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Megatrends shaping the food chemicals industry

By Rinkal Dawra, Research Analyst at MarketsandMarkets - 15/12/2017

Consumer concerns are driving a megatrend for reformulation, innovation and strategic partnership in the food chemicals industry.
 

Enormous demand for chemical solutions

Chemicals have long been used for extending the shelf life of food products, for food packaging and for agricultural purposes. Preservatives, taste enhancers and flavours help make food palatable and increase shelf life. A lot of chemicals used in the food supply chain cannot be replaced with alternative ingredients, and there is an enormous demand for chemical solutions that can support current changes in the dynamics of the food industry. 

Despite being a cause of concern for customer bases across the globe, the chemicals industry is expected to flourish in regional food markets. Food-grade chemical manufacturers are expected to obtain the most value out of responding to the trends of the food industry by identifying how the food industry can benefit from innovations regarding chemicals, products, and technologies.


Growing Food Demand
According to the FAO, the global population is expected to exceed 8 billion by 2025. Food sourcing and security will assume higher priority in future international agendas. Developing economies such as China and India are generating higher incomes, better infrastructure, and high consumer awareness. This is expected to drive the demand for agricultural products and high-protein foods.  The FAO estimates a 70% rise in food production over the next three to four decades to fill the gap between demand and supply. With the current approaches, it would be impossible to fill this food demand.

Food chemical companies are realigning organizational structures and altering product cycles to better position themselves and serve solutions to the food industry. Multinational giants such as BASF, Bayer, Dow, DSM, DuPont, and Evonik respond to this growing trend by updating their mission statements which are expected to highlight their role in improved food production, reduced crop wastage, and enhanced health and nutrition.
 

Mega-mergers creating new opportunities 
There is an ongoing trend for growing business integration in the global food supply ecosystem. The food and agribusiness value chain comprise a wide range of companies including agricultural machinery seeds, chemicals, and packaged food. Currently, there is a growing trend for consolidation. Major seed companies and chemical giants are moving towards mergers and strategic partnerships for greater sustainability.

The recent merger of DuPont and Dow chemicals in 2016 is a highlighting factor of growing chemicals and agricultural sectors hand in hand. The combined capabilities are expected to create several new opportunities.  Along with the merger with Dow, DuPont also announced its acquisition of FMC’s health and nutrition business and its divestiture of part of its crop chemical business in 2017. It was the company’s pro-competitive step towards creating three independent companies aligned with one objective.

Another development took place in the same year when, Chinese state-owned China National Chemical Corp was cleared by the US regulators, to proceed with its $42 billion purchase of Swiss chemical and seeds company Syngenta.

These developments are leading to the integration of food ecosystems which would increase opportunities in the food chemicals market.

Growing food processing industry
Food chemicals is a mature market; these materials are widely used in the food supply chain across agriculture, packaging, and as preservatives. The consumption of food chemicals has shown constant growth; consumption rises with growth in population and per-capita income, especially in emerging regions. With growing consumer demand for flavourful, nutritious, colourful and affordable products, the food processing industry is growing rapidly, and this in turn is fuelling demand for food chemicals.

Food additives comprise all the different chemical compounds/substances used for preserving food; adding or maintaining nutritional value; and improving taste, texture, and appearance. The global food additives market was valued at $42 billion in 2016, and is expected grow at a CAGR of 5.6% between 2017 and 2022, to reach $58 billion.

The growth of processed and convenience food is on the rise in the emerging nations of South America, Asia Pacific and the Middle East, and is exhibiting double-digit growth in countries such as China and India. This is expected to create prospects for food chemicals in these regions.

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Consumer Concerns about Food Chemicals

More and more consumers are concerned about what goes into their food, especially when it comes to substances used as colouring or flavouring agents, and for preservation.
 
According to a survey by International Food Information Council Food and Health survey in 2016, 38% of the total US population is concerned about chemical additives used in their food (2% more than in 2015). These concerns are expected to grow (Figure 1).
 
With rising concerns about the potentially unsafe chemicals in the food supply, multinational giants are responding to consumer demand for healthier and safer foods. Major companies in different regions are making investments in natural additives responding to the consumer preferences and demand (Figure 2). In addition, retailers and food manufacturers are beginning to reformulate their products to exclude potentially unsafe food chemicals.
  • In 2015, Nestle USA became the first major candy manufacturer to announce the removal of artificial colours and flavours like ‘red 40’ and ‘yellow 5’ from its chocolate candy products.
  • Azodicarbonamide is an extremely common ingredient used in bread for strengthening dough. fully approved and as safe by the FDA. However, in 2015, restaurant chain Subway stopped using this chemical in its bread in response to consumer concerns.

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Major food companies such as General Mills, Kellogg’s, Nestle, Hershey’s, and Campbell’s have now committed to reformulating well-known brands to be free from artificial colours and flavours. Moreover, international restaurant chains such as Pizza Hut, Taco Bell, Subway and Noodles & Company made several commitments with regards to chemical reductions.
 

Rising concerns drive safety testing

According to the current scenario, the use of food chemical additives by the manufacturers is on the rise. Due to the importance of these chemicals, they cannot be omitted from food products. However, rising concerns about potentially unsafe chemicals and their effects have led regulatory authorities to establish maximum residue limits for additives. This has driven the need for safety testing of food products for keeping a check on the limits imposed.
 
The food chemical industry is currently facing challenges concerning a major shift in consumer taste and preferences towards natural additives due to rising concerns of chemical contaminants in food. Despite this, owing to food megatrends, and rising innovations and strategic partnerships by the industry players, the food chemicals industry is expected to witness a steady growth rate in coming years.
 
Author:                                               
Rinkal Dawra, Research Analyst at MarketsandMarkets
E: rinkal.dawra@marketsandmarkets.com; T: +91 9907918779
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