Agriculture Woes Pressure Chem Sales in Europe

26 March 2001 00:00  [Source: ICB Americas]

By Sean Milmo

The crisis in Western European agriculture, initiated by the spread of mad-cow's disease and now compounded by an outbreak of foot-and-mouth disease, has hit a broad range of chemical producers.

The first cases of foot-and-mouth were confirmed in the Netherlands and in Ireland last week. Following the outbreak in the UK in mid-February and a single case in France earlier this month, a total of four European Union (EU) countries are affected by the disease.

Sales of agrochemicals and fertilizers have been undermined by a freeze on the movement of livestock and other farming activity in the UK, the source of the outbreak with a total of over 400 cases last week. UK farmers have complained that they have been unable to move seeds or fertilizers around their farms by public roads.

Demand for leather chemicals has dropped because of a shortage of hides for tanneries in Europe as a result of a slump in demand for beef. Over the last six months consumption has fallen by 30 percent across Western Europe and by 60 percent in Germany because of consumer fears about bovine spongiform encephalopathy (BSE).

Chemical companies dependent on agricultural products or their processing for sales of their products or as a source of their raw materials are far more worried about the latest crisis triggering permanent changes in consumer buying habits. They are also concerned about the effects of expected radical alternations in official agricultural policies at the national and EU levels.

Many consumers are becoming uneasy about all animal-derived products. As a result, food processors are already seeking substitutes for animal-sourced ingredients.

At the same time EU politicians have joined environmentalists in demanding a transformation of the EU's system of farm subsidies to encourage more organic farming. Even Franz Fischler, the European Commissioner in charge of agriculture, is backing moves to a sustainable agriculture existing "in harmony with nature."

Agrochemical producers are already predicting static volume sales of crop protection products in Western Europe this year because of a sharp fall in farm incomes and low commodity prices. Now they face the possibility of a decline in sales over several years as farmers turn away from pesticides altogether.

Among producers of animal-derived products, gelatin manufacturers are particularly anxious about possible long-term changes to demand trends in the European market, especially in the food and pharmaceutical sectors.

Gelatin makers have been having to push up their prices because a swing away from bovine to porcine gelatin has led to soaring raw material costs. European prices for pig skins have doubled since last August.

But now they are getting nervous that hikes in their selling prices could accelerate efforts to find replacements for gelatin. "We are putting up our selling prices for porcine gelatin by around 10 percent in April after a 40-percent increase in the second half of last year," says Patrick Goossens, commercial director of PB Gelatine, part of Tessenderlo, Brussels.

"Although these rises still do not compensate for the big increase in the cost of pig skins, we are accepting that gelatin prices will have reached their limit next month, " he explains. "If they go any higher, there is a real risk of a lot of our customers switching to alternatives."

Danisco, the leading food ingredients manufacturer, has recently launched a range of plant-based gelling agents as a replacement for animal gelatin. They are made from materials such as citrus peel and seaweed and have virtually the same properties as gelatin, according to the Danish-based company.

"Originally we developed these products for vegetarians and Muslims," says a Danisco official. "We have introduced them now mainly in response to the BSE crisis because the big food companies are seeking alternatives to gelatin. They are selling well at the moment, and we are expecting a double-digit growth rate."

Other producers of possible substitutes for gelatin believe more development work will be needed before alternatives start making inroads into the gelatin sector in Europe.

"There are a lot of formulations being tested by European food producers at the moment, but it is going to take time to find replacements with the right properties," says Javier Fernandez, marketing manager at Hispanager SA, Burgos, Spain, a manufacturer of agar, carrageen and other seaweed-based food ingredients. "There will not be one alternative to gelatin but a mixture of different hydrocolloids."

There are signs that the search for gelatin substitutes is now being taken up by the European pharmaceutical sector. It is not only concerned about consumer reaction to the presence of gelatin in capsules and tablets but also the likelihood of even tighter EU controls on the use of animal-derived materials in medicines.

Pharmaceutical manufacturers are already struggling to comply with stricter EU certification rules showing that materials in their products are safe from contamination from BSE. EU regulatory authorities admit that suppliers of a large number of drugs are technically breaching regulations by failing to meet new guidelines introduced on March 1.

The provision of documentation on the sourcing and manufacturing of materials in medicines has been "a massive undertaking for the industry during the past year and has involved considerable resources and commitment," says Trevor Jones, director general of the Association of the British Pharmaceutical Industry (ABPI).

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