Study has therefore concluded that the further development of the essential oil industry would be a valuable complementor to an Aroma and Fine Chemical industry. Furthermore, the essential oil industry could act as a precursor to the successful commercialisation of a wider range of South African indigenous plant products. Whilst the basis for a profitable and sustainable essential oils industry in South Africa already exists, the industry has not yet reached critical mass and is not sufficiently mature enough to gain international prominence. However, there is a real opportunity to develop this industry in South Africa. In order to realize this opportunity, the industry must be better supported. The consensus amongst industry players is that Government has a key role to play in developing the industry. This would primarily involve the areas of research and development, and the development and enhancement of education and information systems.
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13 RECOMMENDATIONS
The essential oils value chain traverses a couple of industry sectors. The agricultural aspect of the value chain is the primary production platform for essential oils. Therefore, in order to do justice to the whole value chain, recommendations regarding the agricultural component are also presented. Strategic Intervention: To motivate that the Government adopt a uniform and coordinated approach towards the development and financing of the essential oil industry, including the creation of a joint forum in which to formulate policy and strategy.
Specific strategic recommendations: Agricultural Issues 1. Clarify the role of Governmental Departments (for example, Department of Trade and Industry, Department of Science and Technology and National Department of Agriculture) with respect to their roles in the development and support of the essential oil industry. 2. Clarify the role of Governmental research institutions (for example, the National Botanical Institute, the Agricultural Research Council and the CSIR), with respect to essential oils and determine the manner in which the outputs of their research may be made available to the South African public. 3. Prepare an inventory of all information, relevant to essential oils, housed within government institutions including information relating to indigenous plant materials and their extracts. 4. Create a central database that allows South Africa to manage its knowledge base with regards to essential oils (and other potential non-food crop types) including information relating to the selection of plant material, results of growing trials, studies relating to the economics of essential oil production, chemical composition of plants and their extracts, etc. 5. Consider the development and support of regional producer centres, which will promote a multi-disciplinary approach to essential oil production. These should take advantage of the synergies afforded by the presence of tertiary institutions (producing graduates in agriculture, botany or chemistry and having laboratory facilities), the presence of suitable growing conditions and the presence of committed producers.
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Specific strategic recommendations: Primary Beneficiation 1. Provide technical assistance and training in respect of the operation of distilling equipment, particularly with regards to quality control. 2. Support research into new extraction processes such as super critical fluid extraction with a view of developing a new extraction enabling technology. 3. Conduct research and development work in respect of cost effective in-field chemical analysis techniques.
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Specific strategic recommendations: Marketing and customer relations 1. Consideration should be given to how best to prepare and publish essential oil production and trade statistics. 2. Develop an appropriate national marketing strategy for the industry.
Specific strategic recommendations: Commercial issues 1. Consult potential funding sources (such as the Landbank and the IDC) in the formulation of policy and strategy for the development of the essential oil industry. 2. Review the existing community projects, supported by government, in order to document the lessons learned and to assess their long-term viability. 3. Consider applying co-operative structures to the development of the essential oils industry, particularly as a vehicle for rural development initiatives as they combined individual initiative with communal support and co-operation. 4. Identify businesses involved in the secondary beneficiation stage for support in regional incubators. These could include businesses involved in the production of both synthetic and naturally derived chemicals.
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BIBLIOGRAPHY AND REFERENCES Agrilek Publication Distillation of Essential Oils. American Botanical Council Publication, Essential Oils of Economic Value in Madagascar: Present State of Knowledge, 1998. Biosys Plant Extracts (Pty) Limited, website: www.biosys.co.za Bovill, E.W. The Essential Oil Market in 1934 Reprinted, Perfumer & Flavourist, Vol 25, Sept/Oct 2000. Coetzee, C. et all, Indigenous plant genetic resources of South Africa , 1999. FOA Publication, Flavour and Fragrances of Plant Origin, published on www.foa.org. Government of South Africa Publication, South Africas National Research and Development Strategy, 2002. Grassroots Natural Products CC, website: www.gnp.co.za Green, C. , Export Development of Essential Oils and Spices by Cambodia Feb 2002 Ibanez, C., The Sweet Smell of Standards, Perfumer & Flavourist, Vol 24, May/June 1999. Lassac, E. The Australian essential oil industry and its prospects in the future, Published in IFEAT Conference Papers 1999. Lawrence, B.M. , A Planning Scheme to Evaluate New Aromatic Plants for the Flavour and Fragrance Industries, 1993. Lawrence, B.M. Progress in Essential Oils published in each addition of Perfumer & Flavourist over the period of 1990 to 2004. Lewis, J.D. Policies to Promote Growth and Employment in South Africa, World Bank publication (Discussion Paper 16), July 2001 Mathew, A.G., Cashew Nuts, Essential Oils, And Spices: Feasibility Study in Cambodia on Processing for Export Development, March 2003.
