ESSENTIAL OILS: ART, AGRICULTURE,     SCIENCE, INDUSTRY AND  ENTREPRENEURSHIP (A FOCUS ON    THE ASIA-PACIFIC REGION)
ESSENTIAL OILS: ART, AGRICULTURE,     SCIENCE, INDUSTRY AND  ENTREPRENEURSHIP (A FOCUS ON    THE ASIA-PACIFIC REGION)     ...
Copyright © 2009 by Nova Science Publishers, Inc.All rights reserved. No part of this book may be reproduced, stored in a ...
In memory                   of            my grandfather         Leonard David Hunter              (1911-1973)          A ...
vi   Murray Hunter     CONTENTS
PREFACE     The essential oil industry is under threat from numerous issues at present. Risingagricultural input costs, pa...
viii                                     Murray Hunterlevels of the supply and value chains. Finally, the public sector co...
Preface                                          ixtechnology introduction than with labour cost advantages. Many methods ...
x                                       Murray Hunteradapting to different geographical locations and climates. There was ...
Preface                                          xiworld essential oil production centres and the various types of essenti...
xii                                     Murray Hunterdiscussed. The chapter then goes into the new product development pro...
ACKNOWLEDGEMENTS    Life is often considered a journey, where knowledge, experience and insights are gainedthrough where y...
2                                      Murray HunterAgriculture during our time together developing Polygonum odoratum as ...
Introduction: The Development Issues                             3Chapter 1       INTRODUCTION: THE DEVELOPMENT ISSUES    ...
4                                        Murray Huntercompetition, weather and collapses in prices. Other causes of failur...
Introduction: The Development Issues                             5     The difficulty in measuring essential oil productio...
6                                            Murray Hunter                                            Cosm etics,         ...
Introduction: The Development Issues                               7and cumin oils. Secondly, large multi-national compani...
8                                        Murray Hunter    Table 1.1. Worlds Top Twenty Essential Oils and EU Regulatory Th...
Introduction: The Development Issues                                       9supply chains. New market segments driven by n...
10                                       Murray Hunterspecies. Different parts of the same plant may contain compounds whi...
Introduction: The Development Issues                                11          Washing with ethanol          and vacuum d...
12                                                     Murray Hunter                               A customer or user focu...
Introduction: The Development Issues                                                     13                               ...
14                                       Murray Hunterthan allowing it to escape back into outer space. This creates a con...
Introduction: The Development Issues                               15Market Turbulence     Like other commodities, essenti...
16                                        Murray Hunter     The pricing mechanism heavily influences what happens in wild ...
Introduction: The Development Issues                                         17Wormwood, Various     Europe               ...
18                                            Murray Hunter                                        Table 1.2. ContinuedCom...
Introduction: The Development Issues                                      19                                              ...
20                                               Murray Hunter                                           Table 1.2. Contin...
Essential Oils: Art, Science, Agriculture, Industry & Entrepreneurship chaps 1 & 2
Essential Oils: Art, Science, Agriculture, Industry & Entrepreneurship chaps 1 & 2
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Essential Oils: Art, Science, Agriculture, Industry & Entrepreneurship chaps 1 & 2
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Essential Oils: Art, Science, Agriculture, Industry & Entrepreneurship chaps 1 & 2

  1. 1. ESSENTIAL OILS: ART, AGRICULTURE, SCIENCE, INDUSTRY AND ENTREPRENEURSHIP (A FOCUS ON THE ASIA-PACIFIC REGION)
  2. 2. ESSENTIAL OILS: ART, AGRICULTURE, SCIENCE, INDUSTRY AND ENTREPRENEURSHIP (A FOCUS ON THE ASIA-PACIFIC REGION) MURRAY HUNTER SME UNIT University Malaysia Perlis Nova Science Publishers, Inc. New York
  3. 3. Copyright © 2009 by Nova Science Publishers, Inc.All rights reserved. No part of this book may be reproduced, stored in a retrieval system ortransmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanicalphotocopying, recording or otherwise without the written permission of the Publisher.For permission to use material from this book please contact us:Telephone 631-231-7269; Fax 631-231-8175Web Site: http://www.novapublishers.com NOTICE TO THE READERThe Publisher has taken reasonable care in the preparation of this book, but makes no expressed orimplied warranty of any kind and assumes no responsibility for any errors or omissions. Noliability is assumed for incidental or consequential damages in connection with or arising out ofinformation contained in this book. The Publisher shall not be liable for any special,consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, orreliance upon, this material. Any parts of this book based on government reports are so indicatedand copyright is claimed for those parts to the extent applicable to compilations of such works.Independent verification should be sought for any data, advice or recommendations contained inthis book. In addition, no responsibility is assumed by the publisher for any injury and/or damageto persons or property arising from any methods, products, instructions, ideas or otherwisecontained in this publication.This publication is designed to provide accurate and authoritative information with regard to thesubject matter covered herein. It is sold with the clear understanding that the Publisher is notengaged in rendering legal or any other professional services. If legal or any other expertassistance is required, the services of a competent person should be sought. FROM ADECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THEAMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS.LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATAHunter, Murray. Essential oils art, agriculture, science, industry and entrepreneurship (a focus on the Asia-Pacificregion) / Murray Hunter. p. cm. Includes index. ISBN 978-1-60741-865-8 (hardcover) 1. Essences and essential oils industry--Pacific Area. 2. Essences and essential oils--PacificArea. I. Title. HD9999.E783P32 2009 338.47661806095--dc22 2009025482 Published by Nova Science Publishers, Inc. ; New York
  4. 4. In memory of my grandfather Leonard David Hunter (1911-1973) A self-made chemistA pioneer of essential oil based products in Australia A great entrepreneur and mentor to all
  5. 5. vi Murray Hunter CONTENTS
  6. 6. PREFACE The essential oil industry is under threat from numerous issues at present. Risingagricultural input costs, particularly petrochemical based fertilizers and fuels are squeezingfarmers’ profit margins. Rising food prices and the increasing value of housing and industrialland prices is creating competition for land, particularly around populated areas. Adverseweather conditions and changing climate are creating both short and long term problems.Poor crop yields are occurring much more regularly than before because of unusually heavyrain, hail, floods, heat-waves and cold snaps. Climate change is affecting long term yields dueto increasing plant stress caused by warmer temperatures. As many temperate areas arebecoming drought affected, crop cultivation is becoming more difficult as irrigated water isbecoming extremely scarce. This is threatening the very survival of many enterprises andindustries in their present locations. Industry change through takeovers is increasing buyer concentration, making it moredifficult for small firms to survive in the industry. Technology change requires continuouslearning and development of new techniques which change the way products aremanufactured. Increasing consumer scrutiny, changes in taste and increasing sophistication indeveloping markets are creating shorter product lifecycles, requiring companies to spendmore on product development. Last but not least, a rapidly tightening regional regulatoryenvironment is increasing the costs of introducing new materials and products into themarketplace. However, notwithstanding the threats and challenges mentioned above, opportunities stillexist in the essential oil industry. In fact, the issues mentioned above can increase thepropensity of opportunities to evolve inside the industry, if one knows where to look and howto evaluate their potential. The essential oil industry is far from being monolithic. It can be seen more as a group ofoverlapping segments of other industries, which are related by the nature of the product –natural aromatic compounds. Its agricultural component would include the collection ofbiomass from the wild, the cultivation of selected flora in the field or the collection of by-products from other activities like timber logging or citrus fruit production. Manufacturers inthe essential oil industry use essential oils and other natural aromatic materials to produce anumber of value added products which include flavours and fragrances, fine fragrance,cosmetics, household, pharmaceutical, agro-chemical and aromatherapy products. Theseproducts are promoted, marketed, sold, transferred, shipped and consumed through various
