Financial Times

Pepsi eyes Lankan spice oils for flavouring colas
An R&D executive from the beverage multinational PepsiCo, Inc. was among a team of top buyers and traders of essential oils and oleoresins who visited Sri Lanka on a study tour recently, giving some indication that the soft drinks manufacturer might be planning to source part of its requirements of nutmeg or other oils from the island.

Pepsi and its rival Coca Cola both consume at least 200 MT each of nutmeg annually, making them the biggest corporate buyers of the nutmeg oils, the world requirement for which is around 500 MT a year.

Nutmeg is used by beverage firms such as Pepsi as an ingredient in their popular colas and other drinks and the visit by Zena Bell of Pepsi Co R&D could indicate the company is planning to diversify its sources of nutmeg supply. Indonesia is the biggest supplier of nutmeg oil to Pepsi Cola and the company may be now looking for alternative sources of supply because of the volatile political situation in the Indonesian archipelago.

"Pepsi's main requirement for nutmeg is as an ingredient in their drinks," said Fazal Mushin of Link Natural Products, who helped organize the visit by a team from the International Federation of Essential oils and Aroma Traders (IFEAT).

"Nutmeg is now coming from Indonesia, which is Pepsi's biggest supplier, but given the political situation in Indonesia most companies are looking at alternative supply sources," Mushin said. "Pepsi is coming out with all sorts of flavours in new drinks - they always have something new. They want a more secure supply chain because they can't afford to have any break in their supply chain of raw materials."

Sri Lanka's main spice exports are cinnamon bark and cinnamon leaves as well as cloves, pepper and nutmeg. The entire spice industry in the island is capable of supplying about 100 MT of nutmeg oil. Sri Lanka exported 1,369 MT of nutmeg and mace in 2004 and earned Rs 487 million.

The nutmeg tree is a large evergreen that produces two spices - mace and nutmeg. Nutmeg is the seed kernel inside the fruit and mace is the lacy covering on the kernel. Spice oils are the volatile components present in most spices and provide the characteristic aroma of the spices. Such oils are normally extracted by steam distillation.

Spice oleoresins are mainly used in processed meat, fish and vegetables, soups, sauces, chutneys and dressings, cheeses and other dairy products, baked foods, confectionery, snacks and beverages.

The Pepsi official was in Sri Lanka to study the production of the island's spices and their products as a member of the IFEAT, the apex body representing the whole supply chain of essential oils and spices from producers and traders up to end-users such as flavouring and fragrance firms.

The organisation now has a membership of over 250 companies from more than 40 countries. The 11-member IFEAT team was taken on a comprehensive field tour to the main spice producing areas such as Katuwana, Ambalangoda, Kosgoda, Kabaragala, Wattegama, Katugastota and Matale. It was organised by the three Sri Lankan members of IFEAT, being H.D. de Silva & Sons, EOAS and Link Natural Products along with Spices and Allied Products Producers' and Traders' Association, The Spice Council, the EDB and A.S. Chatoor & Co.

The Spice Council said the tour was timed to match observations of cropping of the island's major spices such as cinnamon, citronella, cardamom, clove, nutmeg and pepper. The study tour was designed to allow participants to gain an intimate knowledge of the production and trading systems for spices, essential oils and oleoresins in Sri Lanka.

The visit provided an opportunity for local exporters of essential oils and oleoresins to make contact with the IFEAT delegates. Sri Lanka is trying to move up the value chain and sees potential in producing essential oils and oleoresins used in the flavours and fragrance industry. Till now, the island has largely been an exporter of spices as a commodity.

In the flavours industry, essential oils are mainly used to adjust fruit flavours, whereas oleoresins are mainly used as spices. Mushin, who is the business development manager of Link Natural Products, said the Pepsi official's visit had helped the company establish contact with a key buyer.

Link Natural Products is strongest in the supply of nutmeg oil with an annual capacity of 30 MT. "We're happy that we have been exposed to Pepsi Cola and were able to establish a relationship with them," Mushin said. "They know we exist and hopefully, we can expect orders next time."

The IFEAT visit will benefit the entire industry and encourage producers to think in terms of buyers' requirements and raise their standards. "To win orders, producers need recognition and have quality standards that are up to buyers' expectations. They do stringent audits and it is only after they approve your production facility and quality of oils that you get orders."

PepsiCo is a big player in convenient foods and beverages, with 2004 revenues of more than $29 billion and 153,000 employees. The company's brands includes carbonated soft drinks, juices and juice drinks, ready-to-drink teas and coffee drinks, isotonic sports drinks, bottled water and enhanced waters. It had sales at the retail level of about $78 billion.

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