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Meschede, F.P., EFEO: the New Voice for Essential Oils and Related Products Facing Current and Future European Legislation, Perfumer & Flavourist, Vol _ , __ 2002. Moyler, D.A. , Liquid CO2 extraction in the flavour and fragrance industries, Chemistry and Industry, 17 October 1988. New Zealand Crop & Food Research Limited Publication (Broad sheet No45), Introduction for growing herbs for essential oils, medicinal and culinary purposes, March 2001. Pisano, R. , Essentail Oils: Yesterday, Today and Tomorrow, Perfumer & Flavourist, Vol 25, Sept/Oct 2000. Porter, M. the Competitive Advantage of Nations, MacMillan, 1990. Reece, J. The New Zealand essential oil industry: its past, present and future, Published in IFEAT Conference Papers 1999. RIRDC Publication, Natural Plant Extracts Export market opportunities in the USA, July 2000. RIRDC Publication, R&D Plan for essential oils and plant extracts 2002-2006, July 2001. SARS, Dept. Customs and Excise: Trade Figures for 1999-2003 (Tariff Code 3301) USAID Agrilink Publication, Medicinal Plants, December 2000 Van Zyl, H et al. ATRIP Biodiversity Project: Getting Started in the Indigenous Natural Products Business: A Manual for Entrepreneurs and Development Workers Draft April 2001. Wangchuk, K. The essential oil industry in Bhutan, Published in IFEAT Conference Papers 1999. Wesgro Publication Sector Fact Sheet: Natural Products from the Western Cape, August 2000.
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LEMON GRASS
ESTIMATED INPUT COSTS PER HECTARE SOIL PREPARATION: estimated costs for 1 hectare. 1 Week soil preparation with standard tractor Fuel 5 litres/day = 25 litres @ R4,00 /litre Labour @ R120/day for tractor driver Fertiliser PLANTING 50 000 plants @ R1,00/plant Labour 5 persons/day for 5 days @ R35/person d/day Water 2 kilo litres/day @ R4,00/kilo litre
R 6 700,00
TOTAL ESTIMATED ESTABLISHMENT COST (for the first hectare) THEREAFTER ESTIMATED COSTS PER HECTARE IRRIGATION COSTS PER HECTARE Hosepipes* Drip Irrigation Floppie *Estimated costs for hose pipe irrigation 250m Dragline @ R50/metre Labour for one year @ R650/month ANNUAL MAINTENANCE COSTS 1 p/ha Water 4 kilo litres/month for 6 months ESTIMATED RETURNS ON INVESTMENT - 25 ha ESTABLISHMENT COSTS Year 1 Plant 1 ha and propagate plants Maintenance Year 2 Plant 25 ha Maintenance Year 3 Commence with commercial harvesting Maintenance Year 4-8 Commercial harvesting Maintenance
R 57 615,00 R 7 900,00 R190 375,00 R197 500,00 R197 500,00 R987 500,00
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R3 465 450,00
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These revenue economics with a reasonably accurate cost figure per hectare may be used as a rough estimate to determine economic feasibility.
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A.2 Irrigation If this has to be set-up from scratch it too can be a huge barrier to entry. Where water is readily available it generally costs between R10,000.00 to R15,000.00 per hectare to put in irrigation. Irrigation options are numerous ranging from flood irrigation to drip irrigation and centre pivots. The irrigation system will require maintenance and replacement over time.