  7. 7. viii Murray Hunterlevels of the supply and value chains. Finally, the public sector component plays a role inboth research and regulation at a local, national and international level, both on policy andspecific issues. Yet with all the attention that has been given to essential oils in the past, the reality mustbe stated – essential oil production will never become a major crop or contributor to anyagricultural economy. It is a niche industry, an alternative crop to any mainstream agriculturalportfolio in any country. Also, in the flavour and fragrance, cosmetic, household product,pharmaceutical (although nearly 70% of pharmaceuticalactive compounds have beensynthesized from the inspiration of natural compounds), and agro-chemical industries,essential oils in an aggregate sense only play a minor part in the composition and formularyof products in those industries. Only in aromatherapy are essential oils the main ingredient inproduct formulatory. This scenario will never change. The importance of essential oils lies inthe role they play in linking industries, which makes their economic contribution substantial –as ingredients in flavours and fragrances, as ingredients in cosmetics and household products,and as starting materials of prime active ingredients in pharmaceuticals and agro-chemicalslike pesticides and fungicides. There is no doubt however that essential oils lead to greatpassion and take on a major role in the branding of many products. This leads to another point. There is a vast amount of misleading and wrong informationabout essential oils and the industry. This can be widely found in media articles, the internet,papers presented to conferences and even books. There are a number of “consultants” aroundthat base their advice on sometime misinformed premises and old industry paradigms. Someof the organizations involved in the essential oil industry, particularly those representingtraders, sometimes appear to be contributing to industry mythology and have encouraged anelitist approach to those considered “outsiders” to the industry. Many people who are attracted to some part of the essential oil industry, whetherproduction or application is based on passion, emotion and infatuation, rather than businesslogic and sense. This can be a dangerous and delusional footing. The failure rate of those setting up essential oil production ventures is outstandingly high.It is also sad that many of these failures involve community groups, led by some consultant’sadvice. For far too long essential oil markets been analysed on an economic basis, rather thana niche entrepreneurial opportunity. Although business failure rates have been high among producers, a number of successstories exist. These are usually about companies producing cosmetics and aromatherapyranges utilizing essential oils. Many new aromatherapy, cosmetic and agro-chemical pesticideand fungicide products are being launched onto market. A number of companies within ashort space of time have grown into international suppliers of essential oil based products.These companies have been at the innovative forefronts of their respective industries. Thus innovation would appear a prerequisite of success, especially with changingconsumer tastes, lifestyles and product expectations. This certainly supports the argument thatthe essential oil industry should be viewed in the entrepreneurial paradigm to see if moresense and understanding can be gained – which is what this book will try to do. With the term technology taken simply to mean a way or means to do something, thennew technology means a new way or means to do something. In that light, it is certainly worthexamining how things are done at farm level to produce essential oils, i.e., propagation,planting, crop maintenance, harvesting and extraction. Becoming competitive and developinga source of competitive advantage in essential oil production may have more to do with new
  8. 8. Preface ixtechnology introduction than with labour cost advantages. Many methods of propagation,planting, maintenance, harvesting and extraction have been developed with knowledge builtmore upon learning from trial and error on the part of entrepreneurial farmers than takingstock solutions off a shelf somewhere. Through the observation of operational essential oilventures, successful technology would appear in many cases to be homegrown solutions inresponse to specific farm level problems. Add to that the rapid growth of biotechnology andthe emphasis on the molecular level with nano-technology - technology issues are going tocontinue in their importance. An entrepreneurial approach may help to understand andmanage this. There have been many books written on essential oils which have placed the word art intheir titles. This has been in recognition of the creativity needed to construct a fragrance orperfume, sometimes paralleled with the artist or the musician. However the concept of art canbe extended to the business of essential oils. Business commentators now tend to call businessan art, rather than a science. In business there are many ways to achieve an end or objectiveand a multiplicity of strategies that can be used in any particular situation. The metaphor ofthe art of strategy is maybe more applicable. Agriculture can also be an art form in that thereare also a number of ways to achieve an end. If we view landscapes, which are part of an eco-system as art, then utilizing the land in a sustainable way may also be considered an art form.Sustainable solutions to agricultural problems would seem to be much more important thanbefore. Hopefully this book will provide the reader some insights into the art of essential oilsin the wider, rather than the narrower sense. The development of essential oils and related products requires some knowledge inbotany, natural product and phyto-chemistry, analytical chemistry, agronomy,thermodynamics and chemical engineering, agricultural and mechanical engineering,economics, supply chain management, accounting, finance, organization, marketing, newproduct development, cosmetic, household product, and pesticide chemistry, farm andindustrial management, human resource and project management. In addition skills in theareas of opportunity identification and evaluation, strategy selection, development andenactment are required. An ability to negotiate and present ideas to various stakeholders isalso important. Thus developing essential oils or an essential oil related product requires atrue multi-disciplinary approach. The entrepreneur in this industry must be a ‘jack of alltrades’ to understand and find solutions to the issues he or she will encounter. It is throughinter-disciplinary thinking that new products will come to the market. At the product level where changing consumer tastes, expectations and lifestylesinfluence what is required, coupled with more distribution channel avenues and a dramaticincrease in new regulation around the world, new product forms, branding linkages,organizational form, and channel utilization requires new knowledge to be applied. Thesechanges require new thinking in the industry and this may not be based on the sameconventional thinking of the past. This would seem to be of advantage to small companies,where the larger multinationals have tended to follow and take ideas onboard, once someoneelse has proven them successful. I have been lucky and privileged to have had the opportunity to be involved in as somany aspects of the essential oil industry as I have. Discovering new compounds in plantswas an exciting time, requiring a massive and focused effort with only a remote chance offinding something that may be commercially interesting. Domesticating plants from the wildpresented a number of challenges as well researching the ability of selected aromatic crops in
  9. 9. x Murray Hunteradapting to different geographical locations and climates. There was great excitement aboutdesigning and developing harvest and distillation systems, especially when they are fullycommissioned in working condition. As equally challenging was designing suitable fielddrainage and irrigation infrastructures for farms that can handle the quantity of water fallingduring a tropical storm without carrying away the top soil or able to irrigate a field during thedry months. One of the most important and satisfying challenges of late with the high cost ofdiesel was designing and commissioning alternative fuel systems to power steam generationfor a distillation operation in a sustainable way. Learning how to construct a fragrance,responding to fragrance brief and having my creation selected by a customer always brought agreat sense of pride and satisfaction. Developing new products for consumer markets throughthe process of nurturing the concept, finding the materials, evaluating packaging concepts anddesigning the method of production, and finally turning it into the reality was at the envelopeof excitement and satisfaction. The ‘sell in’ and the drama of waiting for the consumer to givetheir approval on the product through their purchases is something no one forgets. Traveling,meeting people, attending conferences, visiting markets and walking around a farm are allfulfilling activities for those involved in essential oils. Having been in and around the essential oil and allied industries for many years andknowing many of the legendary people within it encouraged me to write about the industry. Irecognize that this book will bring some criticisms from some quarters, but if criticism isfeared and prevents ideas being put forward, then there will be no advance in knowledge. This book reflects much of these experiences and it is written as I understand the issues –sometimes as a layman and sometimes as an expert, but always within the theme of being ajack of all trades, with an attempt to inject interdisciplinary insights into issues andchallenges that development, production, marketing and management bring forward. As such,this book has attempted to look at product, market, industry and technical issues involved toassist the reader in their situation overcome their specific barriers to entry, so that they cancreate something of value to the industry – a trait that is needed to survive in any sustainableway in business today. Hopefully this book helps the reader make sense of things. I hope that students undertaking subjects like business and entrepreneurship, agriculture,bio-systems engineering and chemistry are able to benefit from this book. I hope that thisbook can assist farmers and potential farmers make decisions about what aromatic crops theyinvest in. I hope this book provides some insights to researchers in the natural productchemistry and agronomic areas. I also hope this book can assist those wishing to developaromatherapy, cosmetic, household, pharmaceutical and agro-chemical pesticide andherbicide products. I hope this book can assist the reader understand the industry better, thebusiness involved, the challenges that it brings and develop ideas to help solve some of theseproblems. The structure and content of this book is as follows: Chapter One introduces the definitions relevant to crude products produced by theindustry. The size of the market is calculated and apportioned between each product/marketsegment. The rest of the introduction sets the background of the industry and discusses someof the contemporary problems and issues associated with it. Chapter Two discusses the structure and interrelationships of the industry. This isundertaken more from a macro point of view so that concepts like derived demand and theinfluence of synthetic materials can be understood by the reader. This chapter also looks at
