“Issues and Challenges to Developing a New Essential Oil
Industry in Malaysia”
Mohd. Murray HunterUniversity Malaysia Perlis
Presentation to the 2nd International Biotechnology and Biodiversity Conference
The Biotechnology Pyramid
Genomics
Fermentation
Micro-propagation
Mutagenesis
Thermodynamic Processes
Green Biotechnology Reframed
Disciplines
White Biotechnology
Red Biotechnology
Micro-organisms
Malaysia’s Biotech Policy
About 15 Years
Business cant wait that long
We Have a steep
learning Curve
Competencies Required During the Essential Oil Development Process
Screening & Bio-prospecting
Propagation & domestication or
introduction
Planting, cultivation & maintenance
Harvesting, Extraction and
wastage handling
New product development &
creation of value added products &
activities
Strategic, operations, finance and technical
management
Product & venture management
Marketing & commercialisation
Sustaining and growing the enterprise
(adapting & survival)
Output: Result/Performance, Sustainable and healthy enterprise or
a struggling and failing enterprise
Opportunity and technical competencies require:
Botany, ethno-botany, research ability, chemistry, bio-chemistry, analytical
chemistry. Market and specific technical product knowledge
Technical Competencies require: Plant physiology, micro-propagation, nursery
management, agronomics
Technical competencies require:
Bio-system engineering, Soil management,
entomology, plant nutrition, Agronomics, field
management, irrigation engineering
Technical competencies require:
Thermodynamics and plant physiology, heat transfer, distillation engineering,
chemistry, chemical engineering, agricultural
engineering, environmental engineering (waste
management)
Strategic, opportunity and technical
competencies require: Project management,
marketing management, chemistry, cosmetic
chemistry, perfumery/ flavour knowledge,
Packaging & design, manufacturing
engineering
Strategic, organizational, relationship opportunity competencies require:
Business strategic, industry knowledge, industry
networks, ability to raise finance, ability to plan,
implement & adjust, leadership, entrepreneurial
Strategic and organizational
competencies require: Administrative, financial management, technical management, strategic
management, personnel management, resources
management, entreprenuerial
The Issues
What are essential oils?
Essential Oil
A volatile oil obtained from a wide variety of plant, scrub, and tree species and from various parts of the plant anatomy, such as the roots, rhizomes, wood bark, leaves, stems, fruit, flowers and seeds. Usually extracted by hydro or steam distillation, expression or effleurage - Hunter 1996
Concretes and Absolutes
Volatiles and waxes extracted from plant material with hydrocarbon solvents (usually benzene and hexane) through washing and removal of the volatile solvent with distillation. A waxy aromatic substance remaining is called a concrete. The concrete is washed with alcohol to remove the volatile materials and ethanol removed through vacuum distillation to leave an absolute.
Plant Material
Expressed
Oil
Cold expression of citrus fruits
Terpeneless Oil Terpene Tails
Essential
Oil
Water, water & steam and steam
Distillation
Absolute
Concrete
Solvent Extraction
Washing with ethanol and vacuum distilling
ethanol away
Pomade
Enfleurage
Vacuum distill away the ethanol
Oleoresin
CO2
Extract
CO2 Extraction
The Natural Aromatic Product Family
Cosmetics, USD 90 M, 6%
Agrochemicals, USD 150 M, 10%
Intermediates, USD 120 M, 8%
Pharmaceuticals, USD 220 M 15%
AromatherapyUSD 250 M 17%
Flavour & Fragrance, USD
650 M, 44%
The Size of the Essential Oil Market
Ratio of Natural to Synthetic Materials Used in the Flavour & Fragrance Industry
Essential Oils & Natural Aromatic Materials13%
Synthetic Raw Materials
87%
The market size for Natural Raw Material for the Flavor and Fragrance Market is USD650 M
Essential Oil Production
USD 650 million
Fragrance & Flavour Production
USD 20 Billion
80
7254
5030
326
252
196
192
650
800
Various Food Products Processed MeatBeverages Dairy ProductsAnimal Feed Processed Food & VegetablesFlour & Starch Products Oils and FatsFish Products CosmeticsHousehold Products
World Wide Market Size Estimate 2003
World Geographical Distribution of Flavour & Fragrance Compound Sales
28%
14%11%10%
37% USA
Europe
Japan
Asia
Other
Some Generic Global Issues
CO2 Emissions
Resource Depletion
Global Warming
Changed Weather Patterns
Decline of Arable
Land
Temp. Increase
Sea Levels Rise
Decline of eco-system, biodiversity
and sustainability
Pests & Diseases
Droughts Floods
Food Crisis
Declining Productivity
Alternative Land Use
Rising Costs
Urbanisation
Unstable Production
Lack of finance for production
Population Growth
Production
Growing unemployment
Consumption Loss of Confidence
And consumption
Bank Liquidity Global Warming, The Food and Economic Crisis
Market Turbulence
Pri
ce
Pri
ce
Quantity Quantity
Demand Demand
Current Supply
Current Supply
Forecast Supply (FS)
Actual Future Supply (AFS)
Forecast Supply (FS)
Actual Future Supply (AFS)
P1
P3
P2
Aggregate Decrease in Production
P1
P2
P3
b) Upward Trend in Pricing Leading to Greater Supply
a) Downward Trend in Pricing Leading to Decreased Supply
A forecast is accepted that supply will decrease in the coming year and traders buy up stocks leading to higher prices (P2). Producers see good returns and increase production leading to a glut of
supply, thus decreasing prices (P3). This fluctuation is on a time lag depending
upon the time frame from extra planting to harvests.
