20 minute read
Chocolate makers turn to specialty fats and oil for sustainable production
FOOD INGREDIENTS
NEW TECHNOLOGIES AND MARKET TRENDS IN THE FORMULATION OF FOOD & BEVERAGE PRODUCTS
Chocolate makers turn to specialty fats and oil for sustainable production
By Catherine Wanjiku
For the longest time, fats and oils were considered the culprit that made foods delectable. They have also carried a guilty tag, as they are always perceived to have health implications when consumed. However, there is a particular realization that some key organoleptic and structural attributes of a food product require good fat solutions. For example, a bar of good chocolate and associated confectionaries is highly dependent on one main ingredient: cocoa butter. The ingredient gives chocolates and chocolate-flavored products their distinctive taste, texture, structure, sharp melting behavior, high gloss, and long shelf life characteristics.
Being an essential ingredient in chocolate and its confection, the demand for cocoa butter is at an all-time high. According to the 2019 Global Market report, the demand for cocoa butter is anticipated to increase at a compound annual growth rate (CAGR) of 7.3% from 2019 to 2025, yielding US$16.32 billion. However, cocoa butter comes at a price due to the shortage of cocoa beans
supply resulting from its high demand. The price fluctuation of cocoa butter is influenced by various factors, including extreme weather, disease, pests, speculation, and political instability in producing countries. As a result, cocoa butter, which is relatively more expensive than other vegetable fats, has become a global concern, as it is the major ingredient of chocolate.
In this context, continued research and development on economical vegetable fats resembling the characteristic of cocoa butter have been prompted to partially or completely replace cocoa butter in various applications, especially in chocolate products. Subsequently, this has led to the rise of specialty fats dubbed Cocoa Butter Alternatives (CBA).
COCOA BUTTER ALTERNATIVES HAILED FOR SUPERIOR QUALITY
Other than economic reasons, Cocoa Butter Alternatives have been formulated to have distinct characteristics and superior functional properties compared to their traditional counterpart. This superior trait is attributed to the modified crystal structure of fat molecules in them, which allows for customized applications.
The formulation of chocolate that is to be used on a biscuit or cake is fundamentally different from the formulation used when the chocolate is in tablet form. Tablet chocolate needs to be ‘hard’ and have a ‘snap’ so that it can be broken into pieces when eaten, whereas a biscuit or cake may be eaten ‘as a whole and the teeth used to break the biscuit into bite-sized pieces with the chocolate naturally melting in the mouth. This means that the chocolate on an enrobed baked product may be ‘softer’ than that used in a tablet.
Although they are just stand-ins, specialty fats are particularly valued for their potent phytonutrients, and characteristic aroma and flavor. These attributes are typically stripped during the extraction and refining of commodity oils, as manufacturers generally focus on producing a final product that is mostly neutral triglycerides. In the case of specialty fats and oils, the processes of extraction and purification focus on preserving the potential beneficial components in the oil, along with those that contribute to the flavor and aroma of the oil.
In pursuit of finding suitable Cocoa Butter Alternatives, leading industry players such as AAK, Cargill, Olam Food Ingredients Wilmar International, Bunge Loders Croklaan, Fuji Oil, and ISF, among others, have launched a wide array of CBAs that are either Cocoa Butter Equivalent, Cocoa Butter Substitutes or Cocoa Butter Replacers.
COCOA BUTTER EQUIVALENTS
Cocoa Butter Equivalents (CBEs) are a group of specialty fats that are mostly used to replace cocoa butter in the
production of chocolate. They are non-lauric fats that require tempering. According to a report on Cocoa Butter Alternative Fats by Joanna Oracz et al, CBEs must consist of fatty acids, symmetrical monounsaturated triglycerides (POP, POS, SOS) like cocoa butter, and share similar physical characteristics with it including melting temperature, crystallization temperature, melting rate and need for tempering. At the same time, they are compatible with cocoa butter in all proportions, without altering the behavior of the final products. These products are specially formulated from palm oil, shea butter, sal fat, mango kernel far, kokum kernel fat, or illipe butter.
The middle-melting fraction rich in POP is obtained through the fractionation of palm oil, whereas the triacylglycerol cuts rich in POS and SOS are gained from the fractionation of exotic fats such as illipé, sal, and shea fats. The tailor-made fats equivalent to cocoa butter are produced without hydrogenation (trans-fat-free) but from careful preparation and blending of these fractionated materials. Enzymatic interesterification is also one of the latest techniques also explored by processors.
