The essential oils industry, a growing sector that every day creates and spreads well-being all over the world
Medium-term market forecasts and guidelines for responsible growth
Plants are indispensable for human life: they have always been at the base of the food chain, they are a source of oxygen, heat and energy, in addition to representing the foundation of medicine (much of modern pharmacopoeia derives from molecules of plant origin). They are, basically, one of our main livelihood systems.
Globally, there are about 70,000 medicinal and aromatic plant species which are applied in our daily life.
As a result of their substantial application in the healthcare as well, India (using nearly 2,000 species), and China (counting around 5,757 species in the encyclopedia of traditional Chinese medical substances), are the countries mostly employing botanicals and drugs for therapeutic or food purposes, so much so that their trade is estimated at 115 billion USD (including wild crops), 60 billion USD for plant-based medicines, with expectations of further increase.
From the viewpoint of the flavor and fragrance industry, there are four major categories of raw materials of plant origin: essential oils and other natural products such as absolutes, extracts, concretes and tinctures, oleoresins and resinoids; aroma chemicals; flavor compounds; fragrance compounds.
In this context, essential oils take on particular interest and relevance by virtue of their outstanding organoleptic characteristics and, in some cases, because they contain concentrated active ingredients of special concern for the food sector (beverages, food, supplements) for those of cosmetics, of wellness and aromatherapy, but also for the chemical and pharmaceutical industry.
The primary producing countries of essential oils are the European ones, dominating the market together with Brazil, China, USA, followed by India, Indonesia, Mexico, Morocco, Egypt, Guatemala.
Among the most globally traded essential oils, we find the orange essential oil followed by those of lemon, lime, peppermint, lemongrass, mint arvensis, geranium, cloves, eucalyptus, jasmine, tea tree, rosemary, and lavender. Yet the flavor and fragrance industry per se actually utilizes almost a thousand of them.
A necessary premise
At the end of the year 2021, some estimates regarding the essential oils market were drawn up and they deserve, before being evaluated and interpreted, a careful examination of the criteria originating them.
It is a hugely complex and varied market with important numbers if we consider that “essential oils and similar products” converge, downstream, in the industrial manufacturing of consumer goods for a total retail value roughly estimated between 570 and 870 billion USD. A mind-boggling number calculated to be 40-60 times higher than the worth of the manufacturing of essential oils and similar products alone, veritable lymph for an extremely diversified industrial sector, with social repercussions that cannot be overlooked and with an entirely decisive environmental impact.
As we will see, the market value and growth forecasts for the next few years are big, but in the complex of a fast and inevitably schematic communication, and starting from dissimilar assumptions in the definition of the essential oils category as well, the analysts issued numerical estimates so different as to appear even contradictory.
The objective difficulties of an analyst setting out to shed light on the importance of a product category (by estimating its market value, growth rate, development drivers, and much more), so heterogeneous and with so transverse usage like the one of “essential oils and similar products,” are certainly not trivial. Especially if the intent is to include all those derivatives of botanical origin whereto the flavor and fragrance industry, the food industry, but also the pharmaceutical and cosmetics ones and, even more generally, the industry of beauty and wellness draw upon.
From an industrial and regulatory perspective, a first distinction is that essential oils cannot get lumped with products such as absolutes, concretes, extracts, oleoresins, tinctures, and a whole range of botanical derivatives. Nevertheless, due to their sharing of the same supply chain dynamics, it is suitable that they will be subject to analysis (i.e. economic market evaluation) alongside the essential oils properly so-called.
The classification problem
Matter-of-factly, in the multiple sectors of use, the materials in question are classified in a partially distinct manner and with an uneven level of detail. This makes it difficult, or occasionally even impossible, to reorganize numerical information, with the introduction of errors and limits of accuracy. On the other hand, the outsider tends to somewhat consider all plant derivatives as essential oils, without distinction. It is not a matter of marginal criticality over the glossary, so much so that already in 2013 it required the intervention by the ISO (the International Organization for Standardization) in defining and distinguishing from other products an essential oil as a “product obtained from a natural raw material of plant origin, by steam distillation, by mechanical processes from the epicarp of citrus fruits, or by dry distillation, after separation of the aqueous phase if any by physical processes” (ref. standard ISO 9235:2013).