  10. 10. Preface xiworld essential oil production centres and the various types of essential oil production. Therole of essential oils and flavour and fragrance materials in the market typology of consumerproducts is also introduced. Finally the chapter looks at the essential oil value chain. Chapter Three takes a closer look at essential oil production in the South-East Asia-Pacific region, focusing on Australia, New Zealand and South-East Asia. Recent internationalpublished research undertaken in each country is also outlined. Chapter Four and Five are two technical chapters which introduce phyto-chemistry andthe theory behind the extraction of essential oils. These are important technical areas whereany potential practitioner should have some understanding of the basic principals. ChapterFour explains the role of essential oils in plants as secondary metabolites. The various classesof essential oils are explained with a number of examples of natural aroma chemicals found inplants. Chapter Four also introduces the basic methods of essential oil analysis. Chapter Fiveexplains the basic theories of distillation, solvent and CO2 extraction and the traditionalmethod of enfluerage. The next three chapters (Six, Seven and Eight) are concerned directly with the conceptsof screening potential essential oils for viability to develop commercially and create adevelopment plan. Chapter Six specifically looks at the issues involved in developing a newcrop to a farmer or potential farmer, emphasizing what specific information is required tomake decisions. The chapter also introduces the concept of risk and challenges. The potentialreasons for success and failure are outlined, as well as showing the range of possibledevelopment strategies for a project to pursue. Finally this chapter looks at potential productsthat can be developed for different levels in the value chain, with corresponding potentialentry strategies. Chapter Seven is primarily concerned with the screening and evaluation process anddiscusses the regulatory environment in detail. Chapter Eight returns to an industry analysisto assist in the development of a strategic plan, using a number of tools. This chapterintegrates both the business and technical aspects of the project together so that acomprehensive overall operational plan can be created. Chapter Nine is concerned with the field issues of essential oil development. Agricultureis first introduced as a system and the issue of climate change and the potential consequencesare discussed. The chapter then outlines the project preparation phase, the selection of geneticmaterial, seed collection, the improvement of genetic material, land selection, propagationand planting, field development, crop maintenance, harvesting and extraction. The chapterfinishes off with a discussion about Good Agriculture Practice (GAP) and financial modelingof the project. Chapter Ten examines the organic production of essential oils. The size and growth of theorganic industry is examined and the various continuum of farming are discussed. The rest ofthe chapter looks at the basic organic farming concepts and practices including crop rotation,cover crops and green manures, animal manures, intercropping, composting, mulching, cropdiversity, natural fertilizers, minerals and supplements, insect and disease control, weedcontrol, tillage and farmscaping. The planning and site selection issues are looked at beforebriefly examining the certification process and extent of organic farming in the Asia-Pacificregion. Chapter Eleven looks at the application of essential oils. The chapter begins with anoverview of the classification of odours and flavours. The structure of a fragrance and thedevelopment of perfumes are described. The process of developing flavours is briefly
  11. 11. xii Murray Hunterdiscussed. The chapter then goes into the new product development process in detail,exploring the concepts of a systems approach to product development, creativity, innovationand opportunity required in ideation, the development of the product concept and prototype,market and product planning, the development of the formulation and manufacturing systemand the eventual product launch. The chapter then looks at each product/industry segmentutilizing essential oils including cosmetic and personal care products, natural perfumery,household products, agricultural products, pharmaceuticals and natural aroma chemicals andother isolates. The next part of the chapter examines potential distribution strategies, GoodManufacturing Practice (GMP), HACCP, Standards, Occupational Health and Safety(OSHA), environmental compliance and certification schemes. Finally the concept of theholistic and focused enterprise is introduced. Chapter Twelve integrates enterprise viability with new crop potential, arguing that thetype of production organisation will influence what type of crop is viable to select. Theconcept of opportunity within the framework of personal goals is re-examined. The remainderof this chapter and book looks at criteria to examine new essential oils and finishes with anumber of mini-monographs on plants of interest to the author. Most books tell the reader how to cultivate essential oil crops. This book attempts to helpthe reader select what crops to develop. I would have liked to elaborate and explore a number of issues in more detail than I had,but size of the manuscript led to making choices and my own research into these issues is stillin its infancy. These issues include exploring alternative energy sources for extraction ofnatural materials from plants, including solar distillation, boiler design and fabrication, themodification of existing farm equipment to perform new roles particularly in the harvestingarea, the development of low cost micro-propagation facilities, and the utilization of enzymesin agronomy, extraction and transformations. I hope sometime in the future furthercontributions can be made by the writer. I hope this book leads to a better understanding of the issues involved in developing newessential oil ventures. Certainly I have tried to emphasize the need for innovation at both thetechnical and business model level to assist in creating product differentiation for thepotential practitioner. Please note the author has not followed strict botanical nomenclature where namesfamiliar to the industry have been used. For any incorrect and misleading material in thisbook I do sincerely apologize and welcome correction. I also apologize for any grammaticalerrors in the manuscript. Murray Hunter Hat Yai Songkhla Thailand 10th February 2009
  12. 12. ACKNOWLEDGEMENTS Life is often considered a journey, where knowledge, experience and insights are gainedthrough where you are, what you are doing and who you meet up with. I have been lucky tohave a long fulfilling journey, which has made it possible to complete this book. I was born into an entrepreneurial family in Melbourne Australia late in 1958. Mygrandfather, Mr. Len Hunter Senior was a ‘self made’ chemist, inventor and entrepreneurextraordinaire. He invented the product Pine ‘O’ Clean, a pine oil based disinfectant in the1930s and was given an exemption to import American pine oil during the Second WorldWar to supply the US troops stationed in Australia at the time. Len sold Pine ‘O’ Clean,along with Oxford Shoe Polish to Reckitt and Colman in 1956 for the sum of One MillionPounds. This was an extremely large figure at the time for the family and part of this moneywas invested to form Hunters Products Pty Ltd, which manufactured household cleaning,personal care, gardening, pool care and institutional products up until the 1980s when againthe company, a household name in Australian cleaning, was sold again to Reckitt-Benkaiser. During the height of the family era, the household division of the group was run by myfather Mr. Alan Hunter, who had great influence upon me. My father took me under his wing,always taking me to the factory during the weekends and in latter years during my teens tosales calls all over the country. It was with my father I first came into contact with topexecutives and even owners of companies like Dragoco, Drom, Monsanto, ICI, Haarman &Reimer, Kao, The Andrew Jergens Company, Kiwi and many others. This was a period ofgreat excitement for me, which opened up many different aspects of the industry. Two of the people I very fondly remember from that time were Mr. Eric Floyd, theSouthern Sales Manager of Dragoco and Mr. Hans de Jong, the Victorian Sales Manager ofHaarman & Reimer. Both of them gave me very firm ideas about essential oils andfragrances. With Hunters household division going to Reckitt-Benkaiser I went out on my ownforming a company called New Approach Products Pty Ltd in Melbourne during 1988. Thiscompany manufactured toilet cleaners, soaps, garden insecticide and air fresheners. In seekingto create greater competitive advantage for our air freshener range, mainly sold under genericsupermarket brands, the concept of blending our own fragrances came to mind and we werein the flavour and fragrance business. At that time I met with Mr. Brian Brennan of BrennanAromatics and developed a close relationship with him as a shareholder of his company. Itwas with Brian I picked up some of the practicalities of creating fragrances. It was around the same time that my interest of producing essential oils developed. Ilearnt a lot from Fred Bienvenu of the Ovens Research Station, Victorian Department of
  13. 13. 2 Murray HunterAgriculture during our time together developing Polygonum odoratum as a new essential oilcrop. I also thank Professor Glywn Jones of the Department of Food and Nutrition, DeakinUniversity, Geelong, Victoria for inviting me to join their research group on basil oils at thetime. During the early 1990s, not only did I see South East Asia as a potential market, but asource of essential oils. It was Dr. Erich Lassak who encouraged me to be bold in introducingnew crops to South East Asia. John Reece took me under his wing and we travelled all overAustralia and South East Asia together visiting plantations, attending conferences and tryingto set up projects in Malaysia. I also thank the late Djohan Napati, President of PT DjsulaWangi in Jakarta for opening up his plantations and business to me. I also thank the Late Mr.Karim Yaacob for the time we spent together travelling around Malaysia looking at potentialnew essential oil crops. I would like to greatly thank Tan Sri Dr. Yusof, the former Director General of theMalaysian Agricultural Research and Development Institute (MARDI) and Tan Sri Dr.Hamid Bin Pawan Teh, the former Chief Minister of Perlis (now President of the MalaysianSenate) for giving me an opportunity to develop a tea tree plantation in the Northern part ofMalaysia during the early 1990s. I also remember the time Mr. Mansor Puteh and myselfspent on convincing people to try tea tree as a serious crop in Malaysia. I am also indebted toother members of the team including Mr. Malik and Tunku Kassim of MARDI and Mr.Hasnan Abdul Kudus of the Perlis State Economic Development Corporation. Other people I would like to thank for ideas and insights are Professor Chia Hock Hwa, aformer director of Kao Singapore, Mr Steven S. F. Yeow also of Singapore, and ProfessorZuriati Zakaria of the Faculty of Science, Universiti Kebangsaan Malaysia for her suggestionson Chapter Four. My UniMAP colleagues Professor Mohd. Nor Bin Ahmed and AssociateProfessor Mahmad Bin Jaafar, who both made always great contributions to my thoughts. Mr.Jim Gobert of Unifect Foods, Sydney for his ideas about the industry and Mr. Anas AhmadNasarudin of Marditech Corporation Sdn. Bhd. for his assistance over the years. Thank youto Mr. Stuart Mason Parker of the Faculty of Law, Prince of Songkla University, Hat Yai,Thailand for reading parts of the manuscript. Associate Professor Mohariff Bin Shariff’s helpon writing style was invaluable in helping me working through parts of this monograph. Iwould also like to thank my wife Kittirat Yothangrong for what she taught me about herbs,the soil and sustainable farming, which had a big influence on chapter 10. I would like to thank the Vice Chancellor of University Malaysia Perlis Brig. GeneralProfessor Dato’ Dr. Kamaruddin Hussin, who had faith in me to become an academic andsupported my activities and writing this book. Finally, thanks to Ms. Suraya Binti Mat Ros,my secretary, who ran the SME Unit while I spent countless weeks and months writing thismanuscript.