In 2020, supplier Bunge Loders Croklaan (BLC), which specializes in oils and fats solutions for the food industry, tapped the sustainability and health credentials of shea, to offer confectionery manufacturers a cocoa butter equivalent with the same neutral taste, sensory and functional qualities of cocoa butter. The new product, called Karibon, is a patent-pending 100% shea-based premium Cocoa Butter Equivalent (CBE).
The ingredient was designed to meet the demand for more conscious and sustainable food options without compromising on taste and quality. It may be used to improve the nutritional value of chocolate products, as it is more abundant in stearic acid and has lower levels of saturated fats compared to cocoa butter.
“We’re excited to present a next-generation solution through Karibon, delivering versatile benefits, including better heat stability, fast crystallization, and great sensory experience,” said Imro ‘t Zand, global confectionery innovation lead at Bunge Loders Croklaan. “Shea has a stronger compatibility with cocoa butter and improved bloom stability, enabling smoother processing.”
The launch of Karibon closely follows BLC ramping up its shea production for confectionery and bakery with its first African plant. In September 2020, the shea processing plant in Tema, Ghana, was unveiled and pegged as “the largest of its kind on the continent.”
In the same year, industry competitor AAK developed Illexao, a range of fats suitable for making a “super compound” that can replace up to 100 percent of the free cocoa butter in a chocolate recipe. In turn, this will enable chocolate manufacturers to reduce formulation costs by up to 40 percent with no decline in quality or product stability, the company says.
AAK’s standard super compound solution is a blend of shea butter and palm oil. Alternative exotic fats can be incorporated in line with the chocolate manufacturer’s preferences.
The main fat phase of the “super compound” comprises vegetable fats with a similar composition to cocoa butter. This means it's compatible with cocoa butter, which will allow chocolate manufacturers to use it in their products while continuing to add cocoa mass to their formulations. The compound reportedly delivers equivalent taste, texture, and meltdown properties, as well as a similar nutritional profile.
Asian agribusiness company Wilmar International also
Imro 't Zand, Global Confectionery Innovation Lead, Bunge Loders Croklaan
offers a range of sustainable cocoa butter alternatives under its Wilchoc brand, formulated using vegetable oil and exotic fats like Shea fractions or Illipe butter.
COCOA BUTTER SUBSTITUTES
Other than replacing cocoa butter with specialty fats that have similar chemical and physical properties, leading manufacturers have also formulated Cocoa Butter Substitutes which are lauric-based, hardened, non-tempered fats with a transfat content of less than 0.5%. CBS creates elasticity, gloss retention, and fat crystallization at lower viscosities. However, they are not compatible with cocoa butter, so can only be used when there is a very low content of cocoa butter present or alongside cocoa powder.
Lauric fats, from palm kernel and coconut, are widely used as a substitute for cocoa butter with hydrogenated and fractionated products found on the market. Because it solidifies at room temperature, it is suitable for coated confectionary products, panning, and mold application. Wilmar International markets its Ultrachoco and Besschoc brands as having excellent eating characteristics and an outstanding melting profile.
Despite having outstanding heat resistance, strong flavor release, and quick crystallization, their sensitivity to mechanical handling and development of bloom during storage below room temperature makes them undesirable options.
Blooming, a common problem in chocolate, is the whitening that can appear on the surface of the chocolate, which occurs over the shelf life of a product, especially if stored at varying temperatures – something that is difficult for chocolate manufacturers to control once the product has left their factory. While it is not dangerous, blooming is unsightly and may be unpalatable for consumers. It also harms the overall sensory quality of the chocolate. To offset this, oils and fats supplier AAK launched COBAO Pure in 2019, a new cocoa butter product that delivers "bloom-retarding" effects in chocolate.
COCOA BUTTER REPLACERS
Cocoa Butter Substitutes have also been associated with soapy tastes related to hydrolysis to lauric acid. As an alternative solution, Cocoa Butter Replacer (CBR), are non-lauric and non-tempered, hardened fats. They are confectionary fat substitutes formulated from hydrogenated and fractionated vegetable fats and oils such as soybean, cottonseed, and palm oils.
Similar to CBS, Cocoa Butter Replacers will not have any added cocoa butter. However, their tolerance to other fats is up to 20%. The fact that tempering is not required allows for a wide range of modifications, such as the addition of heat resistance or softening of texture, making it suitable for use in coating cookies, wafers, and other confectionery products that are distributed at room temperature.
