The DSM-Martek factor: Implications for the global Omega-3 market

 IN LATE February, DSM successfully completed its acquisition of Martek Biosciences Corporation for €790 million approximately US$ 1,087 billion). It was the first major acquisition by the group after its successful transformation into a life sciences and materials sciences company.
The Nutrition business unit of DSM covering food and feed ingredients has been a significant driver for growth of the company. Figure 1-1 representing the performance of the nutrition business clearly reflects that this is becoming a star business unit for DSM.
Martek, a global market leader in the algal omega-3 space, fits neatly into DSM's overall strategy of attaining leadership in segments that it is active in. DSM's existing vegetable and marine omega-3 range will now be extended to include algal oils. Martek and DSM have been collaborating for quite some time in the omega-3 space, and this has evolved into the current acquisition, which works well for both companies.

The global omega-3 ingredients market
Omega-3 ingredients have been growing at 10 to 18 per cent across different regions in the globe. Marine source omega-3 ingredients contribute to 90% of the estimated revenues of $1.5 Billion globally in 2010. Europe is expected to show a greater acceptance of algal oils in the near future and grow faster than North America, where algal oils are well established.
Figure 1-2 shows snapshot of growth patterns of marine and algal omega-3 ingredients in different regions of the world in 2010.

 Strength and weakness of algal omega 3 ingredients
Algal omega-3 ingredients have the advantage of being vegetarian source, which is a popular food trend in the west currently. In addition, algal source omega-3 application technologies are protected by a strong Intellectual Property portfolio and supported by research specifically in the infant nutrition space. The DHA/EPA ratio makes it ideal for pregnant and lactating women and infants.
Despite the strength of the product, however, algal oils have a low share of the market for Omega-3 ingredients. Manufacturing base for algal source is highly consolidated with only two main manufacturers controlling the total market. Of these, Martek with its length & breadth of patents is the clear market leader. There are other companies that claim to be able to manufacture algal omega-3 ingredients from different parts of the world, but have failed to create an impact in the market. For algal source to garner a significant proportion of the market, manufacturers have to follow a multi pronged strategy including:
? Cost competitiveness compared with other omega-3 sources, both established and upcoming
? Greater penetration, in application areas other than infant nutrition
? Stronger IP protection

Earlier analysis by Frost and Sullivan showed that combination of different sources of omega-3 was necessary for maintaining concentrations of different fatty acids as well as for keeping costs under control. A mixture of algal and flax seed oil could give the low cost option for food manufacturers to include omega-3 in their products at the recommended 650mg/ person/ day.
Infant formula consumes nearly 57% of the total omega-3 fatty acids entering the food industry in the USA, whilst functional foods consume only 10%. Functional foods include fortified milks, cheese, cookies, breads and nearly every other manufactured food which can be used as a carrier for omega-3 fatty acids.
The global scenario is not very different, where either infant formula or child nutrition products contain appreciable algal omega-3 fortification with qualified leading to health claims. Fortified foods are still at infancy in most markets.
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