Aggregate Increase in Production
A forecast is accepted that supply will increase in the coming year and traders
don’t buy up stocks leading to lower prices (P2). Producers see poor returns and
switch to alternative crops, leading to a shortage of supply, thus increasing prices
(P3). This fluctuation is on a time lag depending upon the time frame from extra
planting to harvests.
Wild Collection and Threatened Plant Species
Bargaining Power of Producers
Bargaining Power of Producers
Essential Oil Production
Trading
Flavour & Fragrance
Compounding End Product Manufacture Wholesaler Retailer
Consumer
1.0 1.6 2-3.0 (6-9) 2-2.5 (18-24)
Relative and (Absolute) Value Added Through Chain
1.1-1.2 (19.8-28.8)
1.2-1.4 (23.76-40.32)
The Essential Oil Value Chain (Flavour & Fragrance Industry)
The Regulatory Environment
Derelict vanilla plantation, Seychelles.
EU/IFRA policy will repeat similar scenes.
Old clove distillation works, Zanzibar before eugenol was classified as R36-43.
Subsequently became derelict!
Top Twenty Essential Oils Produced in the WorldEssential Oil Botanical Name Volume
(Tonnes) Under Threat Cosmetics
Under Threat Biocides
Under threat Fragrance
Orange Citrus sinensis 26000 X X
Cornmint Mentha Arvensis 4300
Eucalyptus Euc. globulus 3728 X X X
Citronella Cym winterianus 2830 X X X
Peppermint Mentha piperita 2367
Lemon Citrus limon 2158 X X
Euc. Citriodora Eucalyptus citriodora 2092 X X X
Clove Leaf Syzygium aromaticum 1915 X X X
Cedarwood (US) Juniperus virginiana 1640
Litsea cubeba Litsea cubeba 1005 X X
Sassafras (Brazil) Ocotea pretiosa 1000 X X
Lime Citrus aurantifolia 973 X X
Spearmint Mentha spicata 851
Cedarwood (China)
Chamaecyparis funebris 800
Lavandin Lavandula intermedia 768 X X
Sassafras (China) Cinnamomum micranthum 750 X X
Camphor Cinnamomum camphora 725
Coriander Coriandrum sativum 710
Grapefruit Citrus paradisi 694 X X
Patchouli Pogostemom cablin 563 X X
The Rural Crisis
Average age of farmers in Malaysia
Opportunities?
Education?Infrastructure?
Market Orientation?
Technology?
Templating of Natural Aromatic Molecules
Templating of Natural Aromatic Molecules
Plants Animals Food Objects
Analysis Modeling
Synthesis
Product
Biotechnology
Organic
Odour plus Stability Threshold Efficient Value
synthesis Added Benefits
Applications
Perfumery Cosmetics
Stable in formulations Cost effective Efficacy (i.e., antimicrobial)
Botany/ethnobotany Bio-prospecting
Head-space Chromatography
Separation Extraction
Screening
Antimicrobial Anti-fungal Anti-tumor Anti-aging
Flavour & Fragrance
Botany Biochemistry Computational Chemistry
Research
Idea from Research Institute, University faculty or individual within them
Undertake study with objectives interesting to researchers
Primarily single discipline approach
Objectives based on discipline thinking
Project results and conclusion
Publish
Paper at Conference
Add to CV
Little commercial interest:· Private sector unaware
·No or limited economic study or little consideration to scale up potentialNB: to bioprocess engineer has this as a fundamental consideration (difference between scientist and engineer)
Typical Research Model
Desirable Research Model
Planning Phase
R&D Phase
Commercial Phase Start-up Growth Maturity
Information seeking and
Planning orientation
Seeking of information,
looking for ideas, screening for opportunities,
setting of a vision and planning out
the project
Test hypothesis, review market, confirm viability,
develop applications, increase knowledge, learn how to operate commercial operation.
