Jandico Ltd.‘Joining the dots’ – The future of essential oil supplies
ESSENTIAL OIL MARKETS – HELPING TO CONNECT THE DOTS …………
Many say the essential oil markets are destined for fantastic growth. Research reports suggest as much as a 10% year-on-year growth over the next few years’ is predicted as natural cosmetics, flavour and fragrances and aromatherapy markets boom. This all sounds great but just how are we going to achieve this? Who is talking to whom about the possible growth of specific oils and are we in danger of assuming this growth means ‘all’ essential oils or are we simply talking about a ‘select few’?
I’ve enjoyed the advantage of viewing our industry from many perspectives over a 20-year career and at times, including now, have the luxury of spending time with end-users of F&F and aromatherapy ingredients, as well as traders and multitudes of farmers from around the world, including my own family who are producers in Russia. With this visibility I often and worryingly see one thing and that is just how disjointed we are as an industry. We simply don’t talk to each other or at least there are too many voices in one supply chain which slows down or confuses either end of the spectrum, perhaps for their own personal gain – or as some would say, business opportunities. However you want to dress it up, the fact remains that communication is poor and we are in real danger of not realising the opportunities or misleading ourselves into producing too much of the wrong thing!
Traders, brokers, distributors and agents have long had some control and responsibility over the supply chain as they are the connection between the end users and the producers. Ultimately the end users (or brand owners) are focused on their clients, which are often the consumer markets, so they rely on traders to handle the downstream supply chain who often take on many risks themselves when committing to stocks. This can add to the traders own value in the supply chain or their resale and margin opportunities. However, in the past few years, we have seen globalisation impact our markets, with the world becoming a smaller place to do business and technology bringing everyone closer together. Also we have seen a trend led by many multinational F&F companies and, more recently, leading aromatherapy brands to have more visibility in the supply chain, even shorten it. This is to ensure they bring more stability and security to supplies, often giving back to producers and farming communities around the world through sustainability projects.
Sustainability projects can make some peoples eyes roll. What do they mean? Who do they benefit? What’s the definition of sustainable? Good questions and all very valid but the one common ground they have is the transparency they bring to the supply chain and this is the key to a successful future. Transparency connects the dots and we all need this.
We can now see that with sustainability projects we are changing the dynamics of the essential oil market but that doesn’t have to mean traditional traders have no future role. Quite the opposite. Now, more than ever, connecting people, holding local stocks, keeping on top of changing regulations, and supporting businesses of all sizes couldn’t be more important. Nevertheless, it does mean they need to change the way they operate, by adding value in a more transparent way. Speculation through deception will be a thing of the past and looking after suppliers and customers at the same time will be critical to the traders’ future existence.
With today’s lack of visibility, we’re getting ourselves into a mess. There are too many examples of changes in consumer trends, regulatory ‘improvements’, the introduction of new technologies (or synthesised molecules) or formulation changes that take too long to be recognised at the opposite end of the supply chain. This means raw materials are still produced for end applications for which usage forecasts have long been reduced – but did anyone say anything? Ironically some of the leading F&F companies who introduce new molecules into the market inadvertently impact small farmers and producers around the world when their naturals are no longer needed and it’s these very same F&F companies who are some of the leading advocates for some fantastic sustainability projects around the world! There is no intention here to cause problems but another example of how the market is so disconnected.
Another issue is the over cultivation of some products but why is this? Too often I see enquiries for the same product circulating from multiple interested clients and when you add these enquiries together it looks like the market needs tons when in fact it was always the same end users just asking around and the real demand is far less exciting. Farmers or entrepreneurs get wind that there’s a new demand in the market but never really assess the reality of the opportunity before planting begins. Others quickly follow and soon we have more oil than the market can absorb.
We see this on different scales. Just recently I read about the state of helichrysum / immortelle (Helichrysum italicum). Over the past 3 years planting has been so strong in the non-traditional growing areas of Bosnia, Albania, and Greece that there could be a 15 MT over supply!! Then there’s the 20-year investment in Australia for planting the Indian sandalwood (Santalum album) for oil production. Millions of trees, with potential endless supplies, but for which end market exactly? A question many investors are asking themselves and this is an example where there has been decades to prepare for it. So what about the products you can harvest after just one year? Markets can be influenced quickly. After a recent conference (IFEAT Athens) I was asked by growers in South Africa what should we be telling the farmers to plant because if we don’t guide them they will just plant more of the same causing potential over supplies. This time the product was organic tea tree.
Then there’s the real challenge of ensuring that where the demand growth is real, we can actually meet these future expectations. Often multiple and smaller projects are more manageable than some grand plantation. This is especially the case if you can spread the risk of failed crops around the world, since no one has any guarantees from Mother Nature that your next plantation will be a raging success!
I admire the responsibility that some of the leading aromatherapy brands are trying to take to shorten supply chains and connect some of those dots but could they be doing more? Could we all be doing more? Where does the responsibility lie? Sadly, it can be a case that these very efforts are part of the problem, especially if these end users suggest to multiple potential producers in different countries what their potential usage is and don’t make long-term commitments. It is hard to find the balance between saying too much and saying enough but it also needs to be followed up by real commitments and shared risks. No one is saying it’s going to be easy.
So, in short, what do I think we can do as there is no one answer? We need to follow some simple rules about business ethics and try to keep in mind everyone’s position in the supply chain. We need producers to understand the supply chain they sell into. We need end users to understand the challenges of producers around the world and communicate with them through whichever path is open to them. We generally all need better planning. End users need to stop jumping from buying from one trader then another and at the same time traders shouldn’t jump from one producer to another all for the sake of a few cents extra margin.
We need to utilise the resources we have for communication whether it be trade conferences, social media platforms like LinkedIn, industry websites and of course more face to face dialogue, even if it’s in Skype and not by adding to your carbon footprint.
I’ve said it before so I’ll say it again; I am an advocate of market transparency so I will bring as much information from producers as possible into the public eye. Others I’m sure will do the same. It’s one small part I can play. What part can you play? There is huge growth potential out there and with it there are also some risks but if we try and do things the right way there shouldn’t be any losers, just winners. So let’s all be winners and enjoy our market by being transparent and helping others to connect those dots!