Bunge Loders Croklaan launched its clean label and 'healthier' version of cocoa butter replacer for the confectionery industry in 2019 in an attempt to capitalize on the demand for more healthy options in the Middle East. The product, Couva 806NH, claims to contain low transfat levels (<1%), reduced levels of saturated fat, non-hydrogenated, and non-tempering. As a non-tempering coating fat, it provides more coating flexibility with reduced cracks, making it suitable for coating and enrobing in bakery and confectionery.
Despite the rise in popularity of cocoa butter alternatives, manufacturers are, however, restricted by limits on the use of cocoa butter alternatives in chocolate. EU Directive 2000/36/EC permits only 5% of vegetable fats other than cocoa butter in chocolate products. Under US rules, the Food and Drug Administration (FDA) allows alternative vegetable fats, but products cannot be called 'chocolate', instead they must be labeled ‘chocolate flavor.’ FBA
KEY NUMBERS
US$ 16.3B
ESTIMATED VALUE OF THE GLOBAL COCOA BUTTER MARKET IN 2022
ndustry
UPDATE ON INVESTMENTS OPPORTUNITIES & MARKET TRENDS IN AFRICA'S FOOD & BEVERAGE INDUSTRY Report
Spirits, wine threaten beer's dominance in Nigeria's alcoholic beverage industry
By Paul Ongeto
Nigeria has one of the most lucrative alcoholic industries in Africa. 2016 figures from the National Bureau of Statistics (NBS) show Nigerians spent US$570 million on alcohol that year despite raging inflation that greatly constrained household incomes. The figures have been skyrocketing since then as rising employment, coupled with an increasing trend of alcohol consumption among the youth, drive growth in consumption. At US$2.29 billion, 2019 sales for beer alone were more than 4 times the total alcohol sales of 2020. Players in the sector can anticipate more business opportunities as the market grows at a CAGR of 6.31% during the 2022-2027 forecast period, according to data from market research firm Imarc Group. In this article, we review the alcohol industry landscape in Nigeria, highlighting the key players, recent investments,
trends in consumption, and the prospects that the sector holds for investors.
BEER, NIGERIA’S FAVORITE DRINK
Nigerians love their beer more than any other alcoholic drink. Market data indicates that beer controls over half of the market share (55%), followed by spirits (30%) and wine (15%). The reason behind beer dominance is affordability. Unlike highly priced spirits (US$14) and wines (US$3.44), beers only cost US$0.92 a bottle, putting them within reach of most Nigerians of the legal alcohol drinking age.
The other factor driving growth is the heavy presence of global beer behemoths in the country. The world's largest brewer, AB-InBev, is the majority shareholder of International Breweries, while its close competitor, Heineken, is the majority shareholder of Nigerian Breweries and Champion Breweries. British multinational brewing company Diageo is also represented in Nigeria by its subsidiary Guinness Nigeria. These companies have invested heavily in marketing to stimulate growth and in capacity to meet new demand. AB-InBev spent US$250 million in 2018 on a fourth brewery to launch its Budweiser brand in Nigeria and followed up in 2019 with a US$339 million capital injection via a rights issue in November.
To stave off competition, Nigerian Breweries issued commercial papers worth US$52.5 million to fund its short-term financial requirements. The company further
announced a US$130 billion investment into Ama Breweries (owned by Nigerian Breweries) in Enugu State in southeastern Nigeria in 2022. Through these activities, Nigerian Breweries has been able to keep competition at bay. 2021 revenues of N816.7 billion (US$1.6 billion) cemented the brewer’s position at the top of the Nigerian beer sector, accounting for 54% of all revenues reported by the three largest brewers. Seeking a greater piece of the Nigerian market, Guinness Nigeria invested heavily in marketing, doubling its advertising budget from US$14 million in six months to December 2019 to US$25 million in the corresponding period in 2022. The increase in marketing has created more brand awareness, driving up customer loyalty. The company today enjoys the second largest market share in Nigeria by revenue, a position that was previously enjoyed by AB InBev-owned International Breweries.
Innovation, particularly around packaging, has also ensured customers are kept coming for more beer. During the pandemic, Nigerian breweries launched its signature beer, Heineken, in sleek 33cl bottles that were not only captivating but convenient for away-from-home consumption. According to Sampson Oloche, Head of Premium, Sessionable, Portfolio, Nigerian Breweries Plc, the sleek can combine with strategically placed market campaigns such as "Never Watching Alone" exceeded expectations in terms of market success. “It is currently one of the major contributors to the Heineken volume,” Oloche revealed. Guinness has also launched a can variant of its Guinness Smooth stout, consolidating on the success of the bottled variant earlier launched in the third quarter of 2019.
