Why the price of Rosehip Oil will keep rising
Regardless of the long-standing tradition of the Rosehip industry in Chile and Eastern Europe, the Rosehip market is experiencing several disruptive factors that are threatening the long-term sustainability of the business and forcing companies to respond with different strategies to protect the profitability of their products.
To understand the complexity of the situation, first, it is important to establish that the Rosehip industry is sustainable only if both of its main products, Husk, and Seeds, are profitable.
Historically, the Husk, used mostly for tea, was the main driver of this industry and seeds were a secondary product. However, with the growth on the demand of the seed oil, the markets started to change, converting the seeds in the main driver of the Rosehip fruit demand.
To understand the dynamics of this market, it is also important to know that 35 to 37 Kilos of Rosehip Seed are required to produce just one litre of oil by Cold Press extraction. And, it is reasonable to assume that for every Kilogram of Seed a Kilogram of Husk is produced. Additionally, to obtain the organic certification of the seed, companies are required to certify also the husk, since both products follow the same process.
To illustrate the economic impact of the situation we will use the following example: in 2012 with 1000 Kg. of fruits, Rosehip producers obtained an average revenue of US$ 1,119 (by the combined sales of Rosehip Husk, Organic Cold Pressed Rosehip Oil and Regular Oil extracted by solvent). However, in 2017, despite the increase of over 370% of the price of oil, the same producer is making just US$ 1,429 revenue for the same combination of Husk, Organic Oil and Regular Oil.
Meanwhile, during the same period labor costs in Chile have increased over 70%, having a great impact on the harvesting and processing costs of the fruits (Source: INE, Hourly Rate in 2010 = 4.05 US$, in 2018 = 6.87 US$ Chilean Pesos)
The unprecedented oil price hike of over 370% seen in the last 5 years, was caused by the increase in the oil demand and the restrictions on the fruit supply (see listing of Factors Limiting Rosehip Supply on next the page), but has also been expanded by the decreasing demand and subsequent lower prices of the Husk.
Factors Limiting Rosehip Supply
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Rosehip performance is best in wild and remote areas, a new plant takes 3 years to produce fruit and Industrial cultivation has proven difficult and not profitable
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Crops easily affected by weather conditions, like the 2014 drought in Chile and wild fires in 2017
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Difficult harvest, fruits are mostly collected by hand, one person is able to harvest an average of 70 to 80 Kg per day.
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Limited Availability in Lesotho, the plant was declared invasive, not additional areas will be developed
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Limited Availability of fruit collected in Argentina, due to labour shortage, harvest season overlaps with tourist season in areas where the fruit is found, local people prefer to work on tourism.
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Collectors shortage in South America (Chile & Argentina), younger generations are moving to the city looking for better jobs.
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Small scale and reduced industrialization in Eastern Europe, higher cost of labour for harvesting. Also, fruit traditionally used for jam, teas and other food products (seed is not separated from fruit)
This example illustrates how revenue from Organic Oil, Regular Oil and Husk combined hasn’t change much, meanwhile labour costs have experienced a 70% increase affecting the margins for producers.
Another way to visualize this problem is looking at the price of 1 liter of oil combine with the price of husk obtained during the process, to produce just one liter of cold pressed oil it is required to produce 37 Kilos of husk. Since in 2018 Husk prices are an average of 2 US$ lower than in 2010, for each liter of oil, now producers are losing 37 Kg x 2 US$ = 74 US$ of husk revenue. The price of 1 Lt of oil in 2010 was around 20 US$ and in 2018 is around 90 US$, consequently the price increase of the oil is just compensating for the lost revenue of the husk.
To understand better the origins of the current scenario we need to go back in time and review how this industry was originated. In South America, the Rosehip was introduced by the Spaniards who carried the fruits in their ships as a source of vitamin C, the species easily adapted to Southern soil and also improve due to lower levels of metals and iron and optimum weather conditions. Rosehip was used as a natural fence and it was seen as a weed and pest until 1969 when Chile considered its commercialization, based on the experience of European countries that included it in their diet.
The higher cost of labor for harvesting. Also, fruit traditionally used for jam, teas and other food products (seed is not separated from fruit)
In 1973, Chile began the harvest of rosehip from wild plants for processing and export. At the time, the driver of the business was the increasing demand for Rosehip Husk, especially from Germany, Switzerland and other nearby countries that traditionally used Rosehip fruit as part of their diets.
The Chilean government was quick at identifying the potential of the business and started to support the commercial trade with those countries. They provided resources to small companies like Coesam to grow their production and strengthen their bilateral relations.
After the Chernobyl disaster in 1986, European production mostly disappeared, and the demand for Chilean rosehips doubled. At that time, the driver of the industry was the rosehip husk, used mostly in teas by European countries. The rosehip seed was considered a by-product of the husk and the oil extraction was seen as a way to utilize this by-product. Nevertheless, Chilean companies easily found a good market for this oil, especially in countries like Spain where Rosehip Oil has been used for generations and it is part of the natural skin products tradition. Later on, the benefits of the rosehip oil were discovered by the cosmetics industry, increasing the demand of this oil.
Starting in 2012 the interest on the oil started to grow at unprecedented rates, mostly promoted by cosmetic companies like Trilogy who invested in marketing campaigns educating consumers on the benefits of this oil and by famous personalities that included the oil in their beauty routines. Also, we saw an increase in scientific research and testing, all evidencing the benefits of this oil and its applications to treat skin conditions such as scaring, stretch marks and most important as an effective anti-aging compound.
The increase in the demand of the oil has occurred in parallel with the decrease in the demand of the husk. The husk traditionally demanded by European countries for tea reached a peak price of 5.5 US$/Kg in 2014 after that year the demand started to decrease pushing the price to as low as 3.5 US$/Kg in 2017.
This decline, or stabilization of husk demand, has been caused in part by the competition, with cheaper tea staples like mint (currently sold at less than 3 US$/Kg) and especially the hibiscus tea, with similar characteristics than Rosehip husk regarding color and acidity can be purchased at 1.5 US$/Kg, making hibiscus tea a great replacement at a fraction of the cost. Also, the Husk demand is not dependent on the organic certification, making very hard for producers to demand the organic price, and usually they end up selling it at regular price.
The current situation is jeopardizing the long-term sustainability of the business, if oil producers are not able to contain the price increase of the oil, some cosmetic companies may start to turn to other substitutes to account for this problem, or even worse, they may choose to turn to lower quality oils. The market has seen a spike in oil adulteration, making crucial the improvement on certification and traceability process.
It is also important to promote and maintain fair conditions for local Chilean families dedicated to the difficult task of collecting these fruits, during the harvest season Rosehip industry employs over 10,000 people in Chile. Without the industry support of these remote communities, the supply cannot be secured.
Trying to protect this industry, producers are looking to find new applications for the husk and the cake (remaining seeds after the cold press extraction), with intensive research on the nutritional qualities of the rosehip and health benefits. However, these initiatives require creativity and investment to develop new nutritional products that are easy to use and that are appealing to consumers, and where the acidity of the fruit is properly balanced.
It will also require significant investment in marketing and consumer education, to make these new nutritional products attractive, creating a real incentive to support the husk market.
Luciana Ferrari
Managing Director
Article published in August 2018 - if you have comments or questions please send me an email at luciana@essentialmarketintelligence.com
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