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WHAT FUTURE FOR ESSENTIAL OILS

INTRODUCTION

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Some facts.

The world production of essential oils can be estimated above 150 000 tons for a value of

± 6 billion USD

It has more than tripled since 1990 : 45 000 T and increased by 50% since 2007.

According to several economic analysis, this growth will continue and the expectation for

years 2020s is about 370 000 T for a value of > 10 billion USD.

If you put these figures in perspective with the total world commodity production, E.O.

production is quite small.

The world agricultural production covers about 1.6 billion Ha whereas E.O. production

covers about 600 000 Ha from which F&F uses 250 000 ha, i.e. 0.016% compare to food

production!

E.O.’s farmers are about 1 million vs 1 600 million world farmers, i.e. 0.06% compare to

food farmers.

Main commodity crops :

- corn : abt 1 billion T,

- wheat : 728 000 000 T ,

- rice : 472 000 000 T,

- palm oil : 59 000 000 T,

- cocoa or rubber : 4 000 000 T

The first 3 essential oils (orange, mint and lemon) represent about 100 000 T all together

which is more than 2/3rd of the total production.

They are the industrial E.O.’s crops.

All other E.O.s are produced in small farms or collected from forests:

- Patchouli, Litsea, Citronella, Eucalyptus globulus, Clove leaf …1 000 to 10 000T

- Vetiver, Geranium, Ylang Ylang, Nutmeg, Lavender… : 50 – 400 T

Today, the Industry currently uses about 150 E.O.s instead of 300 + in the past.

The main markets are :

- Food & drinks : 35%

- Fragrance, cosmetics & aromatherapy : 29%

- Household : 16,6%

- Pharmaceuticals : 16%

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WHAT ARE THE ISSUES

1/ DECREASE OF THE AGRICULTURAL LANDSCAPE:

All over the world, the massive extension of urbanization is destroying cultivable fields.

Many years ago, when visiting citrus producers in Sévilla - Spain, I was taken to the last

orange orchard still in production in the very center of the city. Since then, it disappeared

like many others around the city.

The same in Calabria where the Bergamot orchards have been cut down to allow the

extension of urbanization and tourism along the Messina straight. The production had to

move inside the country, in remote areas in the southern part of Calabria.

In Reunion Island, the production of Geranium oil has disappeared mainly for the same

reason.

In fast growing countries like China and India, this will be a major problem in the future.

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2/ RURAL EXODUS.

In 2007, and for the first time in the history of mankind, urban populations have

exceeded those in rural areas. According to a study published by the FAO in June 2006,

an estimated 800 million people have abandoned the country for the city over the last 50

years.

In many producing countries, the young generations leave the farm to the city to study

and get a job. Many farms will stop producing when the present owner retires.

Globally, the handwork will vanish.

This is for instance the case in Bulgaria where they need between 3 and 4 000 pickers

during one month to collect the rose flowers and cannot find enough.

In Ivory Coast, the workers in the palm, rubber or citrus plantations come mainly from

Burkina Fasso. During the civil war 2004-2014, they had no more handworkers.

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3/POLLUTION & CLIMATIC DISORDERS or DISEASES.

If some of the old catastrophes disappeared with the progress, like for instance the

regular floods in China after the building of the 3 Gorges dam, we are still facing a lot of

disasters in producing countries, such as :

- Haiti : Earthquake in January 2010 and Matthew Hurricane in October 2016

- Madagascar : Ivan typhoons in 2008 (1 600 km2 of cultivated crops were destroyed) and

Enawo typhoon in 2016 (30% loss on the vanilla crop)

- Nepal : earthquake in April, 2015

- Domenica : Tropical storm Erika in August 2015 (no more Bay oil).

More generally, the climatic disorders tend to last much longer, like in Indonesia who had

endless heavy rains all over 2016

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On top of this, we see the propagation of new diseases that badly affect productions:

- the “Citrus greening” in Florida where the citrus production decreased by more

that 30% between 2012/13 and 2015/16

- The “lavender disease” caused by a bacteria : stolbur phytoplasme carried by an

insect the cicadelle. In 10 years, half the world production has been lost and the

French production decreased from 85 T to 30 T

4/ POLITICAL RISK

Production is also affected by political troubles.

