Gelatin: Rising Prices; Growing Asian/South American Demand

Spend Matters welcomes a guest post from James Hutchings, at Mintec Ltd.

Gelatin, when mixed with water, provides texture and thickens as it forms a gel around five-to-ten times its original weight. It's mostly produced as a by-product from the meat and leather industries, as it is derived from collagen, a protein manufactured from pig skins, cattle hide and bones. A small proportion is also obtained from the skin of deep water fish such as cod, haddock and pollock; this is partly for religious reasons.

Annual production is currently slightly more than 0.33m tonnes and is projected to grow at 3% per annum over the next few years. About 40% of the world's production comes from Western Europe, 20% from North America, 18% from Asia, and 17% from Latin America, with the remaining production scattered throughout the rest of the world.

Prices have risen recently as there is concern that the higher feed prices seen due to the recent drought in Russia and the US may be leading to a fall in the number of the animals from which gelatin is produced. Further animal welfare reforms in the EU from the start of 2013 are also likely to reduce the size of the pig herd there. Rising demand for leather and a shortage of pigskin and animal bone has caused increasing problems and led to the closure of some factories unable to obtain sufficient raw material. This has led to a slowing in the rate of supply increase.

In addition, prices in China have risen as stricter production standards and more inspections were imposed after a number of commonly made drugs in China were packed into capsules made from the industrial rather than the edible grade of gelatin near the start of 2012. The industrial grade had been produced from inexpensive scraps of leather that contained excessive levels of chromium used to tan the leather.

The market has become increasingly integrated and consolidated over the last few years and is now dominated by a very small number of multinational companies. Mergers driven by a need to increase competitiveness and a consolidating customer base have been a recurring theme over the past decade. Growing Asian and South American demand along with the likelihood of rising prices are themes to watch out for in the years ahead.

- James Hutchings, Mintec Ltd.

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