Natural Foods Merchandiser

Deficiency in vitamin supply drives up cost

Retailers may have to start charging customers more for dietary supplements containing vitamin C by the end of the year as manufacturers are forced to pass on higher prices from suppliers.

Prices for vitamin C are ballooning because of supply shortages out of China, the world's primary supplier, and the use of corn, a source of vitamin C for mass production, as a biofuel, said Ed Keenan, vice president of marketing for FutureBiotics, a dietary supplements manufacturer based in Hauppauge, N.Y. Vitamin C is used in everything from dietary supplements to food and animal feed.

Keenan said Chinese suppliers claim they are shutting down plants to remodel them to meet Western standards of production. In June, various newspapers including The New York Times reported regulators in China had closed 180 food plants after inspectors discovered more than 23,000 food safety violations. China reportedly owns between 70 percent and 90 percent of the vitamin C market.

"What they've done is squeeze production. They're holding back in their production," Kennan said of the Chinese production companies. "The whole industry is going to be hit by a severe shortage."

The Christian Science Monitor reported in July that data from the Chinese Customs Administration showed ascorbic acid exports dropped 24 percent between April and May, from 6,537 tons to 4,857 tons. That was 14 percent below the monthly average for the first six months of 2006. Ascorbic acid is a form of vitamin C commonly added to foods.

Reports put the price of a kilogram (2.2 pounds) of bulk vitamin C at anywhere from $12 to $21 as of the end of July, the higher price coming from Keenan. In the first quarter of this year, China Daily reported the average price was only $3.55 per kilogram. The low prices had previously driven other competitors out of the market, culminating in 2005 with plant closures and cutbacks by two major European suppliers of vitamin C, and anti-trust lawsuits against Chinese firms by American companies.

One of the Chinese vitamin C producers told the Monitor that production is falling because the Chinese government is forcing companies to abide by environmental rules only loosely enforced previously. "Some vitamin C producers have stopped production" to limit the wastewater emitted, Kong Tai, former CEO and now board member of Jiangshan Pharmaceutical, one of the four big producers, was quoted as saying. "In some areas, the authorities limit the total amount of annual pollutant emission, so if you have reached that ceiling you cannot go on producing."

Corn ethanol is another culprit affecting prices, Keenan said. BusinessWeek reported in March that the push for renewable fuels led to an outburst of ethanol plant construction, with 113 ethanol distilleries now in operation and an additional 78 in the works. That has pushed up demand for corn to the point that last year ethanol accounted for about one-fifth of the country's corn supply.

Keenan said he expects vitamin C shortages to cause a jump of about 20 percent to 25 percent at the cash register as early as this month and certainly by January 2008. "People will have no choice. They won't be able to supply it," he said. "That's the worst time, because that's when people start taking vitamin C, because that's the start of the winter months."

Vitamin C shortages could cause a jump of about 20 percent to 25 percent at the cash register.
Keenan predicted it could take up to 18 months before consumers see prices drop, and that vitamin B and other letter vitamins would probably also experience price hikes. FutureBiotics, because of its distribution agreement, would have to wait until the first of the new year to raise prices to compensate for the rising costs, which would affect about a half-dozen of the company's multivitamin products, Keenan said.

However, Sonja Tuitele, spokeswoman for Boulder, Colo.-based Wild Oats Markets, said the company had not been notified of any shortages or price increases from its supply chain as of Aug. 8. Several other manufacturers either declined to comment or also said they had not experienced any price volatility of bulk vitamin C.

Vitamin C is the largest piece of the letter vitamin sales category in the conventional channel, with more than $129 million in sales in 2006, according to The Natural Food Merchandiser's latest Market Overview.

Natural Foods Merchandiser volume XXVIII/number 9/p. 21

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