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GLG signs 10-year stevia supply contract with Cargill

By Dominique Patton , 02-May-2008

Chinese ingredients company GLG Life Tech has signed a 10-year agreement to supply Cargill with extract from the stevia plant to make its rebiana sweetener.

The ingredients company, which sources stevia in China and processes the leaves at two plants in the south of the country, already had a five-year agreement with Cargill. Under the new deal, the agreement will run for 10 years and is automatically renewable until at least 2030. The two companies have worked closely for several years to develop a sophisticated supply chain for the ingredient, including leaf supply and extract manufacturing. The new agreement further cements the relationship and will allow for long-term development of Cargill's rebiana product. Sweeteners are seeing strong growth as consumers increasingly look to cut out sugar and manufacturers seek replacements. The new agreement also boosts GLG's position as a leading Chinese supplier. GLG will be Cargill's exclusive Chinese supplier of RA stevia extract for the duration of the agreement and will also be Cargill's agent in China for any additional sourcing. "Cargill's long-term commitment to our business provides a solid foundation for future growth, capital investment and secures a leading market position for our company," said Dr Luke Zhang, chairman and president of GLG, in a statement. Stevia, derived from the South American plant stevia rebaudiana, is said to have up to 300 times the sweetness of sugar. As a sweetener, its taste has a slower onset and longer duration than that of sugar, although some of its extracts may have a bitter or liquorice-like aftertaste at high concentrations. However, Cargill and end-user Coca-Cola claim they have achieved the "right sweet" with their product. Currently, the largest markets for stevia are Japan and Korea. In Japan the ingredient has been used to sweeten diet drinks for around 20 years. It is also approved for use in China and Brazil but has not yet got the regulatory go-ahead from the EU. Nevetheless, GLG estimates the new supply agreement with Cargill to be worth $US200 m (€129.4m) in the first three years, based on annual minimum purchase and supply quantities for both parties. It expects to earn an average EBITDA margin of 30 per cent during the first five years of the contract. In return, Cargill has the right to purchase up to 93 per cent of GLG's production of stevia extract. New product opportunities from GLG are to be offered to Cargill on a right of first refusal basis. Cargill also has the right to terminate the agreement early on three years notice. "This is part of the journey to introduce and develop this new, natural, zero calorie sweetener for use in foods and beverages around the world," said Marcelo Montero, president of Cargill Health and Nutrition.

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