DSM flags ten per cent citric acid price rise

DSM Nutritional Products said this week that it is upping the price of all of its citric acid, produced in Belgium, on a worldwide basis by ten per cent.

The increase, which is effective immediately, is said to be "due to cost increases in raw materials and in energy".

Citric acid is a fermentation product, which means it can be made from a number of carbohydrate products including corn and sugar.

But external pressures, such as changes to the EU sugar regime, lower acres due to bad weather, and of course growing competition for crops from the biofuel industry, have resulted in raw material shortages and consequently higher prices.

Several producers have exited the market or scaled back their stake in recent times.

This means that, if the rising costs cannot be passed on and companies' margins are placed under unacceptable pressure, they too may be tempted to bail out.

The upshot, it is feared, would be a shortage in Western-made citric acid, which would give ingredients buyers little option but to plump for cheaper Chinese material.

Indeed, the low cost of Chinese citric acid is another factor placing the Western industry under pressure.

Last month the European Commission opened an enquiry into allegations of dumping by Chinese companies, and the effect this is having on the European citric acid industry.

On the other hand, Israel's Gadot decided this year that the best way to compete with China was to join it.

It entered into a joint venture with Jiangsu Nuobei Biochemical for a US$30m plant in Jiangsu Province.

"Looking at the market for the last five years, we saw that suppliers are losing their advantages over the Chinese," said Gadot's VP business development and marketing Ronny Hacham in May.

"

It is important in our business to go where the advantage is - and today the advantage is in China."

The cost benefit comes with Jiangsu Nuobei's technology, which permits use of a non-processed carbohydrate source for fermentation rather than ready purified white sugar.

DSM is by no means the first to mark up citric acid this year.

In August Cargill sent a letter to customers announcing a $0.10/lb increase to contract sales of the ingredient, in an effort to approach the $0.60/lb price range that it says it need to achieve.

Last month, Jungbunzlauer said it is increasing the price of its citric acid, amongst other ingredients, by a double-digit percentage.

"There's more pressure from other products competing for corn - including other food ingredients like starches and sweeteners.

Some of those products have managed to keep up, but citric acid is a lag behind in the industry," said a Cargill spokesperson last month.

"There's only so much corn out there and companies have to play somewhat of a balancing act to see where the corn will go," he told FoodNavigator-USA.com.

Citric acid currently dominates the category of organic acids.

On the back of numerous applications for the ingredient, consumption is expected to grow strongly until 2009, with the market value exceeding $2 billion.