Ivory coast : more than 1500 ha of bergamot and 5000 ha of Lemon have been planted in

that country in the 80’s. They should have produced ± 100 T bergamot oil and 500 T

lemon oil. Because of permanent conflicts between ethnizes and political parties, the

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proper maintenance was never ensured and production did not exceed 15 T bergamot

oil (5 to 10 tons on average) and 50 T lemon oil (25 T on average). From 2004 to 2014, the

civil war stopped all the production and only a few orchards survived. Today the

production is insignificant.

5/ SWITCH TO FOOD CROPS

In the last 10 years, constant price fluctuation pushed farmers to switch to food crops

which requested less production cost and work and offered more steady and immediate

return.

In 2006, when visiting the geranium fields in Binchuan, I saw many fields already

replanted with Orange trees or Grape vines which are cash crops once in production.

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The grapes are packed directly in the vineyard going directly to the supermarket. Today,

the production of geranium is more or less half what it used to be.

Ivory coast : most planters have switched to palm trees or rubber trees plantation which

is much more secure than citrus.

In Madagascar, farmers always favor various food cultures like rice, letchi, black pepper,

cloves, and only distill when price is good enough.

6/ SUPPLY & COST OF ENERGY

Another major problem we are going to face in the near future is the availability and cost

of energy to produce E.O.s.

In the Comores, there is nearly no more wood available for the distillation of Ylang Ylang.

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In Madagascar, the number of rustic stills used for Clove leaf oil can be estimated around

10 000. This means that they need to burn approximately 750.000 m3 of wood every year

to produce 1 500 T of Clove leaf oil. The wood is cut freely in the wild forest. Just to give

you an idea, this quantity means about 15 000 Ha of 5 years old Eucalyptus Robusta per

year or 10 000 Ha of 5 years old Acacia Mangium. In other words, to ensure the constant

supply of wood from one year to another, you need to plant something like 75 000 Ha of

trees If there is no long term planting program for the production of this oil, either it will

collapse or distillers will have to use fuel or alternative energy which will considerably

impact the price.

7/ COMPLIANCE WITH REGULATION

Since beginning of the years 2000, the new regulation started restricting the use of

essential oils though they are commonly used since ages in the Chinese medicine or the

Indian Ayurveda and many other sectors and countries

It started with the allergens in 2002 which was the reason for the foundation of EFEO –

the European Federation of Essential Oils.

Because of this regulation, several end users decided to change their formulas and asked

their suppliers of perfume not to use substances containing allergens any more.

Then came REACH which, I suppose, all of you know by now. The dead line for

registration is June 2018.

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Small producers or importers will not be able to afford the registration costs and

procedure, and there is a major risk that several E.O.s will simply disappear.

Pesticides are another concern: their detection is more and more accurate and a lot of

oils cannot be used anymore, not only for food but also in perfumery. The education of

farmers is a long process and may take years. In the meantime as a consequence, organic

products are booming, but quantity remains quite small

8/ SYNTHETIC REPLACEMENT

Synthetic molecules have replaced the natural ones, like Citral or Anethol and might

soon do it like for menthol

- Menthol Natural : 30 000 T which price went up from USD 15 in 2010 to USD 30/40

in 2012

- Menthol synthetic: 1 000/2 000 T at USD 20 in 2010 to 5 000/8 000 T at USD 15/20

in 2012

The development of synthetics is linked to the supply situation of raw materials.

For instance, when Indian Sandalwood oil started to become a real problem and nearly

disappeared in the 70’s - 80’s, many synthetic alternatives came up on the market, which

are now currently used in many products.

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9/ INDUSTRY CONSOLIDATION vs RAW MATERIAL PRODUCERS

From 2004 until 2016, the market share amongst the Top 11 raised from 59% to 74% due

to M&A (see the table from Leffingwell published in Perfumer & Flavorist - May 2017).

