Supply chain crisis spurs industry shift toward local, flag CPhI exhibitors

10 Nov 2021 --- A growing trend to “source local” across the EU may accelerate as the effects of the supply chain crisis hit nutrition companies. Exhibitors at CPhI 2021 in Milan, Italy, tell NutritionInsight how this has wreaked havoc on production costs and delivery times.

Demand for local sourcing has been ongoing for a number of years, linked to tougher regulations in the EU and US, which companies use to boast a quality stamp of approval. This is also in line with consumer demands for green and clean labeling.

“The natural trend is moving production to Europe more and more for both ingredients and finished products,” says Rafał Pietruszyński, managing director of Polish botanical extracts manufacturer Greenvit.

Asia dominating supply
The industry’s reliance on Asia is acutely observed for specific ingredients. Citric acid, for instance, is heavily sourced from China.

“However, due to the energy crisis and also the supply chain crisis, China is not exporting citric acid to the market,” Dr. Joswin Kattoor, head of business development and marketing at Dr. Paul Lohmann notes. 

“This means a shortage in the market, which affects our purchasing costs significantly.” 

“Customers from pharmaceuticals and nutraceuticals are recognizing more and more that they would not like to depend on Asia for raw materials and products because of supply chain disruptions,” Kattoor notes.

According to Dr. Michael Baumann, IFF global strategic marketing manager, China also dominates the market when it comes to vitamin C, which further flags the issue of being too dependent on one region’s production. 

Attempts to minimize risks
Disruptions across the global supply chain, exacerbated by the COVID-19 pandemic, have affected industries ranging from food to nutraceuticals.

The supply chain crisis may prove to be the catalyst that accelerates local sourcing within Europe. “Originally, you needed to wait three weeks to buy something from China by sea. Now the cost of freight went up by eight times and item deliveries have been hit with delays,” Pietruszyński notes.

“We are seeing some changes in terms of trying to source more locally to shorten supply chains to minimize certain risks,” adds Baumann.

He estimates that around three quarters of companies have seen challenges in their supply chain.

Baumann further speculates the industry may begin to change approach where ingredients are single-sourced or from one region.

Tougher regulation
Product contamination is another factor spurring the rise of local sourcing. 

“Ingredients from outside Europe are often very contaminated, so businesses start to really appreciate things that are sourced and manufactured in Europe. The whole process is controlled,” Pietruszyński notes.

For Wojciech Furtak, vice president at Laboratoria Natury, the issue dates back around five years, when the global market had a lot of low-quality raw materials. 

“There was some information that some APIs were cross-cutting or ingredients had residues that they shouldn’t have.”

“Customers right now are not asking for cheap quality raw materials or cheap solutions from India or China. They are looking for something much more sophisticated with proven efficiency and quality.” 

Regulation in the EU is far more strict and demanding of traceability, according to Oscar Ruzafa, sales executive at Select Botanical. 

“It is more demanding of ‘where did you buy that plant? What kind of treatment did it go through?’”

Consumer-led market 
Another primary driver behind the shift is consumer demand, Ruzafa notes. Specifically, people are more concerned about organic products and green labels. This demand has not only been shaping the regulations but also industry practices. 

As end-users want to know more about where their product comes from, when items are sourced locally, consumers can then know the ingredient was from within the continent meeting sustainability demands,Baumann estimates some 75% of companies have been affected by supply chain issues.  Ruzafa highlights. 

“If you are getting your product from a European producer, you know that a herb won’t have been transported from China thousands of kilometers away. You will have helped the local economy and also the environment,” he highlights. 

Thus, logistics are faster and more efficient, particularly in light of the supply chain crisis, he adds.

Innovative solutions
Global companies that have partners across the world are multi-sourcing, Kattoor notes. Though Dr. Paul Lohmann became far more independent from Asia over the past ten years, having trusted partners with suppliers around the world allowed them to deliver the quantities needed. 

A similar observation is echoed by Baumann, who notes that global companies ensure supply to regional customers by producing in different locations. 

These challenges, however, present a chance to innovate. Italy-based EPO, which manufactures botanical extracts, says that supply chain issues have not only allowed the company to become more sustainable but think outside the box.

“We discovered that some plants that grow outside Europe can also be cultivated in Italy. For example, caiguas also grow in Italy,” Dr. Nadia Limonta, export sales manager for the company, notes. 

By Andria Kades, reporting from CPhI in Milan