Implicaciones Educativas

International traders are commercial houses that generally trade in aromatic materials. They are mainly located in the major consuming markets. Most traders are importers from overseas shippers. They are either an agent for an essential oil producer or purchase on the open market.

International traders carry large inventories, sell to domestic and overseas customers, re-export to overseas customers and also trade with other traders. International traders break consignments down into smaller packs for domestic sales. Some traders also import certain unprocessed plant material and distil essential oils on their own site (eg., patchouli). The bulk of the World international trade in essential oils is handled by international traders, rather than through direct purchases by users from producers. This is because producers and end users are remote from each other and lack information that enables direct connections, and most often purchase quantities are too small to warrant direct trade with end users.

The primary function of international traders is to smooth out the peaks and troughs in the markets for the materials in which they deal. This helps to minimize the drastic price swings and maintain price stability by keeping supply and demand in balance. International traders carry out quality assurance and standardization of products, through filtering and blending consignments when required to assure minimum quality specifications.

Some commentators argue that traders distort the market to their advantage by using their power over the market [43]. The relative bargaining power of producers is weak, as there are too

many growers for any one to have significant bargaining power over international traders [44]. It is also argued that international traders must take responsibility for price fluctuation in the market because their position provides them with unique information about supply and demand trends [45]. Moreover international traders have been further criticized for their reluctance to divulge substantial information to producers about essential oils markets [46]. More recently traders have been attacked on their inaction to assist producers make representations to REACH on new directives concerning some essential oils [48] (see chapter seven).

The future role of traders will depend upon individual company abilities to adapt to the changing geographical balance of the flavour and fragrance industry. A greater proportion of essential oil and aroma chemical markets will be in Asia with new producers and new users.

Survival will depend upon how well they service these clientele and compete against new competitors originating from the Asian region itself. The concentration of traders should slightly diminish, as new traders service developing markets. Many traders are vertically diversifying into value added specialist production of essential oil isolates and aroma chemicals. Some are even developing their own flavour and fragrance houses aiming at small to medium manufacturers that large flavour and fragrance houses do not focus upon.

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Flavour and fragrance houses early last century were family owned artisan based enterprises and served customers in national markets. Today most large and medium flavour and fragrance houses serve the entire globe with product development, manufacturing and sales organizations in multiple locations. This rapid growth from nationalism to internationalism was encouraged by the expansion and concentration of end product manufacturers through merger and acquisition.

The prime profit making activity of a flavour and fragrance house is the development and compounding of flavours and fragrances for manufacturers of end products. Flavour and fragrance compounds are specific formulations composed of both natural and synthetic aroma materials developed for the specific needs of an individual customer. Custom flavour and fragrance compounds are a key factor in the success of any product and not easily interchangeable with other fragrances or flavours, once the product has been launched and consumers associate the product with the flavour or fragrance.

Demand for flavours and fragrances are dependent upon the production and sale of consumer, industrial and institutional products manufactured by end-product manufacturers. Flavour and fragrance houses have relatively few but large customers. In many cases the international turnover of individual customers is larger than the whole flavour and fragrance industry. Figure 2.16.

shows the relative sizes of markets flavour and fragrance houses serve.

There are three basic types of flavour and fragrance houses, transnational, large independent houses, and small to medium size independent houses. Transnational flavour and fragrance houses are usually owned by another entity in the chemical industry, however many have become listed companies in their own right. Large independent houses usually operate across a region and small to medium houses usually serve a single market or region. The majority of flavour and fragrance houses have branches or agents in a number of countries, often with regional based production facilities. The smaller independent houses have generally been passed down from generation to generation or established by former employees of the larger houses.

Flavour and fragrance houses carry inventories of up to 3,000 raw materials, purchased from all parts of the World. Raw materials are either purchased directly from manufacturers and producers or through traders, agents and brokers, depending upon the strategic importance of the material and volume required. Large inventories are required due to the necessity to hold many grades of each material and the need to purchase some materials (essential oils) on a seasonal basis. The production of flavour and fragrance compounds are usually made to customer order and manufactured on a batch basis because of the high value, low volume and exclusive nature of each

product to an individual customer. Production schedules are usually short term and must be flexible enough to respond to customer demand.

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Various Food Products Processed Meat

Beverages Dairy Products

Animal Feed Processed Food & Vegetables Flour & Starch Products Oils and Fats

Fish Products Cosmetics

Household Products

World Wide Market Size Estimate 2003 USD 20 Billion

The Flavour &

Fragrance Industry

USD Billion

Figure 2.16. The Relative Size of the Flavour & Fragrance Industry with Industries its Serves.

All large and medium sized flavour and fragrance houses are active in both flavour and fragrance compound markets. However flavour and fragrances are completely different markets and businesses. Production facilities for flavours and fragrances require separate storage, compounding and filling facilities. Also flavour production has more stringent regulatory requirements.

The larger fragrance and flavour houses invest between 5.0-8.5% of net sales into research and development. The maintenance of effective product development capabilities is essential to long term success. Developing flavour and fragrance compounds requires both an artistic and technical approach to product development. Applications development by perfumers, flavourists, cosmetic chemists, surfactant chemists and food technologists is important in creating flavour and fragrance compounds in response to customer requests. Flavours and fragrances are manufactured according to end user product manufacturers‘ specific requirements. These requirements will take into consideration consumer tastes and trends when creating a theme. The flavours and fragrances must also be produced within the constraints of end-product technical requirements and regulatory considerations. Flavour and fragrance houses build application capabilities in specific customer product areas and conduct market research into consumer markets through panel and product testing. In most cases they become partners with end-product manufacturers in the new product development process.

Raw material research undertaken by flavour and fragrance houses includes, the analysis of natural materials to identify new aroma chemicals with novel organoleptic qualities and greater tenacity, searching for more cost effective ways to synthesize existing aroma chemicals, the evaluation of health, safety and toxicity issues in relation to raw materials and manufacturing processes, the improvement of product applications ability and the building of corporate image by presenting papers at conferences and in journal articles. Achieving breakthroughs in technology is

a key strategy for a flavour and fragrance house to maintain competitive advantage and a creative edge in the industry.

Over the last couple of decades flavour and fragrance houses have expanded their product ranges to include dyes, natural botanical extracts, odour agents, preservatives, cosmetic and food ingredients and UV absorbers. Some flavour and fragrance houses are vertically diversified into aroma and specialty chemical and fruit juice and pulp production. Very few flavour and fragrance houses are currently directly involved in essential oil production, although there are a number of strategic alliances and close working relationships.

The aggregate Worldwide sales of flavour and fragrance compounds is difficult to determine because of the non-reporting of sales turnover by many private companies, the questionable accuracy of data in markets like India and China, the captive production of flavour and fragrance compounds by some end-product manufacturers and currency distortions. A reasonable estimate would be USD 20 Billion. Sales can be broken up into approximately 60% flavour compound and 40% fragrance compounds. The industry is growing around 8-10% per year.