Their market size is now 25.4 billion USD vs 17.7 billion in 2004.

They are becoming bigger and bigger whereas producers remain quite small. The gap is

growing considerably which makes these end users more vulnerable and obliges them to

reconsider their purchasing strategy.

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HOW TO ADDRESS THESE ISSUES

1/ EXTENSIVE PLANTATION WHERE POSSIBLE.

To produce an equivalent aggregate of crop production in the world in 2012 required

only about 32% of the land needed in 1961 (see table here-under).

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This shows that it is possible to compensate the general decrease of agricultural

landscape by agricultural improvements.

As an example, started in 1999, the huge TFS plantation program of Sandalwood trees in

Australia over 20 years, with more than 2.6 million trees planted covering 6 500 ha, is

now offering a widely sustainable source and a second life to this oil.

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The same for Oud oil in Thailand where a forestry group planted 40 000 Aquilaria trees in

2006 to offer a sustainable source of oud oil

In Madagascar, our company QUIMDIS has launched a 5 years planting program of

25 000 Clove trees distributed for free to several villages around Tamatave which had

been devastated by the 2008 typhoon. This brings work and income to the local

population while enhancing the resources so as to secure the supply to our customers.

2/ YIELD IMPROVEMENT :

This is probably were there is the best perspective for producers of raw materials.

IFF initiated several mechanization programs for some of their major products: Vetiver,

Blackcurrant, Orris and Narcisse which gave excellent results.

From 30 kg Narcisse flowers harvested manually they obtained 1 000 kg harvested

mechanically, per day per man

In Ivory Coast, some old citrus producers who took good care of their orchard reached

easily 30-40 T of Lemon and Bergamot fruits per ha whereas the average in that country

is as low as 10-15 T, due to lack of maintenance.

Not enough to cover the expenses !

The selection of species can also give good results, both in term of quantity or quality:

in the 90’s, the Indian company KEVA made a selection of one particular Patchouli plant

that they extensively reproduced by tissue culture and distributed it to the farmers. This

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specy had a better yield in oil and a stronger well appreciate earthy note compare to the

present one which has a gurjun note.

All this certainly helps the farmers and their family to get better income and keep

producing instead of migrating to the city.

3/ SUPPORT FROM THE STAKEHOLDERS

As we have seen, the major end-users are becoming vulnerable and need to support the

raw material producers together with all the stakeholder of the F&F industry.

This support can be proposed under different forms :

- Partnership (like Chanel for the Jasmin and rose in Grasse)

- Investment in plantations

- Long term contract or crop financing (this is what QUIMDIS does in Ukraine for the

coriander seeds or in Madagascar for the Black Pepper)

- Technical and agronomy support

- Organization of the production

- Setting processing plants near the production centers (Givaudan and IFF in

Madagascar for the Eugenol and derivatives, Symrise and Takasago also in

Madagascar for the vanilla)

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We can observe that the positions started to change a few years ago, between 2008 and

2012, when the supply of most raw materials became a problem and the prices went sky

rocketing :

- Clove leaf oil : EUR 5-6 in 2010 to EUR 18 in 2011,

- Nutmeg : USD 80 in 2011 to USD 120 in 2012

- Patchouli : USD 35 in 2007 to USD 150 in 2008

- Orange : USD 2 in 2010 to USD 7 in 2011

Producers discovered that there was no longer upper limit to prices as it was admitted

since ages, and users found that they could survive with such high prices;

4/ DISEASES

When the lavender disease started propagating, the producers and users of lavender

decided to gather and finance researches to eradicate the disease. Chanel, Givaudan,

L’Occitane and many others contributed to funding these researches together with the

lavender research center CRIEPPAM.

Regarding citrus greening, no cure has been found yet, in spite the USDA allocated a

budget of USD 31.5 million to expand research. Several experimental treatments are

being experienced with antibiotics, penicillin G sodium and biocide 2.2-dibromo-3-

nitrilopropionamide.