Collaborate with customer & R&D
Institutions
Research and collaborative orientation
Begin with an entrepreneurial
management style, then move to marketing orientated style and eventually corporate management style
Start-up Develop
company, production and early customer base, usually
very personal & hands on.
Growth Develop value-added products, new market, customers, expand production, move to more formal
management
Maturity Corporate orientation
with well defined depts. Formalised
marketing & production roles in organization, take strategic outlook
for business.
RM 3,600,000
RM 200,000
LOWER CAPITAL INVESTMENT
HIGHER ROI
Sustainability
Production Processes
Farm size & layout
Organisation & methods
Propagation
Cultivation
Processing
Marketing
Climate
Weather Rainfall Wind
Sunshine UV radiation Temperature
Humidity
Conducive weather Or
Floods, droughts, etc
Physical Environment
Soil Topography Atmosphere
Natural flora & fauna habitat Urbanisation
Suitability of conditions Pollution (air, land & water)
Labour sources Water resources
(create hinterland where farm part of)
Human Habitisation
Knowledge Suppliers & contractors
Pollution Attitudes and concerns
Resource inputs, fertilizers, herbicides, insecticides, machinery, research capabilities
Positive Inputs Water
Sunshine Nitrogen
Agricultural inputs Fertilizers etc Knowledge
Labour
Negative Inputs
Adverse physical conditions
Pests & diseases Pollution
Heavy metals
Business Environment
Markets Finance
Trade environment
Customers Financing &
various kinds of capital
Competition Low prices
Changing demand patterns
Government Infrastructure Regulation Taxes & subsidies
Trade environment
Research
Negative Outputs
Runoffs, wastes, carbon
Some recycling back to system
Positive Outputs
Products
Revenue flow back to system
An Agricultural Enterprise as a System
Wind drift
Farm/Plantation
Soil Floor
Sub-Soil
Fertilisers, herbicides, insecticides
Leaf & organic decompositions
Sub-terrainium water
Sun
Climate & Weather
Cultivation
Propagation
Processing
EconomicProducts
Runoffs Surface water
Wastes Chemical residuals
Some wastes
recycled
Watershed runoffs onto farm/plantation
Atmosphere
Nitrogen, gasses, etc
Lakes Rivers Canals Oceans
Daylight hours UV radiation Temperature Humidity Rainfall
Conducive weather, or floods, droughts, etc
Regional Eco-System A Farm/Plantation as a System
Other Farms
Insects and pests
Genetic Biodiversity
Soil Surface
Rainfall (Moisture Source)
Organic Materials Phosphorous (P)
Sulfur (S)
Nitrogen (N)
Nitrogen fixing bacteria In root system
Water (H2O)
Mineral Based Materials (Amphibole & Feldspar)
Calcium (Ca)
Potassium (K)
Magnesium (Mg)
Iron (Fe)
Carbon (C) Oxygen (O2) Hydrogen (H) Through
air in pores
Specific Issues & Challenges To Malaysia
Biodiversity
Low Crop Diversity in Malaysia
Limited number of students interested in natural product chemistry & agro-
entrepreneurship
Very few world class professors
Small Holder Producers
Forest, Jungle wild plant Gatherers
Producers of Animal Extracts
Chemical Feed Stock
Manufacturer
Local Collectors Research
Institutes & Universities
Plantation Producers
Government
Aroma Chemical Manufacturer
Producers of Essential Oils as By-
Products
Trader & Exporter Producer
Associations
Broker
Specialty/Aroma Chemical
Manufacturer
National FDAs
FEMA
IFRA
RIFM
IOFI
REACH
SCCP
Trader, Importer & Exporter
IFEAT
Flavour and Fragrance House
Agent
Standards Associations Flavour and Fragrance
House (subsidiary) Agent
Cosmetic & Personal Care Manufacturer
Household Product
Manufacturer
Food & Beverage
Manufacturer
Other Food & Non Foods
Manufacturer
Wholesale Networks
Retail Networks
Consumers
The complexity of the essential oil industry
Aromatic Products from Citrus Fruits
Harvested Oranges Extractor Cold Press
Process
Press Liquor & di-limonene
Vacuum Distillation
Technical Grade di-limonene
Peel Heat Evaporator
Molasses
Ferment to Alcohol
Cattle Feed
Orange Juice Centrifuge
Cold Pressed Orange
Oil
Distillation
Terpeneless Folded Oil Food Grade
di-limonene
The Tasmanian Essential Oil Industry Structure
Growers Industry
Associations Research Advisory
Committee
Government Development Corporations
(RIRDC/HAL)
Research Provider (University of
Tasmania/TIAR)
Field Processing
Processing and Marketing Company
(Essential Oils of Tasmania Pty. Ltd.)