Beer is certainly a good market to be in Nigeria. The top brewers have been recording a rise in revenues for the past decades. In the industry analysis of their revenue growth from January to June 2022, Prime Business Africa gathered Nigerian Breweries, Guinness Nigeria, International Breweries and Champion Brew generated a combined N599.11 billion (US$1.41 billion). The turnover grossed by the four largest brewers in the country grew 31.2% when compared to the N456.44 billion (US$1.07 billion) they
Nana Akufo-Addo, President of the Republic of Ghana
generated during the corresponding period in 2021.
Revenues from beer sales will only rise further in the coming decade. Market Research projects the market to exhibit a growth of 10.42% per annum for the period 2020-2025. A shift in consumer preference towards low and non-alcohol beers, as well as craft beers, is expected to characterize this market. Heineken is already at the forefront of this revolution having launched its Heineken 0.0 beer in 2020 through local subsidiary Nigerian breweries. Desperados, a low alcohol brand owned by Heineken, is also fast gaining popularity among lovers of low alcohol beers. Smaller independent breweries like Bature breweries are also coming up to tap into Nigeria’s newfound love for craft beer.
SPIRITS, THE FASTEST GROWING CATEGORY
When Nigerians are not drinking, their hands are probably holding a glass of vodka, gin, whiskey, or a nicely blended cocktail. It is therefore not surprising that the spirit category is the second most popular, raking in sales of US$288 million annually, which is equivalent to 30% of total alcoholic beverage revenues. Local products account for 75% of the market with imports accounting for the remaining 25%. Two leading companies, Nigeria Distilleries, and Intercontinental Distillers, dominate the market with their extensive portfolio of brands, including Seaman’s Schnapps, Lord’s Dry Gin, Chelsea London Dry Gin, and Eagle Aromatic Schnapps.
For decades, spirits were eclipsed by beer, but a shift towards affordability and increasing incomes among Nigerians have brought the spirits back to the bar table, driving sales for major distilleries. Today, spirits in Nigeria are packaged in a diverse range of materials. From glass to PET bottles to Sachets, everything is used in Nigeria to deliver the drink to imbibers. Sachets have become particularly popular with low-income earners who, for as low as N50, can get their favorite drink. With Sachets and PET bottles, spirits are ubiquitous in Nigeria, with every retailer, including hawkers by the roadside selling them to eager customers.
Higher incomes, especially among city dwellers, have also created an appetite for premium liquors, which are mostly imported. These drinks ranging from Smirnoff, and Gordon's Dry Gin to Hennessy, and Johnny Walker are also finding their way to market, especially in the swanky clubs of Lagos, Abuja, and Port Harcourt. Reacting to this demand for premium spirits, Guinness Nigeria commissioned a new Spirits production line at its Ogba brewery in Lagos in 2021. The new US$2.2 million line can produce about 600,000 LCUs of the company's iconic spirits brands,
KEY NUMBERS
US$ 2.3B
VALUE OF BEER SOLD IN NIGERIA IN 2019
including Orijin Bitters per year, in different sizes and formats desired by consumers.
Although spirits may not overtake beer consumption soon, their growth is certainly going to eat into the market share of beer. Data from Statista shows that beer will exhibit a compounded annual growth rate (CAGR) of 17.54% between 2022 and 205. To succeed in this rapidly expanding market, brands need to look into ways to align properly with market needs. For example, an effective strategy around category drivers like price, quality, and convenience of their products would ensure they reap the maximum gains from these markets.
Unlike beer, which is highly consolidated and therefore difficult to penetrate, the Nigerian spirit market is fragmented, allowing smaller players like Pedrogin Distillery and Steller Breweries to compete with the big players. Pedrogin has reinvented a local spirit called Ogogoro into a premium gin by “combining traditional techniques with modern distillation processes.” The company is already creating a sizeable following among the wealthy patrons in Lagos and has even exported to Ghana, Kenya, and Britain.
WINE, THE CHIC DRINK IN TOWN
Nigerians drank 33.1 million liters in 2021, the highest since Euromonitor International, a London-based market research company, started compiling the data in 2015. If consumers continue sipping wine with the same passion and vigor portrayed in the last few years, Market Research forecast the wine market in Nigeria to reach US$570.90 million (in retail prices) in 2025, increasing at a CAGR of 11.72% per annum for the period 2020-2025.
