Hydrocolloid sector must innovate, says expert
prices, but food makers could benefit if suppliers invest in
innovative product development.
Rocketing energy, raw material and transportation costs have been bubbling away over the last 12 months. But according to hydrocolloid market expert Dennis Seisun, suppliers have been unable to pass these costs on because of intense market competition.
This however, looks set to change.
"I think they have reached a point where their margins cannot go down any further," he said.
As a result, the cost of nearly all hydrocolloids, which are used extensively by the food industry to texturise and stabilise food products from dressings to ice cream, have increased in the last year according to hydrocolloid information service IMR's Quarterly Review.
Carrageenan prices for example have increased by nearly 10 per cent in the last year, while locust bean gum prices are up 70 per cent.
Average prices are likely to continue their upward trend in 2006 as energy and transportation costs remain high, according to IMR. Xanthan gum and alginates remain the only exceptions.
"The way margins have been squeezed so far has left little room for investment in product development," he said. "But as prices go up, this will allow for greater development to occur."
Product development within the hydrocolloid sector is especially interesting because the products themselves cannot be chemically changed - this would require a huge amount of regulation. Instead, firms have to discover innovative ways of adding value to their products, in order to stop commoditisation.
"One way of adding value would be to develop a hydrocolloid version that when added to water gives a clarified solution as opposed to a cloudy one," said Seisun. "Some are more tolerant of salt, and there is a great deal of development in the area of natural and organic ingredients.
National Starch for example has developed a range of ingredients that offer this added value."
The industry certainly needs to ensure that any cost rise within such a highly competitive industry is met with necessary demand. Product development is one way of ensuring that hydrocolloids remain an innovative component of food formulation, especially with energy costs showing little sign of declining.
Industries from steel to food continue to be hit by soaring energy costs. Prices for crude oil, both a key raw material and energy supplier for the food industry, recently topped a record $70 a barrel.
Global oil consumption is expected to increase by 1.75 million barrels a day next year to total 85.2m barrels a day, the International Energy Agency forecast last month.
IMR says that its estimates represent averages only. There are dozens of grades for most of the hydrocolloids covered in The Quarterly Review of Food Hydrocolloids and prices depend on volumes, contract duration and many other factors.
In addition, hydrocolloids are viewed as specialities by some and commodities by others. This divergence of opinion is the theme of the next International Conference on Food Hydrocolloids, which will be held in April 2006 in San Diego.