Agents The World Market
Value
Ava
ilabi
lity
Incr
ease
s
Usefulness Increases
Media Reports
Ideas
Data
Information
Knowledge
Wisdom
The Continuum from media reports to wisdom in relation to availability and usefulness
Market Requirements of an Essential Oil
Required Oil Yield, Quality for production/market Viability
Propagation and Planting Costs
Crop Management
Harvesting & Extraction Costs
Volume and Market Acceptance
Laboratory Research
Field Research
Weather
Land Suitability
Knowledge and Skills
De-stabilising Event –
competitor, regulation, new
substitute
Market Contacts &
Network
Actual Yields and Oil Quality
Other unforseen external factors – politics, disaster,
war, regulation, etc
Assumptions & Patience
Validity based on information & Judgement
Risk Environment in Essential Oil Development
Evaluation & selection of
suitable planting materials
Knowledge of specific crop management techniques
Knowledge of harvesting, handling
& extraction techniques
Economies of scale & correct business model, Market strategy
Plant physiology & propagation
protocols
All factors effect on yield & quality
$ Cost
$ Return
Deg
ree o
f P
rocessin
g
Final Product Form
Selection of Crop
Trials
Propagation
Land Preparation
Planting, Maintenance &
Irrigation
Harvesting & Extraction
Product Development
Final Product
Crop & Project Failure
No Return
Co
mp
os
t &
Mu
lch
Bio
fue
l
An
ima
l Fe
ed
Cru
de
Es
se
ntia
l Oil
Org
an
ic A
gro
-
pro
du
ct
Co
sm
etic
&
Aro
ma
the
rap
y
Nu
trice
utic
al
Ph
arm
ac
eu
tica
l
Conceptual Value Added Processing Options with Revenue and Cost
Implications
Consumers
Wholesalers & retailers
Manufacturers
Flavour & Fragrance Houses
Traders & Brokers
Primary Producer
Essential oil as primary Product. Focus on market demand & supply
and meeting standard
Essential oil as an ingredient in
a product. Focus on uses
and applications research
Manufacture of end products. Focus on
formulation and end product
development
Technical Focus
General or Niche Customers
Vertica
l Integ
ratio
n A
lon
g th
e Su
pp
ly
Ch
ain
Application Focus
Technology Focus
IP Focus (?) Specific
Customer
Branding Theme Consumer
Marketing Reaching
Mass or selected Markets
New Product Development
Agro Industrial Consumer Orientation Orientation Orientation
Consumer Trends
Important
Technical Trends
Important
Demand & Supply, Buying
Criteria Important
Venture Focus Along Different Parts of the Supply Chain
Competitive Rivalries Lemongrass quick yield and straightforward to cultivate and distil – expect high elasticity of supply from both existing and new producers. Producers of substitutes very aggressive
Bargaining Power of Suppliers Collecting the most suitable planting material require effort. Extraction and harvest .technology needs to be acquired or developed Analytical equipment or service maybe expensive/remote.
Substitutes Citral (main constituents) can be produced from a number of chemical feed stocks. Alternative oils (litsea cubeba) cost much less to produce. Lemon myrtle oil much smoother and acceptable to end users Many alternatives to lemongrass in product formulations.
Trends & Technology Alternative technologies to steam distillation (CO2) can make much smoother oil but will increase capital needs greatly. Natural, exotic, organic, FAIRTRADE could increase oils popularity (?) if seen as exotic.
Substitutes
Tre
nd
s &
Te
ch
no
log
y
Bargaining power of buyers
Bargaining power of suppliers
Competitive Rivalries
Re
gu
lati
on
Regulation SCCP placed lemongrass oil under scrutiny as a cosmetic ingredient in EU.
