World Markets for Fermentation Ingredients

Report Highlights

• The total value of the world fermentation production is estimated at $4.8 billion. By 2004, the total value should be about $4.9 billion. In 2004, the fermentation world will look not much different than today in terms of capacity or in terms of product output or value. Much growth cannot be expected. Therefore, the whole fermentation industry is facing an unclear future.
• In terms of value, amino acids, organic acids, and enzymes, as well as antibiotics, are of approximately equal size with about $1 billion each. In terms of capacity (and this serves as a parameter for the production per unit of fermenter size), antibiotics take the lead with 40% of the global capacities of approximately 360,000 to 370,000 m3.
• Most of the organic and amino acids are used in feed or food, and most antibiotics in human therapy and in feed. Developments in the feed market and to some extent in the food market have, therefore, outstanding importance for the future of such products. The feed market is suffering from reduced demand for meat, and lower meat prices as well. In Europe, meat consumption is decreasing because of the health aspect, and in Eastern Europe and Asia, because of the reduced purchasing power of the population.
• Vitamins and polymers, the smaller fermentation products, are no exceptions. In these fields, price reductions will also be the driving force for a tendency toward lower market value in a few years. Possible higher demand in volume terms will not be able to compensate.

INTRODUCTION

STUDY GOALS AND OBJECTIVES

As all world markets have become less insular and subject to increasing international competition and opportunities, the need for international information is also increasing. Many markets undergo important changes as the marketing environment and political framework conditions change. The dynamics of the market for fermentation products point to overcapacity, price erosion, and limited demand. However, there are selected opportunities that this report investigates and describes.

Market changes may apply increasingly not only to the food market, but also animal feed and especially the respective ingredient markets. With the world split into major consumer markets, the market for food and feed ingredients is becoming complex, international, and competitive. It is increasingly essential for food and feed ingredient suppliers to widen their views. In order to survive and grow successfully, organizations must not only take a total view of the market, but must also be able to digest greater volumes of information efficiently. It is, however, not only the volume of information assimilated that will determine the ability to develop, but also the way in which information is assessed, interpreted, analyzed, and presented. Many food and feed ingredients are increasingly produced by fermentation and therefore fermentation has become an important technology for this sector.

The fermentation industry is composed of five major ingredient categories: antibiotics, organic acids, amino acids, enzymes, and vitamins. For these categories, major fermentation capacities have been built up in Europe, the U.S., and Asia. Total fermentation costs are composed of fixed and variable costs. While fixed costs show some economies of scale, variable costs are more or less proportional to output. They are driven by the costs of the feed stock, utility and labor costs, and of course by the efficiency of the organisms used to convert the feed stock into the desired products. Companies continuously try to optimize the organisms and increase efficiency, but, as in the case of amino acids and organic acids, with already high conversion rates exceeding 70% to 90%, the limitations of such work become evident. Feed stock prices therefore gain in relevance the more that other cost parameters are optimized.

All fermentation processes depend on the efficient utilization of carbohydrates, supplied mainly in the form of glucose and molasses. It is therefore the availability and pricing of these raw materials that influence the competitiveness of fermentation products vis-à-vis chemical analogues and production plants at different sites. In recent times, most fermentation products have seen a strong downward price trend. Amino acids, organic acids, and also antibiotics and vitamins are offered at unprecedented low prices. For such products the question is whether it is still economical to continue production in future. That is frequently a question of comparing the availability and pricing of carbohydrates with the future markets and price trends of the produced goods.

It is the objective of this study to provide clear insights into the cost structure of producing fermentation products and their sensitivity vis-à-vis raw materials and especially carbohydrates. We will also discuss future developments of the carbohydrate markets in comparison with the finished product markets.

REASONS FOR DOING THIS STUDY

This report reviews the global capacities for fermentation-derived food and feed ingredients, shows their production costs, and identifies trends in the future availability and pricing of raw materials in comparison with the markets of the end products. Such analysis may reveal:

• to what extent the reviewed product categories are vulnerable to changes in raw material supply and pricing

• how production costs and product markets may develop in future and in consequence

• how the setup of the industry as a whole may change as a consequence of the fast changing raw material and end-product markets

The study is therefore designed to assist decision-makers in the fermentation industry with production and capacity planning, and also to support the strategies of companies considering diversification into the fermentation .

METHODOLOGY

The methodology applied in this report is based on:

• analysis of the major players in the fermentation industry
• analysis of the markets of major fermentation products
• analysis of the cost structure in producing selected fermentation products
• review of the past and current developments in the starch and sugar industry
• review of the global strategies of major fermentation companies

SCOPE AND FORMAT

The report first reviews the structure of the global fermentation industry and categorizes capacities by product group and location. Secondly, costs for representatives of each product group are analyzed in detail. For the antibiotics group, the representative is penicillin; for organic acids, it is citric acid; for amino acids, it is lysine and monosodiumglutamate (MSG); for enzymes, it is protease and amylase; and for vitamins, it is riboflavin (vitamin B2) and cyanocobalamin (vitamin B12). A section on the availability and price trends of the raw materials, glucose and molasses follows. Price and demand trends for fermentation products are then reviewed and compared to the estimated production costs and the price trends of raw materials. A section concluding this report discusses the effect of raw material prices and production costs on company strategies.

INFORMATION SOURCES

As there are only a few players in the fermentation industry and even fewer players in the starch and sugar industry, the sources of information are limited. In addition to company reports, product brochures, trade journals, and many food, feed, and basic chemical journals, direct contact with representatives of the relevant industry produced reliable and quantitative information that ensures the quality of this report.