  14. 14. Introduction: The Development Issues 3Chapter 1 INTRODUCTION: THE DEVELOPMENT ISSUES Chapter one presents a basic introduction to the issues of essential oil development. Thechapter begins with a discussion about the difficulties of estimating the aggregate farm-gatevalue of global essential oil production. The various types of natural aromatic materials aredefined. The chapter then goes onto a discussion of some of the major issues facing essentialoils, including global warming, the food, rural and financial crisis, market turbulence, wildcollection and threatened plant species, the bargaining power of producers, the regulatoryenvironment, and the templating of natural molecules for synthesis rather than for cultivationand extraction. The chapter then turns to outlining the factors that contribute to success orfailure in essential oil development and the importance of making accurate projectassumptions and estimates. These include planning and opportunity issues, management andorganizational issues, financial issues, technical issues, marketing issues, fate and nature.Finally, a model outlining the potential strategic success factors is presented. INTRODUCTION Good Essential oil cultivation is based on a knowledge intensive production system. Theessential oil sector within any country’s agricultural base will never become a major industryin value terms, but it is one of the most complex ones. Although the essential oil industry isvery small in aggregate terms, its influence stretches far beyond the agricultural sector.Essential oils are materials used in a number of dynamic consumer and niche industrialmarkets. The industry is undergoing rapid structural transformation from a craft orientatedbase to a modern multi-national orientated industry with very sophisticated supply chains.Essential oil usage has also widened into a number of smaller fragmented applications, whichinclude natural perfumery, aromatherapy and bio-active agricultural chemicals. Bothproduction geography and operational practices are changing, influenced by a number offactors that will be explained in this chapter. Today, new essential oil based ventures usually start in one of two major ways. The firstcase is where private entrepreneurs find and respond to market opportunities. Their responsesto these opportunities can be quite complex and very different from traditional producers.Private entrepreneurs may not be satisfied just producing a crude oil. They may involvethemselves in the higher value product/market activities along the supply chain. The secondcase is where the government through an agency may initiate research and development of anessential oil crop for the purposes of disseminating technology, planting stock, operationalmethods and market connections to local farmers to exploit. A variation on this could be acommunity development project funded by an NGO. In both cases, the initiator will promotethe formation of farmer alliances and/or cooperatives to improve the chances of success. Unfortunately, many community projects fail to develop their full potential or evencollapse. This occurs for a number of reasons. Reasons outside the farmers control include
  15. 15. 4 Murray Huntercompetition, weather and collapses in prices. Other causes of failure may develop because ofstructural faults, i.e., issues not properly considered when the project was conceptualised.These may include failure to continue production in a sustainable manner once externalassistance has ceased, reliance on external people for motivation with no local champion tocontinue momentum in the farmer group, failure in dealing adequately with externalcompetition, or failure to maintain collaborative links with other stakeholders such asresearch institutions. Reasons for failure within farmers control include poor management ordiverging objectives and agendas by stakeholders. Agriculture is traditionally considered an activity undertaken within a static system that isvery slow and resistant to change. The reality is that agriculture is in a state of flux andtransformation like many other industries. Agriculture is transforming itself from acommodity driven to a consumer and market driven activity. A recent World Bank report onagricultural innovation identified six areas of change that will drive agriculture in the comingdecades. The report cites; 1. That future development will rely on market and not production orientated approaches to the agricultural sector, 2. Changes in production methods are now rapid and unpredictable, due to changing technologies and ease of technology transfer, 3. Agricultural supply chains are now very dynamic, where there is a greater propensity to create direct producer- retailer or producer-user relationships, 4. The private sector is the driving force of new knowledge and technology into the sector, 5. Information and communications technologies are having profound affects upon communities taking advantage of knowledge generated in other places, technology transfer and producer-customer relationships, and 6. Agricultural venture development is being increasingly undertaken with globalised, rather than local orientations [1]. This implies that selecting essential oil crops can be better undertaken through a marketdriven crop selection process, based on product development and customer drivenmanagement, rather than a commodity approach. THE SIZE OF THE ESSENTIAL OIL INDUSTRY Any accurate assessment of the aggregate size of the international essential oil industry isextremely difficult. World production of essential oils is very fragmented, much of it intropical equatorial regions that are not easily accessible to transport. Communicationsinfrastructure is weak or even non-existent. A large quantity of essential oils are produced atsubsistence level and collected from farms by individuals who sell the oil onto wholesalers.Producers are remote from the major towns and cities of Government administrations, whereorganization is poor. Language is yet another barrier to communication, where all the abovefactors combined hinder any accurate measurement of essential oil production.
  16. 16. Introduction: The Development Issues 5 The difficulty in measuring essential oil production is further complicated by thediffering statistical classification systems various countries use to tabulate production. Theharmonized system of customs codes only identifies around half a dozen individual essentialoils. Where essential oils are small, production figures may be grouped together with othermiscellaneous activities, thus not showing up directly in statistics. Essential oil productionwill most likely be aggregated with herb and other natural product production. Accurate counting is also difficult because of the unstable nature of production, whereproduction figures may differ greatly from year to year. This occurs from poor weather,natural disasters, insurgencies, wars, and other national disturbances, crop disease anddroughts, which only make the accounting of aggregate supply figures more difficult.Essential oil traders hold stocks and can distort the market through the selling of theirinventories in times of shortage and buying up extra product in times of production surpluses.Most agreements between producers and traders at farm-gate level are confidential andundisclosed. Doubt exists whether essential oil sales through the internet are statistically recorded.Most oils sold and sent through the postal system are high value/low volume oils, which willonly have nominal values attached to customs forms. For example, one kilogram of rose Ottomay be sold for a few thousand US Dollars, but the nominal value recorded may only be afew US Dollars. Finally, currency values will also distort production values due to fluctuating exchangerates and parities between different producing countries. As most essential oil productionoccurs outside of the United States, currency conversions have to be made, where the finalfigure will be greatly influenced by the exchange rate at the time. For example, if aggregateessential oil farm-gate production in Australia is valued at AUD 25.0 million in June 2008 atan exchange rate of 1.04, Australian aggregate farm-gate production would be valued at USD24 million at that time. However if the conversion was made at the end of November 2008 ata rate of 1.55, Australian aggregate farm-gate production would be valued at USD 16.20million, almost one-third less than June in the same year, even though physical production isthe same. The author’s estimate of the farm-gate aggregate value (in USD) of World essential oilproduction was USD 1,480 in 2008. Essential oil usage can be divided into a) flavour andfragrance, b) aromatherapy, c) pharmaceutical, d) intermediates, e) agrochemicals and f)cosmetics. This is shown in Figure 1.1. Aggregate essential oil production is increasing, buteach sector is growing at different rates. Aggregate growth is around 8-10.0% per annum. Even with major consumer product manufacturers espousing “natural products” in theirmarketing campaigns, the use of essential oils in fragrance compounds, as a percentage of theformula, has declined over the last several decades [2]. This is partly the result of USmanufacturers being allowed to call synthetic aroma chemicals “nature identical”, if they arechemically the same to those found in nature. This is a factor preventing more essential oilusage in flavour formulations. However, there is still growth in the aggregate volume ofessential oils supplied to the flavour and fragrance sector because of overall growth inworldwide demand for perfumed and flavoured products.
