André Bos, president of human nutrition and health at DSM, told NutraIngredients prices of vitamin C as an ingredient in food, beverages and supplements had been declining for a few years now.
At the same time Chinese manufacturing wages have increased by almost 10% from 2013-14 and a government crackdown on environmental issues had also brought production costs up.
“You see it throughout the whole of China. A lot of products are under pressure because cost pricing has been increasing,” he said.
Following the introduction of an Environment Protection Law in 2014, the Chinese government was getting serious about enforcing environmental rules, mainly within waste water treatment and energy generation.
“We see that – and we’re happy about that,” Bos said.
It remains to be seen how these increasing costs will be absorbed or passed on however and some say this – coupled with the appreciation of the renminbi – has marshalled in the end of an era when Made in China meant Made for Cheap.
A turning tide
In 2013 global consultancy firm McKinsey & Company warned companies basing their manufacturing strategies solely on China’s “rock-bottom wages and stratospheric domestic growth rates” were in for a “rude awakening”.
“China’s rise to manufacturing pre-eminence in recent years has been amazing. Yet rising costs, more sophisticated consumers, and fundamental macroeconomic realities mean that yesterday’s approaches to manufacturing are losing their relevance,” its consultants wrote.
“For Chinese-owned and multinational manufacturers alike, the imperatives now are to boost productivity, refine product-development approaches, and tame supply-chain complexity. Those that do so can create an enduring competitive edge.”
The Chinese Environment Protection Law – the first amendment to the country’s environmental protection rules in 25 years – requires manufacturers in China to disclose environmental impact assessments and increases environmental authorities’ ability to punish polluters.
Bos said DSM was already applying a high global standard to all its facilities, but conceded it had invested “double-digit numbers” in its Chinese plant, previously called Aland and renamed DSM Jingjiang.
“Our own sites in China are already running at a global standard so it’s not like we needed to do a lot extra because we don’t go to a country and do less that we would have done in another.
“But for the site we bought that was called Aland in the past in Jingjiang, we have been investing a lot in this facility.”
He added: “[The Jingjiang plant] was already at a very, very high standard. But more needs to be done in China, which we also did in the past year.”
With pollution still not under control in the country, the company said it was likely the government would introduce further requirements.
“The whole industry needs to upgrade in China especially those vitamin sites, and therefore vitamin C sites, that have been built a long time ago. Most of the sites are out of former days and they need to be brought up to international standards from a production perspective, an environmental perspective and legislative perspective.
“And that requires a lot of money, a lot of capital investment, not only for us but for our competition.”
Looking east
China hasn’t always dominated the vitamin C market though.
The market saw a shift around 2005 when nutrition giant DSM closed its US bulk ascorbic acid plant in Belvidere, New Jersey making DSM’s plant on the outskirts of the small town Dalry in south-west Scotland the only remaining vitamin C producer outside of Asia.
“There was a massive restructuring ongoing between 2005 and 2010. Many players stepped out of the vitamin C market. Our plant closed and there was a whole shake up of the vitamin C market,” Bos said.
“BASF was still in in a joint venture, they stepped out. So a lot of capacity was being closed between 2005 and 2010.”
Since then DSM has, like everybody else, looked east for opportunities in vitamin C and last year finalised its acquisition of Hong Kong-based Aland, which sold €65 million worth of vitamin C in 2013 through its Jingjiang production facility in China.
The move sparked fears the Scottish factory would be axed like its US counterpart but DSM said at the time it remained “fully committed” to the Dalry plant, which it acquired from Swiss firm Roche in 2003.
Bos confirmed this saying Dalry was an “extremely well run” facility, which was recognised last year at the European Chemical Industry Council’s (CEFIC) European Responsible Care Awards for its sustainability work since 2011.
“It’s there to stay,” he said. “It’s very, very important.”
Bos said the Scottish plant had a role to play and “hesitantly” confirmed there were some customers that specifically asked for vitamin C from this European facility, not China.
“There are people who are ‘faithful’ to I call it or, I don’t know the word exactly, who ‘want to want’ to buy from that site because of the source, because of the quality or quality guarantee also because of the forms we produce there or the whole quality regulatory environment.”
Capacity for the Jingjiang facility was now around 25,000 tonnes, while the Scottish plant’s capacity was not publically disclosed.
“It’s less than the 25,000 tonnes,” he said. “It’s a smaller facility.”
The total market for vitamin C is around 140-150,000 tonnes with between 85 and 95% coming out of China.
Staple health ingredient
Despite pricing pressures Bos was optimistic about outlooks for vitamin C.
Vitamin C supplements accounted for global retail sales of €3,076.2m in 2015, according to Euromonitor International.
With the constraints of Europe’s 2006 nutrition and health claims regulation, vitamin C has been increasingly used as a ‘failsafe’ support ingredient for making immunity claims in conjunction with other ingredients which do not have an approved EU health claim.
In 2014 supplements positioned for immune health brought in retail sales of $712.6m (€639.36m) in Western Europe alone, falling behind general and digestive health only, according to Euromonitor.
DSM says there had been over 1,700 studies published to date concerning vitamin C and health conditions ranging from cardiovascular health, immunity and bone health.
"Based on this we are also very convinced that there is a lot more to gain from vitamin C," Bos said.