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A.3 Equipment Basic equipment such as tractor, trailer and plough are required. This may cost some R300,000 to R500,000 if this equipment must be acquired.
A.4 Field preparation Generally speaking 50 000 to 80 000 plants are required per hectare. Planting is generally from seedlings, but in some cases (like Peppermint) this is done from seed. The initial seedlings can vary in price from a few cents to a few rands depending on scarcity of supply. It is customary for each farmer to create a nursery block to propagate seedlings for expansion. This can be done with the pilot phase. It takes a minimum of two years to move from pilot phase to the commercial phase. Perhaps even longer (three to five years) The land is prepared with fertilizer which costs within the region of R3000 to R6000 per hectare.
A5.Consulting/Training As with most specialized crops there is a need for training and consultants (this relates to the horticultural, plant nutrition and pest control aspects). In addition there is the need to liaise with buyers and those that know what qualities the market is looking for in an oil. This also involves period testing and interpretation of test results. The cost of a basic GC analysis as R400 per report. Consultants may charge up to R1000.00 to perform an analysis and to provide an interpretation of the results.
B. Ongoing Operational costs B.1 Cultivation Labour costs are determined largely by the size of the area under crops, the extent to which it is mechanized and whether or not the production is organic. Most often farmers begin with conventional farming methods and then transition to organic farming once they have a better understanding of the crops. There is an increase in labour costs during this transition but there is usually a drop in fertilizer costs.
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B2. Harvesting The main costs are labour and fuel. Some crops lend themselves to mechanical harvesting, others not.
B3. Distillation The main cost of distillation is the power. The source of power effects the costing, with coal being the cheapest and diesel the more expensive. However, on the whole distillation operating costs account for only 1% of the cost of the oil. Labour required is that involved in loading and unloading the vessel and then a supervisor supervising the distillation process.
B4. Tests Test of oil can be quite costly (R400/ per analysis). Many farmers also pay consulting fees for advice on their oil production.
C. Revenue Considerations The first parameter is the tonnage of plant material produced per hectare per annum. The South African climate must be used well, i.e. the possibility of getting 3 to 4 harvest a year must be exploited. Consideration must be given to interruptions associated with replanting either at the end of the economic life or upon crop failure. Furthermore, consideration must be given to a mix of crops to further increase productivity of other fixed assets (other than land, i.e. spread distilling across different periods) and to hedge against price fluctuations. The yield is the next key parameter. Depending on the crop yields can range from 0.1 to 2% of original plant material. If yields are increased the economics can be significantly improved. Organically certified oils earn premiums. One must taken into account currency exchange rates and distinguish between Euros and Dollars (being the currencies of the two main trading partners). These should be taken into account on any sensitivity analysis. Page 120
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List A Geranium Roman Chamomile German Chamomile Rosemary Oil (verbenone type and cineol type) Lemon Balm (Melissa) Marjoram Thyme oil Basil oil Lavender Oil
List B Parsley Seed Camomile Peppermint Lemon Grass Jasmin Lemon Balm Marjoram Thyme Basil Lavender Tuberose Buchu Marigold Celery Seed Vetiver Spearmint Cassie (Mimosa) Yarrow Dill Tarragon Coriander Fennel Lavindin Vaerian Helichrysuam
List C Geranium Roman Chamomile German Chamomile Lemon Balm (Melissa) Rosemary Sweet Majoram Thyme Basil Spearmint Peppermint Yarrow Lemon grass
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76
Source: South Africa CGE model, published in Policies to Promote Growth and Employment in South Africa JD Lewis, July 2001, World Bank, Discussion Paper 16
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Baskets should never be used as containers for herb charge as they never fit tight to the vessels sides and steam channels out through the gap (as the easiest route) instead of through the chare and oil recovery is very poor. The layout of the distillery is critical to efficiency, particularly in relation to loading the herb charge and unloading the spent charge. Loading is best achieved by depositing the raw material at the level of the vessel lid. A ramp and platform should be installed for this purpose and, if vehicles are to be employed for carrying the crop, it should be of solid construction. Similarly, the gantry beam for a charge removal hoist should be extended over the side of the vessel lid platform to allow easy discharge into a vehicle parked at a lower level. Where there is a sloping topography on the distillery site, this can be used advantageously in the design of the layout for ease of crop handling. Mode of utilization and output capability Oil output capability is not simply determined by the installed capacity at the distillery. The intensity of equipment utilization is a major factor and output can be tripled by operation 24 hours a day rather than on a single 8 hour shift per day. Under ideal conditions, a distillery is operated continuously for 10-11 months in a year. However, the ability to achieve this objective is highly dependent on the crop or crop mix grown and their seasonality.
