APPENDIX 4.

3
(referred to in paragraphs 2.29, 4.21, 4.22, 4.23, 4.37 and 4.94)

The production of vitamin B2

Chemical structure

1. The official chemical designation for vitamin B2 is riboflavin.1 It was discovered in 1920 and first
isolated in egg albumen in 1933. Its chemical structure, which was determined in 1935, has two distinct
parts: a ribose sugar unit and a three-ring flavin structure, known as lumichrome. The chemical structure
of vitamin B2 is shown below.

O
N CH3
HN

O N N CH3
CH2
HCOH
HCOH
HCOH
CH2OH

2. Vitamin B2 has been produced commercially by chemical synthesis, by fermentation and by

mixed fermentation/chemical synthesis methods. Fermentation is the most recent and most cost-effective
method.

3. Figure 1 shows the current alternative production methods schematically.

Fermentation/chemical synthesis process

4. A number of chemical synthesis production routes have been used commercially.2 Currently,
producers including Takeda and Shanghai Yongxing use a mixed fermentation/chemical synthesis
process. (For brevity, we describe vitamin B2 produced by this route as chemically synthesized.) In this
process, a four-step reaction sequence is used, starting from glucose. First, ribose is produced from
glucose by fermentation. A reaction with xylidine is next used to convert ribose into a riboside, which is
then hydrogenated to produce ribamine. This intermediate product is next purified by crystallization.

5. The following stage involves a reaction between ribamine and a phenyl diazonium salt derived
from aniline, which produces phenylazoribitylamine. This compound is then crystallized, dried, and
converted into vitamin B2 by cyclocondensation with barbituric acid. An overall product yield of over
60 per cent can be obtained.

6. Several of the chemical stages in this process involve the use of toxic reagents. The waste
products therefore require stringent environmental control and may need special forms of effluent
treatment.

7. Chemical synthesis produces approximately 96 per cent pure vitamin B2.

1
The Commission of the Nomenclature of Biological Chemistry, 1960.
2
For a more detailed account see Ullmann’s Encyclopedia of Industrial Chemistry, VCH Verlagsgesellschaft mbH, 1996.

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 FIGURE 1

Methods of producing vitamin B2

Fermentation/chemical process Fermentation process

Glucose Glucose,
molasses or
soya bean oil
Fermentation

Ribose

Xylidine Fermentation

Ribamine

Aniline

Phenylazoribityl-
amine

Barbituric acid

Riboflavin (in
Raw riboflavin fermentation broth)

Riboflavin (about Riboflavin (about

96% pure) 80% pure)

Source: BASF.

Fermentation

8. The more recent single-stage fermentation route is used by a number of producers, including
BASF, Roche, and Hubei Guangji. As it has a single main stage, there are substantial cost savings
compared with the multi-stage chemical process. Each producer uses its own variant of the process with
different strains of micro-organism and different raw materials.

9. The fermentation plant itself is relatively straightforward as it typically uses simple mixing/
stirring vessels and conventional purification technologies. After separating the biomass, and evaporating
and drying the concentrate, an enriched product with a vitamin B2 content of up to 80 per cent can be
obtained.

Raw materials
10. The producers use different basic raw materials. Vegetable oil, glucose or molasses may act as
the source of carbon (the significant ‘building block’ for producing vitamin B2). They vary greatly in
price and carbon content.

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Strains of micro-organism used

11. Establishing a fermentation plant requires an effective production strain of micro-organism. As

numerous strains of bacterium, fungus or yeast can be used, each manufacturer uses a different organism
to convert raw material into vitamin B2. At present, the bacterium bacillus subtilis, the funguses
eremothecium ashybyii and ashbya gossypii, and the yeasts candida flareri and saccharomyces cerevisiae
are all used for the fermentation of vitamin B2.

12. BASF told us that it considered the protection of its production strains of micro-organism to be
particularly important. Access to a strain may be achieved through in-house research and development
(as in the case of Roche), contracted-out research and development or acquired from another source
(Chinese producers are said to use a Russian strain). BASF told us that an investment of £2 million to
£3.5 million would be likely to deliver a vitamin B2 fermentation strain capable of being used in
production within three years. It considered that Chinese producers or outside laboratories could carry
out research and development at a much lower cost than the Western manufacturers.

Productivity of micro-organisms
13. The productivity of biochemical processes is normally described in terms of their conversion rate
and their space-time yield. The conversion rate is the proportion of the carbon-source raw material that is
converted into the finished product. It dictates the amount of raw material required. The space-time yield
is the amount of product made per unit volume per unit time. It determines the length of time required for
the fermentation and the size of vessels needed. Both measures vary greatly with the micro-organism and
the raw material used.

14. The micro-organisms used by different producers have a wide range of conversion rates and
space-time yields. A slow organism may take many days to complete the vitamin B2 fermentation. In
this case, the manufacturer will need numerous fermenting vessels, resulting in additional capital costs
compared with producers using faster organisms. Producers’ organisms also convert different amounts of
the raw material into vitamin B2 before the fermentation stops.

