Unstable pricing and demand forces change in food ingredients market

Energy costs, oil costs and climate change were all having a massive impact, said Euromonitor International head of ingredients research John Madden.

He told FoodNavigator.com that peer to peer competition and competition for cereals and land for crops with biofuel suppliers was also putting increasing pressure on ingredients processors.

Specialist companies supplying ingredients for convenience dishes, such as preservatives and hydrocolloids, would see strong growth, particularly in emerging markets such as the Asia-Pacific region, where such products were taking off.

Dairy sector specialisation​

“Carving a niche and becoming an expert in one or two areas can provide ingredients companies with more reliable and profitable sales,”​writes Madden in a recent blog.

He cites Glanbia as an example that has successfully developed a specialist model in the field of whey protein. "Thanks to its long history of dairy ingredients and cheese manufacturing it has become one of the world’s biggest suppliers of whey protein, with a growing emphasis on the sports and nutrition category."​

The dairy sector would see increased specialisation, with many firms working on R&D.

Opportunities and ones to watch​

Smaller companies could do well in extremely niche fields, where there was perhaps only one another competitor. But they were at a disadvantage to larger companies in terms of the investment required for research and development (R&D), he added.

“There will be room for smaller companies, but they will need to be an optimum size to afford the cost of R&D."​

Chr Hansen was one smaller firm to watch in terms of future potential and the company had previously been linked to ingredients giant DSM, which has invested in it, he said.

Diversification​

Companies that traditionally operated in the agricultural space have been hit particularly hard by unstable commodity prices and have been forced to diversify and here Madden cited Tate & Lyle and Cargill.

“Tate & Lyle did because of the issue in the EU in terms of sugar [price and allocation]. It sold off some options, kept others and diversified into ingredients.”​

In tandem with the drive towards diversification came the move towards increased consolidation, as evidenced by recent deals in the market such as DuPont’s takeover of Danisco last year. Other examples included Corn Products taking over National Starch, said Madden.

“What you are seeing now is companies with chemicals backgrounds doing the same."​ He cited DSM’s takeover of omega 3 firm Martek, which was announced at the end of 2010.