The classification of botanical derivatives which somehow identify an “essential oils sector” is so complicated, cross-cutting over several industries, linked to specific productions and dependent on the purposes of the classification itself that, while for example the European Chemical Agency (ECHA) fundamentally distinguishes only natural fine chemicals (single chemical substances/”molecules”) from other natural compounds by identifying them overall as NCS (Natural Complex Substances), the ISO is still trying to put things in order with a new document dated 2021 (ISO 9235:2021 Aromatic natural raw materials Vocabulary), where it defines “the natural raw materials and products which stem from that sector,” regardless of the typical nature of “all the provisions of other sectors of activity which use the products defined in this document (e.g. perfumes or fragrances, cosmetics, food industry flavors).”
All of this to say as well that it is advisable to be as rigorous as possible in the definition of the object of analysis, but it is also necessary to choose the latter so as to be able to collect and examine data without subjecting them to ambiguity and arbitrariness of attribution. It would therefore be too ambitious to think of introducing all natural fine chemicals and NCS into the analysis object. This would mean gathering data on over 3,000 materials throughout the world. Not a very practical operation, whereas it remains more reasonable to try to restrict the field to the materials “which stem from that sector,” at this point identifiable with sufficient clarity as the one of essential oils.
Global trends’ significant numbers
Given all such critical issues in the assessment of the essential oils industry, the analyst must inevitably choose a set of materials to be considered as representative of the sector. And that’s where we understand even better how much the results of an inquiry may differ from those of another.
A further aspect to take into account is the geographical one to which the numbers refer. It is no mystery to anyone that in some countries and regions of the globe it is easier than in others to obtain reliable data, just as the concise financial statements by large enterprises or industrial associations are not always so easily interpretable.
Moreover, we should remember that the essential oils industry counts thousands of products and a few dozens of them achieve high trading volumes. The overwhelming majority of the materials within the investigated sector attain relatively low trading volumes, difficult to track and whose specific value (i.e. value per kg.) is not entirely insignificant. There are indeed not little products inside the category that cost from hundreds to thousands of euro per kilo and are traded in a few tons at worldwide level. All this to highlight that the sample of materials examined by the various analysts strongly affects the value of the market attributed to a sector, the one of essential oils, already with blurred outlines.
Having made these required considerations, comparing the data emerging from the key market research published in 2021, the growth forecasts of the essential oils industry are encouraging and altogether positive up to 2026.
According to the last forecast report released at the end of October 2021 by the market research company Research Dive, “Europe essential oils market is predicted to register the highest revenue of 8,854.97 USD during the analysis period.”
Europe is one of the top manufacturers of food and beverages intended as well for export, and therefore offers opportunities for ongoing growth as per the consumption of essential oils.
The worldwide food and beverage industry alone produced a rise in consumption of essential oils to the worth of 3,745.10 million USD in 2020, and is projected to generate a turnover of 7,460.75 million USD by the end of 2028.
Among the reasons for the expected growth in the coming years, there are also those connected with the health benefits and the threats evoked by pandemics.
In particular, the market segment linked to citrus fruits will show a growth due to the extensive use of essential oils in household care products, also thanks to their recognized although moderate antibacterial properties.
The increase of the geriatric population, in conjunction with the accelerating number of cases of health ailments like cardiovascular condition, bronchitis and Alzheimer’s disease, according to a previous report by the business research firm Graphical Research, will help fuel the demand for essential oils in applications related to the sphere of health and well-being.
Pursuant to a 2021 research by MarketsAndMarkets -one of the best-qualified providers of B2B market intelligence- confirmed by the formerly mentioned analysis by Research Dive, and in substantial consistency with what reported by the magazine Perfumer & Flavorist, estimates are that the size of the annual global essential oils market is presently around 10,3 billion USD, and is projected to reach a worth of 16,0 billion USD by 2026, growing at a CAGR of 9.3% in value terms during the forecast period. In terms of quantity, the current market is considered to be 253,2 ktonns/y and is calculated to amount to 345,4 ktonns/y by 2026, growing at a CAGR of 6.4% over the forecast period. Factors such as an amplification in health protection awareness, improvements in living standards and an increment of dual-income families, in addition to the demand for aromatherapy, are some of the growth drivers of the essential oils market.
