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China driving European raw materials innovation

By Shane Starling , 07-Mar-2008

The improved quality of the Chinese ingredients supply chain is forcing European operators to lift their game, according to one leading UK-based supplier.

China became a force in the global ingredients supply marketplace this century on the back of pricing western suppliers could not compete with. But concerns over quality meant western world rivals were able to play the 'quality' card to justify price differentials. This is no longer the case in many areas including key nutrients like letter vitamins, minerals and herbal extracts that have seen quality improve in conjunction with price increases. Vitamin C surged from €2.60 per kg to €7.15 per kg last year as the Chinese Yuan gained value, production costs increased and demand boomed. The big four suppliers - Northeast Pharmaceutical, Shijiazhuang Pharmaceutical, North China Pharmaceutical and Jiangshan Pharmaceutical - have all profited handsomely from this state of affairs. Increased competition among Chinese suppliers as well as tighter European and Chinese regulations that make it harder for 'rogue traders' has also boosted quality. In need of innovation While Chinese prices have risen, they are still commonly below European supplier rates and so Chinese suppliers retain a crucial advantage, a situation that is forcing European suppliers to innovate, according to Kaare Axelsen managing director of UK-based supplier, Acceptus Ingredients. Acceptus, which sources about 40 per cent of its raw materials from China, used to split its activity between commodity and value-added ingredients, but is increasingly focusing on value-added, specialist and branded ingredients because Axelsen says that is where the unique selling points lie. "The Chinese have become very good at what they do but their strength is in commodity ingredients," he said. "We used to trade in glucosamine but we have stopped it now because the margins had been cut back to nothing for us. We simply couldn't compete with the Chinese." He said the situation had forced Acceptus to rethink its business model and force it to develop innovative, value-added ingredients that could justify a premium and many other European suppliers have followed suit. "We have focused on value-added ingredients that deliver high-value, sophisticated solutions to our food, beverage and supplements customers. The full support we provide - including science, health claim and formulation is something few commodity suppliers can compete with." He said a joint venture with French milk proteins supplier Ingredia to market a stress-relief ingredient called Lactium was a perfect example of a sophisticated, branded ingredient that was drawing a premium.

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