The growing demand for Stevia has dominated industry news with a mostly one-sided perspective: On the demand side. The Stevia Paradox silently snuck in through the back door, while the buzz around the popular sweetener created a noise in the marketplace, which didn’t leave any doubts that Stevia is on the rise! What seems to be a promising future for the growers of the Stevia leaf, turns out to be a tricky situation that holds the potential for a possible supply shortage: The Stevia Paradox.
Starting from Q1 2014, the Stevia price has increased significantly by around 20 percent. According to sources from the growers’ side, the Stevia rebaudianum cultivation in China has drastically declined over the past few years, which resulted in a price increase in the North American market.
At the same time, there is a growing global demand for Stevia, which leaves one wondering: Why are the growers cutting back on cultivating Stevia while the ingredient is experiencing growing popularity? The explanation is found in what we call the Stevia Paradox.
GWI’s exclusive partner for Stevia—Chenguang Biochem—operates its own agriculture base and works closely with growers on their raw materials. Chenguang Biochem has graciously offered supporting facts and data around this topic to allow an insight into this interesting phenomenon.
China’s Stevia rebaudianum cultivation
Growers in China first started cultivating Stevia around 1977. In 2005, the cultivation reached around 11,000 acres. In 2010, it rapidly expanded to around 61,000 acres with a total annual output of about 96,000 MT. This equals 80 percent+ of the entire global Stevia output which was fueled by the worldwide growing trend of sugar-free beverages and supported by giants like Coca Cola.
So, what effects did the exploding interest for Stevia have on the growers? Being at the bottom of the supply chain, their profit margins were slim and their production still exceeded the amounts used by manufacturers worldwide. Even after the significant increase in Stevia usage, their capacity was greater than the market demand. As a consequence, the cultivation started to decrease around 2011, and by the end of 2013, the total Chinese cultivation remained at around 6,590 acres, which is only 10 percent of 2010’s total of 61,000 acres.
This is not the only reason for the decline of Stevia production. Even though, China is the largest exporter of the sweetener, the Chinese population is not very familiar with the alternative to sugar. Many food manufacturers are still using sodium saccharin for their production due to its lower price (about 60 times cheaper than Stevia). Indeed, there are regulations by the Chinese government that limit the usage of saccharin. But due to the significantly lower price, compared to Stevia, it still attracts manufacturers who suffer from high pressure and aggressiveness of competition.
The Chinese Stevia growers won the international market, but experienced difficulties in entering their domestic market and reaching acceptance locally. Other Asian countries, such as Korea and Japan, show a very similar trend to the United States: demand for Stevia is increasing.
“Stevia is receiving growing attention and is becoming very popular in Korea,” says Amanda Lu, sales director of Chenguang Biotech. “Korean customers are willing to pay even more than American customers. They highly value Stevia as a natural sweetener and our sales in Korea increased by around 10 times in 2013.”
Why don’t we see more changes in the Stevia price?
One may raise the question, why did the price not change more drastically over the last years by looking at the Stevia cultivation data and the obvious decrease. The reason for the mysteriously missing price jump is that the Stevia leaf (Stevia P.E.’s raw material) outputs were initially enormous and have been significantly higher than the actual demand. The reserves lasted for a while and consumption has steadily reduced the produced material in stock.
In 2013, only the North East China (Zone 1) had stock over about 1,000 MT of raw material available. Other areas didn’t have stock anymore, although the price increased rapidly. Due to the much smaller cultivation, the growers actually didn’t benefit as much as expected from the rising demand. In 2014, predications show a slight increase in cultivation as a reaction to the uptrend.
Chenguang estimates at total production of about 18,000 MT Stevia leaf in China this year. Given a ratio of 12:1 (12 parts of raw Stevia leaf turn into 1 part of Stevia P.E.), the expected output will be around 1,500 MT. The current market stock is estimated to be at around 2,000 MT globally and will be consumed rapidly within five to six months. It is therefore expected to see a 500 MT to 1,000 MT shortage in 2014, which may carry over in the following year.
Meanwhile, the Asian markets, especially Korea and Japan, are growing and customers are willing to pay a higher price than the Unite States. This will result in a shift of the material flow and direct more exports of Stevia towards the Asian markets, supporting a shortage in the North American Market.
What can manufacturers do in this situation?
For manufactures with a decent and consistent usage of Stevia (300KG-plus per month), blanket orders are an option to prevent sudden price jumps and secure quantity and supply during a time of possible shortage. Distributors usually give priority to blanket order fulfillment during a shortage.
If a company is only using a small quantity, one may encounter very high pricing for material available on the market. Therefore, an order of more drums can increase cost-effectiveness and control the risk.
As a top distributor of Stevia, GWI will work closely with its partner Chenguang Biotech to update promptly about all the changes in pricing and supply. Chenguang Biotech enjoys close relationships with growers and gathers first-hand information for a reliable market forecast. Meanwhile, GWI will try to maintain its current price and allow customers enough time to adapt to the market change.
GWI offers the options of a three-month or six-month blanket order to control the risk and maximize buying power.