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Geranium
4731/1978
Roman Chamomile German Chamomile Rosemary Oil (verbenone type and cineol type) Lemon Balm (Melissa) Marjoram Thyme oil Basil oil Lavender Oil Lavandin Oil Lemon grass Buchu
1342/1994 (R.officialis) 7733/1981 (cineole type) 4728/1998 4728/1992 (wild) 14715/1994 (Spanish) 11043/1990 3515/1994 3054/1987 8902/1994 3217/1974 4718/1988 -
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Roman Chamomile
Verbenone (5-30%) a-pinene (10-20%) 1,8 cineole (0-15%) Camphor (3-10%) Borneol (2-5%) Geranial (20-40%) Neral (15-30%) Geraniol (4-10%) Citonellal (2-15%) Geranyl acetate (1-4%) Neral acetate (1-4%) (Some strains produce excesses of Citronellal and Citronellol at the expense of geranial and neral)l Two main types: 1) Linalool rich: Linalool (60-80%) 1,8 cineole (2-12%) Camphor (3-8%) Borneol (3-5%) a-pinene (1-3%) 2) 1,8 cineole rich: 1,8 cineole (60-70% Linalool (5-15% a-pinene (2-4%) b-pinene (2-6%) a-terpineol (2-3%)
Other constituents Carvacrol 40-80%) y-terpinene (3-5%) p-cymene (4-5%) a-pinene (1-2% thymol (1-2%) Thymol (15-70%) Carvacrol (1-15%) b-pinene (1-3%) Myrcene (2-4%) Limonene (2-4%) (Some contain high levels of y-terpinene and p-cymene) Linalool (40-60%) Eugenol (2-20%) Page 129
Thyme oil
Basil oil
Spike Lavender
Lavandin Oil
1. Citronellol and its esters These are very important fragrance intermediates for soap and detergents and also when a rosy, fresh floral tone is required. Natural citronellol is obtained from geranium oil, known as rhodinol. This has only minimal production. Most commercial product is produced via synthetic routes via selective hydrogenation of geraniol/nerol. Citronellol is the dihydro analogue of geraniol/nerol. 2. Citronellal Citronellal has a fresh, green citrus character, and is used in flavour and fragrances. Citronellal is prepared via extraction of citronalla or Eucalyptus citriadora oil. More than 80%
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90% bitter orange clove (leaf) clove (bud) eugenol grapefruit sweet orange tangerine
Of the 26 published allergens, essential oils contain some 16 of them. The relevant allergens are: o o o o o o o o o o o o o o o o Benzyl alcohol Benzyl Salicylate Cynnamyl alcohol Cinnamic aldehyde Citral Coumarin Eugenol Geraniol Isoeugenol Anisyl alcohol Benzyl benzoate Benzyl cinnamate Citronellol Farnesol Limonene and linalool
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ANNEXURES
TERMS OF REFERENCE
Aroma Fragrance Fine Chemicals formulations are used globally for imparting attractive taste and aroma to processed foods and beverages and adding pleasing scents to perfumes, toiletries and detergents. The worldwide industry generally earns returns in excess of the chemical industry average. The industrys close association with the health, personal care and food and beverage markets, means that its revenues are relatively stable, largely insensitive to commodity cycles and relatively recession-resistant. The industry can be segmented, broadly, into three areas, namely: (i) natural and synthetic aroma and flavour fine chemicals production, (ii) compounding of these chemicals into formulations tailored to meet specific customer requirements, and (iii) use of the formulations in the production of personal care and pharmaceutical active ingredients. Certain large international flavour and fragrance houses exist, which specialize in compounding flavour and fragrance chemicals, and which, for historical and strategic reasons, also produce selected aroma and flavour chemicals for captive use. In addition, some also manufacture personal care active ingredients from captive and purchased aroma chemicals. Success in the formulation and compounding business is dependent on an ability to offer a basket of products, the creativity of flavourists and perfumers, branding and marketing skills, and an ability to respond quickly to ever-changing trends in consumer preference. Commencing in the late 1980s, AECI Limited had identified certain aroma and flavour fine chemicals, which it believed could form part of a new fine chemicals business that the company wanted to develop. AECI carried out an intensive research and development programme, over a period of more than ten years, aimed a developing competitive manufacturing technologies for selected aroma and flavour fine chemicals. During 1998, AECI