15. Producers devote considerable effort to improving the productivity of their organisms, either by
natural mutation or by GM. GM may result in more productive organisms; the savings resulting from this
increased productivity can offset the extra containment costs involved in working with GMOs (see
paragraph 17).

Effluent disposal
16. By contrast with the fermentation/chemical synthesis process, the fermentation method makes
little use of toxic solvents or reagents. The main waste products are edible residues of the production
micro-organism and its growth medium which (subject to containment requirements) can either be used
as animal feed or dealt with by a conventional sewage treatment plant. This significantly reduces the
waste disposal costs, particularly for producers using non-GM micro-organisms.

Containment
17. All producers need to have a plant containment system that prevents stray organisms or
chemicals from entering the process and contaminating the fermentation. Those using safe wild-type or
self-cloned micro-organisms need to minimize releases of the organisms into the environment. On the
other hand, producers using GMOs need to design their plants and procedures to achieve high
containment: that is the prevention of any escape of the GMO into the environment. This adds
significantly to plant complexity and effluent disposal costs.

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Intellectual property rights
18. A number of stages in the vitamin B2 fermentation process are covered by patents. These stages
include: the isolation of vitamin B2 from the fermentation broth; improving yields from the microbial
culture by using autolysis; the purification of vitamin B2; and the spray granulation of vitamin B2.

Feed-grade vitamin B2
19. The 80 per cent pure vitamin B2 produced by fermentation is suitable for use in animal feed
without further refining. (The balance of the material consists of the edible residue of the production
micro-organisms.) A higher proportion of vitamin B2 produced by fermentation is therefore used in
animal feeds than is the case for the chemically-synthesized product (see Chapter 4).

Food-grade product
20. Either fermented feed-grade vitamin B2 or chemically-produced raw vitamin B2 may act as the
base material for making the purer product required for human food or pharmaceutical use. The same
technology is used to refine either the 96 per cent pure chemically-synthesized product or the 80 per cent
pure fermented product. In outline, the procedure involves the use of a simple vessel in which the
unpurified product is dissolved in sodium hydroxide, crystallized with hydrochloric acid and then
cleansed with a solvent.

21. Starting from fermented vitamin B2, the purification step needs to remove about 20 per cent of
the material, which is of microbial or vegetal origin. BASF told us that the cost of purification could
exceed 40 per cent of total operating costs.

22. By contrast, starting from chemically-produced vitamin B2, only about 2 per cent of the material
needs to be removed. The purification plant can consequently be smaller. Manufacturers using the
chemical production route to produce vitamin B2 are therefore at less of a disadvantage if they produce
the food-grade product rather than feed-grade vitamin B2. Some chemical-based producers occasionally
sell this higher-grade product for feed use.

Main manufacturers of vitamin B2

23. Table 1 summarizes the production methods used by the various manufacturers.

24. BASF estimated the producers’ cash operating costs for feed-grade vitamin B2 in an internal
benchmarking exercise. Figure 2 illustrates our analysis of the pre-merger cost ranking that results from
combining these with our estimates of plant capacities. No allowance was made for depreciation or any
return on investment. BASF’s analysis clearly demonstrates the wide range of cash production costs.

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TABLE 1 Production methods used by vitamin B2 manufacturers

Fermentation yield
Capacity (kg B2/kg carbon
tonnes per Micro-organism Main raw material Productivity source)
Supplier Process year used (carbon source) (space-time yield) % Comments

BASF existing

BASF proposed

Roche

ADM/Aventis
joint venture Figures omitted. See note on page iv.

Takeda

Shanghai
Yongxing

Hubei Guangji

Source: CC analysis of information from BASF and other suppliers.

Note: N/A = not applicable.

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 FIGURE 2

Ranking of feed-grade vitamin B2 production costs against capacity before

merger

Details omitted. See note on page iv.

25. Figure 3 shows the corresponding estimates of comparative cash operating costs for feed-grade
vitamin B2 after the merger and BASF’s planned investment. It demonstrates a substantial improvement
in BASF’s cost competitiveness.

FIGURE 3

Ranking of feed-grade vitamin B2 production costs against capacity after merger

and investment

Details omitted. See note on page iv.

26. Figure 4 illustrates the ranking of the producers’ cash operating costs for food-grade vitamin B2
before the merger, as estimated in the same internal BASF benchmarking exercise. No cost is shown for
the ADM/Aventis joint venture, as it does not produce food-grade vitamin B2 (see paragraph 37).

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 FIGURE 4

Ranking of food-grade vitamin B2 production costs against capacity before

merger

Details omitted. See note on page iv.