  17. 17. 6 Murray Hunter Cosm etics, USD 90 M, 6% Agrochem icals, USD 150 M, 10% Flavour & Fragrance, USD Interm ediates, USD 650 M, 44% 120 M, 8% Pharm aceuticals, USD 220 M 15% Aromatherapy USD 250 M 17%Figure 1.1. Estimate of the World Farm-gate Value of Essential Oil Production (USD) in 2008. The aromatherapy market had enjoyed rapid growth until it stalled in the beginning of the1990s. Aromatherapy has become much more closely aligned with cosmetics, naturalperfumery and other traditional medicines, which has brought this sector into growth again.Some cosmetic categories, including cosmoceuticals and organic products are enjoying veryhigh growth rates. Some pharmaceutical products now fit into cosmetic categories, aspharmaceutical and cosmetic companies regularly compete against each other. It is now muchharder to distinguish the differences between many cosmetics and pharmaceuticals as bothtypes of products provide the same consumer benefits. Another sector enjoying very highgrowth is the agricultural chemical market, where new companies are developing fungicides,pesticides and herbicides using essential oils as active ingredients. Although the essential oil production is increasing, the growth of individual oils may barelittle relationship to the overall trend. Within a given year some essential oils will drasticallydecline in production because of adverse weather conditions, natural disasters or politicalevents, only to return to production levels a season or two later. Other essential oils willslowly decline in production over a long number of years because of the availability ofcheaper substitutes, the exhaustion of supply from wild collection and restriction of usethrough increasing regulation. As supply patterns change and materials become unavailable, users are forced to makecompensatory changes to the oils they use, thereby changing demand patterns. Shortages willforce users to switch to substitutes. When a shortage is overcome users may be very hesitantto return to the original oil, due to the effort involved in changing back product formulations.Demand also changes as the relative prices of substitutes move in relation to each other. Verlet pointed out that production tends to cluster in areas because of three basic reasons.Firstly some production centres have a long history of production with a supportive socialstructure. This is the case in Morocco, Turkey and Egypt in the production of rose, jasmine
  18. 18. Introduction: The Development Issues 7and cumin oils. Secondly, large multi-national companies have intervened and promoted thedevelopment of an industry. This was the case with patchouli production in Brazil. Thirdly,production serves a large domestic market, which enables it to sustain itself. This is the caseof some essential oil production in China, India and the US [3]. A large number of essential oils are produced by a) small-holder farmers usually at asubsistence level, b) the gathering and processing of wild plants by subsistence farmers, c)small scale plantations, and d) large scale plantations. Other essential oils are produced as by-products of other primary products. Examples include eucalyptus and pine oils from thetimber industry, and citrus oils from the processing of fruit juices in the citrus industry. Othersmall farms and plantations may incorporate activities like agro-tourism into their sites toimprove profitability [4]. Long periods of low prices can bring volatility to the globalindustry, encouraging countries like China, India and Vietnam to increase production at theexpense of less competitive countries like Tanzania, Ivory Coast and Madagascar. Some companies may move up the supply chain and scale down their farm operations tofocus on higher value products. For example, Thursday Plantations in Northern NSW ceasedtea tree production to focus on agro-tourism and the marketing of tea tree oil based personalcare products. Today Thursday Plantation became a major buyer of tea tree oil and now sellstheir products in over 40 countries [5]. Differing sources of competitive advantage underlie production in different regions,which enables industry viability. Countries like Brazil, China, India and Indonesia have large domestic markets. Theircompetitive position is supported by a low production cost regime based on low cost labourand/or high levels of mechanization to make them efficient. These countries control morethan half the world’s production in some of the oils they produce. Long established logisticand trading infrastructure assists in maintaining a strong market position. Producers in countries with a small domestic market are forced to focus on exports.Production is limited to a small number of oils. Small existing industries develop withfinancial and research support. Effective research allows them to develop optimum methodsof production to develop market competitiveness. These industries are usually located in idealphysical and climatic conditions for the chosen crops. Some producing countries have been able to maintain their position as a preferredproducer by producing exceptional quality oils. These oils become ‘benchmarks’ in theFlavour & Fragrance industry, such as Haiti Vetiver or Comoros Basil. This is reinforced longterm links with major trading companies or International flavour & fragrance houses. Many distinct trends are occurring at the same time in the essential oil industry supplychain. Ownership and management of flavour and fragrance houses is becoming veryconcentrated. This has changed the craft orientation of most companies to a much morecorporate multi-national outlook on the business and the way of doing things. Products arebeing standardised, eliminating various grades of essential oils in the quest for efficiency.New perfumers are trained to construct fragrances from proprietary bases to save oninventories. Chemical production is also moving away from Europe and the United States toIndia and China, partly to save on costs and partly to escape much stricter environmentallaws.
  19. 19. 8 Murray Hunter Table 1.1. Worlds Top Twenty Essential Oils and EU Regulatory Threats in 2006 [8] Essential Botanical Name Volume Under Under Under Oil (Tonnes) Threat Threat threat Cosmetics Biocides Fragrance Orange Citrus sinensis 26000 X X Cornmint Mentha Arvensis 4300 Eucalyptus Euc. globulus 3728 X X X Citronella Cym winterianus 2830 X X X Peppermint Mentha piperita 2367 Lemon Citrus limon 2158 X X Euc. Eucalyptus citriodora 2092 X X X Citriodora Clove Leaf Syzygium aromaticum 1915 X X X Cedarwood Juniperus virginiana 1640 (US) Litsea Litsea cubeba 1005 X X cubeba Sassafras Ocotea pretiosa 1000 X X (Brazil) Lime Citrus aurantifolia 973 X X Spearmint Mentha spicata 851 Cedarwood Chamaecyparis 800 (China) funebris Lavandin Lavandula intermedia 768 X X Sassafras Cinnamomum 750 X X (China) micranthum Camphor Cinnamomum 725 camphora Coriander Coriandrum sativum 710 Grapefruit Citrus paradis 694 X X Patchouli Pogostemom cablin 563 X X At the same time there are a number of new emerging markets. This is encouraging thecreation of new companies with committed natural product philosophies. Organic cosmetics,pharmaceuticals and aromatherapy products are being merged together to form new productgroups called cosmoceuticals. Small companies specializing in the creation of naturalperfumes are emerging. New companies producing organically certified bio-active productsbased on essential oils are growing in size exponentially. In the biotechnology sector, newcompanies are producing natural aroma chemicals through bio-transformations. Totally newsupply chains based on new paradigms are developing like the Fairtrade movement. The new markets mentioned above have attracted a number of new traders in essentialoils, with very different backgrounds to established traders, which served the market for manyyears. Many new traders specialise in trade to the aromatherapy market and organics. Forsellers this has opened up the market somewhat more than was the case two decades ago.Many traders are now developing direct links with producers, creating their own closed
  20. 20. Introduction: The Development Issues 9supply chains. New market segments driven by new ideas are nurturing new entrepreneurswho successfully interpret consumer wants and successfully develop and commercialise newproducts. Established companies are also feeling the pressure to change so they remainrelevant to changing market expectations. Multi-national companies, usually not as innovativeas pioneering entrepreneurial enterprises are purchasing some of these emerging ‘new theme’companies outright, so they can enjoy this new market growth. Retail chains over the last decade have become very powerful. Retailers, equipped withmodern point-of-sale scanners have first hand information about consumer tastes andpreferences and decide their product ranges and positioning on the information they collect.Retailers work closely with manufacturers to produce product ranges that aim to maximisesales and profitability [6]. Chain retailing in developed countries controls up to 95% of retailsales and 50-70% in developing countries. Many chains operate on a trans-market basis andexert great influence over multi-national manufacturers. Some essential oil producers alreadysupply products directly to these retail chains with retail oil packs and consumer products,either with their own brands or as private labels. This is expected to grow much larger in thenear future. E-commerce has been another revolutionary influence on the way business is beingundertaken in the marketplace. Essential oil users now issue e-tenders and invitations tosupply electronically. More mid sized producers are turning to the internet to market theiressential oils. Many producers have their own websites where they offer their products. Thishas not been successful as a primary marketing strategy, but is successful when used as asupport tool for other marketing strategies, i.e, distributing these products through physicaldistributors in different geographical markets. The essential oil industry is not without factors that will inhibit future growth. Europeanregulatory authorities like REACH1, SCCP2 and BPD3 are challenging the safety of manyessential oils [7] and asking producers to put up a case as why they should continue to be onthe market without safety warnings on labels. Table 1.1. shows the top twenty essential oilsproduced in the world and their status under EU regulation. This leaves an unansweredquestion of who will represent subsistence producers in developing countries to prove thesafety of essential oils they have been producing for many years? DEFINITIONS OF ESSENTIAL OILS AND OTHER NATURAL AROMATIC EXTRACTS The word essential oil is often used as an umbrella term to cover a number of differentnatural volatile aromatic materials, although strictly speaking not all of these materials areessential oils. Natural aromatic materials can be extracted from the roots, rhizomes, wood,bark, leaves, stems, fruits, flowers and seeds, from a wide variety of plant, shrub and tree1 Registration, Evaluation and Authorisation of Chemicals.2 The Scientific Committee on Consumer Products – previously called the SCCNFP: Scientific Committee on Cosmetic & Non Food Products) is an expert committee set up under the EC Health and Consumer Protection DG. SCCP reports to the EC H&CP Scientific Steering Committee on matters relevant to the EC countries in their defined area. The committee comprises a diverse range of experts in toxicology from industry, the medical fields and tertiary institutions.3 Biocidal Products Directive.
