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CSG

Carbohydrates Sector Group

The European Fermentation Industry

A Case Study

Presentation within the Framework of the HLG on Chemicals


25th June 2008
1
Setting the Scene
The EU Fermentation Industry relies on agricultural carbohydrate feedstock:
sugars/isoglucose, molasses, glucose, starch.
The costs of carbohydrates represents up to 50-70% of the net sales value of the
Fermentation Industrys products.
Flexibility of raw material choice and access at world market prices are the key
factors for the global competitiveness of the Fermentation Industry.
With the growing demand for crops
for food as Asia is becoming net importer and there are already signs of shortage in food
supply
for biofuels because of the different schemes to increase the percentage of biofuels in
energy use
the availability of carbohydrates for the European Fermentation Industry will not be
secured.
This will result in further price increases and permanently damage the competitive
position of the European Fermentation Industry.

Need for political acceptance that duty-free imports are


necessary to meet the raw material supply at world market price
levels for the European Fermentation Industry 2
Fermentation Products for Everyday Use
Sugar-beet, wheat, maize, potatoes

Sugars, starches, glucose

Fermentation products (or directly derived products)

Antibiotics, anti-infectives, enzymes, amino acids, vitamins, organic acids,


biodegradable plastics, polysaccharides (food additive, thickener), .

Processed food & drinks (soft drinks, marmalades, meat products, cheeses),
pharmaceuticals, feed, textiles, paper & pulp, detergents, shampoos, sparkling
tablets, surface coatings, cement, packaging, .
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Geographical Distribution
The European
Fermentation Industry:
Is the driver of the
capital intensive
Knowledge-Based
Bio-Economy
(KBBE).
Has unique
investments of
approximately 300
million euros in R&D
(around 10% of total
turnover of the EU
Fermentation
Industry per year).
Employs around
10,000 direct jobs.

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Declining Production
of Fermentation Products in Europe
450

400

350

300
'000 tonnes

250

200

150

100

50

0
2005 2006 2007 2008
Citric Lysine Lactic Citric Salts Glutamic Vitamin C

Source: LMC Reports


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Increasing Imports of Fermentation Products
400
350
300
250
'000 tonnes

200
150
100
50
0
-50
-100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Citric Glutamic Lactic Lysine Citric Salts Vitamin C

Values= Imports - Exports


Source: LMC Reports
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Capacity Changes and Closures
Closing Down of Production Units in New and/or Extended Capacities
Europe Outside Europe
(by Foreign Based Companies and by
European Producers)
Germany: Vitamins (Roche; BASF) and Insulin USA: Lactic Acid (CSM/Cargill; Cargill/Dow),
(Pfizer) Enzymes (Novozymes), Lysine
UK: Citric Acid (Tate & Lyle), Astaxanthin (Tate & (Cargill/Degussa) and Arachadonic Acid (DSM)
Lyle), Penicillin (ACS Dobfar Ltd) and Xantham Canada: Citric Acid (Jungbunzlauer)
Gum (CP Kelco) China: Lactic Acid (BBCA, Henan Jindan and
Spain: Glutamate (Peniberica) and Lactic Acid Galactic), Enzymes (Novozymes), Penicillin
(Purac) (DSM), Lysine (Global Biotech, BBCA and
Italy: Glutamate (Biacor), Citric Acid (Palcitric; Biacor) others), Citric Acid (DSM, BBCA, TTCA, RZBC,
and Lysine (Ajinomoto) Ensign), Glutamate (Meihua, Fufeng, Juhua,
Czech Republic: Citric Acid (Activa) Global Biotech over 500 KT new capacities ),
France: Yeast (DSM) and Xanthan (Danisco) Xanthan Gum (Fufeng, GCC Inc), Vitamins
Portugal: Yeast (DSM) and Penicillin (DSM) Brazil: Enzymes (Novozymes), Lysine (Ajinomoto),
The Netherlands: Penicillin (DSM), Gluconic Acid & Citric Acid (Cargill) and Lactic Acid (Purac)
Gluconic Derivatives (Purac) and Lactic Acid Mexico & India: Penicillin (DSM)
(Purac) Chile, South-Africa & Cuba: Yeast (DSM)
Ireland: Citric Acid (ADM) Thailand: Lactic Acid (Purac) and Citric Acid
Vietnam: Glutamate and Lysine (Vedan and
Ajinomoto)
These changes and closures took place over the last five years.
This list is not exhaustive and other examples can be found.

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What are the reasons for the delocalisation?
Lack of competitive carbohydrate supply in Europe
Existing mechanisms (industrial sugar/starch production refund) not working:
EU industrial sugar prices too high because there is no competition (only one
supermarket principle)
Starch production refund is zero due to extremely low ceiling
No link to world market to balance the price and the demand & supply (no duty-
free imports, no production refund for sugar)
Other aggravating elements:
Lack of competitive feedstock alternatives
No raw sugar availability in EU
No VHP or VVHP sugar types available in EU
Unfair competition with a subsidised biofuel program
Tax break or obligatory addition
Molasses are getting short in supply and are subject to very high prices

Large gap between industrially used carbohydrate prices


versus the world market price, especially the last 2-3 years 8
VHP= very high polarity; VVHP= very very high polarity
EU Sugar Price Against World Market Price
800
The latest EU users' price is 76% above the long run trend
700
US$ per tonne

600
500
400
300
200
100
0
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
World Price EU User Cost

Source: LMC Reports

The gap is broadening.


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Carbohydrate Price Comparison
450
$/tonne of starch, net of by-product credits .

400

350

300

250
200

150

100

50

0
2002 2003 2004 2005 2006 2007 2008

US Corn EU Wheat Thai Tapioca China Corn

Source: LMC Reports


10
Needs of the European Fermentation Industry

Open access to the world market on a permanent basis


To enable a world market based pricing
To eliminate possible supply constraints
To enable investments in the required infrastructure
To have access to sugar/starch qualities as needed
To enable free market and cost based raw material
sourcing
To ensure fair competition
To ensure EU targets on renewables
Access to world market for sugar, starch and cereals
is the key (market) element for the success of the
European Fermentation Industry
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Lessons Learnt and
Recommendations
Although a TRQ for sugar is in the pipeline, the process to raise
awareness on this issue and to reach consensus that there is a
problem has taken too long. Furthermore, no solution is so far
foreseen for the other carbohydrates.
This had a detrimental impact on the Fermentation Industry and the
2007 closure of Puracs fermentation facilities in Spain and The
Netherlands is just a case in point.
Key industry sectors in Europe need a stable and constructive
regulatory framework to strive for growth.
Free markets for sugar, starch & cereals is the only way to
secure the competitive position of the European Fermentation
Industry on a global level.

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