food Marketing - Technology 2/2023

Ingredients
Black Swan Hydrocolloid Events
by Dennis Seisun & Nesha Zalesny
Some developments in hydrocolloids
are hard to believe even if there is no
question that we are living them. Some
prices have reached levels unheard or
undreamt of. There is tightness if not
outright shortage in supply of some
key hydrocolloids. The pandemic and
other factors have resulted in delivery
delays of many months, not to mention
shipping charges increased by a factor
of 10 or more in 2020-2021. Regulatory
issues combined with political
actions have resulted in nightmarish
documentation and compliance
requirements. These were a fact
of life over several recent years for
both, a supplier of hydrocolloids and
a user/buyer of hydrocolloids. They
can be considered black swan events
which, until they happened would have
been deemed highly improbable if
not impossible. For those not familiar
with the term, swans were believed
to be ONLY white. Black swans were
thought to be non-existent until they
were discovered in Australia. What
was deemed impossible for many
hydrocolloids became reality. The
years 2020-2022 are the peak of ‘covid
19’ years with special considerations.
The covid pandemic itself, cannot
really be called a Black Swan event.
Similar if not worse pandemics
have been experienced and a future
one has been forecast with some
certainty. The pandemic, however, did
enable and accelerate the advent of
several hydrocolloid Black Swans. An
interesting book on the subject of Black
Swans is titled, “The Black Swan: The
Impact of the Highly Improbable” by
Nassim Taleb. Let us consider in more
detail now, some Black Swan events in
hydrocolloids.
Pricing is a key factor of interest to
buyers and producers of hydrocolloids.
Producers wonder, “How much can
I get for my hydrocolloid….” And
buyers think, “How little can I offer to
get the hydrocolloid I need?”. Several
years ago at one of IMR’s hydrocolloid
conferences, the theme of “Open
Innovation” was the buzz phrase du jour.
Closer co-operation between supplier
and buyer would not only result in a
better business model for both parties,
it would offer stability in supply and
price. Most important, it would foster
an environment of innovation on both
sides of the transaction. Dynamics of
today’s supply chain have changed this
short lived philosophy. Negotiations
are back to more traditional adversarial
negotiations. Of course, contracts
continue to be negotiated but they are
not set in stone and indeed are not set
at all in cases of force majeur. Annual
contracts and multi-year contracts
were common in the past. Now many
Table 1: Source: IMR Quarterly Review of Food Hydrocolloids – Tableau Analysis
contracts, if offered are for 6 months
or 3 months only.
A few black swans in pricing have
appeared for several hydrocolloids
including for example, LBG, xanthan
gum and some of the more popular
starches. LBG is used nearly exclusively
in food and pet food applications.
Xanthan gum and starches, however,
have very large industrial and oilfield
applications. The historical pricing
of these three key hydrocolloids was
relatively steady until a few years ago.
Nothing in past pricing trends could
have allowed a supplier or user to
envision the dramatic changes which
occurred in 2020-2022 and continue
into 2023.
Each hydrocolloid ‘Black Swan’ is
discussed below:
There was an LBG crisis in 1994-1995
which was a first in the history of LBG
until then. Previous prices tripled
and quadrupled. In Q1-1993 LBG enduser
prices were about US$6.50/kg
(roughly 2 ½ kg of seeds are needed
per kg of LBG). By Q1-1994, the price
of LBG had more than quadrupled to
US$12.75/kg. (Source IMR’s Quarterly
Review of Food Hydrocolloids). There
was a dramatic drop by 1996 and
then a continued price drop. By early
1999, market pressures had driven
LBG prices back down to $6.60/kg
and even a little below the pre-crisis
levels of 1993. Things remained
steady for several years. Although
there was some fluctuation, LBG
prices never exceeded US$10.00/kg.
Never until 2020 that is. Starting in
2017-2018 a steady price increase led
to a crescendo of increases in 2020
through 2022. The LBG situation of
2020-2022 made the prior “crisis”
of 1994-1995 seem like a blip. The
situation for LBG became so dire in
2020-2022 that spot prices reached
a peak of €100.00/kg ($105/kg) IF one
could get it. Of course prices have
since crashed albeit remaining well
above the $6.60/kg of decades ago. A
black swan event which no producer
8 food Marketing & Technology • April 2023