The orange dilemma

THE ORANGE market has been more or less stagnant for the past few years, hitting its lowest so far in 2013. The average production of leading global orange juice producers, namely Brazil and United States, is down 4% in recent years. The ever-soaring production costs have forced farmers to shift to other cash crops such as sugarcane, corn and soybean. Major producers, especially Brazil which contributes 31% of the global orange supply, are struggling with the spread of huanglongbing (HLB) or ‘citrus greening’ disease. This causes the early falling of the fruit and decimating the tree within a few years.

Post-global depression, consumers are becoming more and more watchful of their spending and are making cheaper and healthier choices, like consuming the whole fruit instead of the processed versions like juices. Orange juice is also facing tough competition from lower priced energy drinks and beverages like iced tea and flavoured drinks.

Out of one tonne of orange processed, 65% goes into juice, whilst pulp and peel constitute nearly 23% and 10%, respectively. The orange oil, which is used as raw material by the flavour industry, is extracted by cold pressing the orange peel. Out of 10% of the orange peel, the extractable amount is a meagre 3-5 kg of orange oil, which forms the feedstock for the flavour industry. Fruit processors mainly benefit from the sale of juice; the falling demand from the juice industry indirectly means cessation of orange processing. This in turn will affect the flavour industry, as there will be lesser availability of raw material for flavour extraction. This explains the drastic 15% decline in the annual production volume of orange oil observed since 2011.

Yellow veins on leaves may be an indication that the citrus greening disease, huanglongbing (HLB), is present (Photo R. Anson Eaglin | USDA Animal and Plant Health Inspection Service)

Orange is the preferred flavour after vanilla, chocolate and berries. About 70-75% of orange oil application goes to the flavour industry (food, FMCG industry, etc.) and the rest of the volume is shared across pharmaceuticals, nutraceuticals, pesticides, paints and adhesives. The flavour market is consolidated with top 10 strong players occupying 70% of the market share in 2012. The resultant supply deficit of orange oil will be addressed in different ways. One scenario is that flavour companies may block the available supply by paying a premium for orange oil. Hence, in the short term, the supply shortage will be manageable, however in the later years, further utilisation of orange oil substitutes will be inevitable in the flavour market.

Other citric sources

The pharma, pesticide, paint and adhesive industries are less dependent on orange oil and the closely related substitutes such as lemon, lime, grapefruit, tangerine, clementine, and citrons are available as potential alternatives for these industries. The Swiss perfume and flavour company, Firmenich had declared the citrus flavour, lime as the 2013 flavour of the year. This can be looked upon as an increasing focus on other citrus fruits by flavour companies. The extraction of flavours from lemon-scented plants is also another preference, where more than 54 plant species are identified with citrus scent and fragrances. Plant parts including flowers, cones and leaves are sources of flavour.

Biotech flavours

The considerable progress made in the fields of biotechnology, especially in genetic and metabolic engineering, has been used to seek alternative routes to develop similar flavours called biotech flavours. Foreseeing the increasing demand for such essences, some companies are associating with biotech firms to come up with cost-effective products that can replace natural flavours.

Many players in food, beverage, and retail utilise biotech flavours, mainly because these are lower in price and widely available.  More associations between flavour companies and biotech firms are likely to develop in future. Small players which cannot shift to substitutes or adopt new technology will be focusing on refining existing technology to optimise their output.  Meanwhile, adopting new technology requires further investment and more patents for application. In the long term, developing their own flavour houses, which can also focus on biotech flavours, may be another option for flavour companies, instead of spending $100 million per year on R&D. Whilst the orange oil market is expected to go down by 8% in 2013-2014, flavour companies can consider this as an opportunity for them to explore fresh arenas and to be more creative.