New research from market analysts Frost and Sullivan that covers the three largest segments of the food enzyme industry - starch and sugar processing enzymes, dairy enzymes and bakery enzymes collectively worth $142.4 million (€117m) in 2003 - finds bakery enzymes is likely to be the fastest growing with a compound annual growth rate of about 7.2 per cent.
But the GMO issue will dominate the segment, driving innovation. "Most of the high selling products in this industry are developed based on GMOs. The media and some non-governmental organisations have been successful in generating a strong debate on the negative effects of GMOs. But with the European governments looking to ease the regulations on GMOs, the R&D efforts are likely to receive a boost resulting in newer and effective products," claims the report.
With $62.2 million in value and 43.7 per cent of the total revenues discussed in this study starch and sugar processing enzymes come in as the largest market but with a slow growth rate hit by industry consolidation.
"The customers of the sugar and starch processors now wield a higher bargaining power compared to the pre-2001 years. This is primarily due to the consolidation among the customers. This has led to the starch processing segment having a smaller growth rate than the corn segment," adds the report, tipping the CAGR at a low 2.3 per cent between 2003 and 2010.
Nearly 90 per cent of the enzymes in this segment are used in the production of high fructose corn syrup (HFCS), an ingredient used extensively in the US soft drinks market.
But the starch and sugar processing enzyme market is mature and is marked by low profit margins. According to Frost & Sullivan, profits are a direct function of the sales volume in this commoditised market.
The top two participants in this market are Genencor International and Danish enzyme leader Novozymes - controlling 97 per cent of the starch and sugar processing enzymes market between them. In the US their major customers in the industry include agribusiness Cargill, starch firm AVEBE, and UK sugar and sweeteners group Tate & Lyle.
With a growth of 1.6 per cent, the US dairy enzymes market - that reached $38.1 million in 2003 - is more mature and established compared to the starch and sugar processing enzymes market. The market is expected to grow to $43 million by 2010, with a CAGR of 1.7 per cent. Since 2000, the industry has been growing at a rate between 1.6 and 1.8 per cent.
According to the report this conservative market - intimately tied to growth in the US dairy industry and characterised by heavy price competition - is dominated by a few Europe-based multinational companies. The top three participants in the US are Danish cultures giant Chr. Hansen, dairy ingredients firm DSM, and Degussa.
Among the enzymes used in food applications, bakery enzymes constitute nearly one third of the market. This segment is the fastest growing among all the food enzymes. Manufacturers such as DSM produce enzymes for both captive use and free market sales. Some manufacturers focus on selling to end users and resellers. In addition, there is a category described as co-producers or blenders that supply specialised blends to the end-user industry based on specific requirements.
The market for bakery enzymes came in at $42.1 million in 2003 and is expected to climb to $68.7 million by 2010, growing 7.1 per cent.
Frost & Sullivan reports that technology is still dominated by investments made in the areas of biotechnology and genetic engineering. The focus has been on the improvement of the existing enzymes rather than developing newer ones. Since 2001, the research has looked at developing enzymes that retain their specificity in a wider range of environmental conditions and that are effective in all the conditions.
With regards to sugar and starch processing enzymes, the focus has been on dextrin-degrading enzymes and on replacing the first generation products used for liquefaction, saccharification, and isomerisation.
In the dairy segment, the development of organoleptic properties such as flavour and texture of cheese, and other dairy products has dominated the R&D and recombinant DNA technology is being considered as a tool to control the ripening process in cheese. Efforts to increase the cheese yield still continue to garner attention of scientists.
As for the rest of the food chain, controversy in GMOs and increasing consumer suspicions thereof, dominates the technology front in the bakery enzymes industry. This has prompted some manufacturers to come out with non-GMO product lines. These products are more expensive than the GMO-based enzymes and are also considered to be less effective, writes Frost & Sullivan.
Looking to the future, the highly competitive US enzymes for food applications market offers little scope for new entrants. The report suggests that participants need to continuously innovate to be successful in the product-driven marketplace.
"Participants' ability to be cost effective in manufacturing is another factor that determines their success. Factors such as end-user consolidation and the lack of customer loyalty should be considered while formulating the strategies," claims Frost & Sullivan.
"The commoditisation of products is a challenge that the industry needs to deal with urgently. The solution is to develop new, speciality applications in both existing and new areas."
Further key challenges that the market faces are higher levels of competition that lead to price and performance pressure, increasing importance of re-formulators and blenders that undermines the role of the manufacturers and the opening up of world trade that will threaten the US domestic starch and sugar processing industry.
In addition, the need to come out with innovative products and new ingredients will drive up the research spending. The lack of customer loyalty complicates retention of customers and limited consumer education results in limited perceived benefits.
Excessive supply and low demand will affect the prices and large participants will force smaller ones to create their own identities, concludes the report.