The current situation of higher prices and reduced supply of guar gum due to competition from the oil and gas industry is not new; the problem has existed since mid-2010.
Ingredient choices for reformulation
Guar gum was once a very cheap thickener and, even though it remains the hydrocolloid of choice in the food industry, it is no longer quite as appealing as it once was. Possible replacements for guar gum include starch derivatives, xanthan gum and locust bean gum.
Starch derivatives are the next cheapest alternative although prices of xanthan gum are also dropping to about US$3/lb in 2011. The latter is due to the high production rates in China, according to Ross Campbell, Business Director of Cybercolloids. The price of xanthan gum is now not far off the current price of guar gum and so is becoming a more likely replacement in products.
Xanthan gum is set to record a volume CAGR rise of 3% over 2010-2015, and it could show even stronger growth if it is used as an alternative to guar gum in the near future.
Nevertheless, it is not a simple issue of price, as each ingredient has different stabilising properties and gives a different texture to the end product. Brand manufacturers have to ask themselves if changing ingredients is a risk they are willing to take.
While xanthan gum first looks to be a suitable replacement for guar gum, the main product categories that use these hydrocolloids differ. Within the top 10 category uses for each ingredient, only three product types – dog and cat food, dried processed food and dairy – feature for both guar gum and xanthan gum.
Therefore, in order to exchange one hydrocolloid for another, products would have to go undergo significant reformulation that would no doubt cause additional costs caused due to both an increase in product development and alterations to labels and hence packaging.
How will manufacturers react?
From a buyer’s perspective, the cost of the raw materials is highly important; however, an increase in the cost of ingredients can be relatively small compared to the overall cost of the fully packaged and marketed end product.
Therefore, those ingredient suppliers with a possible replacement ingredient for guar gum should not become too excited about the prospect of reformulation just yet. For example, the dessert product development team at Heinz Co, HJ, in Ireland is not addressing the increase in guar gum’s price and, as a result, reformulation is not being considered.
As such, guar gum’s expected rise is likely to remain on track in 2011 and, for at least the next year, reformulation is unlikely to take place amongst the leading branded manufacturers.
However, if prices continue to rise steeply over the next two years, the situation may change as manufacturers think again about absorbing the continual increase in cost. Unless the oil industry finds an alternative form of lubrication for the process of fracking in the next couple of years, products containing guar gum may undergo reformulation to a certain degree during the 2010-2015 forecast period.