  21. 21. 10 Murray Hunterspecies. Different parts of the same plant may contain compounds which differ in theirchemical composition, and may or may not require different methods to extract thesecompounds effectively. Primarily, the extraction method used determines whether thearomatic extract is called an essential oil, concrete, absolute, tincture, pomade, oleoresin, orbalsam. These methods are summarized in Figure 1.2. Essential oils result from extracting volatile compounds, mainly terpenes and oxygenatedcompounds, through a form of distillation. The constituents of essential oils are synthesized inthe plant through the melavonic and shikimic acid pathways as secondary metabolites, storedin glandular trichomes, oil cells or ducts in plant tissue. The specific method of distillationused will depend upon the characteristics of the aromatic materials present in the plant, thestructure of the plant material and the economics of extraction. Three basic types ofdistillation exist, hydro-distillation, water and steam distillation and steam distillation. Other specialized methods such as vacuum distillation, high pressure distillation anddestructive distillation are used in certain cases, where specific conditions are required. Forexample, low temperatures are sometimes needed to prevent highly volatile materials frombeing destructed or lost during distillation, so vacuum distillation would be used. Wheregreater heat and pressure is needed to extract high boiling volatile materials from the plant,high pressure distillation can be used. Where the plant material itself must be destroyed toremove volatiles, destructive distillation can be used. Oils are also produced from citrus fruits through a process called cold expression.Orange, lime or other citrus peels are pressed until a fine spray of aromatic oil is released.This is specifically called an expressed oil. Cold expressed oils can be distilled under vacuumto remove the terpene hydrocarbons from the rest of the oxygenated components to producewhat is called a terpeneless oil. The other resulting product is known as a terpene oil,terpenes or terpene tails. Where aromatic materials are susceptible to chemical changes from heat processes andthis is undesirable, extraction can be undertaken through washing the plant material with asolvent in a method called solvent extraction. Petroleum ether, acetone, hexane or ethylacetate can be used to wash out specific plant materials, usually volatiles, pigments and waxesinto the solvent. Once the solvent has been evapourated off through vacuum distillation, theremaining material is called a concrete or in some cases a resinoid. The volatile materials canbe further extracted from the concrete through washing the material with alcohol and thenremoving the alcohol through vacuum distillation. The remaining material is called anabsolute. Enfleurage is an old method of extracting aromatic materials from plants, which is beingrevived in aromatherapy. Enfleurage involves laying plant material on specially prepared fatand lard to absorb the volatile materials. After a period of time the odourous material isextracted from the fat by heating. The material is then filtered from the solid particles, leavinga pomade. When the ethanol is distilled off through vacuum distillation, the resulting productis called an absolute.
  22. 22. Introduction: The Development Issues 11 Washing with ethanol and vacuum distilling ethanol away Absolute Vacuum distill away the ethanol Concrete Pomade Solvent Extraction Enfleurage Plant Material Oleoresin Water, water & steam and steam Distillation Cold expression of citrus fruits Expressed Oil Essential CO2 Extraction Oil CO2 Extract Terpeneless Oil Terpene TailsFigure 1.2. The Various Methods of Natural Material Extraction and Products. The use of liquid carbon dioxide as a solvent under pressure to remove volatile plantsubstances is one of the newer methods of extraction. Products produced from this processresemble nature very closely as there is no heat involved. Carbon dioxide is an inert materialwhich doesn’t promote any undesirable chemical reactions. Natural materials extracted in thisway are called CO2 extracts. Very low and non-volatile aromatic materials that are present in woods are extractedthrough a more complex form of solvent extraction, which yields an oleoresin. PRODUCT STRATEGY CHOICES The development of essential oil crops previously focused upon the production of thecrude oil as the venture’s final product. Developing a product for entry higher up the supplychain was rarely considered. The focus was on producing an essential oil which met certainphysical specifications, where the venture would accept the prevailing market prices at thetime. The product would be marketed like a commodity, i.e., sold to a trader or large singlepurchaser as a price taker.
  23. 23. 12 Murray Hunter A customer or user focused strategy What product (essential oil, Physical extract, etc.)? Physical Makes choices parameters? Origin? Tailored to about product, characteristics what type of customer? quality, price, Crude/value added? standard of service and channel & supply chain Quality + Can set above, equal, below market _ Producer Price + Customer (Generally out of Control) User _ There are competitive consequences Standard of Service + The customer may _ not be the final user and have their own Flavour & fragrance, strategies – in this Aromatherapy, to case producer selling manufacturers, to Channel & Supply with commodity traders, to end users strategy via internet Chain (Influence on price/Vol.)Figure 1.3. The Product Strategy Choices Open to a Producer. Generally as a commodity item, there are three basic choices; to sell at a par withcompetitors, at a discount or at a premium. Selling at a par to the competition can be adisadvantage to a new supplier, as potential customers do not yet trust the new supplier.Selling at a discount, could result in competitive retaliation. Selling at a premium price ispossible on a basis of product differentiation, for example as customer perceived superiorquality. Value added products can be sold higher up the supply chain where better financialreturns can be obtained from the market. Through developing a value-added product, moremarketing variables like quality, branding, price, service, channel, promotion and marketpresence take on importance. Value-adding the essential oil is one method that many venturesutilize to grow their business. Higher up the supply chain where the producer can offer the product in value addedforms (i.e., shampoo, cosmetics, medicines, etc). There is much more flexibility for pricesetting. The producer will have to make the decision at which industry and part of the supplychain that development and marketing efforts should be focused, i.e., flavour and fragranceindustry, aromatherapy industry, pharmaceutical industry, cosmetic, agricultural chemicalindustry, etc. The part of the supply chain the producer targets to operate within will influenceand define the type of products they can produce. The product/strategy options open to aproducer is shown in Figure 1.3.
