Posted15 December 2020

Connect Search take a look at the growth of the global Ingredients Sector, despite Covid-19.

The global Ingredients market is anticipated to grow at a significant rate between 2020 and 2025, reflecting the shift in the use of ingredients in recent years. In 2020, the market has grown steadily, but the growth rate is expected to rise. Below, we examine some of the key trends behind this projected growth.

Bulk ingredients / Emerging markets impact – fast food

The bulk food ingredients market is predicting a CAGR of 4.9% during the forecast period (2020 - 2025). The market is significantly driven by evolving lifestyle factors, such as demand for packaged convenience and ready-to-eat foods like confectionery items, biscuits, beverages, chocolates, etc. Robust growth in foodservice retail chains, driven by an increase in the number of eateries and cafes, which purchase huge quantities of food ingredients from the wholesale market has further boosted market growth. However, factors such as lack of infrastructure facilities and easy bacterial contamination of bulk food ingredients, along with price fluctuations of bulk food ingredients are expected to restrain global market growth to some extent.

The Asia-Pacific region has been the fastest-growing, owing to growing urbanization coupled with increasing disposable incomes, leading to greater spending and improved standard of living in countries such as China, India, Malaysia, Australia, and New-Zealand. These factors have all increased the demand for processed foods.

Countries in the Asia-Pacific region also have comparatively low-cost labour and lower ingredient prices, providing a further fillip to the market. The Food Processing Ingredients market is likely to witness a stable growth rate over the forecast period driven by growing demand from emerging markets. Increasing family disposable incomes coupled with strengthening buying power will continue to drive Food Processing Ingredients market growth between 2020 and 2025.

Beverage ingredients

2020 is set to see growth in botanical beverage additions that extend beyond the tea category.

The number of global food and beverages containing a botanical ingredient grew at 8% annually from 2014-2018, according to Innova Market Insights. A 22% CAGR was noted in alcoholic beverages with botanical flavouring, making it an important area of growth. One of the most notable trends of 2020 has been ready-to-drink beverages (RTDs), allowing companies to mix their flavourful tonics with botanical gins. In addition, the beverage industry is witnessing a rising number of sparkling water brands adding natural botanicals. A recent example of such innovation is Aura Bora’s new range of herbal sparkling waters that consists of five varieties: Cactus Rose, Lavender Cucumber, Peppermint Watermelon, Basil Berry and Lemongrass Coconut.

The demand for CBD infusions has seen further growth due to rising anxieties amid stay-at-home restrictions. Trip’s recent Lemon Basil-flavoured CBD beverage was released earlier this month with the aim of providing calm during the chaos.

Protein ingredients

In terms of plant protein, new compositional research and modified high-moisture extrusion processes are helping market growth. For instance, plant protein-based chocolates witnessed strong demand in the market from consumers who do not consume dairy products. Plant-based milk has also seen significant growth in recent years, with an increasing number of people turning to dairy-free options.

Soya milk, almond milk and oat milk have long been some of the most popular milk alternatives, but this sector has seen recent innovation and experimentation with other ingredients to provide new offerings. US plant-based beverage and snacks manufacturer Mamma Chia recently launched a dairy-free milk alternative range made from chia seeds. According to Mamma Chia, each serving of organic Chiamilk “is a nutritional powerhouse” with omega-3 and “more calcium than a glass of traditional milk”. The industry has seen a variety of other innovative ingredients used as alternatives to dairy, including avocado milk, providing different flavours and options. According to a report by Market Research Future, the global plant-based food market is predicted to see a 13.1% CAGR from 2019-2025

Sports nutrition

The sports nutrition industry is rapidly becoming mainstream, which is growing the market for dairy ingredients, such as whey protein, casein, and milk proteins, among others. Dairy ingredients render the desired nutritional value to sports food products, driving their increasing usage in various supplements.

M&A – how are companies responding to ingredients growth opportunities?

According to Zenith Global, 2019 saw another record broken for mergers and acquisitions within the food and drink industry. The most active sector was ingredients, with 65 transactions recorded for the year. This figure is up by three from 2018. Some of the big global flavour companies are increasingly looking at adjacencies such as pet food, where they have not been as strong historically, whilst also focusing on the ability to deliver solutions from natural sources.

“The flavour consolidation opportunities are increasingly scarce, but I believe that is only a small piece of why big flavour is looking at adjacencies, new end markets and new natural sources of ingredients. Part of it is that the world is moving toward natural and migrating to different end markets,” – Tim Larsen, Managing Director, Houlihan Lokey’s Consumer, Food & Retail Group.

The full impact of Covid on the food and ingredients market will likely become clearer over the next 12 months but if recent activity is anything to go by, there would seem to be no shortage of innovation and opportunities for businesses to widen their portfolio, particularly as emerging markets develop rapidly. Should these trends prevail, we should continue to see a thriving, innovation-driven Ingredients sector.