Long term relationships best way to deal with volatility of botanical supply, experts say
The issue was highlighted recently by the news that Chinese buyers had, by waving around large wads of cash, cornered the market on Peruvian maca. The price of the botanical had risen by many times just in the course of one season, according to longtime maca buyer Chris Kilham. The question then becomes, what are the long term implications of that event for the maca trade and for the wider world of botanical supply?
Long term effect in doubt
In the case of maca, the effect is profound in the short term. How long it will last is another question.
“These kinds of market disruptions are something we have to deal with,” George Pontiakos, CEO of ingredient supplier BI Nutraceuticals told NutraIngredients-USA. “Maca is a protected botanical in Peru. What the Chinese have done is created a very aggressive black market for maca. They have bought a lot of maca fields.”
But caution needs to be applied to the notion that the Chinese now in effect own the trade, according to Alex Schauss, senior director of the scientific and regulatory consultancy AIBMR. While it can take some time, new supplies of botanical ingredients can come online, given sufficient demand. Schauss has experience in the maca supply chain and also did some of the early work on acai, as that botanical ingredient from the rainforest was just starting its rise toward superstardom.
“The Chinese are not stupid. They don’t want to exhaust supplies where they exist. There is a lot of land up there (in the Andean plateau country where the best maca is grown). If there is a particular demand for this tuber, more land will come into cultivation,” Schauss said.
Volatility part of the game
Pontiakos said volatility is part of the business of sourcing botanical ingredients, and is a feature of commodity markets in general. The situation with maca might stand out as a recent example, but it is not a significant departure from the norm, when a sufficiently long view is taken, he said.
“The market is the market. If someone comes in with a big order you are going to satisfy it. The market is generally fairly volatile with varying demand and yields on certain crops depending on weather. We haven’t seen unusual volatility,” Pontiakos said.
A sudden spike in demand can interrupt long standing supply relationships, and it can bring an opportunity for economic adulteration, said Shaheen Majeed, marketing director of Sabinsa Corp., a vertically-integrated ingredient supplier.
“Any botanical that experiences a surge in demand can be vulnerable to market disruptions, because suddenly brokers or, less commonly, direct representatives from large companies rush in and try to buy up all available raw material. Sometimes this results in raw material being sold as one botanical, when it isn’t that at all. The industry saw that with hoodia a few years ago when the amount sold in a year exceeded all grown raw material,” Majeed said.
Majeed said that in the face of sudden spikes in demand, a solid relationship with the growers or harvesters of a botanical is critical to maintain control of the supply chain.
“Sabinsa began a cultivation program a number of years ago when an increase in demand disrupted our supply chain. We now cultivate a number of botanicals to insure we have a sustainable supply of our most important herbs. Our contracts with farmers are comprehensive, from support from us to get their operation going to education for growing the highest quality raw material to a price that offers them equitable compensation,” he said.
Maintaining calm
Schauss said that short term supply disruptions can lead to short term thinking, and in some cases some self-serving thinking, too. He said he witnessed this when acai was first starting to hit it big as the next great superfood to hit the market.
“I would caution against some information that gets spread around to justify brokers raising their prices. When I started doing research on acai in 1995 the prices are going through the roof because word got around that it is all going to export. Prices went up by more than three times. I was saying, wait a minute. There are more than 11 million hectares of this stuff in Para state alone. Every hectare produces approximately 500 kilos of fruit every five years. Where is the justification of these prices? There can be collusion,” Schauss said.
Majeed said setting realistic long term goals is the key to managing market disruptions, whether they are caused by demand from China, a mention on the Dr Oz Show or for other reasons.
“In some ways, it sounds like a good problem to have: high demand. However, having low volume would be a serious down side. Botanical suppliers should first ensure steady sustainable supply of their ingredient with a reasonable level of growth year-after-year, this base then can be duplicated in other areas or ingredients, and this base should be made with the criteria for growth – to handle increases, whether sudden or expected. China’s demand for new products, new SKU’s, will certainly create demand for existing ingredients in the marketplace and companies should take note of their supply chain to manage and handle the growth,” he said.
