food Marketing - Technology 2/2023

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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
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