27. Figure 5 shows the corresponding estimates of comparative cash operating costs for food-grade
vitamin B2 after the merger and BASF’s planned investment. It again demonstrates a substantial
improvement in BASF’s cost competitiveness before allowing for depreciation and a return on
investment.

FIGURE 5

Ranking of food-grade vitamin B2 production costs against capacity after

merger and investment

Details omitted. See note on page iv.

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BASF

28. BASF’s fermentation plant at Ludwigshafen has a capacity of [!] tonnes a year and [Details
omitted. See note on page iv.]. BASF has fermented vitamin B2 for 13 years—longer than the other
producers.

29. BASF has purification capacity to produce [!] tonnes a year of food-grade vitamin B2.

30. BASF carries out R&D into new strains and processes with a view to increasing output and
reducing costs. This includes cooperative projects with university research institutes. Its annual R&D
budget is around £1.3 million a year, or about [!] per cent of total sales. It has been able to enhance its
process over time through strain improvement (predominantly mutation) and media development. Over
the last ten years, this has resulted in a [!] per cent increase in its plant’s effective capacity and a
[!] per cent saving in raw material costs.

31. BASF considers that the resulting process has a comparatively high yield and a potential cost
advantage if used on a sufficient scale; it attributes this to using the most ‘efficient’ organism. The
fermentation process is, however, slow and BASF considers that the present plant’s low capacity leads to
high unit fixed costs. Its main raw material, soya oil, is much more expensive than the glucose or
molasses used by other producers.

32. [
Details omitted. See note on page iv.
]

Takeda
33. Takeda manufactures 96 per cent pure vitamin B2 by chemical synthesis. Its plant at Hikari in
Japan has a capacity of [!] tonnes a year. The main raw material is [
Details omitted. See note on page iv.
]. Takeda’s production costs are high compared with those of
producers using the vitamin B2 fermentation process.

34. Takeda has purification capacity to produce [!] tonnes a year of food-grade vitamin B2.

Roche
35. Roche has recently started trial production of vitamin B2 by fermentation in a new plant at
Grenzach, in Germany. This plant is due to come fully on stream during the summer of 2001 and its
ultimate capacity is expected to be about [!] tonnes a year. [

Details omitted. See note on page iv.

]

36. Roche has purification capacity to produce 900 tonnes a year of food-grade vitamin B2.

Archer-Daniels-Midland Company/Aventis SA joint venture

37. A joint venture of ADM and Aventis also produces vitamin B2 by fermentation in the USA. Its
plant has a capacity of [!] tonnes a year and exclusively produces feed-grade product. BASF considered
that the organism used by ADM/Aventis was relatively inefficient. This disadvantage was offset by
ADM’s access to an advantageous in-house source of the main raw material (glucose). The effect of the
intended sale of the Aventis vitamins business on this joint venture is unclear.

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Chinese producers

38. As we have only been able to obtain limited information from the Chinese producers, we are
largely reliant on information supplied by the British Embassy in Beijing, BASF and Roche and on
published sources. BASF told us it estimated that the current total capacity of vitamin B2 plants in China
was about 1,300 tonnes a year. Roche estimated their total capacity to be 1,850 tonnes a year. Until
recently, all the Chinese producers had used a chemical synthesis process similar to that used by Takeda.
However, BASF believed that about one-third of Chinese vitamin B2 capacity was now based on the
fermentation process.

39. Within the last two years, Hubei Guangji has commenced production of vitamin B2 by
fermentation. Its plant’s capacity is 600 tonnes a year and is expected to increase to 1,000 tonnes a year
before the end of 2001. Shanghai Yongxing also has a vitamin B2 plant with a capacity of 400 tonnes a
year. Although BASF thought that this company would also start using fermentation technology soon, it
informed us that it had no such plans. BASF added that, while there had been two other smaller
producers, Tianjin Hebei and Shannaxi Xi, that each had a capacity of about 200 tonnes a year, it thought
that these were not now in operation.

40. Chinese producers previously concentrated their exports on the food-grade vitamin B2 market, in
which their chemically-manufactured product was most competitive. The introduction of a fermentation
plant has recently enabled them to expand their production of feed-grade vitamin B2.

41. BASF told us that Chinese producers enjoyed considerable cost advantages. They had the
advantage of using the cheapest raw material (molasses being cheaper than glucose or soya oil). Chinese
producers also had lower labour and financing costs and less demanding environmental standards.

Potential for market entry

42. BASF estimated that the minimum capacity for an efficient new plant in the West would be
2,000 to 3,000 tonnes a year for feed-grade vitamin B2. It added that a new vitamin B2 fermentation
plant with a capacity of 3,000 tonnes a year would have a capital cost of between €[!] million and
€[!] million (between £[!] million and £[!] million) in Western Europe. This included approximately
€[!] million (£[!] million) for refining facilities to produce a food-grade product. A chemical produc-
tion plant of similar capacity would cost slightly less but have significantly higher operating costs.

178