Industry Competitors
Intensity of Rivalry
Bargaining Power of Buyers Currently small item of trade in flavour industry, strong relationships with established producers.
High Market Growth Low Strong Weak Relative Competitive Position
Crude Essential Oil Steam Distilled
Essential Oil under
CO2 extraction
Cosmetic production for international
market
Organic Cosmetic
production for international
market
Essential Oil Based Agro-
chemical
Organisational Capability Creative, Opportunity, conceptual, strategic, Learning, Organisational, financial, Technical,
Marketing, Networking and Commitment Competencies
How the Business is Currently Performing
The base for potential future Development
Resources Existing and Available to the Business
The Set of Potential Opportunities
Tim
e a
nd C
om
pany E
vo
lution
/Chan
ge
Enterprise Performance
Personal Objectives
Strengths a
nd W
eaknesses
Them
e P
ersonal
Resourc
es N
etw
ork
Product M
anagem
ent F
inance
4
Ps
& S
kills
F
acilitie
s
Attr
ibute
s
External Influences &
Threats
M
arket
E
conom
y
R
egula
tion T
echnolo
gy
P
ositio
n Socia
l Si
tuation Change &
Com
petition A
spirations D
evelo
pm
ent
Key internal influences on the strategic
process
The process of product/market development
Key external influences on the strategic
process
Competitive Position
Cognitive Bias
Structural/ Support Strategies
Interventional Strategies
Depend on Location
Potential with Right Products and Correct
Distribution and Branding
Potential with Right Products and Correct
Distribution and Branding
Limited Unless a Specific Market Exists
Potential Large Market Dispersed Worldwide
Very Limited Unless Large Domestic Market
Local Market International Market
Essential Oil
Differentiated Product
Specialty/End Product
Much Larger Market with Competition
Diversification
Local or International Market Opportunities
CONCLUSION
Potential New Crop Ideas screened through a process that eliminates
potential ideas.
? The industrial product ideation process aims to generate ideas from
a zero base.
Leads to one crop (idea) to be developed
Leads to many ideas to be further screened
Essential Oil
Other Aromatic Extract
Aromatic Chemical (bio-route)
Aromatic Chemical (physical route)
Agro-Tourism Agricultural By-Products
The set of opportunities for an essential oil producer
Flavour & Fragrance
Commodity Oil
Specialty Oil
Aroma Chemical
Aromatherapy & Cosmetic
Production & marketing of
products Pharmaceutical
Agro-chemical
Business through select supply chains
Single Crop Portfolio of Crops
Higher differentiation and value adding
Builds brand image and support. Complements other activities.
General Trading (marketing)
Region’s production Specialised single oil
marketing General multi-oil
marketing
Diversification of activities
Mulches
Bio-fuel
Cattle feeds
Paper
Utilisation of wastes
Production of herbs and spices
Other diversification
Research Should be Focused Here
Natural Feed-Stocks
Physical Extraction
Essential Oils
Solvent Extraction
Aromatic Extracts
Selective Extractions
Aroma Chemicals
Enzyme Precursors
Microorganism synthesis
Specialty Chemicals
Mostly Imitation Here
The Areas of Growth are Here
Regulatory Approval is a Paramount Barrier
Discovery: 2-10 years The extraction or synthesis of a new clinical or biological substance
Preclinical Testing: 4 years Laboratory and animal testing
Clinical trials: 7 years Phase 1 20-80 health volunteers used to determine safety, pharmacological and dosage.
Clinical trials: Phase 2 100-300 patient volunteers used to determine safety and efficacy
Clinical Trials: Phase 3 1000-5000 volunteer patients used to determine clinical health benefit and incidence of adverse reactions
TGA Registration 1.5-2 years 35-40K pages of data submitted for evidence on average
Pharmaceutical Benefits Scheme: 8 months Determination of cost effectiveness
Product Promoted to the Medical Profession
Post Marketing Monitoring: monitor safety and efficacy when used in wider population, with other diseases and taking other medicines.
Opportunity
JV, partnerships,
strategic alliances, etc
Underlying Knowledge
Unexploited or idle
resources
Sustainability of the
venture for long-term survival
Cost and performance benefits of
product
Impact on and from
local community
Access to capital
R&D
Economies of scale or competitive advantage through differentiation
Access to market/ network
Market driven selection of crops and product Customer
driven management
Govt./ institutional support
Some Success factors
Nova Science Publishers
New York
Thank You