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UPDATE ON THE OMEGA-3 MARKET
November 7, 2013
There is both a supply and a demand problem with omega-3s.
How much omega-3 do we need?
250mg/day
400mg/day
1000mg/day
WHO and EU Recommended
Intake
Omega-3 Mortality Paper
JapaneseRecommended
Intake
Source: WHO, EFSA, Mozaffarian et al 2013 Ann Int Med, Japanese MHLW
250mg/day
400mg/day
1000mg/day
Source: GOED analysis
0.65million tons
per year
1.02million tons
per year
2.55million tons
per year
The problem is the oceans do not provide enough EPA and DHA today and there are already fears about overfishing in many species.
530
Our EPA/DHA Needs(thousands of tons)
2550
1020
650
The Oceans' Capacity(thousands of tons)
Japan Model
Mortality Model
WHO Model
Source: GOED analysis of FAO and USDA data
Seafood Consumption: 125Seafood Waste: 200Reduction Fisheries: 205
In addition, there is a clear nutrition need in most of the world to increase intakes
Source: GOED/Cantox study, Hibbeln et al 2006, Chinese CDC
The Gaps Between RDIs and Average EPA+DHA Intakes, mg/day
RDIs
Inta
ke
s A
bo
ve
RD
IsIn
take
s B
elo
w R
DIs
There is both a supply and a demand problem with omega-3s.Let's look at the demand side of the equation.
Consumer awareness is high in most countries, but there are some worrying trends in countries like Japan.
Sources: GOED Proprietary Consumer
Research, Leatherhead, YouGov
Brazil 98%
United States 98%
Spain 96%
Germany 96%United Kingdom 95%
Australia 95%
France 94%
Canada 94%
Italy 93%
Norway 93%
Finland 89%
Russia 89%
Sweden 88%
Iceland 87%
China 86%
Denmark 77%
Japan 58%50% 75% 100%
India 94%
In developed countries usage rates are generally high when you consider all sources of omega-3s, but supplements are not always a main driver
Supplements Functional Foods Seafood
55%
27%
27%
31%
UK France
49%
10%
27% 36%
US
51%35%
19%
27%
Canada
44%
22% 24%
18%
Germany
63%33% 47%
15%
Source: GOED Proprietary Consumer Research
30%
Japan
10%22%
10%
30%
Australia
54%35%
23%
The BRIC countries are interesting because of their high acceptance of omega-3s and recently gained economic power
Supplements Functional Foods Seafood
China
61%
34%
31%
36%
69%53%39%
Brazil
17%
India
81%
55%55%
32%
Source: GOED Proprietary Consumer Research
Russia
77%
18%
41% 65%
There are countries with avid omega-3 supplement usage, but there are also highly aware countries with very low usage
Source: GOED Proprietary Consumer Research, Dentsu, YouGov
Reported Omega-3 Supplement Usage by Adults
An "awareness conversion" opportunity exists in countries where the usage-awareness spread is highest
Source: GOED Proprietary Consumer Research
Gap Between Omega-3 Awareness and Omega-3 Supplement Usage
$25.4Billion
2012 Estimated Global Consumer Spending on Products Containing EPA/DHA Oils
Through our life stages, we can see why omega-3s may be valuable
Fetal growthMaternal stores
Brain GrowthVisual Development
Brain Growth Regulating InflammationProper Protein
Function
Neurological Cell PreservationRegulating
InflammationCellular Health
$11-12
Billion
~$300
Million
$4-6
Billion
$5-7
Billion
$1-2
Billion
FoodsSupplements
Infant FormulasFoods
FoodsSupplements
SupplementsPharmaceuticalFoods
SupplementsPharmaceuticalClinical Nutrition
Key Categories
Accurate estimates for spending to manage lifestage issues do not exist, but infant nutrition is a clear focus
Source: GOED estimates
China is now the third largest market for EPA and DHA oils and will be larger than Europe shortly
Consumption of EPA- and DHA-Rich Oils by Region, 2011(metric tons)
Source: GOED , Frost & Sullivan, IMF
North America39,806
Europe22,574
China14,009
Rest of Asia12,792
Rest of World10,259
Japan3,809
Pharma$1.9
Spending in these categories is concentrated in premium product categories
Source: Packaged Facts
Infant Formula$10.2
Fortified Food and Beverage$7.9
Pet Foods$0.9
Dietary Supplements$3.2
Global Consumer Spending on EPA & DHA Omega-3 Products, 2011Billions of US$
Clinical Nutrition
$1.3
However, dietary supplements dominate consumption
Pharma1,922
Source: Frost & Sullivan
Fortified Food and Beverage12,950
Dietary Supplements62,569