The opportunity: a rising demand for natural ingredients
Latest research show that the demand for “all-natural” ingredients is surging mainly in the wake of the proliferating global information about the benefits of this type of ingredients and the uplift in disposable income allowing us to spend more on fine quality natural products and with good promises in the long term as well.
Several manufacturers from every industry are developing new systems to incorporate natural and healthy ingredients into their formulas in order to deliver maximum benefits to consumers in a sustainable way. Today, the “all-natural” labels widely influence the purchase of numerous items. Essential oils provide that “all-natural” flavor and scent to food, beverages, cosmetics, animal feed, household care products, and so forth, thereby creating new opportunities for a market never ceasing to expand.
The choice of essential oils
The essential oils available on the market are not all alike, and their value is closely related to their specific usage. Not all of them have the same quality standard and they can often hide pitfalls if not, at times, real dangers. The choice of essential oils is anything but simple, and the elaborate quality control procedures followed by the qualified companies reflect such complexity. Besides an appropriate check with respect to the product genuineness namely, the validation that it actually is an essential oil and not a low grade substitute the characterization of the essential oil for the purposes of its precise industrial use is equally crucial. The presence of impurities or contaminants must be carefully assessed in relation to the stability and safety of the product where the essential oil will be incorporated.
Additionally, as regards to market and product anomalies, some unavoidable exclusion criteria, which by themselves would limit negative experiences, remain valid. Just think of the need for the product price to be consistent with the cost of the plant raw material of origin and with the cost of processing it, or the fact that the supplier effectively has the know-how and equipment for guaranteed quality control.
Keep also in mind that essential oils are botanical derivatives, so to speak very “concentrated”, with low-yielding production relative to the plant of origin (for instance, one kilo of lavender essential oil consumes roughly 100 kg. of lavender flowers).
Eco-sustainability across the entire supply chain
Plants have always provided the raw materials to satisfy primary food needs and for the care of people and animals.
Such source is gradually running out. This can be attributed to an increase in population and industrialization which led to deforestation. According to the Denmark-based website The World Counts, “up to 28,000 species can go extinct in the next quarter century due to deforestation.” Thirteen million hectares of forest have already been converted to other uses or destroyed by natural causes.
Still with reference to the eco-sustainability of the supply chain, other aspects must be considered too and among them the one of land-use changes induced by large-scale plantations, the balance of production in connection with local economies, the possible usage of fungicides and pesticides and, finally, the energy consumption for the plant species processing in relation to the energy sources utilized.
Saving the populations to save the world
There are even cultural and ethnic aspects that must be taken into prime consideration.
It should not be forgotten that the cultivation and use of plants have been acquired through direct personal experience and, for the survival of human communities, they represent a heritage as fundamental as fragile, incessantly threatened by rapid socio-economic shifts and by the processes of transculturation which accompany the disappearance of rural societies. Such a great wealth of knowledge must be safeguarded in the same way we preserve the genetic heritage of cultivated species in germplasm banks. The recovery and study of this popular know-how have in recent years also been a great opportunity to discover and develop new drugs.
The complexity of the issues that must be addressed in the near future cannot ignore the scenarios of change directly involving the whole supply chain. Products of botanical origin therefore require control across the entire supply chain, from suppliers of plants, seeds and cuttings, to growers and primary processors, to intermediate processors and manufacturers of consumer items. A check that unquestionably even extends in an analytical way to finished and semi-finished goods.
More and more in-depth studies are as well needed on controlled cultivation conditions, aimed at enlarging yield and productivity in small plots of land too, while ensuring the necessary requirements.
Other important aspects are to study properties and new scale dynamics, develop an effective standardization of quality, guarantee the needs, and evaluate the possibility of expansion of the crops from which the essential oils are obtained, with the positive returns that their plants of origin can give to the development of the territory where they are grown.
Requirements of quality, safety and efficacy associated with the use of medicinal and aromatic plants are, in fact, elements increasingly demanded both by consumers and by the processing industries all the way through the various industrial chains involved.
In full respect of its ethical/social values, and totally responding to its mission, it is also in such direction that, together with the leading global players in the flavor and fragrance sector, Moellhausen acts: constantly engaged in a process of continuous improvement for the protection of the environment, its customers and the final consumers all over the world.
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