  24. 24. Introduction: The Development Issues 13 Lack of finance for Bank Liquidity production Urbanisation Population Loss of Consumption Confidence Growth And consumption Alternative Production Land Use CO2 Emissions Growing unemployment Food Crisis Resource Global Warming Depletion Rising Costs Decline of Declining eco-system, Changed Decline Temp. Sea Productivity biodiversity Weather of Arable Increase Levels and Patterns Land Rise sustainability Unstable Production Floods Droughts Pests & DiseasesFigure 1.4. Some of the underlying challenges on the essential oil industry from climate change, thefood and economic crisis. THE DEVELOPMENT ISSUES The essential oil industry faces a number of major issues and challenges includingclimate change, the food and economic crisis. Other important issues the industry is facinginclude wild plant collection, the bargaining power of producers, the regulatory system, therural crisis, the templating of natural aromatic molecules and patents, research andsustainability. These issues are discussed briefly in the following sections.Global Warming, the Food and Financial Crisis Three major issues, climate change, the food and economic crisis form a great part of theunderlying general environment that the essential oil industry must exist and operate within.Issues generated by climate change, the food and economic crisis are extremely complex andsubject to intense debate and analysis, both scientifically and politically. Figure 1.4. depictssome of the underlying issues and challenges to the essential oil industry from climatechange, the food and economic crisis. Some of the basic issues are summarized very simply below. Population growth requires a corresponding increase in the production of goods andservices to meet growing consumption demands (needs and wants). Rapid population growthis increasing consumption, leading to higher rates of production, which increases carbondioxide emissions. The growing carbon dioxide traps UV radiation in the atmosphere, rather
  25. 25. 14 Murray Hunterthan allowing it to escape back into outer space. This creates a condition where theatmospheric temperature will slowly rise. The increase in atmospheric temperature creates anumber of secondary effects which include altering weather and tidal patterns, which in turncause floods, droughts, heat waves, cold snaps. These secondary effects give rise to changingpest and disease cycles, faster loss of top soils due to adverse weather and the increase of aridland area. Continued warming is melting the polar ice caps which cause rising sea levels. Theresults of these environmental activities are an increase in the incidence of crop failures. Mankind’s unsustainable production practices at our current state of technology isleading to the depletion of the Earth’s natural resources. This is also leading to the decline ofbio-diversity. This causes the cost of production to rise due to the need to use more inputs perunit of output. There are also increasing levels of outright crop failures. Food costs are furtherheightened through the rising costs of land due to greater urbanization and industrialization,the shortage of labour and increasing operational costs. During 2008, US housing prices rose to the point where they reached a peak and began tocollapse. Prices started to decrease to the point where housing mortgage equity was notsupported by equity in the house values. When many borrowers defaulted on their repaymentsand banks could not recover their loans through mortgage auctions, a liquidity crisis began.Banks cut lending to manufacturers and retailers which need liquidity to operate. This led to aloss of confidence, decline in consumption and corresponding decline in production andworker lay-offs. The loss of confidence, increasing unemployment and corresponding creditsqueeze started a downward spiral in demand, production and consumption, potentiallyleading the World into recession. Through the interrelated World economy the effects of the US liquidity and confidencecrisis is spreading to Europe, Japan and Australia. European banks have lent money to banksin the US and Eastern Europe where there is risk of major loan defaults due to theseeconomies shrinking in economic activity. Decreasing consumption in developed countries isleading to lower product orders from Asian manufacturers. The crisis is now spreading to theAsian region as well, where unemployment is beginning to rise. Recovery in Asia will dependupon how well domestic markets sustain demand and growth. There are concerns that because of the wide extent of this global economic crisis, theissues of climate change and food scarcity will be put into the background by governments ata time where many believe they cannot be ignored. Global warming, the food and economic crisis are already affecting the essential oilindustry in a number of ways. Global warming increases the incidence of risk in generalagricultural production. As regions become warmer, droughts set in and seasons change,some areas will become unsuitable for the production of certain essential oils, while otherareas will become suitable. Agronomic practices will have to take account of the technicalissues brought about from the effects of global warming. The global economic crisis willchallenge the stewardship of business. The marketing of essential oils will take place inmarkets that are declining, rather than growing. The raising of funds for essential oil researchand production will also be expected to be more difficult because of the financial crisis. Some of the basic issues underlining the food crisis are also relevant to essential oilproduction. Essential oils will have to compete for land against other potential land uses. Thismeans that essential oils must make a higher return per unit of land than food crops forfarmers to be enticed to cultivate them. This will mean higher prices for essential oils in yearsto come.
  26. 26. Introduction: The Development Issues 15Market Turbulence Like other commodities, essential oils are subjected to price fluctuations. This is theresult of mismatches in supply and demand, particularly the supply side. As essential oils areagricultural products, they are affected by adverse weather, especially heat, droughts, naturaldisasters, pest and diseases, labour shortages and competition for land use. The attraction ofother crops also causes supply problems, (i.e., sugarcane production in Brazil). The situation for a number of essential oils over the last few years has proved noexception, where a number of oils have suffered supply problems. There have been shortagesof aniseed oil (weather), bergamot oil (weather), coriander oil (seeds used for spice as pricesmore attractive), dill and fennel oils (excessively warm weather), geranium oil (farmersswitched to growing food crops), lavender and lavendin oils (excessively warm weather),lemon oil (weather), litsea cubeba oil (shortage of labour), and rose oil (shortage of labourduring harvests). Sometimes price fluctuations and supply shortages are enough to force customers toswitch to substitutes. This has happened to a number of essential oils, which became pricedout of the market or the shortage forced cessation of product use. Tea tree oil wasdiscontinued as a product line in some European retail chains in 2005, when there werechronic shortages of supply [9]. Patchouli oil was replaced by many users in fragranceformulations with the development of synthetic aroma chemicals that are cheaper and stablein price. Shortages of litsea cubeba oil encourage the use of synthetic citral. The rising priceof sandalwood will encourage the use of synthetic alternatives, which may leave only a smallremaining market for fine fragrance use, if confidence is lost in supply by the majority ofusers. There has also been a drastic decline of essential oils that are reliant on wild collection.Essential oil price fluctuations can threaten the long-term usage of an essential oil and forcesubstitution to low cost mix of stable synthetic substitutes. Other factors that cause market turbulence include the rise in the price of petroleumwhich increases the costs of distillation. Some oils like Ylang ylang require over 20 hours ofdistillation and clove bud requires 48-50 hours. Thus diesel and bunker fuel is not a minorcost in the production of the oils. Steel prices are increasing, making the costs of drums to goup, China is tightening environmental regulations and urbanization is creating shortages ofrural labour. Adulteration of essential oils is still of great concern. There are still a number ofcases of adulteration of essential oils, which cause concern and loss of integrity in themarketplace.Wild Collection and Threatened Plant Species There are between 300-400 natural aromatic materials, including essential oils, concretes,absolutes, resins, oleoresins and balsams available commercially in the market. Almost 50%of these materials are extracted from trees that are hundreds of years old or rare plants thatcannot be easily domesticated [10]. These are collected from the forests, jungles and bushlands around the world. This raises the issue of sustainability. Over the last few decades anumber of flora species have become threatened with potential extinction, due to overharvesting.
  27. 27. 16 Murray Hunter The pricing mechanism heavily influences what happens in wild plant collection. Whenprices are high, two major things can happen. The initial response is often a frenzy of collection by various collectors, which results inharvests well above demand levels. This reckless manner usually occurs because of lack oflaw enforcement in remote areas that fails to preserve stocks of the species for futureharvesting. Secondly, if the plant can be domesticated entrepreneurs will commence planting of thecrop. For example, supply shortages and continued high prices have encouraged a largenumber of people to cultivate both Aquilaria and Santalan species. This will most likely leadto a massive oversupply situation in the future. The Convention on International Trade in Endangered Species of Wild Fauna and Flora(CITES), is an intergovernmental agreement ratified by 189 nations under the InternationalUnion for the Conservation of Natural Resources (IUCN), which compiles a list of threatenedspecies that should not be traded. Table 1.2. shows a list of potentially endangered speciesrelevant to the aromatic trade. Listing plant species as endangered is one issue, enforcement isanother as many of these endangered species are still traded in significant quantities [11]. Table 1.2. A List of Potentially Endangered Aromatic Flora Species Common & Location Status Use and Comments Botanical Name Chinese Rice Flower China, Cambodia, IUCN Red list of A flower oil and absolute used in Aglaia odorata Laos, Myanmar threatened species fine perfumery (Lour.) of threatened species in 2007 West Indian Florida, Belize, Costa Predicted to Limited use in soap and Sandalwood Rica, Haiti, disappear because deodorant perfumery Amyris balsamifera Honduras, Nicaragua, of over-exploitation L. Cuba, Jamaica, [12] Puerto Rio, Venezuela, Colombia, Ecuador Aniseed Myrtle Australia, in North Species has a very Very minor quantities sold for Backhousia anistata East NSW small geographic aromatherapy use. Some small range of 100km cultivation is going on. [13]. Agarwood Over the forests and Most species listed Sold as an incense material and Various Aquilaria jungles of South-East on CITES appendix essential oil for fine perfumery. Spp. Asia II [14]. A. Large plantations being banaensae, developed in Vietnam, Thailand, beccariana, Laos, Malaysia and Indonesia. crassna, Human infected wood said not to cumingiana, hirta, be as good quality as naturally malaccensis, infected wood. microcarpa, rostrata, and sinensis, on IUCN Red list of threatened species in 2007.