Infant Formula3,457
Pet Foods21,623
Global Consumption of EPA & DHA Omega-3 Products, 2011metric tons
EPA and DHA omega-3s have become attractive targets for new pharma products
Source: GOED Analysis
Pharmaceuticals or pharma targets in
development or on the market using EPA and/or DHA
omega-3s
38 14 21Companies that are
publicly looking into new pharma targets using EPA
and/or DHA
Health indications being targeted by
these new and existing pharma
products
Very High TGs
$8.0B
EPA/DHA
$1.9B
Borderline High TGsPotential Unknown
Mixed
Dyslipidemia$10.5B
Cardiac Failure
Prevention$11.0B
All Cardiovascular
Drugs$144.7B
Rheumatoid
Arthritis$12.2B
Asthma / COPD$11.2B
IBDs
$2.4B
Multiple
Sclerosis$6.3B
Psoriasis
$2.5B
Chronic Inflammatory Diseases$35.5B
Type 2 Diabetes$23.3B
Dry Eye
$1.9B
Retinal
Diseases$5.2B
Opthalmic Drugs
$18.7B
NAFLD
$1.7BAutism
Spectrum
$3.1B
Omega-3 drugs / targets
All pharmaceuticals
Cancer$75B
Source: GOED Analysis, BCC Research, MarketScope, GlobalData, Company Filings
The pharmaceutical market will shape the supply of omega-3s going forward.If omega-3s achieve the same penetration in other indications as they achieved in the very high triglyceride market, the omega-3 drug market could reach more than $23 billion in global sales. At this level, these products could demand around 460,000 tons of crude fish oil with 30% EPA /DHA.
There is both a supply and a demand problem with omega-3s.Now let's switch to issues in the supply side of the equation.
Small-volume segments of the market like krill
have been able to achieve premium positioning and
valueNatural Anchovy / Sardine
Oils$608 million
High Concentrates$400 million
Algae Oils$330 million
Tuna Oils$128 million
100mt
Volumes60,000mt
2011 Global Sales of EPA and DHA Ingredients
$1.81 billionSource: Frost & Sullivan
LowConcentrates$45 million Medium
Concentrates$198 million
Krill Oils$51 million
Cod LiverOils
$63 million
Salmon Oils$40 million
100mt
Volumes60,000mt
Source: Frost & Sullivan, Aker Biomarine
Krill Oils$51 million
Krill Oils$86 million
And krill oil grew faster than any single segment of the omega-3 market despite being at the high end of the market
+68% growth
2011
2012
It is no secret that understanding of omega-3 supply trends is tied intimately to the anchovy fisheries
MENHADEN: 15,000
ANCHOVY: 185,000
COD: 11,300
TUNA: 9,200
POLLOCK: 7,500
SQUID: 5,000
SALMON: 3,900
ALGAE: 3,500
HOKI: 1,200
KRILL: 580
HERRING: 100
YEAST: 50
DROPS OF OIL2012 Estimated Crude Oil
Usage for Omega-3 Applications in Metric Tons
Source: GOED Members
Typical Sustainable Cap
Crude Anchovy Fish Oil Production and Omega-3 Market Demand(in 000s of metric tons)
Source: International Fishmeal and Fish Oil Organisation, Frost & Sullivan, GOED Analysis
However, omega-3 growth is going to reach the sustainable limits of supply from that fishery
Crude fish oil production Omega-3 market demand
Omega-3 Demand Outlets for Crude Anchoveta Fish Oil (in metric tons)
Source: Frost & Sullivan, GOED Analysis
Dietary supplements are still demanding the bulk of anchovy oils
Pharmaceutical41,780
Clinical Nutrition3,090
Pet Food26,490
Functional Food16,420
Dietary Supplements122,980
Much of the omega-3 demand for crude anchovy oils was driven by demand from fish oil concentrates in the past
Fish oil concentrates account for
11%of EPA/DHA omega-3 products, but
51%of anchovy oil demand from
omega-3 applications
Concentration of fish oils is becoming more efficient though, and we have heard of at least three concentrators that claim to be launching new manufacturing processes that waste no EPA and DHA
Crude Anchovy Oil Requirements of Fish Oil Concentrates by EPA/DHA Concentration
The effects on crude fish oil demand from improvements in concentration could lead to much lower demand in the near-term
Crude Anchovy Oil Requirements of Fish Oil Concentrates by EPA/DHA Concentration
Eleven fishery groups account for 55% of the earth's EPA and DHA capacity today, so any threat to these fisheries is significant to humans.This includes overfishing, pollution, and of course, improper management of the gene pool.