decided to scale down its wide-ranging in-house research and development programme, and outsourced further work on aroma and flavour fine chemical technology development to the CSIR. Together with the CSIR, AECI developed an AFFC portfolio with the original intention of becoming a leading global producer of selected products, supplying a basket of strategic aroma chemicals to specific flavour and fragrance houses for formulation and compounding. The AECI portfolio was constructed around the synthesis of petrochemical feedstocks. During 2001, in line with a wide-ranging business transformation process, AECI took a strategic decision to exit from its fine chemicals development programme, and to offer the know-how and technology, which had been developed, to interested parties. AECI reached agreement with the CSIR during 2003, that AECI would transfer the rights to the
ANNEXURES
range of aroma and flavour fine chemical technologies to the CSIR, in exchange for sharing of the benefits which may arise from licensing or sale of any of the technologies. The CSIR now owns the technologies in respect of the proposed portfolio of AFFC and the Fund for Research into Industrial Development, Growth and Equity (FRIDGE) proposed a study with the following broad objectives: To review the AECI proposed Aroma Fragrance Fine Chemicals portfolio for potential commercial development; To include a study on the potential use of effluent from the paper and pulp industry as a raw material for Aroma Fragrance Fine Chemicals products; To include a study on the potential synergy between developing synthetic Aroma Fragrance Fine Chemicals production facilities and developing South African natural sources of Aroma Fragrance Fine Chemicals.
The products proposed for commercialization by AECI were selected on the basis that they were large volume aroma and flavour chemicals, serve actively growing end-use markets, had low risk of substitution, and did not require lengthy and costly registration processes for product approval. The technology developed by AECI, and now owned by CSIR, was aimed at producing the following portfolio:
p-Hydroxybenzaldehyde (pHB)
p-Anisaldehyde (pAA)
Raspberry ketone p-Anisyl alcohol l-Menthyl acetate Vanillin Ethyl vanillin 3,4,5-Trimethoxybenzaldehyde m-Cresol Zingerone
precursor for PAA, RK, vanillin, ethyl vanillin and 3,4,5-TMB. precursor for pharmaceutical active ingredients flavour and fragrance ingredient precursor for p-anisyl alcohol. precursor for sunscreen active ingredients precursor for pharmaceutical active ingredients flavour and fragrance ingredient flavour and fragrance ingredient. precursor for pharmaceutical active ingredients flavour and fragrance ingredient flavour and fragrance ingredient. precursor for pharmaceutical active ingredients flavour and fragrance ingredient precursor for pharmaceutical active ingredients feedstock for l-menthol, produced as a coproduct of PHB production flavour and fragrance ingredient
ii
ANNEXURES
The above listed products are strongly inter-related in terms of market areas and customers. This synergy offers an investor the opportunity to access markets and customers, which may find a basket of related products from one supplier attractive. The stated objectives of the study are: The study should clearly indicate the following: Labour requirements and number of jobs expected to be created The attractiveness of local manufacture of synthetic aroma, fragrance and flavour chemicals with specific emphasis on the products already identified. The potential and attractiveness of producing specific aroma, fragrance and flavour compounds from indigenous plant material.
The study should also explore the potential to use effluent from the paper and pulp industry as a raw material for this product stream. In this regard the logistical and location considerations of a manufacturing facility, or facilities, need to be addressed. The study should investigate the following aspects of the project: The feasibility of the manufacturing potential products from indigenous plant material and potential markets. The feasibility of supplying potential regional and international markets with synthetic aroma, fragrance and flavour chemicals. Identify potential technology constraints and costs, and research needs and costs. Recommend government interventions that may be required to ensure success of investment projects.
