Cargill raises citric acid prices on back of market pressures

The company said the mid-year increases, which came into effect at the beginning of this month, will not affect customers on contract for 2006.

Other customers should expect to be forking out $0.55/lb, without taking into account the freight costs.

Citric acid is one of the most widely used food acids by today's food and beverage industry, with over 70 per cent of the world's 1.4 million ton market propelled by this sector.

Largely produced by mould fermentation of sugar solutions, citric acid production is energy intensive. But steep energy costs, particularly related to oil that currently stands at around $70 a barrel, have multiplied costs for citric acid producers.

Indeed, last year Swiss-based Jungbunzlauer cited energy costs as a major cause for its 10 percent hike in citric acid prices, while DSM also increased its prices for the ingredient by around 15 per cent.

And US agri-firm ADM last year closed its citric acid plant in Ireland, leaving a 60,000 ton hole in European supplies.

"As the input costs have been on the rise, it's been difficult for manufacturers to invest in the business, and we've seen several producers shut down plants or take capacity off line,"​ said a Cargill spokesperson.

The current market situation, which has changed little since last year, could ultimately result in a supply shortage, especially in the summer months, when demand for citric acid is increased as manufacturers roll out increased volumes of beverages.

"With the higher costs, profitability has diminished to the point where reinvestment has not taken place. But at the same time, recent demand has been stronger than expected. So now there is the potential risk that the supply and demand has become so tight that we could see some shortages in the next couple of months,"​ Cargill told FoodNavigator-USA.

The company last year tried to implement a 12 percent increase in citric acid, but, together with competitors in similar situations, was only able to receive "minimal level" increases.

Cargill now says it has announced this mid-year price increase "to prepare customers for what lies ahead."​

Indeed, further price hikes are expected to be announced at the end of the firm's third quarter this year, at which point Cargill will reveal the price changes related to its contracts for 2007.

The firm was reluctant to go into further detail at the current time as it needs to evaluate how it will be further affected by rising costs in the interim period.

However, commenting on the general market situation, the firm's spokesperson said "prices will have to increase substantially over the next 12 months if we are to see other manufacturers coming back in."​

Citric acid currently dominates the category of organic acids. On the back of numerous applications for the ingredient, consumption is expected to grow strongly until 2009, with the market value exceeding $2 billion.