Degussa to exit from food ingredients business?

- Last updated on GMT

Related tags: Food ingredients, Flavor

Ending months of speculation, the flavours and texturants units at
Degussa, Germany's third largest chemicals group, are up for sale
as the firm looks at selling the food ingredients arm or finding a
partner for its business.

The food ingredients business pulled in sales of €527 million in 2003, generating a small slice of overall revenues for the group that peaked €11.4 billion last year. But the division's sales were not enough to help the two business units - Flavors & Fruit systems and Texturants systems - match the performance of larger commercial players.

Degussa told​ that the food ingredients division is "too small to be able to attain a leading market position on its own"​.

For this reason the firm is "pursuing a strategy to enable the unit to take advantage of optimum development opportunities"​. This could entail a link up with a suitable partner or divesting the unit.

When asked if the division might be broken up and sold separately as flavour and texturant units to interested parties, the Dusseldorf-firm declined to comment.

The move marks new opportunities for food ingredients players looking to bump up their market position in flavours, food thickeners and health ingredients. If sold separately, ambitious ingredients firm Danisco could be interested in the flavour unit. The Danish firm has voiced its ambitions to be one of the top five global flavour companies - currently around ninth - and the bolt-on acquisition of Degussa's flavours unit could help it on the way.

Dominated by a small number of industry players, the hydrocolloids sector is consolidating, particularly in the larger, more mature markets, spurred on by shrinking margins and consolidation among international customers. The texturant unit at Degussa could interest a number of top tier global suppliers of hydrocolloids such xanthan, pectin and carrageenan - all in Degussa's portfolio - including FMC Corporation, acquisitive Irish firm Kerry Group and even US firm JM Huber, which last month bought the number one pectin player, CP Kelco.

Degussa recently reorganised its food ingredients activities to group the flavours, texturants and bioactive units under the its performance materials division. The flavouring systems target the food, dairy and beverage markets while the texturant arm supplies formulations based on hydrocolloids, blends and lecithins.

Degussa is also a key player in health ingredients, such as phospholipids and amino acids, and one of the main European suppliers along with DSM of creatine, an ingredient enjoying decent growth on the back of the burgeoning sports nutrition market. These products are sold under the bioactives unit, recently absorbed into the texturant arm.

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