Tuesday, September 25, 2012

Stevia Muscling Into $58 Billion Dollar Sweetener Market

A wise woman puts a grain of sugar
into everything she says to a man, and
takes a grain of salt with everything he says to her.

Helen Rowland

Part I:  Agri-giants Archer Daniels Midland (ADM) and Cargill take competition in sweetener market insider to the courtroom.

Sugar is more than a simple staple in our daily diet.  It is deeply entrenched in our lives.  References to the crystallized sweetness are even sprinkled throughout our doggerel, such as the perspective of American humorist Helen Rowland on gender politics.

Besides iconic significance in our culture, sugar is big business.  Industry analysts suggest the broader sweetener market is valued near $58 billion per year.  It is no surprise then that the producers of sugar and sweetening alternatives are in a pitch battle for market share.  It has several of the largest sweetener producers squared off in a Los Angeles court room, arguing over claims to nature and nutrition.  Grower-owned Western Sugar Cooperative is leading a group of sugar refiners in a law suit against Archer Daniels Midland (ADM:  NYSE) and other corn syrup producers.  The corn gang has cried foul and filed a counter suit.

A look at ADM’s last financial report helps put the sweetener market and the law suit into perspective.  ADM reported $4.8 billion in sales from sweeteners in the fiscal year ending June 2012, on which it earned 7.0% in operating profit.  This was a far better margin than the 3.7% operating profit ADM earned on oil seeds processing and 2.1% on agriculture services, both of which are significantly larger contributors to ADM sales.  ADM cannot afford to let such a lucrative market opportunity slip through its collective fingers. 

In the Cross Hairs of Health Activists

The sugar and corn camps are squared off against each other in court, but both groups are looking over their shoulders at another enemy.  Both have been fingered as culpable in the ever widening girth of Americans.  In 2010, at least 36% of U.S. adults and children were considered obese.  Extra weight increases the risks of diabetes, heart disease, stroke, cancer and sleep apnea, among other chronic illnesses.  It is such a critical problem that Mayor Michael Bloomberg in New York City spearheaded a ban on large-size, sugary soft drinks beginning March 2013. 

Diet drinks laced with artificial, no-calorie sweeteners will get a pass from Bloomberg’s crackdown.  There are a number of artificial sweeteners, with NutraSweet’s aspartame the most popular.  Merisant also sells aspartame under the Equal brand name. Running a close second is sucralose marketed as Splenda by Tate & Lyle Ingredients (TATE:  LSE).  Cumberland Packing Company sells saccharin under the brand Sweet’N Low.  

These and other artificial sweeteners are increasingly used in formulations of popular soft drinks and prepared foods as well as table top sweetener alternatives for coffee and cereal.  Artificial sweeteners have taken a 10% bite out of the total sweetener market.  As enticing as artificial sweeteners seemed to be, they have faced increasing criticism from health researchers as potentially harmful.  Many consumers refuse to embrace “diet” drinks and food.  Consequently, along with caloric big-sluggers sugar and corn syrup, artificial sweeteners are vulnerable.

“Natural” Stevia Muscles into Sweetener Market

All sweeteners are facing a new threat from stevia.  Extracted from the leaves of a subtropical shrub, stevia products can claim to be “natural” and that has excited consumers.  Besides a purity pedigree, stevia has a glycaemic index of zero and does not affect blood-sugar levels.  Stevia was designated GRAS (Generally Recognized as Safe) by the U.S. FDA in 2008 and approved for sale in the European Union in 2011.

With consumers on board, several of the major sweetener market players have embraced stevia.  AC Nielson reported that sales of Cargill’s Truvia branded stevia product surged to 8.2% of the $2 billion U.S. table top alternative sweetener market in 2011, displacing Sweet’N Low as the second most popular sugar alternative.  Cumberland’s Stevia in the Raw also experienced a dramatic surge in sales in 2011, increasing 77% and making it the second best-selling stevia brand currently on the market.  Merisant is marketing its stevia sweetener as PureVia and Ingredion (INGR:  Nasdaq) sells stevia under the brand name Enliten.  Ingredients producer Tate & Lyle is apparently not intimidated by all the brands already on the market and recently introduced its own stevia sweetener under the name Tasteva.
Despite some concerns about taste, beverage formulators are adopting stevia to sweeten their products.  Stevia's taste comes to the palate slowly but lasts longer than sugar.  In high concentrations some of its extracts may have a bitter aftertaste.  Nonetheless, Coca-Cola (KO:  NYSE) launched three of its Odwalla juices sweetened with Cargill’s Truvia and PepsiCo is using PureVia for its SoBe Lifewater products.  Formulations for Coca-Cola's flagship drinks Sprite and Nestea recipes have been modified to include enough stevia to reduce the sugar level by up to 30%.

The market share of stevia products among alternative sweeteners is small but growing.  The market could shift to stevia at faster rates if supply issues could be resolved.  Today nearly all stevia is grown and refined in China and South America.  The plant will not grow from seeds and must be painstakingly propagated in greenhouses and transplanted into fields.  So far production is limited and costs for stevia remain higher than sugar or corn syrup.  UK-based PureCircle (PURE: London) is among the largest stevia growers with grower relationships in stevia's native home of Paraguay and the U.S.  PureCircle's Paraguay sources reached commercial production levels in early 2011, and a new grower relationship with S&W Seed (SANW:  Nasdaq) is expected to yield its first stevia crop from a California test field in yet this year.
Next post covers upstart Stevia First (STVF:  OTC/BB), a developmental stage company with big plans to produce and refine steviol extract.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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