Pectin Market Squeezed by Citrus Supply

Have you ever wondered about the value of wasted peels from lemons, oranges and other citrus fruits? The recent shock that jolted major food and beverage (F&B) and healthcare behemoths a few months back provides a possible answer. Earlier this year, F&B sourcing leads faced a sudden and unanticipated hike in prices for a small but extremely critical component in their production cycle: pectin. Pectin is a naturally occurring polysaccharide found in fruits, including lemons, oranges, apples and berries, and when heated with sugar it acts as a thickening agent. More than 90 percent of the pectin produced globally is used in the food and beverage industry, followed by healthcare, cosmetics, personal care and other packaging applications.

The supply of citrus based pectin is currently squeezed; there is an estimated shortage of over 500 metric tons of pectin in North America alone, due to scarcity in supply of a key raw material - citrus peel. This is a massive shortage considering the small volume of pectin extracted from each fruit, and this has caused pectin producers to propose a rise in contract pricing by up to 30 percent for 2016 alone. The low supply of pectin has also increased lead time for major players from 30 days to almost 75 days. Over the past 3 years, the price of pectin products has risen by an average of 70 percent, caused by subdued supply of raw materials, double digit growth in demand and rising processing costs.

Brazil is the largest producer of pectin, followed by Mexico and Denmark. Argentina is a key region for growth of key feedstock, citrus fruits, although there is no major production capability for pectin in Argentina. Additionally, unfavorable weather patterns in Argentina and a decrease in demand for lime juice have translated into fewer lime trees being planted.  An outbreak of citrus greening disease has further caused this shortage of citrus fruits.

What is the market doing about this? Here is some good news for buyers: Recent studies show that most of the natural gums, including guar and xanthan, can be substituted for pectin in F&B and healthcare applications, due to their superior binding nature. Some properties of the closest substitutes, including carboxymethyl cellulose (CMC), gelatin and guar gum, match pectin’s characteristics for thickening, gelling, stabilizing, detoxification, binding, coating and dietary fiber. There are also some synthetic alternatives like polyurethane, which are not usually considered suitable for skin contact applications.

What is interesting is that despite a shortage in supply of raw materials, large players are increasing their pectin manufacturing capacity to meet growing demand. Cargill recently acquired FMC’s pectin plant to increase their production capacity. CP Kelco, the largest manufacturer of pectin with almost 40 percent of market share, has direct tie ups with farmers who produce pectin feedstock, while other players engage with juice manufacturers and use citrus fruit peels to produce pectin. Prices will likely see further hikes through 2017 until new capacity comes online and balances the market over the next couple of years.