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5/ NEW MARKETS

An alternative to food crops can be proposed to the farmers with the emergence of new

applications / markets in cosmetology, pharma, animal feeding.

As an example, the use of Clove leaf oil derivatives is booming with new applications such

as animal feeding to replace antibiotics banned in 2008 in EU.

The global consumption is now over 5 000 T which the production cannot always supply.

New plantations have been made in Madagascar (as we have seen) and in Indonesian

both to supply the strong demand of Clove buds for the Kretek tobacco industry in this

country as well as the increasing need of Eugenol and derivatives.

In Madagascar, more than 1 500 Ha of Artemisia Annua have been planted in the last 9

years for the extraction of Artemisinine which is massively used as anti-malaria. This

employs about 10 000 independent farmers.

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6/ ENERGY

To stop or decrease deforestation, several programs are being initiated in the Indian

Ocean islands.

In the Comores Islands a program is being implemented by an NGO to improve the fire

place in order to reduce the distillation time and consequently the quantity of wood

burnt.

Madagascar : a project is under discussion with the Minister of Environment and

International Funds. The project consists in renovating the (10 000) rustic stills and then

reduce the distillation time by half to save 35% of wood while getting a yield 10% higher.

This project will result in a massive reduction of the quantity of wood to burn, from

750 000 m3 to 450 000 m3, needing 9 000 Ha Eucalyptus Robusta vs 15 000.

7/ REGULATION

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Nowadays a better relationship has been established with the authorities whether in EU

or in USA. A constructive dialog is ongoing between IFRA and EFEO with the EU

Commission and ECHA, to ease as much as possible the implementation of current

legislations and balance the new ones based on the ratio : cost / benefit.

Regarding pesticides, new natural solutions appear that may prevent farmers or planters

to use them. This is the case of methyl eugenol which is an insect attractant. However, its

use is a bit complicated as it is very difficult to differentiate insects attracted in the traps

and avoid killing the pollinating ones like bees.

CONCLUSION

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Essential oils are probably at a cross road.

The market is demanding and should keep on growing, not only on traditional uses but

also on new markets which seem to offer a huge potential.

However the production may not be able to cope for the reasons we have mentioned

above.

For many years, the market was supplied “as it comes” and “when available”.

Nowadays, it’s not possible anymore and the supply security has become a necessity.

Under the pressure of urbanization, regulation, climate or political uncertainty,

production cost, many small producers may disappear.

The good news is that, facing this situation, end users cannot just let it go and are more

and more willing to support the producers of the raw materials they need for their

manufacture.

A new order is appearing in the whole supply chain where end-users are alternatively

supporting both their direct suppliers, whether importers or traders, and/or the

producers at origin.

With internet and congresses, everybody knows everybody. Each ring of the chain now

has to play a role and find his place in this new order.

All companies need to bring something new or special, whether getting more involved

into production or work on the products to supply material ready to use to their

customers.

The sustainability of our raw materials has become a major concern and the whole supply

chain has no choice but being proactive.

This is what is requested by L’Oréal in their 2020 program :

<<By 2020, 100% of our strategic suppliers will be participating in our supplier sustainability programme. • All

strategic suppliers will be evaluated and selected on social and environmental performance. • All strategic

suppliers will have completed a self-assessment of their sustainability policy with our support. >>

The same way REACH regulation obliged users, importers and producers to

communicate in order to get a complete information on their product both ways, and

know better what they put on the market, the new order will create new opportunities

for the stakeholders to cooperate closer and more openly so as to ensure a sufficient

supply of raw materials on the long term.

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Bibliography :

CCPARM – Comité des plantes à parfum, aromatiques et médicinales – « Essential oils, an increasing world market » - Dec 2016

Dominiques Roques : « Essential Oils : in search of a new balance in a fast changing agriculture – EFEO AGM 2012.

Max Roser : Land Use in Agriculture – Our world in data

John Leffingwell & Patrick Newton : “Diversifying F&F growth” in Perfumer & Flavorist May 2017