The market for omega-3 fatty acids found in fish oils has boomed in recent years, riding on a wave of studies pointing to the cognitive and heart health benefits of the lipid ingredient.
At the same time, manufacturers say, crude fish oil prices are rising due to a decline in fish oil production, increased fish farming and a rise in fuel prices.
Fish oil is lauded for its high concentration of DHA (docosahexaenoic acid) and EPA (eicosapentaenoic acid), long-chain omega-3 fatty acids. However vegetarian alternatives, such as DHA derived from marine algae, are playing an increasing role in the market.
Despite the interest in the healthy ingredient, only 10 percent of fish oil produced is actually destined for human consumption in the omega-3 market. The majority - 90 percent - goes into fishmeal, manufacturers told NutraIngredients-USA.com.
Globally, aquaculture continues to grow, according to the Food and Agriculture Organization of the United Nations. Between 1990 and 2000, production grew at an annual average of 10.5 percent, but between 2000 and 2004 it grew at a slower rate of 6.8 percent.
As less oil is produced and more fish farms are cropping up in search of fish oil for meal, it is buyers who are squeezed.
"Our general raw material cost is trending upwards," commented Jan Haakon Haakonsen, VP sales & marketing with Norweigan company Denomega Nutritional Oils.
However, other global developments and trends are also at play in this scenario.
"This has affected margins for us because our costs of goods have gone up," Ocean Nutrition Canada's executive vice president of sales and marketing, Ian Lucas, told NutraIngredients-USA.com. "At the same time there has been a significant devaluation of the US dollar which has put tremendous pressure on our margins."
Although manufacturers did not provide any pricing details, rates do look set to go up, especially within the global context of ever-rising fuel prices.
"Our pricing reflects in part raw material cost," said Haakon Haakonsen. "So yes, in infrequent intervals, we do adjust pricing to reflect changes in raw material cost."
Some producers are in a position to cushion the blow thanks to back-up stock.
"To some extent," said the marketing manager of Epax in Norway, Gunilla Traberg, on the question of whether formulators have faced increased costs. "But most producers of high concentrates keep large stock of crude fish oil, both as security stock but also to stabilize prices of final product."
Only certain types and certain quality of crude oil can be used in concentrates used for human consumption, according to Traberg, so manufacturers often keep a stock in case of natural variation in the composition of the crude oil.
"If prices are continuing to rise, this will affect the margins or the price of the final products," said Traberg.
Lucas said the situation could "ultimately push us into a situation where we will have to increase prices". But it remains unclear whether these will be passed on to the consumer.
In functional foods the cost of the ingredient is fairly small compared to the cost of the food product as a whole. The impact on companies' margins is therefore less than for supplements, where the only component aside from the fish oil is the capsule.
Some food manufacturers have opted to charge a premium for foods containing added omega-3, while others have swallowed the addition cost in the interests of offering a product that differentiates them from the competition - such as Muller yogurts, for instance.
Omega-3 is still, by and large, seen as a new innovation, and is not yet regarded as a commodity, Lucas said.