The study should also analysis present and future economic developments and their implications on the viability of the commercialization of these technologies in an internationally competitive manner. This will include reviewing the capacity, preferred location of a potential business, or businesses, as well as the relevant value chains, and the investment implications of such economic developments to local or international investors. The study should recommend the design of an appropriate suite of investment incentives, within the context of the incentives offered by the Government, to improve the attractiveness of an investment in the proposed product portfolio.
iii
ANNEXURES
MILESTONE DECISIONS DURING THE STUDY
As the project progressed the following issues arose that required direction to be given by the Studys Counterpart Group: The original scope of the Study (per the Request for Tenders) did not include the study of the potential of the menthol technology package. Presumably this was because AECI had already disposed of the technology prior to referring these matters to FRIDGE. The technology currently resides with Mbuyu Biotech, a joint venture involving CSIR. There is a strong relationship between the product and technologies referenced for the Study and the menthol technology package. It was proposed that the Consultant take the menthol potential into account. This was agreed. (Milestone One) The original scope of the Study (per the Request for Tenders) as it related to Aroma Chemicals from the by-products of the paper and pulp industry, appeared to have been confined to the production of the chemicals listed (i.e. vanillin and perhaps ethylvanillin). This would be produced from Kraft Black Liquor (KBL). The Consultant proposed that Crude Sulphonate Turpentine (CST) derived from the paper and pulp industry should also be considered as a source for the production of Aroma Chemicals. This was agreed. (Milestone One) The original scope of the Study (per the Request for Tenders) did not include the study of the essential oils industry per se (except perhaps in so far as it related to indigenous flora). However, it was identified that essential oils would be the most likely route for the commercial exploitation of indigenous flora and accordingly the Consultant proposed that this important sector be the focus of the investigation into the potential of natural sources of Aroma Chemicals. This approach was agreed. (Milestone One) With regards to the Aroma Chemicals derived from petrochemical feed stocks, the Consultant was requested not to focus on specific sources of meta-para-cresol, neither to focus on specific industry partners (investors) but to keep the analysis generic. (Milestone Two). With regards to essential oils the Consultant was instructed not to focus too much attention on the agricultural issues surrounding essential oil production. This would be the focus of another study. The Consultant noted that it would not be practical to perform an economic feasibility on a particular essential oil or basket of essential oils as a large component of the feasibility would require consideration of the agricultural costs of production. It was agreed that the Consultant should focus on the broader strategic issues surrounding the development of the essential oils industry and its potential impact on an Aroma Chemicals value chain. (Milestone Three)
iv
ANNEXURES
With regards to Aroma Chemicals derived from the paper and pulp industry, the Consultant identified that the tapping of pine forest for gum turpentine could also be a source of material for the production of turpentine derived Aroma Chemicals. It was agreed that this was outside the scope of the current project, but that the Consultant should provide whatever information was readily available to it. (Milestone Four).