  28. 28. Introduction: The Development Issues 17Wormwood, Various Europe Considered rare Essential oil of A. gracilis usedArtemisia species as a flavour in a local European liqueur genipi.Asafoetida, Ferula Iran Stocks deteriorating Used as a material in savouryassa-foetida L. due to unsustainable flavours. exploitationBoldo, Peumus South America Local authorities Leaves produce an essential oilboldus Molina restricting used in flavours (FDA exploitation approved).Buchu Leaf, South Africa Vulnerable stocks in Essential oil used in flavouringAgathosma betulina the wild, due to for blackcurrant flavours. Also harvesting for oil used in fine perfumery. Now a and tea, diminishing cultivated crop. habitat [15].Holy Weed, Bursera Mexico Over harvesting Now an essential oil of minorglabrifolia threatening importance. existence of species [16].Calamus, Acorus Widely distributed Becoming rare in Essential oil from rhizome.calamus L. throughout Europe India [17], but Employed as a traditional and India, also in variety of opinion as incense oil. Also used as a flvour South-East Asia to whether should ingredient, although restricted be restricted due to use by EU Food Regulations wide distribution. [18].Candeia Plant, Found in the Atlantic The tree is The wood is a source of (-)-Eremanthus Brazilian rainforest. becoming rare due alpha-bisabolol [19].erthropappus (DC) to exploitationMacLeish,Vanillosmopsisarborea (Aguiar)DuckeCanarium zeylanicum Sri Lanka IUCM Red List of Used as an oleoresin for incense.(Retz.) Blume Threatened species 2007Cedarwood Atlas, At 1500-2500m IUCM Red List of Essential oil produced fromCedrus atlantica altitude in Atlas Threatened species waste wood. An absolute is also(Endl.) Manetti ex Mountains, Morocco 2007. Production produced.Carr has declined substantially.Cedarwood Above 2000 m on the IUCN Red List of Crude and rectified oils fromHimalayan, Cedrus slopes of the threatened species sawdust and wood shavings, andeodora Himalayan in 2007 absolute and a fir needle oil Mountains from available. Production has Afghanistan to decreased dramatically to almost Pakistan. nothing. Also used in aromatherapy, perfumery and a product extracted through destructive distillation as a veterinary medicine.
  29. 29. 18 Murray Hunter Table 1.2. ContinuedCommon & Location Status Use and CommentsBotanical NameCedarwood Kenyan, 1000-3000m range IUCN Red List of A now almost unattainableJuniperus procera along the mountains threatened species essential oil. Species sufferedHochst ex Endl. of Kenya, and in 2002 from insect infestations and Ethiopia. Also in dieback [20]. other African countries and Saudi Arabia, Somalia.Cigar Box Wood, South and Central Illegal export in A wood essential oil.Cedrela odorata L. America many countries but trade continuing [21].Cinnamomum Spp. China and India IUCN red list, Rectified crude oil produces hoCinnamomum Chinese authorities wood oil, which is used as acamphora L. var. ban harvesting. source of linalool, acetylated oillinaloolifera, produced through esterficationcinnamomum with acetic anhydride used tocamphora Sieb var. reconstitute some essential oilsglavescens Hayata and extend lavender oil. Also(Ho Wood) used a natural linalyl acetate.Cinnamomum Vietnam and China IUCN red list of As a source of safrole (>95%),parthenoxylon (Jack) threatened species which is used to produceMeisn. in 2007, Chinese piperonyl butoxide. authorities ban harvesting.Cinnamomum Northern India Over exploitation of Essential oil from steamtamala, Tejpat oil species. distillation of the leaves.Commiphora Spp., Ethiopia, Eritrea, IUCN red list of A source of opoponax, resinOpoponax Kenya, Somalia, also threatened species exudes from the bark naturally, species in India in 2007 but can be collected through making incisions. Also has numerous medicinal uses.Copaiba Spp. C. Rainforests in Brazil. Threatened by Used as a fixative in perfumery.reticulate, C. logging [22].guianensis, C.multijugaand C.officinalis.Costus, Saussurea India, and China Critically Essential oil of roots and plant,lappa C.B. Clarke endangered and concrete and resinoid from roots. listed as a negative Material banned by IFRA for use export by the in cosmetics. Now used for Ministry of aromatherapy. Commerce, India. Some cultivation occurring [23].Elemi, Canarium Indonesia, IUCN red list of Essential oil distilled from theluzonicum Philippines, Pacific threatened species pathological resin of the tree. Islands and Papua in 2007 Also CO2 extracts produced, New Guinea. probably in Europe. Used in
  30. 30. Introduction: The Development Issues 19 perfumery.Canadian Fir Balsam, Canada IUCN red list of Essential oil distilled from theAbies balsamea (L.) threatened species needles and twigs of the tree.Mill. in 2007 Used in perfumery and as a varnish.Silver Fir, Abies alba Northern Europe IUCN red list of Oil distilled from cones, needles(L.) Mill. threatened species and twigs and used for pine type in 2007 fragrances.Galbanum, Ferula Pakistan, Over-exploitation Gum exported to Europe, oilgummosa Boiss Turkmenistan, Iran, distilled from gum for perfumery and India. use.Gaultheria India, Himalayas, Over exploitation Medicinal and perfumery use.fragrantissma Wall. China, Java.(Wintergreen)Gentiana Spp. Central Europe, also Over-exploitation, An absolute developed from theGentiana lutera L. France, Spain, wild harvesting roots for flavouring. Turkey, Albania and banned in Spain. Romania.Ginger lily, Himalayas, Over collection in Used as an essential oil inHedychium throughout South- India. perfumery.coronarium Koenig East Asia, India, China and HawaiiGonystylus Spp. South-East Asia IUCN red list 2 of These trees produce a lower threatened species quality of gaharu than the in 007 Aquilaria SppGurjun, A number of species Logging has Essential oil obtained fromDipterpcarpus Spp. throughout South- dwindled tree steam or vacuum distillation of East Asia populations the resin. extensively. IUCN red list of threatened species in 2007.Hinoki Wood, Japan Protected by Essential oil from sawdust,Chamaecyparis Japanese waste, and off-cuts. There areobtuse (Siebold & Government, IUCN also root and leaf oils.Zucc.) Endl. red list of threatened species in 2007.Spanish Juniper, Morocco, Algeria, IUCN red list of A rare oil used for leathery notesJuniperus trurifera L. Spain and Corsica. threatened species in perfumery. in 2007Juniperus Spp. J. Mediterranean IUCN red list of Cade oil is obtained fromoxycedrus Europe, Portugal, threatened species destructive distillation of the France, Morocco, in 2007 wood and branches of the shrub. IranKaempferia Spp., K. Throughout East and Becoming over Essential oil of K. galangal usedgalangal and rotunda South-East Asia exploited and facing locally in hair washes, etc [25]. extinction [24]. On negative export list of Ministry of Trade, India.
  31. 31. 20 Murray Hunter Table 1.2. ContinuedCommon & Location Status Use and CommentsBotanical NameSpiked Ginger-lily, India, Nepal, Over exploited Essential oil produced from theHedychium spicatum Malaysia and Japan. dried tuber roots, used in limitedSmith amounts in perfumery.Brazilian Sassafras, Brazil and Paraguay Logging seriously As a source of safarole nowOcotea pretiosa threatening this largely replaced by exploitation(Nees) Mez. species. of Cinnamomum parthenoxylon in Vietnam.Olibanum, Boawellia Somalia, Oman and Over exploited and Trees tapped for resin wherecarterii Yeman. damaged due to essential oil is distilled from dry unskilled collection, resin. An absolute and resinoid result of clearing for also produced. Used in fine agriculture. IUCN perfumery. list of threatened species 2007Pine Spp. P. cembra Europe, Russia, IUCN red list of Gum oleoresins and turpentineL., P. roxburghii USA, Canada, India, threatened species oil. Also twigs, needles andSarg., P. merkusii, P. Pakistan and in 2007 cones of some species distilledRadiata, P. Himalayas. for pine needle oils, similar toMenziesii, P. pumila, Abies oils.P. silvestris, P.sibirica, P. eeliotii, P.strobus,Prostanthera Spp., P. Tasmania, Victoria IUCN red list of Very small production inrotundifolia, P. and New South threatened species Australia for aromatherapy.granitica, P. askania, Wales in Australia in 1997.P. hindii, junonis, P. and New Zealand.palustrisRavensara anisata Madagascar Threatened by over Essential oil distilled from bark. production (damaged done by removing bark)Rosewood, Aniba Brazil, Colombia, Gross over The wood chips are steamSpp., A. rosaeodora, Ecuador, French exploitation [26]. distilled. Used in perfumery.A. fragrans, A. Guiana, Guyana, IUCN red list ofcanelilla, A. Peru, Suriname, threatened speciesparviflora Venezuela. 2007.Australian Northern and Exhausted through Used in perfumery but not ofSandalwood, Western Australia wild collection [27]. same quality as East IndianSantalum spictum Sandalwood.East African Tanzania, Algeria, Protected species in Essential oil and CO2 extractSanadalwood, Osyris Zimbabwe, Tanzania sine 2005. used in perfumery.lanceolata Hochst & Swaziland.Steud.East Indian India, Timor Leste, IUCN red list of Essential oil used in fineSandalwood, Some Indian Ocean threatened species fragrance. Availability hasSantalum album Islands, Indonesia, 2007. dropped dramatically. Philippines, Australia. Aslo

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