Source: GOED analysis of FAO and USDA data
EPA and DHA Capacity By Fishery, 2010
Anchoveta112,000 tons
Alaska Pollock30,300 tons
Skipjack Tuna23,400 tons
Japanese Anchovy19,000 tons
Blue Whiting16,800 tons
Atlantic Cod16,100 tons
Atlantic Herring12,800 tons
Silver Carp15,800 tons
Freshwater Fisheries11,800 tons
Minor Marine Fisheries17,700 tons
Yellowfin Tuna12,400 tons
129 Other Fisheries139,500 tons
100,000 tons
75,000 tons
50,000 tons
25,000 tons
We know that fishery capacity of EPA and DHA is already changing and that we are more reliant on fewer fisheries for these nutrients, the anchoveta fishery in particular.
1980 2010Anchoveta
Alaska PollockSkipjack tunaJap. AnchovyBlue WhitingAtlantic CodSilver Carp
30-Year Change in EPA and DHA Capacities of Leading Fisheries
Source: GOED analysis of FAO and USDA data
Increased Reliance Decreased Reliance
The Peruvian Anchoveta fishery has suffered in the past from poor management, but has recovered due to successful, aggressive action.
Source: IMARPE
Biomass of Peruvian Anchoveta, 1963-2013
Many other fisheries can supply enough EPA and DHA to be attractive to the right omega-3 customers now
Source: GOED Analysis of data from Anthony Bimbo
Available EPA and DHA Capacity from Selected Fisheriesin metric tons
The list of omega-3 sources, both commercial and in research, is getting longer with new algaes, new fish and new zooplankton projects having been announced in the last six months
Fish Squid Zooplankton Algae Fungi GM Plants
Anchovy
Sardine
Mackerel
Tuna
Cod
Salmon
Menhaden
Trout
Pollock
Hoki
Halibut
Sandeel
Angelfish
Saithe
Market Squid
Shortfin Squid
Antarctic Krill
Pacific Krill
Northern Krill
Calanus
Shrimp
Schizochytrium
Crypthecodinium
Euglena
Nannochloropsis
Phaeodactylum
Nitzschia alba
Y. Lipolytica
M. alpina
Sap. diclina
Sac. kluyveri
C. elegans
Soybeans
Rapeseed
Brassica
Linseed
Rockcress
Commercially Available
In Development
Krill Salmon Roe Herring Roe Sandeel NannochloropsisEgg Yolk
Shrimp
Phospholipid Path
Triglyceride Path
Nannochloropsis Soy SDASquid
New sources being launched will compete with anchovy oils.Each of these new sources is launching with their own unique value proposition to differentiate from the dominant anchovy.
We also need to find new sources of EPA and DHA to relieve pressure on fisheries.This includes more efficient use of fishery waste, genetically modified plants, improved efficiency in aquaculture, and of course algae.
Algal sources of omega-3s are being researched in three predominant types of production systems
Ferm
enta
tion
Open
-Air
Phot
obio
reac
tor
• Commercially producing DHA today
• High cost of capital• Uses sugars as energy
sources
• Limited production of EPA today
• High cost of capital• Uses sunlight as energy
source
• No commercial production today
• High cost of capital• Uses sunlight as energy
source
Most algal DHA is going into infant formulas and provides less than 0.2% of the world's omega-3 nutrition needs today.
1,270tons of DHA Infant
Formula75%
All Other Applications
25%
Source: Frost & Sullivan report commissioned by GOED
What is the potential of algae to fill demand that the oceans cannot provide?It will depend on the economies of scale that these companies can achieve in order to displace their higher capital costs.
Individual segments will vary significantly from the overall trend, with more valuable ingredients exceeding the averages
Ingredient 3-year Growth Trend Growth Drivers Challenges
Calanus Oil Significantly Above Trend New product launches High cost; less developed science; developing a wax-ester story
Krill Oil Significantly Above Trend New product launches and entry into China
Science developing and winning sustainability critics
High Fish Oil Concentrates
Above Trend New pharmaceutical approvals
Intellectual property and increasing raw material costs
Algae Oil At Trend New entrants with unique oils
Educating consumers about an EPA-only story; reducing costs
Fish Phospholipids
Above Trend New product launches Telling the phospholipid story
Medium Fish Oil Concentrates
Above Trend Upgrading consumers Converting entry-level users
Natural Fish Oils Below Trend Bringing new consumers to market
Largest markets becoming saturated
Specialty consumersCod Liver Oils Below Trend Stigma about taste and consuming liquids
Tuna Oils Above Trend Growth of infant formulas Regulatory fears about fish oils
Salmon Oils Above Trend Upgrading consumers to a virgin oil
Regulatory barriers in some countries
Ingr
edie
nt V
alue
Higher
Lower
Sales ($mil)
$1.5
$86
$400
$330
$3
$243
$608
$63
$128
$43
Questions?Adam Ismail