The key driver for growth is Nigeria’s emerging middle class which is highly educated and enjoys substantially higher incomes. A 2015 study found that almost all Nigerians who have a liking for wine had tertiary education. Additionally, 83% of all wine consumers in Nigeria were either employed or running their businesses., according to the study. Sleek marketing and the rising number of female alcohol drinkers, especially in large cities, have also contributed to this meteoric rise in wine consumption.
Although wine consumption is on the rise, Nigeria is not a wine-producing country. Most of the wine comes from Europe, which commands 60% of the Nigerian wine market, and South Africa, which commands 22% of the market share. Local wines, such as burukutu and palm wine, also comprise a sizeable share of the market, though supply is not as robust due to limited capacity. Investing in local production could thus be a serious market opportunity for any player in the field. A study in 2015 supports this claim. According to the study, 30.80% of the respondents preferred Made in Nigeria wine, and another 22.82% showed a preference for natural/palm wine, sold as bottled, canned wine, or in traditional kegs. The result also revealed that 54% of the consumer respondents were ethnocentric and preferred their drinks made locally in Nigeria. Improving the quality to meet the standard comparable to the imported one could
UNLIKE BEER, WHICH IS HIGHLY CONSOLIDATED AND THEREFORE DIFFICULT TO PENETRATE, THE NIGERIAN SPIRIT MARKET IS FRAGMENTED, ALLOWING SMALLER BREWERIES TO COMPETE WITH THE BIG PLAYERS
thus give wine investors an edge over imported wine in the coming years.
RISING TAXES WORRY INDUSTRY PLAYERS
Nigeria has, for a long time, enjoyed some of the lowest alcohol taxes in the region. According to a 2020 report by the Tax Foundation, Nigeria's tax revenue as a percent of GDP was the lowest among the 30 African countries that were subjected to review. At 6.3%, Nigeria was way behind peer South Africa, which had a tax-to-GDP ratio of 29.1% and still lagged the continental average of 16.5%. Noting this disparity, a 2021 World Bank report indicated that Nigeria can generate more than N600 billion (US$1.41 billion) annually by increasing excise duties on tobacco and alcohol as recommended in its Nigeria development update (NDU) report. “To effectively tap into this revenue source, Nigeria could retain the current ad valorem excises but augment them with specific ones,” Rajul Awasthi, a senior tax specialist at the World Bank, said.
Following these recommendations, Nigeria has been raising alcohol taxes. In 2022, the tax of NGN 40 per liter (l) payable on beer and stout is 14% more than the 2019 rate. Nigeria has plans to raise it further to NGN 45 per l and NGN 50 l in 2023 and 2024, respectively. For wines, Nigeria charges a specific rate of NGN 50k per liter in addition to the 20% ad valorem rate. The specific rate will increase to NGN 60k per liter in 2023 and will increase to NGN 70k per liter in 2024. Spirits also have a specific rate of NGN 50k per liter in addition to the 20% ad valorem rate. In 2023, the specific rate will increase to NGN 65k per liter and will further rise to NGN 75k per liter in 2024.
The rise has naturally had operators concerned about their survival, especially as inflation continues to take a chunk of individuals’ real incomes, limiting household spending. At N50 per liter, the proposed increment is expected to impose an additional tax burden of between N10 billion (US$23 million) to N30 billion (US$70 million) in excise on companies that are already in a loss position. Despite these concerns, beer manufacturers have been making a kill. In the half year ending June 2022, Nigerian Breweries still managed to report a 142.8% rise in Profit After Tax. Even Guinness Nigeria, which had reported a loss of US$831,000 in the Half-year ending December 2020, reported an impressive 147% increase in profit after tax for the full year ending June 2022.
HUGE POTENTIAL FOR GROWTH LIES AHEAD
The Nigerian alcoholic industry has come a long way and is currently the second largest on the African continent. It has seen diversification from beer to other alcoholic segments, most notably wine and spirits. The change in landscape is being driven by an emerging middle class and a rising crop of well-informed young consumers desiring variety in their taste experiences. According to a BBC report, the Nigerian legal drinking age population will rise 2.5% for the next five years, bringing to market about 12.2 million by 2025.
With more people coming of legal drinking age, Nigeria will certainly continue to be a lucrative investment market. Based on types, beer will register high growth rates, but surging demand for spirits and wine call for a closer look at these markets to tap into opportunities that may exist
therein. Tax responsibility may be rising, but remains far below Africa's largest market: South Africa. The impact of these taxes should therefore be not of much worry to investors. The profits of the largest investors in the industry should be proof enough that the economy can sustain the high taxes and still deliver record profits, at least in the short term FBA