STAKEHOLDER LIST
IDC co-ordinator CPG Chairperson Hloni Monyeki Mary Tsatsi 011-269-3597 012 428-7959 / Cell 0824640530
Item Organisation
Petrochemical
1 2 3 4 6 7 8 CSIR: Biochemtek Consultant AECI Merisol Chemin Incubator SASOL Mbuyu Biotech
Contact name
Fanie Marais Aubrey Parsons Andre Engelbrecht Joe Makhoere/Ahmed Karachi Joe Kruger Herman Berry Paul Abrahams
Contact Details
Comments
0116052310 Several meetings 011 726-2376 Cell 083 300 4318 Initial meeting 011 806 8885 016 960 3733 Initial meeting 041- 503 6700 Initial meeting Initial Meeting and research assistance 011 605 2943 Held meeting to discuss menthol project
STAKEHOLDER LIST
IDC co-ordinator CPG Chairperson Hloni Monyeki Mary Tsatsi 011-269-3597 012 428-7959 / Cell 0824640530
Item Organisation
35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72
Contact name
Contact Details
011 392-6650 012 841-3295 041- 503 6700 011 726-2376 011 653 0700 011-922-8800 011-700-5000 031-571-9600 011 613-6211 011 406 8700 021 418 6464 023 232 0526 021 872 5962 011 881 8299 021 545 0409
Comments
Telephonic interview Initial Meeting/subsequent meetings Initial Meeting and several telephone calls Initial meeting Telephone call: Re Local Market Telephone call: Re Local Market Telephone call: Re Local Market Telephone call: Re Local Market Meeting re local market Telephone call: Re Local Market Information received Telephonic interview
Cranbrook Flavours Hennie Jooste Giyani Project - Limpopo Province Vinesh Maharaj Chemin Godisa Incubator Joe Kruger SAAFost Aubrey Parsons Firminech Bruce Perkins IFF Robert Fletcher Proctor and Gamble Denzel Pillay Lever Ponds Robert Waugh Quest International SA Raj Rama Quest International SA Tony Scott Wesgro Sector Research Section Grassroots Natural Products Norman Collins Cape Organics Producers Association Eddie Redelinghuys George Oils Pancho Ndabele Ecocert Ralph Peckover Producer Kleinste Van Rensburg Ekuseni Essential oils- Production Hennie Duplessis Ntala - Producer Hanneke Hibbert Ekuseni Essential oils- Marketing Jean duplessis Producer Ian Macdonald Producer Jarrett Peck Producer Prof Earle Graven Producer Chris Rumble Bio Africa Steph Institute of Natural Resources Myles Mander TRAFFIC (ES Africa) David Newton Claman Ronelle Roberts Cape Fynbos Essential oils Salome van Eerden Natchem Aromatech Jean Serra University of Potchefstroom Prof Breedt University of Witwatersrand Pro Alvaro Viljoen Afriplex Cedara (KZN) Dr Maria Defiguera Carst&Walker Uru Maganol Highland Esential Oils Flippie Pienaar Herbs A Plenty Elmarie de Bryn National Dept of Agric Thabo Ramashala DWAF (Irrigation - Walter vd Westhuizen) auteng G
Out of business Telephonic interview Visit 031-712 2656 Visit 013 753 3839 Visit 082 461 7385 Telephonic interview 832284535 Telephonic interview 332129045 Telephonic interview 836330149 Telephonic interview 832287695 Telephonic interview 082 534 4807 Telephonic interview 033 346 0796 Telephonic interview 011 486 1102 Telephonic interview 011 591 2640 Telephonic interview 028 314 1614 Telephonic interview 011 452 1760 Telephonic interview 018 482 1241 Telephonic interview 011 717 2169 Telephonic interview/ Meeting 021 872 4976 Telephonic interview 033 355 9156 Telephonic interview 011 359-4800 Telephonic interview 051 943 0317 Telephonic interview 021 874 1684 Telephonic interview 012 3196079/2 / 072357 3845 Initial Meeting 012 392 1300 Telephone contact Page 2 of 3
STAKEHOLDER LIST
Item Organisation
73 74 75 DWAF (Irrigation ) DST DST GENERAL Antioxidants and Aroma Fine Chemicals IFEAT (head office UK) Rooibos limited Proctor & Gamble Lever Ponds Johnson& Johnson Beacon BAT Nestle Adcock Ingram MLG Tobacco Sara Lee
Contact name
National Dr Lusunzi Geof Mashambye
Contact Details
012 336 8245/8066 012 317 4330 012 317 4341
Comments
Telephone contact Telephone contact meeting arranged
76 77 78 79 80 81 82 83 84 85 86 87
Geoff Blewitt Louise Kopor Denzel Pillay Robert Waugh Deedee Sampson Tom Larkin Hanro Steenkamp Elize - Buyer Judy Dunner Mr Chirag Mr Horsley
035 797 6001 Fax no 0944712500965 274822155 011 700 5000 031 571 9600 043 709 3211 031 460 7200 021 888 3765 011 889 6579 011 971 4559 011 661 5777 031 719 7111
Discussion email Info obtained Telephonic interview Telephonic interview Telephonic interview Telephonic interview Telephonic interview Telephonic interview Telephonic interview Telephonic interview Telephonic interview
Page 3 of 3